The document discusses penalties for competition law infringements in UK law. It outlines the key elements of the UK regime which include (1) turnover based penalties imposed by the Competition and Markets Authority, (2) criminal prosecution for cartel activity, (3) director disqualification, and (4) private enforcement. It then provides details on how each of these elements operates in the UK system and discusses some notable cases that have helped develop the case law around competition penalties in the UK.

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OECD Workshop on Australian Pecuniary Penalties for Competition Law Infringements
Monday 26 March 2018
Penalties in UK Competition Law
Marcus Smith J1
A. INTRODUCTION
1 The OECD report, Pecuniary Penalties for Competition Law Infringements in Australia,
provides a welcome opportunity for those involved in the enforcement of competition law,
not just in Australia, but generally, to take stock. The report requires us to consider not
merely the efficacy of pecuniary penalties amongst the range of possible penalties that
competition law might impose but, more specifically, given a regime based upon pecuniary
penalties, how best to calculate the appropriate level of pecuniary penalty.
2 This paper begins with a (brief) overview of the key elements of the UK approach to
penalising infringements of competition law (Section B). It then considers the
appropriateness of a pecuniary penalty-led regime and the alternatives (Section C). It
concludes with some thoughts on the structuring of pecuniary penalties (Section D).
B. THE UK REGIME
3 The key elements of the UK approach to penalising infringements of competition law are:
(1) turnover based penalties, (2) criminal prosecution, (3) director disqualification, and
(4) private enforcement.
(1) Turnover based penalties
4 The regime of turnover based penalties is described in the OECD report. In overview, such
penalties may be imposed on undertakings by the Competition and Markets Authority
(“CMA”) under section 36 of the Competition Act 1998 (“CA 98”) where the CMA has found
an intentional or negligent infringement of the competition law rules relating to anti-
competitive agreements and/or abuse of a dominant position.
5 Section 38 CA 98 requires the CMA to publish guidance as to the appropriate amount of a
penalty (the “Penalty Guidance”).
6 The current Penalty Guidance2 states that the twin objectives of the CMA’s policy on
financial penalties are to impose penalties which reflect the seriousness of the infringement
1
A Justice of the English High Court (Chancery Division) and a Chairman of the UK Competition Appeal Tribunal. All
views expressed are in my personal capacity. I am very grateful to Hilary Boyle, référendaire at the Competition Appeal
Tribunal, for her assistance with this paper.
2
OFT423, originally issued in September 2012 by the Office of Fair Trading (“OFT”), the CMA’s predecessor body, and
subsequently adopted by the CMA Board.

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and to ensure that the threat of penalties will deter both the infringing undertakings and
other undertakings that may be considering anti-competitive activities from engaging in
them. This reflects the statutory requirements to this effect set out in section 36(7A) CA 98.
7 The six-step approach set out in the Penalty Guidance is as follows:
- Step 1: calculation of the starting point having regard to the seriousness of the
infringement and the relevant turnover of the undertaking;
- Step 2: adjustment for duration;
- Step 3: adjustment for aggravating or mitigating factors;
- Step 4: adjustment for specific deterrence and proportionality;
- Step 5: adjustment if the maximum penalty of 10 per cent of the worldwide turnover of
the undertaking is exceeded and to avoid double jeopardy; and
- Step 6: adjustment for leniency and/or settlement discounts.
8 The Court of Appeal has held that the CMA is not bound to follow the Penalty Guidance in
all respects in every case, but must give reasons for any significant departure from the
Penalty Guidance.3
9 Infringement decisions of the CMA may be appealed to the Competition Appeal Tribunal
(“CAT”), the UK’s specialist competition court. There is a further right of appeal of the
CAT’s decisions to the Court of Appeal and Supreme Court. On an appeal against a
penalty, the CAT may confirm or set aside the decision which is the subject of the appeal
and may impose, revoke, or vary the amount of a penalty. Since 2014, there has been a
statutory obligation on the CAT to have regard to the Penalty Guidance.4 Nonetheless, the
CAT has a full jurisdiction itself to assess the penalty to be imposed, particularly in view of
the undertaking’s right under Article 6(1) of the European Convention on Human Rights to
have the penalty, which is quasi-criminal in nature, reviewed afresh by an impartial and
independent tribunal.5
3
Argos Limited and Another v OFT; JJB Sports Plc v OFT [2006] EWCA Civ 1318 at [161].
4
Pursuant to an amendment to section 38 CA 98 inserted by the Enterprise and Regulatory Reform Act 2013.
5
See, most recently, Balmoral Tanks Limited v CMA [2017] CAT 23 at [133]-[134].

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10 In 2016, the CMA imposed some of its highest ever fines in two separate infringement
decisions relating to the pharmaceutical industry. The first decision, Paroxetine,6
concerned so-called “pay-for-delay” agreements, namely settlement agreements entered
into by a number of generic pharmaceutical companies in the early 2000s to end ongoing
patent litigation with pharmaceutical originator company GlaxoSmithKline (“GSK”) relating
to the antidepressant medicine paroxetine (which was supplied by GSK in the UK under
the brand Seroxat). The CMA imposed total fines of around £45 million, with the highest
fine of £37.6 million being imposed on GSK, which was, amongst other things, alleged to
have engaged in an abuse of dominance. That decision is presently on appeal to the CAT
which recently decided to make a preliminary reference on certain legal points to the Court
of Justice of the European Union (“CJEU”). The CAT determined that it would be
inappropriate to decide the pharmaceutical companies’ challenges to the penalties
imposed upon them in advance of the judgment of the CJEU.7
11 The second decision, Unfair pricing in respect of the supply of phenytoin sodium capsules
in the UK,8 concerned the pricing of an anti-epilepsy drug manufactured by Pfizer and
originally supplied by it as a branded drug. Following an agreement with a generic
company, Flynn, for the drug to be de-branded and from then on supplied by Flynn, the
price increased to a level that the CMA determined to be excessive, and an abuse of
dominance. The CMA imposed total fines of around £90 million, with Pfizer’s fine totalling
£84.5 million. That decision is also presently on appeal to the CAT.9
12 The penalties regime has given rise to some interesting case law at the level of the
appellate courts. For example, in Safeway Stores Ltd v Twigger,10 Safeway, a supermarket
chain, had entered into a settlement with the OFT in respect of its participation in a cartel,
and then sought to recover the fine imposed on it from those of its directors and senior
employees who were responsible for the infringement. The Court of Appeal held that the
claim was barred by the illegality principle. In a later case, which primarily concerned the
question of attribution,11 the Supreme Court cast doubt on the correctness of the Court of
Appeal reasoning in Safeway, although it accepted, without deciding the point, that the
policy of the CA 98 could be undermined if undertakings were able to pass on their liability
to their employees.12
6
Case CE/9531-11.
7
[2018] CAT 4.
8
Case CE/9742-13.
9
See CAT case page at http://www.catribunal.org.uk/237-9687/1276-1-12-17--Pfizer-Inc-and-Pfizer-Limited.html.
10
[2010] EWCA Civ 1472.
11
Jetivia v Bilta [2015] UKSC 23.
12
Ibid., at [162]. As to the scope of the illegality defence, the Supreme Court has grappled with this issue on a number
of occasions in recent years, with the most recent consideration in Patel v Mirza [2016] UKSC 42.

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13 R (on the application of Gallaher Group Ltd and others) v The Competition and Markets
Authority13 is a judicial review relating to a 2010 decision of the OFT which found that a
number of parties including Gallaher and Somerfield had entered into infringing
agreements related to the pricing of certain tobacco products. Some of these parties
exercised their right to appeal the decision to the CAT. Gallaher and Somerfield did not do
so, instead entering into a settlement with the OFT and paying the penalties imposed. The
appeals to the CAT were successful. It subsequently emerged that one of the other parties
which decided not to appeal, TM Retail, on which the OFT had imposed a penalty of
around £2.7 million, had been given assurances by the OFT in 2008 that if it did not
appeal, the OFT would pass on to it the benefits of any successful appeal made by any of
the other parties to the decision. Following the successful appeals to the CAT, the OFT
agreed to make a payment to TM Retail corresponding to the amount of its penalty.
Gallaher and Somerfield, who did not receive any similar assurances from the OFT,
challenged the OFT’s decision on fairness grounds. In 2016, the Court of Appeal held that
the OFT, now the CMA, must, in accordance with principles of fairness and equal
treatment, treat Gallaher and Somerfield in the same way as it treated TM Retail which
would mean repaying their penalties, which amounted to around £54 million14. The
Supreme Court has recently heard the appeal of that decision and judgment is pending.
(2) Criminal prosecution
14 A statutory criminal cartel offence, prosecutable by the CMA, has existed in the UK since
2003, pursuant to section 188 of the Enterprise Act 2002. The original version of the
offence provided that “[a]n individual is guilty of an offence if he dishonestly agrees with
one or more other persons to make or implement, or to cause to be made or implemented,
arrangements…relating to at least two undertakings” which related to, for example, price
fixing, bid-rigging or dividing up of customers or markets. At that time, the test for
dishonesty under English law was the two-limb test established in R v Ghosh [1982] QB
1053: was the defendant’s conduct dishonest by the standards of ordinary reasonable and
honest people (objective element); and, if so, did the defendant realise he was dishonest
by those standards (subjective element).15 The penalties for those convicted of the offence
include imprisonment of up to 5 years; an unlimited fine; the possibility of confiscation of
assets where an individual convicted of the offence has benefited personally from their
involvement in the cartel; and director disqualification (see further below at (3)).
15 The introduction of the criminal cartel offence did not give rise to a flood of prosecutions. In
the first ten years, only two cases were prosecuted, one of which resulted in a conviction.
The first case, Marine hoses, arose from a world-wide cartel, with the OFT investigation
running in parallel with investigations by the US Department of Justice and the European
13
UKSC 2016/0185.
14
[2016] EWCA Civ 719.
15
The Supreme Court has recently re-cast the law in this area, removing the subjective limb of the test: Ivey v Genting
[2017] UKSC 67.

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Commission. Three UK executives filed plea agreements in the US which included an
agreement to plead guilty to the UK cartel offence. All three were sentenced to
imprisonment for between two and a half and three years (reduced slightly on appeal),16
and were disqualified from acting as directors for between five and seven years. Two of the
executives had confiscation orders made against them.
16 The second case concerned an alleged fuel surcharge price fixing agreement entered into
by British Airways and Virgin Atlantic, which collapsed at trial on procedural grounds.17
17 The UK government subsequently observed that the absence of prosecutions weakened
the deterrent effect of the criminal offence, and that the dishonesty element of the offence
had made it more difficult to prosecute.18 The requirement for dishonesty was ultimately
removed by section 47 of the Enterprise and Regulatory Reform Act 2013 (in respect of
conduct occurring since April 2014), which also introduced exclusions and defences to the
criminal offence, such that conduct which had not been concealed was unlikely to fall foul
of the offence.
18 Since then, there have been two prosecutions of the old “dishonesty” offence relating to
conduct occurring before April 2014. In the Galvanised steel tanks case,19 a criminal
prosecution was brought against three individuals, one of whom pleaded guilty and was
sentenced to 6 months’ imprisonment. The other two individuals were acquitted at trial on
the basis that the “dishonesty” element of the offence was not made out.20 In the Precast
Concrete Drainage Products case,21 an individual pleaded guilty to the criminal cartel
offence and was sentenced to 2 years’ imprisonment suspended for 2 years.
(3) Director disqualification
19 As described above, the courts may make director disqualification orders arising out of
criminal prosecutions. In addition, since 2003,22 the CMA has had the power to apply to the
High Court to seek the disqualification of an individual, for a maximum of 15 years, from
acting as a company director where: (1) a company of which that individual is a director
has breached competition law; and (2) the individual’s conduct makes him/her unfit to be
concerned in the management of a company. Alternatively, the CMA may accept a
disqualification undertaking from the individual instead of bringing proceedings. This will
16
R v Whittle [2008] EWCA Crim 2560.
17
R v George [2010] EWCA Crim 1148.
18
Department of Business, Innovation and Skills, A Competition Regime for Growth: A consultation on options for
reform, March 2011, section 6.
19
See CMA case page at https://www.gov.uk/cma-cases/criminal-investigation-into-the-supply-of-galvanised-steel-
tanks-for-water-storage.
20
The CMA subsequently issued two civil infringement decisions in this case: for further background, see the Balmoral
case cited at footnote 5 above.
21
See CMA case page at https://www.gov.uk/cma-cases/criminal-investigation-into-the-supply-of-products-to-the-
construction-industry.
22
The power is contained in sections 9A to 9E of the Company Directors Disqualification Act 1986 (as amended by the
Enterprise Act 2002).

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normally result in a shortening of the period of disqualification that the CMA is prepared to
accept.
20 This power was used for the first, and to date only, time by the CMA in 2016, arising from a
cartel relating to sales of posters and frames by two competing online sellers on Amazon’s
UK website. The companies were found to have agreed that they would not undercut each
other’s prices and to have implemented this agreement using automated re-pricing
software. One company involved in the cartel reported this to the CMA and obtained
immunity from penalties in accordance with the CMA’s leniency policy. The other company
was fined just under £164,000, and its director, who was found personally to have been
involved in the breach of competition law, accepted a disqualification undertaking for a
period of 5 years.23
(4) Private enforcement
21 The UK has traditionally been a popular forum within the EU for private enforcement of
competition law. Whilst the recent implementation of the EU Damages Directive may lead
to increased private enforcement in other EU jurisdictions, the UK regime retains a number
of distinct features, notably a sophisticated disclosure regime and a probing adversarial
process. Furthermore, the Consumer Rights Act 2015 introduced, for the first time, a
collective action procedure in respect of competition law infringements under the
jurisdiction of the CAT. It also introduced a system of voluntary redress for competition law
infringements which is subject to the approval of the CMA or sectoral regulators.
22 That said, it remains to be seen how many private actions will be commenced without the
benefit of a prior finding of infringement by a regulator. Furthermore, the probing process of
the English courts cuts both ways. Even claimants with the benefit of a regulatory finding in
their favour must prove their loss, and can recover far less than they claim.24
C. COMMENTS ON THE RANGE OF PENALTIES AVAILABLE
23 Pecuniary penalties, typically with a turnover touchstone, are the prevailing form of penalty
for competition law infringements in many jurisdictions today, as the OECD report makes
clear. An important question is why this is the case. The converse question, which I will
begin with, is why alternative forms of enforcement are not the prevailing form of penalty.
24 I will use as my framework the four elements that comprise the UK’s approach to
competition law penalties. I propose to dispatch two of the four elements I have identified in
short order as (probably, and only in my judgment) not up to it.
23
See CMA case page at https://www.gov.uk/cma-cases/online-sales-of-discretionary-consumer-products.
24
See, for example, the first successful competition damages claim in England (for abuse of a dominant position): 2
Travel Group plc v. Cardiff City Transport Services Ltd [2012] CAT 19. The claim was for over £17 million; recovery was
around £100,000 including a (rare) claim for exemplary damages.

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25 First, director disqualification. This is always a useful weapon to have in the armoury, as a
means of ensuring that undesirable people cannot be directors of a company for a period
of time, but this will only ever be a (desirable and useful) ancillary power. I cannot see it as
a primary or predominant form of penalty.
26 Secondly, private enforcement. The jury is still out, so far as the UK is concerned, but I am
unsure how far private enforcement will thrive without the backdrop of an active public
enforcement regime. This, of course, implies that private enforcement goes hand-in-hand
with, but does not act as a substitute for, public enforcement. It may be the private
enforcement can be encouraged so as to supplement more aggressively public
enforcement, but I suspect only at the price of incentivising lawyers through aggressive
contingent fees (as in the US) – for which I discern no appetite in the UK. Without this sort
of incentivisation, the disincentives to bringing a “stand alone” action are considerable in
England, given the risks of losing and the risk of an adverse costs order.
27 That leaves criminal prosecution. There are a number of points to make in this regard.
28 First, unless the offence is directed to the conviction of the individuals involved in the
competition infringement, criminal prosecution of an undertaking, resulting in fines, will be
more-or-less indistinguishable from a penalty-based regime falling short of involving an
infringement of the criminal law. When I speak of criminal prosecution, I am contemplating
something targeted at the individuals – the natural persons – involved in the anti-
competitive conduct.
29 Why is this important? This question – and this is my second point – turns on the perceived
efficacy of the pecuniary penalisation of undertakings. If we take the most serious form of
cartel – a deliberate collaboration between competitors, plainly illegal25 – then it will (1) be
secret and (2) have the risks of being caught “priced in”, so far as the natural persons
pulling the strings are concerned. I stress that the “pricing in” of these risks by such
individuals may be very different from the view the undertaking might take, absent these
individuals. That, in a sense, is my point. When the cartel is exposed, the natural persons
involved will leave or lose their influence in the undertaking. The undertaking – now
reformed and following the path of virtue26 – will be fined. But the economic cost of this will,
almost certainly, be borne by the undertaking’s shareholders, who (1) will know nothing of
the cartel and will not themselves have participated in the unlawful conduct and (2) indeed
may not even have been shareholders at the time of the infringement. Forms of individual
penalty – directed at those natural persons actually involved in the anti-competitive conduct
– avoid this disjuncture between the party actually responsible for the infringement and the
25
This is the critical case. “Overt” cartels – i.e. where the relevant arrangement is open for all to see, and the only
question is whether there is an infringement at all (e.g. interchange fee cases) – raise entirely different questions. So,
too, do cases where what is at issue is an abuse of a dominant position.
26
This begs another question, which I raise, but cannot consider in this paper: how far do undertakings “game” the
leniency regimes that operate in many jurisdictions, so as to participate in a cartel, and yet avoid or reduce the penal
consequences of doing so.

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party who pays the penalty. In theory, this sort of penalty must be preferable, in terms of
shaping the conduct of those actually responsible for the infringement.
30 The difficulty with this sort of liability is the fact that actually demonstrating the culpability of
the individuals “pulling the strings” is extraordinarily difficult. This is my third point. There is
a reason why the criminal offences in the UK – and those analogous ones in other
jurisdictions – are rarely prosecuted. Proving the offence is difficult, particularly if there is a
strong mental element requirement, like dishonesty; and removing the mental element
requirement rather defeats the object. But even establishing a strict liability infringement
against an undertaking, as opposed to an individual within an undertaking, is difficult, which
is precisely why regulators are quite dependent on incentivising confession through
leniency regimes.
31 Given the difficulties of establishing individual culpability in relation to a competition law
infringement, my conclusion – rather pessimistically – is that it may be that pecuniary
penalties are the best we can do.
32 I have one alternative to float. At present, our conception of individual liability is based
upon participation or knowledge. Omission – failure to know (unless it is “Nelsonian”
blindness) – tends not to be a trigger of culpability. However, for the higher echelons of a
corporation – those directing its efforts and responsible generally for its performance and
conduct – a higher or different duty might be appropriate. A duty to inquire into how the
undertaking is competing in the market, with a view to ensuring that it is doing so properly,
in accordance with the law.27 I would have in mind that a negligent breach of that duty,
which failed to uncover an infringement that would otherwise have been discovered, might
be a way forward.
33 This resonates in with the voluntary redress referred to in paragraph 20 above. Indeed, the
2017 CMA consultation (still ongoing) on new Penalty Guidance proposes, amongst other
things, to make more explicit in the Penalty Guidance the possibility that fines will be
reduced if the undertaking demonstrates a clear and ongoing commitment to competition
law compliance and/or the CMA approves a voluntary redress scheme.
D. STRUCTURING PECUNIARY PENALTIES
34 Competition infringements are, perhaps, unusual in that they are – or are thought to be –
motivated by the aim of economic gain and have that effect. A turnover touchstone, of
some sort, would, therefore, make rational sense.
35 Whether one can, or should, tie the gain an infringing undertaking has made from its
27
A variation on this duty may exist in regulated industries: for example under the UK financial services regulatory
regime, regulated firms should bring their own actual and possible CA 98 contraventions to the attention of the financial
regulator, the Financial Conduct Authority (“FCA”). See FG15/8, The FCA’s concurrent competition enforcement powers
for the provision of financial services – A guide to the FCA’s powers and procedures under the CA 98, July 2015, at 3.2.

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activities more closely to the penalty imposed is something I very much doubt. My
experience of quantum cases (i.e. where the loss caused by anti-competitive practices is
sought to be calculated in a private action for damages) suggests that this is an area into
which regulators should not be drawn. This, as it seems to me, is more the province of
private action and private enforcement.
36 Beyond that, apart from listing relevant factors and – I think this is helpful – the order in
which they ought to be considered, it would be dangerous to go further in terms of
structuring how the appropriate level of penalty should be reached. In 2010, the CAT was
faced with an unprecedented number of appeals – in excess of 25 – arising out of a single
decision of the OFT into “cover pricing” in the building industry. There were many
addressees of this decision – and, as I have described – a considerable number decided
to appeal the decision, sometimes on the merits, but more often on the amount of the fine.
37 Out of the best of reasons – in order to ensure consistency amongst multiple addressees –
the OFT had compiled a detailed template for the calculation of the appropriate penalty,
and this was strictly followed. The template looked great: it had all the relevant factors in;
and no irrelevant factors had been included. As a guide: excellent. But the OFT followed it
strictly, and as a result – because real-life does not fit into templates very well – there were
some indefensible outcomes in some of the outlier cases. The OFT’s error – and the
reason why a significant number of appeals succeeded, at least in part – was because it
did not include a “sense-check” – inevitably involving a degree of discretion – at the end of
the process. Using templates to structure penalties is fine, as long as they are the servant
and not the master.