England and Wales Court of Appeal Affirms Competition and Markets Authority Penalty for “Casual Discussions” of Prices with Competitors

Last week, in Balmoral Tanks Ltd  v. Competition And Markets Authority, [2019] EWCA Civ 162 (February 15, 2019), the Civil Division of the England and Wales Court of Appeal dismissed an appeal by a Scottish tank design and manufacturing company, Balmoral Tanks (Balmoral), from a ruling by the Competition Appeal Tribunal (CAT) that Balmoral had violated section 2 of the Competition Act 1998 (1998 Act) and article 101 of the Treaty on the Functioning of the European Union (TFEU).

Between 2005 and 2012, according to the Court’s decision, four firms that “were parties to a cartel relating to the supply of [cylindrical galvanized steel tanks (“CGSTs”)] in the United Kingdom”  participated in bid-rigging, price-fixing, and market-sharing.  When Balmoral entered the market for the supply of CGSTs in late 2011, three of the cartel participants, perceiving Balmoral as a threat to their cartel, “sought to persuade Balmoral to join it.”  That led to a meeting on July 11, 2012, involving managing directors of two of those three cartel participants and of Balmoral.  In that meeting, the Court of Appeal noted, the Balmoral managing director “resisted the attempts to recruit Balmoral Tanks to the cartel” and made clear, in the CMA’s words, “that his company was not prepared to take part in the pre-existing customer allocation arrangements; that Balmoral was keen to be seen as a competitor in the sector and would be competing with the other suppliers to win bids for CGSTs.”

With regard to the four cartel members, the Competition and Markets Authority (CMA) issued a decision in 2016 that the companies had “participated in an agreement and/or concerted practice which had as its object the prevention, restriction or distortion of competition in relation to the supply of CGSTs in the UK,” and thereby infringed provisions of the 1998 Act “and/or” TFEU Article 101.  In relation to that decision, the CMA reached settlements involving financial penalties against the three firms (and/or their parent entities) that had participated in the May 11 meeting with the Balmoral representative.  (The fourth firm took advantage of the CMA’s leniency policy and alerted the CMA to the cartel’s existence in the spring of 2012, and so received no financial penalty.)

Even though the CMA explicitly recognized that Balmoral “was not a party to the main cartel infringement, refusing to join the cartel despite facing significant pressure from the other parties to do so,”  it issued a second decision in 2016 that conduct in the July 11 meeting had given rise to infringement by Balmoral and the three penalized firms of the 1998 Act and the TFEU.  The CMA imposed a financial penalty of £130,000 on Balmoral and its parent entity, Balmoral Group Holdings Ltd (Balmoral Group).

“[E]vidently indignant at their treatment by the CMA,” as the Court of Appeal put it, Balmoral and Balmoral Group appealed to the CAT, but the CAT dismissed that appeal.  On appeal to the Court of Appeal, Balmoral offered four grounds for its appeal from the CAT: (1) inconsistency between the CAT’s initial decision on the other cartel participants and its decision on Balmoral; (2) the CAT’s use of an impermissibly strict approach in its test for infringement; (3) failure “to undertake necessary analysis on uncertainty reduction”; and (4) error in law by the CAT in “impos[ing] a fine on Balmoral, and only Balmoral, for its role in the information exchange infringement.”  The Court of Appeal concisely rejected each of these arguments and dismissed the appeal.

Note:  Companies operating in the United Kingdom should take note of this decision for two reasons.  First, it sends a strong message that even “casual discussions about price” at a single meeting between competing firms can lead to liability under the 1998 Act and the TFEU.  Notwithstanding that Balmoral’s representative ultimately declined to join the cartel, the Court of Appeal cited extensive passages from the recorded conversations in the July 11 meeting, which showed in detail, among other things, that –

1. The Balmoral representative “shar[ed] [Balmoral’s] views on what pricing should be for specific tanks and that prices should move upwards”;
2. The Balmoral representative “volunteered the current prices at which Balmoral Tanks” was selling two types of tanks;
3. The meeting attendees “provided each other with information about what their prices would be if asked to quote” for a particular type of tank in the future;
4. Attendees discussed “price bands” for a particular type of tanks going forward;
5. The attendees discussed price bands for another type of tanks; and
6. The attendees discussed future bids for contracts with a particular tank head manufacturer.

Second, companies should take note that in this case, the CMA covertly recorded and transcribed the July 11 meeting, which apparently occurred after one of the cartel participants defected and reported to the CMA.  Those transcripts provided the CMA with verbatim statements by each of the meeting’s participants, including Balmoral’s, from which the CMA and the Court of Appeal liberally quoted in their respective decisions.  Accordingly, any company tempted to have even a “casual discussio[n]” about price with a competitor must recognize that it runs the risk of creating self-inculpating evidence that the CMA can use against it.