EXECUTIVE SUMMARY

On 10 April 2013, the Competition Appeal Board ("CAB") dismissed most of the grounds of appeal by five of eleven modelling agencies that had been found by the Competition Commission of Singapore ("CCS") to have engaged in price-fixing activities.

The appeals were allowed in part on two points. First, CCS should not have considered the involvement of the directors and senior management as an aggravating factor justifying an increase in the financial penalty. Second, CAB took the view that a discount should be given to the modelling agencies because the modelling industry in Singapore is a "high turnover, low margin" industry. Taking these two factors into account, the CAB reduced the total financial penalty for the five agencies from S$291,067 to S$243,077. Various other grounds of appeal were rejected by the CAB.

BACKGROUND

In Infringement Decision on Price-Fixing in Modelling Services (CCS 500/002/09) ("Price-Fixing in Modelling Services") dated 23 November 2011, CCS had found that eleven modelling agencies had been involved in a single overall agreement to fix prices. The eleven agencies were all members of the Association of Modelling Industry Professionals ("AMIP"), which discussed and agreed on, amongst other things, model commission rates, rates for fashion shows, editorial rates, advertorial rates, and handling and administrative fees.

For example, AMIP members agreed on rates for fashion shows, print advertorials and television commercials in 2005. Some of these rates were published on AMIP’s website and publicised in letters sent to magazine editors. Confidential price guidelines for advertorials, events, and product launches for adult and child models were circulated among AMIP members. Whilst AMIP was set up before the prohibition against anti-competitive agreements under section 34 of the Competition Act ("Section 34 Prohibition") came into force on 1 January 2006, the infringing behaviour continued until 2009. In fact, AMIP members were advised to use their own logos instead of AMIP logos on their price sheets to avoid accusations of price-fixing.

CCS found that, as an agreement or concerted practice involving price-fixing, the AMIP arrangements had the object of preventing, restricting or distorting competition. The eleven agencies were fined a total of S$361,596, save for one agency which was not fined because its infringement occurred before the Section 34 Prohibition came into force. The fines ranged from S$3,000 to S$132,315.

KEY ISSUES IN THE CAB APPEALS

The five modelling agencies that appealed to the CAB were Bees Work Casting Pte Ltd, Diva Models (S) Pte Ltd, Impact Models Studio, and Looque Models Singapore Pte Ltd (in Appeal No. 2 of 2012 to Price-Fixing in Modelling Services) and Ave Management Pte Ltd (in Appeal No. 3 of 2012 to Price-Fixing in Modelling Services). All five agencies appealed only against the financial penalty imposed and not the infringement decision.

Whether CCS correctly determined the market share of the participants

The modelling agencies argued that CCS did not properly determine the market share of the participants. The market share of cartel participants is one of the factors CCS takes into account in assessing the seriousness of an infringement, which in turn affects the financial penalty imposed by CCS. This is articulated in the "CCS Guidelines on the Appropriate Amount of Penalty" ("Penalty Guidelines") at paragraph 2.3.

In order to determine the market share of the participant agencies, CCS issued notices under section 63 of the Competition Act to certain companies (who were not involved in the AMIP price-fixing cartel), requiring them to produce information such that CCS could properly determine the market share of the infringing agencies. Three of the companies did not respond, despite repeated reminders from CCS. The agencies contended that CCS should have followed up on these companies, or should have otherwise investigated further, rather than estimating the market share based on available sources, such as newspaper reports and online searches.

The CAB rejected this ground of appeal, stating that "CCS had made reasonable efforts in taking steps to obtain financial information from as many modelling agencies as possible in order to arrive at an accurate market share computation." According to the CAB, "it would not be reasonable to expect CCS to wait indefinitely" for responses to its section 63 notices, and that CCS was entitled to close its investigation and estimate the market share from the information available.

Whether the infringement had an appreciable adverse effect on competition

An agreement will generally fall foul of the Section 34 Prohibition only if it has an appreciable adverse effect on competition. Paragraph 2.20 of the "CCS Guidelines on the Section 34 Prohibition" further states that an agreement involving price-fixing will always have an appreciable adverse effect on competition.

The agencies argued that the financial penalties must be commensurate with whether the agreement had an appreciable adverse effect on competition in Singapore, which CCS allegedly did not consider. CCS argued that, "given that the [agencies] are not appealing against the CCS’s finding that they had engaged in a price-fixing agreement, it is not necessary to establish the actual appreciable effects of the infringement". The CAB agreed and held that "it is not necessary for CCS to demonstrate any appreciable adverse effect on competition" because all price-fixing arrangements have an appreciable adverse effect on competition, and further found on the facts that there had been, in any case, an appreciable adverse effect on competition.

Whether the involvement of senior management is an aggravating factor

The Penalty Guidelines state that the involvement of directors and senior management in infringing activities is an aggravating factor with regard to the financial penalty (paragraph 2.11). CCS had accordingly increased the penalties for four of the modelling agencies where directors were involved.

The CAB disallowed this increment on the facts of the case, stating that "there is no evidence that [the directors] took an active role as leaders in the price-fixing agreement", and citing its decision in SISTIC.com v Competition Commission of Singapore (Appeal No. 1 of 2010 to CCS 600/008/07) ("SISTIC") where it held that the involvement of senior management does not always apply as an aggravating factor.

Whether the nature of the industry is a mitigating factor

The modelling agencies argued that the nature of the modelling industry should have been taken into account in determining the financial penalties. In particular, turnover is high in the industry while profit margins are low, because a large part of turnover collected from clients is "passed through" to models, who function like subcontractors in the construction industry. The agencies argued that the amount of financial penalties would be distorted if they were calculated on the basis of turnover without taking profitability into account.

This argument has two limbs. First, some of the agencies argued that net turnover should be used instead of gross turnover in calculating the financial penalties, relying on the UK case of Hays plc v Office of Fair Trading [2011] CAT 8 ("Hays"). In Hays, the UK Competition Appeal Tribunal used net turnover to calculate the penalty for a recruitment agency, because gross turnover would include the wages of the workers, which were directly "passed through" to the workers. Gross turnover was therefore not an accurate reflection of the agency’s revenue in the relevant market. The CAB disagreed, because the modelling agencies fixed the entire rates in the relevant market for modelling services, which included the fees to be paid to the models, whereas the recruitment agency in Hays fixed only its commission fee while separately collecting the wages of the workers.

Second, it was argued that the "high turnover, low margin" nature of the industry should have been a mitigating factor in determining the penalty. This argument was accepted by the CAB, which cited and agreed with UK cases on the construction industry, where a large proportion of turnover is "passed through" to subcontractors, leaving thin profit margins for main contractors. This means that turnover may not be an accurate reflection of the economic presence of an undertaking. While not accepting that profits or net turnover could be a suitable replacement for gross turnover, the CAB accepted that the similar "high turnover, low profit" nature of the modelling industry in Singapore justified its consideration as a mitigating factor.

Whether uncertainty about the infringement is a mitigating factor

One of the modelling agencies argued that, at the time of the infringing behaviour, there was genuine uncertainty about whether price recommendations were prohibited under the Competition Act, and that this should be taken into account as a mitigating factor. The argument was that it was only after CCS issued its Decision on the Singapore Medical Association’s Guidelines on Fees (CCS 400/001/09) that it was clear that price recommendations were likely in breach of the Section 34 Prohibition. The CAB did not accept that there was any genuine uncertainty in the law, although it did not elaborate.

DISCUSSION

Section 63 notices

Section 63 of the Competition Act allows CCS to require the production of specified information, including from third parties that are not being investigated for an infringement. It is an offence under section 75 of the Competition Act not to comply with a section 63 notice requiring the production of information. The offence is punishable with a fine not exceeding S$10,000 or imprisonment not exceeding 12 months, or both.

It is not clear from the decision how CCS dealt with the three companies that failed to respond to its section 63 notices, even after repeated reminders from CCS. This is not the first time section 63 notices from CCS have been ignored. In Infringement Decision on Bid-Rigging by Motor Vehicle Traders at Public Auctions of Motor Vehicles (CCS 500/003/10) ("Motor Vehicle Traders"), six section 63 notices were ignored – by three undertakings and three individuals. CCS responded by raiding the premises of the three undertakings as empowered to under section 64 of the Competition Act. Two of the three individuals were eventually interviewed after further section 63 notices were sent, but it appears that the third individual never responded.

To prevent the further recurrence of such incidents, CCS may have to take more drastic action to compel compliance with its section 63 notices, and publicise the consequences of failing to comply.

Involvement of senior management

The CAB has so far not allowed the involvement of senior management as an aggravating factor when the issue has come up on appeal. In SISTIC, the CAB found on the facts that there were no grounds for treating senior management involvement as an aggravating factor, without elaborating what such grounds would be. In the present case, the CAB took into account the fact that the directors did not play an active role as leaders in the price-fixing agreement, and similarly decided that the involvement of senior management did not justify an increase in penalty.

CCS stated in its Infringement Decision on Collusive Tendering (Bid-rigging) in Electrical and Building Works (CCS 500/001/09) ("Electrical and Building Works") that the intent of this aggravating factor "is to accord harsher punishment where management is involved in the infringement", in contrast to cases where "rogue employees" act in defiance of compliance programmes. CCS has imposed this aggravating factor in a number of cases, including SISTIC, Electrical and Building Works, and Infringement Decision on Fixing of Monthly Salaries of New Indonesian Foreign Domestic Workers in Singapore (CCS 500/001/11), as well as in the present case.

In contrast, in Motor Vehicle Traders, CCS did not take into account senior management involvement as an aggravating factor, even though the facts disclose substantial and direct senior management involvement. The CAB has stated in SISTIC that "it does not follow that in every case the involvement of the directors or senior management … should or would apply as an aggravating factor". It remains to be fully clarified when senior management involvement is to be considered as an aggravating factor.

CONCLUSION

The CAB’s decision includes a number of interesting and useful clarifications on certain areas of the law on financial penalties under the Competition Act, including the extent to which the adverse effect on competition, the involvement of senior management, the nature of the industry, and genuine uncertainty in the law are taken into account in determining the financial penalty for infringements of section 34 of the Competition Act. It will also be interesting to see whether and how CCS will take action against refusals to provide information in accordance with its section 63 notices in future.