Susan Hankey explains the impact of the new rules
The Competition Act 1998 comes into force on 1
March 2000. It changes the face of competition law in the UK. No
longer can cartels and abusive dominant companies hide for years,
relatively safe from excessively formalistic but generally
toothless domestic law. This new law has teeth and the Office of
Fair Trading has promised to bite hard with them.
The new law
The Act creates prohibitions of anti-competitive
agreements (the Chapter I prohibition) and of abuse of a dominant
position (the Chapter II prohibition) modelled on EC competition
law. In contrast to much of the old law, which it sweeps away, the
new Act is principally concerned with the practical effects of
business arrangements on competition in the market place. The
Director General of Fair Trading ("DGFT") has strong new powers to
uncover anti-competitive activities and to act against them. Firms
engaged in anti-competitive activities in the UK could face fines
of up to 10% of UK turnover and open themselves up to challenge in
court by customers and competitors.
Chapter I: prohibition
The Chapter I prohibition is based on Article 81 EC
The Chapter I prohibition outlaws agreements,
decisions or concerted practices which are, or are intended to be,
anti-competitive and which affect trade in the UK.
Companies must not, for example, indulge in price
fixing, market sharing, discriminatory treatment of customers or
Any provision which breaches the Chapter I
prohibition will be void, unless the agreement benefits from an
exemption. There are a number of different types of exemption,
- block exemptions (the agreement falls into a category of
- individual exemptions (an exemption is granted on the merits of
an individual agreement); and
- parallel exemptions (the agreement benefits from an exemption
available at the EC level).
- agreements which before 1 March 2000 received clearance under
the Restrictive Trade Practices Act 1976 ("RTPA") as not being
sufficiently significant to call for further investigation.
Professional rules, regulations and codes of
conduct of architects, surveyors and various categories of civil
engineering consultants may be designated by the DTI to be excluded
from the Act. Without specific exclusion such codes of conduct
could be covered by the Act in the same way as the rules of trade
Vertical and land agreements
Special treatment takes many vertical agreements outside the ambit
of the Act. These are agreements where for the purpose of a
particular arrangement, companies operate at different levels of
the production or distribution chain. A similar exclusion applies
to agreements dealing in an interest in land.
The Act provides for individual exemption or clearance for an
agreement to be obtained by notifying the agreement to the DGFT.
Agreements notified under the Chapter I prohibition will have
immunity from fines from the date of notification to the date of
determination of the application. Notification need not be for a
definitive decision - it can be limited to guidance as to the
likely applicability of the prohibition.
The impact of the Act on most agreements made before 1 March 2000
will be postponed by a transitional period of one year.
Chapter II: prohibition
This provision is based on the Article 82 EC
prohibition on abuse of a dominant position.
Chapter II prohibits conduct constituting an abuse
of a dominant position held in the UK or part of the UK and which
may affect trade in the UK.
Examples of abusive conduct include imposing unfair
prices or trading conditions, limiting production or technical
development to the prejudice of consumers, discriminatory behaviour
and tying agreements.
As with Article 86, there is no exemption available
for abusive behaviour, but the Act does provide for applications to
be made to the DGFT for guidance or for a negative clearance
decision as to whether or not the Chapter II prohibition has been
infringed by particular conduct.
There is no transitional period for the Chapter II
prohibition, which applies on 1 March 2000.
The DGFT gains extensive powers of enforcement. If
there are "reasonable grounds for suspecting" an infringement, the
DGFT can send in the investigators. They must always be
investigating a particular matter and must explain this to the
company visited. The DGFT can call for the production of documents
or information relating to an investigation and demand an
explanation as to the contents or whereabouts of a particular
document. Investigating officers can on two days' notice visit
companies to seek out documents and talk to staff, even when the
company itself is not under investigation.
Dawn raids can be carried out where there is a fear
that the company would not produce documents or might try to
destroy or conceal evidence. The company gets no warning - the
investigators appear as the offices open and walk straight in. If
the investigating officers have a warrant from a High Court judge
they can use reasonable force to enter and they do not have to wait
for the company to open up files - they can search the premises and
seize original documents. It is an offence punishable by fines
and/or imprisonment intentionally to obstruct an investigation.
The DGFT also has power to make rules relating to
procedural and other aspects of the new Act. He must publish
general advice and information about the application and
enforcement of the prohibitions, and on how penalties will be
Where breach of the Chapter I and Chapter II prohibitions is found,
the DGFT can:
- impose a penalty of up to 10% of UK turnover if the breach was
committed intentionally or negligently; and
- direct that the infringement be brought to an end.
Immunity from Chapter I fines is available to
'small agreements' (yet to be defined by the DTI at the time of
Immunity from Chapter II fines for 'conduct of
minor significance' will also be available (but again the DTI had
not at the time of writing settled the applicable threshold).
The changes in practice
The old regime of the Restrictive Trade Practices
Act is swept away by the new law. The RTPA was formalistic and
cumbersome, and it was extremely difficult for the DGFT to use it
effectively to punish even the most obvious offences.
Take the ready mixed concrete cartel, a well known
construction industry saga. Employees of four companies fixed
prices and markets, contrary to instructions from senior management
and without the knowledge of their companies. The practices
continued for almost 10 years. In 1990 the Restrictive Practices
Court found the companies to be in contempt of court because the
actions were in breach of restraining orders previously imposed
under the RTPA in 1978-79. The companies appealed on the grounds
that the relevant employees had been acting without their
authority. The Court of Appeal agreed. But the case went to the
House of Lords in 1994.
The House of Lords ruled that the deliberate acts
of the employees in the course of their employment in fact
constituted the carrying on of business by the company itself. So
the Restrictive Practices Court was in the end enabled to impose
fines totalling some £8.37m against the companies and to require
individual directors to pay fines ranging from £10,000 to
In October 1997, the RPC took action again against
the ready mixed concrete industry. It made orders against two
companies and accepted undertakings from another 11 not to
implement any registrable agreements without first submitting
details to the OFT. The companies were involved in the same cartels
as those companies fined in 1995.
So the whole story took years to unfold, years
during which the companies continued to fix prices and share
markets without penalty.
Under the new regime, the ready mixed concrete saga
would be dealt with far more quickly. Rather than having to rely on
procedures spanning a period of over 10 years to bring the
companies to account, the DGFT can take immediate action to
investigate alleged breaches and impose fines if the allegations
are justified. There will be no need to refer the matter to the
The Ready Mixed Concrete Saga - what exactly was
Representatives of the ready-mixed concrete
companies met frequently in public houses to make price fixing and
allocation agreements in respect of the supply of ready mixed
concrete in the Oxfordshire area. The available market was agreed
to be shared between them, jobs were allocated in accordance with
agreed percentages and, if another company was asked to quote on a
job not allocated to itself, that company agreed to tender on less
favourable terms than those offered by the chosen party. A price
list for different mixes of the product was agreed and there was
also a no poaching provision.
A new Competition Commission took over the role of
the Monopolies and Mergers Commission ("the MMC") on 1 April 1999.
It continues to perform the MMC's functions in relation to
monopolies and mergers under the Fair Trading Act as well as having
a new function to hear appeals against the DGFT's decisions on the
prohibitions. As a result of the repeal of both the RTPA 1976 and
the Restrictive Practices Court Act 1976, the Restrictive Practices
Court will cease to exist except in relation to proceedings which
are continuing before the Court at 1 March 2000.
Monopolies and mergers - status quo
The existing provisions in the Fair Trading Act
1973 (the "FTA") for the investigation and control of scale and
complex monopolies are retained. Mergers will continue to be
governed by the FTA or the EC Merger Regulation as appropriate,
although any restrictions contained in the merger arrangement which
are not directly related to and necessary to the implementation of
the merger may be caught by the new prohibitions.
The DGFT has Fair Trading Act powers to investigate
monopolies and mergers and these powers remain in place. There are
two kinds of monopoly situation:
- where at least 25% of particular goods or services in the UK
are provided by or to the same person/company (scale monopoly), and
- where two or more persons control, either by agreement or by
the conduct of their business, at least 25% of particular goods or
services in the UK (complex monopoly).
Following an investigation into a monopoly
situation by the DGFT, a reference may be made to the Competition
Commission for a determination as to whether the monopoly situation
operates against the public interest.
The Act also allows the DGFT to investigate any
merger involving at least one UK company which results in the
acquisition in the UK market share of at least 25%, or where the
value of the assets taken over is above £70 million. Following the
investigation, the Secretary of State may refer the matter to the
Competition Commission for a report as to whether the merger may be
expected to operate against the public interest.
What should businesses do?
All businesses, small and large, should be
reviewing their trading agreements and market practices to
determine the extent to which they are affected by the new Act.
Their liabilities for falling foul of the Act's requirements could
be substantial. In view of the fact that the OFT has previously
intervened to stop anti-competitive behaviour in the construction
industry - RPC proceedings have also taken place against protective
polyester film and roofing material suppliers in addition to ready
mixed concrete suppliers - business should not ignore the new
For further information please contact Susan at
firstname.lastname@example.org or on +44 20 7367 2960.