• OFT sets good example as pupils benefit from schools' "bad behaviour"
  • March 29, 2006
  • Law Firm: Watson, Farley & Williams (New York) LLP - New York Office
  • On 28 November 2005, we reported on the OFT's provisional findings that an agreement between fifty independent schools to exchange detailed information about the fees that they intended to charge was in breach of competition law. Recently, the OFT has announced its approval of settlement proposals put forward by the ISC Steering Group (set up to work with the OFT to resolve this case) which, if accepted by the fifty schools concerned, will bring an end to the OFT's investigation. Under the Steering Group's proposals, the schools will make an ex-gratia payment of an average of £60,000 per school into a charitable trust to benefit the pupils who attended the schools during the academic years 2001/2002 to 2003/2004. The exact amount of payment will differ according to each establishment's income. In addition, the schools must pay a nominal penalty of £10,000 per school. The objectives of the trust will be educational and the trust will be independent of the schools. Trustees will be appointed following consultation with the Charity Commission and with parents. The Beneficiaries of the trust will be pupils in the schools in the relevant years under the age of 30 at the time any trust money is distributed to them (reportedly upwards of 40,000 people). The schools will make equal annual instalment payments into the trust starting in 2006, with the last payment no later than 31 December 2010. If the proposal is accepted by the schools, the OFT will proceed to a final formal decision in respect of each school. The schools will be required to admit that their participation in the exchange of sensitive information through the "Sevenoaks Survey" led to a distortion of competition thereby infringing Chapter 1 prohibition of the Competition Act 1998. No admission of liability need be made, however, as to the effect of the agreement. The schools have until the end of March to decide whether to accept the OFT's proposal for concluding the matter.

    As we reported, the real victims in the case are the customer/parents, who had every right to expect that their fees were being set competitively. The OFT has always said that parents of children at the schools were just as deserving of the protection of competition law as they would be as the consumers of any other category of goods or services. But the independent schools accused of fee-fixing have said that there will be no refunds for parents. In attempting to seek some form of compensation for the pupils, however, the OFT has set a good example. The Director of Competition Enforcement at the OFT commented that "in reaching this view, we looked not only at the terms of the proposal, under which the charitable trust will benefit the further education of the pupils¿but also the schools' charitable, not-for-profit status". Doubtless, there will be some, both within and outside the OFT, that are of the opinion that the schools should have been fined to the fullest extent allowed by law and every penny of ill-gotten gain returned to the parents. Achieving such a result would have taken years of litigation to achieve and would have done little to serve the interests of present-day parents, let alone the future well-being of the independent schools sector. By endorsing this settlement proposition the OFT has shown admirable restraint and deft touch. Signs perhaps that it might finally be fulfilling its potential.