Competition Law in the European Union and the United Kingdom - Essay Example

 Competition Law in the European Union and the United Kingdom Organizations with an advantaged position always tend to be the determinants of commodity prices and even quality owing to the unavailability of sufficient choices for consumers in a free market. It is in order to curb such vices that the European Union and the government of the United Kingdom regulate the operations of organizations deemed to posses such a capacity. The laws prohibit anti-competition agreements among dominant firms and also illegalize the abuse of dominance. This paper provides an analytical description of the European Union and United Kingdom laws that relate to the infringement of competition laws by some of the world’s biggest oil companies including BP plc, Statoil ASA, and Royal Dutch Shell. More emphasis is conferred upon the relevant facts and legal principles regarding competition law. The Competition law was formulated with the intention of safeguarding consumer and state interests from unfair business practices by firms in the Great Britain. (Prosser; 2005) This was necessitated by the threat posed by unscrupulous collusions aimed at maximizing market shares and revenues by individual firms that may lead to boated price levels or supply of inferior quality goods and services. For instance, an increase in price of crude oil by your company will directly lead to increased costs of production, transport, energy and consumer products and services in order to cater for additional overhead costs. The United Kingdom had its maiden law against unfair Competition in 1998.It was subjected to further adjustments later on in Enterprise Act of 2002 to incorporate new ideas and discard contentious clauses. The formation of the European Commission, the present day European Union, which sought to cater for interests of member countries also made immense contributions to the ongoing protective policy changes among member states. Under its social and economic pillar, it fashioned the Competition law which later on gained prominence becoming part of The Treaty on the Functioning of the European Union. Britain joined the European Union and consequently adopted the statute on Competition which as stated above was applicable to all the member states. This combined with the Competition Act 1998 and the Enterprise Act 2002 governs the conduct of businesses within the United Kingdom. The articles 101 and 102 provide the policy guidelines for the Treaty on the Functioning of the European Union whereas chapters I and II outline the provisions of the Competition Act 1998 and the Enterprise Act 2002.It is also worth to note that for cases extending beyond the borders of United Kingdom, it is the former treaty which applies as long as it remains within the confines of the European Union member states. Generally, any breach of the stipulated regulations is bound to attract punitive measures ranging from; consumer litigation for damages suffered by clients, attracting a ten percent turnover fine from the group’s global trading activities. In addition, it may lead to the rendering of the contracts in question null and void which naturally culminate in loses and heavy costs due to the unenforceability of the agreements in breach. This is besides tarnishing the firm’s hard earned reputation especially in the face of ongoing court and government sanctions. Lastly, there is also the risk of disqualifying the directors bearing personal responsibility as agents of their respective institutions. Chapter I and Article 101 of the United Kingdom and the European Union respectively stipulate the prohibitions imposed on trade agreements. On the other hand, Chapter II and Article 102 of the same prohibit the misuse of dominance in the market economies. Anti-competitive agreements Any activity ranging from willful arrangements aimed at preventing healthy competition, restricting or distorting competition is illegal under the United Kingdom and European Union provisions of the law. (Bork; 1993). Also included is a perceived intention of doing so which has an effect on the trade. The basis of identifying if an agreement falls within anti-competition or not is not entirely done using the wording of the contracts but rather is decided by analyzing the impact it has on competition or even the objectives of the concerned parties. This implies that the law can still hold you accountable using verbally agreed terms without necessarily having a well laid out formally written terms. From this development, it is clearly evident that any kind of activity that is deemed suspicious and which can be backed by evidence in a court of law forms a sufficient ground for you and your company’s execution for fraud charges. The two statutes namely: Chapter I and Article 101 generally list the following agreements among others as anti-competition under the provisions of the law in section 2 (2) (1); firstly, all agreements which fix the price of purchasing the commodity prices or even the selling prices either directly or indirectly together with other related trade agreements which includes for instance rebates and trade discounts. Secondly, any agreement aimed at controlling or even limiting the market, production, technical investments and development as illustrated by fixing output levels or even quota setting is deemed illegal under the provisions of the Act. Thirdly, disadvantaging other parties in the trade by giving yourself undue advantage is illegal. For purposes of healthy and fair competition, the conditions of business must be similar across all industry players. This means that introduction of dissimilar business conditions for the same transaction automatically invalidates the contract in question. Also included are all agreements geared towards sharing sources of supply and markets. This is obviously due to the tendency to create monopolistic engagements which lock out other industry players. The most serious form of anti-competitive behavior as postulated by Chapter I and Article 101 is cartel behavior of dominant market share holders. Treaties to share markets, rig bids, limit the supply or even the production of services and goods, and even resorting to fixing the prices of commodities in the market are broadly treated as ‘hard core cartel behavior.’ As a result, any such activity attracts the stiffest of penalties in order to deter the mal practice with the sole purpose of safeguarding consumer interests. It attracts an imprisonment of up to five years for those found guilty of propagating it together with fines which are not limited to any amount. A breach of the above chapter and Article will generally attract the following penalties among others for any illegality committed whether it is hard core or not; a ten percent fine on the firms’ global group turnovers may be imposed if the prosecution office demonstrates that indeed they were guilty of the economic crimes. In addition, the companies involved also cancellation of the contracts leading to the illegality. This will mean that they will be rendered null and void because the illegality renders them unenforceable. This can beyond any reasonable doubt cripple the profitability of the venture depending on the magnitude of the trade deal. Moreover, directors of the company run the risk of disqualification fro service besides opening themselves up to sanctions pursuant to the fraudulent acts committed. Lastly, customers and even other business competitors who have the capability to demonstrate that they suffered in any way possible due to the company’s gross misconduct are empowered by law to sue for damages. This can be damaging for the business’s image besides the high costs of damage suits (Whish;2003). However, like all other supreme laws of the land, there are certain exemptions to the application of both laws which are not deemed as ultravires in the operations of the business. (Wilberforce, Alan& Neil; 1966) These can provide a lifeline to the company’s image and legal obligations if they demonstrated beyond any reasonable doubt in a law court. The exemptions include among others: First of all, according chapter I S(6) ( 3)to in cases where the trading parties involved in the anti-competition activity hold extremely small market shares to the extent that their activities are likely to have little or no impact at all on the general price levels in the market. This means that if we can sufficiently demonstrate that the actions of the firms will not substantively affect the market, the court can grant an exceptional interpretation to the treaty. Secondly, Office of Fair Trading (2014) states that activities which may otherwise fall within anti-competition arrangements can also gain redemption in the eyes of the law if in the long run the benefits of such an agreement outweigh the illegality created. In such cases, the expected consumer gain probably due to better quality of product or prices as a result of cooperation between or among companies will out shadow the illegality constraints imposed on the concerned parties. As such, it is the expected consumer value and benefit as opposed to statutory transgressions that will ultimately determine whether such an act is construed as illegal or whether it is legal. Thirdly, it could also be that the said agreements fall within the European Union’s block exemptions in which case the contravention is catered for by the regulations of the union. This rule applies regardless of the possibility that the agreement reached by the business parties could have a big effect on the market. Such variations occur depending on the market sectors concerned or the kind of agreement under consideration. For instance, it is the duty of each block to set out the criteria that should be followed in order for an organization to evade illegality and be accorded immunity. Misuse of dominant market positions Chapter II and Article 102 of the United Kingdom and European Union statutes prohibit any firm from taking advantage of a dominant market position it may have to exploit other players in the industry and even the customers. This is because any such act amounts to breach of a healthy business environment. Companies which are deemed to be dominant are those which are able to make decisions and operate completely independent of their competitors, customers and other consumers. Statistically, market dominance has been observed in companies commanding forty to fifty percent market share. This rule is applied to determine the dominance due to the fact that it is fairly complex to draw the line using other parameters (Out-Law.Com; 2014). It should be noted that there is illegality in a company acquiring dominance status owing to increased operation base as Article 102 the European Union calls for a substantial dominance within its operating zone. The only constraints which are imposed relate to the extent to which such a position is abused consequently disadvantaging other competitors and consumers through unhealthy business practices. (Out-Law.Com; 2014). These practices include the following among others: First is the tendency of tying which involves imposing conditions of extra purchases or costs on the prospective buyers before they are allowed to buy what they need. It is also manifested in cases whereby price discrimination is applied excessively or in a manner which is likely to suggest that the organization is targeting to exploit a section of its market based on their unique characteristics for personal gain at the consumers’ expense. Thirdly, an attempt by your organization to restrict access to oil which is an essential commodity or manipulation of its supply is also deemed as an abuse of your position. Lastly, attempting to grant your organization exclusive rights in the exploration, supply, and other areas in the oil chain for personal gain is also an abuse of dominance.(Out-Law.Com; 2014). Therefore, it will be helpful if the organization can justify the fact that the set price levels, the quantity of oil supplied in the market and the chain of product supplies reflect the existing determining forces on the ground and not the firms’ selfish motives. Unlike the anti-competitive agreements which have quite a number of exemptions, abuse of dominance on the contrary does not have exemptions. It thus follows that the burden of proof rests upon the institution to demonstrate that for instance failure of supplying or variation of price levels was motivated by a need to protect the legitimate rights of the company as opposed to personal gain. Schumpeter (1942) asserts that the consequences of such a breach apply almost similarly just like the above anti competitive agreements though with slight variations. They are clearly illustrated and include among others, the following consequences: First of all, just like in the initial misconduct companies that are found guilty of the unfair business practice attract fines calculated at ten percent of their global rate of sales which apply to all their associated groups. This heavy fine is imposed as a deterrent to any operating organization within the European Union or the United Kingdom jurisdiction whichever applies. Secondly, any proven act of fraud automatically leads to the persons holding positions as directors in the organization being disqualified from their respective roles in the company. They may also be subjected to further law suits for individual violations of the set statutory requirements. Thirdly, anyone who suffers a loss or unfair expenses which was occasioned by the activities of the company’s gross violation of their rights is mandated to institute legal action for damages. This was seen in Garden Cottage Foods Ltd v Milk Marketing Board [1984] 1 AC 130; [1983] 2 A11 ER 770, HL. In the ruling, the court interpreted that the duty imposed did not aim at promoting the general market but was geared at selfish interest and amounted to abuse of dominant position according to Lord Diplock. This means that the company stands to lose a lot of money through third party initiated law suits. There was also a ruling of late which related to a co-contractor Arkin v Borchard Lines Ltd [2001] Eu LR 232, QBD (preliminary issues); judgment [2003] EWHC 687 (Comm.), [2003] ALL ER (D) 173.In the ruling, it was generally observed that any loss suffered by a person pursuant to breach of statutory duty was actionable. .It might also prove costly to settle the damage claims in the event that the prosecution secures successful court ruling in their favour. The only reprieve in this case would be where the claimant base their claim on their own illegality as was ruled in Courage Ltd v Crehan C-453/99 ; [2001] ECR I-6297, [2001] 5 CMLR 1058 where disharmony in statutory requirements prompted the court to protect Crehan’s rights. The same was applied in Crehan v Intrepreneur Pub Company [2003] EWHC1510 paras 230-263 (Chancery Division) Park J.But the other implied bigger loss as indicated earlier is a destruction of the firms public observed in image due to negative publicity that is bound to ensue following extrapolated court cases. In the long run it impacts greatly on our customer loyalty especially with regard to future trade agreements (Friedman; 1999). Moreover, procedural and substantive ultravires acts may lead to termination or suspension of business contracts due to the court injunctions that may be instituted against our firm. Naturally, such a move would stall the operations of the firm pending investigations and even the final verdict. This is gross wastage of time and will definitely cripple the running of all the company conglomerates involved in the breach of the law (Friedman; 1999). From the above, it is clearly evident that any action instituted against the firm in pursuant to a breach of the business code of conduct will greatly impact on the execution of the organizational mandates besides attracting hefty fines in courts coupled with the cost of sustaining the law suits. The investigating authorities According to Competition Policy International (2014) several agencies are entrusted with the responsibility of conducting investigations and instituting the relevant statutory requirements where they have sufficient grounds of alleged breach of the law governing the operations of businesses within the United Kingdom and the European Union at large. This is done in line with the provisions of Articles 101 and 102 together with the Competition Act of 1998 and the Enterprise Act of 2002. In the United Kingdom, the above role is distributed according to the relevant sections like Electricity, Railway and water among many more but generally a special office known as The Office of Fair Trading has been empowered with express authority to check and punish such offences. The authority can enter business facilities with relevant documentation to conduct searches that form the basis of court proceedings in adducing evidence.They are also empowered to impose sanctions on firms guilty of disturbing heath competitive trade relation after conducting investigations sufficient enough to implicate the business. In addition, the Office of Fair Trading may upon satisfactorily obtaining the relevant information and proof of illegality impose the stipulated fines and penalties to firms that are found guilty of the breach of the various statutory requirements on fair business practice.The procedure relating to the operation of the Office of Fair Trading when conducting their duty will involve first stating the subject of the search and also giving out to the concerned party the general purpose of the search. This should be accompanied by warrants of such an investigation which must be produced. The second step is a specification of the relevant documents or information or even the category of the information being solicited for in order to facilitate access with the cooperation of the business. Lastly, they also clearly give out the consequences of non cooperation for anyone under investigation in line with their mandates. These events are the clear markers of will and authority to investigate. Conclusion Competition is the cornerstone of free market economies as it automatically translates into provision of better quality goods at fair prices to consumers. As such it is the responsibility of the state to protect such rights just like the European Union and the United Kingdom do through anti competition laws. The general areas of regulation in terms of unhealthy business practice include anti-competition agreements between dominant firms that share huge market chunks and whose decisions directly impact the consumers. Secondly, abuse of dominant positions by firms is also regulated by the provisions of the laws in question.It is therefore prudent for companies to understand the provisions of the law in order to evade crossing the paths of the law as it always is costly. Besides, it also better prepares the company to demand for its own rights where it feels the authorities have infringed them. References Bork, R. (1993). The Antitrust Paradox (2nd ed). New York: Free Press Competition Policy International, Retrieved April 20, 2014, from http://www.globalcompetitionpolicy.org Friedman, M. (1999) "The Business Community's Suicidal Impulse," Legislation.gov .uk.Competition Act 1998. Retrieved April 18, 2014, from http://www.legislation.gov.uk/ukpga/1998 Office of Fair Trading. The Competition Act of 1998.Retrieved April 19, 2014, from http://www.oft.gov.uk/about-the-oft/legal-powers/legal/competition-act-1998 Out-Law.Com. Competition-the basics. Retrieved April 19, 2014, from http://www.out-law.com/page-5811 Prosser, T. (2005) The Limits of Competition Law, ch.1 Schumpeter, J. (1942) The Process of Creative Destruction The Office Of Fair Trading.(2004). Powers of Investigation:Understanding Competition Law. Hayes: Office of Fair Trading Whish, R. (2003) Competition Law, 5th Ed. Lexis Nexis Butterworths Wilberforce, R. Alan C.& Neil E.(1966) The Law of Restrictive Practices and Monopolies(2nd Edn.), London: Sweet and Maxwell Garden Cottage Foods Ltd v Milk Marketing Board [1984] Arkin v Borchard Lines Ltd [2001] Courage Ltd v Crehan Crehan v Intrepreneur Pub Company [2003 Read More