On 19 December 2016 the Competition and Markets Authority (CMA) issued two competition law infringement decisions in its galvanised steel tanks investigation. Cylindrical galvanised steel tanks store water in large buildings and supply the water for fire sprinkler systems.
The first decision relates to a cartel (the main cartel). The second decision relates to an exchange, in a single meeting, of price sensitive information between competitors.
The information exchange decision and subsequent fine imposed on Balmoral Tanks Ltd (Balmoral) highlights the CMA’s increased focus on enforcing competition law infringements. The decision also flags to businesses the importance of being cautious when communicating (in any format) with competitors.
On 21 March 2016 three of the five UK suppliers of steel tanks admitted their involvement in the main cartel and agreed to settle the investigation with the CMA.
In its main cartel decision the CMA found that Franklin Hodge Industries Ltd (Franklin), Galglass Ltd (Galglass), Kondea Water Supplies Ltd (Kondea) and CST Industries (UK) Ltd (CST) agreed to share the market (i.e. customers), rig bids and fix prices between 2005 and 2012.
Customers were divided among, and prices agreed between, the cartelists. If an assigned customer requested a quote, the winning bid would be rigged to ensure the company allocated to that customer won the contract. According to the CMA the aim of the cartel was to “improve profit margins on the tanks by avoiding customers being able to negotiate the best deal through ‘playing’ the competitors off against each other”.
In the information exchange decision the CMA found that the parties to the main cartel and Balmoral had exchanged competitively sensitive pricing information at a single meeting in July 2012. This meeting had been covertly recorded by the CMA.
During the meeting the parties asked Balmoral to join the main cartel – Balmoral refused. Balmoral did, however, provide price sensitive information in respect of its current pricing and future pricing intentions, including generic and contract-specific information. The CMA considered that this exchange reduced uncertainty among the suppliers about their likely pricing intentions.
Balmoral is currently considering whether to appeal the fine on the basis that it was “incorrect and wholly disproportionate” given that, in its view, it effectively broke up the cartel by refusing to join it.
- CST, and its parent company, CST Industries Inc., were not fined on the basis they were the leniency applicant, i.e. they reported the cartel to the Office of Fair Trading’s (the OFT) (the CMA’s predecessor) and co-operated with the investigation.
- Franklin and its parent company were fined £2,015,135. This includes a 30% discount under the CMA’s leniency policy and a further 20% discount for settling the proceedings.
- Galglass and its parent companies were fined £587,926, which includes a 20% discount for settling the proceedings.
- Kondea’s successor was fined £22,248, which includes a 20% discount for settling the proceedings.
- Balmoral was fined £130,000 for its role in the information exchange, which according to the CMA, reflects a number of factors, including Balmoral’s refusal to join the main cartel as well as its cooperation in the CMA’s civil and criminal proceedings.
The civil and criminal investigations
The decisions follow on from the OFT’s civil investigation, which was opened on 27 November 2012. The OFT also opened a criminal investigation using its powers under the Enterprise Act 2002. Three individuals were charged with dishonestly agreeing with others to divide customers, fix prices and rig bids between 2004 and 2015 in respect of the supply in the UK of galvanised steel water tanks. Mr Snee, who was the former managing director of Franklin, entered a guilty plea and the remaining two, Mr Dean and Mr Stringer were later acquitted by a jury. Mr Snee was sentenced to six months’ imprisonment, suspended for 12 months, and 120 hours of community service.
During the past year the CMA has increased its focus on enforcing competition law infringements. For instance, the CMA has 15 competition infringement investigations currently ongoing, all of which were opened during the last two years.
The information exchange decision, based on a single meeting, and the CMA’s use of covert recording, also highlights this increased appetite.
Businesses should be cautious when communicating with competitors regardless of the frequency. This is emphasised by Stephen Blake, Senior Director of the CMA’s Cartels and Criminal Group, who said that the infringement decisions “show[s] the CMA’s commitment to using its enforcement powers to tackle illegal anti-competitive behaviour. The information exchange decision also underlines the fact that exchanging information with competitors, even at a single meeting, can infringe competition law with serious consequences for the businesses involved”.