OFT settlement with supermarkets and dairy processors accused of price fixing

07 February 2008

Louise Banér

Following the OFT’s investigation into price fixing of dairy products and its subsequent issuing of a Statement of Objections, three of the supermarkets and three of the dairy processors have reached settlements with the OFT whereby they have agreed to pay penalties which amount to over £116 million. The investigation against the other companies continues.

Five supermarkets and five dairy companies have been under investigation by the OFT over allegations of exchanging commercially sensitive information between retailers in respect of dairy product prices during 2002 and 2003. The collusion is thought to have cost British shoppers around £270 million.

The OFT issued its Statement of Objections against the ten companies on 20 September 2007. On 7 December 2007 six of the companies (Asda, Safeway, Sainsbury’s, Dairy Crest, The Cheese Company and Wiseman) admitted their involvement in fixing of prices of dairy products such as milk, butter and cheese. Each company has now reached a settlement with the OFT in which it has agreed to pay an individual penalty.

The penalties have been said to total over £116 million, but the exact value of the penalties will not be released by the OFT. Sainsbury’s has issued a statement in which it said it would pay a £26 million fine to the OFT, in order to aid the conclusion of the investigation and reduce the cost to the OFT and the businesses involved. The companies will benefit from admitting liability in principle at this stage, as the penalties will be much lower than those that would have been imposed if the liability was decided at a later stage. This is also subject to the condition that they co-operate as the investigation continues.

The OFT is pleased with the progress of the investigation following these admissions, but is keen to maintain strong and effective competition law by continuing the investigation against the remaining companies. Of the four companies which have not admitted liability, Arla has applied to the OFT for leniency and will receive complete immunity from financial penalty if it continues to fully co-operate. Therefore the OFT’s investigation against Lactalis McLellant, Morrisons and Tesco continues. The parties will have the opportunity to make representations following the OFT’s provisional findings as laid out in the Statement of Objections. If the parties still under investigation are found to have acted anti-competitively they risk being fined much higher sums than the current penalties imposed. However, those which have not admitted liability believe they have not acted in a manner which was anti-competitive. For example Tesco has stated that it acted independently and did not collude with anyone.

The OFT has stated that this settlement is another example of the “flexible approach the OFT is prepared to take to reduce the burden of investigations”. This follows its approach in 2006 when it agreed a settlement with independent schools accused of fee fixing. In that case the OFT proposed a settlement to the 50 schools involved. This concluded with the schools admitting their involvement in anti-competitive behaviour, although they made no admission as to the effect of the infringement on fees. In addition, the schools accepted fines of £10,000 each and agreed to contribute a combined £3 million to a trust which would be set up for the benefit of students who attended the schools at the time of the fee fixing. The OFT has therefore shown it is keen to move towards agreeing settlements with cartelists.

The OFT’s new stance seems to reflect that taken by the Dutch Competition Authority. When investigating a cartel which included over 600 companies, the authority offered a 15% reduction in fines to companies which agreed to accept the facts and legal assessment and to forgo the right to an individual hearing. This allowed the authority to avoid the administrative burden associated with dealing with each company on an individual basis. Over 80% of the companies involved elected to take advantage of this offer and agreed early settlements.

The European Commission is also currently considering extending its legislation to include a settlement procedure. Therefore it seems that settlement procedures such as seen in the dairy price fixing case might become even more common in the UK as well as elsewhere in the EU.

Source: OFT press release, available at http://www.oft.gov.uk/news/press/2007/175-07