Cityhook Ltd Cityhook (Cornwall) Ltd, R (on the application of) v Office of Fair Trading (Rev 1)

This case raises the issue of the extent to which the Office of Fair Trading (‘the OFT’), the body charged with policing and enforcing the Competition Act 1998 (‘the 1998 Act’), may be the subject of judicial review in respect of a decision to close an investigation into suspected infringements of the Act.

In granting the Claimants permission to apply for judicial review of the decisions of the OFT the subject of this case, His Honour Judge Andrew Gilbart QC, in his capacity as a Deputy High Court Judge considering the application on the papers, said that the case “raises very important issues”, the principal issue being “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 two decisions (‘the Contested Decisions’) lying at the heart of this claim were notified in a letter from the OFT to Cityhook Ltd (‘Cityhook’) dated 23 June 2006 (see paragraph 43 below). The claim for judicial review (made by Cityhook without at that stage being represented) was lodged on 22 September 2006 as a “protective application” and thereafter stayed whilst an appeal against the Contested Decisions was made to the Competition Appeal Tribunal (‘the CAT’). The CAT, created by section 12 and Schedule 2 to the Enterprise Act 2002, is the specialist tribunal with jurisdiction inter alia to hear appeals on the merits in respect of decisions made under the 1998 Act by the OFT and other regulators in the telecommunications, electricity, gas, water, railways and air traffic services sectors. In relation to appeals within the jurisdiction of the CAT, the Tribunal may confirm, set aside or vary the OFT’s decision, remit the matter to the OFT or make any other decision that the OFT could have made.

Over two days in January 2007 the Tribunal, chaired by the late Marion Simmons QC, considered a preliminary issue arising in the appeal to the CAT that Cityhook had launched in August 2006, namely, whether the Contested Decisions were appealable to the CAT under sections 46(3)(a) and 47(1)(a) of the 1998 Act. Cityhook was represented by its Chairman, Mr Kenny Shovell (a former Partner of Ernst & Young), who was assisted by Mr David Greene, a partner in Messrs Edwin Coe. The OFT and other interested parties were represented.

In a decision promulgated on 3 April 2007 the Tribunal held that it did not have jurisdiction under sections 46 and 47 of the 1998 Act to entertain the appeal and the appeal was, accordingly, dismissed. In a nutshell, the Tribunal decided that the closure of the case did not amount in substance to a decision that there either had or had not been an infringement of the Act, a decision of one or the other being a necessary precursor to the bringing of an appeal.

The judgment (reported under the Neutral Citation [2007] CAT 18) runs to some 94 pages containing 299 paragraphs. It gives a comprehensive history of the issues arising and I should like to pay tribute to its thoroughness and clarity. I acknowledge my indebtedness to it for its exposition of the issues that fell for determination by the Tribunal.

Following the decision of the CAT, the stay on the claim for judicial review was lifted, the application reinstated and permission to pursue it was given on 28 November 2007.

Before descending into the detail of the case and the arguments advanced by the various parties concerned, it would be helpful to say something about those parts of the Competition Act that are relevant to the issues arising and to the statutory role of the OFT.

Section 2 of the 1998 Act is closely modelled on what is now Article 81 of the Treaty establishing the European Community (the ‘EC Treaty’), formerly Article 85 of the Treaty of Rome. Article 81 defines what is known as “the Chapter I prohibition” and is in these terms:

“1.

The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

(a)

directly or indirectly fix purchase or selling prices or any other trading conditions;

(b)

limit or control production, markets, technical development, or investment;

(c)

share markets or sources of supply;

(d)

apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e)

make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

2.

Any agreements or decisions prohibited pursuant to this article shall be automatically void.

3.

The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

any agreement or category of agreements between undertakings, any concerted practice or category of concerted practices which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(a)

impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b)

afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

The material parts of section 2, which essentially mirror Article 81, are in these terms:

“Agreements etc preventing, restricting or distorting competition

(1)

Subject to section 3, 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 unless they are exempt in accordance with the provisions of this Part.

(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;

(b)

limit or control production, markets, technical development or investment;

(c)

share markets or sources of supply;

(d)

apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e)

make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts….”

The OFT “may conduct an investigation if there are reasonable grounds for suspecting … that the Chapter I prohibition has been infringed”: section 25(1)(a). There are further provisions within the Act to facilitate any investigations: ss. 26-30. Section 31(1) provides as follows:

“If as a result of an investigation the OFT proposes to make a decision, the OFT must-

(a)

give written notice to the person (or persons) likely to be affected by the proposed decision; and

(b)

give that person (or those persons) an opportunity to make representations.”

The written notice referred to in section 31(1) comprises a “Statement of Objections” which sets out the alleged infringements, the evidence relied on and the conclusions the OFT proposes to draw from the evidence set out in the notice: rules 4 and 5 of The Competition Act 1998 (Office of Fair Trading’s Rules) Order 2004. (Throughout the documentation in this case, the abbreviation ‘SO’ for a Statement of Objections has been used. I propose to do the same.)

Once an SO has been issued and responded to the OFT must then decide how to proceed. The issue will be whether to make an infringement or non-infringement decision which then will engage the notification and publication requirements of rule 7 of the Rules.

Various provisions concerning directions that may be made by the OFT following an infringement decision appear in sections 32-34 and provisions concerning interim measures appear in section 35. Provisions concerning penalties imposed for infringement appear in sections 36-38, the maximum penalty being 10% of the turnover of the undertaking concerned: section 36(8).

As will appear in due course, no SO was in fact issued in this case so that section 31 and the rules that govern what occurs thereafter never became engaged. The Contested Decisions were made before that stage had been reached.

There is one other feature of the Act to which I should refer. The plain legislative intention was to harmonise so far as possible UK law with European Community law in this particular context. Section 60(1) demonstrates the purpose to be “to ensure that so far as is possible (having regard to any relevant differences between the provisions concerned), questions arising under this Part in relation to competition within the United Kingdom are dealt with in a manner consistent with the treatment of corresponding questions arising in Community law in relation to competition within the Community.” This finds further reflection in subsections (2) and (3) which provide as follows:

The OFT is bound by this approach: section 60(4)(a).

It will be necessary to say more about the statutory context when dealing with the case for judicial review of the Contested Decisions advanced on behalf of Cityhook. I will now turn to the factual background to this case.

Cityhook was founded in 1999 by three British engineers each of whom had extensive experience of the installation of apparatus under the sea-bed. As a company it was formed to exploit a patented technology invented by one of its founders, Mr Mike Wilson. His invention consisted of a foreshore ducting system involving the drilling of a tunnel under the foreshore and sea-bed ultimately emerging about 1 km offshore. The duct thus laid was of a sufficient dimension to accommodate several sub-ducts.

The purpose of this arrangement was to enable the reception within the duct of a number of submarine fibre optic cables that would then find their way under the sea-bed onto the mainland.

Traditionally, those who wish to bring cables onto the UK land mass have to make provision on an individual basis with all the necessary excavation, ducting and so on being dealt with as a “one-off” arrangement. That arrangement will involve, amongst other things, the payment of sums under wayleave agreements to any landowners over or under whose land any of the communication lines run, particularly the land of the owner of the foreshore.

One advantage of Cityhook’s technology, it is claimed, is that it offers speed and certainty in the landing of cables compared with traditional arrangements. It is contended that the use of this technology and methodology can reduce significantly the period of time between when a cable is planned to the time it generates revenue. This, it is argued, is particularly valuable for new market entrants endeavouring to provide international telecommunications services. It is suggested that it eliminates the risk of delays in obtaining permits and other rights over the land where the cables are to run. It is argued that it also has significant environmental benefits over the existing crude methods which involve repeated excavations of the foreshore.

For reasons which will become apparent, these claims have not yet been tested and there may, of course, be another side to the argument. However, it is not difficult to see why the claims have been made: one tunnel involving one excavation is prima facie more likely to be cost-effective and environmentally-friendly than, say, ten separate tunnels in ten separate locations. However, it is not the task of this court to decide on the merits of those claims, nor would it have the material upon which to do so.

Many submarine cables from outside the UK are required for communication purposes. The majority of cables between Europe and North America land on or exit from beaches in Cornwall and South West England: it is the nearest point to the American continent. Much of the foreshore where cables of this nature would most conveniently be accommodated is owned and controlled by the Duchy of Cornwall.

Cityhook was funded and supported with additional expertise by CNS Limited (‘CNS’), an oil, gas and telecommunications marine engineering company with which Mr Wilson was associated. Cityhook had secured agreements between Cityhook (Cornwall) Limited (a wholly-owned subsidiary of Cityhook Limited) and the Duchy of Cornwall for the use of its technology in respect of cables landed on the foreshore controlled by the Duchy.

Cityhook had raised £3 million of third-party financing conditional on the deployment of its technology in the Duchy. Those who might consider utilising the arrangements and technology offered by Cityhook would include those with an interest in establishing new cables from the USA into the UK and Europe. Essentially, those providing or seeking to provide international telecommunications services and those who supported such services ought in principle to be interested in this new technology.

There are a number of companies that would fit the description given in the preceding paragraph including Alcatel Submarine Networks Limited (“Alcatel”), British Telecommunications plc (“BT”), Cable and Wireless plc (“Cable and Wireless”), Level 3 Communications Limited (“Level 3”), GC Pan European Crossing (UK) Limited and Global Crossing (Europe) Limited (together “Global Crossing”), Global Marine Systems Limited (“GMS”), NTL Group Limited (“NTL”), Flag Telecom ("Flag"), Viatel and Tyco Telecommunications (US) Inc (“Tyco”). Alcatel and Tyco manufacture, install and maintain submarine cables. Global Crossing lays and maintains submarine cables.

The United Kingdom Cable Protection Committee (‘UKCPC’) is an unincorporated trade association of submarine cable owners, operators and suppliers. Each of the companies referred to above is a member of UKCPC.

In about 2000, Level 3, BT and Global Crossing were proposing to land cables on Duchy land at Widemouth Bay in North Cornwall. It is Cityhook’s case that those companies viewed the use of its new technology at this landing site (and potentially at other landing sites they might wish to use in future) as a commercial threat. The result, it is said, was a collective boycott of Cityhook's technology and the move of the potential landing sites from Widemouth Bay to the neighbouring Crooklets Beach, where the foreshore was under the control of North Cornwall District Council.

That broad case from Cityhook’s point of view was, it is argued, supported or evidenced by an e-mail sent on behalf of Level 3 to representatives of other companies forming the UKCPC. The relevant parts of the e-mail were in these terms:

“Gentlemen, This may be my last opportunity to inform you of a potentially damaging situation arising in our industry due to the possibility of Level 3 soon signing a non-disclosure agreement.

The Duchy of Cornwall have informed the companies planning to land at Widemouth Bay that in future we must negotiate and allow technical solutions to be provided by a company called Cityhook.

This is a very dangerous situation as it will result in our industry being controlled and dictated to by a third party from outside the industry and may result in forced technical solutions that do not address our needs. This company has managed to make a deal with the Duchy involving the laying of a large pipe perhaps with an off-shore platform, and we are expected to lease space in this pipe.

Obviously there are great technical concerns and concerns regarding the likely cost and timescale of this. The Duchy has behaved in a completely disreputable manner and similarly Cityhook have been underhand in the way that they have operated and tried to force our hand at a very late state in the projects concern.

All companies are resisting this and are actively seeking government support. The real danger is that our industry must plot its own destiny and once we have accepted a covert proposal of this sought on Duchy beaches then it may quickly spread to other beach landings.

Therefore I would make the following strong recommendations to members:

1.

They actively avoid planning a cable to land at a Duchy beach for the foreseeable future.

2.

If approached by Cityhook, please resist any attempts to be persuaded by them until such time as we can discuss at a UKCPC meeting. On no account should any deal be struck and non-disclosure agreements should be avoided. Failure to comply could have dire consequences on our industry. Please also alert any installation people in your relative companies of this danger.”

It is Cityhook’s case that by this e-mail and other communications and meetings other competitors or customers who were members of the UKCPC were informed of the situation at Widemouth Bay and encouraged to take part in the boycott and to adopt a common position of refusing to deal with Cityhook, thus isolating it from its backers. Cityhook alleged that this joint stance by other members of the UKCPC was evidenced inter alia by refusals of Tyco and Alcatel to give work to CNS if it continued its association with Cityhook, the concerted refusal by members of UKCPC to sign non-disclosure agreements (NDAs) with Cityhook in respect of the use of its technology and the initial interest shown in collaborating with Cityhook by some members of the UKCPC only for scheduled meetings to this end to be cancelled at short notice without explanation. Cityhook also claimed to have been privy to certain information about discussions between UKCPC members which indicated that the objective of the UKCPC members was to boycott Cityhook for commercial rather than technical reasons. Moreover, according to Cityhook, its technology had been the subject of favourable comment by a senior technical expert at Global Crossing and someone from inside Level 3 had indicated that, far from having doubts about Cityhook's technology, it was seeking to develop and patent a similar technology itself.

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.

Cityhook complained to the OFT about those matters on 21 February 2002 and on 20 June that year the OFT sent Cityhook a summary of its complaint for comment. On 1 August 2002 the OFT concluded formally that the complaint gave rise to reasonable grounds for suspecting an infringement of the Chapter I prohibition and an investigation under s.25 of the 1998 Act was opened. On 23 August twenty (20) information requests were issued to the UKCPC and companies under suspicion pursuant to section 26. During October 2002 the OFT received responses to its initial information requests. Various detailed submissions as to why there were no grounds for suspecting any infringement of the Chapter I prohibition were made (principally by means of a letter from Mr Edward Pitt, a partner in Theodore Goddard, on behalf of UKCPC dated 9 October 2002).

Because the OFT and the telecommunications regulator (then known as OFTEL) had concurrent powers in these matters (see section 54), there had been some discussions and contacts between both organisations in 2002 and 2003 the end result of which was that the Director General of Telecommunications on 24 April 2003 agreed formally that OFT was the "competent person" to exercise "prescribed functions" under the 1998 Act in respect of Cityhook's complaint regarding the collective boycott.

On 21 May 2003 Cityhook provided extensive material pursuant to a section 26 request dated 28 April 2003.

In the course of its investigation of what became known as ‘the Collective Boycott Case’, the OFT found evidence that gave it reasonable grounds for suspecting the existence of a separate Chapter I infringement relating to the collective setting of wayleave fees for landing cables on Duchy land. On 12 June 2003 it opened formally what became known as ‘the Collective Setting Case’. Thereafter further section 26 requests were issued by the OFT to various parties, including Cityhook. (In due course, on 8 January 2004, OFCOM agreed that the OFT was the "competent person" to exercise the "prescribed functions" in respect of the Collective Setting Case. It should, perhaps, be noted at this point that Cityhook did not make the complaint about this matter: it was an avenue of investigation that opened up as a result of the Collective Boycott Case. This is an issue to which it may be necessary to return.)

On 29 September 2003 a case team member advised Mr Shovell in a telephone conversation that following a review of the section 26 responses the OFT would probably start drafting an SO before the end of the year.There were further telephone conversations on 4 June and 18 August 2004 in the latter of which Mr Shovell was advised that although progress had been made in drafting the SO, the OFT had to prepare for the disclosure of a very significant number of documents in the event that it issued the SO. He was also advised that the case team’s draft would have to go through a long reviewing process involving several departments in the Office and that these procedures could take at a “very rough estimate” until June 2005.

On 26 November 2004 Mr Shovell was advised that the SO would not be drafted before the New Year and further on 6 December 2004 he was told that there was an internal deadline of July 2005 for the issuance of the SO if the OFT issued one.

Various events within the OFT occurred thereafter to which I will refer below, but the next event involving Cityhook appears to have been a meeting on 27 January 2005. It appears that a representative of the OFT (Marie-Barbe Girard) provided Mr Shovell and Mr Wilson with an update on the case. She explained to them the process of drafting and issuing the SO though she said that the OFT could not commit to any deadlines for the case except that it was expected that an SO would be issued by the end of the summer. She explained that the parties would then have an opportunity to respond and that a final decision by the OFT would probably be reached in early 2006. Another member of the OFT team apparently emphasised that no decision had yet been reached to issue an SO although a decision to draft one had been made. As will appear, this was indeed what had been decided within the OFT.

Cityhook would not, therefore, have necessarily been expecting developments for some while, but a member of the case team informed them on 19 December 2005 that there had been no developments and that the decision on the way forward was likely to be taken by the Director of Competition Enforcment (‘CE’) and/or the CE Case Manager, in conjunction with the Chief Executive, Dr Fingleton. It was not in fact correct that there had been no developments, but that was obviously what the team member believed.

On 24 January 2006 the lengthy Provisional Closure Letter (following the OFT Guidelines called Involving Third Parties in Competition Act Investigations, OFT 451) was sent to all interested parties, including Cityhook. The terms of that letter appear in Appendix 1 to this judgment. The formal consultation period closed on 17 February 2006, though Cityhook certainly sent a number of letters to the OFT after this date to parts of which I will refer later.

This appears to have been the first intimation to Cityhook (or to anyone) of an intention no longer to proceed with the investigation and would undoubtedly have come as a shock. Mr Shovell, who apparently did not see the letter until 1 February, sent a detailed response to Mr Philip Collins, the Chairman of the OFT, dated 11 February. Again, I will refer to this letter later, but Mr Shovell described the news as a “bolt out of the blue” and the provisional decision “astonishing”. In a letter dated 16 February 2006 the Land Steward for the Duchy of Cornwall said that the provisional decision “had come as a surprise, given the amount put into the case by the OFT team and the fact that there did appear to be a case to answer.”

The OFT’s final decision was made on 19 June 2006 and notified to Cityhook and other interested parties by another lengthy letter dated 23 June 2006 to which was attached an Annex. The letter confirmed the OFT's provisional decision and annexed a summary of the responses received from 12 different respondents. The Final Closure Letter and its Annex (which constitutes ‘the Contested Decisions’) appears as Appendix 2 to this judgment. I will say more about it and the Provisional Closure Letter below, but it represented the decision of the OFT to ‘close the file’ on the investigation and it is the decision that Cityhook seeks to challenge in this application.

It will be apparent from the foregoing chronology that, so far as Cityhook was (and doubtless the other parties who had become involved were) concerned, nearly 4 years had elapsed between the initial complaint and the promulgation of the provisional decision to close the file. Cityhook had not traded during that time, but had, of course, had the various contacts with OFT officials to which I have referred in paragraphs 33-39 above.

It is clear that various discussions about the case had been going on at various times within the OFT and various other events were occurring within the OFT context during this period that had led to these letters. I must trace that history.

As indicated in paragraph 33, the formal investigation into the Collective Boycott Case began on 1 August 2002 and information was gathered over the succeeding months and into 2003. The internal processes of the OFT are that, when it is clear to the case team that the investigation is moving towards the drafting of an SO, a ‘skeleton’ for internal submission is prepared. Mr Vincent Smith, then Senior Director for Competition, in his 1^st witness statement prepared for the CAT proceedings, described such a skeleton in these terms:

“The purpose of this submission was for the case team to outline the case, the key arguments and the issues as identified by the case team at that stage in the life of the investigation. In addition the skeleton would generally recommend the way forward for the case. Following approval from the Branch Director, input from the then Legal Division and colleagues in the then Policy Branch would be sought. Thereafter the skeleton would be sent to the Director of CE Division for approval. Subsequently, the skeleton would be forwarded to the then Chairman of the OFT, Sir John Vickers, for his view.”

On 24 July 2003 a skeleton dealing mainly with the Collective Boycott Case, but also referring to certain limited matters which the case team had discovered by that time in connection with the Collective Setting Case, was forwarded to Sir John Vickers and copied to a number of other people including Mr Smith (in his capacity as Director of Competition Policy Coordination and deputy Director of CE Division) and the then Director of CE Division.

On 28 July 2003 Sir John Vickers told the case team that he was happy for the drafting of an SO to commence subject to noting that there were some unresolved issues (for example, in connection with market definition and the economic and commercial logic of the Collective Boycott Case). In consequence the case team continued to pursue its investigations into both cases including, at various times, using the statutory powers to request information and documentation relating to both investigations from the UKCPC, some of its members and third parties.

A further skeleton was sent to Sir John Vickers on 7 October 2004 covering, amongst other things, the Collective Setting Case. This was copied to Mr Smith amongst others. On 11 October 2004 Sir John Vickers that he was happy for the cases to go forward to the internal Case Review Panel (“CRP”) process and that he viewed the hard issues as being whether (i) to address the SO to the UKCPC only and (ii) any resulting fines should be real or token. Mr Smith says in his 1^st witness statement that this was not a decision to issue an SO, but a decision to draft an SO that would then be subject to peer review through the internal CRP process. On 12 October there was a detailed meeting between OFT and OFCOM officials in which both cases were discussed. Additionally, the OFT officials informed OFCOM of a further possible wayleave setting infringement by the National Wayleaves Forum (‘NWF’). I will return to communications between the OFT and OFCOM in paragraphs 166-189 below.

At that stage Mr Smith was not the ultimate decision-maker that in due course he became. His personal view then was that there was good evidence that an infringement of the Chapter I prohibition had been committed by the UKCPC. In those circumstances, and given the gravity of the infringement, he considered it would be difficult to close the cases on administrative priority grounds and, accordingly, his view was that the OFT should proceed to issue a SO. However, given the size of the market he believed it would be proportionate only to proceed against UKCPC. That is the way he expressed himself in his witness statement. I do not think that the reference to closing “the cases on administrative priority grounds” reflected active consideration being given to such a possibility at the time. As I understand it, it merely represented an observation on the merits of the position then compared to the merits when this issue was considered subsequently. However, although not then the decision-maker, Mr Smith was plainly of the view that, all things being equal, there was justification for drafting an SO.

On 9 December 2004 the OFT made a case management decision to focus the draft SO on those parties believed to be the most culpable which included the UKCPC. As a result letters were sent in the next month or so to all parties that had been targets in the investigation, indicating whether or not they would be an addressee of an SO, if issued. These letters made it clear that no decision had been taken, at that stage, as to whether or not to issue an SO.

Over the next few months the case team proceeded to draft an SO focusing on the following alleged infringements:

As I will indicate in paragraphs 119-142 below, whether the alleged collective boycotting or collective setting agreements were “object” or “effect” agreements under section 2(1)(b) of the Act assumed a significance in the further discussions thereafter. At all events, the draft SO was available by early August 2005.

It is of significance to observe that it was during 2005 that the OFT put in place (during the currency of the National Audit Office (‘NAO’) investigations into the competition enforcement work of the OFT) new guidelines on prioritisation. I will return to that in paragraphs 99-116 below.

Under the system in place at the time, when a draft SO was in fairly advanced form and approved by the relevant Branch Director it was put to a CRP (see paragraph 49 above) for internal peer review. The CRP comprised a panel of CE Division and Legal Division staff with all CRP members being independent of the case team. It reviewed critically both the draft SO and the supporting evidence before recommending whether the SO should be issued and, if so, whether any changes or further investigation were needed. The CRP’s views would then be discussed at a Case Review Meeting (‘CRM’) between the CRP and the case team. The position taken by the CRP was solely advisory (representing the candid view of officials) and the position taken at the CRM was not definitive since it was also a candid discussion between officials and not a decision-making meeting. Neither the CRP nor the CRM bound the final decision-maker.

The CRM to discuss the draft SO took place on 13 October 2005 chaired by Mr Ali Nikpay, the Senior Director of Case Scrutiny and Policy. Other participants included representatives of the case team, representatives of the CRP and other policy and economic advisors. The evidence demonstrates that the views of the case team and those of the CRP were, as Mr Smith put it in his 1^st witness statement, “strongly opposed” and the differences remained unresolved at the end of the meeting. He described the differences in this way (the added emphasis being mine):

“In broad terms, prior to commencement of the CRM, the case team’s suggested way forward was for an SO to be issued, characterising the infringements as object and effect in connection with both the Collective Boycott and the Collective Setting Cases. In contrast, the CRP proposed that further work should be done so as to allow a non-infringement decision to be adopted in relation to both the Collective Boycott and the Collective Setting Cases.”

He summarised the deep-rooted differences between the case team and the CRP in relation to the Collective Boycott Case as involving, first, whether the infringement should be categorised as an object or effect-based restriction. According to Mr Smith, the CRP considered that, on the basis of a review of the case law and policy statements from the European Commission, a collective refusal to purchase should be characterised as an effects-based rather than an objects-based infringement unless (a) it was linked to an underlying cartel or (b) possibly, it was aimed at eliminating a competitor. (The passage underlined is one to which I will return in paragraph 127 below.) The case team was of the view that a collective refusal to purchase was an object-based infringement. The second area of difference related to the issue of the strength of the evidence that the boycott had an appreciable effect on competition if the infringement was characterised as an effect-based restriction.

In relation to the Collective Setting Case, Mr Smith summarised the differences again as (i) whether the collective setting of wayleave fees should be categorised as an object or effect-based restriction, (ii) if and to the extent that it was to be regarded as an effect-based restriction, whether the draft SO proved to the required standard that the arrangements in question had an appreciable effect on competition and (iii) whether certain exemption criteria might be satisfied. So far as (i) was concerned, the CRP argued that the Collective Setting Case concerned a joint purchasing arrangement which would not, of itself, appear to constitute an object restriction. The case team disagreed strongly, arguing that the evidence in this case was not consistent merely with a joint purchasing agreement but with a buyers’ cartel.

The conclusion recorded in the minutes of the CRM (with which the case team disagreed strongly) was that, on the facts of the case, any provisional finding of infringement should preferably be based on an analysis that the collective refusal to purchase had a negative effect on competition. It was noted that the draft SO categorised the infringement as both object and effect-based, but the effect on competition had not been established to the requisite standard. It was stated that this would require pursuing new lines of enquiry, for instance whether Cityhook’s technology would have made market entry easier for telecommunications companies. A similar conclusion was reached in relation to the Collective Setting Case where it was concluded that “given that no downstream effect on competition was likely, such a case would require evidence of effects on other affected markets in relation, for instance, to sub-optimal prices leading to misallocation of resources.”

By this stage it is plain, as Mr Smith has said, that “there was no internal consensus regarding the way forward for either” case: indeed there remained “strongly opposed internal views”.

Against the background of the increased emphasis within the OFT on the efficient progression and prioritisation of its competition casework and the need to review the priority attaching to particular cases at various points in the investigation, including when deciding whether to issue an SO, Mr Smith asked Mr Mayock (as CE4 Branch Director) to conduct a fresh substantive review of both cases He also asked Mr Priddis (as Senior Director of Competition Casework) to review both cases against the OFT’s administrative priorities.

Mr Mayock recommended that an SO should be issued, characterising both cases as object and effect infringements. He noted that, whilst the law on object restrictions for both infringements was unclear, a credible argument could be advanced to support object-based infringements. He further recommended that, prior to the issue of any SO the case team would need to supplement the cases by reference to “the theory of harm (in connection with the Collective Boycott Case) and the effect on the supply of land (with regard to the Collective Setting Case).” In his view, this approach was preferable to issuing a non-infringement decision which would send an inappropriate message in view of the substantive analysis of the case and which would also have significant resource implications. He said that it was clear from the evidence cited in the draft SO that there was at least a technical case to answer for both infringements. In his opinion, the draft SO could be made more robust in relation to the effects analysis with limited further work (albeit that there would still be concerns about the robustness of the cases).

Mr Priddis (to whom Mr Maycock reported) was of the view that both cases should be closed on administrative priority grounds. He accepted that the cases were not non-infringement cases: he considered that the evidence suggested “a degree of horizontal coordination inconsistent with proper competition and that closing the cases on the basis of a non-infringement decision was not an option”. He was concerned about “the weakness of the current evidence as to the anti-competitive effects of the alleged conduct” though he accepted that it was possible that further evidence could be gathered. He regarded the lack of a compelling “story of harm” as a problem and that as yet unexplored exculpatory arguments, in particular as to the weaknesses of the Cityhook technology and the economic imperative on the parties to act given that their cables were just about to arrive off the UK coast and needed to land, might be relied upon.

Mr Priddis expressed the view that to take the cases forward additional resources would be needed over an estimated 3-year period. His reasons for this were as follows. First, there would be further drafting and further investigative work in connection with the draft SO. Second, if an SO was issued, substantial resources would be needed to deal with the written and oral representations submitted by the parties, without touching on the question of the resources needed subsequently to draft a final decision. Third, there was also the question of the resources needed to deal with the (inevitable) appeal. Mr Priddis did not believe there to be a compelling case for allocating further OFT resource to either case which should be treated as “low priority” given, in particular, the absence of “identifiable consumer detriment.” He felt there were a number of other cases then active that were of higher priority (in particular due to the clear story of harm and identifiable consumer detriment) and to which, in order to progress them promptly, he needed to dedicate additional resources. In relation to whether another case (or other cases) should be closed to retain the Cityhook matter, he was of the view that there was no other case at a key milestone at the time at which such a decision or decisions could sensibly be taken. In any event, he argued that it may have been that given the need to “staff up” a number of live matters, the OFT needed to close a number of current investigations.

Mr Priddis put forward the view that a core focus of the programme of organisational change that was occurring at the time was to take forward fewer cases in order that those remaining could have resources properly dedicated to them. This did not mean that cases that had been running for a long time would necessarily be closed down, but it also meant that long-running cases were not immune from closure.

Further views advanced by Mr Priddis at the time are reflected in sub-paragraphs (a) – (f) of paragraph 24 of the Provisional Closure Letter (see Appendix 1).

On 6 December 2005 a meeting was held to discuss the way forward. This was attended by senior personnel including Mr Smith, Mr Priddis, Mr Mayock, Mr Nikpay and members of the CRP and of the case team. In his witness statement, Mr Smith says that “the strongly opposing views of the case team and CRP regarding the substantive assessment of the two cases were again manifest.” Mr Smith was left with the responsibility of making the decision about what to do. His witness statement records that he “decided provisionally, on balance, that both [cases] should be closed on the grounds of administrative priority.” He said he was persuaded that neither case then constituted a sufficiently high priority for the OFT for the reasons Mr Priddis had put forward and, in particular, they were not of a sufficiently high priority relative to certain higher priority cases. As a result the Provisional Closure Letter was written and sent by Mr Maycock.

I will deal with the criticisms made of the process of considering the responses to the Provisional Closure Letter in due course, but I should summarise the responses to it.

It appears that 13 separate responses were received from 12 different respondents. The position taken by the various respondents was (and is) summarised in the Annex to the Final Closure Letter: see Appendix 2 to this judgment. The identity of the individual respondents is not revealed in the Annex nor indeed (save in respect of Cityhook) in the evidence before the court; but it does not require much imagination to draw the inference that those respondents who favoured the proposed closure of the investigation would have been those who might have found themselves the subject of an SO. Equally, it is plain that Cityhook was primarily responsible for putting forward the opposite view.

In support of the proposed closure, the following strands of argument can be deduced from the Annex:

Cityhook and those supporting it made a number of trenchant observations on the proposed closure that can be summarised as follows:

The argument that Cityhook advanced in relation to the perceived lack of evidence of “consumer detriment” was summarised accurately at paragraphs 9-12 of the Annex to the Final Closure Letter and I will not extend the substance of this judgment by simply repeating it here. It was neatly summarised in a further letter from Mr Shovell to the OFT dated 26 April 2006 (which Mr Smith has acknowledged that he saw and took into account) when he said this:

“The cartel has deprived consumers of the benefit of price reduction through the deployment of new technology. To suggest otherwise would be manifestly in error.”

This argument, together with the OFT’s response, sets in context one issue concerning the adequacy of the OFT’s reasoning that I will have to address in due course: see paragraphs 143-150 below.

There is one particular aspect of the Final Closure Letter I should mention at this stage. Paragraph 21 of that letter refers to the further work said to be required to produce a sufficiently robust SO for issue. According to the letter, it would have had “to include, in particular in both cases, a more thorough analysis of the effect of the parties’ behaviour on competition.” Mr Smith has said that he took the view that the reference to a possible ‘object’ infringement in the provisional case closure letter should be omitted from the final case closure letter for a number of reasons and bearing in mind the views expressed to him by a senior legal adviser concerning the relevance of the CAT’s case law in this area. The reasons he gave were these: first, there was, as he had recorded previously, a strong difference in views within the OFT as to whether the alleged infringements could properly be characterised as being by ‘object’. He said that this point was also raised in a response to the provisional case closure letter and, as a result, at paragraph 5 of the Annex to the Final Closure Letter the OFT acknowledged that the original (provisional) letter may have given an unduly categorical impression of the OFT’s assessment of the issue of breach and that changes had been made to the Final Closure Letter to reflect the OFT’s assessment more closely. Second, looking at the cases in the round, the further resource requirements which led to them to being closed on administrative priority grounds related primarily to demonstrating an effect on competition. However, the additional resource requirements would not have been limited to this exercise. For example, given the ongoing internal debate within the OFT as to whether the alleged infringements could properly be characterised as being by ‘object’, further analysis and review of the case law would have been required before the OFT could take a position regarding an ‘object’ case. Further drafting work, he said, would also have been necessary in relation to both object and effect. (The CAT said this of that evidence at paragraph 281 of its decision: “In our view the foregoing passage does not explain why there is no reference to the object-based infringement in the final case closure letter.” I respectfully agree.)

I will return to these matters below: see paragraphs 119-142.

Before turning to the specific grounds of challenge to the decision to ‘close the file’ I need to say a little more about the internal review of the approach to the prioritisation of cases that had been continuing within the OFT from about 2003 onwards. Mr Smith said that the improvement of caseload management and prioritisation within the CE Division became a key focus of his work as Divisional Director from Spring 2004 and that this work ran in parallel with the National Audit Office investigation and report on the competition enforcement work of the OFT. That report was published in November 2005. One of its conclusions, reflected in the OFT’s own approach, was that the OFT could improve its performance by making better use of its resources.

One of the main changes resulting from this work, according to Mr Smith, was that from early 2005 the OFT had been using “six broad categories of factors” to prioritise competition cases:

Mr Smith said that these factors were used to give an indication of the relative priority of any given case, although the approach was rarely scientific and not all of the criteria were relevant in every case. The process of review was not static and would be undertaken at various stages (at “key milestones”) to determine whether the investigation should be progressed. The priority attaching to a particular case may change over time either because of developments in relation to that case and/or because of priorities attaching to other cases “which affect the relative weighting across the board.”

As from the beginning of 2005 the key milestones at which the priority of a particular case was reviewed typically included the following:

It will be apparent that by the time the two cases that were the subject of the Final Closure Letter came to be reviewed during 2005, particularly towards the end of 2005, these new criteria were being applied. Their influence can be seen in the two letters.

There are essentially three categories or areas of broad challenge made on Cityhook’s behalf to the decision to ‘close the file’:

Mr Lasok has argued that there are two essential stages in the processes provided for within the Act, at least so far as the issues that arise for consideration in this case are concerned. He submits that Stage 1 concerns the exercise of discretion under section 25(1) and Stage 2 concerns the exercise of discretion under section 31(1). The first stage involves a discretionary decision whether to investigate an alleged complaint of anti-competitive behaviour under the Act; the second involves a discretionary exercise as to whether to make a decision on the issue of infringement or non-infringement.

I will say a little more about this suggested division in the responsibilities of the OFT later, but his argument, expressed shortly, is this: deciding whether to initiate an investigation can involve, he says, matters relating to the resources of the OFT, but in Stage 2, where the issue is deciding on infringement or non-infringement, the discretion is very much more circumscribed. He does not suggest that at that stage the OFT is obliged to “carry on to the bitter end”, but does submit that it is only those factors that are “intrinsic features of the case” (eg the evidence becomes distinctly less persuasive than it once appeared) that should prevent a positive decision to proceed. The broader range of factors that might have been relevant in Stage 1 is, it is argued, no longer relevant in Stage 2. The purpose of the Act, he argues, is to secure the enforcement of the measures designed to prevent the anti-competitive activities mentioned in section 2 and, given the much better informed position that the OFT is or should be in at Stage 2, there needs to be a good reason for the OFT to be relieved of its duty to decide whether there has or has not been an infringement. The suggestion here is that, at this stage, there is far less scope for permitting as a relevant factor the prioritisation of cases according to resource implications than at an earlier stage.

The response of Mr Hoskins on behalf of the OFT, supported by the interveners, is that there is nothing in the Act that distinguishes between the nature and content of the OFT’s discretion to continue or discontinue an investigation depending upon the stage at which its processes have reached. The discretion conferred by the Act is an ongoing discretion and there is nothing, he argues, within the Act that suggests that its ambit changes over the passage of time. There is no warrant, he argues, for the suggestion that administrative priorities may not be taken into account at later stages in the OFT’s processes than in the earlier stages.

Whilst, in my judgment, there is little to be gained from going beyond the wording and structure of the Act for these purposes, I have been referred to a number of authorities or sources of authority that, it is suggested, may inform the approach to be adopted. Given that the OFT did decide to investigate Cityhook’s complaint, it is unnecessary to consider the extent to which it would be legitimate for the OFT to decline to investigate a complaint. That it takes such a position frequently is demonstrated by the Report of the National Audit Office published in November 2005 where it is recorded that the OFT receives about 1200 complaints each year which are sifted so as to identify about 30-50 cases that merit a full investigation. The Cityhook case clearly fell within the group of cases considered worthy of investigation and it is equally clear that the OFT must have considered at an early stage that “there were reasonable grounds for suspecting” that the Chapter I prohibition had been infringed.

The first question that arises is whether there is, as Mr Lasok contends, a duty on the OFT as the body entrusted by Parliament with enforcement powers to condition the exercise of the discretions conferred by the Act principally if not exclusively by reference to the enforcement responsibilities cast upon the Office by the Act notwithstanding the permissive nature of the statutory provisions.

Although there appeared at first sight to be some difference between the position taken by Cityhook and by the OFT on this, as the argument emerged it did not seem that there was much, if anything, between them on the issue of principle, although there may have still remained a difference of emphasis. It is clear that the Competition Act confers upon the OFT at least two (and, arguably three) discrete, albeit potentially overlapping, functions: that of investigator of an alleged infringement, that of ‘prosecutor’ of those considered to have infringed the Act in the manner prescribed by the Act and then that of decision-maker.

This reflects the observations of the Competition Tribunal in Claymore Dairies Ltd., etc. v. The Office of Fair Trading [2003] CAT 18 (President: Sir Christopher Bellamy) when it said this:

“In the system as established by the Act it seems to us in general that there are probably three stages. At the first stage the OFT is investigating. Then it moves to a second stage at which it has to decide whether it is to issue a [rule 4] notice. At that point, in our view, its mode is primarily a prosecutorial mode; in other words, the OFT has primarily its prosecutorial hat on. It seems to us that the question the OFT must ask itself is the question similar to that which a prosecutor would ask in other contexts, "Am I satisfied that this evidence, if uncontested, would be sufficient to establish a Chapter I infringement?" The OFT, if it can answer that question in the affirmative, will then proceed to issue a [rule 4] notice. Then comes the third stage. The OFT, as decision-maker, will hear arguments and will have to weigh up the evidence. The question for the OFT then at the end of that proceeding is still the question whether it is satisfied that the infringement is sufficiently proved, giving due weight to the presumption of innocence and any reasonable doubt there may be.”

These various duties fall to be exercised within the scheme of an Act which plainly has the object of setting in place a system designed to achieve, within the limits of practicability, the effective enforcement of the prohibitions against anti-competitive behaviour referred to in section 2. To that extent, any decision taken by the OFT in whichever of its roles it is undertaking at any time needs to have that aim in mind. However, this statement of approach reflects no more than the well-established principle that public authorities invested with discretionary powers must do so in accordance with aims and objectives of the enabling Act (see, eg, Padfield v Minister of Agriculture Food and Fisheries [1968] AC 997). Any capricious, irrational or unlawful exercise (or failure to exercise) the relevant discretion may result in the court’s intervention. A failure to act because of limited resources does not always render the public authority immune from the court’s intervention (see de Smith’s Judicial Review, 6^th Edition, paragraphs 5-128 - 5-134), but ordinarily the allocation of limited resources to the implementation of statutory duties (and the discretionary exercises that inevitably arise) is a matter left to the body with which the responsibility lies: see, eg, R v Secretary of State for Social Services, Ex p Hincks (1980) 1 BMLR 93;R v Cambridge Health Authority, Ex p B [1995] 1 WLR 898; R v North and East Devon HA, ex parte Coughlan [2001] QB 213; R v Chief Constable of Sussex, ex p International Trader’s Ferry Ltd [1999] 2 AC 418. Matters of this nature are typically “polycentric”: de Smith, para. 1-033 – 1-036.

The allocation of limited resources in pursuit of statutory objectives necessarily involves the establishment of priorities for administrative action. Mr Lasok does not challenge the proposition that the OFT may properly establish priorities. However, his argument, as foreshadowed in paragraph 81 above, is that the essential prioritisation is permitted at what he has characterised as Stage 1. Basing himself on R v Kirklees Metropolitan Borough Council, ex parte Tesco Stores Ltd (1993) 92 LGR 279 (where a number of related cases are referred to), which concerned a policy position taken by an enforcement body in relation to the cases that it would initiate (which he likened to Stage 1), he accepted and asserted in his Skeleton Argument as follows:

“It is plain that, where the enforcement body’s resources are limited, it is entitled to prioritise cases as long as: (i) there is no policy not to take action in relation to any particular class of case; and (ii) the policy is effective in that, for example, the cases selected for action will warn off or deter others.”

However, he submitted that once the enforcement body had made its decision to investigate and had embarked upon the exercise of its powers (Stage 2 in his terminology), the position changes necessarily because the enforcement body has passed the initial stage at which its discretion is to be, and has been, exercised. It is, he argues, as indicated previously, only “the intrinsic features of the case” that can be brought into play to result in a decision not to proceed at that stage.

In addition to the broad response of Mr Hoskins to this submission, to which I referred in paragraph 83 above, he and, in particular, Mr Daniel Jowell for BT, suggested that there was valuable guidance to be obtained from the recent decision in the Corner House case.

In Regina (Corner House Research and another) v Director of the Serious Fraud Office (Justice intervening) [2008] 3 WLR 568, the issue for consideration was whether the Director of the Serious Fraud Office was lawfully entitled to take the decision to discontinue a criminal investigation. In July 2004 the Director launched an investigation into allegations of corruption against BAE Systems plc (‘BAE’) one aspect of which concerned a valuable arms contract between the British Government and the Kingdom of Saudi Arabia for which BAE was the main contractor. A valuable extension to the contract was negotiated between 2004 and 2006. Between July 2004 and December 2006 a team of SFO lawyers, accountants, financial investigators and police officers investigated allegations of corrupt payments allegedly made by BAE in connection with this contract. During the investigation the SFO issued a number of statutory notices to BAE seeking information and disclosure. One of these notices required BAE to disclose details of payments to agents and consultants in connection with this contract. BAE’s response was to suggest that the required information would adversely affect relations between the United Kingdom and Saudi Arabia and jeopardise the contract. In due course, this led to information becoming available about “a real and immediate risk of a collapse in UK/Saudi security, intelligence and diplomatic co-operation” such that “British lives on British streets were at risk”. Having taken that into account the Director decided to discontinue the investigation. His judgment was that the public interest in saving British lives outweighed the public interest in pursuing BAE to conviction. The House of Lords held that this was a decision that he was lawfully entitled to make.

Those facts are, of course, very far removed from this case, but it has been argued that the enunciation of the applicable principles has a resonance in the present situation. Attention is drawn to the following passages in the speech of Lord Bingham, with which all members of the House agreed:

“30 It is common ground in these proceedings that the Director is a public official appointed by the Crown but independent of it. He is entrusted by Parliament with discretionary powers to investigate suspected offences which reasonably appear to him to involve serious or complex fraud and to prosecute in such cases. These are powers given to him by Parliament as head of an independent, professional service who is subject only to the superintendence of the Attorney General. There is an obvious analogy with the position of the Director of Public Prosecutions. It is accepted that the decisions of the Director are not immune from review by the courts, but authority makes plain that only in highly exceptional cases will the court disturb the decisions of an independent prosecutor and investigator: R v Director of Public Prosecutions, Ex p C [1995] 1 Cr App R 136 , 141; R v Director of Public Prosecutions, Ex p Manning [2001] QB 330 , para 23; R (Bermingham) v Director of the Serious Fraud Office [2007] QB 727 , paras 63–64; Mohit v Director of Public Prosecutions of Mauritius [2006] 1 WLR 3343 , paras 17 and 21 citing and endorsing a passage in the judgment of the Supreme Court of Fiji in Matalulu v Director of Public Prosecutions [2003] 4 LRC 712 , 735–736; Sharma v Brown-Antoine [2007] 1 WLR 780, para 14(1)–(6). The House was not referred to any case in which a challenge had been made to a decision not to prosecute or investigate on public interest grounds.

31 The reasons why the courts are very slow to interfere are well understood. They are, first, that the powers in question are entrusted to the officers identified, and to no one else. No other authority may exercise these powers or make the judgments on which such exercise must depend. Secondly, the courts have recognised (as it was described in the cited passage from Matalulu v Director of Public Prosecutions ) “the polycentric character of official decision-making in such matters including policy and public interest considerations which are not susceptible of judicial review because it is within neither the constitutional function nor the practical competence of the courts to assess their merits.” Thirdly, the powers are conferred in very broad and unprescriptive terms.

32 Of course, and this again is uncontroversial, the discretions conferred on the Director are not unfettered. He must seek to exercise his powers so as to promote the statutory purpose for which he is given them. He must direct himself correctly in law. He must act lawfully. He must do his best to exercise an objective judgment on the relevant material available to him. He must exercise his powers in good faith, uninfluenced by any ulterior motive, predilection or prejudice. In the present case, the claimants have not sought to impugn the Director's good faith and honesty in any way.”

It is submitted that this case demonstrates clearly that a prosecuting authority, invested under the relevant statutory provision (the Criminal Justice Act 1987) with discretions similar to those conferred by the Competition Act upon the OFT, has a clear discretion to bring an investigation of criminal offences to an end on wide public interest grounds which, in the circumstances, did not go to the “intrinsic features of the case”.

Before expressing my conclusion on this aspect of the argument, I should refer to the way in which the European Commission guidance is framed. Mr Jowell drew my attention to the ‘Commission Notice on the handling of complaints by the Commission under Articles 81 and 82 of the EC Treaty’ (2004/C 101/05). Under the sub-heading of ‘Assessment of Complaints’ the following paragraphs appear (omitting footnotes):

“41.

Under the settled case law of the Community Courts, the Commission is not required to conduct an investigation in each case or, a fortiori, to take a decision within the meaning of Article 249 EC on the existence or non-existence of an infringement of Articles 81 or 82, but is entitled to give differing degrees of priority to the complaints brought before it and refer to the Community interest in order to determine the degree of priority to be applied to the various complaints it receives. The position is different only if the complaint falls within the exclusive competence of the Commission.

….

44.

Among the criteria which have been held relevant in the case law for the assessment of the Community interest in the (further) investigation of a case are the following:

- While the Commission's discretion does not depend on how advanced the investigation of a case is, the stage of the investigation forms part of the circumstances of the case which the Commission may have to take into consideration.

….

45.

Where it forms the view that a case does not display sufficient Community interest to justify (further) investigation, the Commission may reject the complaint on that ground. Such a decision can be taken either before commencing an investigation or after taking investigative measures. However, the Commission is not obliged to set aside a complaint for lack of Community interest.”

This guidance may also have relevance on the issue of prioritisation to which I will return in paragraphs 99-166 below. However, for present purposes paragraph 45 suggests that the Commission is of the view that the pursuit of an investigation may be abandoned at any time (even after investigative measures have been taken) and the previous paragraph confirms that, whilst the Commission's discretion as to the further investigation of a complaint does not depend on how advanced the investigation of a case is, the stage of the investigation forms part of the circumstances of the case which the Commission may have to take into consideration.

For my part, I do not consider that the ambit of the discretion conferred by section 25 of the Competition Act becomes any more circumscribed once a decision to investigate has been taken and the investigation embarked upon. As with any discretion, it may only be exercised rationally by reference to the factors relevant at the time it is exercised and the importance of a particular factor may increase or diminish with the passage of time and any changes of circumstances that may have taken place. But that is, in my judgment, different from saying that some different kind of statutory structure should be postulated for what Mr Lasok characterised as Stage 2 of the statutory processes put in place by the Act. I am not entirely convinced that it is possible to divide the processes into the stages suggested or that to do so illuminates the path to be followed; but whether that comment be justified or not, I can see no grounds for excluding “administrative priority” as a relevant consideration at, I would venture to suggest, any stage in the processes put in place by sections 25 and 31. Having said that, however, I am, in this case, concerned solely with deciding whether it was legitimate for “administrative priorities” to be taken into account at the stage before any SO was issued. I can see no basis, whether within the statutory provisions themselves or on wider grounds, for excluding such matters from consideration at that stage. Indeed, for what it is worth, I do not think that the OFT had arrived at what, on Mr Lasok’s analysis, was Stage 2.

This conclusion does not, of course, mean that a decision to “close a file” on the grounds of “administrative priority” may not be susceptible to judicial review on traditional public law grounds. I have merely been dealing with what appeared to be an initial point of principle raised by Mr Lasok. To the extent that he has argued that “administrative priorities” could not be taken into account after the initial decision to investigate had been made I reject the argument.

Mr Lasok’s second line of attack related to the prioritisation criteria introduced by the OFT during 2005. The submission had some similarities to the submissions based on the structure of the Act, but I have treated it as a discrete matter.

Whilst not, as I understood the argument, challenging the right of the OFT to adopt priorities, the challenge was on the basis, in the first instance, that at least some of the criteria to which I referred in paragraph 76 above were unlawful because no statutory basis for them could be found. The two principal areas of challenge were (a) and (c) – consumer detriment and type of infringement, respectively.

As to (a), it is argued that there is nothing in the statutory scheme set up by the 1998 Act to give consumer benefits or detriment any prominence in the exercise of any discretion. The statutory purpose, it is argued, is the enforcement of the law and consumer benefit or detriment plays no part within that framework.

Leaving aside any guidance that might be forthcoming from elsewhere, I would, for my part, have great difficulty in accepting this argument. Once there is any element of discretion in a process designed to bring into focus penalties for breaking the law and it is recognised that those processes are dependent upon finite resources, both financial and manpower, I am unable to see how the general effect that the illegal conduct has upon those it is designed to protect can be ignored. It may not always be the governing consideration, but I do not see that it would be rational to ignore it – or, putting it in the more conventional way, it is impossible to see how it could be said to be irrational to take it into account.

I indicated in paragraph 96 above that the quotation from the Commission Guidance set out in paragraph 95 may be relevant in this context. The “settled case law” referred to in paragraph 41 of those guidelines included Automec Srl v Commission of the European Communities,Case T-24/90,[1992] ECR II-02223, paragraph 76. Paragraphs 76 and 77 (the latter quoted in Office of Communications, etc v Floe Telecom Ltd: see paragraph 164 below) read as follows:

“76

As the Commission is under no obligation to rule on the existence or otherwise of an infringement it cannot be compelled to carry out an investigation, because such investigation could have no purpose other than to seek evidence of the existence or otherwise of an infringement, which it is not required to establish. In that regard, it should be noted that, unlike the provision contained in the second sentence of Article 89(1) in relation to applications by Member States, Regulations Nos 17 and 99/63 do not expressly oblige the Commission to investigate complaints submitted to it.

77

In that connection, it should be observed that, in the case of an authority entrusted with a public service task, the power to take all the organizational measures necessary for the performance of that task, including setting priorities within the limits prescribed by the law where those priorities have not been determined by the legislature is an inherent feature of administrative activity. This must be the case in particular where an authority has been entrusted with a supervisory and regulatory task as extensive and general as that which has been assigned to the Commission in the field of competition. Consequently, the fact that the Commission applies different degrees of priority to the cases submitted to it in the field of competition is compatible with the obligations imposed on it by Community law.”

That case supports the principle that different degrees of priority may be attached to cases that engage the attention of the bodies entrusted with supervising and regulating functions in relation to competition issues.

Furthermore, the communication from the Commission entitled ‘Guidelines on the application of Article 81(3) of the Treaty’ (2004/C 101/08) also contains a number of provisions that indicate that “consumer benefit” or “consumer welfare” lies at the heart of competition policy. For example, paragraph 13 reads as follows:

“The objective of Article 81 is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. Competition and market integration serve these ends since the creation and preservation of an open single market promotes an efficient allocation of resources throughout the Community for the benefit of consumers.”

The concluding sentence of this paragraph of this guidance (quoted in paragraph 124 below) demonstrates how “consumer welfare” (in the sense of the price paid for goods affected by a breach of the competition laws) is relevant in the context of object-based infringements.

In my judgment, these matters confirm, if confirmation be needed, that there is nothing unlawful or irrational about taking into account consumer interests (whether expressed as benefits, welfare or detriment) in prioritising competition cases for investigation.

Another variant on this argument is the suggestion that to focus solely on lower prices for consumers, to the exclusion of any other consideration (such as environmental benefits, other non-price benefits to the consumer, the fostering of innovation and so on) would be unlawful. A hypothetical example is offered as evidence that such an approach would be unacceptable: some manufacturers engage in a collective boycott of an innovation significantly more beneficial to the environment than alternative technologies, but which offers manufacturers little in the way of cost savings that could or would be passed to consumers in the form of lower prices. Focusing solely on whether or not the suspected unlawful conduct was depriving consumers of lower retail prices would be adopting an unnecessarily blinkered approach, it is argued.

I have not been referred to any case or guidance that throws light on the answer to this argument. The guidelines referred to in paragraph 105 above do not refer to environmental considerations and on that basis it could be said that such considerations can be ignored for the purposes of considering the exercise of any discretions conferred by the Competition Act. I am inclined to the view that that would represent too dogmatic and narrow a stance to adopt and that there may be cases where it would be appropriate for those bodies responsible for enforcing the law against anti-competitive practices to take account of environmental considerations. However, whilst Mr Lasok suggested that a scenario such as the example referred to in paragraph 108 arguably occurred in this case, I do not consider that the issue was ever brought into sufficient relief for it to have been material to the decision to close the file in this case. Whilst, as I shall indicate in due course (see paragraphs 143-150), I have some reservations about the OFT’s approach to Cityhook’s economic argument, I do not think it unreasonable in the circumstances of this case for any actual or perceived environmental benefits of Cityhook’s technology to have been left out of account in making the decision to close the file. Having reviewed Mr Shovell’s letter of 11 February 2006 (see paragraph 42 above), it seems to me that his essential focus was on the economic implications, rather than the environmental issues.

The second of the criteria which, as I understood the argument, Mr Lasok contended was unlawful in itself was (c) referred to in paragraph 76 above, namely, “the type of infringement”. His argument was that it is not the function of the OFT to identify areas that it will enforce and areas that it will not enforce. To do so, he contends, would result in the illegitimate creation of lacunae in law enforcement.

I will have to return to the issue of whether what is alleged to have occurred in this case was what is characterised as “hardcore” activity and/or whether the alleged agreement between the members of the UKCPC was “object-based”. However, the short issue for present purposes is whether it is lawful for the type of alleged infringement to be taken into account in prioritising competition cases.

In my view, the answer to the question is the same as that given in relation to the issue of “consumer welfare”: it is something that the OFT, bearing in mind its limited resources, can take into account. Again, the strength of the factor may vary from case to case and may indeed vary at various times when decisions concerning the priority to be accorded to a particular case are considered. Reliance upon the type of case without more might in some circumstances be regarded as unsustainable on public law grounds, but as one of the number of factors designed to assign the appropriate priority to a case in progress cannot be wrong in principle, in my judgment.

Whilst Mr Lasok attacked the OFT’s evaluation of the six criteria so far as this case is concerned, I did not understand him to suggest that the other four criteria were themselves unlawful as criteria. To that extent I will say no more about them at this stage. I will have to return to the specific criticisms later. I would, however, conclude this part of the judgment with a general observation on the criteria chosen by the OFT as factors to consider in deciding how and whether to progress a case further.

These were, as I understand, the first criteria to be adopted for the purpose to which I have referred. They will doubtless be (and may indeed have been) kept under review and refined with the benefit of experience. Since they are, according to Mr Smith, merely starting points and guidelines, they will presumably not be adhered to slavishly. They cannot replace the wider discretions that the Act confers, but they do give the exercise of those discretions a focus that will enable some consistency of approach. I cannot, however, accept Mr Lasok’s argument that the adoption (certainly of some) of these criteria runs counter to the OFT’s responsibility to enforce the law. In my view, Mr Hoskins had a fair point when submitting that the whole purpose of the prioritisation criteria was to improve the effectiveness of the OFT’s application of its enforcement processes. Without some sensible criteria, the OFT would be swamped with investigations – or, probably additionally, would decline to start investigating certain allegations for fear that it would thereby become locked in to pursuing the matter through to an SO and beyond. That could, if it happened, frustrate the essential purposes of the Act.

Against that background, it is worth noting that enforcement of the Chapter I and II prohibitions under the Competition Act is not the only area with which the OFT is concerned. From June 2003 it has been concerned with pursuing criminal cases against individuals under section 188 of the Enterprise Act (see, eg, R v Whittle and others [2008] EWCA Crim 2560). It has other duties under other statutory provisions.

These general observations have been made in relation to the six criteria used to consider whether to continue with a “case in progress”. However, similar considerations apply in respect of focusing on particular areas in the market place. The priority areas when the question of closure of this file was being considered were described as consumer credit, healthcare, construction, mass-marketed scams and interaction between Government and markets. Whilst this inevitably means that other areas are regarded as lower in priority, it does not, of course, mean that other areas are necessarily ignored. However, the short point for present purposes is that I can see no legitimate grounds for complaining that priority areas such as these are chosen. Again, it focuses on areas perceived to be the most important at the time. The OFT is almost certainly in the best position to be able to judge this.

I must now turn to those features of the decision-making process that Cityhook contends were flawed such as to warrant the quashing of the decisions. Although I use the word “decisions” in the plural, the essential complaint of Cityhook lies in the Collective Boycott Case and it is to that case that the submissions were essentially directed. I will deal with the Collective Setting Case more shortly in due course.

There would seem to be two essential strands to the argument under this general heading, although they appear to be intertwined in places: it is said that, in some areas the Provisional Closure Letter did not give sufficient information to enable Cityhook to comment fully and appropriately and in other areas the response of the OFT either failed to address the issues that Cityhook had raised and/or was plainly wrong. I do not think that seeking to sub-divide them for the purposes of analysis is necessarily going to be helpful. I will deal first with some submissions that took up a fair part of the oral argument dealing with what Mr Lasok described as “competition aspects”.

I have referred in paragraphs 56-62 above to the significant and unresolved internal debate within the OFT about whether the alleged infringement in the Collective Boycott Case was “object-based” or “effect-based”. In paragraph 73 I referred to the reasons said by Mr Smith to exist for not referring to a possible “object-based infringement” in the Final Closure Letter.

The approach of the OFT to this issue was referred to in some detail by the CAT at paragraphs 268-288 of its decision. The reason it had to consider the issue was to determine whether, in substance, the OFT had made a non-infringement decision such that the CAT would have had jurisdiction to entertain an appeal. It is, I think, worth recording what the CAT concluded in this regard:

“285.

On the basis of the material before us, in respect of the alleged object-based” infringement, the position appears to us to be that the OFT decided not to: (a) determine whether it could establish to the legal standard that the object of the Collective Boycott Case or the Collective Setting Case was to prevent, restrict or distort competition, (b) investigate such counter arguments as might be advanced by the parties to justify their conduct or negate the evidence of potential infringement, (c) produce a sufficiently robust Statement of Objections and (d) adopt, in due course, a final decision. The OFT’s decision to close the investigations in relation to the alleged object-based infringement took into account a combination of substantive and administrative priority considerations which cannot be reviewed separately.

286.

Having carefully reviewed both the evidence before us and the parties’ submissions, the Tribunal has concluded that a non-infringement decision is not the necessary implication of the OFT’s decision to close the investigations in relation to the alleged object-based infringement in the Collective Boycott Case and the Collective Setting Case.

287.

The Tribunal would be very concerned if the OFT, as the main competition authority responsible for enforcing the 1998 Act, sat on the fence and refrained from taking final decisions due to a disagreement amongst the personnel of the OFT on a point of law. If, for example, the legal characterisation of an object-based infringement were to be the only point left to be resolved by the OFT, then, depending on the circumstances, the necessary implication of any decision to close the file might well be that the OFT decided, on the balance of probabilities, that it was unable to establish on its analysis of the law that the conduct at issue amounts to an infringement of the Chapter I prohibition. For the reasons set out above, this implication is not one that can be made having regard to all the evidence before us in the present case.

288.

However the legal characterisation of an alleged object-based infringement may be relevant in the stayed judicial review proceedings before the Administrative Court; for example as to whether in the decision-making process there may have been an error of law or account may have been taken of irrelevant legal considerations.”

Mr Lasok has indeed advanced the argument that that the failure of the OFT to reach what he contended was the obvious decision about the nature of the infringement did reflect an “error of law” that vitiated the decision-making process at this point.

Although the issue was not addressed in the Final Closure Letter (for reasons which I have concluded, as did the CAT, were not entirely clear: see paragraph 73 above), Mr Hoskins has not sought to argue that the issue is not a legitimate one to consider. That seems to me to be entirely the right approach to adopt: there is no doubt, from what Mr Smith has said, that the internal debate about this issue was something that he did take into account even though the Final Closure Letter did not say so expressly. The more difficult question, as I see it, is how the error, if error there was, is evaluated on an application such as that before the court.

If the error is a pure matter of law that is central to the decision to close the file, then the scope for judicial intervention plainly exists. If, however, the error on the part of the decision-maker is to have acceded too readily to one side of a genuine argument about the law, then at what stage is the court in a position to say that the decision-maker has acted unreasonably in the Wednesbury sense? I will return to issues of this kind when I have reviewed briefly the arguments on the question of whether the alleged infringements were indeed object-based infringements.

The Commission guidelines referred to in paragraph 105 above bring the distinction between object-based and effect-based infringements into relief in the following paragraphs:

“19.

In the application of the analytical framework set out in the previous paragraph it must be taken into account that Article 81(1) distinguishes between those agreements that have a restriction of competition as their object and those agreements that have a restriction of competition as their effect. An agreement or contractual restraint is only prohibited by Article 81(1) if its object or effect is to restrict inter-brand competition and/or intra-brand competition.

20.

The distinction between restrictions by object and restrictions by effect is important. Once it has been established that an agreement has as its object the restriction of competition, there is no need to take account of its concrete effects. In other words, for the purpose of applying Article 81(1) no actual anti-competitive effects need to be demonstrated where the agreement has a restriction of competition as its object. Article 81(3), on the other hand, does not distinguish between agreements that restrict competition by object and agreements that restrict competition by effect. Article 81(3) applies to all agreements that fulfil the four conditions contained therein.

21.

Restrictions of competition by object are those that by their very nature have the potential of restricting competition. These are restrictions which in light of the objectives pursued by the Community competition rules have such a high potential of negative effects on competition that it is unnecessary for the purposes of applying Article 81(1) to demonstrate any actual effects on the market. This presumption is based on the serious nature of the restriction and on experience showing that restrictions of competition by object are likely to produce negative effects on the market and to jeopardise the objectives pursued by the Community competition rules. Restrictions by object such as price fixing and market sharing reduce output and raise prices, leading to a misallocation of resources, because goods and services demanded by customers are not produced. They also lead to a reduction in consumer welfare, because consumers have to pay higher prices for the goods and services in question.”

In essence, therefore, in relation to an agreement that has its object the restricted of competition, there is a presumption that it has that effect.

In his Skeleton Argument Mr Lasok submitted that it was impossible to understand why anyone within the OFT thought that a collective boycott by a group of companies comprising the principal players in the industry would not be anti-competitive by reason of its “object” and that no explanation of the reasoning (if any) behind that belief appears in the evidence. Consistent with the approach summarised in paragraph 125 above, his argument was that if the collective boycott was unlawful by reason of its “object”, the need to obtain further evidence as to its “effects” was superfluous. It would, he would contend, have been a factor (and a significant factor) taken into account which should not have been taken into account and, accordingly, the decision based upon it is open to review by this court.

In paragraph 57 I recorded that it was the view of the CRP, on the basis of a review of the case law and policy statements from the European Commission, that a collective refusal to purchase should be characterised as an effects-based rather than an objects-based infringement unless (a) it was linked to an underlying cartel or (b) possibly, it was aimed at eliminating a competitor. Mr Lasok is correct to point out that no further detail of the “case law and policy statements” was included in the minutes of that meeting and it remains undisclosed.

Mr Lasok has gone further and pointed to cases which, he argues, supports the proposition that the Collective Boycott was a clear object-based agreement. In COMMISSION DECISION of 20 December 1977 relating to a proceeding under Article 85 of the EEC Treaty (IV/29.151 - video cassette recorders) Philips had developed the VCR system, a video cassette system, for sale in Europe. Philips had the pre-eminent position in the European market for video cassette recorders with a market share considerably larger than that of Sony, its nearest competitor. Sony had developed a video cassette system called the U-MATIC system. Philips entered into agreements with a number of companies active in the consumer electronics industry interested in the developing market for video cassettes and video cassette recorders the effect of which were to provide for the exclusive use of VCR standards in the manufacture and/or distribution of video cassette recorders and video cassettes. The Commission decided that the “agreements contained clauses which had as their object the restriction of competition within the common market … in a rather unusual but relatively restrictive form” (emphasis added). He referred also to [2001] CAT 4 where the General Insurance Standards Council (‘GISC’), of which most UK insurers writing general business were members, agreed not to deal with intermediaries engaged in the selling, advising or broking of general insurance unless the intermediary concerned was a member of GISC or the appointed agent or sub-agent of a member of GISC. This amounted to a collective boycott of, or refusal to deal with, non-GISC intermediaries “on the part of all or most of the major insurance companies in the United Kingdom.” The CAT (President: Sir Christopher Bellamy) held that “as a matter of the ordinary meaning of words, a provision … whereby a group of suppliers, acting collectively, agree not to deal with certain persons, is a provision which has as its object or effect the restriction or distortion of competition.”(Emphasis added). Mr Lasok referred also to Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd, Case C-209/07, decided by the Third Chamber as recently as 20 November 2008. Whatever that case may decide (and Mr Hoskins submitted that it took matters no further), I do not think it is truly relevant to my assessment of what was being considered by the OFT in 2006 unless it revealed or evidenced a clear line of authority that pre-dated 2006 supporting Mr Lasok’s proposition.

Mr Hoskins submitted that neither of the first two cases assisted the resolution of the issue. He contended that the video cassette case concerned a different factual and economic situation from the present case and drew attention to the fact that it was not a collective boycott by purchasers. As to the GISC case, he said that this was concerned with a collective boycott by suppliers, not purchasers.

By reference to Whish, Competition Law (6^th edition, 2008) pp. 113-122, Bellamy & Child, European Community Law of Competition (6^th edition, 2008) paragraphs 5.098 - 5.100 and Faull & Nikpay, The EC Law of Competition (2^nd edition, 2007) paragraph 8.89, he submitted that all the leading textbooks confirm that there was, and still is, no clear authority on the proper approach to collective boycotts by purchasers. He emphasised that the CRP’s position related to a boycott by purchasers (see paragraph 127 above).

If the matter had rested entirely with me, then my initial reaction would have been to accept Mr Lasok’s analysis, supported in broad terms by the two cases he referred to, the video cassette case supporting his position more strongly than the other. This approach has the attraction of simplicity. A concerted collective boycott of a supplier who offers an innovative and cost-saving alternative approach to an established area of commercial activity would suggest a restriction of competition as its object. On that approach the position taken by the case team seems to be the logical one to have taken in this case.

However, that is not the end of the matter from a number of points of view. My task is to consider (a) whether the contrary view at the time it was expressed was a tenable one and (b) whether the decision-maker (here Mr Smith) was reasonably entitled to accept it as tenable such that he needed to take account of it in balancing the various factors involved in deciding whether to close the file or to proceed further. With some misgivings on each count, I have concluded that the answer to each of these questions is “yes”.

It is of some, though not conclusive, significance to note that distinguished and experienced authors in the field have not said categorically that a collective boycott by purchasers constitutes an object-based infringement. However, I have noted, in particular, that Professor Whish has said that “a relatively small class of the agreements are considered by law to have as their object the restriction of competition …” (my emphasis). Furthermore, a re-reading of the three paragraphs from the Commission guidance quoted in paragraph 124 above suggests that the issue is not quite as straightforward as at first sight it might have seemed. Paragraph 21 of the guidance speaks of the presumption that a restriction of competition by object affects the market and that there is no need for evidence to this effect. It goes on to say that this presumption “is based on the serious nature of the restriction and on experience showing that restrictions of competition by object are likely to produce negative effects on the market and to jeopardise the objectives pursued by the community competition rules” (my emphasis). Whilst I recognise that others might take a contrary view, if that constitutes a definition or description of an object-based infringement, then there does seem to me to be an element of circularity about it in the sense that the presumption can arise only if experience has demonstrated the presumption to be justified and, of course, experience can only be founded upon an analysis of the effects on the market of a series of similar apparently anti-competitive agreements. The paragraph identifies price fixing and market sharing arrangements as obviously object-based restrictions.

Whilst I was not immediately attracted by Mr Hoskins’ argument that the fact that leading textbook writers had not yet classified a boycott by purchasers as object-based lends support to the proposition that it was not of that nature, I can at least see that it may take time for a particular form of apparently anti-competitive activity to emerge and be identified as a true object-based activity. Equally, though observing that it is very much in the interests of the interveners to support arguments along these lines, the submissions of Mr Jon Turner QC, based, in particular, on the Commission guidance, do confirm, in my judgment, a tenable counter-argument. (For completeness, I should say that Mr Turner’s argument based upon the Court of First Instance decision given on 26 September 2006 in Glaxo Smith Kline Services v Commission [2006] ECR II-2969 is one that I have largely left out of account for much the same reasons as I have left out of account Mr Lasok’s argument based on the Beef Industry case: see paragraph 128 above. I understand that the case is, in any event, under appeal.) As I shall observe below, it is, in my view, unfortunate that there was not an explicit elucidation of the concerns of the OFT about this issue (perhaps by reference to legal advice received) in the lengthy Provisional Closure Letter and the Final Closure Letters. Had it been made explicit the recipients of the letters would at least have understood the reasoning even if it was reasoning with which they disagreed.

At all events, for the reasons I have given, I do not think I can condemn the view of the CRP on this issue as wholly untenable nor, perhaps more importantly for present purposes, can I conclude that it was unreasonable of Mr Smith to consider that there was a genuinely and strongly held view by one element within the OFT structure offering him advice that the case was not as straightforward on this issue as the case team said that it was. It was not unreasonable for the view to be taken that the effect on the market needed to be examined. It follows that it was not unreasonable to conclude that further work was necessary.

Mr Lasok contended with vigour that neither the OFT in its decision-making, nor Mr Hoskins in his representations on its behalf, confronted the principle that establishes that this was an object-based agreement between members of the UKCPC. If there was any doubt, he argued, it cried out for resolution by making an infringement decision with the opportunity for the issue to be debated before the CAT. Persuasively though it was argued, the position the court has to take is to ask itself whether it was Wednesbury unreasonable not to go forward with this case (or these cases) to establish or confirm the principle. The answer is that if the decision-maker perceives on reasonable grounds that there are uncertainties about establishing the principle in the particular case, particularly if, having regard to resource implications, there are other cases more in need of manpower, it cannot, in my judgment, be characterised as unreasonable to draw back from going further.

Other matters were addressed on both sides of this argument, but it is those to which I have referred that have persuaded me that this particular ground of challenge to the OFT’s decision has to fail.

I am bound to observe that since this appears to have been an issue of some importance in the OFT’s deliberations, it is very surprising that, in the interests of general openness and fairness, it was not referred to explicitly in the Provisional Closure Letter so that the parties could comment upon it. I note, in passing, that this theme was taken up on behalf of Cityhook’s Company Secretary by Mr Alex Salmond MP in a letter to the Chairman of the OFT dated 29 January 2007. I have not seen the response, if any, to that letter. There was, as I shall indicate below, some reference in the Provisional Closure Letter to the alleged infringements not being clearly “hardcore”, but no specific reference to the issue of whether they were object-based or effect-based.

The difficulty that still confronts Cityhook, even against the background of an inadequate revelation of the OFT’s thinking at the time, is that the issue of the nature of the alleged infringements was a relevant matter for consideration and, even had representations been made about the issue, it is, on the evidence before me, almost certain that the OFT would still have been undecided about it. Representations would have been made in one direction by Cityhook and in the other by the other parties, doubtless reflecting in a broad sense the internal debate to which I have referred. If anything, that is likely to have reinforced the uncertainties giving Mr Smith even more reason to be concerned about pressing forward with the cases.

I should say that I have not found arriving at that conclusion particularly palatable, but I am of the opinion that it is the right conclusion to reach in the circumstances.

The debate with which I have been dealing has been focused on whether the agreements were object-based. The question of whether they were to be regarded as “hardcore” infringements has also been raised. It is a matter that was raised and considered by the CAT: see paragraphs 249-267 of its judgment. Before the CAT Cityhook’s argument was that the reference to “hardcore” infringements in the Final Closure Letter and its Annex (see paragraph 24(c) of the letter and paragraph 20 of the Annex) meant that the OFT had decided that the alleged Collective Boycott did not have as its object the restriction of competition because the expression “hardcore” was synonymous with an object-based infringement. The OFT’s argument was that the terms were not synonymous and the expression “hardcore” merely reflected the seriousness of the alleged infringement. Apparently, the OFT conceded before the CAT that there was “some lack of clarity” in relation to the use of the expression “hardcore” in the decision letters.

So far as the issues for me are concerned, there seem to be two conclusions:

In paragraph 72 I referred to the representations made by Cityhook in response to the Provisional Closure Letter in relation to the issue of “consumer detriment”. I will not repeat it save to say that the representations were summarised accurately in paragraphs 9-12 of the Annex to the Final Closure Letter.

It would be convenient to set out here the response of the OFT to those representations. It was in these terms:

“The OFT understands the theory of the argument presented by the respondent. However, the OFT has not seen concrete evidence from third parties of the impact that Cityhook would have had on the speed to market for submarine cables generally and, in particular the OFT has seen no objective evidence from third parties as to how it would facilitate speed to market for new entrants. In addition, on the facts at the time of the alleged infringement, it was far from clear that the adoption of Cityhook technology would have increased the speed to market of services using the three trans-Atlantic cables actually in construction.

The OFT is not in a position, on the information available to it, to determine the impact that the use of Cityhook technology would have had on the route prices quoted by this respondent. In any event, the OFT considers that many factors other than the use of Cityhook technology could influence such prices. In this regard, Cityhook’s technology is concerned with landing submarine cables. Given that the cost of landing a submarine cable is minimal when compared to the overall cost of installing one, it would seem that factors impacting on the costs of other parts of the installation process (and not just the landing process) are more likely to impact on telecommunications costs to consumers.”

Mr Lasok challenged this assessment on two particular grounds one of which I have dealt with to some extent already. First, he said that it was wrong to focus so heavily on the “telecommunications costs to consumers” as the second of the two paragraphs quoted above suggests and paragraph 24(a) in the main body of the Final Closure Letter confirms. I have, as I have said, dealt with this in paragraphs 108-109 above. In short, I do not find anything irrational or unreasonable about where the OFT placed consumer interests in the scale for consideration in the decisions it made in this case.

Mr Lasok’s second argument was that the response of the OFT to the arguments advanced by Cityhook as to the strength of the economic argument in favour of its technology was wholly inadequate. He drew attention to the paragraphs in the Annex quoted in paragraph 144 above and submits that there is no evidence that the OFT ever sought any evidence “from third parties” on the matters referred to in those paragraphs. He submitted that there was no evidence that the OFT ever investigated the issues raised by Cityhook in its own representations. He said that the OFT had no difficulty with initiating the investigation in 2002 and continuing it for several years thereafter, presumably accepting that “consumer detriment” was likely to be established, and yet in early 2006 it put forward these less than compelling arguments in response to Cityhook’s case.

In my judgment, arguments along these lines have some force. It is not my task to judge the strength of Cityhook’s economic argument save to say (as I said in paragraph 23) it is easy to see why it made the general claims it did. Equally, its more refined argument, accurately summarised in paragraphs 9-12 of the Annex to the Final Closure Letter, did at least demand a convincing refutation. Simply to say, as the OFT did, that there was “no concrete evidence from third parties” to support aspects of this case does not, in my judgment, amount to an adequate response to the argument unless there is evidence that relevant third parties had been consulted and had provided evidence or argument that answered persuasively what Cityhook was suggesting. Since it appears to be common ground that the Cityhook technology was never used because of the actions of the members of the UKCPC, it is difficult to see how there was ever to be “concrete evidence from third parties” to support Cityhook’s case. Whilst it was undoubtedly true as a matter of fact that there was no such evidence, merely to assert it in the particular circumstances of this case did not, in my judgment, afford a compelling answer to Cityhook’s argument. Since it is likely that the only parties to comment on the economic case would have been those were a party to the boycott, it is hardly surprising that no positive evidence in support of Cityhook’s position was forthcoming.

Whilst the essential truth of what is asserted in the OFT’s response is not challenged, it bears the hallmarks of a degree of special pleading. Recourse to the suggestion of “lack of evidence from third parties” in the circumstances of this case does not do justice to the argument advanced by Cityhook.

Is that criticism sufficient to justify setting aside the decision? Despite my considerable reservations about this feature of the OFT’s response, I do not think that it does. The OFT’s true position was that it did not consider it right to proceed with this particular case (or these particular cases) because other cases were perceived at the time the decisions had to be made as having higher priority. This was referred to in paragraph 24(e) of the Final Closure Letter, paragraphs 28-29 and 44 of the Annex and confirmed in Mr Smith’s witness statement.

There has been no challenge to the veracity of these assertions and no general allegation of bad faith in the decision-making process. If the assertions were true (and, as I have said, they are not challenged), all the OFT needed to say when giving its decision to close the file was that the priorities had changed since the outset of the investigations and that there were now cases of a more compelling nature that demanded allocation of the limited resources available in their direction. Whilst, of course, it was right for the OFT to invite and consider the representations made in response to the Provisional Closure Letter, it would have been better to say that it understood Cityhook’s economic argument (which indeed is what was said), but that it was not proposing to investigate the matter further because of the need to deploy limited resources elsewhere. This would doubtless have been no less welcome to Cityhook than was the Final Closure Letter in the form it was presented, but it would have represented the real reason for the decision.

In paragraph 17 of the Annex to the Final Closure Letter the OFT expressed the view that, “although there is evidence of potential infringement, the [cases] would … need to be developed considerably before a sufficiently robust Statement of Objections could be issued … [which] would include an investigation of plausible counter-arguments (whether in fact or law) that the parties could possibly put forward in their defence to justify their conduct or, indeed, to negate the evidence of a potential infringement. These are both material pieces of work impacting directly on the strength of the evidence to-date.”

Mr Lasok’s short riposte to this is that after 4 years of investigation the OFT should have been able to identify all potential counter-arguments and “defences” that might be raised. Why, he asked in effect, should it have been necessary to contemplate significant further investigation?

In my view, there is considerable force in the way Mr Lasok puts the matter. There had been a lengthy letter setting out the position of UKCPC (see paragraph 33 above) at an early stage and a considerable amount of information supplied by those to whom section 26 requests had been issued. It would be very surprising if most, if not all, of the potential arguments had not emerged, directly or indirectly, during that process. Whilst it would be impossible to say that some further work might not have been necessary to ensure that the SO was suitably robust, it is difficult to believe that, in the scale of the overall investigation, it would have been significant. Further work might, of course, have been necessary once the finally formulated responses of the recipients of the SO were to hand, but that is what the whole process demands. It could be, of course, that the OFT would decide to proceed no further in the light of such responses, but it is difficult to believe that the gist of the position to be taken by those most directly affected would not have been known by the time the decision to ‘close the file’ was taken.

In my judgment, this aspect of the OFT’s reasoning adds little more to the true basis for the decision to close the case than its response to the economic argument to which I referred in paragraphs 143-150 above. Indeed it is little more than another reflection of the “object-based” or “effect-based” debate to which I have also referred. The bottom line was that there were, at the time, other cases demanding the utilisation of the OFT’s limited resources which appeared to the OFT to be more worthy of attention. There was a serious and genuine division of view about whether the Collective Boycott Case could proceed on the basis of a presumption that it affected consumer interests in the way discussed above or whether further investigation and analysis of its effect on the market was necessary.

Whilst, therefore, it might be said that this particular feature of the OFT’s reasoning lacked substance, it was merely a reflection of the broader picture to which I have already referred. It did not, for the reasons I have given, add anything of substance to the OFT’s reasoning at the time, but the fact that it was referred to as part of that reasoning does not provide grounds of challenge for those seeking to impugn the decision to close the case.

In paragraphs 77 and 78 above I referred to the reviews undertaken in relation to all cases being investigated by the OFT at what are described as “key milestones” in the progress of the investigation. In paragraph 21 of the Annex to the Final Closure Letter it is said that a case being investigated is reviewed “throughout the course of the investigation when compared at key milestones relative to other cases under investigation which have reached the same milestone”, the purpose being (see paragraph 26 of the Annex) “to ensure that pursuing a particular investigation continues to represent best use of the OFT’s resources.”

Paragraph 39 of the Annex indicates that the OFT’s decision to close the file “merely marks the OFT’s wish to allocate resources away from the Collective Boycott Case to other cases which the OFT has concluded are presently of a higher priority to the OFT than the Collective Boycott Case.” It is asserted that “[this] conclusion was reached following an objective and proportionate assessment of the Collective Boycott Case and other cases at the same milestone against the OFT’s prioritisation criteria as set out in paragraph 24(a)-(f) of the attached letter” (my emphasis). At paragraph 44 of the Annex this was repeated in the following terms: “The OFT has carried an objective and proportionate assessment of both the Collective Boycott Case and Collective Setting Case against its prioritisation criteria … and found that neither of them continues to be a priority relative to other higher priority cases, measured at the same milestone” (my emphasis again).

Mr Lasok has drawn attention to the position taken by Mr Priddis, as revealed in Mr Smith’s first witness statement, that at the time the decision concerning the two cases was taken and consideration given to “whether another CE Division case (or other cases) should be closed in order to retain the Cityhook matter … there was no other case currently at a key milestone at which such decisions could sensibly be taken” (see paragraph 64 above). He argues that the OFT was not even applying its own policies at that juncture since, despite what was said in the Annex, it was not comparing like with like.

It is hardly helpful or inspiring of confidence in the decision-making process to seek to justify a decision of this nature by reference to other cases “at the same milestone” when in fact no such cases existed at the time the decision was made. Does it afford grounds for quashing the decision? The short answer is “no”. At the risk of using an expression that has all the potential to be misapplied or misquoted in other cases, a milestone should not become a millstone in the exercise of a broad statutory discretion. Mr Hoskins was, in my judgment, correct to say that decisions of this nature cannot depend upon the chance of there being other cases that happen to be at the same stage of investigation as the one under review. If there was no comparable case at this time, it should make no difference to the decision.

The decision that the limited resources of the OFT were to be better deployed on higher priority cases, described in paragraph 20 of the Annex as involving “real hardcore cartel cases which cannot be progressed in a timely manner”, is a perfectly rational and reasonable decision without the need to refer to other cases “at a similar milestone”. As I have said before and I repeat, there is no challenge to the bona fides of that general assertion.

For the reasons I have given, I do not consider that there are any sustainable grounds for challenging the decision of the OFT to “close the file” in each of these cases on the grounds of administrative priority. I include the Collective Setting Case within this conclusion because it does not seem possible sensibly to isolate one decision from the other for this purpose.

I have not reached that conclusion with any degree of enthusiasm because Cityhook plainly satisfied the OFT that there was at least a prima facie case, it was investigated for four years and came very close to an SO being issued. By that time the priorities of the OFT had changed, resources were being stretched and as a result this investigation was, to use a colloquialism, “pulled”. For a small company that claims to have been “strangled at birth” by those who might have been its customers, such a conclusion after four years must have come as a considerable blow. It is easy to understand the frustration of those behind the company when some of the reasons given for closing the file were less than convincing. And there is the general concern, which I sensed was felt by the CAT, that a decision to close the file can be taken by the OFT without the opportunity for that decision to be tested on its merits by the tribunal.

However, it is plain that the OFT must have the power to close the file on cases otherwise it would not be able to function satisfactorily. Since it is the body to which Parliament has given the decision-making powers, it is only in very limited circumstances that this court can interfere as indeed was recognised on behalf of Cityhook in its arguments before the CAT.

Although the words were used in a somewhat different context (namely, that of whether the CAT can impose a timetable in relation to a new investigation after it has set aside a non-infringement decision and has remitted it to the OFT or other regulator), what the Court of Appeal said in Office of Communications and Office of Fair Trading v Floe Telecom Ltd [2006] EWCA Civ 768, [2006] 4 All ER 688, has a resonance in this general area. Having quoted paragraph 77 of the decision in Automec Srl v Commission of the European Communities, which I quoted in paragraph 103 above, Lloyd LJ said as follows at paragraphs 37 and 38:

The power of this court to intervene, not merely at the stage with which that case was concerned, but in the stages of the process with which this case is concerned, exists. However, it exists within the well-established, but relatively limited, traditional public law parameters. When it comes to the most appropriate allocation of limited resources, whether financial or manpower or both, the court may only require the body charged with the statutory responsibility for the deployment of those resources to think again if the decision under challenge was irrational in the Wednesbury sense. For the reasons I have given, I am unable to conclude that that threshold has been crossed in this case.

That general conclusion does not, however, end the matter. Cityhook raises a further argument based upon the concurrent power of the OFT and of OFCOM to pursue cases of alleged anti-competitive behaviour under the 1998 Act (see paragraph 34 above). In a nutshell, it is said that the OFT acted unlawfully in failing to consider whether the case should be transferred to OFCOM under the concurrency provisions. Mr Lasok put the argument on the basis that it was incumbent on the OFT to give OFCOM the opportunity to consider whether to take over either or both cases if, contrary to his primary position, the OFT was justified in deciding that it lacked the capacity to continue with them.

Neither the Provisional Closure Letter nor the Final Closure Letter makes any reference to this possibility and, with appropriate candour, Mr Smith in his second witness statement prepared for a disclosure application before the CAT says this:

“ … I can confirm that in making the decision to close the Collective Boycott and Collective Setting Cases, I did not consider whether either or both cases should have been transferred to OFCOM under paragraph 3.17 of the OFT’s guidance on concurrency.”

I will refer to the precise regulation that deals with this matter in due course, but Mr Smith’s reference to the OFT’s guidance on concurrency is a reference to a publication entitled ‘Concurrent application to regulated industries’ issued by the OFT in December 2004. Paragraph 3.17 reads as follows:

Whilst, as I have observed, neither the Provisional Closure Letter nor the Final Closure Letter made any reference to the possibility of a transfer to OFCOM, paragraph 21 of the Annex to the Final Closure Letter, after referring to the OFT’s “current priority areas” to which I referred in paragraph 116 and asserting that these areas had “been a priority to the OFT for over a year”, went on to say this: “Consequently, telecoms is not a priority area for the OFT, particularly given the existence of OFCOM’s concurrent powers in this area.” In other words, at least part of the reasoning for deciding to close down the file was because of OFCOM’s concurrent powers in the area.

Although, as appears from what Mr Smith said, no conscious decision was made, one way or the other, about inviting the interest of OFCOM at the stage that the decisions were being made by the OFT in mid-2006, Mr Hoskins has argued that, had the issue been addressed, it would not have been unlawful or irrational for the OFT not to consider a transfer to OFCOM because the latter “had made it clear from the outset that it had ‘no interest’ in any of the cases.” He was relying on a witness statement from Mr Nikpay.

I will return to the issue of whether Mr Hoskins’ argument is justified on the evidence in due course, but the framework within which this issue should have been addressed, if it was to be addressed at all, needs consideration.

There is no issue that OFCOM (which at the time of the commencement of the investigation in 2002 was known as OFTEL) does have functions concurrent with those of the OFT in respect of the anti-competitive activities described in Section 2(1) of the 1998 Act “which relate to activities connected with communications matters”: section 371(2), Communications Act 2003.

Where a concurrent interest does exist, regulations are in place to govern the issue of which regulator is to undertake the relevant functions. The Competition Act 1998 (Concurrency) Regulations 2000 were in force until 1 May 2004 when they were replaced by the Competition Act (Concurrency) Regulations 2004. I have not been told of any material differences between the two sets of regulations and I will refer, therefore, to the 2004 regulations. In short, they provide for a communication between a regulator (called a “competent person”) who “considers that another competent person has or may have concurrent jurisdiction to exercise [functions under Part 1 of the 1998 Act]…[to] inform that other competent person of his intention to exercise prescribed functions in relation to that case.” The regulations provide for recording the agreement of the various “competent persons” to that effect (regulations 4(2) and (3)) or the determination of the Secretary of State of any dispute if it arises.

It is to be noted that there was formal agreement between the OFT and OFTEL that the OFT should proceed with the investigation of the Collective Boycott Case in April 2003 and in relation to the Collective Setting Case in January 2004.

Where the question of a transfer of an investigation arises, Regulation 7(1) applies:

“…a competent person who has exercised any Part 1 functions in relation to a case ("the transferor") may agree with another competent person who has concurrent jurisdiction to exercise Part 1 functions in relation to that case ("the transferee") to transfer the case to the transferee.”

It is this regulation that is said to provide the source of the power to transfer a case from one regulator to another at any stage of an investigation and, whilst there was no extensive argument on the issue, I assume that it is the use of the word “may” in this regulation that is said to afford the basis of the discretion to consider the exercise of the power. Mr Lasok contends, basing himself to some extent on the general proposition that a “public law body almost always has a duty in public law to consider whether it should exercise its powers” (per Lord Hoffman in Stovin v Wise [1996] AC 923, 950), that the OFT was under a duty to give proper consideration to whether or not it should exercise the power.

Mr Hoskins did not dispute the existence of the power and accepted that the OFT “has a continuing power under regulation 7… to agree a transfer with another regulator”, but argued that the failure to exercise it is susceptible of challenge only on the basis that it is an irrational failure to do so.

Mr Hoskins contends that the only remedy to which Cityhook would be entitled if it should be held that the failure to exercise the power was irrational would be for a mandatory order directed to the OFT to the effect that it should consider whether to seek the agreement of OFCOM to the transfer of the two cases. If I come to the conclusion that a transfer should have been considered and discussed with OFCOM, it may be that the relief would be more extensive than he suggests. I will return to that should the eventuality arise. However, I agree with him that the decision to “close the file” on the two cases is a different matter and that the decision or decisions to do that would not fall to be quashed given my conclusion on the main issues.

The issue of a possible transfer of the investigation, as I see it, needs to be addressed both in the broad sense of what the concurrency provisions are intended to achieve and then within the narrower perspective of the circumstances of this case.

The purpose of the concurrency regulations is to ensure, as between UK regulators, “the coordination of the performance of concurrent functions under the Act by the OFT and the Regulators” (see Competition Law Guidelines p.30, referred to in paragraph 168 above). Coordination of this kind is presumably necessary to achieve good administrative practice, including the efficient use of resources, and the avoidance of the possibility that a suspected infringer is the subject of two or more separate investigations.

When two regulators have been in touch about an investigation and agree that one should act as the “competent person”, it is to be inferred that they each recognise that the other does possess concurrent powers in relation to the proposed investigation. Agreement under regulations 4(2) and (iii) would not be necessary if that was not the case.

Strictly speaking, until the effective “competent person” has been agreed upon, none of the “prescribed functions” (including any investigation under Section 25 of the Act) may be exercised by that person. Regulation 6, under the sub-heading of “Avoidance of double jeopardy”, provides as follows:

Quite where the dividing line is between considering whether to commence an investigation under section 25 and actually commencing the investigation may be difficult to discern. Whilst nothing turns upon it, the formal agreements under the predecessor of Rule 4(2) were not concluded until the investigations under each case were reasonably well advanced.

Standing back from the wording of the regulations, what is being addressed is the prevention of two parallel (or concurrent) investigations into one alleged infringement. One potential or actual investigation is put “on hold” whilst the other proceeds. Where the decision is made to halt the active investigation, it seems to me that, as a general proposition of good and fair administration, the opportunity to take over that investigation needs to be offered to the regulator whose actual or potential investigation was put “on hold”. It does not seem to me that the structure of the concurrency regulations places the decision about this merely in the hands of the hitherto active “competent person”. Regulation 7 speaks of a possible agreement between that “competent person” and the other that the other may take over the case. As a general proposition, it seems to me that at the stage when one concurrent regulator decides that it no longer wishes to continue with a case there is an onus to contact the other concurrent regulator inviting it to consider whether it wishes to take over the case. In my judgment, there is an obligation on the part of both concurrent regulators in that situation to engage in a process or dialogue that will have as its end result either agreement as to transfer or agreement that transfer is not to take place.

How that obligation is met in any particular situation may, of course, vary according to the circumstances and the spectrum of scenarios may be wide. At one end of the spectrum, the investigating regulator may simply conclude that, despite believing that there were grounds for investigating initially, in fact there was nothing in the case or that the evidence upon which it would have relied is no longer available. A short communication between officials within each regulator recording that state of affairs would probably fulfil the obligation of offering the other regulator the opportunity of becoming involved again if it wanted to do so. At least, though, there would have been some engagement in the kind of process I have identified.

Some way towards the other end of the spectrum is a case such as this. The agreements reached that the OFT should investigate were concluded in each case when there were believed to be reasonable grounds for suspecting an infringement, the inquiries then continued for nearly four years, the view was formed that there was a prima facie case and active consideration was being given to the drafting of an SO. The decision was then made to go no further for “administrative priority” reasons. For my part, I can see no justification at all at that stage for not engaging in a process or dialogue with OFCOM that would have given OFCOM the opportunity to take over the case, particularly as one of the reasons given for the OFT taking a view about its “administrative priorities” was OFCOM’s concurrent jurisdiction in the matters (see paragraph 169 above). Given the stage that this investigation had reached, I would not have regarded a perfunctory exchange of communications between officials to be sufficient, let alone no communication at all. OFCOM has not been represented before me and I have no knowledge of its internal procedures, but I imagine that, in a major matter such as this, there would be significant consideration given to its position. It may be, of course, that presented with the opportunity it would also take the view that it did not wish to take over the case, but, of course, its administrative priorities and the resource implications of its position at the time the matter is considered may be different from those of the OFT (or from those in place within OFCOM at some earlier stage) and it may wish to take over the case in the new situation. However, all that is irrelevant for present purposes. What is relevant, in my view, is that there was in 2006 (and still remains) an obligation on the OFT not merely to consider inviting OFCOM to consider agreeing to take over the case, but to take such active step or steps as may be necessary to invite OFCOM to consider to agreeing to take over the case. Only then, in my judgment, will the full statutory and regulatory processes have run their course.

In reaching this view I have not overlooked the matter I mentioned in paragraph 170 above and the points made by Mr Hoskins in reliance upon Mr Nikpay’s first witness statement and the documents exhibited to his second witness statement. I can, however, express my views on this matter quite shortly. First, as is accepted, there was no engagement by the OFT at all with OFCOM during 2006. On the foregoing analysis, I cannot accept that that met the OFT’s obligations. Second, the suggestion that OFTEL (as it then was) agreed that the OFT should be the “competent person” in relation to the Collective Boycott Case because it “concerned access to land and not telecommunications” (as asserted by Mr Nikpay) is not, as Mr Lasok correctly observed, recorded anywhere contemporaneously. The same comment applies to the suggestion that the Collective Setting Case was regarded by OFTEL as concerning access to land. However, the short point in answer to these matters is that OFTEL did acknowledge its concurrent interest in both cases by reaching the agreements to which I referred in paragraphs 34 and 36 above. Third, reliance is placed on various internal memoranda and other documentation suggesting that OFTEL/OFCOM was not interested in either case. It is true that there is some evidence that some officials within OFTEL had expressed the view in April 2003 of the Collective Boycott Case that OFTEL “would have no interest” in the case. However, (a) the concurrency agreement concerning the Collective Boycott Case was shortly thereafter signed, (b) there was no clear evidence as to why OFTEL was not interested at that stage and (c) there was a degree of continuing dialogue between the two regulators through 2004 when, at least arguably, OFCOM was showing more interest in the two investigations. (OFCOM decided that it did not wish to pursue the National Wayleaves Forum matter to which I referred in paragraph 49 above). The final note of a meeting between OFCOM and OFT officials related to a meeting on 2 December 2004 (some 18 months before the final decision was made by the OFT) which was in neutral terms. The final communication drawn to my attention was an e-mail in October 2005 showing that an OFCOM official had expressed an interest in reviewing the draft SO when it was available. Against the background of having concluded the concurrency agreements, I am unable to see that this material, if it had been addressed by Mr Smith (which it was not), would have been sufficient for the view to be formed that it was inappropriate to initiate some contact with OFCOM in the context of regulation 7. However, for reasons which I have already given, contact within the context of regulation 7 would have been demanded irrespective of what had been recorded in any of these internal memoranda. It was Mr Hoskins who drew attention to the fact that one particular sentence upon which Mr Lasok placed some reliance in support of one of his contentions represented merely the view of one official. The same comment can be applied to many features of the documentation exhibited to Mr Nikpay’s second witness statement: individual views may give way to a different collective position.

I will hear, or receive written representations, from counsel on the precise form of order necessary to give effect to my conclusion in regard to this particular part of the case, but my conclusion on the merits of the argument is as indicated.

I should, perhaps, add that the order is intended to deal with both the Collective Boycott Case and the Collective Setting Case. It is not disputed that Cityhook has sufficient locus standi in relation to the former, though there have been some suggestions (not, I think, very vigorously pressed) that the same does not apply to the Collective Setting Case. I am not, of course, quashing the decisions of the OFT to “close the file” on each of these two cases; I am merely directing, in terms to be resolved, that proper consideration be given to the possible transfer of the cases to OFCOM. Given that the view of the OFT is that the two cases were “inextricably linked”, even though Cityhook was not directly affected by the Collective Setting Case, I can see no basis for denying Cityhook the locus standi to bring the matter before the court.

I am conscious that I have not addressed every nuance of every argument advanced either orally or in the Skeleton Arguments. However, I have addressed those which were at the forefront of the oral submissions and which appeared to me to be potentially the most persuasive on one side or the other.

Whether this case does raise the important aspects to which Judge Gilbart QC adverted when giving permission to apply for judicial review is a matter for others to judge. It has certainly raised interesting issues and I should like to express my appreciation to all counsel and their respective legal teams for the guidance I have been afforded through some areas of the law that were not wholly familiar territory.

The Office of Fair Trading (OFT) has provisionally decided to close its investigation into a potential collective boycott of Cityhook by the United Kingdom Cable Protection Committee (UKCPC) and certain of its members (the Cityhook Case). This is on the basis that the Cityhook Case no longer constitutes an administrative priority for the OFT.

In addition, the OFT has provisionally decided to close its investigation into the potential collective setting of wayleave fees by the UKCPC and certain of its members (the Collective Setting Case). This is on the basis that the Collective Setting Case no longer constitutes an administrative priority for the OFT.

The purpose of this letter is to set out the reasons for these provisional decisions and to give interested parties an opportunity to comment. Accordingly, copies of this letter have been sent to the UKCPC, its members and certain interested third parties.

The history of the Cityhook Case and the Collective Setting Case is set out below. The OFT then explains the reasons for its provisional decisions. Finally, the OFT issues an invitation to comment.

This investigation arose from a complaint to the OFT on 21 February 2002 from Cityhook Limited alleging a collective boycott by the UKCPC and/or its members against Cityhook and its submarine telecommunications cable landing technology.

On 1 August 2002 (Footnote: ³) the OFT commenced a formal investigation under section 25 of the Competition Act 1998 (the Act) (Footnote: ⁴) into whether there had been an agreement or concerted practice under Chapter I of the Act by way of a collective boycott within the market for submarine cable laying and landing (Footnote: ⁵). This is what is meant as the Cityhook Case for the purposes of this letter.

On 23 August 2002, the OFT issued section 26 notices under the Act (Footnote: ⁶) to the UKCPC and over 20 of its members seeking specified information and documentation. As a result, a large number of emails and other documents were obtained in relation to the Cityhook Case.

During the course of this investigation, it became clear to the OFT, from the evidence it had assembled, that it had reasonable grounds to suspect the existence of another infringement of the Act which, while of a different nature, was inextricably linked to the Cityhook Case.

Indeed, the OFT obtained evidence to suggest there had been an exchange of confidential, non-historical price (Footnote: ⁷) data between the UKCPC and some of its members. It further obtained evidence of an attempt by the UKCPC and some of its members to enter into a decision, agreement and/or concerted practice to collectively set the level of wayleaves required for landing cables on land owned by The Crown Estate and the Duchy of Cornwall. The OFT therefore expanded its investigation under Chapter I of the Act to determine whether the UKCPC and/or its members entered into a decision, agreement and/or concerted practice to collectively set the level of wayleaves paid to The Crown Estate and the Duchy of Cornwall with the object and/or effect of preventing, restricting or distorting competition within the relevant market. Further section 26 notices were issued in August 2003 to the UKCPC; around 20 of its members; approximately 40 UK landowners; and some non-UK landowners. Again, a large number of documents were obtained.

The OFT also obtained evidence to suggest there may have been a decision, agreement and/or concerted practice in relation to wayleave fees payable to other UK landowners by, in particular, reference by the UKCPC and some of its members (as an industry standard applicable to all landowners) to certain standard wayleave rates agreed solely between the Country Land & Business Association (CLA), the National Farmers Union (NFU) and BT with the object and/or effect of preventing, restricting or distorting competition within the market for the provision of access to land in order to lay a cable.

As a result, the OFT extended the scope of its investigation to include this aspect and issued additional section 26 notices between February and July 2004 to the CLA, the NFU, agents negotiating wayleaves on behalf of UK landowners, and particular UKCPC members.

The potential infringements of the Act set out in paragraphs 9 and 10 are the Collective Setting Case for the purposes of this letter.

Further section 26 notices were sent to the UKCPC, some of its members and third parties at various times after February 2004, requesting information and documentation pertaining to both parts of the OFT’s investigation. This resulted in the OFT receiving significant further documentation.

Throughout the investigation, the OFT held meetings with the UKCPC and a number of its members upon request, as well as with Cityhook, the complainant in respect of the Cityhook Case. The OFT has also held meetings with, amongst others, representatives of The Crown Estate, the Duchy of Cornwall, the Office of Communications (OFCOM), the Department of Trade and Industry (DTI) and the Valuation Office Agency (VOA).

On the basis of the information and evidence gathered in the course of the OFT’s investigations, the OFT proceeded to draft a Statement of Objections focussed on the following alleged infringements:

In addition, the OFT made an administrative decision to focus any Statement of Objections on those parties that it believed to be the most culpable. Whilst there was evidence to implicate other parties as well, the OFT decided, on administrative grounds, to confine its investigation to those parties it believed were more directly involved in the respective infringements.

Parties which submitted documentation (Footnote: ⁸) in response to the above mentioned section 26 notices were sent letters requesting their confidentiality assessments in preparation for allowing relevant parties access to the OFT’s file. These were sent on 2 and 3 December 2004 and 3, 27 and 28 January 2005.

Following receipt of the responses, the OFT commenced its own confidentiality assessments of the documentation in preparation for allowing relevant parties access to the OFT’s file and continued to draft a Statement of Objections.

Following OFT internal procedures, the case team submitted its draft Statement of Objections for peer review in August 2005. A Case Scrutiny Meeting was convened in October 2005 to review the draft Statement of Objections. At or around the time of the Case Scrutiny Meeting, the OFT’s new Chairman, Chief Executive and Senior Director, Competition Casework took up their respective positions. Shortly thereafter, the OFT’s Competition Enforcement Division (CE Division) started a programme of reorganisation which addressed, amongst other things, casework delivery and better case prioritisation. Against this background, both the Cityhook Case and the Collective Setting Case were reviewed afresh by the newly appointed Senior Director, Competition Casework and the new Branch Director of Competition Enforcement 4.

The OFT’s decision to provisionally close the Cityhook Case and the Collective Setting Case on the grounds that neither of them continues to be an administrative priority was taken on 20 January 2006 (the OFT’s Provisional Decision).

The OFT decided that the case team had made out, prima facie, a case for the parties to answer in connection with both the Cityhook Case and the Collective Setting Case. Nevertheless, additional work to further improve the draft Statement of Objections would need to be undertaken prior to it being issued. On this basis, were the OFT to issue a Statement of Objections, then both the Cityhook Case and the Collective Setting Case would be run as object and effect infringements of the Act.

However, the OFT has decided not to take the preparatory procedural step (Footnote: ⁹) of issuing a Statement of Objections in accordance with rule 4 of the Competition Act 1998 (Office of Fair Trading’s Rules) Order 2004 (OFT’s Rules). Therefore the parties have not had the opportunity to exercise the rights afforded to them, most notably under rule 5 of the OFT’s Rules (notices, access to file and representations). On this basis, therefore, the OFT’s view as expressed in paragraph 21 above, has to be understood in the context of the OFT not having had the opportunity to read the parties’ representations on a Statement of Objections. As such, the OFT has not seen all the arguments and counter-arguments and, consequently, it cannot decide whether the prima facie case, described as made out in paragraph 21 above, would be made out to the requisite standard, following the parties’ representations.

Notwithstanding the above, the OFT has provisionally decided to close the Cityhook Case and the Collective Setting Case on the basis that neither case continues to constitute an administrative priority for the OFT. The OFT receives in the region of 1200 or so competition complaints per year and only has the resources to commence some 25- 40 cases per year. Therefore the OFT has to make difficult choices as to which cases it allocates its limited resources.

This provisional decision has been taken to close the Cityhook Case and the Collective Setting Case for a number of reasons. The starting point for this analysis is the six prioritisation criteria adopted by CE Division (Footnote: ¹⁰). In respect of those criteria, in the OFT’s view the balance of considerations falls as follows:

consumer benefit from taking the case forward: there is little, if any, evidence of consumer detriment. For the Cityhook Case there is little evidence of Cityhook’s technology lowering costs for telecommunications companies which could then be passed on to consumers in the form over lower call charges. With regard to the Collective Setting Case, the amount spent in respect of wayleave fees when compared to the entire installation of networks is insignificant and therefore it is unlikely that there has been significant consumer benefit or detriment;

the strength of the evidence that there has been an infringement: while, prima facie, the evidence appears to carry the primary constituent elements of infringement (in respect of both the Cityhook Case and the Collective Setting Case) there may be plausible counter-arguments (whether in law or fact) that the parties could possibly put forward in their defence to justify their conduct or, indeed, to explain why the prima facie impression is not accurate. As detailed above, the parties have not had the opportunity to make such representations as a Statement of Objections has not been issued.

the type of case: there is nothing specific about the Cityhook Case or the Collective Setting Case–neither is clearly a hard-core infringement, nor do either of them fall within one of the OFT’s priority areas (Footnote: ¹¹): there is a question as to whether the role of the Crown Estate in the Collective Setting Case brings the OFT within the “Government and markets” priority framework, but in the OFT’s view the Crown Estate in this case is in a different position from cases in which Government is itself said to be responsible for the distortion of competition: here it is in part the victim of the alleged anti-competitive conduct;

aggravating or mitigating factors on the facts of the case: there appear to be no particular aggravating or mitigating features on the facts of the Cityhook Case or the Collective Setting Case;

any relevant policy consideration: there is a range of relevant policy considerations to which the OFT needs to have regard in respect of both the Cityhook Case and the Collective Setting Case, including the fact that the case team and the parties have dedicated very significant effort to the investigation and development of the case. This is a long-running investigation to which the OFT and the parties have so far dedicated substantial resources – while the point the OFT has reached in the case must clearly play a role in thinking about administrative priority, that alone should not deter the OFT from closing the case, if it believes that its resources are better used elsewhere in the future; and

is CE Division “best placed” to deal with the issue?: if the OFT needs to pursue this matter, then CE Division alone appears able to deal with it.

Taking the above factors in the round, the OFT does not believe there to be a compelling case for allocating further OFT resource to either the Cityhook Case or the Collective Setting Case. In general terms, the OFT would today allocate a low priority to both the Cityhook Case and the Collective Setting Case given, in particular, the absence of identifiable consumer detriment in both cases.

In this context, the OFT has weighed-up the potential benefits of pursuing the Cityhook Case and/or the Collective Setting Case against the potential benefits of diverting those resources to other major cases that CE Division currently has open. These alternative investigations include cases involving ‘hard-core’ cartel-type behaviour that cannot currently be progressed in a timely and effective manner due to CE Division’s resource constraints. The OFT considers that the time and resources required to bring the Cityhook Case and/or the Collective Setting Case to a conclusion would be better spent on these other investigations given their very serious nature.

It should also be noted that this process of prioritisation is ongoing and involves reviewing all cases at key milestones during an investigation to ensure that pursuing a particular investigation continues to represent best use of the OFT’s resources. As recognised above, CE Division is currently undergoing a substantial programme of change. Accordingly, at the present time, the OFT is placing significant emphasis on these prioritisation reviews as the new approach to focusing the work of CE Division is bedded in.

This letter sets out the OFT’s provisional decision. No final decision on whether to close the Cityhook Case and/or the Collective Setting Case has yet been taken. Should you wish to comment, please submit your comments … by 5pm on 17 February 2006. While you may submit whatever germane comments you may wish, the OFT is particularly interested in:

…

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There is no obligation to comment. The OFT will consider all the comments it receives before deciding whether to close the Cityhook Case and/or the Collective Setting Case. If the OFT has not received any comments by 17 February 2006 then it will formally close its file on this matter.

The Office of Fair Trading (OFT) has now decided to close its investigation into a potential collective boycott of Cityhook by the United Kingdom Cable Protection Committee (UKCPC) and certain of its members (the Collective Boycott Case). This is on the basis that the Collective Boycott Case no longer constitutes an administrative priority for the OFT.

In addition, the OFT has now also decided to close its investigation into the potential collective setting of wayleave fees by the UKCPC and certain of its members (the Collective Setting Case). This is on the basis that the Collective Setting Case no longer constitutes an administrative priority for the OFT.

On 24 January 2006, the OFT wrote to the UKCPC, its members and certain interested third parties. That letter stated that the OFT had provisionally decided to close both the Collective Boycott Case and the Collective Setting Case and gave the recipients an opportunity to comment on these provisional decisions before 5 pm on 17 February 2006 (the Provisional Closure Letter). The OFT has received various diverse responses to the Provisional Closure Letter (the Responses). The OFT has carefully considered the Responses before taking the administrative decisions to close the Collective Boycott Case and the Collective Setting Case and has taken them into account where the OFT has considered it appropriate and proportionate to do so.

The purpose of this letter is to set out the reasons for these administrative decisions following consideration of the Responses. Accordingly, the history of the Collective Boycott Case and the Collective Setting Case is set out below. The OFT then explains the reasons for its administrative decisions. A summary of the germane points raised in the Responses and the OFT’s view on those points are set out in the Annex to this letter. By way of notice of these administrative decisions, copies of this letter have been sent to the UKCPC, its members and certain interested third parties.

This investigation arose from a complaint to the OFT on 21 February 2002 from Cityhook Limited alleging a collective boycott by the UKCPC and/or its members against Cityhook and its submarine telecommunications cable landing technology.

On 1 August 2002 the OFT commenced a formal investigation under section 25 of the Competition Act 1998 (the Act) into whether there had been an agreement or concerted practice under Chapter I of the Act by way of a collective boycott within the market for submarine cable laying and landing. This is what is meant as the Collective Boycott Case for the purposes of this letter.

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[As provisional letter]

Following OFT internal procedures, the case team submitted its draft Statement of Objections for peer review in August 2005. A Case Scrutiny Meeting was convened in October 2005 to review the draft Statement of Objections. At or around the time of the Case Scrutiny Meeting, the OFT’s Competition Enforcement Division (CE Division) started a programme of reorganisation which addressed, amongst other things, casework delivery and better case prioritisation. Against this background, both the Collective Boycott Case and the Collective Setting Case were reviewed afresh by the newly appointed Senior Director, Competition Casework and the new Branch Director of Competition Enforcement 4.

The OFT’s administrative decision to provisionally close the Collective Boycott Case and the Collective Setting Case on the grounds that neither of them continues to be an administrative priority was taken on 20 January 2006. Subsequently, the OFT sent out copies of the Provisional Closure Letter to the UKCPC, its members and certain interested parties on 24 January 2006, giving the recipients the opportunity to comment before 5pm on 17 February 2006. The OFT then evaluated and considered the responses received. Subsequently, the final administrative decision to close the Collective Boycott Case and the Collective Setting Case on the grounds that neither of them continues to be an administrative priority was taken on 19 June 2006.

The OFT has decided that although there is evidence of potential infringement in connection with both cases, the Collective Boycott Case and the Collective Setting Case would both need to be developed considerably before a sufficiently robust Statement of Objections could be issued. This would have to include, in particular in both cases, a more thorough analysis of the effect of the parties’ behaviour on competition. For the reasons set out further below, the OFT has decided not to carry out this work on the basis that neither case continues to constitute an administrative priority for the OFT.

Consequently, the OFT has decided not to proceed to issuing a Statement of Objections in accordance with rule 4 of the Competition Act 1998 (Office of Fair Trading’s Rules) Order 2004 (OFT’s Rules). As a result, the parties have not had the opportunity to exercise the rights afforded to them, most notably under rule 5 of the OFT’s Rules (notices, access to file and representations). The OFT’s view that there is evidence of a potential infringement, must therefore be regarded as preliminary and provisional.

The OFT receives in the region of 1200 or so competition complaints per year and only has the resources to commence some 25- 40 cases per year. Therefore the OFT has to make difficult choices as to which cases it allocates its limited resources. In this case, the OFT has decided that the allocation of further resources would not be appropriate.

This administrative decision has been taken to close the Collective Boycott Case and the Collective Setting Case for a number of reasons. The starting point for this analysis is the six prioritisation criteria adopted by CE Division. In respect of those criteria, in the OFT’s view the balance of considerations falls as follows:

[As provisional letter]

[As provisional letter]

[As provisional letter]

The majority of respondents welcomed the OFT’s provisional administrative decision to close the Collective Boycott Case on the grounds that it no longer constituted an administrative priority for the OFT. Two respondents took the opposite view, with one respondent expressing its surprise at the provisional administrative decision given the amount of effort put into the case and the fact that there did appear to be a case to answer. A further respondent labelled the OFT’s provisional administrative decision absurd.

One respondent commented that in being so categorical about its findings of breach of the Act and in describing in such detail each step of the inquiry, the OFT may unwittingly encourage third parties to mount a legal challenge to the OFT’s administrative decision to close the file before the Competition Appeal Tribunal. This respondent stated that, at very minimum, there was a risk of unnecessarily generating document requests under the Freedom of Information Act 2000 and criticism of the OFT in the press. This party was also concerned that the conclusive tone of the drafting of the Provisional Closure Letter was likely to give third parties false hope such that they may commence futile legal proceedings against the UKCPC and some or all of its members. This would involve all parties in incurring further unnecessary legal fees. Other respondents suggested drafting changes to the OFT’s Provisional Closure Letter if it was going to form the basis of a letter notifying parties of the OFT’s final administrative decision.

The OFT has spelt out its reasons in some detail for closing the Collective Boycott Case on the grounds of it no longer constituting an administrative priority in the attached letter. In the OFT’s view, this reasoning still stands despite the fact that it found that there was a potential infringement in connection with both the Collective Boycott Case and the Collective Setting Case. Inherent in that reasoning is the fact that the OFT believes that it has other ongoing cases which are much more deserving of the resources tied up in the Collective Boycott Case.

With regard to encouraging appeals before the Competition Appeal Tribunal, encouraging document requests under the Freedom of Information Act 2000 and attracting press criticism because of the level of detail in the Provisional Closure Letter, the OFT believes, in the interests of transparency, that it is necessary and proportionate for it to explain the detailed context of its administrative decision. This is particularly so, given the duration of the pertinent investigation.

With regard to the point about the conclusive tone of the Provisional Closure Letter encouraging legal proceedings against the UKCPC and some or all of its members, the OFT considers that it has not and cannot have made a decision within the terms of section 46 of the Act that section 2 of the Act has been infringed. This is especially so, given the additional work identified as needed before a Statement of Objections was issued. As such, the evidential burden on a party instituting legal proceedings has not altered from what it was prior to the OFT’s investigation. Consequently, it will still be the decision of any potential applicant to weigh up the chances of pursuing successful legal proceedings (with or without legal advice) given the evidence available regardless of the tone adopted by the OFT. In addition, as recognised in paragraph 21 of the attached letter, the Collective Boycott Case and the Collective Setting Case would both need to be developed considerably before a sufficiently robust Statement of Objections could be issued. This would include first gathering and analysing additional evidence as to effects. Second, it would include an investigation of plausible counter-arguments (whether in fact or law) that the parties could possibly put forward in their defence to justify their conduct or, indeed, to negate the evidence of a potential infringement. These are both material pieces of work impacting directly on the strength of the evidence to-date.

Insofar as respondents suggested specific drafting changes to the Provisional Closure Letter, the OFT has considered these and has decided not to incorporate them generally as they do not express the view of the OFT or help to relay that view to the addressees of this letter. However, having reviewed the Provisional Closure Letter, the OFT acknowledges that the original drafting of the letter may have given an unduly categorical impression of the OFT's assessment of the issue of breach in light of the internal view that further work, including on the effects issues, would be required before a Statement of Objections was issued. Therefore, changes have been made to the attached letter to reflect more closely the OFT's assessment of the issue of breach.

Several respondents welcomed the assessment of this case in the context of the six prioritisation criteria used to analyse whether a case constitutes an administrative priority for the OFT. In particular, some of these respondents emphasised that the lack of apparent consumer detriment was a reason for this case not being a priority for the OFT.

However, one respondent was highly critical of the OFT’s approach as described below.

This respondent argued that the Act specifically prohibits the suppression of technical development. New technology can reduce cost operationally and reduce prices by opening up markets to more efficient new entrants, so if it is boycotted the consumer is deprived of potential benefit. It said that the Cityhook technology would improve the speed to market and efficiency for all competitors. It stated that Cityhook has an enabling technology that facilitates competition between new entrants and incumbent telecoms companies. It opined that the ability to ‘plug and play’ on routes like New York - London is worth hundreds of millions on a business plan to a prospective market entrant and correspondingly could wipe hundreds of millions off the market value of incumbent companies intent on protecting their position to minimise price competition.

By way of explanation, this respondent submitted its opinion as to what happens with terrestrial cables. In this regard, it stated that the first cable company to dig up a road fails to provide capacity for others, which then have to dig up the road themselves. The first company is able to sell all its capacity and command a premium price. If instead, the first company had helpfully provided sub-ducts for other companies, they would enter the market sooner and start to compete for sales and drive prices down.

Using the analogy of terrestrial cables with regard to what happens on the foreshore, this respondent explained that using old technology a transatlantic cable installation typically takes four years from planning to completion. A cable from Ireland to the UK takes about 18 months. The Cityhook technology simplifies and shortens the process of planning transatlantic cable landings to several months - thereby reducing risks and barriers to entry hence facilitating competition on transatlantic routes e.g. New York-London and on intra-island routes e.g. Dublin-Liverpool. Each Cityhook duct contains 10 sub-ducts so avoids 10 conventional beach landings and represents an efficient and economic use of each site. By installing spare sub-duct capacity, new cables and new entrants can be encouraged to come to Cornwall and Britain due to the ease and speed of landing (no months of seeking multiple permits and trench-digging, just a few hours pulling the cable up a sub-duct).

This party further opined that the alleged collective boycott of Cityhook would lead to continued inflated pricing on such routes as London-New York and Dublin-Liverpool. The latter route price remained in the range £6 - 10 per fiber-pair/m from 1996-2001; with about £10 being the spot price at March 2001. This respondent contended that the absence of a reduction in the price on this route, against a backdrop of massive technological efficiency gains, is prima facie evidence of a market that is not subject to fair competition. It added that the ‘perfect competition’ price for capacity from Dublin-Liverpool at January 2000 would have been about one third of the actual ‘maintained’ price at that date. This respondent concluded that the OFT’s provisional conclusion that there is little, if any, evidence of consumer detriment was manifestly in error.

The OFT understands the theory of the argument presented by the respondent. However, the OFT has not seen concrete evidence from third parties of the impact that Cityhook would have had on the speed to market for submarine cables generally and, in particular the OFT has seen no objective evidence from third parties as to how it would facilitate speed to market for new entrants. In addition, on the facts at the time of the alleged infringement, it was far from clear that the adoption of Cityhook technology would have increased the speed to market of services using the three trans-Atlantic cables actually in construction.

The OFT is not in a position, on the information available to it, to determine the impact that the use of Cityhook technology would have had on the route prices quoted by this respondent. In any event, the OFT considers that many factors other than the use of Cityhook technology could influence such prices. In this regard, Cityhook’s technology is concerned with landing submarine cables. Given that the cost of landing a submarine cable is minimal when compared to the overall cost of installing one, it would seem that factors impacting on the costs of other parts of the installation process (and not just the landing process) are more likely to impact on telecommunications costs to consumers.

One respondent claimed that the evidence of infringement of the Act was overwhelming. It also stated that alleged cartel-type behaviour is unlikely to be repeatedly evidenced in writing so a competent investigating authority must evaluate the body of evidence against what one could reasonably expect, making intelligent inferences between strands of evidence and with an understanding of the parties’ commercial motivations. This party alleged that there was evidence that the parties vehemently wanted to keep entry barriers high to stifle competition and obstruct new market entrants. This respondent explained that is the backdrop against which strands of evidence must be considered and concluded that the fact that the prima facie evidence (after written submissions from all concerned) finds that there is clear evidence that the cartel broke the law, must surely be enough.

In sharp contrast, other respondents claimed that allegations of infringement were wholly without merit, groundless (in fact and law) and that there was no case to answer. A further respondent argued that there was no object or effect case.

The OFT’s view on the evidence (in connection with both the Collective Boycott Case and the Collective Setting Case) is that, although there is evidence of potential infringement, the Collective Boycott Case and the Collective Setting Case would both need to be developed considerably before a sufficiently robust Statement of Objections could be issued. This would include first gathering and analysing additional evidence as to effects. Second, it would include an investigation of plausible counter-arguments (whether in fact or law) that the parties could possibly put forward in their defence to justify their conduct or, indeed, to negate the evidence of a potential infringement. These are both material pieces of work impacting directly on the strength of the evidence to-date.

One respondent observed that the OFT believes that this case does not involve hard-core cartel-type behaviour and that those are the cases it wants to focus on. This respondent asks the question whether this case is actually a hard-core one after a proper evaluation of the evidence.

The same respondent questioned whether the OFT’s priorities had changed. It argued that the OFT should not change priorities retrospectively. It asserted that it believed that the OFT had already spent £1-2 million on this case which, which if closed at this stage, would be a waste of taxpayers money.

Based on the evidence seen by the OFT, the alleged collective boycott does not constitute a hard-core (Footnote: ¹³)¹³ infringement of the Act. Presently, the OFT is investigating real hard-core cartel cases which cannot be progressed in a timely manner. These cases are of higher administrative priorities to the OFT than the Collective Boycott Case.

The OFT’s priorities are as set out in its draft annual plan which has recently been the subject of public consultation. The OFT’s current priority areas are consumer credit, healthcare, construction, mass-marketed scams and interaction between government and markets. These areas have been a priority to the OFT for over a year. Consequently, telecoms is not a priority area for the OFT, particularly given the existence of OFCOM’s concurrent powers in this area. Notwithstanding the OFT’s current priority areas, the OFT still undertakes investigations in other sectors where it is evident that the case is a high priority for the OFT and remains so throughout the course of the investigation when compared at key milestones relative to other cases under investigation which have reached the same milestone. Details of the criteria used by the OFT to assess whether a particular investigation is a high priority case relative to other cases at the same milestone are set out in paragraphs 24(a)-(f) of the attached letter.

Consequently, the administrative decision to close the Collective Boycott Case is not a matter of the OFT changing its priorities retrospectively. It is rather a rational and proportionate assessment of the investigations it has underway against its priorities in order to determine the highest priority cases to which it should devote its limited resources.

The OFT questions this respondent's calculation of the money spent in connection with the Collective Boycott Case. However, the OFT recognises that it and all the parties concerned have dedicated substantial resources to the investigation. The OFT contends that while the juncture reached in the investigation must clearly play a role in thinking about administrative priority, that alone should not deter the OFT from closing the case, if it believes that its resources are better used elsewhere in the future.

One respondent asserted that closing the Collective Boycott Case would send a signal to large companies that they could collectively exclude small companies that were trying to compete by implementing superior and innovative technology if it interfered with their normal business practices. It would also send a signal to small businesses to expect neglect from government agencies unless its new business/technology is a vote winner.

The same respondent provided a series of quotations by way of demonstration of the amount of evidence available in connection with the alleged exclusion of Cityhook, the implication being that the sheer amount of evidence represented an aggravating factor.

Further, this respondent alleged, by way of evidence of an aggravating factor, that there was evidence of a certain telecommunications company’s apparent intention to mislead Parliament.

Finally, this respondent concluded that the view that there were no aggravating circumstances was absurd and manifestly in error.

The OFT receives in the region of 1200 or so competition complaints per year and only has the resources to commence some 25- 40 cases per year. Included within those complaints are many from both large and small businesses. Therefore the OFT has to make difficult choices as to which cases it allocates its limited resources. Resources are allocated to those cases which are perceived as being of the highest priority as assessed against the OFT’s prioritisation criteria detailed in paragraphs 24(a)-(f) of the attached letter. These prioritisation criteria do not discriminate between large or small enterprises as cases which are of a high priority to the OFT may involve both large and small enterprises.

Further, in assessing which cases are its highest priority, the OFT has to weigh in the balance the signal sent by closing the Collective Boycott Case when compared with the negative signal sent if the OFT had to close one of its more hard-core cartel investigations because it could not redirect resources from the Collective Boycott Case to progress it in a timely fashion.

With regard to the alleged exclusion of Cityhook, the OFT has decided that the case team had made out, prima facie, a case for the parties to answer in connection with the Collective Boycott Case. However, in the OFT’s view this is not sufficient, of itself, to constitute an aggravating factor.

The OFT has not found any evidence of any party attempting to mislead Parliament. However, even if it had found such evidence, the OFT does not consider that, in the circumstances pertaining, this would be an aggravating factor that the OFT should take into account in balancing the relevant priority of a case. In this regard, the OFT notes that it is for Parliament to decide whether it has been misled.

Finally, the OFT considers that its view that there are no aggravating circumstances is a proportionate one given the evidence and responses to the consultation.

One respondent questioned what justifications there were to inform the defendants of a provisional administrative decision without even having consulted the injured parties.

The same respondent criticised the OFT for showing contempt for the will of both British and European Parliaments. It said it could not imagine such behaviour being tolerated in other territories. It stated it understood that it would amount to a criminal offence in the US and France. It concluded that Parliament enacted the Competition Act 1998 to empower the OFT to stamp out such behaviour. Consequently, it suggested that it would manifestly be in error, as a matter of policy, for the OFT to fail to respect the will of Parliament.

This respondent stated that the OFT should be consistent in its policy notwithstanding a recent change in its senior management.

This same respondent contended that it was in the best interest of consumers that an example is made of large quoted companies that flagrantly act in concert to breach the Act. It added that it would be an appalling waste of taxpayer’s money to abort this investigation after the OFT had invested say 80-90% of the man hours required to make a final decision that the Act has indeed been breached.

The OFT has given the complainant and other interested parties the opportunity to comment on the OFT’s provisional administrative decision. It would be inequitable not to let all interested parties have the same opportunity to comment on a provisional administrative decision which has a significant impact on their businesses.

By adopting this administrative decision, the OFT is not showing contempt for the UK or EC Parliament, it is merely exercising its discretion based on its administrative priorities. The OFT considers that it is acting in a proportionate manner in this regard.

The OFT’s policy is to make markets work well for consumers. This has not changed since the change in the OFT’s senior management. This administrative decision merely marks the OFT’s wish to allocate resources away from the Collective Boycott Case to other cases which the OFT has concluded are presently of a higher priority to the OFT than the Collective Boycott Case. This conclusion was reached following an objective and proportionate assessment of the Collective Boycott Case and other cases at the same milestone against the OFT’s prioritisation criteria as set out in paragraph 24(a)-(f) of the attached letter.

As previously stated, the OFT recognises that this is a long-running investigation to which the OFT dedicated substantial resources. For those reasons and in the interests of transparency, the OFT has explained its reasoning in some detail for closing the Collective Boycott Case on the grounds that it no longer constitutes an administrative priority for the OFT. However, while the juncture the OFT has reached in the case must clearly play a role in thinking about administrative priority, that alone should not deter the OFT from closing the case, if it believes that its resources are better used elsewhere in the future.

One party criticised the rigour of the OFT’s evidence gathering procedures given the strength of the evidence and further criticised its provisional administrative decision to close the case given the impact on Cityhook.

As stated above, the OFT collected sufficient evidence for it to decide that there was evidence of a potential infringement in connection with both the Collective Boycott Case and the Collective Setting Case. The reasons for the administrative decision to close the Collective Boycott Case are set out in some detail the attached letter.

In general, the responses were favourable to the OFT’s provisional administrative decision to close the Collective Setting Case. However, one respondent remarked on the impact that the closing of both the Collective Boycott Case and Collective Setting Case would have on Cityhook.

As stated previously, the OFT receives in the region of 1200 or so competition complaints per year and only has the resources to commence some 25- 40 cases per year. Therefore, the OFT has to make difficult choices as to which cases it allocates its limited resources. The OFT has carried an objective and proportionate assessment of both the Collective Boycott Case and Collective Setting Case against its prioritisation criteria (see paragraphs 24(a)-(f) in the attached letter) and found that neither of them continues to be a priority relative to other higher priority cases, measured at the same milestone. As a consequence, the OFT needs to allocate the resources previously allocated to the Collective Boycott Case and the Collective Setting Case to other higher priority cases currently under investigation within the OFT.