Competition Alert: Construction directors disqualified for breaching UK competition law

On 29 July 2019, the Competition and Markets Authority (the CMA) announced that it had secured legally binding competition disqualification undertakings (CDUs) from three individuals for their involvement in a 'bid rigging' construction cartel. This brings the total number of director disqualifications secured by the CMA, since December 2016, to 12.

The announcement follows the disqualification of three other former directors of office fit-out firms. All six disqualifications stem from the CMA's finding on 12 April 2019 that six companies in the design, construction and fit-out services sector - Jones Lang LaSalle, Fourfront, Loop, Coriolis, ThirdWay and Oakley - infringed the UK competition law prohibition on anti-competitive agreements by engaging in a form of collusive tendering, known as “cover bidding”. This recent spate of director disqualifications follows new guidance issued in February this year on directors' competition disqualification orders (CDOs) and sends a clear message that the risk of director disqualification has never been higher. The new guidance is intended to make it easier for the CMA to secure director disqualification in competition cases, by reflecting the CMA's experience in exercising its powers to date and simplifying its internal application procedure for applying for CDUs/CDOs. This can be seen as part of a broader desire to use sanctions against individuals to achieve deterrence against anti-competitive practices.

 

Legal basis for director disqualifications

In the UK, CDOs were introduced under the Enterprise Act 2002 (which amended the Company Directors Disqualification Act 1986). However, the powers were essentially unused by the CMA until December 2016. The powers allow the CMA to apply to the Court for an order to disqualify an individual from being a company director for a period of up to 15 years if two criteria are satisfied: (1) the individual in question is a director (or shadow director) of a company that has infringed UK and/or EU competition law; and (2) their conduct renders them unfit to be concerned in the management of a company.

A director will be deemed unfit to be concerned in the management of a company if he/she:

• contributed to the breach of UK and/or EU competition law. This could also include directors who take a less active role in the wrongdoing;
• did not contribute to the breach but had reasonable grounds to suspect that the conduct of the company constituted a breach and took no steps to prevent it; or
• did not know, but ought to have known, that the company's conduct was infringing UK and/or EU competition law.

 

The CMA also has the power to accept a CDU from a director instead of seeking a CDO, with the undertaking having the same effects as an order.

 

Minimising competition law risk

The CMA continues to ramp up its activity in seeking the disqualification of directors of companies found to have breached competition law. Following the CMA's confirmation that it will be making greater use of its disqualification powers in the future, company directors are given a clear message that it is their personal responsibility to ensure that their companies are not engaging in anti-competitive conduct. Directors are also encouraged to promote a culture of competition law compliance from the “top down” and consider whether any improvements can be made to their existing competition compliance procedures, policies and training in order to prevent any competition law breaches. The director disqualification powers are in addition to CMA powers to investigate and prosecute individuals under the criminal cartel offence. In its letter to the Secretary of State for BEIS earlier this year, the Chairman of the CMA referred to the possibility of the CMA being given powers to impose civil fines directly on individuals involved in serious infringements of competition law, as is the case in the Netherlands and Germany. While it is noted this would be a significant change in enforcement, the CMA sees bolstering personal responsibility for compliance as a key aspect of deterrence. These recent disqualifications are a timely reminder for company directors to familiarise themselves with competition law risks, and to seek legal advice where necessary. Businesses are also encouraged to look at their compliance procedures and carry out regular checks or audits of high risk departments such as sales teams.

 

If you would like further information or advice regarding competition law, please contact Freeths' Head of Competition, Andrew Maxwell.