“Volaw Trust” - A strengthening of the privilege against self incrimination from requests for pre-existing documents?
The recent practice of regulators – and the potential for future developments – means that company directors need to be increasingly aware of the risks associated with competition law compliance.
Although it had been around for some time, the specific regime which allows for the disqualification of directors of companies which breach competition law had been little used, certainly when compared to the regime used in relation to company insolvencies. This has all changed in recent times with increased use of the powers by regulators.
This is a trend which is expected to continue. In this blog, Jonathan Grimes and Mark Mills explore the existing framework, the expected trends and some of the issues arising.
The nature of the competition disqualification regime means that a director of a company which is found by a regulator to have breached competition law is potentially liable to have proceedings commenced against them. The sanctions are serious: disqualification may be for a period of up to 15 years. While there is the possibility of seeking permission to act as a director during the disqualification period, the court has recently confirmed that such permissions will not be given readily.
Although the proceedings will be brought by the regulator (as explained further below), it is for the court to determine whether to order disqualification. The court must make a CDO against a person if the court considers if two conditions are satisfied in relation to that person:
In relation to the first of those criteria, any breach of competition law can in principle meet the condition: it applies to cartels and other forms of anticompetitive agreement and abuses of a dominant position. What might be more surprising to those unfamiliar with the regime is the relatively low bar of the second criterion. It is not necessary for the director concerned to have contributed through his own conduct to the breach of competition law or to have known that it constituted a breach. Indeed it is sufficient if the director did not know, but ought to have known, that the conduct of the undertaking constituted a breach.
It is not automatic however that once a breach of competition law is found that disqualification proceedings will follow: there is discretion on the part of the regulator to decide whether to commence those proceedings. Individuals facing such action also have the ability to offer legally-binding disqualification undertakings rather than going through those proceedings. This has the same effect as a disqualification order. Given the apparently low bar once matters get before the courts and the possible costs consequences for the individual concerned if the court makes an order (i.e. the risk they will have to pay both their own costs of defence and those of the successful regulator), it is not surprising that all of the cases to date have been dealt with by way of undertaking. Before getting to this stage however it is clear (not least from the failure to take any action in this space until recently) that discretion exists for the regulator.
Before answering that question it is relevant to note that any of the regulators with competition law jurisdiction in the UK have the power to commence such proceedings. As well as the Competition and Markets Authority, regulators which also have competition law powers in their sector (like Ofgem for energy, Ofcom for telecommunications and postal services and the Financial Conduct Authority for financial services for example) also have the power to bring these proceedings. All of these authorities in practice follow the approach set out in guidance by the CMA.
The CMA’s guidance makes clear that a number of factors will be considered in deciding to whether to commence proceedings. The factors identified are not exhaustive but include factors such as the nature of the alleged infringement and its impact on markets and customers (although the CMA is at pains to emphasise that it may pursue a case in respect of any breach), the conduct of the business during the investigatory process, the director’s own involvement in the infringing conduct (mirroring the factor the court must consider) and the extent of the director’s cooperation. The possible deterrent effect of an order on the wider market is also considered.
In simple terms the trend is for the CMA to seek disqualification in an increasing number of cases. Indeed in its recent statement on the design, construction and fit-out services director disqualifications, the CMA has described disqualification as an “essential measure to protect the public from directors of companies that break competition law” and confirmed that it will “seek further disqualifications of directors where appropriate."To date these cases have tended to display element of hardcore cartel conduct such as price-fixing or bid rigging (see for example Estate Agents in Burnham-on-Sea and Construction Cartel). These cases have been dealt with by undertakings so, to date, we have not yet seen a fully-contested case to conclusion before the courts. In addition, none of the other regulators have been involved in such proceedings to date although there has been an increase in competition activity by them in recent times. It is therefore surely only a matter of time before we see one or indeed both of these events occur.
The relatively recent letter from the Chairman of the CMA, Lord Tyrie to the Secretary of State - points to increasing individual accountability for breaches of competition law as a focus of the CMA’s work. Director disqualification will be a key part of this (it is noted that the CMA may wish for this to be expanded to breaches of consumer protection too) alongside enforcement of the criminal cartel offence (which remains relatively limited) and the possibility of civil penalties for individuals.
Obviously the first step for any director is to ensure competition law compliance measures are put in place by his or her company. That is likely to vary depending on the nature of the business but is likely to include, at a minimum, a risk assessment and regular review of it, together with appropriate guidance or training to staff. But even the best compliance measures cannot eliminate entirely the possibility that a regulator will call…
The CMA guidance explains that the manner in which the company and the director engages with the relevant regulator is likely to be a relevant factor to the question of whether proceedings should be commenced subsequently. This is particularly likely to be relevant when questions arise about participation in interviews with the regulator’s staff. For completeness many of the same issues may arise for individuals who are not directors but are subject to some other form of regulatory oversight on an individual basis – such as those who are authorised by the FCA.
Many key questions about the process have not been tested before the court in the competition law context. Based on court decisions in the wider (non-competition) disqualification regime there is at least the possibility that answers to questions put to the director under compulsion during the investigation of the company may be used against the director in subsequent disqualification proceedings.
In light of these complexities and the significant implications for the individual, it would be prudent for a director to take his or her own legal advice (separate from that of the company) at an early stage of the investigation.
Lawyers at Kingsley Napley have extensive experience of assisting individuals and organisations in connection with investigations of all kinds including competition law investigations. Jonathan Grimes, Mark Mills or your existing Kingsley Napley contact would be happy to answer any questions arising out of this.
Skip to content Home About Us Insights Services Contact Accessibility