The Office of Fair Trading faces a bill for almost £500,000 after issuing an unprecedented apology yesterday for wrongly accusing Wm Morrison of fixing the price of butter and cheese.

The competition watchdog agreed to pay £100,000 plus legal costs to settle a defamation case brought by the supermarket chain over “serious errors” in an OFT press release last September. Sources said that Morrisons’ legal bill from Wilmer Hale, the US-based solicitors, was between £300,000 and £400,000. The supermarket chain declined to comment.

The settlement marks a significant victory for Morrisons, which had argued that it had never been involved in fixing the price of dairy products. The OFT said that while its investigation was continuing it should never have named Morrisons as being involved in fixing the cost of butter and cheese in 2002 and 2003.

It said: “The OFT regrets that the press release contained these serious errors and wishes to apologise sincerely to Morrisons for their publication.”

The OFT named the big four supermarkets, along with a number of dairies, in a damning provisional finding eight months ago.

It said all parties had been involved in price-fixing on milk, butter and cheese, with consumers being overcharged £270 million.

J Sainsbury, Asda and several dairy companies agreed to settle, while privately protesting that they were responding to government calls for more help for British farmers. Morrisons and Tesco vowed to fight the claims.

Morrisons launched a defamation case in February, adding that it had been found guilty before even having the chance to state its evidence. In the original finding, Sean Williams, the OFT executive director, said: “This kind of collusion on price is a very serious breach of the law.” Yesterday the OFT said the quotes “were not intended to suggest that the OFT had concluded Morrisons was guilty”.

Morrisons said it would be donating the £100,000 settlement from the OFT, the largest fine the watchdog has imposed on itself, to charity.

A final verdict on the outstanding price-fixing claims against Morrisons and Tesco may not come until next year.

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