Summary and implications
On 24 June 2015, two former executives, Nicholas Stringer and Clive Dean, were unanimously acquitted of charges under the UK criminal cartel offence after the prosecution for the Competition and Markets Authority (CMA) failed to convince the jury that they had acted "dishonestly".
This is a blow to the CMA which is yet to win a contested case under the offence, and which was thought to have a strong case following the guilty plea of a third defendant, Peter Nigel Snee, last year.
The requirement to prove dishonesty has recently been removed from the offence. This verdict raises the stakes for the CMA which is likely hoping that the change in law will reverse its fortunes.
Key points
1. Establishing "dishonesty" is not necessary for cartel offences commenced on or after 1 April 2014.
2. Potentially justifiable arrangements under the civil regime may be caught under the new offence.
3. CMA is committed to investigating and prosecuting individuals involved in cartels.
4. Note risk of offence may be avoided under one of the new exclusions or defences.
1. Analysis of verdict
The CMA had charged three executives from competing companies for "dishonestly agreeing" to fix prices, divide customers and rig bids in the supply of galvanised steel tanks in the UK between 2004 and 2012.
As the relevant arrangements under scrutiny were entered into before 1 April 2014, the previous legislation which required proof of dishonesty applied.
At the trial of Messrs Stringer and Dean, counsel for the defence synthesised the dishonesty test into the concept of greed. They were able to persuade the jury that the defendants did not desire an obscene profit, but rather were operating their respective businesses to maintain a sensible, sustainable profit whilst avoiding redundancies and insolvency. The jury's verdict was unanimous after only two and a half hours of deliberation.
Even though both these businessmen were acquitted, the question to consider now is: what will be the risk for individuals in the future given that the "dishonesty" test has been removed from the cartel offence?
The first defendant charged in this case, Peter Nigel Snee, pleaded guilty well over a year ago. He still awaits sentencing whilst on conditional bail.
Future of CMA's criminal cartel investigations
In its statement following the acquittal, the CMA noted that it would like to "remind anyone involved in cartel conduct or who may be tempted to become involved in such behaviour that [the CMA] remain[s] committed to investigating and prosecuting individuals who take part in cartels".
Key aims of cartel enforcement in the CMA's 2015/16 Annual Plan include increasing the number and speed of criminal investigations. Currently, the CMA has only one open investigation relating to the supply of products to the construction industry.
2. The cartel offence and recent amendments
The cartel offence involves the most serious forms of anti-competitive arrangements ("hard core" cartels):
- price fixing;
- limiting the supply/production of goods or services;
- market sharing; and
- bid-rigging.
The offence only applies to arrangements containing reciprocal restrictions and relates to firms operating at the same level of the supply chain. It operates alongside civil provisions of UK and EU competition law applying to firms.
Individuals convicted of the offence may be sentenced to up to five years' imprisonment and/or an unlimited fine.
Amendments
The Enterprise and Regulatory Reform Act 2013 recently amended the offence in the Enterprise Act 2002 by removing the need to establish dishonesty and adding new exclusions from and defences to the offence.
s188 Enterprise Act 2002 (as amended)
"An individual is guilty of an offence if he dishonestly agrees with one or more other persons to make or implement, or cause to be made or implemented, arrangements of the following kind relating to at least two undertakings (A and B)"
Dishonesty
The removal of dishonesty from the offence is intended to improve enforceability and increase deterrence. But the stakes have been raised for businessmen. Concerns have been raised that the removal of this requirement may mean exempt or potentially justifiable arrangements under the civil regime may be caught by the amended offence, including:
- co-operative supply/distribution agreements which determine prices or output;
- merger transactions where there are reciprocal non-compete covenants on the vendor and the purchaser; and
- production/supply joint ventures which include non-compete covenants on the joint venture parties.
Exclusions
In terms of avoiding this type of offence, it is worth bearing in mind the three types of exclusion to the offence:
- Notification exclusion – where customers or tenderers are given relevant information (more than a general disclaimer) about the arrangements before entering into them.
- Publication exclusion – the arrangements are published in a specified way before being implemented (e.g. in the London Gazette). In practice, this may not be used very often.
- Legal requirement exclusion – arrangements are entered into to fulfil a legal requirement. Again, this exclusion has limited application.
Defences
There are also a number of potential defences:
- No intention to conceal arrangements from customers – proposed arrangements must be transparent to customers at all times.
- No intention to conceal arrangements from the CMA – again, transparency is key. Publicly available announcements or press releases may suffice for this exclusion (NB this will not preclude the CMA from taking civil enforcement action at the time or at a later date).
- Reasonable steps taken to obtain legal advice – the individual needs to show evidence that they sought and took legal advice from in-house or external counsel before entering into the arrangements.
The standard of proof the defendant will need to discharge in order to prove one of the defences is the balance of probabilities – i.e. the occurrence of the event was more likely than not.
3. CMA decision to prosecute: application of the Code for Crown Prosecutors
The CMA's decision to prosecute the offence will be made by application of the Full Code Test as set out in the Code for Crown Prosecutors. The Full Code Test has two stages: (i) the evidential assessment; and (ii) the public interest assessment.
The evidential stage requires an assessment of whether there is sufficient evidence to provide a realistic prospect of conviction, considering the exclusions and defences outlined above.
The initial bar of the public interest stage is for the CMA to decide whether an individual's harmful nature of behaviour is obvious without the need for detailed assessment. The CMA will consider a number of factors when deciding this, including (i) the seriousness of the offence (e.g. the potential for the cartel to raise prices or restrict supply); and (ii) the suspect's level of culpability (e.g. considering whether the individual was the instigator and/or the ringleader).
4. Civil cartel competition regime
By way of reminder, cartel conduct may also be enforced under civil competition law alongside a criminal investigation, or by itself. Claims for damages may be brought by individuals and/or firms against firms under Chapter I of the Competition Act 1998 which have suffered as a result of prohibited agreements, decisions or practices, including those relating to price fixing, limiting control of production and market sharing.
Unlike the criminal cartel offence, the civil prohibition applies to both horizontal and vertical agreements. Firms may be fined up to 10 per cent of their annual turnover.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
