Kier Group Wins U.K Cartel Fine Appeal, Penalty Reduced to $2.7 Million

Kier Group Plc (KIE), the U.K. builder that helped construct the Channel Tunnel, won the reduction of an antitrust fine to 1.7 million pounds ($2.7 Million) from 17.9 million pounds after a court ruled the penalty “excessive.”

The ruling today at the Competition Appeal Tribunal in London also reduced fines imposed by the Office of Fair Trading on five other construction companies accused in Britain’s biggest cartel probe. Ballast Nedam (BALNE) NV, a Dutch civil engineering and infrastructure company, had its fine reduced to 534,375 pounds from 8.3 million pounds.

“This is an embarrassing result for the OFT, which has heralded this case as one of its key recent enforcement successes,” said Mark Friend, who leads the antitrust practice at Allen & Overy LLP in London.

The dispute is one of the biggest challenges to the OFT and comes nine months after the agency’s first criminal antitrust case collapsed at trial due to a lack of evidence. Kier and other builders argued the watchdog failed to account for their low profit margins or early admission of bid rigging. The appeals court agreed.

The OFT’s view of the violations “did not appropriately reflect their essential nature” and the fines “are excessive to a significant degree,” the tribunal ruled in a 111-page judgment. The tribunal must still rule on appeals from 19 other construction companies accused in the case.

Biggest Builders

The regulator in September 2009 levied fines totaling 129.5 million pounds against 103 companies, including Balfour Beatty Plc (BBY) and Carillion Plc (CLLN), the U.K.’s two biggest builders. Twenty- five of the firms appealed the fines, including six which had their appeals ruled on today.

“The Tribunal accepted that the original penalty was excessive and disproportionate, as there must be a reasonable connection between the deterrent effect of a penalty and culpability,” said Charles Bankes, Kier’s lawyer with the firm Simmons & Simmons in London.

The OFT will consider appealing the ruling to the Court of Appeal after studying the judgment and the rulings on the 19 other firms, the regulator said today in an e-mailed statement.

“Today’s judgment was limited to the level of penalty for these six companies, who did not challenge our finding that they engaged in illegal cover pricing,” the OFT said.

The judgment calls into question the regulator’s approach to calculating fines, especially extra penalties it can add as a “deterrence factor,” said Gillian Sproul, whose client John Sisk & Son Ltd. had its fine reduced to 356,250 pounds from 6.2 million pounds.

“It is crystal clear from the CAT’s judgment that the OFT’s ‘one size fits all’ approach to deterrence in this case was wholly wrong,” said Sproul, who leads Mayer Brown LLP’s London competition practice.

To contact the reporter on this story: Erik Larson in London at elarson4@bloomberg.net.

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