Bloody nose for OFT in row over tobacco price-fixing

The Office of Fair Trading suffered a setback yesterday after a consortium of leading tobacco and retail groups overturned a previous ruling of unlawful pricing.

Imperial Tobacco, the maker of Golden Virginia rolling tobacco and Superkings, saw its £112.3m penalty reversed, and Co-op, Morrisons, Asda and Royal Dutch Shell were also successful in overturning their cases in front of the Competition Appeal Tribunal.

Imperial said it would now apply to recover its "considerable" legal costs. The case had alleged that two manufacturers and 10 retailers fixed prices on cigarettes, hand-rolled tobacco, pipe tobacco and cigars between 2001 and 2003, resulting in a total of £225m in fines last year, the biggest the consumer watchdog had levied.

The other manufacturer was Gallaher, a unit of Japan Tobacco, which did not appeal the OFT's fine.

A spokesman for Imperial said: "The hearing by the Competition Appeal Tribunal was the first time since the OFT's investigation began more than eight years ago that we were able to have its allegations independently reviewed.

"Under this independent scrutiny it became clear that the case the OFT was seeking to establish had no basis in fact, law or economics," the spokesman added. Imperial's lawyer, Euan Burrows of the Ashurst law firm, added that the OFT's case was "deeply flawed".

The move represents a further embarrassment for the OFT, less than a year after the fines it imposed upon the construction industry were cut by 89 per cent after a legal appeal.

An OFT spokeswoman said the watchdog "is disappointed and we'll now be considering the judgment".

J Sainsbury was a whistleblower in the investigation, providing evidence of the agreements to the OFT.