Competition Alert

Landowners and Leaseholders Beware: CMA cracks down on anti-competitive clause in Heathrow Airport's hotel car park lease

In a significant first enforcement decision involving a 'land agreement', on 18 September 2018 the Competition and Markets Authority (CMA) imposed a fine of £1.6 million on Heathrow Airport over the lease of an airport hotel that breached UK competition law by setting minimum car parking prices.

Facts

The airport, as freeholder, had agreed to lease the Sofitel hotel at Terminal 5 to the Arora Group, as leaseholder. The lease included a tenant's covenant on how Arora should set parking prices for non-hotel guests using the Sofitel's car park. These could not be lower than prices available at Heathrow Airport's own car parks.

Statement of Objections and settlement decision

The CMA examined the effect of the lease provision and objected to the pricing restriction on the ground that it prevented the hotel operator, Arora, from charging non-hotel guests cheaper prices than those offered by Heathrow Airport's own car park facilities.

The CMA has issued a 'Statement of Objections' provisionally finding that Heathrow and Arora breached competition law and each party has formally accepted liability on the basis that their lease contained infringing provisions.

Heathrow has voluntarily entered into a settlement with the CMA to pay a fine of £1.6 million. This fine includes a reduction of 20% as a result of the voluntary settlement. The pricing restriction has also now been removed from the lease.

Arora has not been fined as the CMA granted the hotel group immunity under its 'leniency' programme. This encourages companies to 'whistle-blow' and cooperate if they think they might be involved in potential competition law breaches, in exchange for immunity from, or a significant reduction in, penalties (but generally not immunity from damages actions brought by those harmed).

The CMA has also sent warning letters to other airports and hotel operators, warning against anti-competitive agreements of a similar nature that the CMA suspects those businesses may have made.

In addition, the Civil Aviation Authority (CAA) has issued an 'open letter' to airport operators and their relevant business partners. The CAA concurs with the action taken by the CMA and welcomes it as "a good example of [concurrent] competition authorities working together to crack down on anti-competitive agreements that risk disadvantaging consumers." The CAA also refers to its earlier competition investigation in relation to parking at East Midlands Airport and its sector review on 'airport surface access services', where it issued an advisory letter to airport operators and wider industry participants in December 2016, reminding them of their obligations under competition law.

In its open letter, the CAA again reminds the airport industry and those managing airport parking that "it is not acceptable for agreements (including land agreements and leasing arrangements) to contain anti-competitive pricing restrictions or other anti-competitive restrictions" and of the need to ensure that their commercial agreements comply with competition law.

The dangers of breaching competition law

As will be clear from the CMA's Heathrow Airport settlement decision, the consequences for engaging in anti-competitive activities are very serious. They include:

• Fines of up to 10% of worldwide group turnover;
• Anyone who has suffered loss as a result of a company breaking competition law can claim damages against that company;
• Not being able to enforce agreements; and
• Significant and long lasting reputational damage.

Moreover, in other cases involving competition law infringements, the individuals involved may face:

• Director disqualification for up to 15 years; and
• Criminal prosecution for breach of the 'cartel offence', potentially leading to imprisonment for up to five years and/or unlimited personal fines.

How to remain legally compliant

The CAA's open letter encourages businesses to have an effective compliance programme in place to ensure they are actively complying with competition law, while the CMA recommends all businesses take the following steps:

• Ensure all staff members know what they can and cannot do. This can take the form of introducing a competition compliance policy and training staff regularly on it.
• Review the CMA's range of simple guides to help businesses understand more about competition law.
• Review the CMA's range of case studies that show how other businesses have been investigated for breaking the law.
• Report companies in your industry that you suspect are breaking competition law, using the CMA's cartels hotline. Take legal advice first.
• Notify the CMA as soon as possible if you think you or your business may have been involved in an illegal cartel as there may be beneficial treatment under the CMA's 'leniency' programme. Take legal advice first.

Ultimately, it is the Board's responsibility to ensure competition law compliance, ably assisted by internal or external lawyers and senior management.

Comment

While the CMA's settlement decision with Heathrow Airport is the first time it has enforced competition law in a case involving a land agreement, it is hardly surprising the CMA has done so with the Sofitel lease. Businesses operating competing facilities should generally be free to compete on price, whereas minimum pricing restrictions and price matching obligations are likely to restrict this freedom.Both Heathrow and Arora may now be sued by car parking customers who have paid higher prices to park at Heathrow Airport than they would have done in the absence of this anti-competitive lease.

If you would like further information on compliance with competition law, please contact Freeths' Head of Competition, Andrew Maxwell.