Background
Bettercare Group Limited (Bettercare) is engaged in the provision of nursing home and residential care services in Northern Ireland. In November last year Bettercare complained to the OFT alleging that its main customer, the North & West Belfast Health and Social Services Trust (North & West), was abusing its dominant position by imposing unfairly low prices and unfair contract terms for the residential and nursing care services provided by Bettercare. North & West also manages a number of residential homes, but it is its activities as a purchaser of nursing home care services rather than as the provider of such services which prompted Bettercare’s complaint.
OFT’s view
The OFT dismissed the complaint on the basis that North & West was not acting as an ‘undertaking’ when purchasing care services and accommodation from Bettercare.
The OFT accepted that a local authority can act as an ‘undertaking’ when it is engaging in economic activity, but took the view that it was not engaged in economic activity when exercising public interest-type functions. It considered that local authorities which, like North & West, purchase social care for the disadvantaged in the society, using monies raised by taxation, are not undertakings for the purpose of the Competition Act and the Director General concluded that he could not investigate the complaint.
Bettercare appealed against this decision and in an earlier judgment (26 March 2002) the Appeal Tribunal rejected the Director General’s argument that there was no ‘decision’ capable of being appealed. The question that remained to be decided in the second judgment was whether the Director was correct to reject Bettercare’s complaint on the ground that North & West was not acting as an ‘undertaking’ within the meaning of the Competition Act.
The Appeal Tribunal’s decision
The Appeal Tribunal reversed the OFT’s decision and concluded that North & West’s activities, both in running its statutory residential homes and in engaging in the contracting out of social care to independent providers are for the purposes of the Competition Act to be regarded as economic activities.
When a local authority contracts out activities it enters into a commercial transaction, regardless the source of the financing, and becomes therefore subject to the competition rules for the purpose of that transaction. It said that reaching a different view would mean that the private sector suppliers of goods and services to the local authority would be subject to all the burdens of the Competition Act, but would be unable to invoke the protection that it offers, for example where a local authority seeks to abuse its position as a monopoly buyer. This could not have been intended by Parliament.
The Appeal Tribunal sets aside the Director’s decision and remits to the Director the matter of Bettercare’s complaint. It is now up to the Director General to investigate Bettercare’s complaint and reach a decision as to whether or not North & West has abused its dominant position in breach of the Chapter II prohibition of the Competition Act.
Implications
The Appeal Tribunal’s ruling has potentially wide implications for businesses dealing with health trusts or other public bodies which discharge their statutory duties by purchasing from the private sector. Such businesses should now be able to rely on the Competition Act to challenge any unfair terms (such as excessively low prices) and trading conditions imposed on them.
Local authorities and public bodies generally will have to take greater care in the way they do business with the private sector. In cases where they may be held to be dominant they will have to make sure that prices and other trading condition imposed are fair.
The OFT may well be forced to reopen a number of previous complaints involving local authorities should the original complainants decide to take advantage of the Appeal Tribunal’s ruling in Bettercare.
© Herbert Smith 2002
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