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The IMD was the first injunction the OFT has ever imposed under the Competition Act. It was given the power to impose injunctions approximately six years ago. Today’s judgment is the first judgment of the CAT dealing with the question of costs in the context of an appeal against an injunction imposed by the OFT. It is of major significance to industry that the CAT has determined that the OFT's conduct was below the standard which should be expected of such a body. The judgment is unequivocal that the OFT wrongly applied these powers to the LME. The full judgment of the CAT can be found on the CAT website: http://www.catribunal.org.uk/judgments/default.asp
In the judgment, made public today the CAT states:
The CAT expresses concern that the OFT's objectivity was flawed: … "we are concerned that armed with only a "limited" understanding of Spectron's relevant business and … the market in general, the OFT felt able to adopt an IMD based solely on information provided to it by Spectron without seeking information from "the market", in particular from third parties" … "the OFT should be circumspect about solely relying on uncorroborated information … this is particularly so where the source of the information is not impartial, as was the case here".
The procedures and processes adopted by the OFT were substandard: …”In all the circumstances we have come to the conclusion that that the OFT’s investigative process was superficial and flawed and the IMD consequently ill founded".
Companies should not be allowed to suffer in the hands of the OFT: … "it is inappropriate [for the OFT] to suggest that the addressee of the IMD [the LME] should have to bear the burden of the OFT learning by its own mistakes".
As to costs: ...” the respondent [the OFT] pay the appellant’s [the LME] reasonable and proportionate costs…”
Commenting on today’s historic pronouncement, Simon Heale, LME Chief Executive said:
“The CAT is the only recourse when the processes of the OFT fail as they did in this case. The CAT’s judgment says it all. To describe the OFT’s investigative process as superficial and flawed is damning. I only hope that the OFT learns from this criticism so that other companies can avoid the damaging and completely unnecessary experience that we have gone through. I am thankful for the good sense and judgment that the CAT brought to bear.”
Background:
- The LME provides a global forum for managing the risk of future price movements in non-ferrous metals and plastics, offering an environment for exchange-based trading.
- The LME currently operates as a not for profit, member owned institution. Its contracts can only be traded by member firms and it equally supports and provides three trading platforms, which are owned by, and only available to, members. Trading on the LME is conducted via the Ring (an open-outcry trading floor), the telephone and LME Select, its electronic trading platform.
- The LME is the world’s premier non-ferrous metals market. It traded over 78 million lots in 2005, which equates to a value of approximately $4,500 billion dollars.
Time line of Developments
1) In LME notice 05/228, dated 3 August 2005; notice 05/275 dated 16 September 2005; and in notice 05/352, dated 23 November 2005 the LME announced its plan to extend the trading hours for LME Select to better synchronise with the important early morning trading in the Asian markets, and to do this with effect from 1 March 2006.
2) The OFT first received a complaint from Spectron Group plc on 1 July 2003 that the operation of LME Select by the LME was anti-competitive. The OFT has been conducting an investigation into the operation of LME Select since then.
3) Spectron and the OFT have been aware of the LME's plans to extend the trading hours for LME Select since the beginning of August 2005. The plan to extend the trading hours was in response to requests from LME members.
4) On 2 February 2006, Spectron asked the OFT to take urgent action to stop the LME from extending LME Select trading hours. In making its request Spectron claimed that unless the OFT took urgent action to stop the LME, the extended trading hours for LME Select would seriously and irreparably harm Spectron's business.
5) On 27 February 2006 the OFT imposed an interim measures direction which prevents the LME from extending the opening hours of Select to cover Asian trading hours.
6) On 27 February Spectron wrote to its clients and informed them of a price increase, effective from 1 March 2006.
7) On 1 March Spectron (the sole complainant), wrote to its customers to say that it had told the OFT that it wanted to withdraw its request for interim measures.
8) In its notice to customers Spectron conceded that there was no public interest in the interim measures being maintained and that it was suffering no damage that required protection by interim measures. This was consistent with the representations made by the LME to the OFT prior to the OFT issuing the interim measures direction.
9) Since the IMD was imposed the LME has dedicated considerable time, effort and resource into getting the IMD withdrawn.
10) Notwithstanding negotiations with the OFT by 26 April 2006 the LME had no choice but to lodge an appeal against the interim measures direction with the Competition Appeal Tribunal (CAT). The deadline for appeal was 27 April.
11) On the evening of 26 April 2006 the OFT informed the LME that it was minded to withdraw the IMD. This was confirmed in writing by the OFT the following day.
12) On 15 May 2006 the OFT formally withdrew the IMD unconditionally, in its entirety and with immediate effect.
13) On 8 September the Competition Appeals Tribunal (CAT) handed down its judgment on the matter of costs in respect of the IMD. The appeal was heard before Marion Simmons QC (chairman) Peter Clayton and David Summers. The CAT found unequivocally in favour of the LME.
14) The LME has held a number of meetings with the OFT in relation to the main investigation which Spectron's complaint initiated in 2003. Through those meetings and associated correspondence the LME has sought to increase the understanding in the OFT as to how the LME works as a not-for-profit organisation. The LME has also vigorously defended its ability to provide the services required by its members and clients. Meanwhile the OFT's investigation continues.
