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Standards of evidence for competition complaints

This entry was added to http://www.reckon.co.uk/headlines-franckblog on 22 August 2005.
Full blog table of contents available at Contents | viewpoint: Franck.

This article discusses the standards of proof and evidence relevant to investigations by regulators of competition complaints.

The specific prompt for this article was ORR's decision (45 pages, PDF) in a case under the Competition Act 1998 involving allegations of exclusionary abuse in the provision of approval and access to facilities for testing track lubricants for use in electric track lubricators. (See ORR decision on testing of track lubricants | viewpoint: Franck for a nit-picking commentary on some other aspects of this decision.)

But my point here is a wider one, about the tensions between the two roles of regulators as enforcers who seek to punish bad behaviour through penalties, and as fact-finders helping victims of anti-competitive practices to receive fair treatment and educators helping accidental infringers to comply with the law.

It seems to me that excessive emphasis on punishment has led the regulators away from such "helpful" enforcement up to now. But I see some hope that a more effective enforcement regime may result from recent guidance given by the Competition Appeal Tribunal.

The relevant law on standard of proof

I am not a lawyer, and the question of standard of proof seems to me to be one of these true lawyers' issues in which non-lawyers interfere at their peril. But I am not trying to say anything new or interesting about it, merely to understand what the position is to the extent necessary to make my point below about the approach to regulatory investigations.

The ORR decision referred to at the beginning of this article makes reference to a concept of "strong and compelling evidence", which is taken from the Competition Appeal Tribunal judgment (155 pages, PDF) in the Napp case (paragraphs 107-109):

"107. [...] under the law of England and Wales there are only two standards of proof, the criminal standard and the civil standard; there is no 'intermediate' standard. The position is the same in the law of Scotland and Northern Ireland. Within the civil standard, however, the more serious the allegation, the more cogent should be the evidence before the court concludes that the allegation is established on the preponderance of probability [...]
108. Since cases under the Act involving penalties are serious matters, it follows from Re H that strong and convincing evidence will be required before infringements of the Chapter I and Chapter II prohibitions can be found to be proved, even to the civil standard. Indeed, whether we are, in technical terms, applying a civil standard on the basis of strong and convincing evidence, or a criminal standard of beyond reasonable doubt, we think in practice the result is likely to be the same. We find it difficult to imagine, for example, this Tribunal upholding a penalty if there were a reasonable doubt in our minds, or if we were anything less than sure that the Decision was soundly based.
109. In those circumstances the conclusion we reach is that, formally speaking, the standard of proof in proceedings under the Act involving penalties is the civil standard of proof, but that standard is to be applied bearing in mind that infringements of the Act are serious matters attracting severe financial penalties. It is for the Director to satisfy us in each case, on the basis of strong and compelling evidence, taking account of the seriousness of what is alleged, that the infringement is duly proved, the undertaking being entitled to the presumption of innocence, and to any reasonable doubt there may be."

A fuller (and more recent) review of the applicable law on the standard of proof appears at paragraphs 164-208 of the Competition Appeal Tribunal's October 2004 judgment (337 pages, PDF) on liability in the football replica kit cartel case, in which it deprecated the use of the words "strong and compelling" to justify an excessively high standard of proof, and emphasised that the application of the civil standard depended on the circumstances of the case:

"204. It also follows that the reference by the Tribunal to 'strong and compelling' evidence at [109] of Napp should not be interpreted as meaning that something akin to the criminal standard is applicable to these proceedings. The standard remains the civil standard. The evidence must however be sufficient to convince the Tribunal in the circumstances of the particular case, and to overcome the presumption of innocence to which the undertaking concerned is entitled."

The nature of the preponderance of evidence standard is re-explained in more detail than in the Napp judgment, with a full quotation from the relevant Court of Appeal judgment:

"188. In non-criminal proceedings facts are required to be proved on the balance of probability, that is to say that the court must be satisfied on the evidence, that the occurrence of the event is more likely than not. However, the principle is that the more serious the allegation, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probabilities. Hence the civil standard provides for flexibility as to the cogency of the evidence required to satisfy the court of the facts. Thus in Re H Lord Nicholls said: 'The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence... Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.' [1996] AC 563, at p. 586."

Human Rights Act issues are summarised as follows:

"191. In Napp, the Tribunal accepted, first, that proceedings under the Act involving penalties are to be classified as 'criminal' for the purposes of Article 6(1) of the European Convention on Human Rights, by reason of the autonomous concept of a 'criminal charge' under that provision: Napp at [98]. In consequence, not only Article 6(1), but also the presumption of innocence under Article 6(2) and the procedural rights envisaged by Article 6(3), apply to proceedings before the Tribunal: Napp at [99]."

This emphasises the importance of whether penalties are involved or not to the conduct of proceedings. Section 36(3) of the Competition Act 1998 provides that penalties can only be levied when "the infringement has been committed intentionally or negligently", and The Competition Act 1998 (Small Agreements and Conduct of Minor Significance) Regulations 2000 limits the exposure of smaller firms to penalties.

The Tribunal has confirmed in Burgess (see page 32 of the judgment) that the question of whether penalties could be imposed in the specific case under consideration was relevant to the way in which the evidence was evaluated.

Implications for regulatory investigations and for victims of abuse

I think that the longer extract from the Court of Appeal quoted by the CAT in the extract above is much clearer than a sound-bite such as "strong and compelling evidence", and I hope that the regulators will take notice of it.

Trying to put it in statistical terms, the question for the judge in an abuse of dominant position case seems to be whether, given the constraints on unobserved facts which arise from the admissible evidence, and given his prior beliefs about probabilities — which includes a belief that people rarely infringe the law intentionally or negligently — the hypothesis of no abuse can be rejected at a confidence level of 0.5.

By contrast, as far as I understand it, the question for a jury in a murder case is whether, subject to the hypothetical assumption that the accused is innocent, something as compromising as the admissible evidence could reasonably have occurred. Only if no reasonable man can imagine that the set of circumstances proved by the prosecution could happen in the absence of the alleged crime can the accused be convicted. Under the criminal standard, there is no reliance on prior beliefs about whether an alleged crime is thought to be "usually less likely" than another, as the assumption throughout the analysis is that the accused is innocent anyway. The criminal standard of "beyond reasonable doubt" is also completely asymmetric as between innocence and guilt, whereas the preponderance of evidence standard only provides for a presumption of innocence through the allocation of the burden of proof, and perhaps through some requirement that the judge should have a prior belief that guilty conduct is usually less likely than innocent conduct.

What does this all mean for regulatory investigations?

I think that the main point is that the standard of evidence required will be higher for an allegation of intentional or negligent abuse than for a mere allegation of abuse. This is because intentional or negligent law-breaking is less likely to occur than law-breaking in general (obviously), and also because the penalties that can be levied for intentional or negligent abuse give rise to a presumption of innocence that has no counterpart for abuse that is not alleged to be intentional or negligent.

But I cannot see any reason why a regulator could not reach a decision that there was an abuse, but intention or negligence cannot be proved. Whilst this would not earn the regulators any headlines in the following day's paper for imposing a large fine, such a decision would still be an effective way of encouraging future compliance, as well as provide the opportunity for any genuine victims to be compensated for harm that they have suffered as a result of the abuse.

Hopefully, the case law reviewed above will by now have become fully integrated in regulators' decision-making processes, and the ORR decision on testing of track lubricants was the last time that the "no strong and compelling evidence" line was used by a regulator to justify a non-infringement decision.

A more sensible approach to the standard of proof should also enable the regulators to be faster in dealing with complaints. In the track lubricant case, ORR took nearly 13 months to get to a decision, and this was faster than in other cases of complaints about exclusionary abuse such as Burgess. It seems to take longer to get a simple Competition Act 1998 case through a regulator than to get the Competition Appeal Tribunal to re-hear the case, or for the Competition Commission to complete most of its inquiries, or to pursue a competition claim through the High Court; and the High Court can hear a request for an injunction within days.

Indeed it seems a strange world in which the courts work faster than specialist administrative bodies, and there is a risk of a two-tier system of competition law enforcement emerging with rich claimants able to get effective justice quickly, on the preponderance of evidence as it relates to their rights as against another companies' rights, whilst those who don't feel like paying large legal fees have to make do with waiting for a regulator to consider whether the evidence is sufficient to justify punitive action. Surely this is not how it was meant to be.

I am hopeful that the Tribunal's recent notice to regulators in Burgess that they must improve their performance in enforcing the law, together with the clarification of the standard of proof in the football replica kit case and in Burgess, will mean that regulators will now take a more open approach to resolving competition law disputes without necessarily getting stuck on the question of how to find enough evidence to punish anyone.

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Entry added by Franck Latrémolière on 22 August 2005

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Last changed by Franck at 5:34 PM on Sunday 20 January 2008.

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Reckon Open "Standards of evidence for competition complaints | viewpoint: Franck" 2008-01-20T17:34:46