Royal Mail hit with £50m fine for breaching competition law

22/08/2018

Royal Mail has found itself in the headlines this week as it has been fined a record breaking £50 million for a breach of competition law. Ofcom, the UK communications regulator, investigated Royal Mail and decided that it had abused its dominant position in the market place.

The investigation was brought to Ofcom’s attention after Whistl, the main rival to Royal Mail, complained that Royal Mail had made unfair changes to its contracts including large price increases.

Whistl had previously provided letter sorting services to Royal Mail whereby it collected and sorted letters and then provided those letters to Royal Mail, who then dealt with the final delivery. Whistl was in the process of setting up its own delivery service to some areas in the UK which would have directly competed with Royal Mail when the leading postal service made adjustments to its own wholesaler contracts.

The changes which Royal Mail made to the contracts, including its contract with Whistl, would have resulted in Whistl having to pay more to them where it still required Royal Mail to deliver some letters to other areas in the UK. When compared to those wholesalers who required Royal Mail to deliver all letters, Whistl was required to pay 25p more per letter to the postal service in order for them to make the final delivery.

When Ofcom investigated the complaint, they found that Royal Mail had made the adjustment to the contracts to deliberately interfere with the threat of competition from Whistl. Royal Mail has denied these claims and has confirmed that it intends to appeal against Ofcom’s decision.

Royal Mail is in a dominant position over smaller companies and has rarely needed to worry about competition. However, when they made the changes to the contract to increase their prices, Ofcom decided that Royal Mail was abusing its position in that market as they only made the changes to the contracts as a result of Whistl’s plan to expand into that market.

Making changes to contracts to protect your business is a usual and sensible step for businesses. However, care should be taken when those changes could be viewed as penalties or an abuse of position. If the reason for including a clause in a contract is entirely detrimental to the other party, then a court could deem that this is unacceptable. 

MORE INFORMATION 

If you are thinking about making adjustments or changes to your contacts, or have been asked to agree to amendments which have been proposed by the other party, please contact our Corporate Law Department who can provide legal advice on suggested changes – call us or email by using the form to the right. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2018.

22/08/2018

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