R (on the application of Gallaher Group Ltd & Ors) v The Competition and Markets Authority [2018] UKSC 25

Tobacco manufacturers and retailers entered Early Resolution Agreements with the OFT but did not appeal. When the OFT repaid another party (TMR) following a mistaken assurance, the respondents claimed unequal treatment. The Supreme Court held the OFT's differential treatment was objectively justified and rational.

Facts

In March 2003, the Office of Fair Trading (OFT), now the Competition and Markets Authority (CMA), commenced an investigation into alleged price-fixing in the tobacco market under the Competition Act 1998. A Statement of Objections was issued in April 2008 to 13 parties. Gallaher (manufacturer) and Somerfield (retailer) both entered into Early Resolution Agreements (ERAs) with the OFT, admitting infringement in exchange for reduced penalties. When the OFT issued its final decision in April 2010 upholding the infringements, the respondents did not appeal.

Six other parties appealed to the Competition Appeal Tribunal, which allowed all appeals on 12 December 2011. Another ERA signatory, TMR, had received an oral assurance during 2008 negotiations that the OFT would apply the principles of any successful appeal to it, even if it had not appealed. Relying on this assurance, the OFT settled with TMR in 2012, repaying its penalty plus interest and costs. The respondents, who had received no such assurance and had not been informed of it, demanded equivalent treatment. The OFT refused.

The respondents’ applications for permission to appeal the Tobacco Decision out of time were refused by the Court of Appeal in 2014, on the basis that no exceptional circumstances existed.

Issues

The central issue was whether the OFT acted unlawfully by: (a) not offering the respondents in 2008 the same assurance given to TMR regarding the benefit of successful appeals by other parties; and (b) refusing in 2012 to repay the respondents’ penalties despite having repaid TMR. Specifically, the Court had to consider the content and application of public law principles of equal treatment and fairness to the OFT’s conduct.

Arguments

Appellant (CMA)

The CMA accepted that a principle of equal treatment applied but submitted that it did not require the replication of a mistake, absent ‘conspicuous unfairness’. It relied on Lord Bingham in R (O’Brien) v Independent Assessor [2007] 2 AC 312, arguing that consistency is generally desirable but not an absolute rule, and decision-makers are not bound to follow erroneous previous decisions.

Respondents

The respondents argued it was conspicuously unfair and a breach of equal treatment for the OFT to repay TMR but not them. They invoked the EU law principle that comparable situations must not be treated differently unless objectively justified, and relied on authorities including R v Inland Revenue Commissioners, Ex p Unilever plc [1996] STC 681 and R (Middlebrook Mushrooms) v Agricultural Wages Board [2004] EWHC 1447 (Admin).

Judgment

The Supreme Court unanimously allowed the CMA’s appeal and restored the order of Collins J. Lord Carnwath, delivering the leading judgment, clarified the applicable public law principles.

Equal Treatment

Lord Carnwath held that domestic administrative law does not recognise equal treatment as a distinct principle. Citing Lord Hoffmann in Matadeen v Pointu [1999] 1 AC 98, consistency is ‘a general axiom of rational behaviour’ but issues of consistency typically arise as aspects of rationality under Lord Diplock’s tripartite categorisation. Section 60 of the Competition Act 1998 did not assist, being directed to questions arising specifically under the statute rather than general administrative law principles.

Fairness

Lord Carnwath emphasised that simple unfairness is not a ground for judicial review. Procedural fairness is well-established, but substantive unfairness is not a distinct legal criterion. Expressions such as ‘conspicuous unfairness’ or ‘abuse of power’ add nothing to ordinary principles of judicial review, notably irrationality and legitimate expectation. The Court observed that it is misleading to extract expressions like ‘conspicuous unfairness’ from context and elevate them into free-standing principles of law.

Application to the Facts

While accepting that the OFT owed a general duty of equal treatment during the 2008 negotiations, and that the respondents may have had a legitimate expectation of equal treatment, that did not provide a basis for financial remedy in 2012. The critical question was whether the 2012 decision was objectively justified or rational. Lord Carnwath held there was a crucial difference between TMR and the respondents: TMR had obtained a specific assurance on which it claimed to have relied, whereas the respondents had entered ERAs ‘with their eyes open’ accepting the risk that others might appeal successfully. The OFT could reasonably conclude that TMR had a strong case for late appeal whereas the respondents did not.

Lord Sumption, in a concurring judgment, agreed that the 2008 assurance to TMR was a mistake inconsistent with the OFT’s policy of non-discrimination. However, the differential treatment in 2012 was objectively justified: TMR would certainly have obtained permission to appeal out of time and succeeded, whereas the respondents had no such basis. Repayment to TMR was not a windfall, but repayment to the respondents would be.

Lord Briggs identified three options facing the OFT in 2012 and held that choosing option (c) – honouring the assurance to TMR without extending it to others – was a rational choice between unpalatable alternatives, amounting to powerful objective justification for unequal treatment.

Implications

This decision is significant for clarifying the limits of ‘equal treatment’ and ‘fairness’ as public law principles in English administrative law. The Supreme Court confirmed that:

• Equal treatment is not a free-standing principle of administrative law, but generally operates as an aspect of rationality.
• Substantive unfairness, ‘conspicuous unfairness’ and ‘abuse of power’ are not distinct legal criteria but expressions to be understood within the established framework of judicial review grounds, particularly irrationality and legitimate expectation.
• A public authority is not generally required to replicate a mistake to achieve consistency, particularly where doing so would involve significant cost to the public purse.
• Where a party seeks to challenge differential treatment, the critical question is whether the authority’s decision was objectively justified or rational, having regard to the actual circumstances of the parties.

The judgment is important for competition authorities operating settlement processes such as ERAs, confirming that parties who enter such agreements with their eyes open cannot generally benefit from subsequent successful appeals by others. More broadly, the decision provides significant doctrinal clarification for administrative law practitioners, cautioning against the elevation of evocative judicial phrases into free-standing legal tests, and reaffirming the centrality of established grounds of review.

Verdict: Appeal allowed. The Supreme Court restored the order of Collins J, holding that the OFT’s refusal to repay the penalties to Gallaher and Somerfield was not unlawful. The differential treatment as between TMR and the respondents was objectively justified and rational.

Source: R (on the application of Gallaher Group Ltd & Ors) v The Competition and Markets Authority [2018] UKSC 25