Irish Judiciary Supports Effective Enforcement of Competition Law Article

04-10-2012

The Supreme Court decision of 28 July 2011 in Hegarty resolved a number of complex legal issues, but at the heart of the case is the continuing trend of Irish judges to interpret legislation in a manner which ensures the effective enforcement of competition law.  It is this aspect of the case which will be examined in more detail below following a brief summary of the case.

The principal issue was the interpretation of a provision of Irish competition law which provides that an individual who is a key decision maker in an “undertaking” can be prosecuted and convicted of a cartel offence as well as the undertaking itself.  The principal issue in this case was that, for technical reasons, the undertaking was not first prosecuted for a cartel offence and the question arose as to whether the individual, Mr Pat Hegarty, could be prosecuted as the offence relating to the individual provided that it must first be established that an offence had been committed by the undertaking.

At a difference to EU competition law, on which Irish competition law and most other national competition laws of the Member States of the EU are based, infringements of competition law in Ireland, in particular cartel infringements such as price fixing – the infringement in this case, can be prosecuted as a criminal offence as well as constituting a civil infringement.

The judgment of the Supreme Court dealt with two questions posed by a Galway Circuit Criminal Court in a process similar to an Article 267 TFEU reference, namely:

  1. Whether for the purposes of charges standing against Mr Hegarty a jury can lawfully find that the undertaking has committed an offence in circumstances where that undertaking has not been prosecuted for such offence; and
  2. Whether a conviction formally secured and recorded against that undertaking is a necessary pre-condition for the successful prosecution of the accused individual.

 

In response to the questions posed, the Supreme Court answered as follows:

Question 1: Yes; and

Question 2: No.

 

Background Facts

On 21 May 2008, Mr Hegarty, the accused, attended at Galway Circuit Criminal Court to answer charges against him of being a “Manager” or “Officer” of an undertaking which entered into an agreement having as its object the prevention, restriction or distortion of competition in the trade of gas oil in Galway city and county by directly or indirectly fixing the selling price of gas oil and authorising or consenting to the doing of the acts constituting an offence contrary to s.4(1) of the Competition Act 1991 (“the 1991 Act”), the national equivalent of Article 101(1) TFEU.

The key issue in this case is that the undertaking concerned had not been prosecuted, let alone convicted, for its alleged role in the price fixing and, consequently, Mr Hegarty argued that the indictment against him should be quashed. Upon the resistance of the DPP to this application, in May 2008 the Galway Circuit Criminal Court agreed to the prosecution’s request to refer the matter as a “case stated” to the Supreme Court pursuant to s.16 of the Courts of Justice Act 1947.

 

Reasoning of Judge McKechnie of the Supreme Court

Judge McKechnie in the Supreme Court noted that an “undertaking” for competition purposes (section 4) can be a person, a body corporate, or an unincorporated body and stated that there is nothing surprising in the concept of both non-personal undertakings (a company) and their Managers/Officers and like persons being exposed to criminal prosecution arising out of the same abusive conduct.  Such persons are separate and distinct legal personalities and therefore no question of double punishment arises. He also noted that there is no reference to a “conviction” having been obtained against the undertaking in the relevant section of the legislation creating the offence involving an individual. Rather, the reference was to an “offence” having been committed.

The Judge provided examples of both statutory and common law offences where an individual’s conviction is predicated upon the commission of an offence by another who has neither been charged nor previously convicted. Reference was made to R v Donald [1986] 83 Cr. App. R. 49, the wording of s.4(1) of the Criminal Law Act 1967 and R v Dickson [1991] B.C.C. 719 to illustrate that the structure and parameters of the statutory provisions in Mr Hegarty’s case are not unusual. Judge McKechnie noted, however, that the statutory provision creating a separate criminal offence for an individual must be strictly construed.

In his examination of the legislation, Judge McKechnie highlighted that the relevant provision creating an offence for the individual also referred to an offence being committed by the undertaking (the company). Applying a literal construction to this provision, he held that “the offence referable to the individual is not the same offence as that which an undertaking may be guilty of”. Judge McKechnie noted “There is no reference to a conviction and in my view there is no interpretative basis for importing into the provision such a condition. The Oireachtas [Irish Parliament] could have expressly done so but did not”.  Ultimately, a conviction of the undertaking (the company in which the individual is a key decision maker) is not required as distinct from a finding that an offence has been committed, which could be established during the course of the trial of the individual.  Judge McKechnie noted, however, that the employer undertaking would, if subsequently tried, be entitled to all appropriate rights and safeguards and could challenge any evidence, including that relied upon to support any finding in the earlier proceedings. 

 

Conclusion

The Supreme Court held that the true meaning of the wording of the relevant statutory provision was that the undertaking did not have to be convicted of an offence before the individual was prosecuted. It was an essential ingredient of the offence relating to the individual that the undertaking itself must have been found to have committed the offence, but this could be established on the facts by the Jury during the trial for the prosecution of the individual.

 

Commentary

An interesting feature of the judgment is that Judge McKechnie emphasised the “enforcement driven” nature of Irish competition law, where not only an undertaking but also “persons with a high level of responsibility for decision making” in the undertaking can be culpable of a criminal offence out of the same set of circumstances. As Judge McKechnie stated:

If the Act criminalised one player but not the other, responsibility by way of effective sanction and deterrent could be skilfully and freely avoided, or at least substantially diminished, by any number of expedient devices, such as, in the case of a body corporate, liquidation, and in the case of an individual being impecunious. That would not have addressed the weakness mentioned above; it would have made enforcement arduous and avoidance, affordable and undemanding”.

 

This emphasis on the effective enforcement of competition law is a continuation of the tone and approach adopted by Judge McKechnie when he was previously a High Court Judge in charge of the “Competition List”. In DPP v Manning in February 2007 [DPP v Manning, Unreported, High Court, 9th February 2007], which was the first criminal conviction of an individual for a cartel offence following a jury trial, Judge McKechnie made the following statement, which merits reproduction in full here:

 “In my view there are good reasons as to why court should consider the imposition of custodial sentences in such cases.

” Firstly, such a sentence can operate as an effective deterrent in particular where if fines were to have the same effect they would have to be pitched at an impossibly high figure.

” Secondly, fines on companies may not always guarantee an adequate incentive for individuals within those firms to act responsibly. This particular point may not, in some circumstances, have the same force where individuals are concerned.

” Thirdly, a knowledge within undertakings that courts will regularly make use of a custodial sentence may act as an incentive to people to offer greater co-operation in cartel investigations against, and quite frequently against their employers.

” Fourthly, prison, in particular for those with unblemished pasts, for those who are respected within the community, and for those who are unlikely to re-offend can be a very powerful deterrents and finally, the imposition of a sentence for the type of category of persons above described can carry a uniquely strong moral message. Accordingly they are, in my view, some very powerful reasons to custodise an individual who has been found guilty under the 2002 Act. In this context I would like to state clearly and categorically that I see no room for a lengthy lead in period before jailing convicted persons becomes commonplace under this legislation.

 

 

 

 

This case was important not only from the perspective of sentencing, but also from a policy perspective. The Judge reiterated that cartels were not simply esoteric economic concepts, but rather serious crimes against the public at large. He stated:

This type of crime is a crime against a consumer and is not simply against one or more individuals. To that extent, it is different from other types of crime and while society has an interest in preventing, detecting and prosecuting all crimes, those which involve a breach of the Competition Act are particularly pernicious. In effect every individual who wished to purchase for cash, a vehicle from these dealers over the period which I’ve mentioned were liable to be defrauded, and many surely were, by the scheme and by the practices which unashamedly this cartel operated. These activities, in my view, have done a shocking disservice to the public at large.”

The current Judge in charge of the Competition List in the High Court, Judge Cooke (previously a Judge in the then European Court of First Instance for over a decade), is also conscious of the national Court’s duty to ensure the effective application of EU competition law and made the following observation in the ongoing Goode Concrete case [Goode Concrete v CRH plc and others (2010 No.1068P)]:

11.     It must also be borne in mind in this regard that by virtue of the European Communities (Implementation of the Rules on Competition laid down in Articles 81 and 82 of the Treaty) Regulations 2004 (S.I. No. 195/2004) the High Court has been designated a competition authority for the purposes of Article 35 of Regulation 1/2003 on the implementation of the rules on competition laid down in Article 81 and 82 of the Treaty (as amended). As a result, the Court ought not to prejudge the future relevance or admissibility of evidence or unnecessarily preclude itself from receiving or examining possible future evidence alleging serious infringements of what are now Articles 101 and 102 TFEU, particularly if it is claimed that the consequences of such conduct are continuing or have continued until recently”.

Following the Supreme Court decision in the Hegarty case, the prosecution of Mr Hegarty as an individual was resumed in the Galway Circuit Criminal Court before Judge Raymond Groarke and he was successfully convicted by a unanimous verdict of a jury in May 2012 after just 33 minutes’ deliberation. His fine of €30,000 was not the largest individual criminal fine under Irish law to date (though it was one of the largest), but the Judge ruled that the fine was to be paid at a rate of €7,500 a quarter, starting three months from the date of the sentence. Mr Hegarty did, however, receive a prison sentence of 2 years; this is the longest prison sentence for a competition law offence handed down by the Irish Courts to date, although his sentence was suspended.
The rapid jury decision demonstrates that ordinary citizens understand the serious nature of a cartel offence and have no hesitation in reaching a guilty verdict.

The severity of the sentence also shows that even the lower Courts (the Circuit Court in this case) take enforcement of competition law seriously and are prepared to follow the approach adopted by the higher Courts. Judge Groarke, in sentencing Mr Hegarty, used language which echoed that of Judge McKechnie quoted above from the Duffy case [DPP v Duffy & Anor. [2009] IEHC 208] when describing the seriousness of a cartel offence.

This most recent cartel conviction under Irish competition law coincided with the coming into force of the Competition (Amendment) Act 2012 which increased Irish law criminal sanctions for infringement of EU or Irish competition law. Maximum fines are now €5 million up from €4 million for both companies and individuals and the maximum prison term has increased from 5 years to 10 years for individuals.

The reason for the relatively low level of fines and prison sentences to date, when compared with the maximum level of sanction, can be explained by the fact that only relatively small or medium sized entities and their owners have been prosecuted in the first wave of cartel prosecutions and the judiciary, whilst taking the offence seriously, wanted to provide a lead in time before handing down jail sentences which were not suspended or longer in duration.  It is likely that the increase in the severity of the already very severe sanctions in the 2012 Act is intended to be an additional signal to the judiciary as an additional deterrent to the would-be criminal.

This new competition legislation also provides that the so-called “Probation Act” [Probation of Offenders Act 1907] will no longer apply to competition offences.  That Act allows a judge to dismiss a proven case based on the trivial nature of the offence, with the result that in such cases a conviction is not incurred against the defendants.  The Probation Act was applied by a District Court Judge in the so called Drogheda Port case. The fact that the Prohibition Act can no longer apply sends an additional important signal to judges and citizens, but one which has obviously already been received and acted upon.

Author: Pat O’Brien, Partner, EU & Competition Group