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When does a discussion infringe competition law? Lessons from the UK's Competition Appeal Tribunal in Balmoral v CMA

12 October 2017

The recent judgment of the Competition Appeal Tribunal (CAT) in Balmoral v CMA[1] brings into sharp relief when and how a company should appropriately distance itself from anti-competitive conduct taking place in its market. It also provides a salutary reminder as to the broad reading of what will constitute a "hardcore" breach of the competition rules, and the need for the appropriate training of staff who interact with their competitors.

The case arose as an appeal by Balmoral Tanks Limited and its parent company Balmoral Group Holdings Limited (together, "Balmoral") against the decision[2] of the Competition and Markets Authority (CMA) concerning Balmoral's role in an exchange of information between competitors (the "Information Exchange").

The CMA held that the Information Exchange took place during and after a single meeting (the "Meeting") between three individuals from competitor firms active in the supply of cylindrical galvanised steel tanks in the UK. The meeting was covertly filmed by the CMA as part of its then ongoing criminal investigation into arrangements between competitors (the "Main Cartel"), meaning that a substantial recording of the meeting was available, which was carefully reviewed by the CAT during the appeal.

Although the CMA held that Balmoral had not participated in the Main Cartel, it found that Balmoral had infringed UK and EU competition law by participating in the Information Exchange, during which competitors shared commercially sensitive information on their pricing strategies.

In upholding the CMA's findings on appeal, the CAT has provided guidance as to when discussions between competitors cross the line from innocuous conversation to competition law infringement. In so doing, the judgment confirms the need for companies to ensure that they "publicly distance" themselves from any anti-competitive contact, and that their employees are effectively trained to enable them to identify and confidently close down any such situations.

Hot topics: what did the Information Exchange address?

While the Main Cartel had been in operation for a number of years, Balmoral had recently entered the market, and was winning orders.

Members of the Main Cartel sought to include Balmoral in their existing arrangements, and arranged the Meeting with this as their agreed agenda[3]. For its part, Balmoral was aware that the existing suppliers had a "cosy" relationship, and had regular meetings with each other.

During the Meeting, Balmoral's representative made clear that it would not participate in the Main Cartel. However, Balmoral's representative then made the fatal error of remaining at the Meeting for more than an hour, and engaging in the Information Exchange. The CMA considered that Balmoral's representative did so with a view to stabilising prices within the market at a higher level.

The CMA relied upon specific topics discussed during the Meeting to evidence that the Information Exchange infringed UK and EU competition. These topics included:

  • Balmoral's representative sharing their views as to what pricing should be for specific products, and that product prices should move upwards;
  • Balmoral's representative volunteering current prices for specific products;
  • the attendees sharing information about what their company's prices would be if asked to quote in the future for a specific product;
  • a discussion of price bands for certain products going forwards, with certain individuals indicating their views of acceptable pricing;
  • a discussion of one competitor's recent price lists, as shared during the meeting; and
  • a discussion about future bids for contracts with a specific customer.

The CMA found that the Information Exchange constituted a so-called "concerted practice", and noted that following the meeting, one of the competitors used pricing information disclosed by Balmoral to revise its own bid for a contract.

The CMA concluded that, as the Information Exchange reduced uncertainty as to the competitors' future conduct, it had an anti-competitive object. As a matter of law, this meant that the CMA was not required to show that the Information Exchange had an actual anti-competitive effect upon the market.

This was as the Information Exchange by its very nature could be regarded as harmful to the proper functioning of competition, and was deemed to give rise to a restriction of competition "by object".

The Information Exchange as a concerted practice

The CAT agreed with the CMA's analysis, describing it at one point as "unimpeachable", and confirmed that UK and EU competition law applies to concerted practices, whereby competitors collude by knowingly substituting "practical cooperation between them for the risks of competition", even if they do not reach an actual agreement[4].

Importantly, while falling short of an agreement, a concerted practice serves to reduce the uncertainty between competitors as to how they are each likely to behave in the market. This reduction in uncertainty prevents the market from being properly competitive, as competitors have an insight into the conduct to expect from each other in the future[5].

To establish a concerted practice, the CAT reiterated the requirement for a causal link between the parties' collusion and their conduct on the market resulting from that collusion. In this context, the CAT confirmed the existence of a rebuttable legal presumption that, where firms participating in a concerted practice remain active on that market, their activities on the market will be informed by the information exchanged with their competitors. In this context, the mere receipt of information may be sufficient to constitute a concerted practice[6].

In relation to Balmoral's appeal, the CAT observed that the CMA not only relied upon this presumption (which Balmoral did not rebut), but was able to evidence that the information disclosed by Balmoral was in fact used by a competitor in determining its conduct on the market.

Parties' intentions before any contact

In its appeal, Balmoral argued that the CMA had misunderstood the events of the Meeting.

The CAT accepted that Balmoral's representative went to the Meeting "intending to put a stop to illegitimate contact from the others". However, the CAT found that Balmoral's representative had remained after telling the others in the Meeting that Balmoral was not interested in joining the Main Cartel, and actively participated in sharing and soliciting commercially sensitive information.

The CAT made clear that any focus should be upon the purpose of the arrangement that was reached by the end of the discussion, not the purpose that the party sought to achieve at the start of the discussion.

Irrespective of the parties' intentions before the Meeting, the CAT observed that none of the attendees expressed any concerns regarding the Information Exchange. Instead, in view of the conduct of the individual in question, the CMA's conclusion that Balmoral's representative had sought to stabilise prices at a higher level was an "accurate and fair conclusion".

Individuals' influence upon their firm's prices

Balmoral also argued that its representative could not restrict competition by disclosing pricing intentions, as the individual did not have a meaningful involvement in setting Balmoral's prices.

On the facts, the CAT rejected this argument, noting that Balmoral's representative had "readily answered" questions on pricing during the Meeting, and had written down information on prices received from competitors.

However, the CAT emphasised that even if the individual could not influence Balmoral's pricing, or knew that the pricing information being provided was inaccurate, Balmoral would still have infringed UK and EU competition law[7].

This was on the basis that Balmoral's representative knew that the pricing information provided during the Meeting was likely to be used in competitors' future pricing decisions. As a matter of law, it made no difference if this pricing information was correct.

Detail and age of the information disclosed

In addition, Balmoral argued that its representative had made only generic remarks on pricing at the Meeting, in an effort to "fob off" members of the Main Cartel.

The CAT rejected this argument, and observed that the prices discussed during the Meeting went well beyond generic pricing, with specific prices being disclosed for both past bids, as well as in the context of future pricing intentions. The CAT agreed with the CMA that discussions of historic pricing were intended to avoid repetitions of earlier low prices, and that discussions of pricing bands were in fact target pricing bands, rather than generic, aggregated industry prices.

On this basis, the CAT concluded that the Information Exchange was useful to the attendees, and the pricing information was exchanged in a situation where it was clear that the attendees:

  • intended others to rely upon the information in setting prices; and
  • expected to use the information themselves in setting prices.

A single discussion can be sufficient to infringe

The CAT noted that the market for the supply of cylindrical galvanised steel tanks in the UK is characterised by only a few suppliers, with very few customers, and bids being made for substantial contracts.

In the context of this market, the CAT considered that pricing signals are capable of having a greater effect in reducing uncertainty between competitors, with a single indication of future pricing able to affect a material number of bids.

On this basis, the CAT confirmed that the CMA was correct to consider the market to be such that a single exchange of pricing information in relation to this market constituted a "by object" infringement of UK and EU competition law.

Price transparency in the market

The CAT also rejected Balmoral's argument that there was already pricing transparency in the market, such that the Information Exchange was therefore not capable of influencing competitors' conduct.

Balmoral asserted that this pricing transparency resulted from customers sharing quotes with suppliers, and seeking to play competitors against each other to secure lower prices.

However, the CAT held that the Information Exchange provided an opportunity for competitors to confirm directly their understanding of each other's pricing, and to gain a better understanding of the prices that might be charged in the future.

This information simply would not be readily available from the parties' customers.

Avoiding infringement: the importance of "public distancing"

The judgment clearly emphasises the need for parties to ensure that they publicly distance themselves from any anti-competitive contact.

Significantly, the concept of public distancing is interpreted narrowly. Without evidence of a party manifestly opposing anti-competitive contact, there is a presumption that the party's participation in an anti-competitive meeting or discussion is unlawful[8], even if that party does not actively participate in the meeting or discussion, or the implementation of any subsequent arrangements.

With this in mind, where a party publicly distances itself from certain conduct, it must be perceived to be doing so by the other participants, and it must communicate this firmly and unambiguously[9].

A failure to either publicly distance, or to report anti-competitive conduct to a relevant authority, risks exposing companies and individuals to the risks of infringing UK and/or EU competition law.

For companies, these risks include substantial financial penalties, as well as the possibility of claims for damages resulting from the infringement, and significant harm to brand and reputation.

For individuals, these risks include director disqualification, as well as potential criminal sanctions for specific anti-competitive agreements under the so-called "Cartel Offence"[10].

It is therefore essential that companies' staff are effectively trained to enable them to identify and confidently close down any problematic situations, well before these escalate and cross the line from innocuous conversation to competition law infringement.


Gowling WLG (UK) LLP represented one of the undertakings that was subject to the CMA's investigation from the initial "dawn raid" in September 2012 to the conclusion of the investigation in 2016.

Our 20-strong dawn raid response team of civil and criminal law specialists and IT experts is located across London and Birmingham, and is one of the largest in the UK.

Footnotes

[1] Balmoral Tanks Limited and Balmoral Group Holdings Limited v Competition and Markets Authority [2017] CAT 23
[2] Case CE/9691/12 Galvanised steel tanks for water storage information exchange infringement
[3] Case CE/9691/12 Galvanised steel tanks for water storage information exchange infringement, paragraph 3.33.
[4] Case 48/69 ICI v Commission EU:C:1972:70, paragraph 64.
[5] Cases T-25/95 etc. Cimenteries CBR v Commission EU:T:2000:77, paragraph 1852.
[6] JJB Sports plc and Allsports Limited v Office of Fair Trading [2004] CAT 17 paragraph 658.
[7] Case T-588/08 Dole Food Company v Commission EU:T:2013:130, paragraph 484.
[8] C-373/14 P Toshiba Corporation v Commission EU:C:2016:26.
[9] Case T-377/06 Comap SA v European Commission EU:T:2011:108, paragraph 76.
[10] Section 188 of the Enterprise Act.


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