Balmoral: a cautionary tale for manufacturers
The Competition Appeal Tribunal’s decision in Balmoral Tanks v CMA  CAT 23 of 6 October 2017 highlights the dangers of “loose pricing talk” between competitors, with general discussions of confidential and competitively sensitive pricing information being found to have infringed competition law.
The Competition Act 1998 prohibits agreements, decisions and concerted practices which restrict, distort or prevent competition and trade in the UK. Such arrangements are void and unenforceable, and can incur fines of up to 10% of an undertaking’s global turnover as well as private damages claims by third parties.
On 11 July 2012, a meeting took place between representatives of suppliers of cylindrical galvanised steel tanks used in building fire suppression systems, Franklin Hodge Industries Ltd, Kondea Water Supplies Ltd Balmoral Tanks Ltd. Balmoral, a new market entrant, had disrupted an existing arrangement between Franklin Hodge and Kondea, with Balmoral setting prices as much as 20% lower than the other two companies.
At the meeting, Franklin Hodge’s and Kondea’s representatives sought to convince Balmoral’s representative to join their arrangement, setting prices in line with those of the cartel. Balmoral had previously refused similar approaches by the two companies, and at the meeting its representative repeated its refusal.
However, Balmoral’s representative proceeded to discuss pricing generally. In particular, mention was made of a recent contract won by competitor, Galglass Limited. Balmoral’s representative also indicated prices in recent Balmoral bids for contracts, and its pricing range for future bids.
The meeting was covertly recorded by the Competition and Markets Authority (CMA) as part of a criminal investigation into the seven-year cartel following a “whistle-blowing” disclosure by another cartel member. It took criminal and civil actions against the cartel and, as a result of the 11 July meeting, it found Balmoral to be guilty of a separate object infringement and fined Balmoral £130,000.
Appeal to the Competition Appeal Tribunal
Balmoral appealed the CMA’s fine to the Competition Appeal Tribunal, but the Tribunal upheld the CMA’s reasoning on liability in full on the grounds that:
- what was relevant was not what “those attending the meeting hoped to achieve when they started their discussion but the purpose of the arrangement that had been arrived at by the end of the meeting”, including more general discussions as to pricing;
- the pricing indications discussed could remain valid long enough to guide future bids, and that Balmoral’s representative had given sufficiently broad indications of its long-term strategy;
- Balmoral’s representative had disclosed information in the knowledge it was likely to influence the conduct of competitors, irrespective of whether that information was misleading or inaccurate; the onus was on Balmoral, not the Tribunal, to demonstrate that it had not taken information disclosed in the meeting into account in its future market activity; and that
- the meeting provided all three companies with an understanding of one another’s pricing intentions as competitors going forward.
What this means for manufacturers
Balmoral’s representative attended the meeting in order to turn down overtures to partake in a cartel, but was found to have engaged in a separate infringement as a result of the general discussion that followed. Senior Director of the CMA’s Cartels and Criminal Group, Stephen Blake, stated: “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”, and that “exchanging information with competitors, even at a single meeting, can infringe competition law with serious consequences for the businesses involved”.
Discussions of competitively-sensitive information are no longer confined to clandestine meetings between competitors or to board-level discussions. Everyday interactions between individuals in social contexts or in interviews could potentially lead to information ending up in the wrong hands, to the detriment of consumers.
With UK average employee turnover at roughly 15% per year, and employment in UK manufacturing industries forecast at 2,634,000 in 2017 according to the EEF’s 2017 Quarter 3 Manufacturing Output Report, there is scope for “loose talk” during discussions between potential employees and employers. This is particularly the case in the manufacturing and energy industries, where price-based tenders are a common component for winning new contracts.
Insights for the future
The decision in Balmoral Tanks v CMA and its subsequent appeal indicate the CMA’s readiness to tackle wider forms of information exchange between competitors, and shows that the prohibition on anti-competitive conduct no longer applies exclusively to clear agreements to cooperate on prices, but also to more general exchanges of intentions which can have the effect of distorting trade, even if indirectly.
According to CMA Executive Director for Enforcement Michael Grenfell: “The CMA brought this case to send a strong signal to companies about these critical compliance obligations, which are needed to protect customers from the higher prices which result when competing businesses collude on price or business strategy, including through the exchange of competitively-sensitive information”. It is more important than ever that suppliers (and their legal advisors) are aware of the considerable development of the concept of information-exchange in recent years. Training staff, having adequate procedures in place and seeking sound legal advice can prevent inappropriate distribution of sensitive information are vital to avoid conduct which, regardless of its intended purpose, is anti-competitive.