Argos Ltd & Anor v Office of Fair Trading, Court of Appeal - United Kingdom Competition Appeals Tribunal, December 14, 2004, [2004] CAT 24

Resolution Date:December 14, 2004
Issuing Organization:United Kingdom Competition Appeals Tribunal
Actores:Argos Ltd & Anor v Office of Fair Trading
 
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Neutral citation: [2004] CAT 24

IN THE COMPETITION

APPEAL TRIBUNAL Cases: 1014 and 1015/1/1/03

Victoria House

Bloomsbury Place

London WC1A 2EB

14 December 2004

Before:

Sir Christopher Bellamy (President)

The Honourable Antony Lewis

Ms. Vindelyn Smith-Hillman

Sitting as a Tribunal in England and Wales

BETWEEN:

(1) ARGOS LIMITED

(2) LITTLEWOODS LIMITED

Appellants

-v.-

OFFICE OF FAIR TRADING

(formerly the Director General of Fair Trading)

Respondent

Mr. Mark Brealey QC and Mr. Mark Hoskins (instructed by Burges Salmon LLP) appeared for Argos.

Mr. Nicholas Green QC and Miss Marie Demetriou (instructed by DLA LLP) appeared for Littlewoods.

Mr. Brian Doctor QC and Miss Kassie Smith (instructed by Director of Legal Services, Office of Fair Trading) appeared for the respondent.

Heard at Victoria House on 10, 11, 12, 13, 14, 20 and 21 May 2004

JUDGMENT ON LIABILITY

172

CONTENTS

I INTRODUCTION and summary

1. This is the judgment of the Tribunal on the substantive appeals on liability by Argos Limited (``Argos'') and Littlewoods Limited (``Littlewoods'') against decision CA98/8/2003 (``the Decision'') of the Office of Fair Trading (``OFT'') adopted on 21 November 2003. The Decision replaced an earlier decision (``the first Argos/Littlewoods Decision'') CA98/2/2003 of the Director General of Fair Trading (``the Director'') to the same effect adopted on 19 February 2003.

2. In the Decision the OFT found that Argos and Littlewoods had, with Hasbro (UK) Limited (``Hasbro''), infringed the Chapter I prohibition contained in section 2 of the Competition Act 1998 (``the Act'') by entering into agreements and/or concerted practices which fixed the prices at which certain toys and games manufactured by Hasbro would be retailed by Argos and Littlewoods. According to the OFT the agreements and/or concerted practices found in the Decision were entered into in 1999, infringed the Chapter I prohibition from 1 March 2000 (the date on which the Act entered into force), and came to an end no earlier than 15 May 2001 and no later than 14 September 2001.

3. For the infringements found in the Decision the OFT required Argos to pay a penalty of £17.28 million, while Littlewoods was required to pay a penalty of £5.37 million. Hasbro's penalty was assessed by the OFT at £15.59 million, but because Hasbro approached the OFT with information that led to the uncovering of the infringement Hasbro's penalty was reduced to nil (paragraph 411 of the Decision). Hasbro has not appealed against the Decision. The OFT has relied in the Decision and in these proceedings on evidence provided by Hasbro and certain Hasbro employees.

4. For brevity and convenience the word ``agreement'' is used by the OFT in the Decision to include both an agreement and a concerted practice (paragraph 95).

5. According to the findings of the OFT, Hasbro, Argos and Littlewoods infringed the Chapter I prohibition from 1 March 2000 to at least 15 May 2001 by two bilateral agreements, between Hasbro and Argos, and Hasbro and Littlewoods respectively, to fix prices for certain Hasbro products at Hasbro's RRPs, and by a trilateral agreement to the same effect between Hasbro, Argos and Littlewoods.

6. At this stage of these appeals, both Argos and Littlewoods have contested the OFT's findings that the relevant agreements or concerted practices ever existed. After considering all the evidence, including the evidence of the witnesses called by the various parties, we find on the facts, and for the reasons given in this judgment, that each of Argos and Littlewoods respectively were party to a bilateral agreement or concerted practice with Hasbro, and to a trilateral agreement or concerted practice with Hasbro and each other, to fix prices within the meaning of the Chapter I prohibition between 1 March 2000 and 15 May 2001. Our conclusions are summarised in sections XI to XIV below. In consequence, we dismiss both appeals on the issue of liability.

II THE STATUTORY FRAMEWORK

7. The Act came into force on 1 March 2000. This case concerns section 2 of the Act which provides, so far as material:

``2. - (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) The prohibition imposed by subsection (1) is referred to in this Act as ``the Chapter I prohibition.''

8. Following an investigation under the powers contained in Chapter III of the Act, the OFT may, pursuant to section 31(1)(a), make a decision that the Chapter I prohibition has been infringed. Where it proposes to make such a decision the OFT must give notice under what was at the material time rule 14 of the Competition Act 1998 (Director's Rules) Order 2000, S.I. 2000/293 (``the Director's Rules'') to every person it considers is a party to the agreement (``the rule 14 notice''). The rule 14 notice must set out the facts and matters on which the OFT relies, the matters to which it has taken objection, the action it proposes and its reasons for it (rule 14(3) of the Director's Rules).

9. Section 36(1) of the Act provides that on making a decision that conduct has infringed the Chapter I prohibition, the OFT may require the undertaking concerned to pay it 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 per cent of the turnover of the undertaking as determined in accordance with the Competition Act 1998 (Determination of Turnover for Penalties) Order 2000, S.I. 2000 No. 309. Any penalty so imposed is recoverable as a civil debt following the expiry of the period for appealing to the Tribunal, or the determination of any such appeal: section 37.

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 Director has published such guidance entitled Director General of Fair Trading's Guidance as to the Appropriate Amount of a Penalty (OFT 423, March 2000; ``the Director's Guidance'').

11. The foregoing provisions of the Act are closely modelled on Article 81 of the EC Treaty. So far as possible and appropriate, the Act is to be interpreted and applied in a manner consistent with the principles of European Community law in relation to competition: section 60.

12. 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).

13. The powers of the 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-

remit the matter to the OFT,

impose or revoke, or vary the amount of, a penalty,

grant or cancel an individual exemption or vary any conditions or obligations imposed in relation to the exemption by the OFT,

give such directions, or take such other steps, as the OFT could itself have given or taken, or

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 any finding of fact on which the decision was based.''

14. With effect from 20 June 2003 the procedure governing such appeals is set out in the Competition Appeal Tribunal Rules 2003, S.I. 2003/1372 (``the Tribunal's Rules''). Appeals lodged before that date are governed by the Competition Commission Appeal Tribunal Rules 2000, S.I. 2000/261. As far as we are aware there is no material difference between these two sets of rules for the purpose of the present appeals.

15. Prior to 20 June 2003, the proceedings which form the subject matter of this appeal were undertaken by the Director, whose office was abolished by the entry into force on that date of the Enterprise Act 2002. In this judgment ``the OFT'' includes the Director, where relevant, and vice versa.

16. Earlier decisions of the Tribunal have previously dealt with various interlocutory and other matters which have arisen in the course of the proceedings: see [2003] CAT 10, [2003] CAT 16, [2003] CAT 24 and [2004] CAT 5.

III ARGOS, LITTLEWOODS AND HASBRO

Argos

17. Argos is part of Argos Retail Group, which in turn is part of Argos Group Limited, a multi-channel retailer. The Argos Group was acquired in April 1998 by GUS plc. Argos' main business comprises the Argos catalogue showroom chain. Argos has around 450 stores and is the United Kingdom's largest catalogue retailer. Argos produces approximately 17 million catalogues per season, the products from which are available in the Argos catalogue stores. In the twelve months up to the end of March 2002, it had a total United Kingdom turnover of £2.7 billion.

18. Another member of the GUS group was, at the relevant time, GUS Home Shopping, which operates as a home shopping catalogue business without high street showrooms. It is a separate business from Argos.

19. The Chief Executive Officer of Argos Retail Group, which includes Argos, is Mr. Terence Duddy. He was appointed in September 1998. The...

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