Not so model behaviour leads to CMA fines

The Competition and Markets Authority ("CMA") has shown that no matter what industry you operate in that competition law still applies. 

While a cartel amongst suppliers of galvanised steel tanks might seem not unusual,the finding of collusion amongst top modelling agencies serves to demonstrate that professional services firms and agencies need to be just as wary of anti-competitive behaviour.

Water tank suppliers

The CMA delivered two decisions concerning a group of galvanised steel tank suppliers. The first concerned a cartel arrangement between Franklin Hodge Industries Ltd, Galglass Ltd and KW Supplies Ltd along with a whistle-blowing fourth supplier CST Industries (UK) Ltd. The group admitted to having colluded with each other to share the market by dividing customers among themselves, to fix prices of tanks and to rig bids for contracts between 2005 and 2012.

The firms aimed to artificially keep their profit margins higher by agreeing to share the market and hampering consumers' ability to effectively negotiate on price.

Information exchange

In a separate decision, the CMA found that three of the firms forming the cartel (Franklin Hodge, Galglass and KW Supplies) had also breached competition law by exchanging information with Balmoral Tanks Ltd about current and future pricing schemes. This occurred at a meeting in July 2012. Balmoral was invited to join the cartel arrangement and, although the firm refused,commercially sensitive information was exchanged by all parties.The arrangement was uncovered because the CMA was secretly recording the meeting.

Fines, immunities and prosecutions

Franklin Hodge (and its parent Carter Thermal Industries Ltd) was fined £2,015,135; Galglass (and its parents Irish Industrial Tanks Ltd and Kernoff Ltd) was fined £587,926; and KW Supplies Ltd (as the successor firm to Kondea Water Supplies Ltd) was fined £22,248. Balmoral Tanks (and its parent Balmoral Group Holdings Ltd)was fined £130,000 for participating in the unlawful information exchange.

CST Industries, having blown the whistle on the cartel arrangement, was granted immunity from fines. As this blog has re-iterated on several occasions in recent months (here, here and here), there are very strong economic incentives for firms that reveal involvement in anti-competitive behaviour. These immunity deals attempt to de-stabilise cartels. Given the recent spate of fines from both the CMA andEU Commission,the policy seems to be working.

In this case, even though Franklin Hodge was given the largest fine, this was after a 30% discount. This reflected their co-operation with the cartel investigation, but also a separate criminal prosecution of individuals alleged to have committed criminal cartel offences under section 188 of the Enterprise Act 2002. These proceedings resulted in one conviction following a guilty plea and two acquittals following a trial by jury.

The fact that operating a cartel can lead to criminal sanctions is not widely known. Not only can operating a cartel have dire economic and reputational consequences for a business, it can have devastating personal consequences for the individuals involved too.

Not so model behaviour

To demonstrate that it is not only heavy manufacturers that can fall foul of competition law, the CMA has also fined FM Models, Models 1, Premier, Storm and Viva, along with theirtrade association, the Association of Model Agents ("AMA"). From at least April 2013 until March 2015, the CMA found that these agencies were colluding, rather than competing, on prices for modelling services.

The behaviour was said to include exchanging commercially sensitive information, fixing minimum prices and agreeing common approaches to pricing. The AMA also regularly sent out alerts urging members to resist prices offered by customers that they considered to be too low.

Below are the fines that were levied.

Although the AMA only received a fine of £2500, it is still instructive to note that a trade body urging its own members not to undercut one another can be sanctioned as anti-competitive.