Oct 2002

Bettercare Group Ltd. - v - the Director General of Fair Trading by

Robert Campbell

Background

Bettercare are nursing and residential care providers in Northern Ireland. The Company has two facilities in the Shankhill area of Belfast. The North and West Belfast Healthcare and Social Services Trust (North & West) purchases nursing care and accommodation from Bettercare at it's two centres under a standard contract, renewable annually.

Importantly, North & West is itself a provider of residential care in that it manages eight homes, five of which are for the elderly. North & West is the main purchaser of Bettercare's places at the two centres. In other words, it was in a "dominant position" in the market place.

The concept of dominant position is an important one, created by the European Competition legislation and embodied now in UK legislation in the form of the Competition Act 1998.

Complaint

On 23 November 2000 Bettercare wrote to the Office of Fair Trading ("OFT") complaining that it was abusing it's dominant position because it was offering unreasonably low contract prices and unfair terms that, effectively, Bettercare were not in a position to refuse.

Chapter II of the Competition Act creates a prohibition that Bettercare said was being flouted by North & West. The prohibition is:

"..Any conduct on the part of one or more undertakings which amounts to an abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom".

Section 18(2) goes on to be more specific about the kinds of behaviour which would constitute such an abuse:

Conduct may, in particular, constitute such an abuse if it consists in

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts."

The word "undertaking" is not specifically defined in the Act. The OFT decided that North & West did not amount to such and was not, therefore, subject to the prohibition, essentially funding that in contracting out it's provision of care it was pursuing it's "public interest functions" rather than carrying on any economic activity, a crucial element in making it an "undertaking" caught by the Act.

Bettercare appealed to the specialist tribunal set up to resolve these arguments by the 1998 Act, the Competition Commission Appeals Tribunal ("CCAT"). The OFT's first position was that the Tribunal had no power to deal with the appeal because it had not, in fact, made a formal decision capable of triggering the statutory appeals process. That position was dealt with, and dismissed, at a preliminary hearing in February 2002 leaving the way open for the appeal proper to be heard.

A useful aspect of the procedure for CCAT appeals is a rule which enables anyone with "a sufficient interest in the outcome….." of an appeal to ask permission to intervene i.e. join in the proceedings and in the Bettercare Case the Registered Homes Confederation of Northern Ireland Ltd ("the confederation") and Bedfordshire Care Group applied successfully so to do. The confederation's interest was that it complained prices paid by North & West to it's own residential homes were substantially higher than prices paid to it's members. Bedfordshire Association complained that prices paid by Bedfordshire County Council were:

a) below the economic cost of providing the residential services and
b) unjustifiably lower for some residential homes than others

The Director had responded with the "undertakings" position adopted in relation to Bettercare.

Accordingly the appeal proceeded and the protagonists asked respectively for the following relief:

Bettercare asked the tribunal to:

- set aside the contested decision
- declare that the North & West is an undertaking;
- declare that the activities of the North & West ought to be investigated under section 18 of the Act;
- in the alternative, remit the mater to the Director for further investigation;
- order the Director to pay Bettercare's costs.

The Director asked the Tribunal to:

- Dismiss Bettercare's appeal
- order Bettercare to pay his costs.

In a 95 page reserved judgment the CCAT proceeded to analyse the decision under appeal and, in a letter to the OFT, Bettercare had set out details of it's concerns:

"North & West are in a dominant position in relation to these care centres.

North & West issue an annual contract to Bettercare in respect of these facilities determining both service specification and price.

All requests for negotiation of the elements of this contract have been refused each year since 1994.

Modifications introduced by North & West each year are without consultation.

Proposals to agree a costing of the service required or to obtain an independent assessment of the cost of providing these services have been refused.

External regulatory and statutory factors influencing the cost structure have been ignored throughout the past 6 years and the pricing structure has been increased by below inflation repeatedly over the period.

There are no other potential customers for these services.

There has been significant and fixed investment in these centres.

We believe that the purchasing strategy of North & West is an abuse of their monopoly position and indeed is short sighted in that it is destined to collapse the provision of these services.

I have sought meetings regularly to discuss this issue. The Trust Chief Executive refuses to meet with me and when I have met with those who he has designated they have stated that they are not in a position to negotiate or vary the contract on either price or service.

To date Bettercare have admitted residents funded by North & West and provided services but have not signed a contract. It has become increasingly difficult to the point of impossible, to provide the services required within the price North & West determine and this is placing Bettercare in the invidious position of either failing to provide services as required or operating at a continuous deficit.

The majority of our cost structure is made up of labour both professional and ancillary. Our biggest competitor for staff is in fact the North & West who pay significantly higher salary packages, (on average in excess of 40% higher than Bettercare's package). In a tight labour market particularly for trained nurses this is an impossible loop.

I am not sure that this constitutes any infringement of the Competition Act but it undoubtedly is totally inequitable. I would appreciate your advice as how to proceed should you consider that there is a basis for a complaint."

The issue for decision

The issue before the CCAT was then defined as whether North & West was "acting as … undertaking when purchasing social care."

The parties put forward various arguments in support of their contentions based largely upon previously decided European cases. These arguments are too lengthy to rehearse here.

The CCAT analysed the relevant law, setting out the European precedents chronologically ending with a case in 2002 called cisal which concluded, on the facts of that particular case, that activities of the organisation "were not economic activities for the purposes of competition law and that [it] does not therefore constitute an undertaking within the meaning of the Act."

Following detailed analysis of the statutory framework the Tribunal looked at the facts noting along the way that:

"In North & West's area as a whole, we are told, there is a total of 1019 residential and nursing beds of which 189 are managed by North & West in its statutory homes and the other 830 are managed by private or voluntary organisations. Out of those 830 beds, North & West purchases 604. At the end of March 2002 North & West, so we are told, had identified a further 35 elderly people in need of residential or nursing care which it did not have the resources to place."

Decision

The CCAT finally found, unanimously, that North & West's activities in running its statutory residential homes and contracting out social care to the independent sector are to be regarded as economic activities for the purpose of deciding whether North & West is an "undertaking" within the Competition Act and it set aside the OFT's decision. The result therefore is that Bettercare's complaint has been remitted to the OFT for decision. It is understood the OFT decided not to appeal this decision.

Although heard in Belfast the decision is important to all UK homes because the appeal was out of UK legislative provisions. Strictly speaking a decision of the CCAT does not set a binding precedent, as it would had it been, for example, a Court of Appeal decision but it is reasonable to suggest it will be followed in future by the OFT and, as a specialist tribunal, the Court of Appeal is unlikely to interfere with it in future unless it is manifestly and unarguably wrong.

Whilst the judgment sets the next best thing to a precedent, this does not necessarily mean that all local purchasing authorities will be regarded as undertakings as each case will depend upon it's own particular facts.

Robert Campbell is a leading healthcare lawyer and principal of Robert Campbell & Company, national specialist legal practice.