CMA fines company for attending cartel meeting, despite refusing to join

The CMA has fined a company for exchanging information at a single meeting in July 2012, at which it was invited to join a cartel arrangement. At a meeting that was secretly recorded by the CMA, Balmoral Tanks Ltd. refused to join the arrangement but nevertheless provided pricing information to a number of its competitors.

The CMA’s Senior Director said “Any company that is approached to join a cartel, or become involved in anti-competitive arrangements, should immediately reject the approach clearly and unequivocally. It should also decline to participate in any discussions that involve the sharing of confidential and competitively sensitive pricing information.”

The decision is a stark reminder to companies of the importance of vigilance when faced with any situation involving competitors.

Galvanised Steel Tanks Decisions

The CMA’s civil investigation under the Competition Act 1998 was opened over four years ago by the Office of Fair Trading (November 2012). It ran alongside a criminal investigation, under s188 of the Enterprise Act 2002. One of the three individuals originally prosecuted, Nigel Snee (former managing director of Franklin Hodge Industries Ltd), pleaded guilty and was given a six-month suspended prison sentence for his involvement in the cartel.

On 19 December 2016, the CMA issued two decisions, imposing fines on suppliers of cylindrical, galvanised steel tanks for breaching competition law. These tanks are used for water storage in large buildings and to supply sprinkler systems. It was held by the CMA that those fined had been involved in a cartel and/or inappropriately exchanged information, in breach of competition law.

The key financial penalties imposed by the CMA were for three of the four companies who had admitted to colluding with each other. Each of Franklin Hodge Industries Ltd (fined over £2 million), Glasglass Ltd (fined over £580,000) and KW Supplies Ltd (fined over £22,000) admitted to the following collusive actions in a settlement announced in March 2016:

• sharing the market by dividing customers among themselves;
• fixing the prices of tanks; and
• rigging bids for contracts between 2005 and 2012, designating a “winner” in advance, but giving the appearance of competitive tendering processes.

The cartel activities were intended to increase profit margins on tanks by preventing customers from negotiating with the suppliers as independent and competing companies.

The fourth collusive company was CST Industries Ltd, who was granted immunity from fines by the CMA under its leniency policy, having brought the arrangement to the authorities’ attention and co-operated throughout the investigation.

Of particular interest in the second decision was the £130,000 fine imposed on Aberdeen-based Balmoral Tanks Ltd (“Balmoral”) and its parent company, Balmoral Group Holdings Ltd, along with the three companies noted above, who had already been fined as members of the cartel. Balmoral was not party to the cartel arrangements.

The commercially sensitive information exchanged by Balmoral occurred at a single meeting in July 2012, which was recorded by the CMA. At that meeting they had been invited to join the cartel - an invitation they declined. They did however engage in the meeting and disclose information, including both generic and contract-specific information, in the form of price bands and prices quoted for specific contracts relating to two types of cylindrical galvanised steel tanks.

The CMA decided to impose a fine on Balmoral despite:

• their refusal to join the cartel arrangement;
• them being a new entrant to the market at the time (having entered the market in late 2011);
• significant cooperation with the CMA’s civil and related criminal investigations; and
• the cartel practices having been established long before Balmoral’s entry to the market.

Comment:

The decision is a stark reminder to companies of the importance of vigilance when faced with any situation involving competitors and commercially sensitive information. It also highlights the nature of cartel enforcement by the CMA, which now regularly involves the criminal prosecution of individuals under the Enterprise Act’s cartel offence alongside civil investigations under the Competition Act, and its appetite to pursue these cases no matter the size of the companies involved.