The Enterprise and Regulatory Reform Act 2013 (“the ERRA”) received Royal Assent on 25 April 2013; the competition provisions are expected to come into force by 1 April 2014.
The ERRA creates the Competition and Markets Authority (“CMA”) – a merger of the Office of Fair Trading (“OFT”) and the Competition Commission (“CC”) – which is due to be formally established on 1 October 2013 and which will be the primary enforcer of both civil and criminal competition laws.
Controversially, the ERRA introduces amendments to the criminal cartel offence which remove the requirement to establish ‘dishonesty’ when bringing a prosecution against individuals for the cartel offence (NB a company cannot be prosecuted for the cartel offence, even if the individuals involved were sufficiently senior to be regarded as the company’s ‘directing mind’).
The cartel offence was introduced by section 188 of the Enterprise Act 2002 (“EA02”) which came into force on 20 June 2003. The offence criminalised cartel activity for the first time in the UK.
The offence is committed when an individual dishonestly agrees with one or more other individuals to make or implement, or cause to be made or implemented, one or more of the prescribed “hard-core” activities:
- price-fixing: colluding with each other so as to maintain or increase prices above the level the price would sit in a competitive market;
- limiting production or supply: for example, an agreement not to produce a certain product;
- market-sharing: sharing supply in the UK of a product or service to a customer, or sharing customers for supply in the UK of a product or service; and
- bid-rigging: parties to the agreement decide which of them will win the contract and the others put in inflated bids, thereby increasing the chances that the lowest bidder will win the contract.
At the time commentators suggested the offence heralded a “ferocious anti-cartel regime” and the OFT predicted “6-10 prosecutions a year”(“Proposed criminalisation of cartels in the UK”, November 2001, A report prepared for the Office of Fair Trading by Sir Anthony Hammond KCB QC and Roy Penrose OBE QPM (OFT365)). However, in the ten years since, there has been only one successful prosecution (R v Whittle & Others  EWCA Crim 2560: the ‘Marine Hose’ cartel characterised by the OFT co-operating with the US Department of Justice with whom the defendants had entered into a plea bargain arrangement) and one highly publicised and embarrassing failure (R v George & Others  EWCA Crim 1148: the British Airways/Virgin Atlantic case in which the case collapsed at trial).
The fact that ‘dishonesty’ constituted the mens rea of the offence signalled the seriousness of the offence and reflected the requirement for a high-threshold of culpability before a punitive criminal conviction of imprisonment could be imposed. The classic two-limb formulation of ‘dishonesty’ in criminal cases (the Ghosh test) was applied.
Nevertheless, the Government’s view, despite never having had the opportunity for the concept to be properly tested in court, is that the inclusion of ‘dishonesty’ makes the offence particularly difficult to prosecute when applied to business and the boardroom. As a result, in March 2011, the Government put forward a proposal to remove the ‘dishonesty’ element of the cartel offence on the grounds that it “introduces significant lack of certainty” and that “criticism of the Ghosh test has persisted and intensified in the field of cartels…” (A Competition Regime for Growth: A consultation on options for reform”, Department for Business, Innovation and Skills, March 2011).
The revised cartel offence
Section 47 of the ERRA provides the amendments to be made to the EA02:
- ‘dishonestly’ is omitted from section 188(1) EA02;
introduces section 188A which sets out the circumstances in which the cartel offence will not have been committed:
- where the customer is provided with relevant information regarding the agreement entered into, or
- relevant information regarding the agreement is published; and introduces section 188B which establishes three new defences to the offence and will be available where the individual in question can show that s/he:
- did not, at the time of making the agreement, intend the nature of the arrangements to be concealed from customers, or, as a separate defence, from the CMA; or
- took reasonable steps, before the agreement was made, to ensure that its nature would be disclosed to legal advisers for the purposes of obtaining advice on it before its implementation.
The removal of the ‘dishonesty’ element of the cartel offence means that, irrespective of the impact on competition, or the intentions of the parties, any agreement falling within the definition of a “hard-core” activity will be caught. The offence will therefore essentially become one of strict liability, subject to the accused being able to discharge the burden of proof and demonstrate that one of the defences applies.
Section 190A provides that the CMA is under an obligation to publish prosecutorial guidance explaining its intended approach to the enforcement of the revised offence. This guidance is awaited with interest as, on their face, these new provisions, and how they will be applied in practice, give rise to considerable uncertainty. For example, what happens if an individual took legal advice but chose not to follow it? Would that be sufficient for one of the defences to be available? At the recent ‘Competition Section Annual Conference’, hosted by the Law Society on 16 May 2013, Stephen Blake (Senior Director of the OFT Cartels & Criminal Enforcement Group) confirmed that, in reference to the ‘legal advice defence’ and subject to the publication of prosecutorial guidance, all that is required is that advice is sought, no matter whether it is received or acted upon.
It would appear that the dearth of prosecutions for the cartel offence in the ten years since the EA02 came into force is, at least according to the OFT, attributable to the perceived difficulty in establishing dishonesty. With the removal of the dishonesty element in the cartel offence, the CMA (as it will then be) will come under pressure to deliver enforcement and to increase the number of prosecutions it brings. As an insight into the CMA’s prosecution policy, Alex Chisholm (CEO-designate of the CMA) stated recently that it will “need to be rigorous and disciplined…to focus effort on the most promising cases” (https://www.gov.uk/government/speeches/the-new-competition-and-markets-authority-aspirations-and-challenges; 24 April 2013).
Notwithstanding the specific circumstances of the Marine Hose case it is clear that a conviction for the cartel offence, even on a guilty plea and with full cooperation with the authorities, is likely to result in prison time. With the removal of the dishonesty element making it easier for the authorities to establish the offence, employees and directors must now take seriously the increased risk of prosecution, conviction and imprisonment. The OFT / CMA will no doubt be looking to consign the British Airways case to history and to establish its credentials, both here and on the world stage, as a credible and effective enforcement agency.