On July 11, 2008, the UK Crown Court threw out criminal charges against five pharmaceutical companies and nine individuals brought under the common law offense of conspiracy to defraud. The charges were brought by the UK Serious Fraud Office (SFO) following an eight-year investigation into alleged price fixing for the supply of generic drugs to the UK National Health Service (NHS) – the largest and most expensive investigation ever carried out by the SFO. This development came on the back of the recently concluded and high profile Norris case in which the offense of conspiracy to defraud was the key element in the U.S. government’s attempt to extradite UK citizen, Ian Norris, to the U.S. for his alleged role (as director of Morgan Crucible) in fixing prices. In that case, the UK House of Lords determined that price fixing cannot, on its own, be a conspiracy to defraud under UK common law unless accompanied by aggravating factors, such as fraud, dishonesty, misrepresentation, or violence.
Marevan and the blood-thinner warfarin. It was claimed that the collusion had forced the NHS to pay greatly inflated prices for the purchase of the drugs with some reported instances involving 100 percent mark-ups. The companies alleged to have been involved were Goldshield, Kent Pharmaceuticals, Norton Healthcare, Ranbaxy, and Generics UK (the generics business of Merck KGaA). Regent-GM was also under investigation but went into liquidation before court proceedings commenced.
At the same time as proceedings were being brought, the UK Department of Health pursued civil claims for compensation against the companies – claims that reportedly exceeded £150 million. Generics, Ranbaxy, Norton, and Kent settled with the Department of Health (£34m collectively, and with separate settlements made in relation to Scotland by some of the parties) and agreed to cooperate with the investigation. However, they made no admission of liability and thus all remained subject to the criminal proceedings brought by the SFO despite the financial settlements (and with the SFO reportedly refusing to consider immunity for the companies or their directors).
The proceedings marked the first time that individuals in the UK had been subject to UK criminal charges for anti-competitive activity (note, however, that guilty pleas were secured in June against three UK businessmen for bid-rigging in the Marine Hose cartel case). Because price fixing was not a specific criminal offense in the UK at the time of the alleged conspiracy (the offense was criminalized in June 2003 through the Enterprise Act 2002), the SFO pursued the companies and individuals under the common law offense of a conspiracy to defraud. Conspiracy to defraud occurs where an agreement is entered into dishonestly by two or more persons, exposing another to economic prejudice to which it would not otherwise be exposed. The offense is punishable with a maximum term of 10 years’ imprisonment and an unlimited fine under the provisions of the Criminal Justice Act 1987.
Participants in alleged price fixing cartels had never before been charged with conspiracy to defraud (with preference having been given to civil restraint of trade, rather than criminal sanctions) notwithstanding that this offense has been successfully relied upon by the SFO in complex fraud cases. The accused in the Generics case, however, maintained that price fixing was not a specific criminal offense in the UK at the time of the alleged activities and that price fixing, in the circumstances, did not manifest the requisite level of dishonesty to establish a charge under common law offense of a conspiracy to defraud. These points were confirmed by the House of Lords in its Norris judgment (a case in which one Generics defendant, Goldshield, intervened in recognition of its relevance to its own defense).
The charges against Ian Norris also related to activities that took place before the introduction of Enterprise Act under which criminal prosecutions can now be brought against individuals for participating in price fixing, limiting production or supply, bid rigging and market sharing (i.e., the “Cartel Offence”). However, the U.S. authorities asserted that, despite the Enterprise Act not being in force at the time of the alleged conduct, Norris was criminally liable, in any event, under the common law offense. This, therefore, provided U.S. authorities with the requisite basis (i.e., dual criminality) for bringing the extradition request. Before the House of Lords’ judgment, the UK government and courts had accepted these arguments and thus Norris was dependant on the House of Lords’ appeal to avoid extradition to the U.S. where he would have stood trial.
In March 2008, the House of Lords overturned the decisions of the lower courts confirming that, in the UK, there was no specific cartel-related criminal offense at the time of the alleged conduct and that participation in a cartel could not be considered as a conspiracy to defraud – a broader and more generic criminal offense in common law systems. In this respect, the House of Lords noted that price fixing could be criminally prosecuted under the common law offense of conspiracy to defraud only if this qualification was perfectly clear and predictable:
"[E]ven if it had been open to the Divisional Court to decide that price fixing could now amount to a common law offence the principles … no one should be punished under a law unless it is sufficiently clear and certain to enable him to know what conduct is forbidden before he does it; and no one should be punished for any act which was not clearly and ascertainably punishable when the act was done."
In short, the Generics defendants’ argument has been upheld – price fixing, in and of itself, should not be considered inherently dishonest under English law and could not be a criminal offense before the Enterprise Act came into force in the absence of additional (aggravating) factors. In light of the Norris judgment, it is understood that the SFO requested amendment of its indictment so as to make clear that the alleged conspiracy went beyond just price fixing and also included the making of false statements to the authorities – thus fulfilling the aggravating circumstances now required under House of Lords’ judgment. However, this application was refused by the Southwark Crown Court meaning that, unless the SFO is given leave to appeal and is then successful in front of the UK Court of Appeal, the SFO’s indictment will be quashed.
Despite the outcomes of the Norris and Generics cases (and while it remains the case that no individual has been convicted for conspiracy to defraud where the underlying offense relates to cartel activity), it is nevertheless clear that business executives involved in cartel activity before 2003 may still, in principle, face criminal prosecution in the UK where aggravating factors are also shown to have been present (with concomitant implications for extradition, e.g., to the U.S.). That said, it would appear unlikely that cartel activity limited to the period prior to June 2003 will now be prosecuted. Any future cases will, in all probability, be dealt with exclusively in relation to the statutory offense under the Enterprise Act.