Apex Asphalt And Paving Co Ltd v Office Of Fair Trading, Court of Appeal - United Kingdom Competition Appeals Tribunal, February 24, 2005, [2005] CAT 4

Resolution Date:February 24, 2005
Issuing Organization:United Kingdom Competition Appeals Tribunal
Actores:Apex Asphalt And Paving Co Ltd v Office Of Fair Trading
 
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105Neutral citation [2005] CAT 4Before:Marion Simmons QC (Chairman)Dr Arthur Pryor CBMr David SummersBETWEEN:APEX ASPHALT AND PAVING CO LIMITEDAppellant-v-OFFICE OF FAIR TRADINGRespondentMr Daniel Beard (instructed by Messrs Wright Hassall) appeared for the appellant.Mr Tim Ward (instructed by the Director of Legal Services, Office of Fair Trading) appeared for the respondent.Heard at Victoria House on 23 and 24 September 2004.JUDGMENT (Non-confidential version)Note: Excisions in this judgment relate to commercially confidential information: Schedule 4, paragraph 1 to the Enterprise Act 2002.TABLE OF CONTENTSPARAGRAPHI INTRODUCTION 1II SUMMARY OF THE TRIBUNAL'S DECISION 6III THE STATUTORY FRAMEWORK UNDER THE ACT 7IV THE FACTUAL BACKGROUND 15Industry overview 16The events leading up to the Decision 19V THE DECISION 33VI THE GROUNDS OF APPEAL 44VII HISTORY OF PROCEEDINGS BEFORE THE TRIBUNAL 47VIII JURISDICTION OF THE TRIBUNAL 48IX THE STANDARD OF PROOF 54(a) Apex's submissions 55(b) OFT's submissions 58(c) Tribunal's analysis 60X THE GROUNDS OF APPEAL IN DETAIL 62Ground 2(a): alleged procedural defects in the Rule 14 Notice in respect of the infringement concerning the Dudley Contracts 63(a) Apex's submissions 63(b) OFT's submissions 76(c) Tribunal's analysis 92(i) The law 92- EC law 92- English Law 98(ii) Principles 100(iii) Application of the principles 101Grounds 1 and 2(b): existence of infringements in relation to the FHH Contracts and the Dudley Contracts 111The agreed facts 111- The FHH Contracts 111- The Dudley Contracts 116Admissibility of evidence referred to in the Decision or in thedocuments identified as open to inspection in the Rule 14 Notice 121Existence of infringements 134(a) Apex's submissions 134(i) Principles 134(ii) Application of principles to the facts 141- The FHH Contracts 141- The Dudley Contracts 156(b) OFT's submissions 165(i) Principles 165(ii) Application of principles to the facts 172- The FHH Contracts 172- The Dudley Contracts 190(c) Tribunal's analysis 195(i) Case law 195(ii) Principles 206- Nature of tendering process 208(iii) Application of the principles to the facts 215- The FHH Contracts 215- The Dudley Contracts 239Apex's explanation of conduct in respect of tenders for the FHH Contracts and the Dudley Contracts 248Ground 3: Reasoning in the Decision 254(a) Apex's submissions 254(b) OFT's submissions 256(c) Tribunal's analysis 257Ground 4: Level of the penalty 260(a) Apex's submissions 260(b) OFT's submissions 266(c) Tribunal's analysis 268XI CONCLUSION 280 I INTRODUCTION1. By a Notice of Appeal dated 14 May 2004, and amended pursuant to a request dated 14 June 2004, Apex Asphalt & Paving Co. Limited (``Apex'') appeals to the Tribunal against Decision no. CA98/1/2004 taken by the Office of Fair Trading (``OFT'') on 16 March 2004 (``the Decision'') under section 2(1) of the Competition Act 1998 (``the Act''). In so far as is material, that section prohibits agreements between undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom.2. In the Decision the OFT concluded that various roofing contractors, including Apex, had infringed the prohibition contained in section 2(1) of the Act (``the Chapter I prohibition'') by colluding in relation to the making of tender bids for flat roofing contracts in the West Midlands. Nine contractors were found to have been involved in various discrete individual agreements or concerted practices each of which had as its object or effect the fixing of prices in the market for the supply of repair, maintenance and improvement services (``RMI services'') for flat roofs. Penalties were assessed by the OFT against all of those contractors.3. Apex was found to have participated in such collusive tendering in relation to two tender bids. One was for re-roofing works to Frankley Community High School and Harborne Hill School (``the FHH Contracts''); the other was for re-roofing and associated building works in relation to two sets of schools: Hob Green and Wollescote Schools, and Christchurch and Church of the Ascension Schools (``the Dudley Contracts'').4. It is alleged in the Decision that Apex entered into concerted practices in relation to the making of tender bids with Briggs Cladding & Roofing Limited (``Briggs'') (in respect of the FFH Contracts) and Howard Evans (Roofing) Limited (``Howard Evans'') (in respect of the Dudley Contracts). 5. As noted below, Briggs and Howard Evans benefited from the OFT's leniency policy and paid no fine, and a reduced fine, respectively. Apex itself was fined £35,922.80.II SUMMARY OF THE TRIBUNAL'S DECISION6. Apex appealed against the OFT's findings of infringement and imposition of a penalty on four bases, set out in paragraphs 44 and 45 below. For the reasons given in this judgment we dismiss the appeal. Our principal reasons are as follows:(a) Apex was not caused any prejudice by the OFT omitting from the Rule 14 Notice that it proposed to take action in respect of the alleged infringement by Apex in relation to the Dudley Contracts. Accordingly, notwithstanding the omission in the Rule 14 Notice the OFT was entitled to impose a penalty on Apex in relation to the Dudley Contracts;(b) We are satisfied that the elements of a concerted practice contrary to the Chapter I prohibition are made out in respect of Apex in relation to both the FHH Contracts and the Dudley Contracts;(c) We are satisfied that the reasons set out in the Decision sufficiently informed Apex of the factual and legal basis for the Decision and were sufficient to enable Apex to understand the basis for the Decision;(d) We are satisfied that the level of the penalty imposed by the OFT is appropriate having regard to the impact upon consumers, and the duration, of the infringements found.III THE STATUTORY FRAMEWORK UNDER THE ACT7. Section 2 of the Act provides, so far as material: ``(1) ... agreements between undertakings, decisions by associations of undertakings or concerted practices which - (a) may affect trade within the United Kingdom, and (b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom, are prohibited ... (2) Subsection (1) applies, in particular, to agreements, decisions or practices which - (a) directly or indirectly fix purchase or selling prices or any other trading conditions ...''8. Following an investigation under section 25 of the Act, the OFT may, pursuant to section 31(1)(a), make a decision that the Chapter I prohibition has been infringed. Before doing so, the OFT must give the person or persons likely to be affected by the decision the opportunity to make representations: see section 31(2) and rule 14 of the Director's Rules set out in the Schedule to the Competition Act 1998 (Director's Rules) Order 2000 (SI 2000 No 293). This was at the material time customarily done by the service of what is known as ``a Rule 14 Notice''. The Director's Rules have since been replaced by the Competition Act 1998 (Office of Fair Trading's Rules) Order 2004 (SI 2004 No 2751) (``the OFT's Rules''), which came into force on 17 November 2004. In the OFT's Rules the term ``Statement of Objections'' has replaced the term ``Rule 14 Notice''. A Rule 14 Notice/Statement of Objections is required to be served on each person whom the OFT considers to be a party to an infringement of the Chapter I (or Chapter II) prohibition.9. Section 36(1) provides that, on making a decision that conduct has infringed the Chapter I prohibition, the OFT may require the undertaking concerned to pay a penalty in respect of the infringement. Under section 36(3), such a penalty may be imposed only if the OFT is satisfied that the infringement has been committed intentionally or negligently. By virtue of section 36(8), no penalty fixed by the OFT may exceed 10% of turnover of the undertaking as determined in accordance with provisions specified by an Order made by the Secretary of State. At the material time, that Order was the Competition Act 1998 (Determination of Turnover for Penalties) Order 2000 (SI 2000 No 309).10. Section 38(1) of the Act requires the OFT to publish guidance as to the appropriate amount of any penalty. Under section 38(8) the OFT must have regard to that guidance when setting the amount of the penalty. The OFT's published guidance at the material time was the Director General of Fair Trading's Guidance as to the Appropriate Amount of a Penalty (OFT 423, March 2000) (``the Guidance as to Penalty'').11. Any party to an agreement in respect of which the OFT has made a decision may appeal to this Tribunal against, or with respect to, that decision: section 46(1).12. The powers of this Tribunal to determine appeals under section 46 are set out in paragraph 3 of Schedule 8 of the Act, which provides: ``3.- (1) The Tribunal must determine the appeal on the merits by reference to the grounds of appeal set out in the notice of appeal. (2) The Tribunal may confirm or set aside the decision which is the subject of the appeal, or any part of it, and may- (a) remit the matter to the OFT (b) impose or revoke, or vary the amount of, a penalty, ... (d) give such directions, or take such other steps, as the OFT could itself have given or taken, or (e) make any other decision which the OFT could itself have made. (3) Any decision of the Tribunal on an appeal has the same effect, and may be enforced in the same manner, as a decision of the OFT. (4) If the Tribunal confirms the decision which is the subject of the appeal it may nevertheless set aside...

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