CMA director disqualification cases signal greater focus on individual liability for breach of competition rules

On 10th May 2019 the CMA secured the disqualification of three former directors of companies involved in a bid rigging cartel in the design, construction and fit-out services sector. The three directors have given legally binding disqualification undertakings under which they will be banned from acting as directors or being involved in the management of any UK company for periods ranging between two and five years. This is the third case in the last two months in which the CMA has secured director disqualifications, and sends a clear message that the CMA will be making greater use of these powers in the future.

The CMA recognises the importance of individual liability as a powerful deterrent. Under the current competition regime only the companies involved in infringements are liable for fines. Individuals can be liable for cartel conduct under the criminal cartel offence, but as the CMA's success rate in convicting individuals under the offence has been low it is not surprising that the CMA is increasingly focusing on director disqualifications. Recent proposals for reform of the UK competition regime put forward by the CMA Chair to the Government also highlight the need for greater personal liability and consider the introduction of civil fines for individuals involved in breaches of competition law. The proposals are at an early stage but the Government is expected to publish a Green Paper for consultation by the end of July 2019.

Background

Competition Disqualification Orders (CDO) 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 CMA can either apply to the court requesting a 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 director disqualifications to date have been obtained under CDUs and the CMA has so far not applied to the court for a CDO.

CMA guidance on CDOs

In February 2019 the CMA published revised guidance on competition disqualification orders (CMA102, 6 February 2019). The revised guidance reflects the CMA's experience in exercising its powers to date and simplifies its internal process for applying CDOs/CDUs. The CMA has indicated that it intends to make greater use of its director disqualification powers which it sees as an important deterrent against anti-competitive conduct not just relating to cartels but for all types of anti-competitive conduct. The new guidance incorporates the following key changes: 

• The five-step process for the CMA to decide whether to apply for a CDO/CDU set out in the previous guidance has been replaced with a non-exhaustive range of principles and factors the CMA may take into account when deciding whether to seek the disqualification of a director.
• Other changes are aimed at simplifying and speeding up the process for the CMA. The CMA has removed previous guidance which did limit its ability to apply for a CDO before the expiry of the period in which the company may appeal an infringement decision. The automatic right for a director to make oral representations has also been removed and access to the file will be limited to the index of evidence provided.
• The revised guidance expressly recognises that, in respect of directors who provide material assistance and cooperate with the CMA during its investigation, the CMA may agree a shorter period of disqualification in a CDU or CDO than it would otherwise accept. The amount of the reduction will vary according to the facts and circumstances in each case.
• The guidance expressly recognises that the CMA will consider a reduction in the disqualification period where a director offers a CDU in terms acceptable to the CMA. The stage at which the CDU is offered will be a relevant consideration in considering the extent of the reduction.

Director disqualification cases to date

The CMA obtained the power to disqualify directors for anti-competitive conduct in 2003 when the Enterprise Act 2002 came into force, but the first director disqualification was not secured until December 2016. The CMA has now secured disqualifications for nine directors in total, all by way of CDUs offered by the individuals concerned. All cases so far relate to cartel conduct by the companies, but directors can face disqualification for any type of breach of competition law by their company, and the CMA has indicated that disqualifications for non-cartel conduct are very much on its radar.

Online sales of posters and frames cartel

In December 2016 Daniel Aston, who was the managing director of Trod Ltd, a company fined by the CMA in August 2016 for participating in an agreement to fix prices with another seller of posters and frames on Amazon gave the CMA a CDU not to act as a director of any UK company for 5 years.

Residential estate agencies cartel

In April 2018 two directors of residential estate agents were disqualified, for 3 years and 3.5 years respectively, as a result of their companies having participated in a cartel arrangement whereby they agreed to fix their minimum commission rates at 1.5%. In April 2019 the CMA accepted a further disqualification CDU from a director of one of the estate agents involved in this case, for a period of 5 years.

Construction cartel

On 26 April 2019 the CMA secured the disqualification of two former directors of companies involved in the pre-cast concrete drainage products cartel. The directors offered CDUs as part of a settlement process under which their companies admitted to participating in the alleged cartel and agreed to pay fines to be determined at the end of the CMA's investigation. Both directors offered CDUs, for 7.5 years and 6.5 years each.

Design, construction and fit-out services cartel

On 10 May 2019 the CMA accepted CDUs from three directors of office fit-out companies found to have engaged in cover bidding, involving collusion on the price for which each company would bid for contracts. The disqualifications are for 2 years, 2.5 years and 5 years. Interestingly one of the directors in this case had initially benefitted from immunity from disqualification under the CMA's leniency programme, as his company was the whistle blower, but his protection was withdrawn when he failed to submit to a voluntary interview with the CMA.

Importance of competition law compliance

The CMA's renewed focus on its director disqualification powers sends a strong message to company directors on the need to take responsibility in respect of competition law compliance by their companies. Although company directors are not expected to be competition experts, the CMA expects directors to understand the most serious forms of infringement (price fixing, bid rigging, market sharing, limiting production, sharing commercially sensitive information, resale price maintenance). In addition, the CMA believes that directors should have sufficient understanding of the principles of competition law to be able to recognise risks and to realise when to make further enquiries or seek legal advice.