Banned in Burnham and Beyond; First Competition Director Disqualification Case to Reach Trial

In the first competition director disqualification case to reach trial, the former director of an estate agency in the Burnham-on-Sea area in Somerset was disqualified by the UK High Court on 3 July 2020 from acting as a director for seven years. 

The Competition and Markets Authority (CMA) found the estate agency to have been involved in a cartel. The CMA is increasing its use of these disqualification orders to pursue not only the companies that infringe competition law, but also the directors of those companies. This is something The Insolvency Service has been doing, almost as a matter of course, for a number of years. For directors, this means that they could be banned from corporate high office.

Underlining each of the lessons learned from this judgment is the importance of good governance and training. Competition law training is a good place to start to ensure a business is compliant, no matter which market it may fall within. As a director, failure to ensure such measures are in place may result not only in a fine of up to 10% of a businesses' annual worldwide turnover, but also disqualification for up to 15 years.

Background

The CMA used its powers to apply to the court for a competition disqualification order preventing Mr Christopher Martin from acting as a director of Garry Berryman Estate Agents Limited, and two group companies, The Property Group (2010) Limited and Warne Investments Limited. In 2017, the CMA had found Garry Berryman Estate Agents Limited and Warne Investments Limited entered into an anticompetitive agreement with various competitors to set minimum commission fees of 1.5% for residential property sales services in Burnham-on-Sea in Somerset, preventing local home owners from obtaining better offers.¹The CMA imposed a total fine of £370,084 on all the firms except the one to confess its participation in the arrangement under the CMA's leniency policy and co-operate with the CMA's investigation.

Lessons Learned?

No market gets left behind

While the CMA has in recent years focused its enforcement activity on large, regulated industries such as life sciences (see for example our Advisory on the CMA's consideration of discounts in the pharmaceutical sector), it is evident from this judgement that local markets are also important to the CMA. The decision reflects the CMA's priorities set out in its Annual Plan 2020 to 2021, which promises an exercise of the CMA's functions with particular regard to protecting consumers, including in particular those in vulnerable circumstances (referring specifically to specialist areas of funeral markets, care home providers and fertility clinics).

The nature of the market, and the vulnerability of the consumers in question, was also important in the context of mitigation when Mr Justice Clive Jones determined the appropriate length for disqualification. Deciding on seven years out of a possible maximum of 15 years, the judge bore in mind in particular "the seriousness of the findings of misconduct in the context of the sale of houses/homes when estate agents have to be trusted by vendors."² He highlighted "the serious financial effects a cartel such as this will have had on ordinary people selling their most valuable asset often in the context of needing funds to provide for a new home. That is in the context of a 13-month period which would have affected significant personal funds of clients."³

Express yourself, but do it compliantly

The fact that a substantial part of the evidence comprised emails and meeting minutes is very important. Mr Justice Clive Jones dissected this evidence (reproduced at length in the judgment), paying close attention to the language used. For example, the judge found that Mr Martin's reading of the second paragraph of a particular email from a Berrymans' employee would have led Mr Martin to identify the proposed terms as anti-competitive. The judge found that "In any event he should have appreciated that natural meaning and the result of the aim if achieved".⁴ Considering the direct evidence together, the judge found it difficult to accept Mr Martin's evidence in chief, that "it never entered [his] mind that Graham was seriously suggesting that he was going to try to agree minimum fees with other agents".⁵

This highlights the importance of the way in which all employees should express themselves, both in writing (such as in emails), and in meetings (for the purpose of meeting minutes). The CMA has extensive investigative powers, including the ability to conduct unannounced dawn raids, during which the CMA can take copies of, or extracts from, any document, including business records (in digital format or hard-copy).

The "I's" have it

Finally, and of particular note, this judgment serves as a stark reminder that the CMA will increasingly pursue not only the companies that infringe competition law, but also the directors of those companies at an individual level. In the eyes of the CMA, company directors have a critical responsibility to make sure the companies they control do not take part in anti-competitive behaviour. Indeed, the CMA's executive director of enforcement, Michael Grenfell, said recently in a statement published on the CMA's website that Mr Martin's disqualification order:

"sends a clear message to company directors: even if you are not directly involved in the breach, you can still be held accountable for it. If you have information about a breach, as a director you must take all reasonable steps to prevent it. If you don't, you risk disqualification, and the CMA will not hesitate to take court action if needed."

Satisfied that Mr Martin had a "reasonable, lay knowledge of competition law in light of his previous business experience",⁶ Mr Justice Clive Jones found that "Directors with his knowledge should take all reasonable steps possible to ensure a company does not enter into an anticompetitive agreement".⁷

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.