Governance
Competition Law – You ought to have known |
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| Governance | |
| Written by John Binns, a solicitor at BCL Burton Copeland. | |
| Friday, 10 September 2010 | |
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How not to get disqualified as a director.
The prospect of disqualification has long been a powerful incentive to company directors both to comply with competition law and to cooperate with investigators when dealing with alleged breaches. On 26 June 2010 the Office of Fair Trading issued a guidance document which appears to recognise and strengthen that incentive. The OFT’s guidance document sets out a five-step process for deciding whether to apply to the court for a CDO. The first step is to consider whether the undertaking has breached competition law. There may be exceptional cases where there has been no prior decision or judgment on the issue, but the OFT or other Regulator nevertheless thinks it appropriate to apply. The second step is to consider the nature of the breach. The Regulator is likely to apply only in more serious cases. The third step is to consider whether the company has been granted leniency by the OFT or the European Commission. If so, the Regulators will only consider applying for a CDO against a director who has been removed or ceases to act due to his role in the case or who fails to cooperate with the leniency process. The fourth step is to consider the extent of the director’s responsibility for the breach. Interestingly, the guidance first sets out considerations identical to those the court must have under the CDDA, then gives examples that are broader. For example, the Regulators will consider applying for a CDO where the director ‘ought to have known the company was involved in the breach’. The CDDA says ‘ought to have known that the conduct constituted the breach’. .The guidance document goes on to say that the OFT ‘‘will also take into account the actions taken by such a director to create a compliance culture and to avoid breaches of competition law occurring.’ The fifth step is to consider aggravating and mitigating factors. Examples given of the latter include ‘quick remedial steps… including the implementation or revision of a competition law compliance programme’, and ‘disciplinary action against the employees responsible’. Here, the new guidance arguably attempts to introduce a self-policing regime similar to that in the Bribery Act 2010, as well as to strengthen the incentive to cooperate with civil and criminal investigations. The OFT, fresh from its bruising encounter with the criminal courts in the BA price-fixing case, would clearly like company directors to institute compliance regimes and vigorously investigate alleged breaches, in fear of facing CDOs otherwise. No doubt some of this action is sensible, but a note of caution should be sounded against following the logic of this guidance to its conclusion. Importantly, it will be up to the courts to decide whether a CDO is really appropriate against a director who was not involved or did not know about a breach. Two situations must be distinguished: one where the director knew what was happening, but didn’t know the legal nature of it, and let it go on; and one where the director had no knowledge at all, but could be said to have been negligent in preventing it altogether. It is far from clear that the CDDA intended to apply the strong sanction of CDOs to directors in the second category. While none of this means a director in this category can afford to be relaxed about the new guidance, he or she ought not to rush to accept what may seem inevitable. Disqualification is still not a strict-liability sanction, and should not be treated as such. John Binns is a solicitor at BCL Burton Copeland.
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