Surveillance and Civil Enforcement: Lessons from Balmoral Tanks

The CAT judgment in Balmoral Tanks [2017] CAT 23 is the latest in the Galvanized Steel Tanks Cartel – the UK cartel case that just keeps giving. It brought us the first UK based guilty plea under the original UK cartel offence, and then the first proper cartel offence trial which resulted in acquittals. This is the appeal against the CMAs ‘Information Exchange’ Decision that Balmoral had been party to an Art 101 TFEU concerted practice during a single meeting in July 2012. The appeal gives us a fascinating insight into the interaction between the criminal and civil investigations in this case, and the nature of unlawful information exchanges.

The Fateful Meeting

On 11 July 2012 three men met in a hotel in Tamworth, each represented a company active in the Cylindrical Galvanized Steel Tank (CGST) market – these tanks are components in fire suppression sprinkler systems. Another man was supposed to attend but he was unwell. More significantly, another company active in the manufacturer of CGSTs was not represented as that company had made a leniency application to the CMA and, unbeknownst to the others, the long-standing CGST cartel was under investigation. The CMA were recording the meeting.

The position of the appellant, Balmoral Tanks, at that meeting was very interesting. It was a recent entrant to the market and was a highly disruptive influence on the existing cartel. The meeting had been arranged as a last chance to try and bring Balmoral inside the cartel as their entry had led to them rapidly taking market share and driving down market prices. Their intention at the meeting was to make it clear they would not cooperate in any industry ‘arrangement’ and its intention was to compete ‘vigorously’ on the market. While they made that point clear, conversation, as Adam Smith predicted, soon turned to pricing. It was the information exchanged in this one-off conversation that was the subject of the CMA Decision – which landed Balmoral with a fine of £130,000.

The Appeal

Balmoral were very aggrieved by the CMA Decision, arguing that the CMA had fundamentally misunderstood the nature of the meeting. They argued the statements regarding pricing were merely to ‘fob off’ [5] the other cartel members as Balmoral would have to have some form of continuing relationship with them. Balmoral also highlighted that not only had they cooperated with the CMA investigation when Mr Joyce, who was present at the meeting, had given evidence for the prosecution during the criminal trial of the main cartel participants, but that it was their competitive entry to the market that brought about the end of the main cartel. It was clear that, for Balmoral, the appeal was about the reputational harm of the finding, as Mr Joyce stated as a witness [6]:

“68. … This appeal is therefore personal to me and the company. I have worked for Balmoral for just over 22 years and take great pride in the service it provides and the reputation it has earned.

69. The Decision has unfairly, and wrongly tarnished that reputation. Balmoral’s hope is that … it will succeed in setting the record straight and make clear that, far from engaging in anti-competitive conduct with the Cartel, Balmoral brought it to an end through fair, lawful and proper competitive practices.”

The Findings of the CAT

The CAT applied the EU jurisprudence regarding information exchange; particularly information in relation to future pricing intention. Noting the presumption that where information is exchanged there is a presumption that a party will take account of that information when determining their future conduct [40], the CAT stressed:

“41. The strictness of the law in this regard reflects the fact that it is hard to think of any legitimate reason why competitors should sit together and discuss prices at all.”

The fact that there was only a single meeting at which information may have been exchanged was also discussed. The CAT noted that in Case C-8/08 T-Mobile the CJEU had considered such an instance and advised that the presumption of a causal connection could apply to a single meeting, although the presumption would be stronger with regular meetings.

Perhaps the most interesting facet of the Balmoral case is the fact that the CAT did not need to rely on the presumptions for the case to be made out. Because of the CMAs surveillance at the meeting there was an almost complete transcript of all that was said and done. This showed in forensic detail exactly what information had been exchanged and also that conduct had been altered as a direct result of the exchange. This evidence did not accord with Mr Joyce’s individual recollection of the meeting. The CAT explained, at [72]:

“We formed the impression that Mr Joyce’s sense of unfairness in relation to the CMA’s findings was unresolved. Mr Joyce clearly felt that those findings indicate that he, personally, and Balmoral as a company, behaved dishonourably. This has caused him to remember the tenor of the Meeting as well as what was actually said in a way which is inconsistent with the objective evidence of the recording, perhaps mixing up his subjective thoughts and motivations at the time with what he actually said and the impression his conduct makes on the attendees at the Meeting and on the viewer of the recording.”

Notwithstanding Mr Joyce’s proclaimed intention to have nothing to do with the cartel, and ‘fob off’ the other cartelists, the CMAs case was built, not on bad intention, but on the actuality of the information exchanged and the impact that exchange had on the others in the room. Balmoral advanced a number of arguments relating to competition cases where intention became an issue, but the CAT did not find those helpful. The purpose of the cartelists at the meeting was clearly to encourage Mr Joyce, and therefore Balmoral, to enter into the cartel and therefore reduce the market uncertainty that was apparent since Balmoral entered the market. Mr Joyce may not have had the intention to collude, and in the meeting did make it clear he would not be involved in the main cartel, but he did stay on in the meeting when conversation ‘turned to prices’ and contributed to that discussion. The CAT found that the transcript of the meeting showed that all in attendance took an active role in ‘sharing and soliciting information’ [86]. Mr Joyce provided information about Balmoral’s prices, and asked about prices quoted by other firms.

Once that information had been exchanged it placed Balmoral in a very difficult position; the information was in the hands of its competitors and the presumptions came into play. But again the surveillance evidence made Balmoral’s position worse. The CMA did not rely on the presumption. In a phone call made as soon as Mr Joyce left the meeting one of the cartelists updated others in their firm that they had ‘come by some information’ of what Balmoral was quoting and how they might adapt their prices [27-30]. There can be little better evidence that competitors were adapting their behaviour within minutes of the information exchange.

Unwitting and/or Unlucky?

The most striking issue that I take from this decision is that Balmoral, and Mr Joyce, were unwittingly party to a concerted practice. It certainly did not appear to be their intention, either before or after the meeting to do anything other than compete vigorously in the market. But at that meeting Mr Joyce undoubtedly crossed the line into illegitimate information exchange; one that would indicate to a competitor how they were acting in that market and remove uncertainty as to their future conduct. That information was received in a context that allowed it to be trusted and acted upon. The fact this was a single conversation was not, on its own, significant; a single conversation when you are aware of the existence of a ‘cosy’ arrangement within industry [85] will be enough to found an infringement. A single conversation in another, less loaded, context might not be enough, but as the CAT stressed it is difficult to think of a legitimate reason for competitors to discuss prices.

The other striking feature of this case is that Mr Joyce, and ultimately Balmoral, were unlucky. In the vast majority of Art 101 TFEU cases there would simply not be damning evidence from such a conversation. The transcripts only existed because the CMA had used its criminal powers to use covert surveillance to record the behaviour of the other cartelists. Balmoral was not part of the criminal cartel, but the criminal investigation left evidence of Balmoral’s civil infringement. In most Art 101 TFEU cases there will not be that evidence, at best there will be differing recollections of what was said by whom, and it may be very difficult to make out a convincing case from a single exchange, even with the presumptions in play.

I can understand why Mr Joyce was aggrieved that after Balmoral had destabilised the cartel and provided valuable evidence to assist the CMA’s prosecution, that they then found themselves to be have civil liability for a short, and unwise, conversation. There is perhaps an argument that the CMA could, in these unusual circumstances, have imposed little more than a nominal fine. But Mr Joyce, and Balmoral, can, I think, still occupy the moral high ground to a great extent: they crossed the line unwittingly, and were very unlucky to be caught.

 

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2 responses to “Surveillance and Civil Enforcement: Lessons from Balmoral Tanks”

  1. Julian says :

    An interesting post (as always)… just a quick question: could you enlighten us on the ‘usability’ of evidence gathered in criminal investigations in civil matters. In many jurisdictions that would have been a no go because of Chinese walls between the two investigations. The concern is also nicely visible Art 12(3) of Reg 1/2003..
    Cheers,
    Julian
    P.s. see you soon in Lund

    • Angus MacCulloch says :

      As I understand it there are strong ‘walls’ between the Criminal and Civil investigations when they are in process, but after the Criminal case is completed there is a process whereby certain information, which might be useful to the Civil case, might be transferred.
      I’ll have to look into it in more detail.
      Angus.
      P.S. Looking forward to it.

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