Judicial review of OFT decision to close Cityhook case finds that the OFT acted reasonably

06 May 2009

Jeremy Robinson

On 20 January 2009, the High Court, by way of judicial review, ruled that the OFT had acted reasonably in closing an investigation under the Competition Act 1998.  This is the first time that the Court has ruled on the OFT’s discretion to close a case for lack of administrative priority.  It remains to be seen whether the complaint will be transferred to the Office of Communications (Ofcom) or whether Cityhook will pursue a private action in the High Court. 

Cityhook was founded in 1999 by three British engineers who had extensive experience of installing apparatus under the sea-bed.  The company wished to exploit a patented invention of a foreshore ducting system.  This invention was said to be valuable for new entrants wishing to provide international telecommunications services.  The majority of cables between Europe and North America connect to beaches in Cornwall or elsewhere in South West England.  Much of the foreshore where cables could most conveniently be located is owned and controlled by the Duchy of Cornwall.  Cityhook had entered into agreements with the Duchy of Cornwall for the use of its technology on the Duchy-owned foreshore. 

In 2000, members of United Kingdom Cable Protection Committee (UKCPC) including Level 3 Communications Ltd, British Telecommunications and Global Crossing Ltd, proposed to land cables in Widemouth Bay in North Cornwall on Duchy of Cornwall land.  Cityhook’s case, as evidenced by an e-mail to UKCPC companies, was that there was a collective boycott of Cityhook’s technology and the potential landing site was moved to a neighbouring bay which was under the control of the local district council.  The actions of the members of UKCPC, if they took place, amounted to a collective boycott of Cityhook’s technology and any other services it offered.  This was termed the “Collective Boycott Case”.

Cityhook complained to the OFT on 21 February 2002, and on 1 August 2002, the OFT formally concluded that the complaint gave rise to reasonable grounds for suspecting an infringement of Chapter 1 prohibition and an investigation under section 25 of the Competition Act 1998 was opened.  Further, on 12 June 2003, the OFT formally opened what became known as “the Collective Setting case” which concerned the setting of “wayleave” fees for landing cables by UKCPC companies. 

On 24 January 2006, the OFT sent a Provisional Closure Letter to all parties and a final decision to “close the file” was communicated on 23 June 2006. 

Between 2002 and 2006, the OFT had changed priorities; and from early 2005 there were six categories of factors to prioritise competition cases:

  1. consumer benefit in taking the case forward;

  2. strength of evidence available;

  3. type of infringement;

  4. any aggravating or mitigating factors;

  5. policy considerations (does case have precedent value or is it in a priority area; those being currently: consumer credit, healthcare, construction, mass-marketed scams and interaction between government and markets); and

  6. whether enforcement under the Competition Act 1998 is the most appropriate way to deal with the problem and whether the OFT is the most appropriate body to undertake enforcement action.

On 3 September 2007 Cityhook’s appeal to the Competition Appeal Tribunal against the decision of the OFT to close the file was found to be inadmissible, as there was no appealable decision under sections 46 and 47 of the Competition Act 1998.

Following the Competition Appeal Tribunal decision, the stay on the claim for the judicial review of the OFT’s administrative decision, was lifted, and permission to pursue it was given on 28 November 2007.  The Judge who heard the application for Judicial Review said the case raised very important issues, the principal issue was the degree to which a statutory body, whose remit is to investigate activities prohibited by statute may decline to proceed further with an investigation even though it has found prima facie evidence of prohibited conduct, which in this case was alleged to have been carried out in concert by several large concerns at the expense of a small one.

The OFT argued that this case did not have priority because there was very little evidence of consumer detriment; although there was evidence of a potential infringement, more evidence was needed on the effects and counter-arguments had to be investigated.  Furthermore, the case did not fall into the OFT current priority area; there were no aggravating or mitigating features and finally, policy consideration of the amount of effort already put in (the investigation had reportedly cost £1.5 million) should not alone deter the OFT from closing the case, if it believed that its resources were better used elsewhere in the future.  It was noted that the OFT had resources to commence only between 25 and 40 cases each year, out of the 1200 complaints received. 

Cityhook has lost time since making its complaint to the OFT.  The judge directed that proper consideration be given to the possible transfer of the case to Ofcom, which he felt should have happened in 2006, but could still be transferred now.  If Ofcom does not take up the case, the only recourse left to Cityhook is to pursue a private action in the High Court.

Source: The Queen (on the application of Cityhook Limited, Cityhook (Cornwall) Limited v The Office of Fair Trading [2009] EWHC 57 (Admin)