Private Enforcement of UK Competition Laws in the Property Sector: Civil Courts’ Activism Palliates the Lack of Public Enforcement

June 2, 2014

The enforcement of the UK Office of Fair Trading[1] of the Competition Act 1998 has often been seen as fitful.[2]  Despite its extensive fining and investigatory powers, the Office of Fair Trading has sometimes created the impression that it is reluctant to intervene in all but the most high-profile cases, confining itself to certain key areas such as credit and construction, and the issuing of studies and guidance.  Parties complaining to the Office of Fair Trading might struggle to obtain even a negative decision (against which they could appeal to the more energized Competition Appeal Tribunal). 

Where the UK agency failed to act, parties harmed by anti-competitive behavior were left with the residual option of pursuing a civil claim.[3]  The evidentiary burdens and litigation costs involved frequently deterred such a business from seeking legal redress through private action, or led such a complainant to delay until it was too late for it to bring proceedings effectively.  For instance, the English High Court dismissed an application for an interim injunction by AAH Pharmaceuticals Limited and seven other pharmaceutical wholesalers in order to restrain the implementation by Pfizer of its new exclusive distribution arrangements on the grounds that it had been brought too late (the claimants had delayed action in the expectation that the Office of Fair Trading would take the matter up).[4] 

It is therefore gratifying to note the use of competition law by the tenant of premises in order to overturn restrictive covenants the landlord was seeking to impose.  When the Competition Act 1998 was first introduced, it was accompanied by a statutory exclusion order that excluded land agreements property from the impact of the new law. This order was repealed with effect from April 6, 2011.  Following its repeal companies were obliged to self-assess the degree to which any land agreement was compatible with UK competition law (as is the case with any other agreement).  The Office of Fair Trading issued extensive guidance[5] on how such a self-assessment might be conducted, guidance which was to prove critical in the recent case of Martin Retail Group Limited v Crawley Borough Council.[6]

In the Martin Retail Group case, the claimant, during negotiations for the renewal of its lease, sought to extend the scope of its use of the premises.  The store was principally operated as a news agency, with the right to sell tobacco, confectionary, and stationery.  The claimant wanted to be able to offer alcohol, grocery, and convenience goods, the sale of which was prohibited in the old lease.  This extension of trading rights would enable the claimant to compete with the local supermarket (Tesco Express, sited 1000 meters from the claimant’s premises). The landlord, Crawley Borough Council, refused to grant these rights.  The Central London County Court found that this refusal breached Section 2 of the Competition Act 1998 (a mirror-image prohibition to that of Article 101(1) TFEU).  It also found that this refusal did not merit exemption under Section 9 of the Act (which applies the same test as that of Article 101(3) TFEU). 

The Borough Council’s refusal was based on non-commercial public policy grounds, namely its desire to preserve shop diversity for the benefit of the local community.  The case was dealt with at an unusually low level (County rather than High Court) and the judge dealt with the competition law issues swiftly and without much by way of expert evidence.  Whilst it might be argued that in-depth economic analysis should be required (for instance, in establishing competitive constraints posed by rival supermarkets in English merger cases and grocery sector inquiries, diversion ratios have been used).  It was significant that, once the judge had decided that the restriction in the lease was anti-competitive having regard to the very local nature of the market, the onus to demonstrate countervailing efficiencies and benefits to consumer fell on the Borough Council.  Perhaps unsurprisingly, the Borough Council failed to discharge this burden. 

Clearly this case poses considerable questions for local authorities seeking to rely on contractual restraints to pursue public policy goals and may have unanticipated consequences in a broader range of cases (e.g. anchor stores in new developments).  Nevertheless, it is good to see competition law points being taken at an early stage in civil proceedings and the willingness of judges, even at a low level in the judicial hierarchy, to embrace them.

[1] Established as a corporate body responsible for competition law enforcement under section 1 of the Enterprise Act 2002. The OFT has been replaced under Part 4 of the Enterprise and Regulatory Reform Act 2013 by the Competition and Markets Authority.

[2] For instance the British Institute of International and Comparative Law held a seminar on February 8, 2011titled “The Chapter II Prohibition: Where Have All the UK Cases Gone?” at which representatives from the competition agencies general counsel and private practitioners specializing in competition law debated the reason for the paucity of dominance cases pursued by the Office of Fair Trading (whose functions have now been taken over by the newly created Competition and Markets Authority)

[3] Section 60 Competition Act 1998 provides that, in order to achieve consistency in the manner in which competition law issues are addressed where there is an impact on trade within the United Kingdom the English courts must have regard to “the principles laid down by the Treaty and the European Court, and any relevant decision of that Court, as applicable at that time in determining any corresponding question arising in Community law” relating to competition within the EU. This is regarded as importing into UK competition law a right to bring civil actions.

[4] AAH Pharmaceuticals Ltd v Pfizer Ltd [2007] EWHC 565 (Ch)

[5] OFT1280a

[6] Martin Retail Group Limited v Crawley Borough Council [2013] EW Misc 32 (CC), Judgment of 24 December 2013.