Catriona Munro: Why it pays not to play the competition law blame game

Events leading to this landmark ruling began in 2005, with an OFT investigation into suspected collusion between UK supermarkets and dairy processors. In 2007, Safeway and a number of other parties admitted liability, agreed to co- operate with the OFT and pay a fine. Safeway itself agreed to pay almost 16.5m, which would later be reduced to 10.7m for co-operating.

Subsequently though, former Safeway group companies have brought claims for damages and compensation against former directors and employees. It is alleged that these individuals breached their employment contracts and duties by participating in price fixing and failing to report them to their superiors.

The defendants applied to have this action struck out, arguing – among other things – that it ran contrary to public policy, which states that a person must not benefit from his or her own wrong. However, the court ruled this defence would only apply if Safeway had been directly responsible, through the endorsement of its board or shareholders, so the argument was rejected.

The court also held that employees owe a duty to their employer not to put them in breach of competition law, opening the door for any resulting penalties to be passed to the individuals involved.

Although the Safeway case represents the first attempt by a UK company to claw back a competition fine from employees, it is not unusual for other types of penalty to be passed on in this way.

Furthermore, it may also now be possible for shareholders to bring similar damage claims, known as derivative actions, against company directors who have breached their duties.

The final outcome of this case is yet to be decided, but it is certain to have implications both for companies and individuals.

A victory for Safeway may, on the other hand, hinder future competition investigations, as employees may be less willing to co-operate in a process that could end with them being heavily fined.

Such an outcome would also have unwelcome consequences for employers. Today, most cartels and anti-competitive practices are uncovered when a business discovers its own involvement and "blows the whistle" on its co-conspirators in exchange for reduced or waived penalties.

Anything which makes individual employees less likely to come forward could result in fewer businesses being in a position to apply for leniency, thereby making the job of exposing cartels significantly more difficult. Nor would a win for Safeway automatically guarantee businesses' financial indemnity from the behaviour of their employees.

On a practical level, attempting to recover thousands or even millions of pounds from individuals will only be worthwhile if they have the means to pay. Many directors will have insurance that could potentially cover this liability.

Either way, this case is another stark reminder of the harsh consequences of breaching competition law. The risks facing individuals for this type of infringement are constantly on the rise.

In 2008, three individuals involved in the Marine Hoses cartel were jailed for periods of up to three years. More recently, four British Airways executives were charged in relation to the fixing of air passenger surcharges for transatlantic flights and potentially face similar sanctions for their alleged involvement in this cartel.

Reapportioning blame for competition law breaches is, of course, a very imperfect way of coping with the liability. It is far better to ensure proactively that all employees and directors understand and abide by the competition rules and appreciate the consequences of crossing the line. And, where poor judgment may cause this line to be overstepped, an effective competition compliance programme will help identify and highlight risks, so they can be dealt with early.

Whether employer or employee, the best strategy in the competition law blame game is simply not to play.

Catriona Munro is a partner, EU and competition, with law firm Maclay Murray & Spens