Competition claim struck out, but cartel concerns remain in Orkney

The Scottish archipelago of Orkney recently became the centre of a dispute concerning an alleged cartel for the transportation of goods. Although struck out by the Competition Appeal Tribunal (CAT), the competition claim has nonetheless highlighted concerns over the potential operation of a haulage cartel in the Orkney Islands.

A dwellinghouse on Sanday

The claim itself came from Blue Planet Holdings Limited (Blue Planet), an investment manager focused on supporting environmental initiatives. Blue Planet had been involved in the restoration of Marygarth, a six-bedroom dwellinghouse on the larger island of Sanday, during which time it had allegedly relied on one haulier to provide materials.

According to Blue Planet, a cartel between the haulier and two other parties had prevented the project’s completion and, subsequently, forced Blue Planet to sell the house. As part of its claim, Blue Planet sought damages for the difference between Marygarth’s purchase price plus renovation costs, and its current value.

Island monopolies

The three entities involved in the alleged cartel were, according to the claimant, a haulier called Sinclair Haulage Limited (Sinclair), Orkney Islands Council (the Council) and Orkney Ferries Limited (Orkney Ferries), a provider of organised and scheduled passenger and cargo shipping services to the North Isles of Orkney.

According to Blue Planet, the Council and Orkney Ferries were funnelling goods to be transported to other remote islands – including Sanday – into a freight centre in Kirkwall. From there, the goods were moved to their relevant island destination, but only by that island’s appointed haulier. This gave rise to a market carved into a series of monopolies, Blue Planet claimed, each of which were given to a handful of private companies that, ultimately, benefitted from a dominant market position and protection from competition.

Sinclair was one such private company, Blue Planet alleged. Furthermore, it abused its monopoly by overcharging and defrauding customers, delaying the delivery of goods, and cutting off access to haulage services. It was this abuse of market position that forced Blue Planet, which relied on Sinclair to supply materials, to sell Marygarth, it said.

Limited options

Sinclair, however, argued that its position on Sanday was not the result of an alleged monopoly. The company was, it said, the only licensed operator on the island, and therefore the only company with the necessary insurance and qualifications to operate HGVs. According to Sinclair, service provision to Blue Planet was also halted – not because of abuse of position – but because of a banking dispute, and subsequent harassment, that had caused the original owners/ directors of Sinclair to sell the company.

The Council and Orkney Ferries also disputed Blue Planet’s claims of funnelling goods at Kirkwall. Any licensed haulier was entitled to operate between the Orkney Islands, they argued. They were also free to use the freight centre and would be charged the same ferry fares.

A breakdown in relationships

Ultimately, Blue Planet’s claim was struck out by the CAT, both the one alleging loss in relation to Marygarth, and a secondary claim for a small sum of damages.

According to the CAT, there was no evidence that Marygarth’s restoration could not continue because Sinclair needed to supply the materials, nor that other haulage contractors from other islands could not compete because of non-compete agreements. Furthermore, Blue Planet had used another haulier for smaller deliveries, and did not allege that Sinclair was now refusing to provide services following its sale by the owners, the Sinclairs themselves.

The CAT also noted that, even if Blue Planet had been able to establish a breach of competition law, its losses would have been limited to the difference between the price of Sinclair’s haulage services, and that charged by the haulier operating in a hypothetical market free from a competition law breach.

The dispute was, at its heart, a neighbour dispute, the CAT said. Its chief cause had been a breakdown in the personal relationship between Blue Planet’s directors and the Sinclairs.

Potential issues

Although struck out, Blue Planet’s claim did cause the CAT pause to consider the alleged competition law breaches residing in the Orkney Islands. Had Blue Planet’s claim cleared the initial hurdles, there were two key concerns that would have been determined in a full hearing.

The first related to the freight centre in Kirkwall and whether it was truly open to all island hauliers. Considering the centre’s operator was contracted by the Council, there were concerns that the centre would be obliged to load all goods addressed to Sanday to the principal haulier appointed by the Council, Sinclair.

Another potential breach concerned Orkney Ferries, and an allegation that it was offering discounted ferry fares to hauliers that could prove they would make at least 50 journeys a year. If proved, this would also support a case demonstrating that the Council and Orkney Ferries had indeed captured the market and carved it up into a series of monopolies.

Ongoing concerns

According to the Council, market failure had forced it to step in, provide a distribution depot and subsidised fares, and subsidise the island ferry network. Had it not done so, no-one would have delivered to Sanday, it claimed.

While we expect that the CAT would acknowledge the transportation challenges faced by remote islands, it’s unlikely that it would accept this as justification for the existence of a cartel or a series of monopolies. What’s more, the fact that it continued to explore the issue after Blue Planet’s claim was struck out signals that the discussion around a potential competition law breach in Orkney has not disappeared, nor has a need for caution for all parties concerned.