fines 2000-2004

E.C.L.R. 2004, 25(1), 1-4
European Competition Law Review
2004
A dangerous new world - practical implications of the Enterprise Act 2002
Jon Lawrence
Jane Moffat
© 2011 Sweet & Maxwell and its Contributors
Subject: Competition law
Keywords: Cartels; Competition policy; Criminal liability
Legislation cited: Enterprise Act 2002
Competition Act 1998
Treaty of Amsterdam 1997
Treaty of Amsterdam 1997 art.82
*1 There is a dangerous new world out there: this is the likely conclusion of any general counsel, compli-
ance officer or executive responsible for a UK-based business that might be involved in a breach of competi-
tion law. The Enterprise Act 2002 (the Act ) creates new risks not only for the undertakings concerned, but
also for the individuals themselves (particularly board members).1 A key challenge is delivering the warning
message promptly and effectively to those who need most to heed it.
The issues and risks arising under the Chapter I and II prohibitions of the Competition Act 1998 (the Com-
petition Act ) and Arts 81 and 82 of the EC Treaty are generally well recognised throughout the business
community. They include possible “dawn raids”, exposure to substantial regulatory fines, and the risk of
damages claims.2 However, now that the Act has entered into force, the landscape has altered. There are
now even more deterrents to discourage competition law infringements. The Act has introduced criminal li-
ability for individuals. The Office of Fair Trading (the OFT ), which may operate alongside the Serious
Fraud Office, has been given enhanced powers to investigate the new cartel offence. Directors of companies
may be disqualified for up to 15 years. The Act also facilitates damages claims for individuals and repres-
entative groups, as well as introducing a new super-complaint procedure to the OFT.
This article provides an overview of the principal deterrents introduced by the Act to competition law
breaches and identifies issues of practical concern. It is hoped that this may be of some assistance in deliver-
ing the warning message to the boardroom and beyond.
Individual criminal liability
The creation of individual criminal liability by the Act has been well publicised. Section 188 introduces a
“cartel offence” with criminal sanctions of up to five years' imprisonment and/or an unlimited fine for indi-
viduals (but not undertakings) who engage in “hardcore” cartel behaviour by dishonestly agreeing with an-
other person (or persons) to make or implement horizontal arrangements to fix prices, share markets, limit
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production or supplies, or rig bids. “Horizontal” means that the arrangements must be between undertakings
operating at the same level of the supply or distribution chain, where behaviour between competitors is most
likely to have anticompetitive effects (i.e. manufacturer-to-manufacturer, wholesaler-towholesaler, or retail-
er-to-retailer).
The offence is not the same as the prohibitions established under Art.81 of the EC Treaty or Chapter I of the
Competition Act. Jurors will not be faced with an economic assessment of the effect on trade between mem-
ber states or with determining whether there has been a prevention, restriction or distortion of competition.
The test is whether an individual has acted “dishonestly”. This means establishing that the accused knew
that (a) according to the standards of reasonable and honest people what he did was dishonest (an objective
test); and, if so (b) that the accused knew that he was acting dishonestly according to those standards (a sub-
jective test).3
Those advising on these issues should be aware that the offence can be committed by reaching agreement
outside the UK, if the agreement has been implemented in the whole or part of the UK. The word
“implemented” is not defined so it may be that even an effect on price in the UK is enough to satisfy the test.
The offence is extraditable, subject to reciprocal arrangements with foreign states (as is a conspiracy or at-
tempt to commit the offence). There is no safe haven for cartelists in places such as the United States, al-
though extradition will not be applied retrospectively and is possible only to and from countries which have
criminal penalties for the same offence.
*2 The new immunity regime
To encourage the disclosure of the existence of cartels, there are already established leniency regimes at
European and UK level in relation to civil fines in cartel cases. In broad terms, the disclosure of new inform-
ation followed by cooperation with the authorities can lead to a reduction in regulatory fines of up to 100 per
cent for the first undertaking to come through the door and confess. Later applicants may receive a lower
level of reduction.
The OFT has recently published guidance on the operation of a new immunity system provided for by
s.190(4) of the Act. The introduction of the “no-action letter” for individuals enables the OFT to give a per-
son written notice that proceedings will not be brought against him for the cartel offence except in specified
circumstances.
To be considered as eligible for a “no-action letter”, an individual must:
• admit participation in the offence;
• provide the OFT with all documents, information and evidence available to him regarding the existence
and activities of the cartel;
• maintain continuous and complete cooperation throughout the investigation and until the conclusion of any
criminal proceedings arising as a result of the investigation;
• not have taken steps to coerce another undertaking to take part in the cartel; and
• refrain from further participation in the cartel from the time of disclosure to the OFT (except as directed).
Even if an individual satisfies these requirements, a no-action letter will not be issued if the OFT believes
that it has, or is in the course of gathering, sufficient information to bring a successful prosecution against
the individual concerned.
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Approaches to the OFT can be made by an individual, his lawyer or an undertaking's adviser (on behalf of a
group of individuals where an undertaking is applying for civil leniency). Although the OFT has said that
anonymous applications can be made, it is difficult to see how this will work in practice. No guidance has
been given as to what information must be disclosed to the OFT at the initial stage (such as identifying the
undertakings involved in the cartel, or the relevant product markets concerned). In addition, individuals
wishing to take advantage of the regime will have to be prepared to become informants. (The pre-conditions
to eligibility implicitly recognise that individuals may, where directed to do so by the OFT, continue parti-
cipating in the cartel.)
A further troubling aspect of the conditions for the grant of a no-action letter is the requirement that an indi-
vidual should not have taken steps to coerce another undertaking. It is unclear who will determine whether
there has been coercion, or when and how such determination will be established. Failure to satisfy the
“coercion” condition can also lead to a revocation of a no-action letter. The result is that information dis-
closed to the OFT during the interview process will no longer be protected and the individual can be prosec-
uted for the cartel offence.
The demanding conditions for a no-action letter cast doubt on whether the immunity regime will play a
meaningful role in exposing cartels and providing important evidence, except where an individual is apply-
ing for immunity at the same time as the undertaking under the existing civil leniency regime.
Dawn raids and covert surveillance
Provided that it appears to the OFT that it has “good reason” to do so, it is now able to exercise enhanced
powers to investigate the cartel offence.4 These powers can be exercised in parallel with the existing Com-
petition Act powers to call for documents and require explanations. In addition, the OFT will have the right
(among other things) to interview witnesses and investigate using covert surveillance. Recently published
draft guidance suggests that raids under the Act may be conducted without awaiting the arrival of an under-
taking's or an individual's lawyers. It is only where material is going to be removed from the premises that
investigators may be prepared to wait for legal advisers to arrive. Although there is some doubt as to the
basis for its position, the OFT also believes that it can use evidence seized on dawn raids related to a suspec-
ted cartel offence for subsequent civil proceedings against an undertaking under the Competition Act.
The OFT has already been given powers of intrusive surveillance and property interference (enabling sur-
veillance devices to be planted in premises and vehicles). Applications were made to the Home Office,
which have been laid before Parliament, that would enable the OFT to use informants (covert human intelli-
gence sources) and directed surveillance (including following and *3 monitoring individuals). The OFT has
also applied for authorisation to obtain access to communications data (in order to obtain telephone records).
All in all, the new investigation powers result in a powerful regime for the conduct of dawn raid investiga-
tions to coexist with the current powers of the European Commission and the OFT to call for evidence and
enter premises. An undertaking's rapid response regime may therefore require updating and modifying to ad-
dress the new powers.
Disqualification of directors
Competition Disqualification Orders (CDOs ) can be made against directors for up to 15 years where:
• the company of which an individual is a director commits a breach of competition law; and
• the court considers his conduct as a director makes him unfit to be concerned in the management of a com-
pany.
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A director now risks disqualification if his conduct contributed to the breach of competition law or, even if
that is not the case, he had reasonable grounds for suspecting that the conduct of his undertaking constituted
a breach, but took no steps to prevent it. He can also be disqualified if he did not know, but ought to have
known, that the conduct of the undertaking constituted a breach of competition law. In other words, mere
negligence (or recklessness by “turning a blind eye”) can lead to disqualification, although the OFT's guid-
ance indicates that the greater the degree of a director's involvement, the more likely it will consider a dir-
ector unfit to be involved in the management of a company.
The OFT's guidance suggests that CDOs will be pursued where a competition law breach is established, a
financial penalty is imposed on an undertaking (and no leniency granted), the director was “responsible” for
the breach, and no relevant mitigating circumstances are established. There is no requirement of
“dishonesty”. Moreover, CDOs can be made in circumstances going far beyond cartel activities because the
concept of a competition law breach encompasses abusive conduct by dominant undertakings and any other
infringements of Arts 81 and 82 of the EC Treaty and Chapters I and II of the Competition Act.
Complaints and liability for damages
As if five years' imprisonment, unlimited personal fines and 15 years' disqualification as a director were not
sufficient deterrents, the Act also facilitates the bringing of complaints by consumer bodies and damages
claims. In summary:
• designated consumer bodies can complain to the OFT about a feature of the UK market causing significant
harm to the interests of consumers. The OFT will have to publish a reasoned response as to how it proposes
to deal with the complaint within 90 days. It remains to be seen which associations will seek to qualify as
“designated consumer bodies”, although the criteria to be applied are now finalised in an OFT guidance.5
The regime has already been used for complaints in relation to dental services, mail consolidation and door-
step sales;
• claims for damages and sums of money can now be brought before the new Competition Appeals Tribunal
(CAT ) by anyone who has suffered loss or damage as a result of an infringement of Arts 81 and 82 of the
EC Treaty and/or the Chapter I and II prohibitions of the Competition Act. The aim is to provide a new con-
sumer right to pursue claims through a faster procedure and before a specialist tribunal, thereby reducing
delay and cost;
• representative bodies may assert damages claims in the CAT on behalf of groups of consumers. It is not
clear yet whether a body may be established specifically to pursue a claim, although this appears to be a
likely consequence of the new provisions. In other words, the UK is introducing something akin (but not
identical) to a US class action, the key difference being that individuals must be named in the UK and show
specific loss resulting from the breach at the liability stage. In addition, treble damages and contingency fees
are not available in the UK.6
Alongside these rights, the ability to pursue damages claims in the courts will coexist, together with the right
of individuals to continue to complain to the OFT.
*4 Dealing with the dangers
The raft of new investigatory powers and sanctions established by the Act creates a foreboding landscape for
legal counsel and compliance officers, as well as the executives of the companies they serve. Abstaining
from competition law breaches is the most effective way of avoiding exposure. However, the updating of
compliance manuals, revisiting training programmes and the revision of rapid response routines should now
be high on the agenda. With the shift from corporate liability and regulatory fines to individual responsibil-
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ity and potential criminal liability, the message, although perhaps unwelcome, should be delivered urgently
to the boardroom.
Jon Lawrence is a competition litigation partner and Jane Moffat a competition litigation associate at
Freshfields Bruckhaus Deringer.
1. The Act came into force on June 20, 2003.
2. Admittedly less prevalent in the UK and other European national courts to date than in the United States-
-although this may change: see Provimi Ltd v Aventis Animal Nutrition SA and other cases [2003] EWHC
961 (Comm), Judgment of May 6, 2003.
3. R. v Ghosh [1982] Q.B. 1053.
4. Section 192(2) of the Act. An investigation may only be brought where the OFT has “reasonable grounds
for suspecting” that the cartel offence has been committed--s.192(1).
5. Guidance for designated consumer bodies making supercomplaints, July 17, 2003.
6. The consequence of the Empagran SA v Hoffman-La Roche Ltd (No. 01-7115 (DC Cir) January 17, 2003)
decision (if upheld on any appeal) is that companies who engage in anticompetitive behaviour will have to
take into account potential liability in the United States for the effects of their conduct worldwide.
END OF DOCUMENT
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E.C.L.R. 2004, 25(1), 25-36
European Competition Law Review
2004
Public enforcement or private enforcement? Enforcement of competition law in the EC and UK
Katherine Holmes
© 2011 Sweet & Maxwell and its Contributors
Subject: Competition law
Keywords: Competition law; EC law; Enforcement
Legislation cited: Treaty of Amsterdam 1997
Treaty of Amsterdam 1997 art.82
Council Regulation 17 implementing Arts.85 and 86 of the Treaty
Regulation 1/2003 on the implementation of the rules on competition laid down in the EC Treaty
Competition Act 1998
Enterprise Act 2002
Cases cited: Arkin v Borchard Lines Ltd [2003] EWHC 687 (Comm); [2003] 2 Lloyd's Rep. 225 (QBD
(Comm))
Crehan v Inntrepreneur Pub Co (CPC) [2003] EWHC 1510 (Ch); [2003] U.K.C.L.R. 834 (Ch D)
*25 Public enforcement or private enforcement?
A different starting place
Private enforcement has been at the heart of US antitrust law since its inception. Each of the Clayton Act
and the Sherman Act specifically provides for private actions for damages. Section 7 of the Sherman Act
provides:
“Any person who shall be injured in his business or property by any other person or corporation by reason of
anything forbidden or declared to be unlawful by this Act may sue therefore and shall recover threefold the
damages by him sustained and the cost of suit, including a reasonable attorney's fee.”
Section 4 of the Clayton Act applies a similar provision.
It is said “the fear of treble damage actions is one of the most potent influences in securing compliance with
anti-trust”.1 Despite the legislative encouragement, the number of private cases brought in the early days of
anti-trust in the US was small. For the first 60 year period from 1890 to 1949, there were just over 300 re-
ported decisions and approximately 1,100 cases were commenced. In contrast, it is said that currently
“private actions continue to represent at least 90 per cent of all Federal anti-trust cases”.2
The stipulation in the US anti-trust statutes of the right to seek treble damages reflects a key message,
E.C.L.R. 2004, 25(1), 25-36 Page 1
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namely that economic wrongs are actionable at the instance of those hurt: in other words, infringement of
anti-trust laws is not merely an issue of public harm addressed by action taken by Government agencies on
behalf of the public at large. Infringement of the antitrust laws in the US is not regarded as a “victimless
crime”--in contrast with infringement of securities legislation, such as insider dealing, which is often re-
garded as not having identifiable victims.
In the European Union, the so-called “founding fathers” of the Community, who drew up the Treaty of
Rome,3 did not address the concept of private enforcement when setting out the two limbs of EC competi-
tion policy, namely:
• the ban on anti-competitive agreements, subject to exemption for those with demonstrable outweighing
pro-competitive benefits (Art.81); and
• the ban on abuses of dominant market positions (Art.82).4
Articles 83 to 85 of the EC Treaty envisage enforcement action being taken by the European Commission
with the Member States enforcing the rules until such time as the necessary implementing regulations em-
powering the EC Commission have been adopted. The EC Treaty is silent on the question whether enforce-
ment proceedings undertaken by Member States would be administrative or taken through the courts. Signi-
ficantly, the Treaty contains no reference to private actions at the suit of those harmed by anti-competitive
agreements or conduct.
In 1962, the EC adopted the key enforcement regulation, Regulation 17/62,5 which will continue to apply
until April 30, 2004.6
Under Reg.17/62, European Commission has had specific powers to investigate and pursue alleged infringe-
ments, to order termination of breaches and to impose fines for infringement of up to 10 per cent of *26
worldwide turnover of the business concerned. Article 9(3) of Reg.17/62 provides that until the Commission
has initiated any procedures in respect of any specific alleged infringement “authorities of the Member
States shall remain competent” to apply the competition rules but that competence ends when the Commis-
sion initiates proceedings. The phrase “of the Member States” is wide enough to embrace both judicial and
administrative authorities: it is left to Member States to determine the appropriate mechanism.
In the early 1970s, the European Court of Justice (ECJ) held that the competition rules have direct effect. In
other words, those rules confer rights on individuals which may be relied on in proceedings in national
courts and which national courts are bound to protect.7 The ECJ also held that while Community law estab-
lishes the principle (namely, that the competition rules ...