The latest test for the CMA’s increased pursuit of director disqualifications – High Court hears the CMA’s first application for a Competition Disqualification Order

This week saw the High Court hear, over the course of a virtual four-day hearing, the Competition and Markets Authority’s (CMA) first application for a competition disqualification order (CDO) under section 9A of the Company Directors Disqualification Act 1986 (CDDA). In what is only the second time the CDO regime has come before the High Court,[1] the case represents a key moment in the CMA’s increased pursuit of director disqualifications, which to date has relied solely on the acceptance of disqualification undertakings under section 9B of the CDDA.

The CMA’s application follows its May 2017 decision to fine six real estate agencies £370,000 in Burnham-on-Sea for taking part in a price fixing agreement.[2] The CMA has since obtained disqualification undertakings from three directors involved in the relevant conduct,[3] with Michael Martin disputing that disqualification is warranted in his case.

‘Reasonable grounds to suspect’ / ‘ought to have known’ that the conduct constituted a breach of competition law

Under the relevant provisions of the CDDA, an individual’s conduct need not have directly contributed to the breach of competition law in question. It is sufficient that the individual had reasonable grounds to suspect a breach and took no steps to prevent it, or even that the individual ought to have known that the conduct constituted a breach.[4] It is on these latter two grounds that the CMA’s application for a CDO against Mr Martin may ultimately rest.

In seeking to prove Mr Martin’s contribution to the conduct, the CMA has put forward evidence relating to Mr Martin’s alleged knowledge of the cartel, including email correspondence. The CMA claimed that the correspondence in question “[could] only be a reference” to anticompetitive behaviour and that it was “not sustainable” for Mr Martin to argue that he lacked knowledge, and, at the very least, he should have made further enquiries.

In disqualification proceedings, the credibility of the defendant is key. In response, Mr Martin provided oral evidence, including cross-examination by counsel for the CMA. Mr Martin disagreed with the CMA, arguing that he “didn’t see this in the way that [the CMA was] interpreting it” and that the possibility of being involved in a cartel was “inconceivable” to him. He also pointed to the lack of evidence of his attendance at meetings or of him engaging in direct discussions about the cartel, as well as putting forward extensive evidence about his good character and previously unblemished career.

The judgment of the court in this case will hopefully provide much needed guidance as regards the threshold for knowledge under the CDO regime, which is lacking from the CMA’s own slimmed down version of its guidance published last year.[5] In particular, further clarity is sought in relation to the circumstances where a director ought to know that the conduct of others in the organisation constitutes a breach of competition law, making him or her unfit to be concerned in the management of a company.

Proportionality and the CMA’s CDO regime

The proportionality of the CMA’s exercise of its disqualification powers and the interaction with the European Convention of Human Rights (the Convention) is another key area touched upon by this case.

Given the adverse effect that disqualification would likely have on his career, Mr Martin argued that his right to respect of his private and family life under Article 8 of the Convention is clearly engaged. It was therefore incumbent on the CMA to consider whether it was proportionate to issue a CDO against him, however instead the CMA had approached the case with “tunnel vision” and failed to take into account important factors regarding the impact of the CDO on him, ignoring everything except the conduct concerned.

In response, the CMA argued that anything less than a CDO would not be capable of achieving the same objective, noting the important deterrent effect disqualification has on executives who engage in anticompetitive behaviour.

The judgment of the court in this case will be important in providing guidance on the parameters of the CMA’s powers of disqualification and the interaction with the individual’s rights under the Convention.

The hearing concluded on Thursday 11 June and a judgment will follow.

For further information on this topic, please also see our recent article in Competition Law Journal in which we look at some of the key considerations for the CMA’s CDO regime, having successfully secured permission to act for directors in the first High Court case to hear an application of this nature in the competition context: By your leave – the English High Court gives guidance on when directors subject to competition disqualification orders may obtain limited permission to act.

CR-2019-001454 Competition and Markets Authority v Michael Martin

[1] See Freshfields acts in first case regarding CMA’s exercise of directors disqualification powers for breaches of UK competition law.

[2] See https://www.gov.uk/cma-cases/residential-estate-agency-services-suspected-anti-competitive-arrangement-s#infringement-decision.

[3] See https://www.gov.uk/cma-cases/residential-estate-agency-services-in-the-burnham-on-sea-area-director-disqualification.

[4] Company Directors Disqualification Act 1986, ss 9A(6)(b), (c).

[5] See CMA Guidance on competition disqualification orders (CMA102, 6 February 2019).