A general axiom of rational behaviour

In R (on the application of Gallaher Group Ltd and others) (respondents) v The Competition and Markets Authority (appellant) [2018] UKSC 25, the Supreme Court held that in judicial review the concepts of equal treatment and unfairness are not standalone principles of administrative law but aspects of rationality. The judgment also makes clear that treating like cases alike and unlike cases differently is a general axiom of rational behaviour (that is, consistency): cases should be uniformly treated unless there is a valid reason to treat them differently. Whether there is a valid reason is a judgement for the decision-maker and will be subject to review by the courts on grounds of rationality.

Factual background

The case involved a JR challenge brought against the Office of Fair Trading (OFT) (now the Competition and Markets Authority (CMA)) by two companies: Gallaher Group Ltd, a UK-based multinational tobacco company; and Somerfield, a tobacco retailer (together, the respondents).

In April 2008 the OFT identified 12 parties, including the respondents, which it considered had infringed the Competition Act 1998. In early June 2008, the respondents, along with four other parties, entered into early resolution agreements (ERAs) with the OFT. The ERAs involved the parties admitting infringement and cooperating with the OFT in exchange for substantial reductions in the anticipated penalties. A party to an ERA could appeal against the OFT’s final decision, notwithstanding the admissions in the ERA, but in that case was liable to have the penalty increased by the Competition Appeal Tribunal (CAT). The early resolution process was not subject to statutory rules and nor was it (at the time) described in any published document. An internal OFT document emphasised ‘fairness, transparency and consistency’ as integral to an effective settlement process; and an OFT speaking note, for use in discussions with parties, also included a commitment to ‘equal treatment principles’.

TM Retail (TMR) had also entered into an ERA. In 2008 the OFT responded to a query from TMR with an assurance that if it did not appeal, it would get the benefit of any successful appeal made by any of the other parties to the decision. 

In April 2010 the OFT issued its final decision which made findings of infringement against the 12 parties under investigation, including the respondents. Six of those appealed to the CAT, but neither the respondents nor TMR appealed and instead paid the reduced penalties agreed in the ERAs. The CAT allowed the appeals. TMR, relying on the 2008 assurance, reached a settlement agreement with the OFT for the repayment of the penalty with interest.

The respondents asked the OFT to withdraw the decision against them and refund the penalties. It refused. In August 2012, after the OFT had published information about its settlement with TMR, the respondents issued claims for JR. They also sought to appeal to the CAT out of time but were refused.

The claim was unsuccessful at first instance but upheld in the Court of Appeal.  The Supreme Court was asked to consider whether the OFT had breached its general duties of equal treatment and fairness derived from domestic and EU public law principles and under section 60(1) of the Competition Act 1998.

Decision

The Supreme Court unanimously allowed the appeal, holding that while equal treatment and fairness are fundamental principles in a democratic society, they are not concepts which directly translate into justiciable rules of law. 

Equal treatment is generally desirable but not an absolute rule. Unfairness in the ordinary sense is not a ground for judicial review, unless it is procedural. 

The OFT owed a general duty during the 2008 negotiations to offer equal treatment to those subject to the investigation. In addition, the OFT’s commitment to equal treatment to the parties may have given rise to a legitimate expectation that they would be treated equally.

The Court of Appeal had applied a test of whether there was ‘objective justification’ for the lack of equal treatment and held that the ‘only difference’ between the respective positions of TMR and the respondents was that the OFT had given the assurances to TMR in 2008, but not to the respondents. The Supreme Court clarified that the test should be rationality, but that in any case the outcome would be the same, because the difference was potentially crucial: those who entered into the ERAs were aware of the possibility that other parties would appeal and be successful and took that risk – whereas TMR did not. In 2012, the OFT could reasonably take the view that, if the assurance was not honoured, TMR would have had a strong case for permission to appeal out of time, whereas the respondents did not. Therefore the OFT had not acted irrationally.  

The court decided that the OFT erred in giving the original assurance to TMR, not in failing to extend it to the other parties and there was no reason to continue the mistake, particularly as it would involve expenditure of public funds. This was a clear objective justification for their actions and rationalised the unequal treatment.

The Supreme Court has helpfully clarified that it is the irrationality of the unfairness or unequal treatment (or lack of consistency) that is justiciable and that concepts such as ‘conspicuous unfairness’ or ‘unfairness amounting to an excess or abuse of power’, which have developed in the case law, are bywords for irrationality. The judgment demonstrates the court’s desire to clarify the scope of different grounds of JR and to avoid the development of disparate special rules in place of general principles. 

Another interesting point is that the OFT was not found to have acted irrationally despite the mistake it made in giving assurances to TMR and the consequences of that mistake. The court found that the OFT had made a ‘rational choice between unpalatable alternatives’.

Melanie Carter is a partner and head of public & regulatory at Bates Wells Braithwaite, London; Claire Whittle is a senior associate