Appeal body attacks OFT over curbs on Metal Exchange

The Office of Fair Trading was ordered to pay costs to the London Metal Exchange yesterday after the competition watchdog blocked plans to extend trading hours in March.

The size of the award was undisclosed, but the LME had sought £250,000 to cover the expense of challenging the OFT's unprecedented three-month ban.

After weighing earlier submissions from both sides, the Competition Appeals Tribunal (CAT) came down yesterday firmly in favour of the LME.

The CAT lambasted the OFT's decision to use an interim measure direction (IMD) for the first time to prevent longer trading, and described the regulator's investigative process as "superficial, flawed and ill-founded".

The inquiry was initiated a year after Spectron Group, the operator of a rival electronic trading system, lodged its original complaint against the LME with the OFT in July 2003.

Spectron, chaired by the former Conservative sports minister Lord Moynihan, had claimed LME plans to extend its hours were designed to drive its operation out of business.

The OFT lifted the ban a month after Spectron withdrew its claim in March and called on the OFT to allow the LME to extend its trading hours.

In a highly critical decision posted on its website yesterday, the CAT said: "We are concerned that armed with only a 'limited' understanding of Spectron's relevant business and ... the market in general, the OFT felt able to adopt an IMD based solely on information provided to it by Spectron without seeking information from 'the market', in particular from third parties."

The appeals tribunal urged the OFT to be "circumspect about solely relying on uncorroborated information ... particularly so where the source of the information is not impartial, as was the case here". CAT also said it would be inappropriate for companies to "bear the burden of the OFT learning by its own mistakes" as it awarded costs.

Simon Heale, the LME chief executive, said: "The CAT is the only recourse when the processes of the OFT fail as they did in this case. The CAT's judgment says it all. I can only hope that the OFT learns from this criticism so that other companies can avoid the damaging and completely unnecessary experience that we have gone through."

The CAT's finding applies to only the IMD, not to the OFT's main case. The competition regulator continues to pursue its investigation, despite Spectron's decision to drop its complaint.

"The main case carries on some three years and two months after the initial complaint," Mr Heale said. "We are looking to put that to bed, but there is no clear resolution in sight at the moment. This judgment gives us hope that we can persuade the OFT that the original complaint should be closed."

In response to the CAT's judgment, John Fingleton, chief executive of the OFT, said: "This is the first time the OFT has used an interim measures decision, and it will now study the observations made in the judgment.

"The ruling only reflects the period that the IMD was imposed, and in no way affects the merits of the current investigation into LME being carried out by us."

The OFT also welcomed the CAT's decision to limit the costs awarded to the LME.

The LME, the world's largest metals exchange, finally extended its electronic trading hours in June to capture lucrative business in Asia. From 1 June , trading on LME Select, its screen-based dealing system, was extended by six hours to run from 1am to 7pm. The earlier start allows LME clients in Asia and Australia access to the market.