Somerset estate agents in the dog house - directors disqualified for price fixing

The CMA issued a decision on 31 May 2017, finding that six estate agents in Burnham-on-Sea (including Abbott and Frost) had engaged in a cartel by agreeing to fix the minimum rate of commission that they would charge people selling their homes at 1.5 per cent. The CMA imposed fines totalling £370,000 on five of the estate agents (with two firms obtaining discounts under the CMA's leniency programme), while the sixth obtained immunity from fines for being the first to admit its participation in the cartel.     

Following its decision, the CMA decided to take action against a number of directors of the companies which were parties to the infringement, on the grounds that they were either actively involved in the cartel or were aware of it but failed to take steps to stop it. The CMA has the power to seek the disqualification of company directors when they have been the director of a company which has infringed competition law, and their conduct makes them unfit to be a director. 

Whilst the CMA's announcement concerns the directors of just one of the estate agents involved in the cartel, the CMA has said that it is continuing to investigate whether to seek the disqualification of other directors of companies which were involved in the infringement.

The CMA can either seek undertakings from the individuals concerned, or obtain a court Order, under the Company Directors Disqualification Act 1986. Individuals may offer the CMA an undertaking as an alternative to the CMA seeking a court Order. An undertaking given to the CMA has the same legal effect for these purposes as an Order, and the breach is a criminal offence. Undertakings include an admission by the individuals of their participation in the infringement of competition law, and an acceptance that they are "unfit to be concerned in the management of a company." 

Although the punishment may seem harsh, it should be remembered that the maximum possible period of disqualification is 15 years, and participation in a price-fixing cartel is regarded as amongst the most serious types of infringement. In previous cases following cartel activity, disqualifications have been of five and seven years' duration. Further, these directors were found to be directly involved in the infringement, including implementing and policing the cartel. A person might also be found to be unfit to be concerned in the management of a company where they were not directly involved, such as where they:

• had reasonable grounds to suspect an infringement of competition law, but took no steps to prevent it; or
• did not know, but ought to have known, that the conduct constituted a breach of competition law.

Although the CMA (and previously the Office of Fair Trading) has had these disqualification powers for 15 years, this is only the second time that it has used them (there was also a disqualification in relation to the marine hose cartel, but that was on the basis of a criminal offence having being committed rather than a civil competition law infringement). However, the CMA wishes to send a strong message that it is prepared to take a tough line by holding individuals to account for breaches of competition law by the companies which they run.    

The fact that Abbott and Frost is a single branch estate agent in a small town also demonstrates that the CMA may pursue even the smallest cases. 

It is also worth noting that the CMA will not seek the disqualification of a current director of a company which is benefitting from the CMA's leniency programme in respect of the activity to which the leniency relates. This may provide a significant incentive for directors to seek leniency when there is compelling evidence of an infringement of which they either were or should have been aware.