The Limits of Prohibition: A Cloud over Compliance
| Date | 01 February 1995 |
| Pages | 93-96 |
| Published date | 01 February 1995 |
| DOI | https://doi.org/10.1108/eb025684 |
| Author | Chizu Nakajima |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 3 No. 1 — Compliance
COMPLIANCE
The Limits of Prohibition: A Cloud over
Compliance
Chizu Nakajima
There are few better examples of public policy
being used to cut through what might to many
seem to be sound legal reasoning than in the
recent decision of the House of Lords in Re Supply
of
Ready-mixed Concrete
(No. 2),
Director General
of
Fair Trading v
Pioneer Concrete
(UK) and Another.1
The case represents a milestone or perhaps more
appropriately the end of the road, for a scries of
cases involving actions brought by the Director of
Fair Trading against a number of companies and
individuals for allegedly unlawful restrictive agree-
ments in relation to the supply of ready-mixed
cement. In the present case the two respondent
companies were made subject to orders by the
Restrictive Practices Court in March 1978 and
March 1979 restraining them from,
inter
alia,
giving
effect to or enforcing agreements with other par-
ties,
relating to the supply of ready-mixed cement
in contravention of s. 35(1) of the Restrictive
Trade Practices Act 1976. This provision among
other things, renders unlawful certain agreements
restricting competition between two or more pere-
sons carrying on business in the production or
supply of goods, unless such agreements are regis-
tered.
The respondents' management issued express
instructions to their employees forbidding them to
make or put into effect such agreements or
arrangements. Nonetheless it seems that local
managers did negotiate and implement such
arrangements even though it is clear they had nei-
ther express nor implied authority from their
employers to do so. Indeed, such occurred without
the knowledge of the respondent companies' sen-
ior management. The Director of Fair Trading
initiated proceedings for contempt against the
respondent companies and also a number of other
companies and individuals. In proceedings before
the Restrictive Practices Court the respondents
accepted that they were in contempt and were
fined accordingly. However, in a case involving
another company in the same position as the res-
pondents, the Court of Appeal held that a
company was not liable for breach of
an
injunction
seeking to restrain it from entering into a restric-
tive agreement, if the breach was committed by an
employee acting outside the scope of his authority,
albeit arguably within the course of his employ-
ment.2 In the present case, the Court of Appeal
following its earlier decision in Smiths Concrete
allowed the respondent companies' appeal on the
basis that the companies did not become a party to
an agreement or arrangement within the scope of
the Act, if the relevant employees had been for-
bidden in clear and unequivocable terms from so
doing and their conduct had not been cloaked with
ostensible authority.3 Given the significance of
such a ruling to the efficacy of the legislation the
Director appealed to the House of Lords.
The respondents maintained that as a pre-
requisite it had to be shown that there was an
agreement or arrangement that was in fact regis-
trable under the 1976 Act. The alleged contempt
involved the unlawful enforcement of such an
agreement by a person who is both a party to it
and who carries on business within the UK. Even
if it were the case that the relevant local officials
were acting within the scope of their employment
it had to be shown, according to the respondents,
that their actions were capable of bringing into
existence a registrable agreement which was then
acted upon by the relevant parties, that is to say the
respondent companies. If the officials concerned
had been deprived of any authority to enter such
an agreement on behalf of the companies, how
could their conduct create a registrable arrange-
ment and how, if the company was not a party to
it, could the company be held in contempt for
Page 93
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