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Cartels are a crime: water tank executives steeled by acquittal in latest cartel trial, but CMA to be galvanised by reforms to the offence in future cases

31 July 2015

In the first ever completed Competition Markets Authority (“CMA”) prosecution of individual participants in a cartel arrangement, on 24 June 2015 Southwark Crown Court handed down its verdict acquitting Clive Dean and Nicholas Stringer of the charges brought against them under the criminal cartel offence (under section 188 of the Enterprise Act 2002 (“s. 188”)).

Albeit the defendants were cleared of having acted ‘dishonestly’ (as required under the applicable original wording of s. 188) in entering into alleged agreements to share customers, fix prices and rig bids with competitors in the market for the supply in the UK of galvanised steel tanks for water storage, the CMA nonetheless heralds the conclusion of a criminal prosecution by it, and promises that future defendants in similar cases will find it much more difficult to escape conviction under the reformed criminal cartel offence (which will be in force for agreements entered into on or after 1 April 2014).

What were Dean and Stringer accused of, and why did they get off?

Messrs Dean and Stinger were charged for their roles (as, respectively, managing directors of storage tank steel suppliers Kondea and Galglass) in allegedly entering into agreements to divide up customer lists, fix prices and collude on tender opportunities in the galvanised liquid storage tank steel market. 

Pursuant to s. 188, as it stood at the time these agreements were alleged to have been entered into, they would be liable to up to five years’ in prison and/or heavy fines if a jury found that they had dishonestly agreed to implement these arrangements. 

Importantly, the requirement for proving (beyond reasonable doubt - a high threshold) on the evidence available that the two executives had acted dishonestly according to the relevant criminal standard applied in the trial of Dean and Stringer. 

This was because the alleged arrangements between Kondea, Galglass and other businesses, including Franklin Hodge Industries and CST Industries, were alleged to have been entered into during the period 2004 to 2012.  This meant that the original wording of s. 188 applied, rather than the amended form introduced under the Enterprise and Regulatory Reform Act 2013.  The amended criminal cartel offence removes the requirement to prove the accused has acted dishonestly.

Having announced in July 2014 that Dean and Stringer were being charged with the cartel offence by the CMA under its prosecutorial powers, they were eventually put to trial at Southwark Crown Court in June this year after pleading not guilty at a hearing on 26 January. 

The jury ultimately concluded that there was insufficient evidence to prove that the two men had acted dishonestly; that is to say, according to the applicable test (from the case of R v Ghosh), they did not see proof that the men had both:

  1. acted dishonestly by the standards of reasonable, honest men, and
  2. knew in so doing that they were acting dishonestly by those standards.

The above test undoubtedly sets a high hurdle for the CMA to overcome, and it proved insurmountable in this case.  The only criminal punishment being handed down is therefore to Mr Peter Nigel Snee, who pleaded guilty to the criminal cartel offence for his role as managing director of Franklin Hodge Industries.  He will appear before a judge at a later date to receive his sentence.

BUT, a warning for the future – similar cases won’t get treated so lightly!

The CMA still regards this case as a relative triumph, given that it proceeded to a final verdict and that the only previous case brought to trial under its prosecutorial function (that of British Airways executives in relation to long haul passenger airfare surcharges) collapsed owing to evidential issues, forcing the Office of Fair Trading (the CMA’s predecessor body) to withdraw its charges against the individuals involved. 

In particular, the CMA highlights the fact that, in future cases relating to cartel-type arrangements entered into on or after 1 April 2014, dishonesty will not need to be proved.  The hurdle of persuading a jury on this point will thus be removed, greatly increasing the prospect of securing a conviction.

Defendants will, instead, find themselves needing to raise and prove the availability of one of the new statutory defences (eg that at the relevant time they had no intention of concealing the arrangements in question from customers or from the CMA). 

Given the inherently secretive nature of cartel arrangements, this may well prove beyond the Defence in the most serious cases.  Indeed, in its concluding press release the CMA reminded:

anyone involved in cartel conduct or who may be tempted to become involved in such behaviour that we remain committed to investigating and prosecuting individuals who take part in cartels, which have a hugely detrimental effect on competition and to customers…”

PLUS – do not forget about the CMA’s civil enforcement powers…

In addition, one should also bear in mind that the CMA’s civil investigation into alleged anti-competitive practices in the water storage tank steel market remains on-going.  Its prospects of finding an infringement and imposing fines on companies through its civil enforcement processes are unaffected by the outcome of the criminal trial. 

The issuing of penalties in the airfare surcharge case indeed demonstrates that the CMA’s civil teeth can bite hard even where its criminal enforcement functions have proved fruitless.

This article was written by Rory Ashmore.