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ENTERPRISE ACT COMMENCEMENT
On 20 June the criminal cartel offence provisions of the Enterprise
Act came into effect, along with new provisions on merger control,
market investigations and super-complaints, new rights for injured
parties and a new ground for directors' disqualification. Each of
these reforms have major consequences for business and in this article
we provide a summary of the main changes in each area.
Criminal Liability of Individuals
Until now only undertakings involved in cartels and other anti-competitive
behaviour were at risk of penalties, but from 20 June individuals
are liable to be jailed. The penalty for participation in the new
cartel offence is up to 5 years in jail and/or an unlimited fine.
The activities covered by the offence are price-fixing, market-sharing,
bid-rigging, customer-sharing and preventing or limiting supply
or production.
The OFT will be responsible for the policing of the new rules. The
prosecution of individuals for the new criminal offence will be carried
out by the Serious Fraud Office ("SFO") in England, Wales
and Northern Ireland, and by the Lord Advocate in Scotland. The OFT
and SFO are provided with a wide range of powers under the Competition
Act, the Enterprise Act and the Criminal Justice Act, including rights
to enter premises, to require production of documents and to require
answers to certain of their questions. They also have powers to conduct
interviews under compulsion.
The cartel offence is an extraditable offence. The countries most
likely to request (and be granted) extradition from the UK will be
the US and Canada, which have fully developed criminal sanctions
for cartel participation. The UK, meanwhile, will be able to request
extradition from those countries and others, such as Germany and
Ireland, in relation to its investigation of criminal cartels.
The threat of imprisonment for individuals is likely to focus the
minds of directors and other senior officials and make them keener
to introduce and enforce effective competition law compliance programmes.
The authorities believe that a company might weigh up the risks of
breaching the Competition Act 1998 or the EC Treaty against the likely
profits resulting from participation in a cartel, but that few company
directors or employees will be willing to risk substantial jail sentences.
Directors’ Disqualification
The Enterprise Act amends the Company Directors Disqualification
Act 1986 and introduces a new power to seek disqualification where
serious infringements of competition law are established. The Enterprise
Act gives the OFT the power to apply to the Court to disqualify
a person as a director for up to 15 years if his or her company
commits a breach of EC or UK competition rules relating to restrictive
agreements or to an abuse of a dominant market position and the
director's conduct makes him or her unfit to be concerned in the
management of the company.
In determining whether the director is unfit, the court must have
regard to whether:
- the director's conduct, act or omission contributed to
the breach of competition law (whether or not he knew that it constituted
a breach of competition law)
- where it did not so contribute, he had reasonable grounds
to suspect that the company's conduct was in breach and he did
nothing to prevent it; or
- he did not know, but ought to have known,
that the company's conduct was in breach.
The court may also have regard to the conduct of the director in
connection with any other breach of EC or UK competition law, for
example in relation to merger control.
Merger Control
- The Enterprise Act depoliticises the merger control system
by transferring power from the Secretary of State for Trade and
Industry to the OFT and the Competition Commission. The Secretary
of State
will now only be involved where a case raises defined public
interest issues (e.g. national security).
- The Enterprise Act introduces a new "substantial lessening
of competition" test under which the OFT will have a duty
to refer a relevant merger to the Competition Commission which
has resulted,
or may be expected to result, in a substantial lessening of competition
within a market or markets in the UK for goods or services. This
test is already used in a number of countries, including the
United States.
- The Enterprise Act amends the merger thresholds. A merger
may still be referred to the Competition Commission if it will either
create or strengthen a share of supply of more than 25% in the UK
or a substantial part of it ("the share of supply test").
The old assets test is replaced by a turnover test, satisfied where
the target has a UK turnover of more than £70 million.
This new turnover test should catch transactions involving service
and
Internet based companies which have previously managed to avoid
the UK's merger control rules due to their minimal assets.
Other provisions of mergers law are much as before but there are
new criminal offences of failing to provide information upon request
and mergers fees have been changed.
New Powers to Investigate Markets
The Enterprise Act replaces the old law on enquiries into monopolies
with new wide powers for the OFT to investigate markets. The reform
of the monopoly regime shifts the responsibility for investigating
markets from ministers to competition authorities; ministers only
retain powers to review those cases with exceptional public interest
issues. The OFT is now able to investigate markets where it has "reasonable
grounds" for suspecting any feature of that market restricts
competition in the UK or any part of it. This should enable the
OFT to work proactively to keep markets under review. Where it
appears that effective competition is lacking, the OFT is now able
to refer the matter to the Competition Commission for investigation.
As with mergers, there are new criminal offences in relation to
failures to respond to requests for information.
"Super Complaints"
A new brand of complaint has now been introduced by the Enterprise
Act. Representative groups, such as the Consumers Association, can
make a super complaint on behalf of consumers by asking the OFT to
take action where a business's behaviour impacts on a market, significantly
harming consumers' interests. The OFT has 90 days to decide whether
or not the super complaint warrants formal investigation.
Injured Parties
A claim for damages can now be brought in the expert Competition
Appeal Tribunal, if there is an existing finding of infringement
of EC or UK competition laws.
key expertise
Geraldine Tickle
Partner
geraldine.tickle@martjohn.com
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