Published 16 June 2016
The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 was brought into force on 6 April 2011 and reversed the exclusion of land agreements from competition law. Consequently, restrictions in land agreements giving protection from competition, for example, exclusivity provisions, are liable to challenge under the Competition Act on the basis that their object and effect is to prevent, restrict or distort competition.
Unless the provision in question is blatantly anti-competitive, a restrictive covenant will be deemed anti-competitive only if its adverse effect on competition is ‘appreciable’. Even then, it may be exempt if it can be shown that the benefit to consumers outweighs the potential detriment to competition.
The challenge in making this assessment is that it requires, firstly, identification and a detailed analysis of the local market; and secondly, a judgment exercise to weigh up the clause’s anti-competitive effect against its benefits.
Guidance is limited - the OFT did issue guidance seeking to clarify what constitutes a legitimate restriction, but otherwise there is only one decided UK case. The judge in Martin Retail Group Limited v Crawley Borough Council considered the importance of the relevant market. The parade of shops in question constituted the only shops within a housing estate, with the nearest competitor 1km away. The judge expressed the opinion that customers would be reluctant to walk further than a short distance to buy goods, and consequently the market within which prevention, restriction or distortion of competition was to be considered was limited to the parade of shops. In a hospital setting this could mean that the local market is limited to the Hospital itself or even discrete parts of it, depending on its size and layout, and the nature of the local geography.
With growing awareness of the new fast track procedure before the specialist Competition Act Tribunal (allowing for a quick process and limited costs) parties are no longer being put off by the thought of litigation and are increasingly conscious of their enhanced bargaining position in negotiations, so the issue is likely to gain a higher profile in the months to come. That might mean a bigger pool of cases being decided, leading to more clarity on interpreting anti-competitive provisions, but at the same time could lead to unexpected challenges. Watch this space!