Third Party: Will appeal leave OFT crying over spilt milk?

One of the OFT’s longest-running cases appears finally to be coming to a conclusion, as Tesco prepares for its appeal against the competition authority’s decision that it was guilty of fixing the price of dairy products 10 years ago.

The outcome of the appeal, due to be heard by the Competition Appeal Tribunal from 26 April, could have major implications for the reputation of the OFT - and fundamentally change its relationship with the supermarkets.

From the very start, the OFT’s case that three processors and four retailers were guilty of infringing the Competition Act 1998 by co-ordinating price rises of dairy products in 2002 and 2003 rested on shaky ground.

Firstly, the alleged price fixing occurred at a time when supermarkets were under pressure from the government to raise dairy prices in a bid to subdue aggrieved farmers. The case has also been mired in accusations of evidential weaknesses, which, before this appeal, led to the OFT being successfully sued for libel and forced to withdraw substantial parts of the allegations.

Much of the case relied upon emails and documents seized from processors rather than evidence collected from the retailer, but this won’t be Tesco’s main line of attack it will instead focus on the ‘ABC’ competition test.

Basically, the OFT has to prove retailer A (Tesco in this case) disclosed its pricing intentions to a supplier (B), not only knowing the supplier would pass that information to another retailer (C), but also that the retailer would then use the information. The CAT will therefore have to interpret the emails and documents seized by the OFT to ascertain if it could have proven conclusively Tesco was guilty of price fixing.

The implications for the OFT, should it lose, are profound. The perception may be that it pursued the case in spite of the evidence, further undermining its reputation and reinforcing the case for urgent reform.

For retail, the appeal could represent a major change in the balance of power between the regulator and supermarkets in cases of alleged collusion. It is unlikely the OFT will be as quick to make judgment on such cases in the future without gathering thorough evidence beforehand.

And if it does, the industry will be more confident in its ability to challenge the accusations.