Freshfields acts in first case regarding CMA’s exercise of directors disqualification powers for breaches of UK competition law

On 10 December 2019, the High Court handed down its judgment in the first application under the Company Directors Disqualification Act 1986 (CDDA) for permission to act as a director in the context of directors disqualifications ordered pursuant to a competition law infringement [1]. Deputy Chief ICC Judge Baister granted two directors (the Applicants) permission to continue to act as directors of certain entities within the Fourfront Group.

The application followed the settlement by Fourfront Group in the Competition and Market Authority’s (CMA) ‘Design, Construction and Fit Out Services’ investigation, in which it admitted breaches of Chapter I of the Competition Act 1998 for conduct known as cover pricing. As directors of entities within the Fourfront Group, the Applicants accepted disqualification undertakings for their contributions to the infringement. Since the CMA first used its powers of director disqualification in December 2016, the Applicants were the 11th and 12th directors to be disqualified by the CMA.

The Applicants subsequently applied to the High Court for permission under s. 17 CDDA for limited leave to continue act as directors of certain Fourfront Group companies. The basis for the application was that: (i) Fourfront Group needed the Applicants to remain as directors in the group; and (ii) the public was sufficiently protected from further competition law (or other infringements) by extensive, robust competition compliance measures. The Applicants offered conditions to the permission, including the appointment of a non-executive director tasked with monitoring competition law compliance by the Group and the Applicants, competition law training for staff, email server monitoring and the resignation of one director as Chair of the Group.

The CMA opposed the application, arguing that the Applicants had failed to demonstrate that the Fourfront Group needed the Applicants to remain as directors. The CMA also contended that if the requested permission were granted (in particular, as permission was in its view for materially the same roles in the same companies that were involved in the infringement), the deterrence function of director disqualification would be diminished, and the public would therefore be insufficiently protected from future competition law breaches.

Following a one-day hearing at the High Court, the Deputy Chief ICC Baister granted the application in favour of the Applicants, subject to the proposed conditions (together with a requirement that the Applicants and the Group companies give undertakings regarding publicity concerning the case). In particular, he noted that:

• The starting point when a Court looks at a s.17 application is the agreed conduct of the applicants, as set out in their disqualification undertakings.
• There is a difference between leave in the competition context and leave in other contexts more generally: leave in the competition context, particularly in the case of cover pricing, involves dishonest behaviour that is likely to result in real financial damage to others. This applies whatever the disqualification period may be and must therefore be borne in mind when assessing whether the public protection element of the test is sufficiently made out.
• Nonetheless, the short disqualification terms meant that the risk of repeat behaviour could only be for a short time.
• In addition, the (a) reorganisation of the companies and boards of directors; (b) the introduction of compliance policies and training; (c) the appointment of a non-executive director, who was also a senior solicitor with construction experience; and (d) the conditions offered by Applicants meant that it was unlikely that there would be a repeat of the conduct in issue.

As no witnesses were tendered for cross-examination, the evidence of the Applicants and supporting evidence from other directors of Fourfront Group had to be taken at face value, save to the extent that it was manifestly wrong or so at odds with contemporaneous documentary evidence or the like that it had to be disregarded. The judge determined that that threshold had not been passed here: this was particularly important in establishing the Applicants’ remorse and professions of regret regarding the conduct that led to the infringements, which had been questioned by the CMA.

This case is significant as it is the first case to be heard that arises out of the CMA’s exercise of its powers of disqualification under the CDDA. The case confirms that, on an application for leave to act as a director, the exercise to be undertaken by the Court is fundamentally the same as in all other contexts in the CDDA: the exercise involves balancing the need of the applicant to remain a director with whether the public is sufficiently protected from a repeat of the conduct in issue. It is key in this regard that the court is persuaded both as to the adequacy of the competition compliance measures that are put into place, and the ongoing solvency of the company in respect of which leave to act is sought. The judge indicated that the matter was finely balanced, and that he had not granted leave to act lightly.

A joint team from Freshfields specialist antitrust litigation team, and main antitrust, competition and trade practice, acted for the Fourfront Group and the Applicants, led by partner Deba Das who was assisted by associates Daniel Wylde and Sophie Tang. Christopher Buckley of Radcliffe Chambers acted on the successful application for permission, and advice in respect of the directors’ disqualification process was provided by Maya Lester QC of Brick Court Chambers.

The CMA’s Statement in respect of this case is available here. 

[1] Stamatis and Davies v Competition and Markets Authority [2019] EWHC 3318 (Ch)