Transcript of a Talk Given to the Institute of Barristers Clerks by John Benstead, Assistant Director of the Serious Fraud Office Introduction: Cartels encourage anti-competitive behaviour. Taking action against them is one of the Office of Fair Trading s top priorities. What is a Cartel? In simple terms, a cartel is an arrangement under which potential business competitors agree not to compete with each other. A cartel agreement is usually informal and secret. The agreement could be verbal or written. Cartels can occur in almost every industry. They can involve the provision of goods or services, even the provision of legal services. Cartel members may have agreed on: (1) Price (or hourly fee rate, daily court rate etc); (2) Output level; (3) Discounts; (4) Credit Terms; (5) Which customers they will supply (accepting instructions?); (6) Which areas they will supply (accepting instructions?); (7) Who should win a contract/instruction (bid rigging). Cartels and the Bar Some business sectors are particularly susceptible to cartel behaviour because of the structure in which they operate. Cartels are more likely to occur, where: (1) There are few competitors (2) The products or service has similar characteristics, leaving little scope for competition on quality (3) Communication channels between competitors are already established
(4) The industry is suffering from excess capacity or there is general recession The Bar therefore, is particularly prone to Cartel behaviour. There are no competitors for certain types of work (for example, some work cannot be provided by rival legal service providers i.e. solicitors) and competition can be small within the Bar itself, especially with regards to niche practice areas. The Bar Council ensures that legal services meet a certain minimum standard thus quality remains indistinguishably high and the size and nature of the Bar ensure that formal and informal communication between competitors is high. Clerks working in Chambers are themselves a potential communication channel between competitors and therefore must be acutely aware of cartel behaviour. Each Barrister is in competition with each other: It s easy to draw an analogy between a set of Chambers and a law firm, or a set of Chambers and a Company but such an analogy is incorrect. Each barrister is self employed and is considered a separate business or undertaking. This means that each barrister is in competition with one another - even barristers in the same set of Chambers! Contrast this situation with solicitors. A firm of solicitors is considered one undertaking, even if it employs 100 solicitors. A set of Chambers with 10 barristers is considered to be 10 undertakings. A clerk will often work for the whole set, or at least be responsible for 1 or more barristers diaries. It is at this point that the clerk is at most risk of falling foul of the cartel legislation because they could be influence price and/or supply of two or more barristers legal services. Cartel Legislation: The Competition Act 1988 and Article 81 of the EC Treaty prohibit cartels. Any business found to be a member of a cartel could be fined up to 10% of its worldwide
turnover. *Each barrister is an individual business but the Chambers could also be a business and thus fined]. Whilst this financial punishment may have had a deterrent effect on large businesses (such as the global corporations: the Microsoft s, Sony s, and Tesco s of the world who have to account to shareholders for their profits) its deterrent effect on small businesses was relatively ineffective. An individual/employee operating within a cartel had little to worry about. If a Clerk was dishonestly engaged in price fixing, it would be the barristers (who were the business) who were fined. This changed in June 2003 when Part 6 of the Enterprise Act 2002 came into force. The Enterprise Act contained a new criminal Cartel Offence that targeted the individual within the cartel. The Act made it a criminal offence for an individual to dishonestly agree with one or more persons that two or more businesses would engage in cartel activities. The offence applies to dishonest agreements that make or implement such activities or cause such activities to be made or implemented. The criminal offence will be committed irrespective of whether the agreement reached is actually implemented by the businesses. The Enterprise Act 2002: The Cartel Offence is contained in Section 188 of the Enterprise Act 2002: An Individual is guilty of an offence if he dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements of the following kind relating to at least two undertakings (A and B). What arrangements are considered cartel activity? Arrangements which comprise cartel activity include:
(1) Price Fixing (2) Market Sharing (3) Limiting supply and/or Production (4) Bid-Rigging (who should win a contract) The offence only applies to dishonest agreements in respect of arrangements between businesses that operate at the same level of the supply chain: colloquially known as horizontal agreements. Vertical agreements which are intended to operate between businesses at different levels in the supply chain (for example between manufacturer and distributor or distributor and retailer) are not covered by the offence. The offence is committed whether or not the agreement reached between the individuals is actually implemented and regardless of whether or not the individuals have the authority to act on behalf of the undertakings at the time of the agreement. Price Fixing: Price-Fixing includes the direct or indirect fixing of prices. Examples of indirect price fixing would be likely to include, agreements about relative price levels or price ranges, rebates, discounts, price change indices, transport charges or methods of quotation. In relation to price-fixing there must be an element of reciprocity for the offence to be committed. Price fixing arrangements require at least two parties, and each party must have reciprocally have intended that the agreement should result in one or more of these activities. Therefore agreements are not criminal where the arrangement only requires one party to fix prices or to limit production or supply. Price fixing would include fee fixing. A clerk that had agreed to fix the fees of two or more barristers would be guilty of an offence. Fee s should be set individually and remain the decision of the individual alone. Fee s can not be set collectively and
practitioners must not agree to act in concert. Clerks will be in a position to know how much each barrister charges and must not get involved with setting prices and fixing fees. Market Sharing: Market sharing arrangements are those that divide between A and B the supply of a product or service to customers, or the division of the allocation of customers. A clerk would be in a position to divide the market for two or more barristers by allocating certain customers to either A or B per their agreement. Further, whether a barrister accepts instructions is a personal decision for that individual, alone. It cannot be a decision taken collectively. So members of chambers cannot take a collective decision not to do a certain type of case. Limiting supply and/or Production Like price-fixing, there must also be an element of reciprocity. Because a clerk controls the barrister s diary, he or she is in a position to control the supply of that legal service. Again, the situation could arise where a clerk states that one barrister s diary is fully booked (when it is not or the instructions are not to their liking for example) and the clerk suggests an alternative barrister as per an agreement. Bid-Rigging (who should win a contract/instructions) Bid rigging is defined as making arrangements under which, in response to a request for bids for the supply of a product or service, or for the production of a product, in the UK: (1) A but not B may make a bid; (2) A and B may make a bid but, in one case or both, only a bid arrived at in accordance with the arrangements.
Arrangements are not bid rigging arrangements if the person requesting the bids has been informed of the arrangements either before the bid is made or at the time of making the bid (s188(6) Enterprise Act 2002). A clerk will be in a position to bid-rig where instructions are sought from two or more barristers from the set of chambers. Any decision whether or not to accept instructions must be made individually. A decision to accept instructions can never be made collectively and practitioners can not act in concert. A barrister could not decline a client s instructions because his colleagues diary was empty and they had agreed to share work as evenly as possible. What is dishonesty? The cartel offence is only committed if individual acts dishonestly. The definition of dishonesty as set out in R v Ghosh [1982] QB 1053 applies to the cartel offence. The jury is to determine whether the act done would, according to the standards of reasonable people, be considered to be dishonest, and also whether the defendant would have realised that this was the view of reasonable people. There is no requirement to prove that the agreement had any actual or intended anti-competitive effect. Nor does the agreement need to be unlawful per se under Article 81 of the EC Treaty or the Competition Act 1998. The Offence is committed irrespective of whether the agreement reached is actually implemented by the undertakings, and irrespective of whether the individuals have the authority to act on behalf of the undertakings at the time of the agreement. It is not a defence to show that the agreement would have been exempt or that it serves the public interest (though these may be factors in the context of dishonesty). Cartel activities outside the UK No proceedings may be brought for the cartel offence in respect of an agreement outside the UK, unless it has been implemented in whole or in part in the UK. You
only need to intend to implement an agreement made in the UK to commit the offence so the test is less stringent on agreements made outside the UK. [Agreements between barristers in, for example, Commonwealth countries bar could give rise to offences here. If English counsel entered a price fixing arrangement in Jamaican death row case with members of the Jamaican Bar and the clerk in the UK implemented the arrangements there is a potential offence.] The Cartel offence is an extraditable offence. Extradition arrangements apply to: The cartel offence; Conspiracy to commit the offence; Attempt to commit the offence. Parallel Proceedings The OFT will usually run a simultaneous civil investigation under the Competition Act 1998 and a criminal investigation under the Enterprise Act 2002. The criminal prosecution will take precedence over the civil investigation. Sanctions: The cartel offence is punishable on conviction on indictment by up to 5 years imprisonment, an unlimited fine or both. Who prosecutes Cartel offences? Prosecuting Cartel offences in England, Wales and Northern Ireland is the responsibility of the SFO and the Office of Fair Trading ( OFT ). The OFT is the lead investigating authority for the majority of cartel investigations. A memorandum of understanding between the SFO and OFT sets out the basis of cooperation between us. Following an initial investigation by the OFT, the SFO will be responsible for the investigation and prosecution of serious and complex cartels.
[SFO Policy is to prosecute in only a limited category of cases, where the cartels are clearly dishonest, where conduct is clearly criminal and it meets the SFO criteria for serious or complex +. Further Information: Further information can be found on websites: www.oft.gov.uk www.sfo.gov.uk Questions 1. How do you protect yourself from Cartel Offences? The three C s: Complain, comply or Confess. Complain Comply (Compliance manual & Staff training) Confess? (No-action Letters) 2. Can the OFT grant immunity? The OFT can grant immunity from prosecution to those people who come forward with information relating to cartel activities in which they are involved. It is hoped that the granting of no-action letters will encourage individuals to come forward. The secret nature of cartels and their damaging effects on the economic well being of the country justify such a policy.
The OFT can issue a no-action letter pursuant to Section 190(4) Enterprise Act 2002. The no-action letter is a written notice to an individual that he or she will not be prosecuted for the particular matter under investigation of the individual satisfies certain conditions. For example, the individual must: Admit participation in the offence; Provide OFT with all available information concerning the cartel; Maintain full co-operation with the OFT throughout the investigation; Refrain from further participation in the cartel (except as may be directed by the investigating authority). Provided the individual satisfies these conditions, they will have immunity from prosecution for the cartel offence in England, Wales and Northern Ireland. 13 June 2006