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OFT issues final decision and imposes penalties in independent schools investigation

166/06    23 November 2006

The OFT has found that an agreement between 50 of the UK's fee-paying independent schools to exchange detailed fee information was in breach of competition law.
 
The findings are set out in a formal decision confirming the OFT's earlier provisional finding that the schools infringed the Competition Act and marks the end of a case which is one of the largest OFT investigations carried out. The decision also imposes penalties totalling just under £500,000 on the schools.

The schools concerned exchanged confidential information relating to their intended fee levels for boarding and day pupils through a survey known as the 'Sevenoaks Survey'. Surveys were compiled for the academic years 2001-02 to 2003-04.

The OFT's decision follows the announcement in May that the schools concerned had admitted exchanging information regarding their intended fee levels in breach of competition law. The admission was made as part of an agreed resolution of an OFT investigation between the OFT and the schools. The schools do not, however, make any admission that the agreement had any effect upon fees, and the OFT's decision does not make any such finding.

With one exception, each school must pay a penalty of £10,000, reduced in the case of six of the schools by up to 50 per cent for leniency. The relatively low fine for each school reflects the exceptional circumstances of the case, including the fact that all the schools will make payments totalling £3 million into an educational charitable trust designed to benefit the pupils who attended the schools during the relevant academic years, and the schools' charitable status. It is the first time the OFT has imposed penalties on charities and sends out a message that competition law applies to all businesses enjoying charitable status, who should not assume the OFT will in future accept the payment of a relatively low penalty as appropriate.

John Fingleton, OFT Chief Executive, said:

'The penalties imposed on the schools and the contributions that they will make to the charitable trust, represent a fair and proportionate outcome to this case, given the parties' charitable status and their acceptance that there has been a competition law infringement. This is the first case where the OFT has imposed penalties as part of an agreed resolution and demonstrates our willingness to consider innovative solutions in appropriate cases.'

The full text of the decision is available on the CA98 Public Register.

NOTES

1. An infringement decision is a decision of the OFT under the Competition Act 1998 ('the CA98') that one of the prohibitions of the CA98, or Article 81 or Article 82 of the EC Treaty, has been infringed. The OFT issued its provisional findings in this case in a statement of objections in November 2005 (see press release 214/05).

2. The Act applies to 'undertakings', a competition law concept that embraces any entity that is engaged in economic activity. The OFT concluded that the independent schools, all of which are fee paying, were undertakings for these purposes, notwithstanding their charitable status.

3. The OFT announced in May 2006 that it had agreed a resolution of its investigation in this case (see press release 88/06) after all 50 schools investigated agreed to a resolution proposed by the OFT and a Steering Group set up by the Independent Schools Council to consider with the OFT whether an agreed resolution to this case might be possible.

4. The schools concerned are: Ampleforth College, Bedford School, Benenden School, Bradfield College, Bromsgrove School, Bryanston School, Canford School, Charterhouse School, Cheltenham College, Cheltenham Ladies College, Clifton College, Cranleigh School, Dauntsey's School, Downe House School, Eastbourne College, Epsom College, Eton College, Gresham's School, Haileybury, Harrow School, King's School Canterbury, Lancing College, Malvern College, Marlborough College, Millfield School, Mill Hill School, Oakham School, Oundle School, Radley College, Repton School, Royal Hospital School, Rugby School, St Edward's School, Oxford, St Leonards-Mayfield School, Sedbergh School, Sevenoaks School, Sherborne School, Shrewsbury School, Stowe School, Strathallan School, Tonbridge School, Truro School, Uppingham School, Wellington College, Wells Cathedral School, Westminster School, Winchester College, Woldingham School, Worth School and Wycombe Abbey. In the case of Truro School and Sedbergh School, the OFT has concluded that they participated in the Sevenoaks Survey in only two of the three relevant years.

5. The Royal Hospital School is part of a trust, Greenwich Hospital, whose sole trustee is the Secretary of State for Defence. The Royal Hospital School is therefore legally exempt, by Crown immunity, from the payment of any penalty in respect of any CA98 infringement. The OFT cannot therefore legally require the school to pay the £10,000 penalty. All the other terms of the resolution, including the payment into the educational trust, have been accepted on behalf of the school.

6. Under the OFT's leniency policy an undertaking may be granted immunity from penalties or a significant reduction in penalty in return for reporting certain categories of CA98 infringement and assisting the OFT with its investigation. In this case penalty reductions were awarded to the following schools: Eton College (50 percent), Winchester College (50 per cent), Sevenoaks School (45 per cent); Benenden School (30 per cent), Cheltenham Ladies' College (30 per cent), and Malvern College (20 per cent).

7. The educational trust, which is independent of the schools, has been established under the trusteeship of two initial trustees on whose appointment the OFT consulted in October of this year (see press release 139/06). The OFT is currently consulting on the proposed appointment of three additional trustees (see press release 165/06). The schools will make instalment payments totalling £600,000 into the trust each year over a period of five years starting in December 2006, with the last payment to be made by no later than 31 December 2010.

8. The trust has been designed so as to benefit pupils who attended the schools during the academic years in respect of which fee information was exchanged. Beneficiaries must be between the ages of 18 and 30 and the funds must be applied for educational purposes. The OFT itself will play no part in the administration of the trust or the distribution of the trust funds which will be a matter for the trustees.

9. The trust will indirectly benefit those whose interests the CA98 is designed to protect; namely those who paid fees during the academic years in respect of which fee information was exchanged. Parents and others who paid fees during the relevant period cannot themselves claim from the trust funds, however. This does not affect the right of any person who believes that they have suffered loss as a result of the infringement to bring a claim for damages in the civil courts or before the Competition Appeal Tribunal (CAT). Guidance on this issue is available on the Competition Appeal Tribunal website.

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