Jurisdiction - Singapore
Reports and Analysis
Singapore – Competition Commission fines Modelling Agencies for Price Fixing.

8 December, 2011

 

The Competition Commission of Singapore (“CCS”) issued an infringement decision against 11 modelling agencies for fixing fees for modelling services in Singapore under the aegis of its trade association, the Association of Modelling Industry Professionals (“AMIP”). Ten agencies were fined a total of S$361,596, with individual fines ranging from S$3,000 to S$132,315.

 

In this update, we briefly discuss the case, CCS 500/002/09 Price Fixing in Modelling Services, with a view to drawing out pertinent key points for businesses to bear in mind in order to minimise their risks in relation to competition law in Singapore.

 

The case also serves as a reminder that the costs of non-compliance, both financially and to a business’s reputation, are high. An active compliance strategy will go a long way towards minimising such risks.

 

FACTS OF THE CASE

 

CCS’s investigation was triggered by a complaint, received on 13 February 2009, that the AMIP was fixing fees charged by modelling agencies.

 

CCS found substantial documentary evidence of constant contact via email and meetings between the members of the AMIP (“the agencies”) to fix rates for a wide range of modelling services between 2005 to July 2009.

 

The AMIP also published a letter on its website informing clients of its “recommended guidelines” (eg “rates for fashion shows should be S$400 per model per show”).* This letter was subsequently removed from the AMIP website after CCS conducted raids on several of the agencies involved.

 

The agencies held that the AMIP had been set up to standardise rates and prevent price undercutting, in order to “revive the local modelling industry”** and attract models to Singapore. CCS found that the agencies’ practices had resulted in an increase in the rates payable to models (eg from S$250 in 2005 to S$400 in 2009), and the rates set by the agencies had become the common rate applicable to models in Singapore.

 

Among other things, CCS concluded that the “common objective” of the AMIP members demonstrated that the price fixing activities constituted “a single overall agreement”, which was systematically borne out in a series of more detailed sub-agreements over the course of 3.5 years.

 

Instead of an immediate drastic increase, which would have prompted unnecessary attention or complaints from clients, the agencies conspired to raise rates over time. The agencies also gradually extended their price fixing to a wider range of modelling services, and collectively tailored their rates for specific services (eg for Singapore Fashion Festival events).

 

The agencies were found to have infringed the prohibition in section 34 of the Competition Act, as their price fixing activities had the object of significantly preventing, restricting or distorting competition in the market for provision of modelling services to Singapore-based clients. CCS imposed fines totalling S$361,596 on ten of the 11 agencies.

 

One of the agencies, Mannequin Studio Pte. Ltd., qualified for immunity from financial penalty under the Competition (Transitional Provisions for Section 34 Prohibition) Regulations, as it terminated its conduct within six months after the Competition Act came into force by leaving the AMIP.

 

KEY LEARNING POINTS FROM THE CASE

 

“A single overall agreement” and impact on duration in calculation of penalties

 

CCS found that the price fixing constituted “a single overall agreement” as the conduct was unified by a common anti-competitive purpose, and conducted on a continuous basis.

 

Although the agencies met to discuss rates less frequently in the subsequent years after the initial set up period of the AMIP, CCS found that the agencies continued to follow the fixed rates. In light of this, CCS concluded that it would have been “artificial” to consider each act of price fixing as separate infringements.

 

This finding of a “single overall agreement” has two main implications for businesses.

 

Firstly, CCS’s Guideline on The Appropriate Amount of Penalty*** states that the amount of financial penalty will depend on several factors, including the duration of the infringement. Therefore, the longer the duration of infringement, the higher the fine. In this case, as the price fixing took place under “a single overall agreement”, CCS calculated the fines based on a duration of continuous infringement over 3.5 years.

 

Secondly, businesses are minded to be aware that even if information relating to prices (including discounts and allowances) is not regularly exchanged with competitors, if parties to the exchange continue to adhere to collectively agreed upon prices, CCS may consider the anti-competitive conduct to have taken place over a continuous duration for the purpose of calculating financial penalties.

 

Price fixing versus price guidelines

 

The agencies repeatedly referred to their collectively agreed-upon rates as “price guidelines” in a bid to downplay the anti-competitive nature of their conduct.

 
However, CCS found that the rates were not in actual fact a guideline. This was because the agencies were all involved in arriving at a rate they were comfortable with, and were “obliged to follow****” the rates. The agencies also agreed not to undercut each other, and there was talk of implementing a punitive mechanism (although this was never actually implemented). CCS considered such features inconsistent with the voluntary nature of a guideline.

 

Businesses should note that disguising price fixing or other prohibited activities under a more innocuous name does not make such activities any less anti-competitive. Such attempts will not minimise the risks of CCS investigating and enforcing against these activities either, as CCS will ultimately look at the actual nature of the activities and their impact on the market.

 

It should also be noted that price guidelines are generally frowned upon by CCS.***** CCS has categorically stated in several public statements that price guidelines “provide a focal point for prices to converge”****** and discourage price competition below the recommended rates.

 

Amounts collected on behalf of principals are considered as part of the “relevant turnover” used in the calculation of fines

 

In assessing the impact of an infringement on the market, CCS takes into consideration the relevant turnover of the infringing party in the last business year.

 

The general rule is, the greater the relevant turnover of an undertaking, the greater its impact on the market and therefore the higher the fine likely to be imposed by CCS.

 

Several agencies submitted that the “relevant turnover” for modelling agencies considered by CCS in the calculation of penalties should not include amounts received for and on behalf of models and/or the models’ “mother” agent (if the models were based overseas). The agencies contended that the fees payable to models and their “mother” agents did not constitute turnover accruable to them, and hence the “relevant turnover” should discount these amounts.

 

CCS considered the legal and economic relationships between models and their agencies and concluded that as modelling agencies bore the responsibility and risk involved in the management and development of models, modelling agencies could not be considered to be acting as mere intermediaries between models and clients. Among other things, the client enters into a contractual relationship with the modelling agency, which bears the risk of non-payment by clients. Therefore, CCS considered that amounts received by the agencies on behalf of models and their “mother agents” were part of the “relevant turnover” for modelling agencies.

 

This means that amounts collected on behalf of principals will likely be considered by CCS as part of an infringing party’s “relevant turnover” for the purpose of calculating financial penalties, if the party’s role surpasses that of a middleman (unlike, for example, recruitment agencies which merely provide matching services between workers and companies, with no business risk borne for non-performance of workers).

 

Involvement of senior management

 

In calculating the amount of financial penalty, one of the aggravating factors (ie factors which lead to an increase in penalties) considered by CCS is whether senior management are involved in the infringing conduct.

 

The price fixing activities in this case involved personnel such as shareholders, sole proprietors or directors of the agencies. Such representation resulted in an increase in the financial penalties for all of the ten agencies fined.

 

Based on this case, as well as on previous decisions by CCS, the involvement of directors or senior managers will typically be enough to warrant a percentage increase in the level of financial penalty imposed by CCS.

 

An adverse financial situation is not sufficient reason to justify a reduction in financial penalties

 

Several agencies submitted that the modelling industry in Singapore was a “high turnover but low profit*******” industry, and that the financial penalties imposed by CCS would result in “hardship” for them.

 

CCS noted that financial hardship was an insufficient reason to justify a reduction in penalties, as a reduction based on such rationale would “have the effect of conferring an unfair competitive advantage on the undertakings least well adapted to the conditions of the market”********.

 

CCS also noted that the practice overseas is to consider a reduction of fines based on hardship relevant only where the payment of the fine would lead to an increase in unemployment, or would negatively impact other parties upstream and downstream of the infringing party.

 

Therefore, except under very limited conditions, CCS is unlikely to consider financial hardship as a mitigating factor in its assessment of a request for the reduction of financial penalties.

 

CONCLUDING WORDS

 

Businesses are encouraged to implement active compliance programmes to ensure that their practices conform with competition law at all times. CCS has made it clear that anti-competitive practices, whether entered into wilfully or otherwise, will be duly penalised.

 

Businesses may also wish to consider applying for leniency under CCS’s leniency programme. Those who are first to provide CCS with evidence of cartel activity before CCS has commenced an investigation into the cartel will get the benefit of full immunity from financial penalties.

 

More information on the leniency programme can be found in CCS’s guidelines on Lenient Treatment for Undertakings Coming Forward with Information on Cartel Activity Cases 2009.

 

Footnotes

*Paragraph 73, CCS 500/002/09 Price Fixing in Modelling Services infringement decision.
 

**Paragraph 2.

***CCS Guideline on the Appropriate Amount of Penalty, Paragraph 2.7.

****Paragraph 115.

*****For CCS’s position on fee guidelines, see CCS 400/001/09 Application for Decision by the Singapore Medical Association in relation to its Guideline on Fees, as well as CCS’s media release on its guidance to the Institute of Estate Agents.

******CCS’s media release on its guidance to the Institute of Estate Agents.

*******Paragraph 291.

********Paragraph 292.

 

REFERENCES

Please click here to access the full text of CCS’s decision.

 

 

For further information, please contact:

Cavinder Bull, SC, Drew & Napier

cavinder.bull@drewnapier.com

 

Lim Chong Kin, Drew & Napier

chongkin.lim@drewnapier.com

 

Ng Ee Kia, Drew & Napier

eekia.ng@drewnapier.com

 

 

 

 

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