Background 

One of the key developments in competition law in 2015 has been the enactment of the Consumer Rights Act 2015 (the “CRA15”). On 3 August 2015, the provisions of the CRA15 relating to the introduction and approval of voluntary redress schemes were brought into force.  Where a business offers such a redress scheme, those affected by an infringement of competition law established by the Competition and Markets Authority, sectoral regulators (with concurrent competition powers – such as OFGEM and OFWAT), or the European Commission (the “Authority”) are able to claim compensation through such a scheme without the need to pursue litigation in the courts. The quid-pro-quo for this is that businesses offering such a scheme could benefit from a reduction in the fines imposed by the Authority for their infringement of up to 20%.

The Regulations

On 3 August 2015, the provisions of the CRA15 relating to the introduction and approval of voluntary redress schemes were brought into force by the Consumer Rights Act 2015 (Commencement No.2) Order.  Following this, on 5 August 2015, the Competition Act 1998 (Redress Scheme) Regulations 2015 (the “Regulations”) were published. The Regulations set out the steps that the Authority must follow when considering applications for redress schemes under the Competition Act 1998 and will come into force on 1 October 2015.

Article 4(1) of the Regulations provide that the Authority may only approve a redress scheme if it:

  1. has been devised in accordance with the process specified in the Regulations (the “Required Process”);
  2. contains all of the information required by the Regulations (the “Required Information”); and
  3. contains all of the terms required by the Regulations (the “Required Terms”).

In order to satisfy the Required Process, any person or business wishing to offer a scheme must appoint a Chairperson who will then appoint members of the Board. The Chairperson and the Board will then develop the terms of the scheme, such as the level of compensation to be offered, against the background of the relevant matters. According to article 5(7) of the Regulations, the relevant matters include evidence of the loss, the identity of those entitled to compensation under the scheme, the scheme’s application process, and how those entitled to compensation will be notified of their entitlement.

Article 6(1) of the Regulations sets out what is needed to satisfy the Required Information obligation. The Required Information includes the names of the Chairperson and Board members along with confirmation that none of them have any conflicts of interest. Also required are details surrounding access to information, the application process including time frames, and details of an independent complaints process for those applying for compensation under the scheme.

The Required Terms are set out in Article 7 of the Regulations which provides that a scheme must include terms stating that a third party may not submit a claim under the scheme on behalf of those entitled, and that the scheme will operate for at least a 9 month period.

CMA Guidance

On 14 August 2015, the CMA published its guidance on the power to encourage competition law-breaking businesses to voluntarily pay compensation to victims (the “Guidance”). The Guidance makes it clear that an application for approval of a voluntary redress scheme may be made prior to an infringement decision by the Authority. Approval will only be given, however, at the time of or following an infringement decision.

The Guidance lists the potential advantages of approved schemes. The principal advantage is to ensure that the schemes offer a statutory process by which both consumers and businesses can gain access to compensation more quickly and easily without the costs of litigation. Businesses setting up schemes may also reap the benefit of reduced reputational damage in relation to their infringements as a result of early resolution of any claims.

The schemes will act as an alternative form of dispute resolution (ADR) and will sit alongside forms of private action including follow-on actions and stand-alone actions. The Guidance notes that the willingness (or otherwise) of claimants and defendants to consider ADR will be relevant to the Competition Appeal Tribunal (the “CAT” ) in relation to issues such as costs orders.

Comment

These provisions form part of only a number of changes to the competition litigation landscape which will come into effect in October 2015.  The overall intention of the changes is to encourage greater private enforcement of competition law in England & Wales, in particular by individuals and SMEs, an objective which is also being pursued at EU level.  Other changes include the introduction of an ‘opt-out’ class action mechanism before the CAT as well as various amendments to the jurisdiction and procedures of the CAT in order to make it a more attractive forum for competition law claims.