Cartel Ties Prompting Disqualification

“Three Strikes, You’re Out!”, or, as in the practice of the UK’s watchdog, “third time is a charm”, but the fourth is not.  Let us check out the rules of fair play when it comes to protecting competition in the UK market.

In the early 2020 Associated Lead Mills Ltd (ALM) and H.J. Enthoven Ltd (trading as BLM British Lead), two of the UK’s largest suppliers of rolled lead,  admitted to forming a cartel and thus breaking the law four times by colluding on prices, sharing the rolled lead market by arranging not to target certain customers, and purposely not supplying new businesses.  Moreover, sensitive information circled between the two – so typical for cartel practice.  Unsurprisingly, in late 2020, the UK’s Competition and Markets Authority (CMA) decided to fine both companies for their four anti-competitive arrangements, with £1.5 million and £8 million respectively, thus closing its investigation.

Just before this, the CMA issued another infringement decision in October 2019 involving the UK’s three suppliers of pre-cast concrete drainage products – CPM Group Limited, FP McCann Limited and Stanton Bonna Concrete Limited.  The CMA found that these suppliers broke competition law by agreeing to fix or coordinate their prices, share the market by allocating customers and regularly exchanging competitively sensitive information.  The same behavior leads to the same consequences – fines totaling more than £36 million have been imposed on CPM Group, FP McCann and Stanton Bonna Concrete.  After FP McCann filed an appeal within the Competition Appeal Tribunal against the CMA, the Tribunal upheld the initial CMA decision meaning that FP McCann must pay a £25 million fine for participating in a cartel.  Surely, that did not end well for FP McCann, or the other two.

There is nothing unusual about fining companies which are part of a cartel, so why are we bringing this up now?  Well, here comes the bombshell!

Although being ordered to pay a fine is a common aftermath of forming or participating in a cartel, the CMA went a bit further while doing its job of saving UK’s market from anti-competitive practices which harm consumers and the economy.  Reflecting the serious nature of the breaches and the directors’ involvement, the CMA secured the disqualification of directors – one of BLM and two of ALM in the 2019 case, and two of FP McCann and two of CPM in the 2020 case (being effective as of end-March 2021).

What is invigorating in this case is the duration of these directors’ disqualifications.  According to the current rules, an individual may be prevented for up to 15 years from being a director of a company.  Translated into years, the prospects are as follows: In the ALM/BLM case, the BLM director has been disqualified for six and a half years and the ALM directors for four and three years, respectively.  In the latest case, the CMA hit even harder – the FP McCann directors’ disqualification came last, and they were disqualified for an astounding twelve and eleven years, respectively.

This brought the total number of disqualifications, as a result of CMA investigations, to 25, starting from 2016 up to date.  Interestingly, under the Company Directors Disqualification Act 1986, the CMA can either apply to the court requesting a competition disqualification order (CDO) or accept a competition disqualification undertaking (CDU) from a director, which has the same effect as a CDO.  CDO was the chosen path in these cases.

Cartel Ties Elsewhere

We now come to ask, if the European Commission, for example, can order a disqualification of a company director?

Competition disqualification rules in the EU can be prescribed in two ways: (i) through a system which allows individual disqualification for breaches of the competition law as a stand-alone sanction, or (ii) through a system which makes disqualification contingent on being found liable for a criminal law offence for breaching competition laws.  There is a lack of published cases for the current period, but according to the information dating from 2017, the second system is a certainly the much more common one.  At that time, the UK (which is not an EU Member State anymore) and Sweden were the only two countries with stand-alone competition disqualification sanctions.

The situation in the Serbian competition law is like other EU countries.  The only sanction prescribed in the Serbian Competition Act in case of breaching competition law is the measure for protection of competition, in the form of an obligation for a company to pay a fine in the amount up to 10% of the total annual revenue generated on the territory of Serbia.  Furthermore the Serbian Criminal Code does not prescribe disqualification per se, but it does predict a penalty in a form of imprisonment and a fine to be imposed on “whoever in a business entity concludes a restrictive agreement that is not exempt within the meaning of the law regulating protection of competition, whereby the prices are determined, the production or sales is restricted, i.e., the market is divided.”

All in all, in time we may witness many changes, so maybe the UK’s and Sweden’s examples will not remain exceptions, but a whole-heartedly accepted practice across Europe.

 

Authors: Ivana Stojanović Raišić, Nađa Kosić, Miloš Brkić