Law Report: No liability for contempt: Re Supply of Ready Mixed Concrete Court of Appeal (Lord Justice Russell, Lord Justice Hirst and Lord Justice Rose), 25 June 1993

An employer, who clearly and unequivocally prohibits his employee from entering into an agreement which unlawfully restricts competition, does not become a party to an unlawful agreement entered into by the employee in disobedience of the employer's prohibition.

The Court of Appeal set aside orders by the Restrictive Practices Court that the appellants, Ready Mixed Concrete (Thames Valley) Ltd and Pioneer Concrete (UK) Ltd, were in contempt of court.

In 1978 the appellants, companies involved nationwide in the production, sale and distribution of ready mixed concrete, were restrained by injunctions from enforcing agreements which were restrictive of competition in contravention of section 35(1) of the Restrictive Trade Practices Act 1976. The appellants issued instructions to their employees not to make any arrangements contrary to the 1976 Act.

In 1983 some employees from the appellant companies chose to ignore the instructions and attended meetings with representatives from two other companies also subject to the injunctions. They made an agreement for the future allocation between themselves of opportunities to supply ready mixed concrete.

The Director General of Fair Trading sought sequestration orders against the appellants and the two other companies for breach of the injunctions. In 1990 the appellants, on the advice of leading counsel, did not resist the charges of contempt and were fined by the Restrictive Practices Court. However the other two companies successfully contested the charges of contempt in the Court of Appeal: Director General of Fair Trading v Smiths Concrete Ltd (1992) 1 QB 213; the Independent, 2 August 1991.

The appellants reconsidered their positions and were granted extensions to appeal out of time.

Stewart Boyd QC and Paul Smith (Linklaters & Paines) for Ready Made Concrete; Michael Crystal QC and Christopher Vajda (Clifford Chance) for Pioneer; Stephen Richards and Christopher Katkowski (Treasury Solicitor) for the Director General of Fair Trading.

LORD JUSTICE RUSSELL, giving the court's judgment, said that although there was a 'plea of guilty' in the court below, the appeal should be permitted to proceed for that course was not only in the interests of the appellants but in the interests of justice as well. Counsels' erroneous advice was not on any periphereal issue but at the very heart of the proceedings. The advice was 'reasonable at the time' and the mistake was shared not only by the Restrictive Practices Court but by the Director and his legal team.

Mr Richards argued that employers could become parties to an unlawful arrangement if they did not take reasonable steps to prevent their employees entering into arrangements and those reasonable steps went beyond prohibition and required employers to monitor the activities of their workforce, properly to educate their workforce and to maintain a system which secured the effective working of the statute and prevented abuses of it.

In the court's judgment, an employer did not become party to an agreement or arrangement if he prohibited his employee from entering into it, provided that the prohibition was in clear and unequivocal terms and was in no sense a sham. If the employee then chose to enter into an agreement or arrangement contrary to the instructions, then the employer did not become a party to the agreement or arrangement in the absence of the employee being cloaked in ostensible authority. With individual employees the degree of emphasis to bring home the prohibition might vary. But the test was not subject to the gloss that the employer was bound, despite the prohibition, if he had failed to take further steps to prevent the agreement or arrangement being concluded or implemented.

It was the prohibition, and the prohibition alone, which took the employer outside the agreement or arrangement. The adequacy of the steps to be taken might vary from employee to employee dependent on the likely response, but the adequacy of those steps was no more than evidence of the quality of the prohibition. They were not in themselves features which rendered the employer a party or not a party to the agreement or arrangement.

There was no hint that either appellant should have suspected that their employees were likely to disobey instructions.

The court did not accept that on a retrial the Director General of Fair Trading could realistically entertain any hope of demonstrating that the appellants were parties to the arrangements. The appeals would be allowed.