Competition Law News & Updates

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November 21, 2013
COMPETITION UPDATE
Singapore

Competition appeal board dismisses most grounds of appeal by modelling agencies  

10 April 2013 - The Competition Appeal Board (“CAB”) dismissed most of the grounds of appeal by five of eleven modelling agencies that had been found by the Competition Commission of Singapore (“CCS”) to have engaged in price-fixing activities.

The appeals were allowed in part on two points. First, CCS should not have considered the involvement of the directors and senior management as an aggravating factor justifying an increase in the financial penalty. Second, CAB took the view that a discount should be given to the modelling agencies because the modelling industry in Singapore is a “high turnover, low margin” industry. Taking these two factors into account, the CAB reduced the total financial penalty for the five agencies from S$291,067 to S$243,077. Various other grounds of appeal were rejected by the CAB.

BACKGROUND

In Infringement Decision on Price-Fixing in Modelling Services (CCS 500/002/09) (“Price-Fixing in Modelling Services”) dated 23 November 2011, CCS had found that eleven modelling agencies had been involved in a single overall agreement to fix prices. The eleven agencies were all members of the Association of Modelling Industry Professionals (“AMIP”), which discussed and agreed on, amongst other things, model commission rates, rates for fashion shows, editorial rates, advertorial rates, and handling and administrative fees.

For example, AMIP members agreed on rates for fashion shows, print advertorials and television commercials in 2005. Some of these rates were published on AMIP’s website and publicised in letters sent to magazine editors. Confidential price guidelines for advertorials, events, and product launches for adult and child models were circulated among AMIP members. Whilst AMIP was set up before the prohibition against anti-competitive agreements under section 34 of the Competition Act (“Section 34 Prohibition”) came into force on 1 January 2006, the infringing behaviour continued until 2009. In fact, AMIP members were advised to use their own logos instead of AMIP logos on their price sheets to avoid accusations of price-fixing.

CCS found that, as an agreement or concerted practice involving price-fixing, the AMIP arrangements had the object of preventing, restricting or distorting competition. The eleven agencies were fined a total of S$361,596, save for one agency which was not fined because its infringement occurred before the Section 34 Prohibition came into force. The fines ranged from S$3,000 to S$132,315.

KEY ISSUES IN THE CAB APPEALS

The five modelling agencies that appealed to the CAB were Bees Work Casting Pte Ltd, Diva Models (S) Pte Ltd, Impact Models Studio, and Looque Models Singapore Pte Ltd (in Appeal No. 2 of 2012 to Price-Fixing in Modelling Services) and Ave Management Pte Ltd (in Appeal No. 3 of 2012 to Price-Fixing in Modelling Services). All five agencies appealed only against the financial penalty imposed and not the infringement decision.

Whether CCS correctly determined the market share of the participants

The modelling agencies argued that CCS did not properly determine the market share of the participants. The market share of cartel participants is one of the factors CCS takes into account in assessing the seriousness of an infringement, which in turn affects the financial penalty imposed by CCS. This is articulated in the “CCS Guidelines on the Appropriate Amount of Penalty” (“Penalty Guidelines”) at paragraph 2.3. In order to determine the market share of the participant agencies, CCS issued notices under section 63 of the Competition Act to certain companies (who were not involved in the AMIP price-fixing cartel), requiring them to produce information such that CCS could properly determine the market share of the infringing agencies. Three of the companies did not respond, despite repeated reminders from CCS. The agencies contended that CCS should have followed up on these companies, or should have otherwise investigated further, rather than estimating the market share based on available sources, such as newspaper reports and online searches.

The CAB rejected this ground of appeal, stating that “CCS had made reasonable efforts in taking steps to obtain financial information from as many modelling agencies as possible in order to arrive at an accurate market share computation.” According to the CAB, “it would not be reasonable to expect CCS to wait indefinitely” for responses to its section 63 notices, and that CCS was entitled to close its investigation and estimate the market share from the information available.

Whether the infringement had an appreciable adverse effect on competition

An agreement will generally fall foul of the Section 34 Prohibition only if it has an appreciable adverse effect on competition. Paragraph 2.20 of the “CCS Guidelines on the Section 34 Prohibition” further states that an agreement involving price-fixing will always have an appreciable adverse effect on competition. The agencies argued that the financial penalties must be commensurate with whether the agreement had an appreciable adverse effect on competition in Singapore, which CCS allegedly did not consider. CCS argued that, “given that the [agencies] are not appealing against the CCS’s finding that they had engaged in a price-fixing agreement, it is not necessary to establish the actual appreciable effects of the infringement”. The CAB agreed and held that “it is not necessary for CCS to demonstrate any appreciable adverse effect on competition” because all price-fixing arrangements have an appreciable adverse effect on competition, and further found on the facts that there had been, in any case, an appreciable adverse effect on competition.

Whether the involvement of senior management is an aggravating factor

The Penalty Guidelines state that the involvement of directors and senior management in infringingactivities is an aggravating factor with regard to the financial penalty (paragraph 2.11). CCS had accordingly increased the penalties for four of the modelling agencies where directors were involved. The CAB disallowed this increment on the facts of the case, stating that “there is no evidence that [the directors] took an active role as leaders in the price-fixing agreement”, and citing its decision in SISTIC.com v Competition Commission of Singapore (Appeal No. 1 of 2010 to CCS 600/008/07) (”SISTIC”) where it held that the involvement of senior management does not always apply as an aggravating factor. Whether the nature of the industry is a mitigating factor The modelling agencies argued that the nature of the modelling industry should have been taken into account in determining the financial penalties. In particular, turnover is high in the industry while profit margins are low, because a large part of turnover collected from clients is “passed through” to models, who function like subcontractors in the construction industry. The agencies argued that the amount of financial penalties would be distorted if they were calculated on the basis of turnover without taking profitability into account.

This argument has two limbs. First, some of the agencies argued that net turnover should be used instead of gross turnover in calculating the financial penalties, relying on the UK case of Hays plc v Office of Fair Trading [2011] CAT 8 (“Hays”). In Hays, the UK Competition Appeal Tribunal used net turnover to calculate the penalty for a recruitment agency, because gross turnover would include the wages of the workers, which were directly “passed through” to the workers. Gross turnover was therefore not an accurate reflection

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of the agency’s revenue in the relevant market. The CAB disagreed, because the modelling agencies fixed the entire rates in the relevant market for modelling services, which included the fees to be paid to the models, whereas the recruitment agency in Hays fixed only its commission fee while separately collecting the wages of the workers.

Second, it was argued that the “high turnover, low margin” nature of the industry should have been a mitigating factor in determining the penalty. This argument was accepted by the CAB, which cited and agreed with UK cases on the construction industry, where a large proportion of turnover is “passed through” to subcontractors, leaving thin profit margins for main contractors. This means that turnover may not be an accurate reflection of the economic presence of an undertaking. While not accepting that profits or net turnover could be a suitable replacement for gross turnover, the CAB accepted that the similar “high turnover, low profit” nature of the modelling industry in Singapore justified its consideration as a mitigating factor.

Whether uncertainty about the infringement is a mitigating factor

One of the modelling agencies argued that, at the time of the infringing behaviour, there was genuine uncertainty about whether price recommendations were prohibited under the Competition Act, and that this should be taken into account as a mitigating factor. The argument was that it was only after CCS issued its Decision on the Singapore Medical Association’s Guidelines on Fees (CCS 400/001/09) that it was clear that price recommendations were likely in breach of the Section 34 Prohibition. The CAB did not accept that there was any genuine uncertainty in the law, although it did not elaborate.

DISCUSSION

Section 63 notices

Section 63 of the Competition Act allows CCS to require the production of specified information, including from third parties that are not being investigated for an infringement. It is an offence under section 75 of the Competition Act not to comply with a section 63 notice requiring the production of information. The offence is punishable with a fine not exceeding S$10,000 or imprisonment not exceeding 12 months, or both.

It is not clear from the decision how CCS dealt with the three companies that failed to respond to its section 63 notices, even after repeated reminders from CCS. This is not the first time section 63 notices from CCS have been ignored. In Infringement Decision on Bid-Rigging by Motor Vehicle Traders at Public Auctions of Motor Vehicles (CCS 500/003/10) (“Motor Vehicle Traders”), six section 63 notices were ignored – by three undertakings and three individuals. CCS responded by raiding the premises of the three undertakings as empowered to under section 64 of the Competition Act. Two of the three individuals were eventually interviewed after further section 63 notices were sent, but it appears that the third individual never responded.

To prevent the further recurrence of such incidents, CCS may have to take more drastic action to compel compliance with its section 63 notices, and publicise the consequences of failing to comply.

Involvement of senior management

The CAB has so far not allowed the involvement of senior management as an aggravating factor when the issue has come up on appeal. In SISTIC, the CAB found on the facts that there were no grounds for treating senior management involvement as an aggravating factor, without elaborating what such grounds would be. In the present case, the CAB took into account the fact that the directors did not play an active role as leaders in the price-fixing agreement, and similarly decided that the involvement of senior management did not justify an increase in penalty.

CCS stated in its Infringement Decision on Collusive Tendering (Bid-rigging) in Electrical and Building Works (CCS 500/001/09) (“Electrical and Building Works”) that the intent of this aggravating factor “is to accord harsher punishment where management is involved in the infringement”, in contrast to cases where “rogue employees” act in defiance of compliance programmes. CCS has imposed this aggravating factor in a number of cases, including SISTIC, Electrical and Building Works, and Infringement Decision on Fixing of Monthly Salaries of New Indonesian Foreign Domestic Workers in Singapore (CCS 500/001/11), as well as in the present case.

In contrast, in Motor Vehicle Traders, CCS did not take into account senior management involvement as an aggravating factor, even though the facts disclose substantial and direct senior management involvement. The CAB has stated in SISTIC that “it does not follow that in every case the involvement of the directors or senior management … should or would apply as an aggravating factor”. It remains to be fully clarified when senior management involvement is to be considered as an aggravating factor.

CONCLUSION

The CAB’s decision includes a number of interesting and useful clarifications on certain areas of the law on financial penalties under the Competition Act, including the extent to which the adverse effect on competition, the involvement of senior management, the nature of the industry, and genuine uncertainty in the law are taken into account in determining the financial penalty for infringements of section 34 of the Competition Act. It will also be interesting to see whether and how CCS will take action against refusals to provide information in accordance with its section 63 notices in future.

Contributed by:

Drew & Napier LLC

#10-01 Ocean Financial Centre

Singapore 049315

www.drewnapier.com

November 21, 2013
COMPETITION UPDATE
Singapore

Singapore fines 12 motor vehicle traders for bid-rigging at public auctions

28 March 2013 - The Competition Commission of Singapore (“CCS”) handed down fines totaling S$179,071 on 12 motor vehicle traders for bid rigging at public motor vehicle auctions held byvarious government agencies[1]. The 12 motor vehicle traders (“parties”) were found to have infringed section 34 of the Competition Act (Cap. 50B) which prohibits agreements or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within Singapore. CCS found that the 12 traders suppressed bids at the agencies’ public auctions of motor vehicles by entering into an agreement to refrain from bidding against each other over a period of three years from January 2008 to March 2011.

BACKGROUND AND FACTS OF CASE

The affected government agencies regularly conduct public auctions to dispose of decommissioned motor vehicles and other vehicles taken into custody for reasons such as unpaid taxes. With the exception of two government agencies which switched to online auctioning (“online auctions”) after May 2010, these auctions are held at hotel ballrooms or at the agencies’ premises (“physical auctions”). The auctions are conducted by agency-appointed auction houses and are open to the general public. Individuals who make a bid at the physical auctions will be identifiable by everyone else present at the physical auctions because the bidder has to either raise his hand or an allocated number tag to indicate his bid. In contrast, the identities of bidders in the online auctions are not known to other bidders because each online bid is anonymised.

After investigations, CCS concluded that there was sufficient evidence to show that there was an agreement or concerted practice amongst the parties to forebear from bidding against each other for vehicles at these public auctions.

At the physical public auctions, CCS found that a sole bidder would bid for the vehicles under the bid-rigging agreement. After the public auction, the motor vehicle traders would meet to conduct their own “private” auctions for the vehicles. At the “private” auctions, the bids will open at the price paid at the public auction. The difference in the bid price of the vehicles for the public auctions and the “private” auctions would be put into a common pool which would subsequently be shared (“rebates”) amongst those present at the “private” auction and did not bid at the public auction. Apart from sustaining the bid-rigging agreement by incentivising parties not to bid at the public auctions through the use of such rebates, some parties informed CCS that they were “scolded” when they entered a competing bid in the public auctions.

With regard to bid-rigging in the online auctions, CCS observed a pattern amongst four of the cartelists, Pang’s Motor, Kiat Lee, Minsheng and Tim Bock, not to enter competing bids against each other. Along with an incriminating statement provided by one of the parties, CCS concluded that there was a “deliberate agreement and/or concerted practice” amongst four parties to forebear from bidding against each other.

CCS stated that about 700 motor vehicles were won by the cartelists during 53 physical and online auctions at bids ranging from S$10 to S$35,000. In total, the quantum of the winning bids for the vehicles at the public auctions amounted to slightly more than S$1.2 million. However, CCS’ view is that this was likely to be an underestimation of the true market value of these vehicles due to the artificially suppressed bids. As a result of the collusive activities, members of the public would have suffered lower sales proceeds for vehicles sold by the government agencies on their behalf. Auction houses could have received lower commission fees as a result of the suppressed bids.

FINANCIAL PENALTIES IMPOSED

In determining the level of financial penalties to impose, CCS highlighted two main aggravating factors that it took into consideration: (1) whether the party acted as the leader or instigator of the infringement; and (2) the number of infringements committed by each party. For the latter, CCS increased the penalties imposed by multiples of 5% for each infringement committed. In imposing the highest fine of S$50,733 on Pang’s Motor Trading, CCS considered that it acted as a leader in the infringements by coordinating and playing a lead role in the “private” auctions as well as being responsible for handling the auction documentation and disbursement of the common pool monies to the other participants. It also committed the most number of infringements and had its penalty increased by 255%. There were no mitigating factors for all the other parties with the exception of Tim Bock, who cooperated with CCS in its investigation.

After taking into account the number of infringements committed by the other parties as an aggravating factor, the remaining 11 motor vehicle traders were fined accordingly.

INVESTIGATIONS AND EVIDENCE

Use of identification evidence

Notably, this Infringement Decision expressed for the first time the principles that CCS will adopt when relying on identification evidence. In the course of interviews with several individuals involved in the bid-rigging, CCS showed these interviewees photographs of other individuals and asked the interviewees to identify whether the individuals in the photographs were similarly involved in the bid-rigging.

In using the evidence, CCS noted the need to be cautious before establishing liability based on identification evidence, and adopted the principles laid down in Thomas Heng Aik Ren v PP [1998] 3 SLR 465 regarding the use of identification evidence. Specifically, in deciding whether to use identification evidence to indict an individual, CCS adopted the 3-step test as follows:

 (a) Step 1: CCS should consider whether the case against the accused depends wholly or substantially on the correctness of the identification evidence.

(b) Step 2: If so, CCS should consider if the identification evidence is of good quality, taking into account the circumstances in which the identification by the witness was made.

(c) Step 3: Where the quality of the identification evidence is poor, CCS should go on to ask if there is any other evidence that goes to support the correctness of the identification. In determining if the evidence is of good quality (i.e. step 2), a non-exhaustive list of factors that CCS will consider includes the length of time that the witness observed the accused, the distance at which the observation was made, the number of times the witness saw the accused, and the presence of any special reasons for the witness to remember the accused.

On the facts, CCS determined that the identification evidence was of good quality and could be relied on because the interviewees saw the people they identified on a frequent basis over an extended period of time, the observations were made at close range at the auctions, and because the interviewees operated within the same trade as those identified and would have known each other for a period of time.

Cooperating with CCS’ investigation

It also bears mention that while CCS sent section 63 notices to various individuals to request for them to produce specific document and to be interviewed by CCS, three individuals failed to respond to the notices. Separately, three parties, Auto & Carriage, Gold Sun and Seng Hup Huat, did not respond to CCS’ section 63 notice requesting for information on their financial information. In response to the latter breach, CCS conducted a dawn raid of these parties’ premises to obtain the requested information. It is emphasized that companies and individuals are obliged to cooperate with CCS in their conduct of any investigation, including complying with any CCS request for documents and information. A failure to do so may result in CCS exercising its powers under section 64 of the Competition Act to enter a company’s premise without a warrant to obtain any such requested documents. Further, the company may also be liable on conviction for a fine not exceeding S$10,000. Additionally, if the non-compliance by the company is proven to have been committed with the consent or connivance of a company officer or is attributable to neglect on his part, this person is also liable to a fine not exceeding S$10,000 or to imprisonment for a term not exceeding 12 months or to both. Similarly, individuals who refuse to provide information, provide false or misleading information, destroy or falsify documents, or generally obstruct CCS officers from conducting investigations may be liable to a fine not exceeding S$10,000 or to imprisonment for a term not exceeding 12 months or to both.

CONCLUDING REMARKS

Companies are reminded that any agreement to refrain from bidding against other parties in an auction is still considered a form of bid-rigging and therefore constitutes a breach of section 34 of the Competition Act. Even if the bids are conducted online, CCS has demonstrated that the supposed anonymity of an online bid is not a barrier to its investigations and a finding of an anti-competitive agreement. Companies and individuals are also reminded to co-operate with the CCS in its investigations. Otherwise, CCS may obtain such information through a surprise dawn raid, while criminal liability may also attach to the non-cooperating individual or company.

This article was contributed by:

Drew & Napier LLC

10 Collyer Quay

#10-01 Ocean Financial Centre

Singapore 049315

www.drewnapier.com

T : +65 6535 0733

T : +65 9726 0573 (After Hours)

F : +65 6535 4906



[1] The affected agencies included the Singapore Civil Defence Force (“SCDF”), Land Transport Authority

(“LTA”), National Environment Agency (“NEA”), Singapore Customs and Singapore Police Force (“SPF”).

 

November 21, 2013
COMPETITION UPDATE
France

Commercial agents - ‘Civil’ nature of the agency contract

The partial contribution of assets by the company holding the agency contract to another company, for the transfer of rights and shares related to the trading activity of certain types of products, does not include the agency agreement insofar as, by virtue of Article L. 110-1 of the Commercial Code, the concept of trading activity covers all commercial transactions of a merchant whereas the activity of an agent is a civil [non-merchant] activity which does not involve buying for the purpose of reselling.

CA Agen, 28 October 2013, LawLex201300001526JBJ

November 21, 2013
COMPETITION UPDATE
France

FRANCHISES - Post contractual non-compete clauses

The validity of a non-compete clause is not subject to existence of financial consideration in a franchise agreement.

CA Rouen, 24 October 2013, LawLex201300001518JBJ

November 21, 2013
COMPETITION UPDATE
France

FRANCHISES - Franchisor's non-compete obligation

A claim of infringement of the exclusivity clause may not be brought against a franchisor solely based on the fact that a franchisee belonging to the same group of companies has set up on the territory of another member of the network, insofar as the former the operates a different brand and concept.

CA Rouen, 24 October 2013, LawLex201300001518JBJ

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