UK anti-cartel laws and their enforcement

Out-Law Guide | 10 Apr 2018 | 3:42 pm | 17 min. read

Cartels involve companies acting together to restrict competition in a way that affects trade. It is both a civil and a criminal offence in the UK.

This guide was last updated in August 2018

The civil offence contained in the 1989 Competition Act closely mirrors article 101 of the Treaty on the Functioning of the European Union (TFEU). It prohibits agreements or concerted practices between two or more undertakings which have the object or effect of preventing, restricting or distorting competition and which may affect trade within the UK.

This is enforced by sectoral regulators and the Competition and Markets Authority (CMA). The sectors where regulators have anti-cartel powers are: gas and electricity; water; broadcasting; electronic communications; postal; healthcare; rail; civil aviation; financial services, and payment systems. The CMA and the sectoral regulators also have powers to enforce EU competition law where conduct may affect trade between EU countries.

Civil sanctions include:

  • a fine of up to 10% of worldwide turnover;
  • declaration that the offending agreement is void;
  • imposition of behavioural undertakings; and
  • request for a court order disqualifying directors for up to 15 years.

Third parties, such as customers of cartel members, may bring private court actions for damages arising from the cartel activity. Courts may also find an agreement which breaches competition law to be void in whole or in part, or order a cessation of any breach.

The civil regime also contains a prohibition on an abuse of a dominant position, modelled on the article 102 of the TFEU, which is enforced by the same bodies, and generally subject to the same procedures and penalties as the Competition Act's anti-cartel provision.

Under the criminal regime any individual convicted of implementing, or causing to be implemented, arrangements for price-fixing, market-sharing, bid rigging or limiting supply or production, may receive a maximum five-year custodial sentence and/or an unlimited fine. The criminal cartel offence is more restrictive than its civil counterpart. The offence is designed to catch 'hard-core' cartel activity; for a cartel to be criminal, it must be a reciprocal horizontal agreement which is knowingly entered into.

The CMA can investigate and prosecute alleged criminal cartels in England, Wales and Northern Ireland. The Serious Fraud Office may seek prosecutions with the permission of the CMA. The Crown Office and Procurator Fiscal Service have responsibility for enforcement in Scotland. Sectoral regulators do not have powers to enforce the criminal offence.

Investigative powers in the UK

To open a civil investigation the CMA or sectoral regulator must have reasonable grounds for suspecting an infringement. Once it has started an investigation it may acquire information through:

  • dawn raids on businesses where it may access electronic data; review, copy or remove physical or electronic documents; ask for factual explanations of documents relevant to an investigation, and interview individuals. In practice, its dawn raids often involve taking copies of electronic servers and reviewing these at a later stage;
  • mandatory requests in writing for information and for specific documents or categories of documents.

The CMA can require individuals connected with a company to answer questions, including ex-employees, suppliers and customers.

In criminal investigations, the CMA may also obtain evidence through surveillance and covert human intelligence sources.

Companies or people who obstruct the CMA in the exercises of these powers or failure to comply with any requirements can face civil or criminal proceedings.

Key issues in relation to enforcement policy

Leniency and amnesty

The CMA operates leniency and amnesty programmes for individuals and companies in relation to both the criminal and civil regimes. Under the civil regime, leniency is not limited merely to 'hard-core' cartel activity: it is also available for resale price maintenance. This approach differs from other regulators, such as the European Commission.

A successful leniency application can mean complete immunity from fines for companies; immunity from prosecution under the criminal cartel offence for individual employees and directors, and immunity from director’s disqualification for directors. A successful leniency application does not protect a company from damages actions.

There are stringent conditions for establishing leniency that must be adhered to throughout the investigation. These include a requirement for full cooperation and an acceptance of breach and detailed requirements concerning the gathering and preservation of evidence even before any approach has been made to the CMA. The CMA is expected to monitor compliance with leniency conditions very closely and the possibility of leniency being withdrawn is very real.

The timing of a leniency application is of paramount importance: the sooner it is made, the greater the benefit to the applicant. Leniency will be unavailable to a company once a Statement of Objections has been issued, or to an individual once they are charged.

Applicants may benefit from one of three categories of immunity:

  • type A immunity is only available where no investigation has been opened and the applicant is the first member of a cartel to come forward. If successful, the company, all employees and directors will receive blanket immunity from civil and criminal penalties in respect of the breach.
  • type B immunity is available if an investigation has commenced and the applicant is the first to seek leniency. Successful type B applicants can receive the same benefits as a successful type A applicant, subject to the CMA’s discretion.
  • type C immunity is available to undertakings that provide evidence of the cartel activity but fail to obtain type A or B immunity; for example because they are not the first leniency applicant. A company's fine may be reduced by up to 50% and an individual may receive immunity, but again this is discretionary.

Individuals whose employers have taken part in cartel activity may also approach the CMA directly in exchange for a no-action letter, granting immunity from criminal prosecution.

The leniency regime remains an important method of discovery of potential breach for the CMA, but is by no means the only method. The CMA intends to become more intelligence led. For example, none of the civil investigations leading to a 2017 decision were initiated by a leniency application, although in two cases companies secured 100% immunity from fines through an application for leniency after the investigation had commenced, demonstrating the value of cooperating following the commencement of an investigation.

Administrative settlement of cases

There are two forms of administrative settlement available to parties: a settlement procedure involving an early admission of breach in return for a reduction in fine; and the provision of commitments, a binding commitment to cease and desist conduct or behave in a particular way in place of an infringement decision and a fine. Both are discretionary processes, and are separate from leniency.

The CMA has said that it is unlikely to accept commitments in the case of a secret, hard-core cartel or a serious abuse of dominance. However, they can be a useful tool in other cases.

Under the settlement process a company under investigation can admit that it has breached competition law and accept that a streamlined administrative procedure will govern the remainder of the investigation. Settlement will only be available once the CMA has sufficient evidence to support an infringement decision, but prior to a final decision.

In order to reach a settlement an undertaking must make a clear and unequivocal admission of liability for the alleged infringing behaviour, end the infringement and confirm it will pay any fine imposed by the CMA. Case-specific conditions may also be imposed.

In exchange for settlement, the undertaking will receive a reduction in its penalty of up to 20%, or 10% if the settlement occurs after the Statement of Objections has been issued.

Third-party complaints

Complaints/information received directly from third parties represent an important source of intelligence. For example a 2017 investigation leading to fines in respect of online sales restrictions in the light fittings sector stemmed from complaints made by resellers.

Information gathering exercises by the CMA also provide a route for third parties, such as competitors or customers of the parties under investigation, to participate in an investigation.

If the CMA opens an investigation, third-party complainants may elect to be designated as formal complainants, though in June 2018 the CMA published revised draft guidance proposing to remove formal complainant status from its procedures and have only a single common system for dealing with complaints.

All formal complainants must be offered the opportunity to comment on a Statement of Objections and, depending on the confidentiality of documents, a third party may also be granted access to some or all of the case file. Alternatively, a complainant may choose to be designated as an interested third party. An interested third party has no right to receive information, but may be asked for views on, for example, the Statement of Objections.

The CMA’s prioritisation principles, in practice, represent a significant hurdle for third-party complainants. Many complainants are unable to gather sufficient evidence to satisfy these principles, in particular relating to prospects of success, and even those complaints which are supported by strong evidence can be rejected as not constituting a priority for the commitment of investigatory resource. The CMA’s draft 2018/19 Annual Plan has a clear focus on cases directly affecting consumers, in particular, vulnerable consumers, online/digital markets and markets of strategic importance to economic growth and productivity as well as ensuring that markets can be trusted. Such a focus, combined with the active filtering of cases, can significantly constrain its willingness to take up cases not falling into these categories brought to them by complainants, unless there is strong evidence from the outset of a serious breach. The CMA has also recognised that it is all the more important to prioritise cases in light of the increased workload it anticipates as a result of Brexit.

Given the costs and evidential burden involved in pursuing a complaint through the courts it is still generally the preferred option for a complainant to approach the CMA. However, the increasing understanding of the courts of competition actions, and the active application of the CMA’s prioritisation principles, means that recourse to the courts is becoming an increasingly attractive option.

The CMA does have the power to impose interim measures, pending the final outcome of any investigation. The threshold for the application of interim measures was lowered in 2014 to a requirement to show ‘significant damage’ but these remain a rarely used tool. 2017 saw an application for interim measures in the online bidding platforms case noted above, but the commitments closing the case were agreed before the interim measures application was decided on. The CMA’s  2018/19 Annual Plan reaffirms its commitment to the use of interim measures where appropriate and on 21 June 2018 it published revised draft guidance on its on its investigation procedures in Competition Act 1998 cases, including additional clarifications on the process for making an interim measures application, but the relative lack of use of these measures remains a potential weakness of the regime.

Civil penalties and sanctions

As far as possible, the CMA tries to ensure that liability for penalties follows responsibility for the breach. The UK rules on parental and successor liability for fines generally reflect those of EU law.

The overarching policy goals in determining the level of a fine are to reflect the seriousness of the offence and to deter future infringements. In April 2018 the CMA published revised guidance applying six steps in the calculation of a fine. The guidance requires the CMA to identify a starting figure, which may be up to 30% of the undertaking’s turnover in the relevant market. The precise level chosen will depend on the seriousness of the offence, with cartels typically having a starting point of over 20%. Through the remaining steps, the CMA makes adjustments to the starting point to reflect the duration of breach, aggravating or mitigating factors, settlement agreements and leniency applications. The CMA must also ensure that the fine does not exceed the stated maximum of 10% of the undertaking’s total, worldwide turnover.

If the CMA intends to impose a fine, it must issue a Draft Penalty Statement, which must show how these six steps are followed. The parties to the investigation must be given a reasonable period of time to make representations on the Draft Statement. The final penalty calculation will be included in the decision.

The CMA may also use civil powers to apply to the court for disqualification of directors of companies implicated in an infringement from acting as a director for a period of up to 15 years, or may agree a disqualification undertaking with the director concerned in lieu of a court order.

The CMA remains committed to pursuing enforcement against individuals as a deterrent to anti-competitive behaviour. This includes enforcing the criminal regime and pursuing directors’ disqualification, where appropriate. The first such disqualification of a director occurred in 2017 in a price-fixing case relating to posters and the second in April 2018 against two directors of an estate agency.

The Consumer Rights Act 2015 (CRA15) sets out a voluntary redress scheme applicable to Chapter I/Article 101 TFEU infringements. The legislation says that businesses which are the subject of a competition law investigation or infringement finding can enter into a redress scheme under which they voluntarily compensate parties which have suffered a loss due to the anti-competitive conduct in question.

The intention is that such a scheme will enable parties to receive compensation without resorting to expensive and drawn-out litigation through the courts. It may also lead to a reduction in any fine imposed for the infringement. However, the infringing business is not protected from subsequent private actions, and third parties are not obliged to apply for compensation from a redress scheme where one is available.

Right of appeal against civil liability and penalties

UK law contains extensive rights of appeal against infringement decisions.

First instance appeals are made to the Competition Appeals Tribunal (CAT), a specialist body with expertise in competition law matters which is independent from the CMA. The CAT has the power to conduct a full-merits hearing and may quash a CMA decision in whole or in part. This includes both infringement decisions and no-grounds-for-action decisions, which interested third parties may appeal. If an appeal is successful the CAT may also remit the decision to the CMA for reconsideration or reach its own decision, which supersedes that of the CMA. The CAT may also hear appeals on penalties alone. Decisions of the CAT may also be appealed to the Court of Appeal.

The appeal system has been heavily used, and is considered to be a success.

Criminal sanctions

The CMA has the power to pursue financial and custodial sentences against individuals, although these must be imposed by a court. Undertakings and individuals may also be subject to confiscation orders.

Whilst the possibility of significant custodial sentences has existed for a number of years, there are very few examples of successful prosecutions.

In 2017, the CMA secured its latest custodial sentence in the precast drainage products case. This is the third example of successful prosecutions in respect of the criminal cartel offence, in addition to the Marine Hose and Galvanised Steel Tanks cases, all after guilty pleas. As each of the cases concerned arrangements which existed prior to 1 April 2014, the offence involved a requirement to show that the defendants acted dishonestly. In practice, his presented a significant barrier to successful prosecutions. The CMA is yet to secure the conviction of an individual who has not pleaded guilty.

The dishonesty requirement was removed with effect from 2014. In recognition of the loss of this requirement and in the light of the fact that the criminal regime is designed to cover 'hard-core' cartels only, a number of exclusions apply. These include an exclusion related to advance notification of the cartel agreement to customers and advance publication. Three new statutory defences were also introduced. These apply where there was no intention to conceal the arrangement from customers or the CMA or reasonable steps were taken to seek prior legal advice.

As these reforms only apply to conduct post-dating 1 April 2014, it could conceivably be some time before an investigation under these rules is completed and the exclusions and defences are tested.

Cross-border issues

The CMA values connections with other national authorities and such relationships are of particular importance in relation to the cartels. For example, the CMA has entered into a network of bilateral agreements with other domestic authorities. It is actively involved in international networks including the International Competition Network and the European Competition Network. The CMA has indicated in its 2018/19 Annual Plan that it will seek to strengthen its international profile in preparation for Brexit, which will involve both maintaining existing relationships as well as forging new ones with other agencies, including the European Commission, with a view to promoting effective and consistent competition law and policy abroad. It has also noted that it is neither in the UK's own interests nor in the interests of others for the CMA to recede as a contributor to the development of competition and consumer law internationally. Of course the exact nature of its future cooperation within the European Competition Network is as yet unknown.

The marine hose investigation is an example of successful cooperation with other authorities. It involved cooperation with the US, EU and Japanese authorities; the CMA also liaised with its counterparts in France and Italy in relation to the modelling agencies investigation and again cooperated with the US in its competition investigation of anti-competitive practices in online sales of posters on Amazon in 2016..

Developments in private enforcement of antitrust laws

Private enforcement of competition law is well established in the UK. The UK remains an attractive forum for damages actions due, largely, to the fact that English law disclosure rules are broader than those in other EU member states, giving claimants greater access to defendants’ documentary evidence than in other EU jurisdictions. However, as a result of the uncertainty surrounding Brexit, we are already seeing a shift in private damages litigation, with claims following-on from an EU Commission infringement decision increasingly being brought in other EU member states, especially the Netherlands and Germany, rather than in the UK.

Currently claimants may bring private actions for damages following an infringement finding in respect of EU or UK competition law by the European Commission or the CMA, respectively, in either the High Court or the CAT – a 'follow-on' damages claim in which the claimant can rely on the infringement decision as binding evidence of liability. 'Standalone' civil actions, where there is no pre-existing infringement decision such that the claimant must prove liability, may also be brought in the High Court and the CAT. Post-Brexit, although parties may still be able to bring follow-on damages actions in the UK for breaches of EU competition law on the basis of  breach of a foreign tort, we anticipate that parties will only generally opt to bring actions in the UK that are based on an infringement finding of a UK court or competition authority, or which concern the loss sufferred by UK claimants.

As well as introducing a number of procedural changes, the CRA15 permits a representative to bring a collective damages claim in the CAT on behalf of a class of claimants. Importantly, a collective action can be on an ‘opt out’ or ‘opt in’ basis. ‘Opt out’ means that the relevant class of claimants is, by default, deemed to be all UK customers who might have been affected by the competition law breach unless they have been asked to be excluded from the action. An application must be made to the CAT for a Collective Proceedings Order (CPO), and this will be determined at a certification hearing.

The CRA15 also brought in a new ‘fast track’ procedure, aimed at encouraging and facilitating competition claims by SMEs which might otherwise not be brought at all. Under the ‘fast track’ procedure a hearing takes place within six months and the CAT has the power to impose caps on the parties’ costs.

In a case between Sainsbury's Supermarkets and MasterCard Incorporated the CAT awarded damages to Sainsbury’s in an Article 101 TFEU/Chapter I claim. Not only was this the first judgment from the CAT in a ‘stand-alone’ competition claim, it was also the first time that a UK court has given judgment on the question of the passing-on ‘defence’ and the first time in a competition case that compound interest has been awarded. The judgment has been partially overturned by the Court of Appeal and remitted to the CAT for reconsideration, though not of these points. A number of ‘fast track’ claims have begun but almost all settled at a very early stage. One did reach trial and judgment, a case between Socrates Training and The Law Society of England & Wales. Socrates successfully argued that the Law Society had abused its dominant position in requiring members of its Conveyancing Quality Scheme to obtain training courses in anti-money laundering and mortgage fraud exclusively from the Law Society.

The CAT rigorously case-managed the proceedings to maintain a tight timetable up to and including the trial, and also imposed costs caps on the parties. Even though the judgment still took a further six months, the case demonstrates the effectiveness of the ‘fast track’ procedure. In practice, this option may well incentivise some complainants to resort directly to the CAT, rather than raising complaints with the CMA.

There have been two applications for an ‘opt out’ CPO in the CAT. Whilst neither succeeded, the cases still offer helpful guidance as to the approach that the CAT will take to certification going forward.

In both cases, the CAT was comfortable that the proposed representative was suitable. The case between Dorothy Gibson and Pride Mobility Products had been presented as a ‘follow on’ claim, but Gibson's expert evidence had incorrectly strayed beyond the confines of the actual infringement decision. The application was ultimately withdrawn.

In a case between Walter Hugh Merricks and MasterCard Incorporated where the proposed class was 46 million consumers, the CAT focused heavily on the expert economic evidence and was ultimately not satisfied that the proposed damages model complied with the general principle that damages should be compensatory.

The CAT did not consider that the proposed distribution of an award of damages would bear any relation to each individual’s actual loss. The CAT confirmed that the approach of the Canadian Supreme Court in a 2013 case between In Pro-Sys Consultants and Microsoft is the applicable test in CPO applications when assessing the validity of an applicant’s proposed damages methodology, rather than the more stringent approach taken in the US. Specifically, the CAT confirmed that the expert methodology "must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement" and "offer a realistic prospect of establishing loss on a class-wide basis".

These two cases show that there are a number of obstacles which must be overcome before a CPO will be granted, especially regarding the mechanics of calculating loss and distributing damages.

The impact of Brexit

In its white paper on the future relationship between the UK and EU, published in July 2018, the government has indicated that it will maintain current antitrust prohibitions as well as the merger control system alongside strong cooperation with EU authorities. It further notes the importance of establishing cooperative agreements to ensure that UK competition decisions will be compatible with those of the EU.

On 13 March 2018 the government announced that the CMA would get an additional £23.6 million in funding to prepare for Brexit and to deal with the additional caseload it will need to take on. This is addition to the to a £2.8 million increase to its annual funding, which had already been raised to £68.7 million. The CMA has indicated in its 2018-19 Annual Plan that it expects to take on a bigger role on the world stage post-Brexit. It notes that competition cases which were previously in the exclusive jurisdiction of the European Commission – often the larger and more complex cases – will be subject to national jurisdiction post-Brexit.