The Office of Fair Trading's (OFT) ruling in respect of agreements between BSkyB and Telewest and Nynex.
The recent ruling by the Office of Fair Trading thatrestrictions contained in agreements concluded between BSkyB andthe UK's two biggest cable operators, Telewest and Nynex, aresignificantly anti-competitive has demonstrated the dangers ofnegotiating commercial agreements which risk being caught by theRestrictive Trade Practices Act 1976 (RTPA). The parties have beengiven 30 days to reconsider the restrictions, failing which the OFTmust refer the agreements to the Restrictive Practices Court(see ).
Restrictive Trade Practices Act
PLC, 1995, VI(5), 11In the vast majority of cases, it is possible to make aninformed judgement about the enforceability of restrictions beforean agreement is signed. But, in a few cases it may be impossiblefor a legal adviser to gauge whether restrictions will be found tobe significantly anti-competitive. This issue needs to be addressedat an early stage and companies should be warned of the dangers ofnegotiating restrictions in their favour only to find later on thatthey cannot be enforced.
Practical solutions
There are a number of options open to a company when consideringrestrictive provisions in an agreement:
* As far as possible, the agreement should be structured so asto take it outside the scope of the RTPA. The Act concentrates onthe technical form of agreements rather than their economiceffect.
* A company's legal advisers should consult informally with theOFT as to whether restrictions will be considered to beanti-competitive. If time allows, this is the most practical way ofdealing with potential problems in advance, as it will enable theparties to renegotiate the terms of the agreement if restrictionsare not acceptable.
* A clause could be included in the contract providing thatshould any restrictions be unenforceable because of theiranti-competitive effect, they will be deemed to be deleted and therest of the contract still effective. However, this will inevitablywork to the advantage of the party who had originally accepted therestrictions. Alternatively, the parties could agree to renegotiatethe contract, without the restrictions, to reflect the commercialintentions of the previous contract. However, this kind ofprovision is likely to be unenforceable under English law foruncertainty.
* The agreement could be made conditional on the restrictionsbeing enforceable. If an adverse decision is made by the OFT, thewhole contract will then fall away. This may be undesirable incircumstances where time and effort has been put into striking adeal. A less draconian measure may be to provide a reduction inconsideration paid by the party who would have benefited from therestrictions.
Balance of commercial agreements
It may be that none of these approaches provide the idealsolution. But failure to address the consequences of a restrictionbeing unenforceable may lead to the commercial balance of anagreement being altered without a corresponding alteration of anyconsideration paid. VCK
