Crest Nicholson Plc v Office of Fair Trading [2009] EWHC 1875 (Admin)

[2009] EWHC 1875 (Admin)

Case No CO/6434/2008

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 24/07/2009

Before

MR JUSTICE CRANSTON

Between

Crest Nicholson PlcClaimant

Office of Fair TradingDefendant

Richard Gordon QC and Marie Demetriou (instructed by Ashurst LLP) for Claimant

Daniel Beard and Gerry Facenna (instructed by Office of Fair Trading) for Defendant

Hearing Hearing dates: 7-8 May 2009

Judgment

INTRODUCTION

[1]The principles of equal treatment and fairness are raised in this application for judicial review of a decision of the defendant, the Office of Fair Trading (“the OFT”). That was a decision on 8 May 2008 not to extend or re-open an offer of a reduction in potential penalty made to the claimant on 7 November 2007, the so-called Fast Track Offer. The claimant had declined that offer in December 2007. The bases on which the decision is challenged is two-fold: first, that the OFT infringed the principle of equal treatment because it did not accord the claimant the same opportunity other parties had to make an informed decision whether to accept the Fast Track Offer; and secondly, that the OFT breached the principle of procedural fairness in that it failed to provide the claimant with an adequate opportunity to understand the gist of the case against it and to decide whether to accept the Fast Track Offer. Permission to apply for judicial review was granted after an oral hearing by Beatson J on 2 December 2008.

[2]The claimant is a developer of residential property. Until a management buyout in January 2003, it was the parent company of the Pearce Group plc (“Pearce Group”). One of the subsidiaries of Pearce Group was Pearce Construction (Midlands) Ltd (“Pearce Midlands”). Thus Pearce Midlands is an historic indirect subsidiary of the claimant. Sometime in 2003 Pearce Midlands ceased trading. At present the claimant has no relationship with the construction industry, other than its indirect historic parent relationship with Pearce Midlands. All documents from Pearce Group and Pearce Midlands were transferred to the purchaser in 2003. No Pearce employees remain with the claimant.

[3]The defendant, the Office of Fair Trading, is a body corporate established by section 1 of the Enterprise Act 2002. The OFT is a non-ministerial government department. It has a broad remit, but generally speaking its stated mission is to make markets work well for consumers. A key aspect of the OFT’s work is the enforcement of competition law. CONSTRUCTION INDUSTRY INVESTIGATION Genesis and conduct of the investigation

[4]After receiving information from an internal audit manager acting for the Queen’s Medical Centre, Nottingham University Hospital NHS Trust, in April 2004, the OFT began investigating possible collusive tendering in the construction industry in England. The investigation concerned principally parties which were invited to tender for contracts and which engaged in activities comprising(1) cover pricing i.e. requesting a “cover price” for themselves or providing a “cover price” in response to requests from other parties, or both, and

(2) agreements to pay compensation in return for specific anticompetitive activities. Between November 2004 and March 2006 the OFT carried out a large number of inspections of the premises of construction companies using powers under sections 27 (inspection without notice) and 28 (inspection with a warrant) of the Competition Act 1998. I return to these powers later in the judgment. In all, the premises of 64 construction companies were inspected, in a number of cases the multiple premises of a company. The inspections were carried out in five waves because of the scale of the work involved. Approximately 120 lever arch files of documentation were recovered from the inspections. In a large number of cases computer hard drives were also obtained and copied.

[5]Following the inspections, a large number of companies whose premises had been inspected approached the OFT and sought leniency under its leniency programme, which I explain later. By the end of 2006, the OFT had received 38 applications for leniency. The applicants for leniency provided the OFT with admissions and evidence, although their nature varied between applicants. Different levels of discount on penalty were provided to applicants, between 35 to 65 percent. Information provided by the leniency applicants complemented, and in many cases supported, the contemporaneous documentation obtained by the OFT using its information-gathering powers. The OFT thought it had evidence of bid rigging by construction companies in some 4,000 tenders, involving over 1,000 parties. An initial estimate of the total value of the tenders in respect of which the OFT had suspicion of bid rigging was around £3bn. To the OFT, the evidence indicated that there was an endemic and a widespread culture of bid rigging within the construction industry.

[6]Measured by the evidence obtained, the parties involved, the inspections undertaken and the individual infringements suspected, the investigation was by far the largest the OFT had ever undertaken. That being the case the OFT took the view that it would be impractical fully to investigate and document each of the infringements suspected. It decided to prioritise the suspect tenders it would continue investigating. Thus it sought to identify those tenders in respect of which there were reasonable grounds to suspect bid rigging. It then proceeded to focus the investigation on parties involved in five or more suspect tenders. Companies suspected of being involved with fewer than this number of suspect tenders were removed from the scope of the investigation. For some parties, which had not sought leniency but had five suspect tenders, there were as many as one hundred suspect tenders. It was impossible for the OFT to investigate all such tenders. The OFT considered further streamlining of the investigation.

[7]Thus the OFT decided to close the general leniency scheme in relation to this investigation. On its calculation its continuation would render too much information to digest. Instead, between December 2006 and February 2007, the OFT identified up to twenty suspect tenders for any party which had not at that point sought leniency. This was the basis of the Fast Track Offer, explained shortly. It also decided that it would investigate further only five suspect tenders for each such party. That was with a view to corroborating the evidence it had already obtained through interviews with leniency parties which were counter-parties to each of the tenders. It also planned to send section 26 letters to the clients which had sent out the invitations to tender to ascertain, for example, who had bid for the tender and how much they had bid. The “Fast Track Offer” formulated

[8]It is against this background, of a very large investigation and a surfeit of information, that the idea of the Fast Track Offer evolved. Its aim, in broad terms, was to limit the investigation. Never before, or since, has the OFT used this technique. In the OFT’s view it would have been impossible to progress the investigation efficiently if it had been faced with further leniency applications, accompanied by yet more documentary evidence to analyse, and the need to make another selection of tenders and companies to investigate. In March 2007 the OFT announced the decision to close the door on leniency applications but at the same time it launched the Fast Track Offer.

[9]The Fast Track Offer was based on an accelerated sanctions procedure which the Dutch competition authority (“the NMa”) had used in a set of cases during 2003-2004. The NMa had made a “come clean” offer to the construction industry under which, for a set period of time, companies could report collusive tendering activities under simplified leniency rules. After the expiry of that amnesty window any undertaking found to have participated in collusive tendering, which had not come forward, would not only be fined but would also be black-listed from public works contracts for up to five years. As a result, the NMa received hundreds of applications and, after further investigation, made findings of infringement. Although the OFT considered that such a general “come clean” offer was unattractive, it explored whether a fast track offer procedure would assist with resolving the investigation more quickly than would otherwise be possible.

[10]The rationale of the Fast Track Offer was that parties implicated in the investigation would be offered a significant reduction in any ultimate penalty, in return for specific admissions and an agreement to submit reduced written representations following receipt of the so-called Statement of Objections. Since its aim was to confine the investigation to a manageable scale, the OFT did not intend a general leniency offer. What the OFT intended was an incentive to cooperate for those parties which had not come forward for leniency, but which were willing to make admissions in relation to specific tenders. Those specific tenders were in respect of which the OFT already had reasonable grounds for suspecting bid rigging. The OFT intended that the process should be used in parallel with its continuing review of the evidence to assist it to decide which tenders to include, for each party, in the Statement of Objections. Thus the OFT intended to place companies which had not applied for leniency on notice that they were under investigation, inform them of the specific tenders where they were suspected of involvement, and provide them with an opportunity to admit bid rigging activities in exchange for a 25 percent reduction in any penalty ultimately imposed.

[11]For the OFT, the Fast Track Offer provided it with an opportunity to streamline its investigation and to corroborate the evidence it already had. In particular, the OFT anticipated that drafting of the Statement of Objections would be shorter where parties admitted collusion. The process of independent internal review within the OFT would similarly be shorter, and more straightforward, where a significant proportion of instances of alleged collusion were admitted. Agreement by parties to make limited representations on the Statement of Objections would be likely to speed up that stage of the investigation.

[12]In particular the Fast Track Offer was intended to assist with the selection of three tenders, which the OFT would eventually take forward in respect of each party in the Statement of Objections. The offer was thus directed at parties which had not already sought leniency and where there were at least five suspect tenders. Each party was to be provided with a schedule of between five and twenty tenders where the OFT already held evidence giving rise to a reasonable suspicion of involvement in illegal activity. Each would be offered an opportunity to admit to having participated in bid rigging activities. A 25 percent reduction in penalty would be offered to parties which accepted the Fast Track Offer, by contrast with the minimum 35 percent reduction to those who had already applied for leniency.

[13]The number of tenders in each case was designed to demonstrate that the OFT had a real case against the recipient of the Fast Track Offer. It also took into account the possibility that some parties would consider themselves able to make admissions in relation to a few tenders, and that some of the tenders which were suspect might have to be dropped as evidence gathering proceeded. In the case of the latter, the intention was that other suspect tenders in relation to which admissions had been made under the Fast Track Offer would be pursued and included in the three tenders finally pursued for the Statement of Objections. Where a response to the Fast Track Offer named additional parties as having engaged in bid rigging and those parties did not have five suspect tenders noted against them, the OFT would return to the original schedule containing five to 20 tenders and make a further selection for investigation. In some circumstances this would mean the OFT conducting further investigations. The OFT asserts that selecting a maximum of 20 suspect tenders provided it with flexibility when it came to a final selection of three tenders for each party. It is fair to say at this point that the claimant contends that the OFT was largely using numbers of alleged infringements as a form of intimidation or bluff, rather than as a display of cogent evidence.

[14]Part of the purpose of the Fast Track Offer was to provide parties who had not responded already under the leniency programme with an opportunity to admit to bid rigging on tenders in respect of which the OFT had evidence of an involvement. Admissions received under the Fast Track Offer were to be reviewed alongside the evidence the OFT obtained from those who had applied for leniency and from section 26 requests. If a counterparty named in response to a Fast Track Offer matched the information already in the OFT’s possession, that would provide strong corroborating evidence from an independent source. In fact the information obtained under the Fast Track Offer was utilised in the final selection of the three tenders for the Statement of Objections. Some parties also provided additional evidence in respect of some suspect tenders. In the absence of an admission, other evidence in relation to a suspect tender was potentially helpful.

[15]The OFT did not provide the parties with the evidence it held in respect of each suspect tender. Its explanation is that it took the view that much of the documentary evidence could only be properly understood in context, and that its disclosure to the recipients of the Fast Track Offer would have required a relatively detailed explanation of its derivation, the meaning of the contents, and why it believed it to be evidence of bid rigging. For many suspect tenders it would have been necessary for it to cross refer to other evidence, including documents or evidence obtained from applications for leniency, a process which it had not at that point completed. Moreover, before disclosing the evidence, the OFT would have had to identify and redact confidential information, which would have included inviting representations on confidentiality from parties referred to in the documents. That would have been a lengthy process, undertaken in accordance with the Enterprise Act 2002 and rule 6 of the OFT’s rules (referred to below).

[16]In all the OFT’s view was that providing evidence with the Fast Track Offer would have drawn resources away from the main lines of investigation and severely impacted on the timetable leading to the publication of the Statement of Objections. Further, since it did not intend to include all the suspect tenders in the Statement of Objections, it was thought unnecessary to undertake the work. The OFT was also concerned that providing evidence at that stage, before it had fully articulated its case in the Statement of Objections, would give rise to a large number of representations, queries, and challenges and would have effectively replicated the Statement of Objections process. The OFT also considered at the time that providing evidence to the parties would have encouraged them to make tactical admissions, based on the apparent strength of the evidence it held at that stage. Looking back the OFT is of the opinion that had it been necessary to provide parties with details of the evidence, the rationale of the Fast Track Offer would have been undermined by the burden of work generated; it would have been more efficient simply to carry on with preparing the Statement of Objections. The March 2007 Fast Track Offer

[17]As indicated the Fast Track Offer was announced in March 2007. It was sent to 85 parties, which had not sought leniency. Of these 45 admitted to engaging in bid rigging activities in all or some of the suspect tenders set out in the schedule to their respective letters. The OFT asserts that some companies would have accepted the offer simply because they regarded participation in bid rigging as likely, or knew it was widespread, while some would have been willing to accept liability on the basis of the description of the specific tenders in the OFT’s letter. Some companies informed the OFT that they were accepting the offer as a “commercial” decision, having no evidence for illegal activity, but wishing to benefit from the penalty reduction on offer in the knowledge that the OFT would ultimately need to support any decision to impose a penalty by reference to evidence. In fact while many parties made representations on matters such as the characterisation of the infringement and the level of potential penalty, no party which accepted the Fast Track Offer withdrew following receipt of the Statement of Objections. The OFT subsequently estimated that the Fast Track Offer brought forward the issue of the Statement of Objections by as much as a year.

[18]From May the OFT took steps to narrow the investigation to three tenders per party, to be included in the Statement of Objections. The OFT used the evidence it already had in its possession, as well as the results of interviews with those applying for leniency, and the responses to the section 26 request sent to clients, along with the evidence produced by the Fast Track Offer. It reviewed the schedule of five tenders for each party and identified and selected the three tenders with the best evidence to be included in the Statement of Objections. The November 2007 Fast Track Offer and the claimant

[19]The March 2007 Fast Track Offer letter had been sent to Pearce Group. In early May of 2007 Pearce Group replied to the Fast Track Offer letter and said that it had found no evidence of Pearce Group companies having engaged in cover pricing in any of the tenders listed in the annex to the letter. However, it pointed out that Pearce Group were not convinced that it was the correct business entity to be pursued given that the vast majority of the contracts listed in the annex to the Fast Track Offer letter were bid for by Pearce Midlands, while it was under the ownership and ultimate control of the claimant. At the request of the OFT, Pearce Group’s solicitors wrote to the OFT on the 25th May 2007 outlining the ownership structure of Pearce Midlands and advising that they considered that the Fast Track Offer should have been sent to the claimant. The May 25th letter also contained this paragraph:

“If one looks at the issue of who was the controlling mind at the time Pearce Construction (Midlands) Ltd was bidding for the relevant contracts, this was Don Ross. He was a director of the company who attended the monthly board meetings both in his capacity both as a director of Pearce Construction (Midlands) Ltd and as a managing director of its immediate parent company, Pearce Group plc (a wholly owned subsidiary of Crest Nicholson plc). Donn Ross was also a main board director of Crest Nicholson with delegated authority to approve contracts entered into by Pearce Construction (Midlands) Ltd up to a value of £10 million. Therefore Don Ross was aware of the activities of Pearce Construction (Midlands) Ltd and, because of his place on the Crest Nicholson main board, so was Crest Nicholson.”

[20]As a result of responses such as that from Pearce Group to the March Fast Track Offer, and through its own work, the OFT extended the Fast Track Offer in November 2007 to various parent companies which had not been sent the March letter, but which appeared to be in control of subsidiaries implicated in suspect tenders at the relevant time. About 30 current or historic parent companies were sent the November letter. Thus it was that in November 2007 the claimant received a Fast Track Offer letter from the OFT. That letter was also sent to Pearce Midlands. The letter suggested that the companies could coordinate their responses and that the OFT had no objection to their contacting each other for that purpose. The claimant and Pearce Midlands were the only historic parent and subsidiary companies to whom this was suggested. This was because the OFT had not sent the March Fast Track Offer to the subsidiary, i.e., Pearce Midlands, and so did not know whether it would accept or reject the offer. For all other parent companies contacted in November 2007 the OFT was able to send a Fast Track Offer letter specifically tailored to whether the subsidiary had accepted or rejected the original offer.

[21]The November Fast Track Offer was along the lines of that sent by the OFT in March. It set out the law relating to bid rigging, outlined the OFT investigation, and then said this:

“We are writing to your company today because, as a result of its investigation, the OFT has obtained evidence indicating that your former subsidiary, [Pearce Midlands referred to as Pearce], has been involved in bid-rigging activities in a number of tenders since 1 March 2000 (‘suspect tenders’), as detailed in the table attached as Annex 1 to this letter. The OFT’s suspicion that Pearce has participated in bid rigging activities in relation to the suspect tenders listed in the table is based in most cases, on at least: • one contemporaneous incriminatory document (such as an annotated tender register of one of the implicated parties); and • an express written admission of participation in bid rigging activities by one of the many leniency applicants in this case which directly implicates Pearce in relation to that suspect tender.”

The letter noted that Pearce Group had said that it and its subsidiary Pearce Midlands had been under the ownership and ultimate control of the claimant. “We are therefore addressing this letter to you, as the ultimate parent and controlling party becoming involved in the alleged infringement set out in Annex 1, at the time of those alleged infringements. It is likely that you would be held jointly and severally liable with Pearce for any of those infringements in respect of which the OFT decides to impose financial penalties.”

[22]After setting out its approach to financial penalties in the case, the letter then set out the offer and conditions attaching to it:

“The OFT has decided to make a reduction of penalty offer (‘the Offer’) to all those companies implicated in its investigation that have not applied for leniency, including your company. Under the Offer, the OFT will grant a reduction of 25 per cent of any financial penalty it may ultimately impose on your company in this investigation for each instance of bid rigging activities in the suspect tenders set out in Annex 1 to this letter, in return for a tender-specific admission of participation in bid-rigging activities and certain ancillary promises.”

The “ancillary promises” referred to were cooperation with the investigation by providing evidence of other parties engaged in bid rigging; agreeing not to make any representations as to its participation in bid rigging in response to a Statement of Objections; and acceptance that the OFT reserved the right to ask the court to increase any penalty it imposed in the event that the company appealed. The claimant was invited to investigate matters and then respond:

“It is important that you understand that the Offer relates to each suspect tender specified in Annex 1 individually. Your company can decide – having made its internal enquiries and, if applicable, taken independent legal advice – that it wishes to accept the Offer in relation to only some and not all of the suspect tenders listed in Annex 1.”

The letter then recommended that the offer be given careful consideration. It had to be accepted by the 5th December 2007.

[23]Annex 1 (“the Annex”) to the November Fast Track Offer letter sent to the claimant set out the details of 18 suspect tenders. In relation to each was the name of the claimant subsidiary involved (“Pearce”), the name of the suspect tender, the approximate date of the tender, and the client. In relation to each of them the claimant was asked to indicate “yes” if it admitted to having participated in bid rigging activities in the suspect tender and accepted the OFT’s offer. If admitted it was then invited to state either “We engaged in bid rigging activities on this tender with X”, inserting the name of the party or parties, or “We engaged in bid rigging activities on this tender but cannot recall details of the other party/parties involved”. Had it accepted the offer, the claimant would have had to certify that it used its best endeavours to identify the other parties. It also had to agree to the ancillary promises mentioned earlier. Where requested the OFT gave parties some additional information about the suspect tenders in the Annex to the Fast Track Offer letter, such as the name of the estimator involved and details of the amount of the tender. Extensions of time were granted where reasonable requests were made, including to the claimant.

[24]Following receipt of the Fast Track Offer letter there was contact between the claimant and Pearce. Pearce informed the claimant that it had found no evidence of any infringement and that it had had difficulty investigating the OFT’s suspect tenders since Pearce Midlands had been closed in 2003, shortly after the management buyout. Pearce and its solicitors also spoke to Don Ross, the former Chief Executive of Pearce, who had also been a director of Pearce Midlands and Crest between 2000 and 2002. Mr Ross was not able to shed any light on the eighteen suspect tenders in which the OFT alleged that Pearce Midlands had participated. He would not have had day to day involvement in individual contracts. These would have been dealt with by the managing director and contracts work director of Pearce Midlands, for whom contact details were not available.

[25]Neither the claimant nor Pearce Midlands accepted the Fast Track Offer. The claimant advised the OFT, in a letter of the 18th December 2007, that it was unable to verify the OFT’s allegation for itself. Therefore it did not feel able to admit liability. “As you would expect all company documents, files and contracts as well as all other assets relating to Pearce and its subsidiaries were transferred to Pearce Holdings Ltd and accordingly were not retained within Crest. Moreover, there are no current employees or directors of Crest that were directors or employees of Pearce. Accordingly it has been extremely difficult for Crest to investigate the OFT’s allegations. … [H]aving made enquiries of current directors and employees and having searched for potential relevant documentation, Crest has been unable to verify these allegations and cannot, therefore, acting in good faith, admit liability. Indeed, it would be misleading and unreasonable for Crest to do so and it would not assist the office. Accordingly it is difficult to see how Crest could accept the OFT’s offer.” The letter went on to advance contentions about the law relating to the legal basis upon which the OFT considered the claimant to be responsible for the activities of Pearce. The letter said:

“Pearce Construction (Midlands) Ltd, a subsidiary of Pearce, independently determined its own conduct on the market, and enjoyed real autonomy in determining its own strategic and commercial course of action. Indeed, the Pearce Group was the subject of the MBO by means of an acquisition agreement dated 6th December 2002, in such circumstances Crest cannot be held responsible for the alleged infringements committed by a subsidiary of Pearce.”

Inquiries had been made of Pearce and they had not uncovered any evidence to support the OFT’s allegations. Significantly, the letter concluded:

“[F]or the reasons set out above, the OFT’s cooperation programme has not been extended to [the claimant] on equivalent terms to those extended to the other parties.”

The Statement of Objections

[26]Some five months after the November Fast Track Offer, the OFT issued its Statement of Objections on the 16th April 2008. It was some 1755 pages in length. The Statement of Objections set out the OFT’s proposed decision following its investigation. It provisionally found that bid rigging was endemic in the construction industry and proposed to make specific findings of bid rigging in relation to 112 parties. The OFT sent its Statement of Objections to all those parties, including the claimant. Each party was given the opportunity to make oral and written representations in response to the case against it set out in the Statement of Objections and the supporting evidence on the OFT’s file. The OFT’s file comprised 725 lever arch files of documents. These were scanned and provided to parties electronically. The vast majority of the 112 parties made written representations in response to the Statement of Objections, with some 50 parties choosing to make oral representations as well.

[27]Of note in the Statement of Objections is paragraph II.1616, which explains why no evidence was provided by the OFT at the time of making the Fast Track Offer. In particular the third, fourth and sixth reasons are:

“Thirdly, the OFT did not intend to take forward all the suspect tenders listed to Statement of Objections stage, therefore much of the preparation work would have been wasted and distracted the OFT from the focus of the investigation. Fourthly, the parties are being given ample opportunity to view and comment on the Alleged Infringements that are being taken forward in this Statement, together with the supporting evidence for those Alleged Infringements … Sixthly, the letter gave each company time to conduct its own investigations and assess whether in its view and from its own records, the OFT’s allegations had any credibility.”

Further, at paragraph II.1624 the OFT acknowledged that there were “several complications relating to the company’s corporate structure” in respect of Pearce. The OFT May 8 letter

[28]On 23rd April 2008 the claimant’s solicitors wrote to the OFT requesting confirmation that the terms of the November Fast Track Offer would continue to be available to the claimant. The submission was that the principle of equal treatment would be infringed if the offer were then no longer available to the claimant. On the 8th May 2008 the OFT replied that the offer had been made to all relevant parties on an equal basis. Accordingly it would be contrary to the principle of equal treatment and due process for the OFT to reopen it without appropriate objective justification. If that were to happen, “your client would be in the unique position of having been able to review the Statement of Objections and all evidence on the OFT’s file before deciding whether or not to accept the offer. We do not consider that there is any objective justification that would permit the OFT to treat your client differently from other parties.” The offer was made in the exercise of the OFT’s reasonable exercise of discretion and there were no reasons to reopen it. The difficulties the claimant faced were also faced, to a greater or lesser extent, by some other parties. LEGAL AND REGULATORY FRAMEWORK OF COMPETITION LAW Competition Law

[29]Competition law need not detain us long. It is sufficient to note that Chapters I and II of Part 1 of the Competition Act 1998 contain prohibitions on anti-competitive behaviour. The prohibitions mirror Articles 81 and 82 of the European Community Treaty. The Chapter I prohibition relates to agreements, decisions by associations of undertakings or concerted practices between undertakings which may affect trade within the United Kingdom and have as their objective or effect the prevention, restriction or distortion of competition, unless these are deemed exempt under the Competition Act. The Chapter II prohibition concerns abuse of a dominant position. For the purposes of the judgment I will refer to these as competition law infringements.

[30]Thus Chapter I of the Competition Act prohibits cartels. There are a range of arrangements which are classified as cartels. One type of cartel activity is bid rigging, where competitors collude to rig bids for a particular tender. Bid rigging can have a detrimental effect on the price and quality of work undertaken. A way in which bids may be rigged is where at least one of the bidding parties’ bids in collusion with another bidder at a price it knows is higher than those other bids. This is known as a “cover price”. As a result the tender process is not competitive and the tenderer may have to pay more or be deprived of obtaining an alternative bid from a more efficient or better quality competitor.

[31]The obligation not to engage in anti-competition activity such as cartels in Articles 81 and 82 of the EC Treaty is imposed primarily on “undertakings”. The Competition Act 1998 adopts the same approach: ss. 2(1), 18(1). In Akzo Nobel v Commission,

Case T-112/05

, the EC Court of First Instance said at [57]:

“The concept of undertaking within the meaning of Article 81 EC includes economic entities which consist of a unitary organisation of personal, tangible and intangible elements, which pursue a specific economic aim on a long-term basis and can contribute to the commission of an infringement …”

Thus “undertaking” in competition law is an economic concept which is not equivalent to a traditional corporate entity. An undertaking may include a group of companies so long as that group of companies acts as a single economic unit.

[32]While it is to an “undertaking” that an infringement of competition law is imputed, for the purposes of imposing a financial penalty it is necessary to address the penalty to a specific legal or natural person within the undertaking. That person may have attributed to it the conduct of someone else in the undertaking. Thus a parent company may be fined where it has the ability to exercise decisive influence over a subsidiary which is engaged in the infringement. Where a parent has a 100 percent shareholding in its subsidiary, that provides a strong indication that the parent is able to exercise decisive influence over a subsidiary’s conduct in the market. The law was summed up recently by the Court of First Instance (Eighth Chamber) in Itochu Corp v Commission of the European Communities,

Case T-12/03

“[48.] The fact that a subsidiary has separate legal personality is not sufficient to exclude the possibility of its conduct being imputed to the parent company, especially where the subsidiary does not independently determine its own conduct on the market, but carries out, in all material respects, the instructions given to it by the parent company … [49.] In the specific case of a parent company holding 100% of the capital of a subsidiary which has committed an infringement, the Court of Justice stated in Case 107/82 AEG-Telefunken v Commission [1983] ECR 3151, paragraph 50, that it was not necessary to ascertain whether that company had in actual fact influenced the commercial policy of its subsidiary, in so far as that subsidiary necessarily follows the policy laid down by the same bodies as, under its statutes, determine the parent company’s policy. In such a case, there is a simple presumption that the parent company exercises decisive influence over the conduct of its subsidiary. It is thus for a parent company which disputes before the Community judicature a Commission decision fining it for the conduct of its subsidiary to rebut that presumption by adducing evidence to establish that its subsidiary was independent ... [51.] That being so, it is sufficient for the Commission to show that the entire capital of a subsidiary is held by the parent company in order to conclude that the parent company exercises decisive influence over its commercial policy. The Commission will then be able to hold the parent company jointly and severally liable for payment of the fine imposed on the subsidiary, unless the parent company proves that the subsidiary does not, in essence, comply with the instructions which it issues and, as a consequence, acts autonomously on the market.”

Under the Competition Act 1998, this same approach is to be adopted by the OFT and the domestic courts: Competition Act 1998, s.60.

[33]In its December 2007 reply to the November Fast Track Offer, the claimant’s solicitors contended that the claimant could not be liable for any illegal bid rigging by Pearce Midlands. That issue is not before me. It may be that if a financial penalty is ultimately imposed on the claimant it will succeed on appeal to the Competition Appeal Tribunal on the basis that it is not, in fact, a parent company which exercised decisive influence so as to be held responsible as part of the infringing undertaking. For present purposes all I need to decide, as I do, is that it was legitimate for the OFT to direct the Fast Track Offer and Statement of Objections to the claimant, having taken the view that the claimant had, at the time of the alleged infringements, decisive influence over Pearce Midlands. OFT Investigations, Statement of Objections and Penalties

[34]The OFT is entrusted with wide powers to investigate and enforce competition law. These powers are set out in the Competition Act 1998 and the rules made under it: Competition Act 1998 (Office of Fair Trading’s Rules) Order 2004, 2004 SI No. 2751 (“the OFT Rules”). It may conduct an investigation where there are reasonable grounds for suspecting that there is an agreement which may affect trade within the United Kingdom, or between European Member States, and which has as its object or effect the prevention, restriction or distortion of competition within the United Kingdom or within the Community: ss. 25(1)-(3). When conducting an investigation under the Competition Act 1998, the OFT has a number of statutory powers to obtain information and to search premises, with or without warrant: ss. 26-28. Section 26 of the Act empowers the OFT, when conducting an investigation, to require a person to produce to it a specified document, or to provide it with specified information, which it considers relevant.

[35]If following an investigation the OFT proposes to make a decision that there is a competition law infringement, it must give written notice to those likely to be affected and give them an opportunity to make representations: s. 31. A proposed decision under section 31 is referred to in rule 4 of the OFT Rules as the Statement of Objections. This is the point when the OFT considers that it has strong and compelling evidence of an infringement, subject to any representations and further information it receives from parties in response to the Statement of Objections: see the document entitled Powers of Investigation Guidance (OFT 2004).

[36]In the light of the evidence and representations received on the Statement of Objections the OFT makes a final infringement decision. This assessment period can be lengthy, depending on the nature of an investigation. The OFT may decide that, in light of representations, further investigation is necessary or it is not appropriate to proceed to an infringement decision. If the OFT makes an infringement decision in line with the Statement of Objections, those affected have an opportunity to consider all the relevant material upon which it has relied. Any final infringement decision will include any findings as to the financial penalties which the OFT has decided to impose.

[37]On making a decision that there is a competition law infringement, the OFT may impose a financial penalty if satisfied that the undertaking has intentionally or negligently committed the infringement: Competition Act: s. 36. Pursuant to sections 38(1) and 38(1A) of the Act, the OFT has published guidance on the imposition of penalties: OFT’s Guidance as to the appropriate amount of a penalty, OFT 423 2004 (“the Guidance on Penalty”). The OFT is required to have regard to the guidance when setting the amount of any penalty to be imposed: s. 38(8).

[38]In the Guidance on Penalty the twin policy objectives are said to be to impose penalties on infringing undertakings which reflect the seriousness of the infringement and to ensure that the threat of penalties will deter undertakings from engaging in anti-competitive practices: para. 1.4. A financial penalty may not in any event exceed the maximum penalty of ten percent of the worldwide turnover of an undertaking: para. 1.10. The starting point for determining a penalty is the seriousness of the infringement and the relevant turnover of the undertaking: para. 2.3. The penalty may be adjusted depending on the duration of the infringement: para. 2.10. Other factors and aggravating features are taken into account: para. 2.11, 2.16. Mitigating factors in adjusting the basic amount of the penalty include “co-operation which enables the enforcement process to be concluded more effectively and/or speedily”: para. 2.16. In cases of cartel activity an undertaking which comes forward with information may benefit from total immunity, or a significant reduction in penalty. This is dealt with further below.

[39]The addressee of an adverse final decision can appeal under section 46 of the Competition Act to the Competition Appeal Tribunal. Appeals may relate to the imposition or amount of a penalty. The OFT’s leniency policy

[40]While the OFT may carry out investigations on its own initiative, in general investigations follow a complaint by those adversely affected by anti-competitive behaviour, information from informants or because those involved in anti-competitive behaviour make an application for immunity or leniency. The OFT has a formal leniency policy, granting reduced financial penalties to parties who inform about their cartel activities and who co-operate with an investigation. Similarly, the European Commission and many national competition authorities operate a formal leniency policy. The secret nature of most cartel activities, and the public interest in their detection, are said to justify such a policy.

[41]The OFT’s leniency policy is explained in its guidance note on the applications, Leniency and no-action (OFT 803). As set out in that document there are four types of leniency (perhaps not labelled in the most helpful manner): 1) Type A immunity. This refers to a situation where an undertaking is granted automatic civil immunity from financial penalty for reported cartel activity. Current and former directors and employees who cooperate are granted automatic criminal immunity. The undertaking must be the first to apply for leniency and there must be no pre-existing civil or criminal investigation into the activity. 2) Type B immunity. This refers to a situation where an undertaking is granted discretionary civil immunity from financial penalty for reported cartel activity. Current and former directors and employees who cooperate are granted discretionary criminal immunity. It operates where there is a pre-existing civil or criminal investigation into cartel activity but the undertaking is the first to apply for leniency. 3) Type B leniency. This refers to a situation where an undertaking is granted a reduction of, but not immunity from, a financial penalty. It operates where there is a pre-existing civil or criminal investigation into reported cartel activity, but the undertaking is the first to apply for leniency. 4) Type C leniency. This refers to a situation where an undertaking is granted a reduction of up to 50 percent in the level of a financial penalty. It operates whether or not there is a pre-existing civil or criminal investigation into the relevant cartel activity. The undertaking will not be the first to apply. “In Type C cases, experience suggests that applicants can generally expect to achieve discounts in the range 50 percent to 25 percent, although it is possible that low value and/or late applications may gain awards of less than 25 percent”: Leniency and No-action Guidance, para 7.6.

[42]The leniency programme normally remains open to applicants throughout the period of an investigation, until the issue of a Statement of Objections. An undertaking considering whether to make an application for immunity or leniency may obtain informal guidance from the OFT on a “no-names”, hypothetical basis. In addition, legal advisors can determine if Type A or Type B immunity is available for a client prior to the client’s identity being revealed. In order to encourage undertakings to approach the OFT as soon as possible, it will grant an undertaking a “marker” for leniency pending the application being finalised. This enables an approach to be made before all the material evidencing cartel conduct has been unearthed. The OFT regards these measures as ensuring transparency and certainty. Overall, the OFT considers that its leniency programme is a highly effective, indeed an essential, tool to uncover cartel activity and to enforce the provisions of the Competition Act 1998.

[43]Before the present hearing, the pleadings and written submissions contained much about the similarities and differences between the leniency programme and the Fast Track Offer. This issue as central to the resolution of the case evaporated by the time of the hearing. It is sufficient to say that in my view the Fast Track Offer seems structured along the lines of type C leniency. Thus acceptance of it required a voluntary admission of participation in specific cartel activity; resulted in a grant of a percentage reduction of penalty; was at the investigation stage, rather than after a Statement of Objections had been issued; and did not entitle the parties to have access to the OFT’s file of evidence at the time the offer was made. I note also that the Fast Track Offer did not preclude the OFT from putting forward any “without prejudice” settlement offer to the parties at a later stage. Under that practice the OFT might agree a final penalty to include a further discount in return for a party making written and oral representations on the Statement of Objections which are limited to material errors of fact.

[44]However, there were obvious differences between the Fast Track Offer and type C leniency. First, the Fast Track Offer did not contain the same reduction in penalty as would be available to those who had applied for type C leniency. The obvious reasons were that it came later in the investigation and the same discount could have had the effect of discouraging type C leniency applications in future. Secondly, the Fast Track Offer provided the parties with more information about the evidence the OFT had than applicants would have received under type C leniency. Type C leniency applicants are not given any details of the case against them. As explained, under the Fast Track Offer, the recipients received information on up to twenty suspect tenders. Thirdly, unlike type C leniency, the parties which accepted the Fast Track Offer had to comply with the ancillary promises contained in the March and November letters. PUBLIC LAW PRINCIPLES AND ENFORCEMENT AUTHORITIES Discretion of enforcement authorities in investigations

[45]The manner in which enforcement authorities conduct investigations of infringements of the law, and the priority they give to different phases, are matters which fall within their discretion. That follows from the most basic principles of our public law. It has been specifically recognised in relation to competition authorities. As the European Court of First Instance observed in

Case T-24/90

, Automec II

[1992] ECR II-02223

at [77]:

“…In that connection it should be observed that, in the case of an authority entrusted with a public service task, the power to take all the organisational measures necessary for the performance of that task, including setting priorities within the limits prescribed by the law where those priorities have not been determined by the legislature, is an inherent feature of administrative activity. This must be the case in particular where an authority has been entrusted with a supervisory and regulatory task as extensive and general as that which has been assigned to the Commission in the field of competition.”

That passage was approved by the Court of Appeal in Office of Communicationsv Floe Telecom

[2006] EWCA Civ 768

. There Lloyd LJ said:

“[37.] … The [CAT] cannot know what are the competing demands on the resources of the particular regulator at the given time. It may well be that it cannot properly be told of this by the regulator because of issues of confidentiality as to current investigations. It cannot, therefore, form any proper view as to the relative priority of one case as compared with others. [38.] Similar policy reasons, and a similar view of the relationship between a public body which is subject to judicial review and the court dealing with an application for judicial review, seem to me to underlie the refusal of the Administrative Court, when quashing a decision and remitting it, to instruct the authority as to when or how it is to proceed with the matter, other than that it is to do so in accordance with the law as laid down in the court’s judgment: compare General Medical CouncilvSpackman [1943] AC 627, 649, per Lord Wright.”

[46]As well as the wide discretion which the law confers on competition authorities in conducting an investigation, the courts have specifically recognised the discretion they have to grant penalty reductions under leniency programmes. In Cases C-65 & C-73/02P ThyssenKruppStainlessvCommission

[2005] ECR I-6773

, the appellants before the European Court of Justice contended that the level in the reduction of penalty they had been granted by the European Commission was unfair. In assessing that argument the Court considered the general nature of the leniency process. “[50] ... while the Commission may not compel an undertaking to admit its participation in an infringement, it is not thereby prevented from taking account, when fixing the amount of the fine, of the assistance given by that undertaking, of its own volition, in order to establish the existence of the infringement. [51]...the Commission may, for the purpose of fixing the amount of a fine, take account of the assistance given to it by the undertaking concerned to establish the existence of the infringement with less difficulty and, in particular, of the fact that an undertaking admitted its participation in the infringement. It may grant an undertaking which has assisted it in that way a significant reduction of the amount of its fine and grant a substantially lesser reduction to another undertaking which did no more than fail to deny the main factual allegations on which the Commission based its objections. [52] As the Advocate General observed in point 140 of his Opinion, it must be emphasised that admission of an alleged infringement is a matter entirely within the will of the undertaking concerned. The latter is not in any way coerced to admit the existence of the agreement. [53] It must therefore be considered that the fact that the Commission took account of the degree of cooperation with it shown by the undertaking concerned, including admission of the infringement, for the purpose of imposing a lower fine does not constitute any breach of its rights of defence.” Procedural fairness in investigations

[47]If enforcement authorities have wide discretion in conducting an investigation, it hardly needs to be said that they must still act with procedural fairness. It is well established that the constraints of natural justice apply to preliminary steps in an investigation, which in themselves may not involve legal consequences, but which may lead to acts or decisions which do. For example, in Re Pergamon Press Ltd

[1971] Ch 388

, 399C-H it was said that company directors had to be given an adequate opportunity to meet the criticisms of inspectors appointed by the Board of Trade, even though the object of inspection was to issue a report. In Bushell v Secretary of State for the Environment

[1981] AC 75

, 96C-E it was said that fairness required objectors to a draft scheme to be given information and reasons relied upon by the Department, even though a final decision was some way off. Lord Diplock said this about the duty of fairness in the context of an investigation by the Monopolies and Mergers Commission in Hoffman-La Roche & Co AG v The Secretary of State for Trade and Industry

[1975] AC 295

; at 368D:

“The Commission makes its own investigation into facts. It does not adjudicate upon a lis between contending parties. The adversary procedure followed in a court of law is not appropriate in its investigations. It has a wide discretion as to how they should be conducted. Nevertheless, I would accept it is the duty of the Commissioners to observe the rules of natural justice in the course of their investigation – which means no more than they must act fairly in giving to the person whose activities are being investigated reasonable opportunity to put forward facts and arguments in justification of his conduct of those activities before they reach a conclusion which may affect him adversely”

. Moses J expressed similar views in R (Interbrew SA) v Competition Commission

[2001] EWHC Admin 367

, at [69], [82]-[90].

[48]One aspect of the principle of fairness is the extent to which during an investigation a person must be provided with details of any allegations against it. That may enable it to consider whether it is appropriate to admit liability. In R v Secretary of State for the Home Department, ex p Doody

[1994] 1 AC 531

, 560F-G, Lord Mustill said:

“From [the oft-cited authorities], I derive that (1) where an Act of Parliament confers an administrative power there is a presumption that it will be exercised in a manner which is fair in all the circumstances. (2) The standards of fairness are not immutable. They may change with the passage of time, both in the general and in their application to decisions of a particular type. (3) The principles of fairness are not to be applied by rote identically in every situation. What fairness demands is dependent on the context of the decision, and this is to be taken into account in all its aspects. (4) An essential feature of the context is the statute which creates the discretion, as regards both its language and the shape of the legal and administrative system within which the decision is taken. (5) Fairness will very often require that a person who may be adversely affected by the decision will have an opportunity to make representations on his own behalf either before the decision is taken with a view to producing a favourable result; or after it is taken, with a view to procuring its modification; or both. (6) Since the person affected usually cannot make worthwhile representations without knowing what factors may weigh against his interests fairness will very often require that he is informed of the gist of the case which he has to answer.”

[49]These are principles established by the common law. In some contexts they are reinforced by legislation. Thus the procedural guarantees required of the European Commission when it makes early resolution or settlement offers in the context of competition law investigations are contained in regulation 10A of the Commission Regulation (EC) No 773/2004, as amended by Commission Regulation (EC) No 622/2008. This provides that parties taking part in settlement discussions in cartel cases may be informed by the Commission of the objections which it raises against them; the evidence behind the objections; non-confidential versions of specified accessible documents in the case file, in certain circumstances; and the range of potential fines. The rationale is contained in the Commission Notice on the conduct of settlement procedures: [2008] OJ C-167/1. Specifically, paragraphs 15 and 16 of the Notice provide that:

“… Information will be disclosed in a timely manner as settlement discussions progress … This will enable the parties effectively to assert their views on the potential objections against them and will allow them to make an informed decision on whether or not to settle.”

The principle of equal treatment

[50]One aspect of equality before the law is consistency in treatment. This well established principle of English law has also been recognised as well in European Community competition law: Joined Cases T-236 etc, Tokai Carbon Ltd v Commission of the European Communities

[2004] ECR II-1181

. The principle of equal treatment prohibits treating similar situations differently, and different situations in the same way, unless such treatment is objectively justified. Apart from the obligation to observe the principle of equal treatment at common law the OFT is bound, pursuant to section 60 of the Competition Act 1998, by the European Community law principle of equal treatment expressed in the Tokai decision. This was confirmed in Argos and Littlewoods v Office of Fair Trading

[2006] EWCA Civ 1318

, [257], where the Court of Appeal said:

“If there has been unequal treatment in the imposition of penalty, the OFT has acted in breach of the relevant principles of Community law, and therefore of the Act.”

It is common ground between the parties that the OFT must comply with the principle of equal treatment in all steps leading up to the imposition of a penalty including, as in Argos, the application of its leniency policy and, as in this case, its administration of the Fast Track Offer. DELAY AND ALTERNATIVE REMEDY

[51]In an attempt to abort this judicial review the OFT raised the issues of the claimant’s delay and the possibility of an appeal to the Competition Appeal Tribunal. Delay is said to have occurred because what the claimant should have challenged was the November 2007 Fast Track Offer not, as it has purported to do, the OFT’s refusal in May 2008, after the Statement of Objections had been issued, of the claimant’s request for the OFT to reopen the offer. There was argument before me about the application of the principle that a challenge to a separate decision is not brought out of time merely because its legality may depend, in part, upon the legality of earlier, separate decisions. Attention was drawn to R v Richmond upon Thames London Borough Council ex parte McCarthy & Stone

[1992] AC 48

, where the House of Lords permitted a challenge to the decision not to revoke a pre-existing policy of charging for pre-planning advice, which was dependent on the legality of the Council’s pre-existing policy. R (Burkett) v Hammersmith and Fulham LBC

[2002] UKHL 23

[2002] 1 WLR 1593

concerned the issue whether time for judicial review ran from the date of the resolution to grant planning permission or from the date of its actual grant. The House of Lords held that either decision could be challenged by way of judicial review, but that time only ran from the later decision: see, especially, [31]-[50], per Lord Steyn.

[52]There is no need for me to resolve this issue in the present case. That is because the grant of permission has effectively precluded the OFT from raising delay now. Beatson J granted permission on the basis that the OFT’s Summary Grounds, including the ground of delay, did not provide an answer to the claimant’s claim. Moreover, it seems to me that no prejudice has been caused by any delay. Indeed, the OFT contends that it would be preferable for the lawfulness of the Fast Track Offer to be considered at a later stage, by appeal to the Competition Appeal Tribunal against the OFT’s final decision. If it had been necessary I would have extended time for the claimant in this case.

[53]As to the principle of alternative remedy, the OFT contends that should it decide that there has been an infringement of competition law and impose a penalty, the claimant will have a statutory right of appeal, on the merits, to the Competition Appeal Tribunal: section 46 of the Competition Act 1998. In the course of that appeal it will be able to challenge the finding of infringement, the level of the penalty and the OFT’s conduct in calculating and imposing that penalty. In Argos Ltd v Office of Fair Trading

[2006] EWCA Civ 1318

the Court of Appeal made clear that a party can appeal to the tribunal against a penalty on the basis that it involved a breach of the principle of equal treatment: see [256]-[257], [280]. Judicial review should not be granted, absent exceptional circumstances, where a suitable alternative remedy is available: R (Sivasubramaniam) v Wandsworth County Court

[2003] 1 WLR 475

, [46]-[47]. Here, submits the OFT, the circumstances are not exceptional. The Competition Appeal Tribunal have full jurisdiction to reconsider the merits of the OFT’s penalty decision and will hear evidence, including evidence from other interested parties. If persuaded that there had been unfairness or unequal treatment in the determination of the penalty, and if satisfied that the claimant would have qualified for a 25 percent, or some other, discount had the Fast Track Offer been made on materially different terms, the tribunal could grant suitable relief by fixing the penalty at a different level.

[54]As with delay, the grant of permission by Beatson J effectively renders the issue of alternative remedy redundant. The parties have developed their arguments, adduced evidence and incurred costs for the purposes of this hearing. It seems to me to be contrary to the ethos in which civil litigation should be conducted to decide at this point that the resolution of the matter should be postponed to the Competition Appeal Tribunal. In any event, I do not regard the existence of an appeal to the tribunal as a barrier to judicial review in this case. That is not because, as the claimant contends, it seeks to avail itself of the Fast Track Offer, which it would not be able to achieve by bringing an appeal against a final decision to impose a penalty. Rather it is because, as I explain later, this judicial review is properly conceived of as a challenge to the treatment by the OFT of the claimant when confronted in December 2007 with the latter’s explanation of its difficulties as an historic indirect parent of Pearce. At that stage there was no alternative remedy available to the claimant. No penalty had been imposed, no penalty might ever be imposed, triggering the right to appeal to the Competition Appeal Tribunal. The issue of law as to the OFT’s treatment of the claimant in those circumstances is, in my view, more appropriately determined by this court, at this stage of the process. The OFT will then be able to act in accordance with what I regard as its obligations to accord fairness and equal treatment when it comes to the fixing of any penalty in relation to the claimant. THE CLAIMANT’S CASE IN OUTLINE

[55]The backdrop to the claimant’s case is the relationship between it and Pearce Midlands: the latter is an historic indirect subsidiary of the claimant. In the claimant’s submission that relationship is quite remote and this remoteness is highly relevant to what it contends was the difficult position in which it found itself when it received the November Fast Track Offer. That was directed to activities on the part of an indirect historic subsidiary, of which the claimant had no relevant knowledge.

[56]The original Fast Track Offer of March 2007 was not sent to the claimant. It was only 7 November, some eight months later, that a Fast Track Offer was sent to it, after the OFT became aware that there were companies like the claimant which were historic parent companies. That November Fast Track Offer stated that the OFT had obtained evidence indicating that the claimant’s former subsidiary, Pearce, had been involved in bid rigging. It contained the 18 allegations in summary form in the Annex to the letter. Unless one is the alleged perpetrator the detail for 18 bids is an enormous amount to collect. The offer made clear that the OFT was already in possession of evidence it considered substantiated the allegations of bid rigging by the claimant’s former subsidiary. The admissions for use in the Annex appeared to be directed to the actual perpetrators (“[W]e engaged in bid rigging”). Nowhere in the offer letter was it said that the claimant was free, having accepted the offer, to withdraw at any time. The offer letter acknowledged the importance of the claimant having an opportunity to make internal investigations into the allegations. The opportunity which companies were assumed to have to conduct investigations, and to assess whether the OFT’s allegations had any credibility, was underlined in the Statement of Objections.

[57]As communicated to the OFT in its letter of 18 Decembers 2007, the claimant was unable in good faith to accept the Fast Track Offer before the deadline because it had no means of investigating the allegations made, and therefore no means of establishing whether they had any basis in fact. The OFT had failed to provide the claimant with any evidence on which it based the allegations about the 18 bids over what was a lengthy period, March 2000 to January 2002. All documents relating to Pearce Midlands and, indeed, Pearce Group and all of its subsidiaries had been transferred to the purchaser of the business in January 2003. No Pearce employees had remained with the claimant. The claimant’s attempts to obtain information from Pearce itself were unsuccessful. Its efforts to obtain information from Pearce’s solicitors came to nothing. Perhaps that is not surprising, since a major plank to Pearce’s defence, once the Statement of Objections became available, was that liability should rest with the claimant. Thus the offer as far as the claimant was concerned was impossible to fulfil: it had no means of investigating the allegations made by the OFT. Any number of what the letter described as “internal” inquiries would take the matter nowhere. Therefore, the claimant had no means of establishing whether the allegations had any basis in fact and, therefore, any credibility.

[58]In the Statement of Objections issued in April 2008, the OFT pursued three of the 18 allegations which appeared in the November letter. The Statement of Objections sets out in detail the case in relation to these three allegations. The OFT contended that the claimant and Pearce Midlands were jointly and severally liable for participation in the alleged infringements and for liability for any financial penalty which might be imposed. Given the OFT’s statement in the Fast Track Offer, that in most cases it had at least both incriminating documentary evidence, and a statement of admission by one leniency applicant in respect of each of the 18 suspect tenders, it is not immediately easy to understand why the 18 original allegations against Pearce Midlands were reduced to three. If the OFT had the evidence it says it had there was no sensible basis for narrowing down the allegations against Pearce Midlands at all, still less for leaving the claimant with the task of having to undertake enquiries into each and every one of the eighteen allegations. All of the documentary and witness evidence relevant to the three allegations was included in the documents sent to the claimant. This was the first time that the claimant had any indication of the evidence against Pearce Midlands. Given the lack of explanation or evidence in the November letter, it was only with the Statement of Objections that the claimant was able to assess the credibility of the three allegations pursued against it.

[59]The claimant therefore asked the OFT to make the Fast Track Offer available to it in April once it had been afforded a proper opportunity to understand the case against it. The OFT refused. In refusing the OFT, the claimant contends, acted unlawfully. It infringed the principle of equal treatment. In particular it did not accord the claimant the same opportunity other companies under investigation had to make an informed decision whether or not to accept liability and the Fast Track Offer. The OFT acted in breach of the principle of procedural fairness in that it failed to provide the claimant with an adequate opportunity to understand the gist of the case against it and, consequently, with an adequate opportunity to decide whether or not to accept the offer.

[60]At the hearing Mr Gordon QC for the claimant emphasised that the submissions that the decision was unlawful as being in breach of the equal treatment principle, and as being procedurally unfair, were really two sides of the same coin. In substance they should not be viewed as alternative submissions, but rather as complementary to each other. The procedure in this case was unfair because the OFT treated the claimant in exactly the same way as legal entities which were in a materially different position to it. That which was, no doubt, fair in respect of parties who could make an informed decision as to whether to accept the Fast Track Offer, was unfair where the same treatment meant that no such informed decision could be taken, because there was no access to the gist of the case or the evidence. DIFFERENCE, FAIRNESS AND EQUAL TREATMENT

[61]In response to the claimant’s case that the principles of fairness and equal treatment have been infringed, the OFT has advanced various responses, some more forcefully than others. In essence the OFT’s submissions are either that there was no material difference between the claimant and the other recipients of the Fast Track Offer or that, if there was, that did not justify different treatment. In any event there had been no lack of procedural fairness in the way it had treated the claimant. These basic contentions were advanced along various lines. Similar offer, similar position, similar opportunity

[62]The strongest argument advanced by the OFT was that all addressees of the Fast Track Offer, including the claimant, received letters in broadly identical terms and were given a similar timeframe in which to respond to the offer. The OFT provided all companies under investigation with the same information about the type of evidence it held, and provided specific details of the tenders where it had reasonable grounds to suspect involvement in bid rigging. The common characteristic of all those sent the Fast Track Offer was that they were suspected of involvement in competition law infringements. That was their distinguishing characteristic for these purposes. As in any large investigation into historic infringements of competition law, some companies may have had more information about the conduct in question than others. The claimant was not in an objectively different position from many other recipients. A number of companies who received the Fast Track Offer had no way of obtaining independent evidence from contemporaneous documents or employees to assist with the details of suspected bid-rigging. Many had disposed of their records or sold subsidiaries, and in many cases employees and directors had moved on. A prima facie objective difference

[63]In my view, what should have been evident to the OFT as a result of the claimant’s December response to the November Fast Track Offer was that, prima facie, the claimant was objectively in a different position from most, if not all, of the other recipients of the offer. The fact was that the claimant was an historic indirect parent which, on making inquiry, explained that it was unable to obtain information about the 18 tenders listed in the Annex to the November letter. It had sold the part of the business which had engaged directly in the alleged infringements and no personnel from that time, common to both businesses, remained. Solicitors acting for the Pearce side of the business had told it that it had not uncovered any evidence to support the OFT’s allegations. As already mentioned, Pearce’s assistance should be seen against the background where the interests of the claimant and Pearce might well conflict if liability was ultimately to be found.

[64]In my judgment this prima facie objective difference in the claimant’s position meant that the OFT needed to address the principles of equality and fairness. An objectively different position might mean different treatment was justified; to put it another way, not to take it into account might be procedurally unfair. It was not enough that the claimant received a similar offer as others. In my view the OFT had to confront the difference of the claimant as an historic indirect parent unable, on its account, to access information through documents or personnel about possible bid rigging. The closest the OFT came to engaging with the point in the Statement of Objections was when it acknowledged “complications” in the claimant’s corporate structure. In May 2008 it asserted that the difficulties the claimant faced were faced, to a greater or lesser extent, by some other parties. In a witness statement for the hearing the OFT has now recognised that the claimant was the only historic parent whose former subsidiary had not been sent the May Fast Track Offer with the disadvantage, as against those other historic parents, that their historic indirect subsidiary had not had time to make their own investigations. But its adamant refusal to have any regard to the claimant’s contentions about difference maintained up to, and during the hearing, is in my view in breach of the principles of fairness and equal treatment.

[65]What, in my view, the OFT should have done was to consider what steps it could have taken, if any, to accommodate what on the surface appeared to be the claimant’s objectively different position. Before considering the different measures the OFT could have taken, it is necessary to consider the several justifications it advanced at the hearing for not treating the claimant differently, even if it were wrong in its assertion that the claimant was not objectively different from the other Fast Track Offer recipients. The justification of competition law

[66]The first way the OFT put the justification argument turned on competition law. At one point Mr Beard, for the OFT, summed up the submission in the phrase that competition law is not sentimental. In essence the submission was that competition law applies to undertakings. These are the relevant entities which are liable to any penalty. Hands off parent companies may well be caught. Moreover, they may not be in the position of others to assist the enforcement authorities. The European Community courts accept that as a proper incident of leniency policy. If a company cannot assist a competition authority like the OFT with information, why should it benefit from a reduction in penalty under a leniency or similar programme.

[67]This argument I find deeply unimpressive. It misses the point. Whether or not competition law applies to entities called undertakings, so that competition rules may apply to the indirect historic parent of a subsidiary which engaged in anti-competitive conduct, does not absolve the OFT from its duty to act fairly during an investigation and to take account of relevant material differences between different legal persons, if these justify different treatment. Nor does the Community Court’s jurisprudence on leniency programmes in cases such as ThyssenKruppStainless have any bearing on the matter. In that case the court was simply recognising the right of competition authorities to grant a reduction in penalty for those taking advantage of leniency programmes. The corollary is that different entities may attract different penalty reductions because they assist the authorities to a varying extent: see esp. [51]. That, of itself, does not justify procedural unfairness or a breach of the principle of equal treatment. A “commercial decision” which could be withdrawn?

[68]A second justification advanced by the OFT was that it was simply a matter for each company to decide whether to accept the Fast Track Offer and to benefit from the associated penalty reduction. Each company made its decision having regard to its own, different circumstances and based on all the information at its disposal. Just as it is up to a company to decide whether to apply for Type C leniency once the OFT has commenced a Competition Act 1998 investigation, in this case it was a matter for each party under investigation to decide, voluntarily, whether to accept the Fast Track Offer and benefit from the associated penalty reduction. The claimant decided not to admit liability. Others did, even though they might not have known the true extent of their liability. Unlike the claimant some made a commercial decision that the advantage of securing a penalty reduction, should they be liable, outweighed any reputational damage, notwithstanding that liability was not eventually established.

[69]Again the OFT argument is unattractive. A response to the Fast Track Offer was obviously a commercial decision. However, it involved asking parties to admit liability for serious infringements of the Competition Act 1998. Infringement proceedings under the Competition Act 1998 are of a quasi-criminal nature: Napp Pharmaceuticals v DGFT (No 4) [2002] Comp AR 13. As I have said there is potential damage to reputation. Moreover, a condition of the offer was that a recipient agreed to forego any right to deny liability or make submissions on the contents of the Statement of Objections in respect of liability. In my judgment fairness does not countenance a situation where someone who reasonably believes that they are not liable for wrongdoing can be pressured into admitting to liability in this way. As a matter of procedural fairness enforcement authorities must not be able to compel admissions by parties so they blindly admit guilt on the basis of a commercial decision.

[70]Associated with the OFT’s “commercial decision” argument was its contention that acceptance of the Fast Track Offer was voluntary and that parties were free at any time to withdraw from the process. Thus there were no breaches of any principles of public law. Withdrawal was not mentioned in the Fast Track Offer itself, although it was made explicit in the Statement of Objections. At one point in its submissions the OFT seemed to suggest that the Fast Track Offer could simply be resiled from at any time without consequence, other than the loss of the benefit of the offer itself. For my part I thought that suggestion was belied by the context and lacked logic. If the Fast Track Offer could simply have been resiled from at a later date with no consequences it would have been open to any recipient to have purported to accept it, and then to have waited for the Statement of Objections and decided to withdraw, depending on the strength of the allegations and evidence. Crucially, any withdrawal from the Fast Track Offer was not costless. Acceptance of the offer would have had evidential value and the OFT, as it now accepts, would have been able to rely on it.

[71]In my view the key point is that acceptance of the Fast Track Offer was not something without legal import. Acceptance was a commercial decision, but a commercial decision with significant legal consequences. Even if withdrawal was a possibility, a party could not in practice have withdrawn its admission because it would have suffered from the fact of having made it. Neither the commercial nature of a decision to accept the Fast Track Offer, nor any ability to resile from doing so, lessened in my judgment the duty of the OFT to act fairly and to observe the principle of equal treatment. ACCORDING FAIRNESS AND EQUAL TREATMENT

[72]Given that the OFT needed to accord the claimant the fairness and equal treatment the law demands, the issue becomes what the OFT should have done when confronted with the claimant’s December 2007 response to the Fast Track Offer, which raised the issue that it was not being treated on equivalent terms to others. The claimant has advanced two main courses of action: first, the OFT should have provided it with the gist of the case against it with the Fast Track Offer, so it could decide whether to accept it; and secondly, it should have agreed to the claimant’s request in May 2008 to reopen the Fast Track Offer once the claimant saw the case against it in the April 2008 Statement of Objections. As a matter of law, neither, in my view, was necessary. Providing the gist of the case

[73]First, then, the claimant’s case on gist, that there was a breach of the principle of procedural fairness because the OFT failed to provide it with an adequate opportunity in the November Fast Track Offer to understand the gist of the case against it. That, the claimant contends, would have provided it with an adequate opportunity to decide whether or not to accept the Fast Track Offer. Not to do so was procedurally unfair and contrary to the rights of the defence. In particular, the claimant argues that the principle of fairness required the OFT to provide it with sufficient detail of the allegations against it to enable it properly to consider whether it was appropriate to admit liability and therefore whether it should accept the offer. The claimant does not suggest that the sum of the evidence made available at the Statement of Objections stage should have been provided, merely sufficient evidence to ensure that it had an equal opportunity with those themselves accused of bid rigging to respond to the Fast Track Offer.

[74]In the claimant’s case, what it should have been provided with was sufficient detail to enable a proper investigation and assessment to be made as to whether allegations made by the OFT had any credibility. The type of questions for consideration were the type of bid rigging alleged, the identity of the other allegedly infringing parties, the individuals in Pearce Midlands or Pearce Group said to have been involved in the specific bid rigging practice, the documents or type of documents said to be incriminating, and a short summary of the witness evidence which the OFT had on file. Those details should have been provided to the claimant for the purpose of its then making enquiries.

[75]In the claimant’s submission, not providing the gist of the case meant that the OFT breached its duty to act fairly, it deprived the claimant of a fair opportunity to understand and assess the allegations made against it and, in the light of that assessment, to consider the Fast Track Offer in an informed manner. Until the OFT provided the claimant with details of the evidence on which it relied, the claimant had no means of assessing the credibility of the allegations listed in the Annex. The Fast Track Offer letter invited the claimant to admit eighteen allegations of liability for breaching competition law and to agree not to make any submissions on liability following the presentation of evidence in the Statement of Objections. This was a self-evidently flawed and an unfair process by which the claimant was asked to admit liability for serious allegations on the basis of almost entirely unknown, and potentially non-existent, evidence which would in all likelihood lead to the imposition of a substantial financial penalty.

[76]In my judgment there was no need for the OFT to provide any further detail of the allegations to the claimant in addition to the list of tender events in the Annex where it suspected bid rigging involving Pearce Midlands. That is not because, as Mr Beard for the OFT asserted on more than one occasion, the investigation was still at the reasonable suspicion stage and the Fast Track Offer was not a provisional decision. Given that the Statement of Objections was issued within five months, with its considerable detail, the reality is that matters must have been beyond that point. The OFT must have had evidence in respect of each of the allegations in the Annex to the November letter consisting of an incriminatory document and a witness statement. This was evidence available to the OFT, which was well into a lengthy investigation. Indeed, the November letter itself suggested that it had compelling evidence of an infringement in relation to the tenders listed in the Annex.

[77]In my view the reason there was no need for the OFT to provide details of the 18 allegations in the Annex was because the law recognises that enforcement bodies such as the OFT have a considerable discretion in their conduct of investigations. The Fast Track Offer was simply not intended to afford recipients any sort of detailed account about the case against them. If the OFT had been required to provide all the evidence, even the gist of the evidence against any non-leniency applicant who was a suspected participant in cover pricing, there would have been no Fast Track Offer. I accept the reasons referred to above, that there would have been significant preparation work and it would have been wasted or would have distracted the OFT if evidence about the suspect tenders had to be conveyed to recipients of the offer. It is not to the point for the claimant to say that the argument falls to be tested not by reference to 112 companies but by sole reference to the claimant, and that it is not at all easy to see why in relation to it such information could not have been provided and, if necessary, to similarly affected companies. As emphasised above the Fast Track Offer was predicated on reducing the burden on the OFT from the investigation, not increasing it. There was no taint of unfairness in not providing recipients with evidential details.

[78]In support of its argument the claimant invokes the speech of Lord Mustill in R v Secretary of State for the Home Department, ex p. Doody

[1994] 1 AC 531

, that a person adversely affected by a decision must be informed of the gist of the case he has to answer. But it is also clear from the remainder of Lord Mustill’s speech that fairness is context-specific. The context here was of a very large competition law investigation where the burden on the OFT was already considerable. Reducing that burden, and expediting the process, were the motivations for the Fast Track Offer. In any event, the decision of the OFT in this case was not a decision adversely affecting the claimant in the sense in which that term is used in Doody. Here there was an opportunity for a discount in penalty on admission of liability before the Statement of Objections had been issued. Albeit that potentially might be financially very advantageous, the decision did not relate directly to any finding by the OFT of liability in relation to a competition law infringement. The Fast Track Offer was still at the stage of investigation, not in the process of finally determining liability. Doody has no bearing on the matter. Reopening the Fast Track Offer

[79]The claimant contends that once the Statement of Objections became available, so that it appreciated the evidence against Pearce Midlands, the Fast Track Offer should have been reopened and made available to it. The decision not to extend the deadline for the acceptance of the Fast Track Offer, once the OFT had provided it with evidence, infringed the principle of equal treatment. Once the evidential imbalance had been redressed, and the claimant had the ability to consider the offer and decide whether the allegations against Pearce Midlands were credible, and to choose whether or not to accept it, it was unlawful then to deny it an equal opportunity to respond to the offer. That would not mean that the claimant would be in the position of being able to review the Statement of Objections, since the majority of companies were in a position to know or to investigate if they had been guilty of cover pricing. Unlike others, the claimant did not know the case it had to meet at any time before receiving the Statement of Objections. That was unfair.

[80]To the objection that the claimant was not in a different position and all parties were given a comparable and sufficient time, if and to the extent anyone else was in the position of the claimant they should have been treated differently from the majority, but similarly as amongst themselves. In the claimant’s submission the error in the OFT reasoning is to suppose that either fairness or equal treatment compels the same treatment for everyone, where no amount of time can assist a party such as the claimant, without appropriate disclosure. Merely giving more time to a party does not cure the vice that no matter how much time is given, the unfair inadequacy of disclosure can make it impossible in good faith to make admissions of guilt.

[81]In my judgment reopening the Fast Track Offer is not a course the law demands. That is not because as the OFT contends the claimant would obtain a significant reduction in any penalty imposed, with no corresponding advantage for the investigation. Rather, it is because reopening the Fast Track Offer for the claimant, after publication of the Statement of Objections would, far from ensuring equal treatment, involve unequal and preferential treatment in favour of the claimant, compared with other parties. As such, it would be unfair. In my judgment there was nothing unfair about the OFT’s refusing to reopen the Fast Track Offer to the claimant after the scheme had closed to other parties in circumstances where a large number of them had taken advantage of it. Of the 85 recipients of the Fast Track Offer, 45 accepted it prior to receiving the Statement of Objections. Those parties made admissions on the basis of the material set out in the offer letter, without sight of the Statement of Objections. Unfairness would result for those parties in allowing the claimant to secure a similar level of discount, having now had the benefit of the Statement of Objections. Objective difference a relevant consideration

[82]In my judgment what the OFT needed to do, when confronted with the claimant’s contention that, in effect, it was in a different position from other recipients of the Fast Track Offer was firstly, to engage with that claim and secondly, to undertake to bear that in mind as a relevant consideration when it came ultimately to fixing any penalty in relation to any breach of competition law on the part of the claimant. At the point of imposing a penalty the OFT will need to be satisfied that the claimant was, in fact, in an objectively different position. In other words, the claimant will need to establish that as a result of its being an indirect historic parent company, and having made reasonable inquiries, it was not in a position, as were other recipients of the Fast Track Offer, fairly to admit liability.

[83]Then the OFT will need to decide what discount on penalty, if any, should be accorded the claimant because it was not able fairly to admit liability in response to the November Fast Track Offer. It is for the OFT to decide how to do this. It might take into account matters associated with the Fast Track Offer letter itself, for example, the invitation that if a recipient had queries it could ask further about them. It might take into account wider considerations. It is not for me to force the OFT to exercise its discretion in the application of its penalty policy in any particular way. At the end of the day it is for the OFT to decide, in the light of all relevant considerations, what reduction in ultimate penalty, if any, is necessary. What it must not do is to set its face, as it has until now, against acknowledging that if the claimant was in an objectively different position when it received the November Fast Track Offer, that was not a relevant consideration in the application of its penalty policy. CONCLUSION

[84]No objection in general terms was raised to the Fast Track Offer, nor could it be. Enforcement authorities like the OFT have a wide discretion in the conduct of their investigations. At the time the OFT decided to make the Fast Track Offer it could have done a number of things: it could simply have announced that the general leniency programme was closed, since it did not want any more applications; it could have announced that the general leniency programme was being closed but that it was still possible to secure a reduction in penalty if admissions were provided without further cooperation being proffered; or it could have announced, as it did, that the general leniency programme was being closed but it was still possible to secure a reduction in penalty if admissions were provided, without any further cooperation. None of those options would have been, or were, unfair.

[85]As it was, the third of the options was considered likely to be the most effective, being the most focussed. The Fast Track Offer was developed especially for this investigation, which was unprecedented in terms of the number of parties and infringements. The Fast Track Offer was the offer for discount made available once the general leniency policy had been closed. It was intended to accelerate the investigation at the pre-Statement of Objections stage, as well as providing an opportunity for parties who had not come forward for leniency, to make admissions in relation to specific tenders where the OFT already had a case on bid rigging. Not surprisingly the level of the Fast Track Offer discount was lower than that for earlier leniency applicants.

[86]Overall, then, the OFT was entitled to adopt the approach it did in the Fast Track Offer. At one point the claimant suggested that the OFT could have made the Fast Track Offer after the Statement of Objections. Such early resolution, it contended, would have been consistent with the approach taken in other cases. The manner in which investigations are conducted is for the OFT. The methods used in one investigation may not be appropriate in another. There is no legal obligation for the OFT to craft any particular form of penalty reduction offer or settlement negotiation in the course of an investigation, and the decision whether or not to do so is a matter within its very wide discretion.

[87]However, where in my judgment the OFT went wrong was in failing to act once the claimant advanced a good case that there was an objective difference in its position from the majority of other recipients of the Fast Track Offer. For the OFT to decide to ignore this prima facie objective difference breached the principles of equal treatment and fairness. Equal treatment requires that those in a similar position be treated equally and those in a different position be treated differently. The claimant was an indirect historic parent company which, on its account, had drawn a blank on inquiring about the tenders set out in the Fast Track Offer Annex. On the surface this was a case for different treatment. Fairness also demanded that the issue be addressed.

[88]It is no answer for the OFT to say that since there was no benefit to its investigation, in terms of admissions, it could simply ignore the claimant’s case. Nor is it an answer for the OFT to suggest that the claimant could have made a commercial decision to accept the Fast Track Offer, not knowing its position, but assured that it would obtain the 25 percent reduction if later penalised. As explained earlier in the judgment seeking what are essentially blind admissions to what are said to be infringements of the law is in breach of the principle of fairness.

[89]But treating the claimant differently, and fairly, does not mean that the OFT needed to give it the gist of the case against it on the evidence possessed by the OFT relevant to alleged bid rigging. That would be inimical to the legal principle that enforcement authorities are entrusted with wide discretionary powers in the conduct of an investigation. The very design of the Fast Track Offer was to reduce the burden on the OFT in the conduct of what was its largest ever investigation. Nor was it necessary for the OFT to reopen the Fast Track Offer after the Statement of Objections was published in April 2008. To do so would have resulted in unequal and preferential treatment to the claimant, and unfairness to the other recipients of the Fast Track Offer, who had accepted it without the benefit of knowing what was in the Statement of Objections and OFT file.

[90]What was needed was for the OFT to have acknowledged, in the way I have set out in the judgment, that the claimant might be in an objectively different position to other Fast Track Offer recipients. Then it had to decide that if established it would take that into account, as a relevant consideration, in fixing any penalty. As I have explained, the OFT has a very wide discretion as to what effect, if any, that will have on any penalty. The upshot is that in my judgment the OFT has acted in breach of the principles of fairness and equal treatment. If needs be I shall make a declaration to that effect.

Crest Nicholson Plc v Office of Fair Trading [2009] EWHC 1875 (Admin)

INTRODUCTION

Cited in 4 later judgments