Get Out of Jail Free: s 188B(3) of the Enterprise Act 2002

Get Out of Jail Free

What is the impact of the ‘legal advice’ defence to the cartel offence in s 188B(3) of the 2002 Act? Could it make it easy to escape prosecution?

This week I delivered my UG competition law lecture on Cartels. It’s an occasion I always enjoy and gives me an opportunity to approach the topic afresh on an annual basis [the feedback I receive is always extremely helpful too]. This year it was the first time that I had the opportunity to talk through the new defences to the UK cartel offence since the controversial ‘dishonesty’ element was removed by the Enterprise and Regulatory Reform Act 2013. I have described one of the new defences inserted into the Enterprise Act 2002, the ‘legal advice’ defence in s 188B(3), as ‘bizarre’ in the new edition of our textbook, but in this post I want to set out what I perceive the problems to be. I want to develop these ideas into a longer piece, but for now I want to pose some of the questions I think need answering. My fear is that the ‘legal advice’ defence could become a get out of jail free card rendering the UK cartel a dead letter in all but the most extreme cases.

The Defence

The final s188 defence reads:

(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 advisers for the purposes of obtaining advice about them before their making or (as the case may be) their implementation.

Parliamentary Scrutiny?

Before looking at the defence itself it is interesting to briefly look at the legislative history of this defence as it is quite instructive. The defence was added at a very late stage of the ERR Bill’s passage through Parliament. Because it was introduced at such a late stage there was almost no discussion of the defence in various Committees where proper scrutiny of the Bill was supposed to take place. Hansard suggests that 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. That may be the case but the defence is not drafted in narrow terms. It is incredibly broad. There was no suggestion from any other source, academic or professional, that such a defence was necessary or advisable. Industry lobbyists must be very pleased that they were able to introduce such a damaging clause, without real debate, at such a late stage.

Who, How, and Where?

The majority of concerns that first struck me with regard to the offence are practical ones. What would the accused have to prove to make out the defence at trial? All that is required in s 188B(3) is that an ‘individual’ took reasonable steps to ‘disclose’ an agreement to a ‘professional legal advisor’ ‘for the purpose of obtaining advice’. I’ll take a look at those in turn.

An ‘individual’ must seek advice. This may be problematic in practice. The cartel offence is committed by individuals, not by corporate bodies, and therefore it is obvious that individuals are the interested party. Does this mean that an individual needs to seek their own legal advice, independent of any corporate advice which may have been received, to make out the defence? The defence requires the individual to take ‘reasonable steps’ to disclose the arrangement. Can that be fulfilled if the firm that an individual works for consults the firm’s lawyers? Can a firm seeking advice give blanket protection to all its employees, or would an individual have to play some personal role in the disclosure itself? The defence is not very clear. In the vast majority of cases individuals are unlikely to seek independent advice and the intention must be that disclosure to a firm’s legal advisors is sufficient, but it would be much more satisfactory if this was given greater clarity. The relationship between corporate and individual liability for cartel activity is difficult in many areas, this defence adds a further level of complexity. The intention may have been that ‘sunlight is the best disinfectant’, and that through internal disclosure unlawful behaviour would be discouraged. But again the broad nature of the defence means that is not a necessary result. A mid-level ‘rouge employee’ who is engaged in cartel activity without the knowledge of their bosses can still make out the defence by seeking protection from any high street legal practitioner with no connection to the firm.

Under the defence an individual must disclose the arrangement to a ‘professional legal advisor’ for the purpose of ‘obtaining advice’. To my mind this looks very similar to the concepts found within legal professional privilege. It presumably covers solicitors, barristers and in-house lawyers. I am guessing that the Govt intended the defence to cover formal advice from external solicitors representing corporate clients. But without restriction it must be the case that in-house lawyers, either solicitors or barristers, would be covered by the defence. Can it be correct that any individual within a firm, simply by disclosing the nature of an arrangement to an in-house lawyer, perhaps over coffee or when passing in a corridor, can be completely protected from all criminal liability for a cartel? There is, of course, an evidential problem that falls upon the individual in relation to very informal advice, but it does not appear that a back-of-an-envelope ‘advice note’ would fall outside the defence. The existence of LPP also raises an interesting quirk. A CMA investigation would not be able to see the advice as it is privileged, but an individual would be able to waive LPP as and when required; however, DG Comp would be able to seize it as evidence against the undertaking for Art 101 TFEU purposes. The final issue I’d like to raise is the obvious ‘elephant in the room’ when it comes to s188(3). All that is required to make out the defence is that you disclose the nature of the arrangement to your advisor – nothing more. Even if that advisor stresses that following such a course of action would constitute a criminal offence and could result in significant corporate fines, you still have a complete defence. I’m not a criminal lawyer, but I doubt there are many other offences where being warned you are about to commit a criminal act by a trusted advisor stops that act from being criminal. That surely cannot make any sense, either in principle or in practice. Why bother with criminalisation when only the most ill-prepared and ignorant cartelists face any risk? Any individual who is concerned about potential criminal liability can now acquire a ‘Get Out of Jail Free’ advice note by consulting a lawyer.

Unintended Consequences

The consultation and debate which preceded the reform of the UK cartel offence focussed on the removal of the ‘dishonesty’ element to make it easier to prosecute offences. I have argued in the past that the removal of dishonesty without somehow narrowing the offence so that it catches only truly ‘criminal’ arrangements, would be problematic. We see one such pitfall now. A broadly drafted offence needs defences to allow the few legitimate cartel-type arrangements to proceed without liability, but it appears that the defence in s188B(3) is such that it will allow a great many obviously ‘criminal’ cartelists to escape the offence. Through their attempt to make the cartel offence more effective the UK Govt may have inadvertently hobbled it as a result of some very poor drafting.

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2 responses to “Get Out of Jail Free: s 188B(3) of the Enterprise Act 2002”

  1. botzarelli says :

    Interesting analysis.

    As an in-house lawyer, the big thing to take away here would be the utmost importance of recording and following up on any and every instance in which advice had been sought on something which could fall within the scope of the offence. That could form part of the business’ competition compliance policy and process. To establish the defence based on a water cooler conversation with an in-house lawyer who had not taken any further steps would then be reliant on the in-house lawyer remembering the disclosure and giving evidence to show that they had had sufficient disclosure to fulfill the purpose of enabling them to advise. That might not be so easy to do – from my criminal law days I’d suggest that a defence in court entirely reliant on corroboration from a potentially hostile witness whose career could be ended is likely to be a weak one. To get permission to treat the witness as hostile would itself be difficult as the Courts are traditionally very stern about allegations of bad faith against solicitors.

    If the in-house lawyer did take further action and this was recorded, the likelihood is that the business would in most cases seek leniency at some point during the civil investigation and (unless the prosecution guidelines have changed) this would tend to result in there being no prosecution.

    So, the scenario in which the defence would be genuinely problematic would be one where there was good supporting evidence to show that the in-house lawyer had negligently or intentionally taken no action or advised the defendant that they could carry on.

    That said, I have been involved in one civil cartel investigation long before the Cartel Offence in which one of my client’s employees had raised a question with their manager about a possible cartel they had been involved in and been told by their manager not to worry about it. The employee had then gone and taken a number of documents they considered to be relevant from the office to a local solicitor for safekeeping. That employee would be likely to be safer today than under the previous formulation of the offence (although as we never did see the documents because there was no leniency application and the competition authority for some reason decided to exclude that individual’s part of the business from its investigation, we couldn’t know – if the documents taken away were insufficient for the purposes of seeking advice they might still be on the hook!).

    • Angus MacCulloch says :

      Thanks for the comments – it does raise interesting questions as regards how in-house lawyers should deal with compliance issues.

      One of my colleagues pointed out something in conversation – it’s pretty unusual for a criminal law defence to rely on everyone doing things by the book! The more usual presumption is that the offender will try to wriggle out on a technicality and the law should be careful to block that possibility. Here the reverse is true; white collar criminals seem to be given the benefit of the doubt. When they know they are in the wrong it’s presumed they’ll tow the line.

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