31 March 2003

Richard Eccles

The Appeal Tribunal of the UK Competition Commission has decided that a health and social services trust (the North and West Belfast Health and Social Services Trust) constitutes an “undertaking” in relation to its procurement of nursing care services and accommodation because these activities constitute an “economic activity”. Bettercare, a provider of nursing care services and accommodation, complained to the Office of Fair Trading that the Health and Social Services Trust was abusing its dominant position as the sole purchaser of care services, by offering unreasonably low contract prices and unfair terms, contrary to the prohibition on abuse of dominant position in Chapter II of the UK Competition Act 1998. The OFT rejected the complaint on the basis that the Trust was providing exclusively social care for the disadvantaged in society. In reality, the Director General of Fair Trading was deciding, as a matter of principle, that the purchase from the private sector by local authorities, national health service trusts or health and social services trusts, of residential and nursing care for those in need, was not an activity to which the Competition Act was capable of applying.

However, by reference to EC case law, the Tribunal decided that the Trust was performing economic activities and was therefore subject to the competition rules as an undertaking, for the following reasons: First, it has the objective of procuring nursing care services as economically and competitively as possible which meant its transactions with independent providers were properly to be described as commercial transactions. Second, the Trust was itself an operator of nursing care homes as, in each case, whether in respect of its purchasing activities or in respect of its own residential homes, it sought to recover as much as possible of the cost of the services it provides, from the resident in question, and the fact that it was remunerated for the activities that it carried on was a further factor characterising “economic” activities. Third, it was clear that residents had a choice of homes and could choose between a private, voluntary or statutory home, therefore all three kinds of home were in fact competing for the custom of the potential resident, whether or not the potential resident was self-funded. This direct participation by the Trust in the market for residential care services was held to be in principle an economic activity.

The Tribunal further stated that an entity may still be an “undertaking” even if it is charged with specific tasks in the public interest or if it is acting subject to and in accordance with legal requirements. Further, the conclusion was not affected by reference to whether or not the Trust was profit-making (ie whether it had the aim of making profits or achieved that aim), nor was the conclusion affected by the question of whether the Trust itself had the freedom to set its prices or whether they were directly or indirectly fixed by the State (on which point the evidence was not clear).

Based on these conclusions, the Tribunal concluded that the Director General had been wrong to reject Bettercare’s complaint on the basis that the Trust was not an undertaking, as a result of which Bettercare’s complaint was still pending with the OFT and it was for the Director General to decide how to proceed on the substance of the case. It remains to be seen whether the Trust is dominant in the relevant market and if so, whether its low prices are an abuse of that dominant position.

The conclusion of the Tribunal, whilst based on the facts concerning the provision of nursing care services, must in principle be relevant to the procurement of pharmaceutical and life sciences products and indeed a myriad of products and services by national health services authorities and trusts and other public health service procurement bodies in the UK and other Member States. Combined with the statement made by the Tribunal to the effect that the imposition of unfairly low prices in procurement situations can have an adverse impact on competition, this means that the decision is potentially very significant in relation to the procurement of life sciences and health care products.

The case raises further interesting questions of the extent to which any undertaking engaged in purchasing transactions on a commercial basis for purposes of fulfilling services of a general interest or public interest nature, can be regarded as operating as an undertaking even if it were not also a supplier of the same type of products or services, or if it were not directly reselling the products or services the subject of the procurement. The Tribunal’s reasoning in its Bettercare decision does not rule this out.