CMA win in competition director disqualification case

In the first application by the CMA for a competition disqualification order to reach the courts, the High Court, on 3 July 2020, imposed a competition director disqualification order for a period of 7 years on Mr Michael Martin, a former director of Gary Berryman Estate Agents, and ordered an interim payment of costs of £100,000 (link to the judgment here).  The case relates to a cartel agreement between six estate agents in Somerset who had agreed to fix a minimum commission rate for residential estate agency services.  The CMA obtained director disqualification undertakings from three other estate agency directors in this case for periods ranging between 3 and 5 years, but Michael Martin challenged the CMA’s proposed disqualification claiming that he was unaware of the cartel.

Under the Company Directors Disqualification Act 1986 the CMA can either apply to the court requesting a competition disqualification order (CDO) or accept a competition disqualification undertaking (CDU) from a director, which has the same effect as a CDO. If the CMA accepts a CDU offered by a director before it has started court proceedings, the CMA will not seek to recover any costs of its investigation from that director. The CMA will also normally consider a reduction in the disqualification period where a director offers a CDU in terms acceptable to the CMA. All other director disqualifications to date had been obtained under CDUs, but the CMA is currently also seeking CDOs against two directors before the Northern Ireland High Court, in the precast concrete products cartel.

Competition disqualification orders

Competition disqualification orders were introduced under the Enterprise Act 2002 (which amended the Company Directors Disqualification Act 1986). They allow the CMA to seek the disqualification of an individual from being a company director for a period of up to 15 years, where that individual was a director of a company which has breached competition law and their conduct makes them unfit to be involved in the management of a company.

A breach of competition law for the purpose of director disqualifications refers to a breach of the Chapter I and Chapter II prohibitions of the Competition Act 1998 and of Articles 101 and 102 TFEU. As these powers are created under UK domestic legislation, after the UK leaves the EU references to breaches of Articles 101 and 102 TFEU will be removed from the meaning of a breach of competition law for which a director can be disqualified.

A director will be deemed unfit to be concerned in the management of a company if he/she:

• contributed to the breach of competition law,
• did not contribute but had reasonable grounds to suspect the conduct of the undertaking was a breach and took no steps to prevent it, or
• did not know but should have known that the company was involved in conduct that was in breach of competition law.

The High Court ruling

Based on the evidence before it the Court concluded that Michael Martin, who was not involved in the day-to-day sales and did not attend the meetings during which the infringing conduct took place, was nevertheless aware of the cartel but took no steps to prevent or end his company’s participation.  His failure to inform the board and prevent the agreement being made and performed amounted to misconduct which made him unfit to be concerned in the management of a company.  The Court therefore concluded that he should be disqualified as a director.

Martin’s previous good character as a director and the steps taken by his company following the CMA’s investigation in order to ensure compliance, were accepted as mitigating factors.  But his denials of the conduct, his stated knowledge of competition law and the serious financial effects of the cartel on ordinary people selling their most valuable assets all counted as aggravating factors.

The maximum period for a disqualification under the Companies Directors Disqualification Act 1986 is 15 years.  In deciding the appropriate duration for disqualification in this case the Court took into account the three brackets identified in other director disqualification cases (2 to 5 years for the lower bracket, 6 to 10 years for the middle bracket and 11 to 15 years for the top bracket) and decided, agreeing with the submission on behalf of the CMA, that this is a “middle bracket”, serious case.  On balance the Court concluded that disqualification for a seven year period was appropriate.  Although the CMA had accepted CDUs from other directors (as part of the same investigation) for a 3 year period, the Court notes these were consensual undertakings and the duration will also have depended on the individual circumstances.  The Court also ordered an interim payment of £100,000 for costs to be made within 28 days.

Comment

The High Court’s ruling brings the total of director disqualifications for breach of competition law to 19.  The CMA has indicated that it intends to make greater use of its director disqualification powers which it sees as an important deterrent against anticompetitive conduct, not just relating to cartels but for all types of anti-competitive conduct, and this latest case will provide strong support for the CMA’s approach.

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