Fuel card firm accused of unfair competition

Updated March 2011

A new investigation by the Office of Fair Trading (OFT) provides a useful reminder to businesses occupying a very strong or 'dominant' position in any market - whether transport, automotive, fuel cards or otherwise - not to abuse that position and distort competition.

Dominance – what you need to know

'Dominance' is presumed where a business has a market share in excess of 50% (albeit this is not a conclusive threshold). Under UK and EU competition rules, a business which occupies a dominant position has a special responsibility not to allow its activities to distort competition unfairly, for example, by adopting a strategy designed to exclude rivals from the market.

Companies found guilty of abusing a dominant position can be subject to significant penalties, including huge fines of up to 10% of worldwide turnover, while directors of such companies can face director disqualification proceedings. Moreover, other parties, for example customers, who have been injured by anti-competitive practices (because, say, they have been obliged to pay inflated prices for services) may seek damages following on from any competition authority decision.

Remember that dominance can arise in aftermarkets, so even if a manufacturer is not dominant in the supply of new vehicles, it may nevertheless be dominant in separate markets for the supply of parts for those vehicles. Hence, a clear understanding of the rules applying to the conduct of dominant companies can be as important as an understanding of block exemption rules applying to agreements between a supplier and its network.

Fuel card investigation

In the present investigation, the OFT is alleging that bunker fuel card operator, CH Jones (t/a Keyfuels), abused a dominant position in relation to pay as you go (PAYG) fuel card services to customers with HGV fleets. Fleet operators often purchase large quantities of diesel fuel upfront, either from a wholesaler or oil major. Bunker fuel card operators then arrange for the fuel to be delivered to refuelling sites around the country. Drivers issued with bunker fuel cards can draw-down fuel from these sites, with the fleet operator paying the fuel card operator a handling charge based on fuel volumes used. This process is known as 'direct bunkering'.

The investigation follows an April 2010 complaint by CH Jones' rival, UK Fuels. From July 2009 until recently, CH Jones allegedly used its high market share in the bunker fuel card services market to implement a strategy to exclude rivals. This was supposedly achieved through the use of exclusive agreements with bunker fuel sites that restricted the supply of rival direct bunkering services to customers and, indirectly, the supply of rival PAYG fuel cards. The OFT considers, at least provisionally, that CH Jones abused its market power to the detriment of competition and choice for customers.

Next steps

CH Jones has received written details of the OFT's allegations and now has the opportunity to respond. Once the OFT has considered CH Jones' response (and any views from interested third parties, whether rivals or fleet customers) it will decide whether an infringement has taken place and will publish its decision. Should the OFT conclude that competition law has been infringed it will serve those involved with a written infringement decision setting out the evidence on which it has based its findings and will give details of the appropriate penalty.

Comment

Dominance cases are often difficult to establish; the first step is to identify the market and whether the alleged infringer is actually dominant. At the same time, it is important to distinguish abusive conduct from normal competition on the merits, as even dominant companies are entitled to compete aggressively. It is then open to the dominant company to justify its conduct. That said, the OFT does not pursue these investigations lightly. Dominant companies do not have the same discretions – in terms of their conduct or contractual restrictions - as weaker rivals. Therefore, any company occupying a potentially dominant position should give careful thought to any restrictions it applies or enters into, even if these practices are common to smaller rivals.

For more details on this investigation, to comment on it or for practical guidance on what you need to know to ensure your business complies with applicable competition laws or, conversely, how to seek redress if your business has been harmed, please contact Miles Trower.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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