[author: Larry Tinnon]

On 9th December High Court heard one of the first applications to vary Company Director Disqualification Undertakings (“CDU”) given by two directors of a group of companies previously found guilty by the Competition & Markets Authority (CMA)of having engaged in cartel activity in the Design, Construction and Fit Out Sector

Background

The CMA is making greater use of its director disqualification powers under the Company Directors Disqualification Act 1986 as amended by the Enterprise Act 2002. The drive to bring home personal liability for competition law breach has been reinforced by the CMA’s reform proposals for UK competition law which were first tabled in a letter from Lord Tyrie, Chairman of the CMA, to the then Secretary of State for Business, Greg Clarke in February last year. Although the Government has every intention of bringing forward reform proposals based in part on Lord Tyrie’s proposals the publication of a White Paper on these reforms has been delayed due to Brexit.

History of Company Director Disqualification Undertakings

To date the CMA has now disqualified nine directors in total. These were all accepted by way of Company Director Disqualification Undertakings given by the individuals concerned due to their involvement with anti-competitive conduct of the companies of which they were directors. All cases so far have been confined to cartel conduct by the companies concerned and do not relate to other forms of anti-competitive conduct. However the CMA is entitled to seek CDOs or CDUs for any form of anti-competitive conduct and it is likely that it will not be too long before we see it broadening its use of these powers.

To date the CMA has sought CDUs in the following cases:-

(i) Online sales of posters and frames cartel:- In the first case brought by the CMA, Trod Ltd, a company selling posters and frames 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. In this case the CMA also went after Daniel Aston, the managing director of Trod Limited. The CMA sought to use its powers to impose a CDO but he was willing to enter into a CDU not to act as a director of any UK company for five years.
(ii) Residential estate agencies cartel:- In 2018 two directors of residential estate agents were the next target when they were disqualified, for three years and three and a half years respectively because their companies had participated in a cartel arrangement whereby they agreed to fix the minimum commission rates. The CMA added to this in April 2019 when it accepted a further CDU for a period of five years from another director of one of the estate agents involved in this case.
(iii) Construction Cartel:- Earlier this year in April the CMA secured the disqualification of two former directors of companies which were involved in the pre-cast concrete drainage products cartel. As part of the settlement process with the CMA the directors concerned offered CDUs each of six and a half and seven and a half years..
(iv) Design, Construction and Fit Out Sector:- The most recent example of the CMA seeking to use its CDO powers has been its proceedings against three former directors in May 2019 in which the CMA successfully secured CDOs against the directors concerned. The brief facts of this case were that the three former directors concerned were directors of companies that had been involved in a bid rigging cartel in the design, construction and fit-out services sector. They agreed to give legally binding disqualification undertakings to the CMA under which they were banned from acting as directors or being involved in the management of any UK company for periods ranging between two and five years.

This increased use of its CDU powers sends a clear message that the CMA will be making greater use of these powers in cartel as well as other anti-competitive infringements in the future to ensure individuals are subject to punitive sanctions for their involvement in competition law infringements

The CMA also wants to ram home the message that company directors do have responsibilities to abide by competition law . The CMA argues they need to take responsibility in respect of competition law compliance by their companies. Whilst company directors are not expected to be competition experts, they are expected to have a sufficient understanding of what constitutes the most serious forms of infringement such as price fixing, market sharing or bid rigging. They should be able to recognise risks and to realise when to seek further advice or take other appropriate action on addressing that behaviour.

Latest Developments

In the latest developments in relation to CDO/CDUs two directors who had previously given CDUs banning them from acting as company directors applied for permission to the High Court to have the scope of their previous CDU’s amended to allow them to continue to act as directors.

On 9th December 2019 Mr Aki Stamatis and Mr Sion Davies applied for permission, pursuant to section 17 of the Company Directors Disqualification Act 1986, to act as a director and take part in the management of their company Fourfront Group . The High Court granted Mr Stamatis and Mr Davies permission to continue to act as directors, subject to strict conditions in the context of the circumstances their case.

The CMA had secured competition disqualification undertakings from Mr Stamatis and Mr Davies, who were directors of companies within the Fourfront Group at the time that undertaking was found to have engaged in unlawful cartel activity in the design, construction and fit-out services sector .

Mr Stamatis applied to the High Court for permission to act as a director of, and take part in the management of, Fourfront Group Limited, Fourfront Holdings Limited and The United Workplace Limited, and to take part in the management of 360 Workplace Limited, Area Sq. Limited and Sketch Studios Limited. Mr Davies applied for permission to act as a director of, and take part in the management of, Area Sq. Limited

The conclusion of the High Court was that the two disqualified directors may take part in the management of certain companies and carry out specified functions within the Fourfront Group during their term of disqualification but may not take on the directorship of any other company. Given this was their main involvement prior to the discovery of the cartel this does take the deterrent effect away from the giving of CDUs

This ruling is a blow to the CMA’s wish to impose severe penalties for competition law breach on individuals as it undermines to a certain extent the objective of the sanctions imposed by CDU’s. However the judge felt that there were specific circumstances in this case to merit amendments to the terms of the Undertakings.

The CMA issued a statement on 9th December putting a brave face on the situation. It stated that it welcomed the High Court’s finding that permission to continue acting as a director is not a formality and should not be given readily. It further noted the judge’s comment that he did not easily reach his decision. The CMA goes on to observe that the underlying director disqualifications remains in place and highlights that it is intensifying its programme of disqualifications.

In the particular circumstances of this case, the High Court was satisfied that permission should be granted because of the particular needs of the companies concerned. The court also put in place strict conditions, including Fourfont Group retaining an independent non-executive director responsible for supervising the group’s compliance with competition law.

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