Timber firms and regulators settle over furniture cartel with fines of more than £2 million for the lead member
On 19 January 2017 the Competition and Markets Authority (“CMA”) announced that it has settled its cases against companies in the market for supplying drawer parts to leading furniture manufacturers. This follows a ten-month investigation first announced on 31 March 2016, after the CMA had received intelligence via its CMA cartels hotline, which individuals and businesses who suspect cartel behaviour in any industry are encouraged to use to bring infringements of the law to the regulators’ attention.
Indeed, in a reminder of the fact that cartel activity constitutes an offence, the CMA (in conjunction with the Police) carried out a criminal investigation into suspected charges under section 188 of the Enterprise Act 2002, albeit following a detailed review under the Code for Crown Prosecutors, the CMA abandoned its criminal proceedings and closed that aspect of the case in September 2015.
Meanwhile, the civil investigation remained on-going (further to a CMA announcement on 28 July 2016), with information received via the CMA hotline indicating strongly that there had been infringements of competition law in the relevant market. Pursuant to a revised case timetable published on 1 November 2016, we had been awaiting a further update from the CMA in February 2017. However, having become subject of an investigation, it now emerges that the parties, as permitted under CMA policy, approached the regulator with a proposal for admitting infringement (and consenting to a streamlined administrative procedure thereafter) in return for a reduction in the level of monetary penalties, to which the CMA has agreed.
Under the terms of its settlement with Thomas Armstrong (Timber) Limited and Hoffman Thornwood Limited, the CMA has secured admissions from the parties that they breached competition law by agreeing not to undercut one another’s prices and by dividing up customers between one another. Both of these practices amount to serious ‘hard-core’ cartel infringements and related in this case to the supplies of (i) chipboard and MDF-based drawer ‘wraps’ to bed, office and domestic furniture manufacturers in the UK between April 2006 and September 2008 and (ii) drawer fronts to the UK bed industry, between July 2006 and September 2008 and also between at least September and October 2011.
The parties (and their parent companies) have agreed to pay substantial fines of the following amounts, which incorporate a 20% reduction reflecting admission of guilt and agreement to a streamlined procedure for the remainder of the case:
- Thomas Armstrong (Timber) Limited - £1,509,000 (in respect of drawer wraps) and £684,000 (drawer fronts)
- Hoffman Thornwood Limited - £688,000 (drawer fronts)
BHK (UK) Limited will avoid any fines, in spite of admitting involvement in the cartel, provided it continues to remain cooperative and complies with the CMA’s leniency policy and the conditions laid down by the CMA thereunder. The CMA’s leniency policy incentivises parties to lift the lid on secretive cartel behaviour in exchange for full or partial immunity from any financial penalties that may be imposed, provided they assist as fully as they can with the CMA’s investigation into the total extent and duration of malpractice within the relevant industry.
The above fines will become payable following issue of the CMA’s formal infringement decision, with the regulator now having issued formal statements of objections (i.e. public ‘charge’ sheets setting out those breaches it suspects the parties have committed) on 25 January 2017.
The case serves as a further reminder of the potential for serious infringements of competition law to arise across a wide variety of domestic and broader multi-national industries and of the serious consequences and negative publicity in which involvement in cartel behaviour results. It also reminds businesses of the importance of the CMA’s cartel hotline and how its own intelligence-gathering functions can uncover suspected wrongdoing. This brings into ever sharper relief the value in seeking prompt advice in relation to any internal concern that a company and/or its officers or employees may have been involved in such practices, and being alive to the benefits of pursuing a leniency application wherever there is considered to be a risk of infringement.
If you should have any questions about competition law compliance, the CMA’s leniency policy and/or, indeed, if you think you may have been affected by the cartel behaviour discussed above, please do not hesitate to contact the EU & Competition team.