Sarah Cardell speaks about the CMA’s enforcement priorities and approach
Speech given by Sarah Cardell, CMA General Counsel, at the IBC UK Competition Law Conference 2016 in London.
Two years on: a view from the CMA
Almost exactly 2 years ago I spoke at this conference, presenting on ‘The Dawn of the CMA’. Two years on, it seems an appropriate juncture to reflect on what we have achieved so far and to address some of the challenges and opportunities that lie ahead. Given the profile of this conference I will focus on our competition work. But of course the CMA continues to be active in other areas too – notably regulatory appeals and consumer law enforcement.
In considering the progress of the CMA almost 2 years on, I will therefore focus on 3 main aspects:
- First, to provide an overview of the CMA’s priorities, especially our focus on stepping up the speed of our work without compromising fairness or rigour. I will highlight how this is reflected in the work we have been doing as well as some thoughts on the challenges this brings.
- Then, to reflect on some learnings we have drawn from the CMA’s recent litigation challenges, which equally raise issues of pace and process; and
- Finally, to explain how and why the desire for even more effective enforcement is something in which we can all play a part to ensure a strong competition regime. Indeed, as an example of that, I will focus in particular on our approach to the use of commitments. This has been informed by the roundtable we held at the CMA last September where we explored with the wider competition community the opportunities and challenges of this process.
What are the CMA’s priorities for 2016 and how is this reflected in our work so far?
As the CMA enters its third full year we are looking to make another significant step up in what we deliver for consumers, businesses and the economy. High expectations were set for the CMA when we were formed that we would achieve pace, scale and quality across all our work areas. We aim to demonstrate this in the progress we are making in a variety of cases, of all types and sizes. As many of you will be aware, the recent National Audit Office (NAO) report highlighted that we have made significant progress in improving how the UK’s competition regime works since its last review in 2010. The NAO also noted the need to increase case flow in the enforcement of competition law which is in line with our own ambition to focus on swift and decisive enforcement.
That challenge – increasing pace without compromising quality – is one which is recognised across the CMA. As General Counsel, I feel a particular responsibility for ensuring that we achieve the optimum mix of speed, impact and rigour.
From an organisational perspective we have given careful thought to how best to deliver legal advice to the CMA to achieve this twin objective. We have developed a strong legal service within the CMA which I am fortunate to lead along with 3 senior legal directors: Roland Green, Claudia Berg and Andrea Gomes Da Silva. Between us we have considerable experience advising government, regulators and private practice clients. We are supported by an extremely able team of 10 legal directors who lead and supervise the provision of legal advice on individual cases by embedded case team lawyers. With this structure we seek to ensure that legal advice forms an integral part of our frontline delivery work whilst being subject to rigorous senior review. I am very proud of the quality of the legal function we have developed and would freely recognise that we benefit in this regard from encouraging a ‘revolving door’ model where ambitious and highly capable lawyers can gain real value from working at the CMA. We also encourage and develop our lawyers to work across tools as part of the CMA’s ‘matrix working’ model. This is essential to maximise case throughput: a lawyer who has just finished working on a phase 2 merger case can for example move straight onto a Competition Act 1998 (CA98) case. In my view it is also equally important for their professional development and to maintain a varied diet of work.
Alongside developing the CMA’s legal service, last year we appointed 3 Standing Counsel to further support the CMA’s work: Marie Demetriou QC, Rob Williams and David Bailey. Their collective depth of experience speaks for itself and we see real value from appointing a Standing Counsel team who contribute both to ensuring and – where necessary – defending the rigour of our outputs.
Achieving pace and impact without compromising fairness and rigour in antitrust enforcement…
The 2 CA98 infringement and penalty decisions we issued last year demonstrate the balance we are aiming to strike, and on which we plan to build as we progress the new cases we have opened. One case involved an association of estate and letting agents and a local newspaper publisher who had agreed to restrict the advertising of fees or discounts in a local newspaper. The other case involved a membership organisation of private consultant ophthalmologists (specialists in medical and surgical eye procedures) and concerned anti-competitive information exchange and pricing agreements.
Both cases were settled, with the parties admitting voluntarily that they had breached competition law and accepting that a streamlined procedure would apply to the remainder of the investigation. That process clearly delivers efficiencies both for the CMA and the parties involved, which enables the CMA to issue a decision on the case more quickly – the estate agents and ophthalmologists cases were concluded in just over 17 and 12 months respectively. Not all cases will be appropriate for settlement: when assessing whether a given case would be, we will consider the likely procedural efficiencies and resource savings that can be achieved, considering for example the stage of the case, the number of businesses interested in settlement and the potential for shortening the case timetable.
Achieving greater pace is also beneficial for the businesses involved in our work – it provides businesses with the certainty of the outcome more quickly, allowing them to move on. Therefore we want to continue to engage constructively with parties who make use of processes we have available to do so, such as settlement, where this is appropriate to the case at hand.
Concluding cases more swiftly ensures that harmful anti-competitive practices are combatted and deterred sooner, benefiting consumers and, by stimulating innovation and growth, the wider economy. It also enables us to deploy resources elsewhere, for example in other enforcement work, and so increase the volume and as a consequence the impact of our work. Since concluding the estate agents and ophthalmology cases we have opened a further 5 civil competition enforcement cases giving us a total of 11 ongoing competition enforcement investigations at present. At least 3 of these are expected to be concluded in 2016, although I cannot of course pre-judge the conclusion of any final decisions. We have also recently fined a number of pharmaceutical companies a total of £45 million for anti-competitive conduct and agreements in relation to the supply of paroxetine, an anti-depressant medicine. This case further demonstrates our determination to enforce competition law in sectors big and small and tackle illegal behaviour designed to stifle competition at the expense of customers – in this case the NHS and ultimately taxpayers.
But it’s also vital that those expedited processes do not come at the cost of robustness. So, as well as only settling cases where we envisage procedural efficiencies, we are also keen to ensure that we only enter into settlement when the relevant evidential standard is met (that for issuing a statement of objections). It is essential that we maintain robust decision-making, both to avoid the risk of chilling legitimate business activity and equally the risk that we fail to address conduct that is anti-competitive and harmful to consumers.
Robust decisions are therefore critical in their own right but also equally important to amplify the impact of our work: following both the estate agents and ophthalmologists cases, neither of which were appealed, we have been working with industry bodies to publicise the lessons learned and encourage best practice, using open letters and advice to businesses and practitioners active in these sectors as well as sending individual warning letters to a number of estate and letting agents. In fact, a further investigation into anti-competitive arrangements in the residential estate agency sector has been launched on the basis of information received after this compliance work. Equally, we recognise that an overall track record of robust enforcement decisions serves to encourage and reinforce confidence in our processes, including the settlement process (which has itself given rise to litigation in the past), and as a consequence allows the CMA to achieve a greater throughput of cases.
In that regard it is worth reiterating the importance of Case Decision Groups (CDG) as the final decision makers in all competition enforcement cases (other than those involving settlement or commitments). The Case Decision Group consists of a different set of people from those who have undertaken the investigation and set out in the statement of objections the provisional view that an infringement has occurred. Concerns had been expressed during the reforms of the UK competition regime that led to the formation of the CMA, that decision making was influenced by confirmation bias or preconceptions formed earlier when investigating a case. The collective ‘fresh pair of eyes’ and clear separation of decision making provided by the CDG provides parties to our investigation with confidence that such risks are avoided. The CMA has also further benefited from the rigour, experience and expertise of the independent panel members who decide on phase 2 mergers and markets cases by appointing them on Case Decision Groups for competition enforcement cases.
Whilst external commentators rightly focus on our throughput of enforcement cases culminating in infringement decisions, we also intend to continue to use other means of deterring anti-competitive activity, which can encourage both businesses as well as individuals to take competition law seriously.
This year we provided further guidance for businesses on our use of advisory and warning letters, intended to encourage compliance with competition law where we are concerned that there may have been a breach of those laws but a full formal investigation would not be justified under our prioritisation principles. To reinforce this work we are publicising on our website the type of issues and market sectors covered by these letters.
Our powers to challenge undertakings that infringe the law are also complemented by powers to take action against individuals who engage in anti-competitive conduct, in particular:
- the Criminal Cartel Offence under the Enterprise Act 2002; and
- our ability under the Company Directors Disqualification Act 1986 to seek disqualification orders against company directors whose conduct in relation to a breach of competition law we believe makes them unfit to be involved in the management of a company.
The CMA has recently reiterated its commitment to enforcement of the Cartel Offence in cases of hardcore cartels, whether under the current articulation of that offence, or for conduct to which the previous, dishonesty-based test for liability still applies. We have one ongoing criminal case, and are working on a number of intelligence leads, with a view to opening further cases in due course. And while neither the Office of Fair Trading (OFT) historically, nor the CMA to date, has sought a director disqualification order in relation to a breach of competition law, we remain committed to identifying any cases where we think it would be appropriate to do so.
…and equally in other areas of our work
It is important to note that the CMA’s focus on pace is not limited to CA98 cases. Nelson Jung will be speaking more about our mergers work later but a further example of this focus includes the scope in merger cases for parties to request a fast-track to the more in-depth phase 2 merger investigation. We have seen 2 examples of this over the last year: first in the recently concluded BT/EE investigation and currently in the ongoing Coral/Ladbrokes case. For the CMA to make a fast track reference to phase 2 it must, at an early stage of the investigation, have evidence objectively justifying a belief that the test for reference is met: so again, we are keen to ensure that any expedited outcome is based on a robust evidence base. In addition, fast track cases are likely to be cases where the competition concerns identified would impact on the whole or substantially all of the transaction, and not just one part (that could be resolved through structural undertakings in lieu of a reference).
Equally we have also made decisions on a number of phase 1 mergers using our revised power to accept undertakings in lieu offered by parties. This creates the opportunity, in appropriate cases, for our concerns to be addressed comprehensively and proportionately in a timely manner without requiring a referral to phase 2.
The challenges of meeting the twin objectives of pace and quality are also evident in our markets work.
The legislation setting shorter timeframes for market investigations came into effect with the creation of the CMA. The first 2 investigations launched under these new timeframes, the energy and retail banking market investigations, are among the largest undertaken and present challenges both in terms of the size and complexity of the markets and breadth of issues at stake. As such they also present inevitable challenges in terms of working within the new shorter statutory timeframes. We have made progress in the past year by putting in place measures to increase the speed of delivery, for example in publishing issues statements much earlier than previously. Equally, the provisional findings, which identify the market features that we provisionally consider give rise to adverse effects on competition, were issued within a year of the start of the banking investigation and in just over year in the energy investigation. However, we must still run a fair and transparent process and undertake appropriate analysis to reach the right outcomes. In the energy investigation, the group of members felt that it was important to extend the timetable so that they had time to properly consider responses and ensure that any remedy package put forward is as comprehensive a solution as is reasonable and practicable to any competition problems identified in the final report. In retail banking, the members similarly expect an extension will be required although we await a final decision in that regard.
Once the final reports are published we expect to focus on the efficient implementation of any remedies which apply – and this remedies implementation phase is of course also now subject to a statutory time limit in both mergers and markets cases.
We will need to consider the lessons from these very significant investigations and what this means for the processes we apply to our future market investigations work. It is important to recall though that our markets work is not limited to these major investigations. For example, this year we have launched a market study into legal services, where we will examine long standing concerns into the affordability of legal services and standards of service. We expect to publish our conclusions by the end of the year.
How does litigation interact with pace and rigour?
We have said before that we value the Competition Appeal Tribunal’s (CAT) rigorous oversight of our work, to ensure the fairness and robustness of the competition regime as a whole. This is also reflected in the value we place in a responsible approach to litigation – including in our decisions about when it is appropriate to defend the CMA’s position. For example, in the course of HCA’s challenge to the CMA’s original findings in the private healthcare market investigation, certain errors were identified in part of the CMA’s economic analysis. In light of that development, we accepted that we had made a procedural error by not re-consulting on that economic analysis and consequently submitted to the CAT that the most appropriate course of action would be for the matter to be remitted to us. The CAT endorsed this and acknowledged that the CMA had taken a ‘responsible’ approach to dealing with the matter. In contrast, in the course of the same piece of litigation we considered it appropriate to contest the application that was made for the remittal to be considered by a different inquiry group. The CAT and subsequently the Court of Appeal agreed with us, confirming that there was no case for bias or pre-judgment by the existing inquiry group.
Equally, we value the court’s role in clarifying important points of law such as the recent Supreme Court ruling in the Eurotunnel case, which has provided clarity on whether we had taken the correct approach in assessing whether Eurotunnel’s acquisition of 3 ferries and related assets should be treated as a merger under the UK merger control rules. We considered carefully whether to appeal the Court of Appeal’s ruling, which had found against the CMA in a majority judgment, but felt it important to do so in light of the importance of the point of law in question: the certainty which the Supreme Court’s judgment has brought will assist both the CMA and businesses in assessing such transactions in future. We recognise that litigation can take time – as has been the case in litigation on Eurotunnel and Ryanair – and this forms part of our assessment at each stage as to whether it is appropriate to defend our position further.
Of course, we hope that by ensuring we do not compromise fairness and rigour in our work, fewer appeals of our decisions will succeed. This in turn can discourage unmeritorious appeals which risk prolonging our cases and preventing us using our resources effectively. Indeed the NAO report I mentioned earlier highlighted our strengthened legal process and that we have been successful in 15 of the last 19 civil cases across our competition work that have come before the courts.
Commitment to pace and rigour can be reciprocal
It goes without saying that businesses involved in our investigations will also benefit if we complete our cases more quickly ensuring that – whatever the outcome – those decisions are robust and based on sound evidence. Those dealing with us can also play a part in that, for example when providing us with information. We seek to base our decisions on information that is accurate and complete and to gather that information as quickly as possible. This is reinforced by statutory powers and sanctions. For example, in a merger or market investigation the CMA can require parties to provide information, documents or provide evidence as a witness.
These investigatory powers reflect both the importance to businesses of our substantive decisions based on that information but also the statutory timetables that we are subject to in our mergers and markets work. These powers were strengthened on formation of the CMA so that we can impose penalties on those who don’t properly comply with requirements to provide information in markets and mergers cases as well as antitrust enforcement.
For similar reasons, there are also criminal sanctions for those who provide false or misleading information in the course of our merger, markets and CA98 investigations. We take these offences very seriously and would expect businesses – and their advisers – to do the same. Where necessary, we will give careful consideration to pursuit of criminal proceedings if we believe an offence has been committed.
An example in practice in developing our approach to commitments
So you can see from our work in the past year, that with a number of recent case openings in addition to our ongoing cases, we are taking clear steps to deliver on our commitment to increase the volume of enforcement, doing so as efficiently and quickly as possible, but maintaining a firm grasp on the need for fairness and rigour.
The importance of this was picked up at an event the CMA organised in September last year to hear views on the use of commitments in competition enforcement. The CMA had accepted commitments in 2014 in 2 competition enforcement cases concerning the supply of road fuels in the Western Isles and vehicle maintenance and repair systems. The CAT’s judgment in Skyscanner considered the procedure relating to the commitments accepted by the OFT in the Hotel Booking cases. It was a good point for us to consider what lessons we could learn from these cases, share the experience of others and engage openly with the competition community for all our benefit. We are very grateful to the experienced practitioners who attended and contributed to the lively and informative discussion, and have published a summary for those who were not able to be there. The discussion is now informing our approach to the use of commitments going forwards. Key to that approach is how the commitments process impacts on pace, legal certainty and robustness.
Accepting commitments can allow us to resolve cases more quickly than if we are conducting a full investigation which results in an infringement decision especially where commitments are accepted earlier in a case. This can support our aims of conducting enforcement more quickly and efficiently. It also allows us to redeploy our resources for other work such as other enforcement cases. Such commitments – which are in effect binding promises relating to future conduct - also offer the opportunity for a more flexible or effective outcome than might be achieved through a prohibition decision and any accompanying directions.
As we saw in the 2 competition enforcement cases concerning estate agents and ophthalmologists to which I’ve referred, cases that are resolved by means of settlement also allow for quicker resolution of cases. But a key difference is that settlement requires an admission from the parties that they have breached competition law and results in an infringement decision and a penalty while in commitments no finding on infringement is reached. Infringement decisions and penalties are important to deter future businesses from engaging in anti-competitive conduct. So just as not all cases will be appropriate for settlement, whether for similar or different reasons, we will equally assess whether a case is suitable for commitments: the impact that not reaching a decision would have on deterring others is a key factor in that assessment.
Equally, we need to ensure that we are robust in our assessment that the commitments offered address our competition concerns. The statutory process for commitments, as set out in the Competition Act, also requires consultation before they can be accepted. This market testing allows other parties who may be affected by the commitments to put forward their views on their effectiveness. Ensuring the fairness and rigour of this process for both the parties as well as third parties can take time. Therefore we do not expect that speed or anticipated resource savings will play as decisive a role in determining cases appropriate for commitments as it will do for settlement. This is also a message that came through clearly at the roundtable. That said, in light of our overall objective to increase pace, it is still important - and where we do engage in considering a commitments offer we expect to progress quickly in line with our timeframes for the process.
A key factor in the success of commitments is the way in which we and the parties to the investigation engage with each other to achieve an effective outcome. We have said before that we strive to be fair, open-minded and transparent when enforcing competition law, whether required to do so by law or as a matter of policy. In return we can expect that this will be matched by an honest and trustworthy approach by those we engage with. Our interactions with parties on any offer of commitments are no different.
We understand that it is important for us to be clear to parties who offer commitments whether the investigation has progressed sufficiently for us to be able to determine whether commitments are appropriate. We will also indicate, if commitments are clearly not appropriate for that case, whether and when alternatives such as settlement might be available. This can form part of the regular updates that parties receive during an investigation, in particular where we are able to share our provisional thinking on the case.
Where commitments are appropriate we will set out expected timeframes that will apply to both the CMA and the parties to ensure an efficient commitments process. We expect parties to respect these and understand that the success of the process depends on their constructive engagement by offering effective commitments which allow us to adhere to those timeframes. Otherwise we will have to revert to the normal investigative process.
Businesses can use our guidance to help inform their decision to approach the CMA to consider the possibility of commitments in their case. We will apply the criteria set out in the guidance which can be summed up as a 2 part test:
Is the case right for commitments?
I’ve mentioned that we will consider what the impact on deterrence will be if there is no infringement finding or penalties in the case. A further relevant consideration here is the impact on possible private actions following a case. Therefore we are unlikely to accept commitments in cases involving secret cartels between competitors or a serious abuse of a dominant position. We will also consider what the impact will be on legal certainty and whether the opportunity for setting a legal precedent is lost, whether through an infringement decision itself or through possible further scrutiny on appeal.
Equally, the case must be at a stage where the competition concerns are readily identifiable. This allows us to provide the parties with a summary so that they can understand our concerns and offer commitments which are right for the case. However, commitments should not be offered too late in the case as there are likely to be very few procedural efficiencies to be gained at that stage. The assessment of whether a case is right for commitments takes these factors into account as part of the overall strategic assessment of the best outcome for the case.
Are the commitments offered right for the case?
The commitments must address the competition concerns and be capable of being implemented effectively, possibly within a short period of time.
The CMA has considered and rejected commitments offered by parties because they did not satisfy the criteria set out in the guidance, including as a result of the late stage that the commitments were offered, the impact on deterrence considering the seriousness of the infringements and that they were not capable of being implemented effectively.
Equally, we consider it important that the decision to accept commitments, as with decisions for all our enforcement work, is based on strong evidence. Commitments are an alternative to an infringement decision and are not appropriate where we would otherwise close a case for lack of evidence. This rigour is reinforced by the governance processes we have in place. The Senior Responsible Officer’s decision to accept commitments must be approved by a committee of senior staff (the Case and Policy Committee).
We have also carefully considered our processes for accepting commitments in light of the CAT’s judgment in Skyscanner to ensure they are fair both towards the parties offering the commitments but also to others who may be affected by them. We also recognise that these safeguards are particularly important since, as was highlighted at the roundtable, incentives to appeal commitment decisions can be low.
Finally, to ensure rigour in considering the effectiveness of a commitments offer, we can benefit from sharing the specialist remedies, business and financial analysis expertise developed by the Competition Commission in a markets and mergers context including market testing and monitoring mechanisms. This is a further reminder of the synergies that the CMA has been able to achieve since its formation and which benefit both us and also the parties to our investigations.
What can you expect from us next?
We will continue to focus on swift and effective enforcement to combat breaches of competition law and ensure our cases have maximum impact through follow on work to encourage compliance. We will also focus on seeing through the work we have started, including on the energy and banking investigations. We firmly believe that the volume and pace of our work is central to our mission to make markets work well for consumers but this cannot be at the cost of fairness or rigour. This is clearly not without its challenges but is something in which we can all play a part to achieve.