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Competition Law Risks and Priorities for Directors in Ireland

AUTHOR(S): Kate McKenna
PRACTICE AREA GROUP: EU, Competition and Regulatory
DATE: 02.09.2019

Introduction

The consequences of breaching competition law are severe, and can have very personal implications for directors who may be disqualified or prosecuted and fined in a personal capacity for competition law breaches. This means that internal company awareness of the consequences of competition law breaches, and how to mitigate them, is crucial.

Irish Disqualification Procedure

Under section 839(1) of the Companies Act 2014 (the “2014 Act”), individuals convicted on indictment of the competition law offences under sections 6 (entering into anti-competitive arrangements) and 7 (abusing a dominant position) of the Competition Act 2002 (as amended) (the “2002 Act”) are deemed automatically disqualified from being appointed or acting as a director, officer or being in any way concerned in company management for a period of 5 years (or for such other period as the court may order).

Four major cartel cases have been prosecuted in the criminal courts (Ford Dealer cartel; Citroen Dealers Association cartel; Home Heating Oil cartel; Commercial Flooring cartel), resulting in the conviction on indictment of 20 individuals. The penalties included imprisonment, fines, and in the most recently prosecuted Commercial Flooring Cartel case (discussed below) , disqualification.

DPP v Aston Carpets and Flooring Limited and Brendan Smith[1]

The recent “Commercial Flooring Cartel” case resulted in the automatic disqualification of a company director for engaging in bid-rigging in the procurement of flooring contracts for major international companies, which is a form of anti-competitive agreement contrary to section 6 of the 2002 Act.

Brendan Smith, former director of Aston Carpets, pleaded guilty to the offence before the Central Criminal Court, and was disqualified for a five-year period, as well as being fined €45,000 in a personal capacity.

Notably in this case, a director of Carpet Centre Contracts, another member of the cartel,  avoided prosecution and therefore disqualification by cooperating with the Competition and Consumer Protection Agency (the “CCPC”) through the Cartel Immunity Programme. This Programme is operated by the CCPC in conjunction with the DPP, and provides immunity to the first member of a cartel to come forward to the CCPC and reveal their involvement in the illegal cartel activity.

Comparing the Irish and UK Regimes

The CCPC cannot itself disqualify directors. Rather, this can only be done through a court prosecution by the DPP.

This is in contrast to the regime in the UK, where the Competition and Markets Authority (“CMA”) has since 2003[2] had the power to seek director disqualification by applying to the court for a competition disqualification order (“CDO”) or by accepting a legally binding competition disqualification undertaking (“CDU”) from a director.

The CMA exercised this statutory power for the first time in 2016, accepting a CDU from Daniel Aston, director of Trod Limited[3].  In consideration for his cooperation, the CMA reduced the period of disqualification to five years.

In recent months, the CMA has been ramping up the use of its disqualification powers, having secured the disqualification of six directors for a combined total of 28 and a half years.  Whilst the CMA has yet to apply for a CDO, a total of 9 directors have been disqualified for their involvement in illegal anti-competitive practices through CDUs, and the CMA is actively pursuing others, noting that it  will “continue to look at the conduct of directors of companies that have broken competition law, and, where appropriate, [is] absolutely prepared to use this power again”[4].

This position is in line with the trend worldwide towards more personal liability in competition law enforcement. For example, in Japan and the US, shareholders may seek damages from directors on behalf of a company where it is alleged they failed to prevent a breach of competition law, and in Germany the Federal Cartel Office is known to impose large fines on directors for wilful or negligent breach of competition rules. In Hong Kong, under the Competition Ordinance, an individual can be fined and disqualified from being a director for up to five years for contravening competition rules.

What does this mean for directors?

The increasing level of competition enforcement and disqualification orders against directors makes it vital that Irish directors understand competition law and the associated risks.

Directors should ensure that there are appropriate competition compliance procedures and policies in place thereby promoting a culture of training and compliance led from the top down, and should be sufficiently aware of their company’s affairs to identify competition law risks and take measures to mitigate against these.

 

[1] [2018] IECA 194.

[2] Sections 9A to 9E of the Company Directors Disqualification Act 1986, as amended in 2003 by the Enterprise Act 2002.

[3] The CMA found Trod Limited guilty of having entered into an agreement with its competitor, GB eye Limited, not to undercut each other’s prices for posters and frames sold on Amazon UK’s website. The CMA determined that both Mr Aston’s position as Managing Director at the relevant time and the fact that he personally contributed to the breach of competition law meant his conduct rendered him unfit to be a company director.

[4] https://www.gov.uk/government/news/cma-secures-director-disqualification-for-competition-law-breach

This article was authored by EU Competition partner Kate McKenna

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