By Becky Ellis and Sandra Mapara
On 10 April 2018, David Baker and Julian Frost, directors of Abbott and Frost Estate Agents Ltd gave the Competition and Markets Authority (CMA) disqualification undertakings not to act as directors of a UK company. This follows the CMA’s decision in May 2017 to fine five estate agents in Somerset £370,000 for agreeing to fix their minimum commission rates at 1.5% in breach of the Chapter I prohibition (the ‘estate agent cartel’). Mr Baker has been disqualified for three and a half years and Mr Frost has been disqualified for three years.
The CMA (and its predecessors) has had the power to apply for director disqualification in relation to civil competition law infringements since 2003. However, although the courts disqualified three directors for their involvement in the marine hoses cartel along with other criminal sanctions in 2008, this is only the second time that the CMA has directly disqualified a director following a competition law breach.
The CMA secured its first director disqualification in December 2016 when Daniel Aston, the former managing director and sole shareholder of Trod Ltd, gave the CMA a disqualification undertaking not to act as a director of a UK company for five years.
That undertaking followed a year of investigations by both the CMA and the USA's Antitrust Division of the Department of Justice, the appointment of administrators for Trod Ltd, a fine to the company of £163,371 (approximately 1% of the company’s operating turnover) and press coverage from the Daily Mail. Trod Ltd breached the Chapter I prohibition under UK competition law by agreeing with competitor GB eye Ltd not to undercut each other’s prices for the sale of posters and frames on Amazon (the ‘posters and frames cartel’).
Individual personal liability for competition infringements
Individuals can be liable for a criminal cartel offence if they are involved in cartel arrangements, namely price fixing, market sharing, bid-rigging and limiting output. There are various exclusions and defences, but the maximum penalty is five years imprisonment and/or an unlimited fine. As of 2014 dishonesty is no longer a requirement for conviction.
Even without a criminal offence having been found to have taken place, the CMA has the power to seek the disqualification of directors who are knowingly involved in any competition law infringement, and also directors who should have been aware that the behaviour was anti-competitive and a breach of competition law. These are in addition to the power to impose large fines on companies (up to 10% of turnover). Disqualification adds an additional personal deterrent to directors who may not be directly affected by a fine on a company.
Company directors may be protected from criminal liability and director disqualification if they qualify for individual or blanket immunity under the CMA's leniency policy. Individual immunity is available where a director reports and provides information about a cartel to the CMA and blanket immunity is available where a company approaches the CMA with such information and obtains immunity on behalf of itself and its employees.
For example, in the estate agent cartel, three estate agents qualified for leniency and the directors of these estate agents were not disqualified. Similarly, in the posters and frames cartel, GB eye Ltd had applied for leniency and was therefore exempt from both the fine and its directors from the threat of disqualification and criminal sanctions in exchange for its continued cooperation.
However, the CMA can still disqualify a director of a company that has sought leniency if the director fails to co-operate with the CMA during the leniency process irrespective of whether the company is granted leniency. Therefore both companies and individuals who have sought leniency need to remember the requirement to continuously co-operate with the CMA throughout the investigation and comply with the conditions of leniency in order to gain and retain the benefits (i.e. immunity from disqualification) of the leniency policy.
CMA appears determined to use these powers more frequently
The CMA has announced that it is continuing to investigate the disqualification of directors of the other estate agents involved in the estate agent cartel. Therefore, although this is only the second time that the CMA has used this civil power, the CMA seems committed to ensuring personal liability of directors who have been involved in violations of the law – particularly in circumstances where the CMA believes that directors are unreasonably failing to accept what the CMA regards as clear wrongdoing.
Disqualification of directors could obviously have a big impact on both businesses and the personal lives of the individual directors. With the additional potential for criminal sanctions it is essential that businesses of all sizes have a grasp of the basics of competition law and should seek competition legal advice if ever in doubt over a company’s interactions with its competitors.