A guilty state of mind
David Corker considers the implications of ditching dishonesty from the criminal cartel offence
On 1 April s 47 of the Enterprise and Regulatory Reform Act 2013 (ERRA 2013) was implemented. This section reforms the criminal cartel offence which was created by s 188 of the Enterprise Act 2002 (EA 2002). By far the most important change wrought by s 47 is the removal of the need to prove dishonesty. Accordingly, this offence becomes a more conduct-based one; did the suspect or accused agree with others to enter into a cartel whose purpose was to eg price-fix or bid rig? EA 2002’s definition of the four types of proscribed cartel agreements to which the offence applies is unchanged by ERRA 2013. These four types are said to be “hardcore cartels”. The Office of Fair Trading (OFT) has contended that they constitute the most egregious forms of anti-competitive behaviour.
Dishonesty was included in the original definition of the offence as it was said to provide the means of dividing the UK’s civil and criminal competition enforcement regimes. Second, it effected a clear separation between the EU and UK competition law regimes. Dishonesty was also included because it focused the offence on an individual’s state of mind, enabling a prosecutor to avoid having to prove more complex issues such as the resulting harm of the cartel, and ensuring that the offence was reserved for use against only the most culpable of cartelists. When EA 2002 implemented the offence in 2003 the government forecast that the OFT would prosecute six to 10 cases a year. In fact it has prosecuted only three times in one decade; Marine Hose where pleas of guilt had already been procured by the US authorities; the BA-Virgin case which ignominiously collapsed; and very recently, one individual. Little is yet known about this new prosecution although it is striking that bearing in mind the offence cannot be committed solo there is only one accused.
In March 2012, the government announced its intention to delete the dishonesty element from the offence. The need to prove it was said to be the stumbling-block in that it made the offence too hard to prosecute successfully. So in other words, the threshold for criminality needed to be lowered or diluted by rewriting the offence so that an individual’s involvement in a hardcore cartel would become the sufficient condition for convicting them.
Between this announcement and the passage of ERRA 2013, the government made a number of concessions in response to lobbying from business groups such as the CBI concerned with the offence becoming unduly wide. Section 47 while removing dishonesty from s 188 also creates a number of exclusions and defences designed to limit its scope. What post-1 April (the revised offence has no retroactive effect) must a prosecutor prove concerning the accused’s alleged guilty state of mind?
Section 188 criminalises agreements to engage in a UK-based hardcore cartel. As before, implementation of such an agreement or the infliction of any harm on the relevant market is immaterial except insofar as such conduct tends to prove the existence of the antecedent agreement. While the law as to an agreement being the foundation of the offence has not changed, it is likely that a consequence of the removal of dishonesty is that the issue of whether or not there was an agreement will soon become the most important. Bearing in mind the fine gradation of anti-competitive practices which fall short of an alleged agreement which civil competition law has honed and sought to either ban or regulate, one must expect defence lawyers to argue in the context of a prosecution under s 188 that while for example there may have been a concerted practice by the accused, they never agreed to implement a hardcore cartel. This submission may well lead the Crown Court into having to consider civil UK (and possibly EU) competition law jurisprudence concerned with multi-party anti-competitive conduct which has been held expressly or by implication not to amount to an unlawful agreement. Assuming for example that purported competitors exchanged their confidential future pricing plans, is this sufficient evidence of a price-fixing agreement or is more required?
Second, assuming that the evidence as to the existence of a cartel is compelling if it also shows uneven participation in that some of the alleged cartelists agreed to implement more aspects of the proposed cartel than others who knew and agreed to do much less and/or that various parties drifted in and out, such volatility may suggest the absence of a single unifying agreement. A “minor” alleged cartellist may contend that: (i) their conduct was not in furtherance of a common design because they had a different plan or intention to the others; and (ii) that their lesser role is evidence of a lack of intention to enter into an agreement. Their acquiescence should not be deemed to amount to agreement.
The issue of whether there was an agreement which was previously overshadowed the need to prove an individual’s dishonesty is likely to become a central one in future cartel criminal investigations and prosecutions.
Assuming this issue concerned with state of mind is proven, is there an additional need to prove any aggravating factor such as deception or secrecy? To answer this, it is important to distinguish what precisely the statute requires and what pragmatically is likely to be needed to satisfy a jury to convict.
Dealing first with s 47’s redefinition of the offence, in relation to deception it is plain that it does not impose a need to prove consequences so that for example, there is no need to adduce evidence of a customer being misled into acting in a way different to how they otherwise would. In relation to secrecy the position is less clear; while the section says nothing about this, it is submitted that it is arguable that a necessary implication flowing from its creation of the framework of the new exclusions and defences which it inserts into a new s 188B (which this article does not consider), that it will have to be proven that secrecy was intended.
However, as a matter of prosecutorial practice it is submitted that it would be unwise to mount a cartel prosecution which lacked evidence of the accused having intended that their agreement was to be kept secret from the market. Without an allegation and supporting evidence of clandestine conduct the offence would seem a strict liability one and lack an “odour of criminality”. So whatever the legal theory concerning whether secrecy is like agreement, an element of the offence, the reality is that the prospects of a successful prosecution would be far less if it was not alleged.
While dishonesty is no longer relevant to the cartel offence the need to prove that an accused had a guilty state of mind remains and this is likely to remain as controversial an issue as it was when dishonesty was relevant.
David Corker, Partner, Corker Binning