Law fails to crush cartels

YOU MIGHT be forgiven for thinking that the decision of the House of Lords two weeks ago in the second Ready Mixed Concrete Case (In re Supply of Mixed Concrete (No. 2)) heralded a startling development in competition law.

Your thinking might have been influenced by the speech of Lord Templeman, who described the fines imposed by the Restrictive Practices Court as “derisory”. Your thinking would be wrong.

In the last few weeks three important events have occurred in competition law. Each in its own way has thrown into stark relief the inadequacy of UK competition law in dealing with cartels.

The first event was the House of Lords' decision. It dealt with the decision of the Restrictive Practices Court over four years ago which found that Smiths Concrete had acted in breach of an earlier injunction not to engage in a price-fixing cartel.

It was Smiths' defence that it had not infringed the order. Infringement resulted from certain of the company's employees acting contrary to its express instructions.

The Restrictive Practices Court did not accept this argument. However, the Court of Appeal did.

Its decision was based on the argument that, as the companies concerned had prohibited their employees from entering into agreements, they were not parties to the agreement which the employees made. Consequently they were not in breach of the orders made by the Restrictive Practices Court.

This line of reasoning was categorically rejected by the House of Lords. As Lord Templeman put it: “An employee who acted for the company within the scope of his employment was the company.”

Perhaps more revealing was the judgment made by Lord Nolan, who said that the Restrictive Trade Practices Act “was not concerned with what the employer said, but with what the employee did, in entering into business transactions in the course of his employment”.

The decision of the House of Lords re-establishes the principle of vicarious liability (that is, that the employer is liable for the acts of the employee in the course of his employment) as part of competition law.

But the practical implications are also important.

As a result of the original orders that were made by the Restrictive Practices Court in 1978 and 1979, many companies will have introduced competition law compliance programmes.

It has been an established part of competition law that not only must these programmes exist, but they must be seen to be used by companies.

However, the decision of the House of Lords takes that process one step forward. A compliance programme must be stringent enough and must be operated with sufficient vigilance in order to ensure that even relatively low-level employees are unable to engage in agreements which infringe competition law.

If they do, they should face internal disciplinary procedures. But this will rely on prevention rather than cure.

If the programme succeeds in highlighting such employees after they have committed their company to such an agreement, the programme will only count in terms of mitigation.

The second event was the surprise announcement by Sir Bryan Carsberg that he is to resign as Director General of Fair Trading.

There has been some speculation about the reasons for his premature departure.

It appears that one of the reasons why he is leaving is his mounting frustration with the Government in its continued failure to introduce legislation reforming the Restrictive Trade Practices Act.

Since Michael Heseltine became President of the Board of Trade in April 1992, there has been a marked but tacit shift in competition policy.

The official line is that while the Government remains committed to introducing statutory reforms, the parliamentary timetable is such that this will not be possible because of the heavy legislative programme.

This excuse is wearing thin. It has been repeated in various forms in successive years since the publication in July 1989 of the White Paper 'Opening market: New policy on restrictive trade practices'.

Given the decision by the Government's business managers in the Palace of Westminster to repeatedly extend the periods when parliament is not sitting, it is difficult to believe that the timetable can be so full.

However, legislative reform is now unlikely before the next general election.

At the same time the shift in competition policy can be seen in the approach taken by the Monopolies and Mergers Commission.

It is concerned about ensuring that competition exists in the market. If it does then restraints on competition which may flow from the vertical integration of parties in the supply chain can be accepted, provided they do not go on to damage consumers.

In contrast the Director General of Fair Trading has focused on these vertical restraints because he believes that these can seriously damage the interests of consumers.

As a result reference has been made to the MMC in respect of, for example, ice cream and fine fragrances, only for the MMC to decide that the situations concerned do not operate against the public interest.

The third event was the announcement last week of the European Commission's decision to impose multi-million pound fines on European cement producers and national and international associations. These included fines on the Rugby Group.

It would appear from the movement on the London Stock Exchange, that the market was expecting heavier fines. But even though a company like Blue Circle made a provision in its accounts, the fines were very large.

When, in 1990, the Restrictive Practices Court imposed its fines, the shock was not caused by their size but by the fact that they had been imposed on employees.

In contrast, the Commission regularly imposes fines on those who breach European competition law.

While the UK system may have some virtues, if competition law is to achieve its purpose in increasing market competition, errants are more likely to come to heel as a result of the sanctions which the Commission can impose.

As Sir Bryan works out his final six months, he might look with envy at competition Commissioner Karel Van Miert and wonder what might have been if the Government had reformed the Restrictive Trade Practices Act to provide the Office of Fair Trading with an ability to fine.

Without reform, cartels will not be equal in the way in which they regulated.