Cartels and criminality
Sir Jeremy Lever QC
Monckton Chambers, Gray’s Inn
and
John Pike
7 New Square, Lincoln’s Inn
Cartel agreements, conspiracy to
defraud and the ‘statutory offence’
 Cartels per se have not been regarded by the
common law as criminal
 …but can there be criminality involving
cartels and the common law offence of
conspiracy to defraud?
 …does the introduction of the statutory
offence impinge on the common law?
 …what are the comparisons with and
implications for competition law?
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
The common law and cartel
agreements
 Cases in support of the traditional view
 Hearn v Griffith (1815) 2 Chitty 407
 Jones v North (1875)LR 19 Eq.426
 The Mogul Steamship Co v McGregor [1892]
AC 25 (HL)
 AG Commonwealth v Adelaide SS Co
[1913]AC 781
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Jones v North (1875)LR 19 Eq.426
 “There is nothing illegal in the owners of
commodities agreeing that they will sell as
between themselves at a certain price….”
 Vice-Chancellor Bacon
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
The Mogul Steamship [1892]
AC 25 (H.L.)
 An agreement by shipowners in a “liner
conference” to fix freight rates and exclude
competition (e.g. by subsidizing ‘fighting
ships’ to operate in tandem with the
competitor’s liner sailings at ruinous rates)
was legal and the cartelists could not be sued
for damages in tort.
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Adelaide SS Co [1913] AC 781
(P.C.)
 The cartel agreements were not illegal under
Australian Statute because the mine-owners
honestly believed that what they were doing
was in the interests of the wider society and
economy…
 ..and there was no “detriment to the public”
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Public policy in respect of cartels
 19th Century laissez faire - the problem of the
trade cycle
 Cartels are good-trade depressions and IDAC
 Keynes mitigates the trade cycle
 Cartels and trade protection are bad. 1940s
start of the competition enactments
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Current policy on cartels
 “…in the United States it has long been recognised that cartels
are simply a sophisticated form of theft…” Gordon Brown
18.6.2001
 Cartels are generally “unlawful”
 There is nowadays a presumption that cartels are wrong and
dishonest if hidden, because the customer reasonably assumes
that he is acquiring a product or service either for business or
personal purposes, at a price that has been determined in a
non-cartellised market
 The perception of what is honest in respect of cartel activity
changed in the post-War years from what it had previously been
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Cases in support of common law
criminality in cartel cases
 R v De Berenger (1814) M & S 67
 R v Lewis and others (1869) Cox CLC 404
 Scott v Brown , Doering, Mcnab & Co [1892]
2 QB 724 CA
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
R v De Berenger (1814) M & S 67
 Conspiracy to manipulate Govt. stock prices by spreading a
false story, via a bogus army officer who landed in Dover, that
Napoleon had been killed by cossacks.
 Dishonest manipulation of prices is illegal
 The conspiracy damaged or risked damage to the rights or
interests of third parties.
 It was not necessary to establish that anyone in particular had
been deceived or had suffered or been threatened with financial
loss.
 The dishonest intention sufficed.
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Scott v Brown [1892] 2 QB 724 (C.A.)
 “if persons, for their own purposes of
speculation, create an artificial price by
transactions which are not real, but are made
at a nominal premium merely for the purpose
of inducing the public to take shares, they are
guilty of as gross a fraud as has ever been
committed, and of a fraud which can be
brought home to them in a criminal court.”
 Wright J at first instance
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Jones v North (1875) LR 19 Eq.426
 This is a good example of conspiracy to
defraud since the parties’ use of cover prices
was clearly intended to mislead the
Birmingham Corporation into a belief that it
was receiving competitive bids
 A perverse finding of fact
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
R v Lewis (1869) Cox CLC 404
 “actions by fraudulent persons - who were
disposed....to endeavour to play hide and
seek with the law-…[ should ] lay it to heart
that, so long as they only exaggerated, they
were safe: but let them take care they do not
slip into ‘specie misrepresentation’, for so
soon as they did so the criminal law would
punish them for their conduct.”
 Willes J
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
R v Wai Yu-Tsang [1992] 1 AC 269
(P.C.)
 The greater the efforts of the parties to a
cartel to keep it secret, the more readily a jury
might infer that the cartelists had an actual
and dishonest appreciation that loss or risk of
possible loss by counterparties would, or was
likely to follow from the cartelists’ conduct.
 It would not be a defence to establish that the
defendants’ motives were actually benign.
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
The statutory offence-EA 2002
 “ an individual is guilty of the statutory offence if he
dishonestly agrees with one or more persons to make
or implement, or cause to be implemented,
arrangements of the following kind relating to a least
two undertakings (A and B)..”
 Arrangement covered include only ‘hard core’
offences like price-fixing, limiting supply, or
production, dividing markets or bid-rigging (“core”
anti-competitive agreements)
 Note the ambiguity of the word ‘dishonestly’.
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Background to the New Law
 “The new criminal offence will send out a strong message to the
perpetrators, their colleagues in business, the general public
and the courts”
Patricia Hewitt, second reading of the Enterprise Act 2002
 “ The second principle is to establish a strong deterrent for anti-
competitive behaviour. The Competition Act introduced fines for
firms which engage in anti-competitive behaviour, but did not
provide a deterrent for those individuals who engage in hard
core….”
Lord Sainsbury, Under-SS for DTI, Lords second reading
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Comparison of statute to common law
 The statutory offence is specific
 Under common law, individuals and companies can be prosecuted
 Reckless conduct is excluded from statute but not the common law
 Under common law third parties’ interests must at least have been put
at risk
 Under statute prosecution can be initiated only by the Director of the
SFO or with the consent of the OFT
 The common law offence carries up to ten years imprisonment whereas
the cartel offence carries up to 5 years
 The discretion of the SFO under common law is based on the Code of
Conduct for Crown Prosecutors and is unspecific; the EA 2002 provides
for statutory immunity
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Concurrent processes in common law
and/or statute
 Even if the indictment under conspiracy to defraud is
the same as the statute, that is no bar
 Eastern Archipelago Co v The Queen (1853) 2 EL &
BL 856
 “…yet where an offence was antecedently punishable
by common law proceeding as by indictment, a
statute prescribes a particular remedy in case of
disobedience, that such a particular remedy is
cumulative, and proceedings may be had either at
common law or under statute”
 Cited with approval in R v Barnett [1951] 2 KB 425 at
p.427
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Should prosecutors use statute or
common law?
 Prosecutors and courts are familiar with ‘conspiracy
to defraud’
 Conspiracy to defraud: 27% of all offences charged
by SFO
 Concepts of dishonesty easy to put to a jury
 The offence covers a wide range of dishonest activity
 …and is flexible enough to deal with crimes which
may otherwise be difficult to codify and explain to a
jury
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Advantages of statute
 Legal certainty
 Part 6 of the Enterprise Act is tailor-made and
specific to the actual crime
 S190(4) enables the OFT to give formal ‘no action
letters’ (outside Scotland) to individuals who give
information - unique in criminal law
 The use of the common law would undermine the
effectiveness of this leniency provision, except
insofar as it is mirrored by the code for Crown
Prosecutor’s ‘public interest’ test.
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Retail Price Maintenance
 RPM is not amongst the objectionable arrangements described
by s188 of the Enterprise Act.
 If they are dishonest, why should not vertical agreements be
criminal if their object or effect is to raise prices higher than they
would be otherwise?
 The behaviour of participants in RPM arrangements may satisfy
the required elements for ‘conspiracy to defraud’ so long as the
elements of dishonesty, harm and intention are met.
 However there is a danger that the common law might be used
in connection with competition law infringements which raise
complex economic issues and in relation to which there is
already well established law. Eg luxury goods restrictive
distribution systems
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Relationship between common law
and competition law
 EC competition law provides for very large fines of
Euro 1-20m for serious infringements and Euro 20m+
for very serious infringements (mirrored by OFT fining
power)
 Such fines are much higher than those that would be
likely to be imposed by a UK criminal court
 Economic studies in the USA have shown that faced
with “ the very likely benefits arising from engaging in
a cartel, the expected fine is unlikely to act as a
meaningful deterrent” (The White Paper preceding
the Enterprise Act)
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
UK competition law
 Part 6 of the Enterprise Act shares the US view of the
potential criminality of cartels

Cartels are a sophisticated form of theft

Fines as deterrents are insufficiently effective

Fines are in any case unfair because
“…the real participants will have been the few
executives involved. Very large fines would damage
innocent employees, shareholders and creditors who
have done nothing to harm consumers or break the
law”- the White Paper preceding the Enterprise Act
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
The contradictions
 EC competition law is civil and emphasises deterrence by the
possibility of very high non-criminal fines. There is no criminal
sanction.
 UK criminal courts have not to date imposed fines that would be
applicable by the European Community or OFT.
 Latest UK Government policy sees fines as a weak and in some
ways unfair deterrent and the Enterprise Act therefore provides
for the prosecution of individuals who have been involved in
specifically defined “bad cases”.
 In the area of criminal conduct, the common law may be
contrasted with Government policy as realised in statute
because it envisages the prosecution of individuals and
corporations, for a very wide variety of economically injurious
conduct where there has been dishonesty.
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Conclusions
 If the relevant conduct occurred before the coming into force of
Part 6 of the EA 2002, then the individuals can be prosecuted, if
at all, only for the common law offence of conspiracy to defraud
and not under statute.
 If the conduct in question occurred subsequently, the
prosecution has the option of prosecuting under statute and/or
the common law.
 Factors to be taken into consideration may include the fit of the
facts to the specific statutory provisions and ease of
presentation to a jury.
 While competition law deals adequately with companies, it may
be felt that a criminal prosecution under the common law would
help the prosecution and allow for fines to reflect the fairness
concerns addressed in the White Paper in respect of fines.
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Dishonesty
 Dishonesty is the element common to the common
law offence and the statutory offence
 Will a jury be entitled to convict simply on the basis
that individuals or companies have acted dishonestly
by ostensibly competing while knowingly participating
in covert schemes to drive up prices
 ..and have taken advantage of the assumption of
third parties that they were engaged in normal and
honest competition with each other?
The “mock auction” case: R v Lewis and others
(1869) Cox CLC 404
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Issues for Corporations
 Public policy towards cartels has changed

To more active enforcement of the “sophisticated theft” concept

Towards the American model
 The common law offence of conspiracy to defraud which captures
corporations is available to prosecutors
 Prosecutors have good reasons to choose to use the common law
 Senior executives are personally exposed to up to 10 years in prison if
personally involved in cartel agreements
 The need for internal compliance on cartels: The corporation is
vicariously exposed to criminal charges through the criminal activities of
its employees
 The dangers from ‘whistleblowers’ as the law on cartels becomes
known and frightened executives seek immunity
Sir Jeremy Lever QC, Monckton Chambers, Gray’s Inn
John Pike, 7 New Square, Lincoln’s Inn
Cartels and criminality
Sir Jeremy Lever QC
Monckton Chambers, Gray’s Inn
John Pike
7 New Square, Lincoln’s Inn