Just over three years ago, the Enterprise and Regulatory Reform Act 2013 came into force.This saw the removal of the dishonesty element to the cartel offence. An individual will commit an offence if he or she agrees with one or more persons (whether dishonestly or otherwise) that two or more undertakings will engage in certain prohibited cartel arrangements, namely price-fixing, market-sharing, bid-rigging, or limiting output. Any such arrangements must have taken place in the UK.
The effects of removing the requirement of dishonesty were mitigated to some extent by the introduction of new exceptions (concerning notification of customers, publication of arrangements, complying with a legal requirement) and defences.
The defences are as follows:
“(1) ……it is a defence for an individual charged with an offence under section 188(1) to show that, at the time of the making of the agreement, he or she did not intend that the nature of the arrangements would be concealed from customers at all times before they enter into agreements for the supply to them of the product or service.
(2) it is a defence for an individual changed with an offence under section 188(1) to show that, at the time of making the agreement, he or she did not know at the time of making the agreement, he or she did not intend that the nature of the arrangements would be concealed from the CMA.
(3) it is a defence for an individual charged with an offence under section 188(1) to show that, before the making of the agreement, he or she took reasonable steps to ensure that the nature of the arrangements would be disclosed to professional legal advisors for the purposes of obtaining advice about them before their making or (as the case may be) their implementation.”
The last defence has resulted in a great deal of controversy from academics and competition law watchdogs.
Find out more about cartel investigations and competition law here: https://www.wilfordsmith.com/services/regulatory-compliance/cartel-investigations-competition-law.html
No need to act on legal advice obtained
The main concern with the defence available under s 188B(3) is that it provides a “get out of jail free card[1]” if the section is interpreted literally, in the sense that legal advice be obtained, but there is no requirement to act upon any advice given.
In his detailed article, Section 47 of the Enterprise and Regulatory Reform Act 2013: A Flawed Reform of the UK Cartel Offence[2], Dr Peter Whelan argues that the Explanatory Notes and the CMA’s Prosecution Guidance support the literal interpretation of the defence because they both remain silent on whether the legal advice needs to be acted upon.
Angus MacCulloch, senior lecturer at Lancaster University Law School[3], provides a rationale for the drafting (or lack thereof) of the section. He reports that Hansard suggests:
“…the Govt introduced this defence to deal with a number of narrow industry concerns regarding agreements which might fall within the terms of the cartel offence, and for which ‘publication’ or ‘notification’ under s188A would not be practicable.
The defence of legal advice was added very late in the stage and was not subject to the scrutiny in the various parliamentary committees.”
Do the courts have to apply a literal interpretation to s188B(3)?
The answer to this is, of course not. Under the rules of statutory interpretation endorsed in the work of Francis Bennion[1], use of the ‘mischief’ approach in the interpretation of legislation is possible even in cases where the section can only have one meaning.
The ‘mischief’ rule is set out in Haydn’s Case[2]. When applying this rule to legislation that proves to be ambiguous, the court must look at the mischief Parliament was trying to suppress and advance the remedy.
In DPP v Bull[3], a man was charged with an offence under s.1(1) of the Street Offences Act 1959 which makes it an offence for a “common prostitute to loiter or solicit in a public street or public place for the purposes of prostitution.” He was found not guilty in the Magistrate’s Court on the grounds that ‘common prostitute’ only related to females and not males.
The Queen’s Bench Division (QBD) held the word ‘prostitute’ was ambiguous and applied the mischief rule. The Street Offences Act was introduced following the Wolfenden Report into homosexuality and prostitution. The Report only referred to female prostitution and did not mention male prostitutes. The QBD, therefore, held the mischief the Act was aimed at was controlling the behaviour of only female prostitutes and upheld the magistrates’ decision.
In contrast, the case of Smith v Hughes[4] involved prostitutes soliciting from private premises in windows or on balconies to allow them to be seen by the public. The Street Offences Act 1959 made it an offence to solicit in a public place.
Lord Parker, on giving the court’s decision stated, “Observe that it [the legislation] does not say there specifically that the person who is doing the soliciting must be in the street. Equally it does not say that it is enough if the person who receives the solicitation or to whom it is addressed is in the street. For my part, I approach the matter by considering what is the mischief aimed at by this Act. Everybody knows that this was an Act intended to clean up the streets, to enable people to walk along the streets without being molested or solicited by common prostitutes. Viewed in that way, it can matter little whether the prostitute is soliciting while in the street or is standing in a doorway or on a balcony, or at a window, or whether the window is shut or open or half open; in each case her solicitation is projected to and addressed to somebody walking in the street. For my part, I am content to base my decision on that ground and that ground alone.”
The ‘mischief’ rule (or purposive approach as it is sometimes known) applies in particular where a literal interpretation creates an absurdity that could not have been intended by Parliament. However, the factors supporting a purposive construction must be especially powerful if they are to justify a departure from a clear and unambiguous literal meaning.
Identifying the mischief
Prior to the ERRA 2013 amendments, there had only been one successful prosecution for cartel behaviour under the Enterprise Act 2002. During the extensive consultation, it was thought the requirement of ‘dishonesty’ was a significant barrier to effectively enforcing the Act.
The requirement for dishonesty was removed by the ERRA 2013, and replaced with a carve-out: the offence is not committed where the arrangement is entered into openly – meaning that customers (including a person requesting bids) are given relevant information, or that information is ‘published’ prior to its implementation.
Concerns were raised by the Confederation of British Industry (CBI) that the revised offence would risk criminalising legitimate business arrangements (in the absence of dishonesty). This, in turn, led to the three defences, including obtaining legal advice, to be included.
There can be no doubt that the ERRA 2013 was enacted to improve the ability to enforce the cartel offence. If the courts were to apply a literal meaning to the wording of s 188B(3), the chance of making a successful prosecution is highly unlikely. Individuals would only have to prove they have disclosed their plans to their in-house legal team or external solicitor. Dr Whelan observes that the legal professional privilege enjoys a high level of protection in English law, and there is no express or implied requirement for a solicitor or barrister to report on cartel activity[1]
Public interest
The court can also depart from the literal interpretation of a statute if:
- it is in the public interest to do so.
- the legislation contradicts the need for the law to be consistent and coherent,
- in the interests of fairness, and
- in the assumption that Parliament intends to further the ends of justice
Angus MacCulloch puts forth: “A defence of seeking legal advice risks making a mockery of the criminal justice system and would be inconceivable in relation to more conventional crimes such as burglary, assault or theft. The defence, in fact, amounts to a manifest absurdity, as it allows legal advice to absolve criminal liability, regardless of the defendant’s intentions or actions in the commissioning or implementing of the offence.”
There clearly seems to be a section that should have followed the end of s 188B(3) which should read along the lines of, “and must have taken reasonable steps to act in accordance with that advice.”
Despite most commentators stating the defence of obtaining legal advice will render UK cartel law a farce, it would be a very over-confident counsel indeed to rely on the literal interpretation of s 188B(3) without providing evidence that reasonable steps were made to comply with the advice received.
The courts must be seen to uphold the intentions of Parliament and the public interest. I would be unwilling to put money on the odds of s188B(3) of the Enterprise Act 2002 being interpreted literally.
[1] https://lancslaw.wordpress.com/2014/01/13/get-out-of-jail-free/
[2] http://onlinelibrary.wiley.com/doi/10.1111/1468-2230.12125/epdfthe CMA
[3] https://lancslaw.wordpress.com/2014/01/13/get-out-of-jail-free/
[4] O Jones, Bennion on Statutory Interpretation, 6th edn (London: LexisNexis, 2013).
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