On 26 April 2019 the Competition and Markets Authority (CMA) secured the disqualification of two directors of concrete drainage maker CPM Group following CPM's admission that it breached competition law through price fixing and market sharing. The two directors have been prevented from being senior executives in any company based in the UK for seven and a half years and six and a half years respectively.
Similarly, on 29 April 2019, the CMA accepted a competition disqualification undertaking from a former director of Saxons PS Limited following the CMA's decision (May 2017) that six estate agencies fixed commission fees for residential sales in Burnham-on-Sea. The former director undertakes not to act as a director of any UK company for a period of five years.
On 10 May 2019, the CMA also secured the disqualification of three directors following the CMA's finding (April 2019) that Jones Lang LaSalle (JLL), Fourfront, Loop, Coriolis, ThirdWay and Oakley infringed competition law by engaging in cover bidding, a form of collusive tendering in the supply of design, construction and fit-out services in the UK. The three directors have given disqualification undertakings not to act as directors of any UK company for five years, for two and a half years and two years respectively.
The CMA's press releases are available here:
On December 2018, the CMA provisionally found that 3 suppliers of concrete drainage products infringed competition law by taking part in a cartel for almost 7 years from 2006. According to the CMA's allegations, the suppliers fixed prices and shared out the market for their products in the UK. The CMA has not yet taken its final decision, which is expected later in 2019.
The legally binding competition disqualification undertakings offered by the two directors of CPM are part of the settlement process in this on-going cartel investigation where two of the three suppliers have already admitted to participating in the alleged cartel and have agreed to pay fines, which will be determined at the end of the investigation.
Residential estate agencies price-fixing
On 31 May 2017 the CMA found that six estate agencies entered into an anti-competitive agreement to fix a minimum level of commission fees for the provision of residential sales services in the Burnham-on-Sea area and imposed relevant fines on the participant companies. Since then, the CMA has already accepted two disqualification undertakings from two directors of Abbott and Frost Estate Agents Limited and has issued proceedings in the High Court seeking the disqualification of two further directors following an investigation into their conduct in relation to the breach of competition law (April 2018). One of these directors has now offered disqualification undertakings which have been accepted by the CMA, while for the other director the court will decide whether to make a disqualification order against him.
Design, construction and fit-out services
On April 2019 the CMA found that six office fit-out companies, JLL, Fourfront, Loop, Coriolis, ThirdWay and Oakley breached competition rules by engaging in cover bidding in relation to contracts for the supply of design, fit-out and refurbishment services for commercial and non-residential premises. Fines over £7 million were imposed on five of these companies. JLL was not fined as it was the first company to confess the participation in the anti-competitive agreement under the leninency programme. The legally binding competition disqualification undertakings were offered by a former director of Bluu Solutions Ltd, Bluuco Ltd and Tetris Projects Ltd (part of JLL); a former director of Cube Interior Solutions Ltd and a former director of Area Sq. Ltd (both part of the Fourfront group of companies). All three were directors of their respective companies at the time of the illegal activity and contributed to a number of the infringements.
What is the legal basis for the directors' disqualifications?
Under changes to the competition law enforcement rules introduced in 2003, if a company is guilty of a competition law infringement, the CMA has the power to apply to the court for a disqualification order to be made against a director of that company.
The CMA also has the power to obtain a competition disqualification undertaking from a director instead of applying for an order.
Competition Disqualification Order (CDO)
Under the Company Directors Disqualification Act 1986 (the Act), the CMA can apply to the court for an order to disqualify a director from being a director or performing certain roles (e.g. acting as a receiver of a company's property; or as an insolvency practitioner) in relation to any company for a specified period, if the company of which he or she is a director is in breach of competition law. If a CDO is made, the individual may be prevented for a period of up to 15 years.
The Act does not require the CMA to demonstrate that the director had actual knowledge of the company’s behaviour and practices, or that the company’s conduct was in breach of UK/EU competition rules. However, the court must be satisfied that the director's conduct makes him or her unfit to be concerned in the management of a company.
Therefore, an application to court for a CDO carries a far lower burden of proof for the CMA than pursuing criminal convictions under the Cartel Offence under the Enterprise Act 2002.
Competition Disqualification Undertaking (CDU)
In addition, under the Act, the CMA can accept a CDU from a director rather than applying to the court.
The Act provides for a mechanism where the CMA can secure a disqualification without the need for court proceedings, in circumstances where the CMA thinks that a company has infringed UK/EU competition rules; thinks that the director's conduct makes him or her unfit to be concerned in the company's management; and has received an offer from the relevant director to give a CDU.
The effect of a CDU on an individual is the same as a CDO and the consequences for breach are identical.
Are directors' disqualifications more likely in the future?
The CMA has in recent years made more use of its disqualification powers, since their introduction in 2003. These remained unused by the CMA for 13 years, until the CMA barred an online poster seller in 2016 and two real-estate executives in April 2018.
In its revised guidance published in February 2019, the CMA stated its intention to use its disqualification powers more frequently, even in non-cartel investigations. Given the uncertainty and limitations in pursuing criminal convictions under the Cartel Offence which applies to much more limited and carefully defined ranges of anti-competitive activities, we expect the CMA to rely even more on director disqualifications as a more practical and cost effective enforcement tool.
How can directors and businesses minimise risk of competition law enforcement?
Following the CMA's confirmation that it is prepared to make further use of its disqualification powers, directors are given a clear message that it is their responsibility to ensure competition law compliance and consider whether improvements can be made to existing policies and programmes at all levels of their businesses in order to prevent breaches.
It is therefore prudent for businesses to look at their internal procedures periodically as an important first step but also consider the competition law risks arising in particular when dealing with their suppliers and customers, or when participating in trade associations or having any other dealings with their competitors. Companies should have a clear understanding of competition law and their compliance programmes should include common scenarios in which their business can breach competition rules, as well as practical tips how to avoid falling foul of them.
The CMA does not expect directors to be experts in competition law but it does expect a commitment to competition law compliance from the top down and for directors to know that certain activities, such as setting minimum resale prices, or price fixing, bid-rigging and market sharing as between competitors, are most likely to breach competition law.