The Competition Act 1998 was designed to prohibit the sort of anti-competitive behaviour that prevents businesses from competing on a level footing.
Chapters 1 and 2 of the Act deal with two particular prohibitions that all businesses need to be aware of: chapter 1 deals with agreements affecting trade within the UK that seek to prevent, restrict or distort competition within the UK; and chapter 2 prohibits abusive behaviour by a business which enjoys a dominant position in the marketplace. In this article we’ll confine our attention to the Chapter 1 prohibition on anti-competitive agreements.
The terms ‘undertaking’, ‘agreement’ and ‘concerted practices’ for the purposes of the Act are construed very widely. ‘Undertakings’ may include companies, firms, and businesses as well as partnerships, individuals operating as sole traders, agricultural co-operatives, trade associations, non-profit making organisations and even public entities offering goods or services. In short, if your business is engaged in some form of economic activity, it is likely to constitute an undertaking for the purposes of chapter 1.
Likewise the term ‘Agreements’ may include a wide range of commercial arrangements between undertakings regardless of whether or not they are legally enforceable and can cover written, oral and ‘gentleman’s agreements’. To contravene the Act, contact between parties doesn’t have to be direct – indirect contact also counts even if your business’s participation is limited.
Considering the wide interpretation of agreements, undertakings and concerted practices it is easy for businesses to fall within the scope of a prohibited act under chapter I. Furthermore, any protestation that a breach was not deliberate is no defence - and neither is negligence or lack of knowledge regarding the competition regime.
The Act is enforced by the Office of Fair Trading (OFT) in conjunction with the relevant industry regulator. The penalties it can impose for a chapter I infringement are significant and can include:
- Any agreements, contracts or actions to which your business is a party and which are prohibited under the Act will be declared void;
- Your business may face investigation by the OFT and/or any relevant industry regulator;
- Penalties imposed by the OFT under the Act include a fine of up to 10% of the world wide turnover of your business for the preceding year;
- Third party damages actions;
- Disqualification of Directors for up to 15 years;
- Under the Enterprise Act 2002 individuals involved in cartel activity may face imprisonment for up to 5 years.
There are some exemptions permitting certain agreements that would otherwise be in breach, and there is immunity for certain things e.g. small agreements and conduct of minor significance. However, such exemptions to be considered must meet strict requirements under the Act and, in certain circumstances, the OFT may withdraw immunity.
However the OFT considers some agreements and commercial arrangements to be totally off limits and no exemption is permitted, regardless of the size of your business or type of agreement. Such hardcore restrictions may include:
- Price fixing, whether direct or indirect, between your business and at least one other company where there is an element of agreement or concertation between the parties.
- Involvement with collusive tendering (bid rigging).
- Agreements with your competitors to share markets.
- Limiting or controlling production or investment.
- Joint purchasing or selling.
- Sharing information.
- Exchanging price information.
- Restricting advertising.
- Setting technical or design standards.
- Cartel activity.
These types of agreements are considered by the OFT to be among some of the most damaging forms of anti-competitive behaviour and it has made it a priority to target them.
Falling foul of the competition regime can have significant implications for both the finances and reputation of any business. However, potential infringements of the Act may be avoided if legal advice is sought early on.
For more information contact
Christine Jackson on 01926 880774.
This article was first published in Newsbrief, Summer 2007
