Prison Sentence in the UK for Cartel Activity
On 14 September 2015, an individual (Nigel Snee) was sentenced by a UK court to six months of imprisonment, suspended for 12 months, for committing the criminal “cartel offence”. He was also ordered to do 120 hours of community service within 12 months. If he does not carry out this service or is convicted of another offence during the suspension period, he is likely to serve the six months in jail in addition to any sentence for the new offence.
This is a semi-victory for the UK Competition and Markets Authority (CMA), which brought the case. A compliance message has been sent, but Snee pleaded guilty and the only other convictions under the cartel offence also came following guilty pleas.
Snee pleaded guilty to dishonestly agreeing with others to fix prices, divide up customers and rig bids between 2005 and 2012 in respect of the supply in the UK of galvanised steel tanks for water storage. He cooperated with the investigation and was a witness for the CMA at the subsequent trial of two further individuals, who were acquitted in June 2015 following not guilty pleas. That was the CMA’s first attempt at convincing a jury to convict individuals for the cartel offence. The jury was not persuaded that the two defendants acted “dishonestly” and therefore returned a unanimous not guilty verdict after only around 2 1/2 hours of deliberation.
In explaining the approach to sentencing in Snee’s case, the judge remarked that “the economic damage done by cartels is such that those involved must expect prison sentences”. That will be music to the CMA’s ears and will no doubt soon make an appearance in its compliance materials.
The case was brought under the law as it applied to conduct before April 2014. Under that law the cartel offence was committed only where the individuals concerned were dishonest. Following a change in the law, for conduct after 1 April 2014, it is no longer necessary for the CMA to prove individuals acted dishonestly to commit the cartel offence.
This change may, although it remains to be seen, result in more prosecutions under the cartel offence and maybe even a guilty verdict in due course. However, it is notable that the new law is subject to a number of exclusions and defences.
The CMA is conducting a related civil investigation into whether businesses have infringed the UK Competition Act 1998 by engaging in cartel activity concerning galvanised steel tanks, for which they could be fined.
New Practical Guidance from the European Commission on Dawn Raids
Competition law dawn raid manuals for the EU need to be updated following the publication by the European Commission (EC) of new practical guidance. This is an update of its “explanatory note”, last revised in 2013, which provides a detailed explanation of the EC’s procedures at competition law dawn raids.
The changes include specific references to EC officials being able to search servers, external hard disks, backup tapes and cloud services. Private devices and media that are used for professional reasons (“BYOD” or Bring Your Own Devices) are also specifically referred to as being searchable. There is also a new reminder that personal data may be seized as part of the raid since it may be contained in business documents. However, the EC does confirm that this will be used only for the purpose of the investigation against the company and will be processed in accordance with the EU data protection rules.
In addition to these points, the new guidance includes various specific comments as to how the search will be carried out. Personnel attending dawn raids in the EU also need to be aware of these changes, since significant fines can be imposed for failure to comply with the EC’s instructions during a raid.
How to Send a Price Increase Letter
It is well known that, particularly in concentrated markets, companies need to be very careful when making public price increase announcements, since this can lead to accusations of illegal price signalling. However, it is rare for an EU competition regulator to set out in exactly what form, and how, price increase letters should be used in order to avoid such concerns.
The UK CMA recently provided an example of such guidance. On 10 September 2015, the CMA set out the details of how it proposes to regulate price increase announcements by cement companies. This follows a market investigation into the industry, which amongst other things identified concerns about price signalling in the industry.
The draft order published by the CMA would completely prohibit generic price announcements (i.e., any notification that is not specific to an individual customer) and would require any price notification to a customer to include the following details:
- the customer’s name and relevant address;
- the effective date of any price change;
- the current or last unit price charged by the supplier to the customer;
- the new unit price being proposed; and
- details of any other changes that could affect the total amount payable.
Signalling can affect a number of industries and the issues raised and the solution in this case are therefore of wider interest.
New UK Private Competition Enforcement Regime Comes into Force
On 1 October 2015, significant new legislation affecting competition private actions in the UK entered into force. The rules are designed to make it easier for consumers and businesses (particularly SMEs) to gain access to redress through the courts where there has been an infringement of competition law.
Specifically, the new legislation widens the types of competition cases that the specialist Competition Appeal Tribunal (CAT) hears. The CAT will be able to grant injunctions, including under a new fast-track procedure. The legislation also provides for opt-out collective actions (“class actions”) and opt-out collective settlements as well as voluntary redress schemes.
The most high-profile changes are the new provisions for opt-out collective actions. These are class actions since they involve a case being brought forward on behalf of a group of claimants to obtain compensation for their losses. Cases would be able to be brought by representatives on behalf of individuals and/or businesses. Claimants would be automatically included into the action unless they “opt out” in a manner as decided by the CAT on a case by case basis.
There are various safeguards designed to ensure that these collective actions do not become U.S.-style class actions. For example, the CAT cannot award exemplary damages in collective proceedings, i.e., damages which are designed to be punitive rather than simply compensate for the actual loss suffered. This prohibition is expressly designed to avoid very large damages being awarded which do not reflect the losses suffered.
Despite the safeguards, inevitably claimant law firms in the UK are chomping at the bit to use the collective claim provisions. The first case will, however, probably be a test case to investigate the boundaries of issues such as funding of claims and how to define a suitable class.
More generally, it is inevitable that the changes being introduced will increase private competition litigation in the UK, which will have an impact on aggrieved and infringing parties alike. There is now even more reason to make sure that suitable competition compliance programmes are in place and used in practice.