The Competition and Markets Authority (CMA), has secured the first disqualification of a director of a company found to have infringed competition law. Whilst the CMA (previously the OFT) has had the power to apply for a competition disqualification order since 20 June 2003, this represents the first time that the CMA has obtained a director disqualification.
Daniel Aston, who was the managing director of Trod Ltd, a company which was fined by the CMA in August 2016 for participating in an agreement to fix prices with another seller of posters and frames on Amazon's UK website, has given the CMA a competition disqualification undertaking not to act as a director of any UK company for 5 years. Note that, consistent with the CMA's published procedure, when faced with the prospect of the CMA going to Court to seek a competition disqualification order (and the risk of liability for the associated costs), Daniel Aston instead chose to offer a competition disqualification undertaking, which was accepted by the CMA. The other company involved in the infringement applied for and received immunity from fines under the CMA's leniency programme, under which the CMA also agrees not to apply for a disqualification order against a director of that company.
1. Competition Disqualification OrdersCompetition Disqualification Orders (CDO) were introduced under the Enterprise Act 2002, which amended the Company Directors Disqualification Act 1986, requiring a court to make a CDO in certain specified circumstances relating to the infringement of competition law. The CMA has the power to seek a CDO for a maximum of 15 years. This is in addition to the separate powers bestowed upon the court to disqualify any director convicted of an indictable offence such as the criminal cartel offence.
In August 2009, the CMA (then the OFT) consulted on proposals to change its approach to CDOs. The consultation stated that it aimed to allow both for the wider use of CDOs and to increase their deterrent effect. This consultation resulted in a revised guidance note on CDOs in June 2010 (the Guidance), which continues to apply (available here).
The Guidance sets out that the CMA will follow a five-step process when deciding whether to apply for a CDO. The CMA:
- Considers whether there has been a breach of competition law;
- Considers the nature of the breach and whether a financial penalty has been imposed;
- Considers whether the company in question benefited from leniency (which makes it clear that the CMA will not apply for a CDO against any current director of a company benefitting from leniency);
- Considers the extent of the director's responsibility for the breach of competition law (note that a director does not need to have actual knowledge of the infringing conduct, provided that the director ought to have been aware of the conduct due to his/her position and responsibilities); and
- Has regard to any aggravating and mitigating factors.
The Guidance also sets out in detail the procedure which the CMA will adopt when considering a CDO. In particular it states that the CMA will give notice to the person likely to be affected by the application which details, inter alia, that the CMA intends to apply for a CDO against that person, the grounds for the application, the potential consequences and their ability to make representations prior to the CMA making the proposed application.
The notice also incentivises the addressee to offer a competition disqualification undertaking (CDU) to the CMA in order to avoid a CDO, by stating in the notice:
- the length of a CDU that is likely to be accepted by the CMA in respect of the addressee;
- the level of costs that the CMA has already incurred;
- that, if the CMA accepts a CDU, it will not seek to recover those costs from the addressee of the notice; and
- that the CMA will seek to recover the costs of any CDO application at Court
The maximum period of disqualification under both a CDO and CDU is 15 years. Other than the procedure (and potential costs) there are no other material differences between a CDO and CDU.
2. The Present Case
This case arises from the CMA's decision on 12 August 2016 that Trod Ltd and GB Eye Limited (GBE) had infringed competition law by participating in an agreement that in circumstances where there was no cheaper third party seller on Amazon's UK marketplace, they would not undercut each other on prices for licensed sport and entertainment posters and frames. Both Trod and GBE used automated repricing software to implement the arrangement.
GBE blew the whistle on the arrangement and was granted full immunity by the CMA. Trod was fined £163,371 for its role in the cartel (notwithstanding the fact that it had entered administration prior to the date of the decision).
The CMA considered that Daniel Aston's conduct, both as the managing director of Trod for the duration of the agreement and because he personally contributed to the breach of competition law, makes him unfit to be a company director.
The CMA's decision to proceed with a director disqualification in this instance reflects its current desire to enforce competition law vigorously against companies in all sectors and of all sizes. Taken in combination with recent changes to the criminal cartel offence, this provides the CMA with a comprehensive toolbox to target both companies and directors. The CMA will also hope that the individual deterrence of a CDO or CDU will drive leniency applications and assist it in its ongoing efforts to raise the profile of competition law compliance in small businesses.
Company directors would be well advised to ensure that their employees are well aware of the importance of competition law compliance, to ensure they do not run the risk of personal liability. This is in particular the case as a director does not need to have actual knowledge of a competition law infringement to run the risk of a CDO, it is sufficient that they ought to have known of the anticompetitive conduct.
In its press release of 1 December 2016 the CMA makes it clear that it "will continue to look at the conduct of directors of companies that have broken competition law, and, where appropriate, will absolutely be prepared to use this power again".