On 14 September, Nigel Snee was sentenced in the criminal cartel prosecution relating to Galvanised Steel Tanks.  The sentencing hearing at Southwark Crown Court followed the first criminal cartel prosecution ever to be considered by a jury and the first prosecution by the Competition and Markets Authority (‘CMA’) (the OFT’s successor). 

The prosecution case was bolstered by evidence from witnesses who had been guaranteed immunity from prosecution and evidence from the co-operating defendant, Nigel Snee.  Despite this, the trial resulted in the unanimous acquittal of the two defendants who had fought the case,  Clive Dean and Nicholas Stringer, earlier this year. 

Mr Snee had pleaded guilty prior to trial to the offence under section 188 of the Enterprise Act 2002 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 was given a six months sentence, suspended for 12 months, and 120 hours unpaid work.  This was reduced by 75% from a sentence of two years for co-operation.

In light of this, Eve Giles examines what this means for the future of criminal enforcement of cartels:

In explaining the approach to Snee’s sentencing, HHJ Goymer remarked “the economic damage done by cartels is such that those involved must expect prison sentences, although not so much in this cartel”.  This comment about the effect of the cartel, together with the jury’s unanimous acquittal of the two defendants within one and a half hours after retiring, must bring into question the threshold for criminal enforcement as a whole in respect of cartels and what in fact is that elusive concept of a ‘hard core’ cartel that the law was introduced to police?

The CMA has blamed the acquittal on the 'now defunct legal standard' that required the prosecution to prove that a person had acted dishonestly in entering into cartel arrangements.  ‘Defunct’ because the law changed on 1 April 2014, meaning that agreements made after that date will no longer require the prosecution to prove that an individual acted dishonestly when entering into an agreement caught by section 188 of the Enterprise Act 2002 (price fixing, bid rigging, market sharing etc).

The test for dishonesty is one that is left to the jury in a criminal trial.  In this trial, His Honour Judge Goymer confirmed that:

Dishonesty is not a difficult concept at all.  It is one with which juries have to deal all the time….What is dishonest is for you and not me to say.  We have juries not judges to decide.  You must do that by applying the current standards of ordinary, decent law abiding people such as yourselves.  You must also consider whether the defendant realised it was so.

Only if you are sure that the answer to both of the following questions is yes can you find that the defendant is guilty:

  • First, would an ordinary, decent, law-abiding person regard the defendant’s conduct as dishonest?
  • Second, did the defendant himself realize such a person would regard his conduct as dishonest?

The evidence in the Steel Tanks case, that the defendants, the immunity applicants and Snee had entered into agreements to fix prices, divide up customers and rig bids, was uncontested in this trial.  In fact, neither of the defendants gave evidence and therefore their defence was put forward by their counsel through cross examining the tens of witnesses the CMA’s three counsel team called in support of its case. The only ground of contention was the question of dishonesty.  The defence case was that the two defendants did not believe that they were acting dishonestly. Their closing speeches included points such as:

  • They did not know what the law was:  although they thought it probably infringed some sort of regulation, they certainly did not think it was criminal or anything approaching it;
  • Breaking a rule is not ipso facto dishonest.  It is a mistake to conflate rule breaking with dishonesty.  A person may be anxious that somebody may not like what they have done, but that does not mean it is dishonest.  You need an evil to underpin the allegation of dishonesty, a sin; something the social order recognises as distinctly harmful;
  • Dishonesty is a bit like an elephant, difficult to define but you know it when you see it, people suffer for it, it has a quality to it, what your mother always told you not to do.  Your mother was probably saying “don’t burgle, don’t kill anyone, be kind, be loving, be loyal to your friends”, but whenever did she say to you, “when you’re selling stuff, don’t talk to the other people who are selling stuff”.

In contrast, the prosecution case was that the agreements themselves were inherently dishonest.  This was based on the allegation that the defendants had been pretending that it was a competitive market, when in fact it was not.  They used the analogy that it is no different in its quality to if you were part of the crowd watching an FA cup final, thinking both teams are trying to win, when in fact they had agreed the result. The fact that the customers were not aware of the agreements meant that the defendants were involved in a deliberate deceit.

Given the length of the trial, the jury returned in pretty short order (one and a half hours) to give its unanimous view that the behaviour of the defendants was not dishonest.  This verdict will have added justification to the OFT’s campaign following the BA / Virgin trial to get the law changed.  The former Senior Director of Cartels at the OFT, Ali Nikpay, justified this step at the time by stating that ‘the likelihood of persuading a jury of the dishonesty of the conduct in a cartel case is far lower than many commentators assume and has been a major factor in our decision, in consultation with leading counsel, to close most of the criminal cartel cases we have launched so far:  indeed…..the OFT has been able to bring just two prosecutions since the EA02 came into force over a decade ago.’

So what of justice now?

The dishonesty requirement was removed by The Enterprise and Regulatory Reform Act 2013 (‘ERRA’).  For agreements entered into force on or after 1 April 2014, The CMA need now only convince a jury that the agreement was entered into with the intention of entering into an agreement to, for example, fix prices, rig bids or divide up customers and that one of the exclusions under section 188A – (1) notification of relevant information to customers (2) publication of relevant details in the London, Edinburgh or Belfast Gazette or (3) a strictly defined legal requirement, does not apply. 

In order to defend against the allegations, the defendant can no longer rely on the fact that he did not believe that he was acting dishonestly.  Instead, in order to defend himself, he will need to prove either that he had no intention to conceal the nature of the arrangement from customers, or the CMA, or that he took reasonable steps to ensure that the nature of the arrangements would be disclosed to legal advisers for the purpose of  obtaining ‘legal advice’ before they were implemented.

The changes in the law mean that the defendants in the Steel Tank Case, despite the lack of credible evidence from the prosecution of serious economic impact on the market or customers, or artificially high profits for the participants, would have been left in the position that the jury would have had little alternative but to convict them, and as a result, they would have been sentenced to upwards of two years imprisonment (the maximum penalty for this offence is five years). 

It is a concern that Parliament saw fit, after very little debate, to remove the requirement for the prosecution to prove dishonesty in respect of cartels. This, despite the fact, that when it was introduced, the cartel offence was to be limited to the prosecution of ‘hard core’ cartels, defined as ‘the most serious and damaging forms of anti-competitive agreements’.  The state of the new law, as amended, is a cause for concern for the future.  Despite referring to ‘hard core cartels’ in its prosecution guidance that accompanied the new offence, the CMA does not go so far as to confirm that future prosecutions will be confined to ‘hard core’ cartels.  Indeed, given the fact that the allegations in the BA / Virgin case and in the Steel Tanks case did not amount, even on the prosecution cases at their highest, to the everyday meaning of a ‘hard core cartel’, even if there were guarantees, there is little expectation that the CMA’s view of what constitutes a hard core cartel will be the same as the man on the street's.

Increase in immunity applicants

The new law is very unclear for those who are not specialist competition lawyers (and potentially some of those who are) as to where the demarcation lies between civil and criminal agreements. Individuals who in the past would have clearly felt that their actions could not amount to dishonesty, could now be prosecuted criminally for their actions.  This, despite the assurances  from the CMA that the changes to the law would ‘ensure that only conscious and clandestine participation in hardcore cartels will be caught by the offence.’  As a consequence, we are likely to see more applications for statutory immunity from criminal prosecution in cases which fall wide of the everyday understanding of the description ‘hard core cartel’.  We may therefore see a number of criminal prosecutions in circumstances where parliament might have envisaged the matter being dealt with using the civil competition, rather than criminal, powers. This is a grave concern given that the cartel offence carries such serious consequences for individuals found guilty.

Interest of justice undermined

The amendments to the cartel offence, with the removal of the dishonesty element, threaten to undermine the interests of justice and mean that the defence will have to rely increasingly on the prosecutorial discretion afforded by the Code for Crown Prosecutors generally and the CMA Code for Prosecution of the Cartel Offence to argue that the case should not be dealt with in the criminal courts.  This is of particular relevance where, for example, the defendant’s co-directors or bosses who were at the heart of the cartel, or may have been directing it,   may reside in another European country, which does not enforce the criminal cartel offence, and will therefore be protected from extradition proceedings.  

In circumstances where that prosecutorial discretion will be exercised by a regulator with the need to prove itself, this is in itself a cause for concern.