Friday, March 14, 2008

Dishonesty may not be deceptive

Occasionally, reading a case causes you to think of something almost completely unrelated. This happened to me when I read Norris v United States [2008] UKHL 16 (12 March 2008).

The almost completely unrelated thing
A great risk in writing articles in specialised areas of law is that the arguments advanced in them may be rejected by the highest courts. Why write at all?

The purest motive was put vividly by Emeritus Professor John Burrows QC, formerly of the University of Canterbury and currently of the New Zealand Law Commission, in an interview with Ursula Cheer on 24 January 2007: “… I think I enjoy research probably the most. Because it’s a great thrill in getting the material together in your own mind and producing something on paper and saying it's yours. It's really yours.”

Practitioners, as well as academics, may well expect career advancement as a result of their publications. For example, the following has appeared on the web site of one writer:

“As a consequence of his publication in February and March 2005 with Sir Jeremy Lever QC of a two part article in the European Competition Law Review entitled “Cartel agreements, conspiracy to defraud and ‘the statutory offence’ ”, he was instructed by a leading New York law firm in the high profile extradition case ‘The Government of the United States v Norris’, which was the first time that the issue of cartel crime has been tested in an English court. The article formed the basis of the US government’s case as presented by David Perry QC and was extensively quoted by the judge in his judgment; John was led by Alan Jones QC.”

This is the case that the House of Lords has now decided. Unfortunately their Lordships were critical of the article:

“59 The first time it was apparently suggested in any publication that price-fixing might be a common law offence was in an article written in 2005 by Sir Jeremy Lever QC and Mr John Pike, "Cartel Agreements, Criminal Conspiracy and the Statutory 'Cartel Offence'" [2005] ECLR 90. At p 95, the authors made the point, which has already been touched on, that if, in addition to the price-fixing, something positively misleading is said, such as a dishonest "representation … that offers are being made competitively", the criminal law will be engaged. More controversially, the authors then went on to suggest that making and operating secret price-fixing agreements could, of itself, operate dishonestly so as to constitute a crime, at least in circumstances where purchasers are acting in the belief, known to the price-fixers, that there is no price-fixing.

“60 This article was not only published after the 2002 Act, but a number of years after the activities complained of in count 1 had ended. So it is not as if even an astute reader of legal articles in this area of law could have informed himself at the relevant time of the possibility of his price-fixing activities attracting criminal sanctions. In any event, although the Divisional Court was impressed with the article, there are problems with the notion that mere secrecy can of itself render the price-fixing agreement criminal. It is not as if secrecy is always necessary for a price-fixing agreement to be effective, or that it is the secrecy which causes a purchaser loss. As already mentioned, in order to establish a criminal offence along the lines suggested by Lever and Pike, it would be necessary to show that it was the secrecy which caused the purchaser's loss, since it must be the alleged dishonesty which causes the loss.

“61 Quite apart from this, it would be dangerous and impractical, particularly for the judges, to introduce a general principle that there is some sort of implied representation that the price at which goods are offered has been arrived at on a certain basis. Finally, the very fact that it was not until 2005 that it was first suggested that secret price-fixing could of itself constitute a common law offence underlines the difficulty faced by the argument that it would have been a common law offence in the 1990s, especially when one considers the material which was available on the topic from Parliament and the courts.”

It is to be hoped that the writer of the impugned article will bounce back from this blow and appreciate the light that the House of Lords has cast on the subject. Or, he will wait for the next case and hope that the Law Lords change their minds.

The next case, as it happened, came the same day: R v GG plc [2008] UKHL 17 (12 March 2008). Here, Norris was applied and it was held that in relation to conspiracy to defraud by price fixing, more than mere secrecy is required to constitute the element of fraudulence. Misrepresentation and deception have been found to be necessary (para 16, citing Norris at para 19).

Points mentioned in these cases
  • In the UK there was no common law or statutory offence corresponding to the strict liability offence created in the USA by s 1 of what is known as the Sherman Act (making agreements in restraint of trade illegal; here the relevant agreement was price fixing): Norris para 23, 52.
  • Even if there had been a change in public perceptions of price fixing, it would be for Parliament, not the courts, to create a relevant criminal offence: Norris, para 57.
  • Strictly obiter, but nevertheless determinative: in considering extradition, it is the overall conduct alleged against the defendant that must be considered, and in the UK the question is whether the conduct is against the law of the requesting country (whatever the particular offence may be) and whether it is against UK law (again, whatever the offence – not necessarily an identical offence to the foreign one): Norris para 90, 91.
  • Conspiracy to defraud requires proof of an agreement to make false or misleading statements or to otherwise engage in actively fraudulent behaviour. Mere secrecy and deception is insufficient (GG plc, para 12, 18).

As can be seen from this last point, the concepts here can be rather subtle. It helps to focus on the causal requirement: the relevant deception is the one intended (agreed) to cause loss. Keeping the agreement to fix prices secret, even to the extent of telling lies to conceal the agreement from the authorities, does not cause customers to lose the opportunity of a better price. The prices would still be the same if the customers were told that the prices had been fixed by agreement between suppliers. The necessary deception would occur if it had been represented to the customers that the prices had not been fixed, when the person making that representation knew that that was untrue, and if that deception was (as, of course it would be) designed to induce the customers to make purchases, and if that representation caused the customer to part with more money than would otherwise have been the case.

In New Zealand we have repealed the offence of conspiracy to defraud, and currently the offence of obtaining by deception (or causing loss by deception) – s 240 Crimes Act 1961 – could in appropriate circumstances be charged as a conspiracy against s 310 of that Act, as conspiracy to obtain (or cause loss) by deception. “Deception” is defined in s 240(2) in terms that are expanded from those recommended in the Report of the Crimes Consultative Committee on the Crimes Bill 1989 (April, 1991), so even at that stage of revision of the law the matter was unsettled. The House of Lords decisions mentioned here would be relevant under these provisions.

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