The Competition and Markets Authority (the CMA) recently announced that the director of an online poster supplier had become the first UK director to be disqualified for a corporate competition law offence.
Daniel Aston, managing director of Trod Limited, was found by the CMA to be personally culpable for an online price fixing agreement entered into by Trod and has been banned from acting as a director in the UK for five years.
What was the offence?
In August 2016, the CMA announced that Trod had breached competition law by entering into an agreement with a rival poster supplier, GB Eye Limited. Under the agreement, the parties agreed not to undercut each other in relation to the prices they charge through the Amazon UK platform, putting in place automated re-pricing software to implement their online price fixing agreement.
GB Eye blew the whistle on the agreement by notifying the CMA and was subsequently granted full immunity by the CMA in the investigation that followed. Trod, which entered administration in March 2016, was fined £163,371.
The CMA took the further unprecedented step of taking action against Mr Aston as an individual in his capacity as Trod's managing director.
Why was action taken against the director?
Under changes to the enforcement rules introduced in 2003 (but until now never used), if a company is guilty of a competition law breach, the CMA has the power to apply to the court for a disqualification order to be made against a director of that company for up to 15 years. However this remedy is only available to the CMA if it is found that the conduct of the director is sufficiently poor that it makes the person "unfit to be concerned in the management of a company".
In this case the CMA was satisfied that Mr Aston personally contributed to the price fixing arrangement with GB Eye, rendering him unfit to be a director.
Is further action against directors likely in the future?
Whilst director disqualifications in connection with offences committed by companies are already a fairly common occurrence in other regulatory spheres (including health and safety and financial services), this is the first instance the CMA has used this power in relation to a breach of competition law.
It may be somewhat premature to predict a sea of change in competition law enforcement following the Trod case. Mr Aston had been the sole director and shareholder of Trod when the infringement occurred and it remains to be seen whether the CMA would be prepared to attribute the same level of personal responsibility if the company in question has multiple directors and shareholders. However, the CMA has made it clear that it will not hesitate to use its powers again, saying:
"The business community should be clear that the CMA will continue to look at the conduct of directors of companies that have broken competition law, and, where appropriate, we are absolutely prepared to use this power again."
How can directors minimise the risk of competition law enforcement?
In order for companies and directors to minimise the risk of enforcement action, it is vital that businesses put in place robust compliance programmes to ensure competition law compliance at corporate and director level.
Following Mr Aston's disqualification, the CMA has published a 60-second summary on how directors can avoid the risk of disqualification. This suggests that directors ask the following questions:
- What are our present competition law compliance risks?
- What are the high, medium and low risks?
- What measures are we taking to mitigate these risks?
- When are we next reviewing the effectiveness of these measures?
CMA practical guidance on managing competition law risks
The CMA, together with the Institute of Risk Management (the IRM), has also published practical guidance on competition law compliance in its updated Competition Law Risks Guide, which was published on 24 January 2017.
In launching the guidance, Lord David Currie, Chairman of the CMA, acknowledges that while the majority of businesses don't want to break the law, at times the lines "can become blurred and easily crossed" when it comes to competition law compliance.
With this in mind, the guidance explains how businesses can ensure competition law compliance by implementing a risk-based approach.
Putting in place robust internal risk management procedures is clearly an important first step. However the Chair of the IRM stressed that businesses must look beyond their internal procedures and consider the risks posed by dealing with customers and suppliers who may have less stringent policies in place:
"The challenge is to recognise and address [the] risk beyond the boundaries of the immediate organisation and out into the network of customers, suppliers and partners. Having a clear understanding of these risks is a necessary first step and one which this guide aims to support".
Businesses lacking effective risk-based management procedures, or where policies have not been updated recently, should review the CMA and IRM's guidance to consider whether improvements can be made to existing policies and programmes.
In addition to providing risk management tips, the useful guidance also details common scenarios in which businesses can fall foul of competition law rules, as well as what managers should do if they think that the rules may have been broken.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.