Messy conclusion to BA price-fixing case highlights weaknesses in competition law enforcement

Virgin Atlantic had received immunity in return for blowing the whistle on the alleged collusive arrangement involving passenger fuel surcharges.  Keen to capitalise on this high-profile case, the OFT pursued British Airways with corporate fines under the Competition Act 1998 and the criminal prosecution of four of its executives under the Enterprise Act 2002. After BA agreed to a £121.5m settlement in 2007, the administrative case against the airline was put on ice pending the criminal case. This was the first time the UK’s cartel offence would be prosecuted in court. Guilty pleas in the earlier Marine Hoses case had been arranged as part of a US plea bargain after three British nationals were arrested for price fixing in Houston.

The BA case was delayed by pre-trial challenges and was not heard until May 2010. During this time, academics and practitioners expressed doubts as to whether prosecutors could convince a jury that the BA executives had acted dishonestly as required by the cartel offence. The case was far from a sophisticated cartel, with the evidence mainly consisting of emails and telephone calls.  These concerns were heightened by a University of East Anglia survey showing weak public attitudes to price fixing in the UK, and the extradition case of USA v Norris in which the House of Lords rules that  dishonesty in the context of Conspiracy to Defraud did not extend to secret price fixing, unless accompanied by some aggravating factor. BA even had the confidence to promote one of the four executives to its board while he was awaiting trial.

Dishonesty was never thrashed out in the BA trial because Virgin’s lawyers – whom the OFT had largely relied upon to build their case – produced thousands of new emails in evidence after the trial had begun. It had previously been thought these were corrupted, but Virgin was under an obligation to provide complete and continuing cooperation in order to retain its immunity. The sheer quantity of new evidence made a retrial difficult and so the criminal case simply collapsed. By this time the case had cost a significant amount of tax payer’s money and there were concerns about the reliability of Virgin’s witnesses in testifying as to the dishonesty of their alleged actions.

Under wide reaching reforms of the UK competition regime announced this year, the UK will soon have a new cartel offence not requiring dishonesty, and a new single Competition and Markets Authority to replace the OFT and Competition Commission.  However, the problem of having parallel administrative and criminal enforcement procedures will remain.

Last week, the OFT justified the halving of BA’s fine by pointing to legal developments in penalty setting and the greater than previously thought level of cooperation by British Airways. Yet, only in August 2011 it was reported that BA risked a doubling in fines if it decided to contest the settlement reached in 2007. In fact, BA was able to capitalise on the failed criminal case to help bring the administrative fine down.  IAG Chief Executive, Willie Walsh had said “…given the way the criminal trial collapsed, we don’t believe there are any grounds for that level of fine”.

The delay and cost involved in the BA case may leave regulators reluctant to use their criminal enforcement powers in the future, especially as a criminal case has to be completed before any parallel administrative case. Indeed, it is inconceivable that the European Commission (responsible for investigating the most serious international infringements) would halt an investigation pending a criminal case on the national level. Yet criminal prosecutions against individuals are essential to achieving deterrence and building a competition culture.  Anti competitive conduct is typically instigated by a small number of employees who are unlikely to be dissuaded by the prospect of high corporate fines being imposed on the firm as a whole at some point in the distant future.  The US and Canada have been more successful at criminal enforcement because the conduct of both the firm and the individual is subject to the same criminal enforcement procedure. As firms typically admit guilt and settle, it is difficult for the individual employees responsible to argue that their actions should escape punishment.

Dr Andreas Stephan is a senior lecturer in competition law at the University of East Anglia Law School and ESRC Centre for Competition Policy