On Monday 14 September Peter Snee, one of the individuals charged under the criminal cartel offence in the galvanised steel water tanks cartel, was sentenced at Southwark Crown Court with a six months suspended prison sentence and 120 hours community service. In deciding on the appropriate sentence, the judge took guidance from the 2008 Court of Appeal case in the marine hose cartel, which is the only other successful prosecution under the offence to date (and resulted from a plea bargain agreement with the US competition authorities). Mr Snee had entered a guilty plea and acted as a witness for the prosecution during the trial of two other individuals prosecuted for the same offence (but acquitted by the jury). Under the criminal cartel offence, the maximum sentence is a prison sentence of five years and/or an unlimited fine. The judge decided as his starting point that a custodial sentence of two years was appropriate. Taking into account the guilty plea and cooperation by Mr Snee, he then reduced the sentence by a discount at the higher end of the scale of 75%, and concluded that it was appropriate in the circumstances of the case for the resulting six months sentence to be suspended. The judge also decided against a director disqualification order in this case.
The verdict should give the CMA some reassurance as it will encourage defendants to cooperate and seriously consider a guilty plea in future cases. Although this case was prosecuted under the old criminal cartel offence, the penalty under the new offence remains the same, and the sentence will set a useful precedent for sentencing under the new offence. It also sends a clear message to individuals involved in criminal cartel activity that a prison sentence is a real possibility. This will be the case even more so once the CMA starts prosecuting cases under the new offence, which no longer requires it to prove that the individuals concerned acted dishonestly.
Following a detailed investigation into suspected cartel conduct in relation to the supply of galvanised steel water tanks in the UK, the CMA started both civil proceedings under the Competition Act 1998 against the companies involved and a criminal case under the Enterprise Act 2002 against the individuals concerned. The civil investigation against the companies is still ongoing, as the criminal investigation was progressed first. Three individuals were charged under the criminal cartel offence with dishonestly agreeing with others to divide customers, fix prices and rig bids on the market for galvanised steel water tanks.
Peter Snee, the former managing director of one of the companies involved, was charged in January 2014 and pleaded guilty to the criminal charges in February 2014. Two other individuals, Clive Dean and Nicholas Stringer, who were later charged, stood trial at Southwark Crown Court in June 2015 and both entered a plea of not guilty. A fourth individual, Mr Dixon, was the managing director of the company that was the first to come forward under the leniency programme and received full immunity for the company and its staff and therefore did not stand trial. Both Mr Snee and Mr Dixon appeared as witnesses for the prosecution during the trial of the other two accused.
2. The trial at Southwark Crown Court in June 2015
The case against the individuals was brought under the law as it applied to conduct before 1 April 2014, which requires proof of dishonesty on behalf of the individuals accused of the prohibited conduct.
Despite the fact that the conduct itself was not in doubt and that the individuals concerned knew their conduct was illegal, they were both unanimously acquitted by a jury at Southwark Crown Court on 24 June this year. The key issue for the jury to decide was whether the prosecution was able to prove that the defendants had acted dishonestly, and the prosecution failed to persuade the jury that Mr Dean and Mr Stringer had indeed acted dishonestly.
The defence argued that the individuals had not been motivated by "greed and evil", but had simply acted as a trade union which was designed to safeguard jobs, prevent the companies from going bankrupt and maintain safety standards for the products. Prior to the conduct under investigation, the market had become cutthroat and contractors were driving margins down to such an extent that the companies concerned would ultimately have been forced out of business.
The prosecution witnesses, Mr Snee and Mr Dixon, maintained throughout the trial that they knew the conduct they were involved in was dishonest, but the defence dismissed these claims on the basis that the witnesses had a clear incentive, under their respective plea and leniency agreements with the CMA, to support the CMA's case.
The case represents a mixed bag of success for the CMA. The outcome in the trial against Mr Dean and Mr Stringer is likely to spell the end of prosecution under the original UK criminal cartel offence. Although the CMA has at least one other criminal cartel investigation pending under the old offence, it is unlikely to pursue this in court as it will not to want to face another defeat in persuading a jury that individuals acted dishonestly, unless there is very clear evidence of dishonesty or a guilty plea.
The dishonesty requirement was originally included in the definition of the offence as it was seen as a concept that would be familiar for juries and would make it easier to prosecute the offence. In the end, the CMA felt that this requirement had failed to achieve its objective and was making it harder to bring cases than had been anticipated. One of the main reasons for this was that the defendants would often run a successful dishonesty defence ("I did it with honest intentions, not for personal gain, but to increase the company's profits, preserve jobs") just like we saw in the water tanks trial, which meant that the CMA was advised by the criminal bar on most occasions that it had no real case to bring.
Following consultation on a number of options it was decided to remove the dishonesty element from the offence and to re-define it so that instead it does not include agreements that have been made 'openly', by adding a number of exemptions and defences. The new offence came into force on 1 April 2014 but only applies to agreements made on or after 1 April 2014 and which relate to arrangements made or to be made after that date. The CMA has so far not announced any investigations under the revised offence.
The sentencing of Mr Snee, in which the judge recognises the seriousness of the criminal cartel offence, will send a clear message that anyone involved in cartel conduct may ultimately face serious penalties.
The outcome in the criminal case does not affect the CMA's ongoing civil investigation against the companies under the Competition Act 1998. The evidence resulting from the criminal trial (including details of the increased profit margins) should also facilitate any potential actions for damages to be brought by anyone who has suffered a loss as a result of the cartel conduct.