On 10 May 2010, the Office of Fair Trading's (OFT) high profile criminal prosecution of four current or former British Airways executives for price-fixing (under the "cartel offence") unexpectedly collapsed when the OFT decided not to offer any evidence because of concerns that it might be unfair to continue the proceedings following the discovery of a significant amount of new evidence after the trial had begun.
Although the UK's cartel offence has been in force since June 2003, the trial of the "BA four" was the first real test of the OFT's criminal powers.1 It is therefore surprising that the case has failed in this manner. However, although a significant blow to the OFT, cartelists should not be celebrating by lighting-up an extra cigar or two in their "smoke-filled rooms"; the OFT remains committed to bringing criminal prosecutions against individuals who engage in price-fixing, and increasing use of its director disqualification powers, not to mention bringing administrative proceedings against their employers leading to the imposition of ever larger fines.
- Under the UK cartel offence, broadly, an individual commits a criminal offence if he "dishonestly agrees" with one or more competitors to enter into any of a specified list of prohibited arrangements - which are price-fixing, limiting supply, market sharing and bid-rigging - and possible sanctions are: (i) up to five years imprisonment; (ii) unlimited fines; and (iii) disqualification from being a company director in the UK for up to 15 years.2
- Businesses also face fines of up to 10 per cent of their worldwide turnover and exposure to third party damages actions for "hard-core" infringements such as price-fixing.3
- In 2006, following a tip-off from Virgin Atlantic, the OFT began civil and criminal investigations into alleged price-fixing between BA and Virgin regarding fuel surcharges for long-haul passenger flights to and from the UK. By blowing the whistle, Virgin secured immunity from fines for itself and immunity from prosecution for its personnel.
- In August 2007, the OFT announced an early resolution agreement with BA whereby BA agreed to pay a penalty of Ł121.5 million in relation to the civil investigation.4
- A year later - in August 2008 - the OFT charged Martin George, Andrew Crawley, Alan Burnett and Iain Burns with dishonestly agreeing with others to make or implement arrangements which fixed the price of passenger air transport services by BA and Virgin between July 2004 and April 2006 (when all four worked for BA).
- Also in 2008, BA and Virgin settled a class action law suit brought in the USA to refund passengers overcharged as a result of the airlines' conduct.
The BA trial
After earlier preliminary hearings, the BA trial began on 22 April 2010 but was beset by delays before its collapse when a significant volume of additional evidence was discovered - essentially a year's worth of emails relating to former Virgin executive Paul Moore. The OFT decided that to continue with the trial would be potentially unfair.
However, while acknowledging the acquittal of all four defendants, the OFT stated that the discovered emails did not fundamentally undermine its case and almost all were irrelevant. If discovered earlier, the OFT believes that the trial would have proceeded.
Prior to the trial's collapse, a number of interesting allegations emerged during opening submissions - including that:
- BA and Virgin executives discussed intended increases in fuel surcharge levels - with some discussions allegedly preceded by words along the lines of "this is a conversation we aren't going to have".
- Some discussions may have taken place around a cricket match between BA and Virgin executives at Sir Richard Branson's estate - and the release to the media of photographs of this event may have been deliberately delayed to avoid coinciding with fuel surcharge increases.
- Virgin executives may have felt pressured to admit their wrongdoing; if they denied everything they risked exclusion from Virgin's leniency award for failing to cooperate with the investigation and therefore faced potential prosecution under the cartel offence themselves (and possibly under similar US laws), whereas by admitting their guilt (even if they did not believe they had done anything wrong) they were guaranteed immunity. There was great concern expressed on this point by counsel for the defendants that the incentives of the Virgin witnesses were so distorted that their evidence could not be considered reliable.
Virgin's leniency status
The OFT is considering whether, by failing to provide the relevant emails earlier, Virgin contravened its leniency obligation to provide "complete and continuous cooperation". It was suggested that Virgin's advisers had failed to identify these emails at an earlier stage due to corruption of the relevant databases. A possible consequence is that Virgin could lose its leniency protection (potentially exposing it to civil fines and its relevant personnel to criminal liability), although this seems unlikely as:
- The OFT has acknowledged its part in this oversight;
- It appears likely that Virgin made a genuine mistake (as opposed to deliberately concealing evidence); and, most importantly,
- The OFT will be very conscious of not jeopardising its leniency programme; the secretive nature of cartels makes detection difficult and the vast majority of the OFT's cartel investigations are triggered by leniency applications. Attacking a leniency applicant - and so discouraging future applications - could have a serious impact on future cartel enforcement.
BA's early resolution agreement
The OFT believes that the trial's collapse has no bearing on BA's early resolution agreement - however, BA is reportedly considering its options:
- While the OFT has indicated that the additional material is largely irrelevant, reports suggest that at least one email shows that Virgin was considering a unilateral fuel surcharge increase - suggesting there may have been no agreed increase on that occasion.
- Even if this material does not undermine the entire case, it could impact on the duration of the conduct - which could significantly reduce the level of BA's fine.
Consequences for the OFT and the cartel offence
While the collapse of the BA trial is a significant blow to the OFT, this is not the end of the cartel offence. The OFT has publicly stated its commitment to criminal prosecutions - as demonstrated by recent and ongoing staffing and procedural developments. Indeed, the OFT has since announced that it is pursuing two other cartel offence cases - in the automotive and agricultural sectors.5
This is consistent with the OFT's broader policy of pushing competition law compliance up the corporate agenda, as also shown through the recently revised guidance on disqualifying company directors involved in competition law offences and repeated public statements that the competition authorities will not be sympathetic towards "crisis cartels". In this context - and given that the bar is set relatively low as to when the sharing of pricing and other commercially sensitive information can constitute an infringement - businesses and individuals must remain vigilant.
Peter Scott is a partner and Mark Daniels is an associate in the Anti-trust, Competition and Regulatory team, Norton Rose LLP, London.
1. The only previous successful prosecutions relate to the marine hose cartel - however, in that case, the three individuals concerned had all entered into plea bargain agreements with the US authorities and so did not contest their liability. In June 2008, the three individuals were convicted - with two sentenced to three years in prison and one sentenced to 30 months, but reduced to 30 months, 24 months and 20 months by the Court of Appeal in November 2008. All three have also received director disqualification orders - two for seven years duration and the third for five years.
2. Under sections 188 to 190 Enterprise Act 2002.
3. In breach of Article 101 of the TFEU and/or the Chapter I prohibition under the Competition Act 1998.
4. Unusually, BA settled the civil case prior to the OFT issuing a Statement of Objections (SO) - a formal document setting out the OFT's provisional allegations and, unless the parties can refute the allegations, a precursor to a final infringement decision. Before BA's penalty becomes payable, the OFT must still issue an SO (which was delayed pending the conclusion of the criminal case) and then an infringement decision.
5. See: (i) http://www.oft.gov.uk/about-the-oft/legal-powers/enforcement_regulation/Cartels/automotive-sector/; and (ii) http://www.oft.gov.uk/about-the-oft/legal-powers/enforcement_regulation/Cartels/agricultural-sector/.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.