Interclass Holdings Ltd & Anor v Office of Fair Trading

On an appeal against a competition penalty, the Court of Appeal should respect the expertise of the specialist tribunal. Intervention is justified for an error of principle, or where the penalty is clearly disproportionate or discriminatory and unjustifiable. Penalties should be assessed in stages. At the deterrence stage, the tribunal must consider both the particular undertaking and the general message to other potential infringers. It must also consider the cumulative penalty. Comparisons with other cases do not impose a rigid formula, but may expose unexplained disparity. A financial-hardship claim is assessed by reference to the undertaking as a whole and its continued viability. The appeal was allowed in part because the multiplier produced an unjustified disparity.

The Office of Fair Trading imposed penalties on Interclass for two cover-pricing infringements contrary to the Competition Act 1998. The Competition Appeal Tribunal recalculated the penalties using infringement-year turnover, doubled the resulting figure at Step 3 for deterrence, and then allowed reductions for compliance, the Fast Track Offer and financial hardship. Its decision is reported at [2011] CAT 7.

Interclass appealed, challenging the Step 3 multiplier, the failure to give a further reduction for early cessation of cover pricing, and the treatment of financial hardship. The central issues were whether the multiplier was justified and whether any further reduction was required.

Lord Justice Patten gave the judgment, with which Lady Justice Hallett and the Chancellor of the High Court agreed.

1. Disposition. The appeal was allowed in relation to the Step 3 multiplier and dismissed on financial hardship. The total penalty was substituted with £202,000, or £101,000 for each infringement.
2. Appellate review. Section 49(1) of the Competition Act 1998 does not confine the Court of Appeal to errors of law when reviewing a penalty. Given the specialist expertise of the Competition Appeal Tribunal, intervention ordinarily requires an error of principle, or penalties which are, viewed overall, clearly disproportionate or discriminatory and unjustifiable by the matters properly considered.
3. Penalty methodology. The assessment should proceed in stages, beginning with an initial figure for each infringement reflecting seriousness. At the deterrence stage, the tribunal must consider the effect on the particular undertaking and the general deterrent message to other undertakings. It must also consider the aggregate penalty, since cumulative impact matters to the undertaking and the headline figure matters to general deterrence. The guidance remains important, although the tribunal conducts its own assessment and may use the guidance as a cross-check. This approach was consistent with Argos Ltd and Littlewoods Ltd v JJB Sports plc v OFT [2006] EWCA Civ 1318.
4. Disparity. Penalty comparisons do not require a rigid mathematical formula. Nevertheless, where the infringements and relevant factors are materially comparable, a substantial and unexplained disparity may show that discretion was exercised inconsistently. The general level of fines may operate as a cross-check. The reasoning in R v Coleman and Petch [2007] EWCA Crim 2318 supported this flexible approach.
5. Application. The CAT gave no sufficient explanation for doubling Interclass’s Step 1 figure. The other cases involved simple cover pricing without materially different aggravating features, and no case-specific reason justified treating Interclass more harshly. The multiplier was therefore set aside. No separate reduction was required for early cessation because that matter had been reflected in the compliance reduction and revised Step 3 assessment.
6. Financial hardship. The relevant question was whether the continued viability of the undertaking, considered as a group, was threatened. The CAT had properly considered the group’s financial evidence. Since the reduced penalty was affordable and the later accounts did not show a material deterioration, no further hardship reduction was justified.

• Court of Appeal (Civil Division) — Appeal allowed in part under [2012] EWCA Civ 1056; the total penalty was reduced to £202,000.
• Competition Appeal Tribunal — Recalculated the Office of Fair Trading penalties and imposed an aggregate penalty of £324,000, reported at [2011] CAT 7.