Following the triggering of Article 50 of the Treaty on European Union, the process for the UK’s exit from the European Union commenced on 29 March 2017 and minds have now turned to negotiating the terms of such exit. Whilst there is already much conformity between substantive EU and UK domestic competition law, the practical impact of Brexit in the application and operation of such law for regulators, businesses and litigants alike will be more acute. The topic has been the subject of much commentary since the referendum result, including the recent Provisional Conclusions and Recommendations of the Brexit Competition Law Working Group (“BCLWG”); this article outlines certain key relevant considerations (but not in relation to state aid or public procurement).

Although still uncertain, the underlying assumption is that, consistent with current Government policy, the UK will leave the EEA and the single market. In this context, particular consideration should be given to the differences between the UK’s withdrawal agreement with the EU, which falls under the EU’s exclusive competence, and any agreements as to the on-going relationship between the UK and EU, which is likely to form part of a separate ‘mixed agreement’, requiring the consent of all remaining 27 Member States. However, some aspects of the future relationship between the UK and EU competition authorities may proceed on the basis of separate bilateral agreements or other forms of common accord, for example, analogous to the EU/US Best Practices on Co-operation in Merger Investigations.

Immediate impact of Brexit on competition law in the UK

The Government indicated in its White Paper of 2 February 2017 that the Great Repeal Bill (the “Bill”) will not only repeal the European Communities Act 1972 (“ECA”), thereby bringing to an end the applicability of EU law in the UK, but will also convert into domestic law the existing ‘acquis’ of EU law (of which final decisions of the European Commission form part). The Government’s separate White Paper of 30 March 2017 relating to the Bill clarifies that historic case law of the Court of the Justice of the European Union (“CJEU”) will be afforded the same binding, or precedent, status in the UK courts as decisions of the Supreme Court. While it appears unlikely that this will extend to section 60 of the Competition Act 1998 (“CA98”), relating to the consistent treatment in the UK of corresponding questions of EU law, it remains to be seen whether, as proposed by the BCLWG, section 60 will be amended such that UK courts and regulatory bodies will be required to have regard to relevant CJEU judgments and Commission decisions.

As for the principal sources of substantive competition law in the UK, the Chapter I and Chapter II prohibitions of the CA98 were specifically incorporated into English law to reflect the key concepts now contained in Articles 101 and 102 of the Treaty on the Functioning of the European Union. The Enterprise Act 2002 (“EA02”) modernised the UK’s merger control regime without replicating the EUMR. Consequently, it is not thought that the Bill will, at least in the short term, have a significant impact on substantive competition law in the UK nor on the role of UK regulators, and the Government has indicated that the Bill will not act as a ‘vehicle for policy change’. In addition, the jurisdiction of the European Commission will continue to apply to mergers with a Community dimension and to agreements or conduct involving UK businesses that are capable of affecting inter-state trade.

In practice, the greater implications of Brexit will arise as a result of two broadly similar yet distinct systems of competition law and procedure operating in parallel post-Brexit. Where there is an effect on inter-state trade in the EU and UK, businesses will have to comply with both such systems and/or concurrently seek approval from both the UK and EU regulators, and consequently will face a duplication of costs and resources. It is also arguable that Brexit may have a significant impact for the Competition and Markets Authority (“CMA”) and sectoral UK regulators on the global stage to ensure coordination and co-operation in future interactions with regulatory authorities in matters which previously would have fallen within the jurisdiction of the European Commission.

Parallel systems of public enforcement

The conduct of parallel anti-trust investigations and merger cases brings with it the (not fanciful) risk to businesses of divergent and/or irreconcilable outcomes being generated, such as has occurred in past cases such as GE/Honeywell (COMP/M.2220).

In the context of mergers, the CMA is not currently bound to follow EU jurisprudence when reviewing cases that fall within its jurisdiction (unlike in antitrust matters), such that Brexit should not directly impact substantive law in the UK. However, as a result of the removal or potential dilution of the “one-stop shop” and the existing differences between the UK and EU legislation in this area, Brexit may provide scope for future gradual divergence between EU and UK merger practice. To take just three examples, the distinction between the UK and EU of merger review tests (substantial lessening of competition versus significant impediment to effective competition); the CMA's ability to review minority shareholdings through which a material influence may be exercised, as a result of a much lower threshold than the ‘decisive influence’ test in the EUMR (although the Commission’s publication of a study at the end of 2016 suggests its continued interest in this area); and the Government's indication of widening the powers to intervene in relation to certain categories of takeover, in all likelihood by adding further non-competition factors to sections 42 to 68 EA02.

There may be a decrease in EU merger notifications given that the turnover a business generates in the UK will no longer factor in the calculation of such business’ EU turnover (such that the EU jurisdictional thresholds are less likely to be satisfied). As a result, and coupled with the potential dilution of the “one-stop shop”, businesses with pan-European operations may be subject to a greater risk of multiple filings with several national competition authorities if the EU’s jurisdictional thresholds are not met, with resultant duplication of regulatory burdens (including significant UK filing fees).

As for anti-trust, the UK regulators and courts may no longer be under a duty of sincere cooperation to ensure consistency of outcomes with EU law, and correspondingly there will no longer be an obligation pursuant to Article 3 of Regulation 1/2003 to apply EU competition law to agreements and conduct which also affect inter-state trade. Businesses may be subject to a greater number of parallel investigations, resulting not only in increased costs and drains on resources but the real ‘double jeopardy’ risk of fines from regulators in both the UK and EU. A major concern for businesses is likely to be the future operation of leniency applications. Key questions will relate to the timing of such applications and the subsequent treatment of information that is submitted with the application. Uncertainties in these areas may have a chilling effect on businesses coming forward in the first place. For those that do, engagement with regulators on multiple fronts may await them.

Regulation 1/2003 will no longer directly apply in the UK and the CMA will cease to be a member of the European Competition Network (unless other arrangements are agreed), potentially affecting inter-agency cooperation and coordination. The prospect of cooperation agreements will no doubt be explored with the aim of enhancing the effectiveness and efficiency of the UK regime, although any such agreements with the EU or its Member States would likely form part of any post-Brexit trade deal negotiations (and therefore potentially subject to the approval of the remaining 27 Member States).

Transitional considerations

While the Government’s White Paper of 2 February 2017 acknowledges that, generally, a “phased process of implementation” will be in the mutual interests of the UK and EU following Brexit, this raises a number of very specific questions in a competition law context and, in particular, in connection with pending or on-going investigations and/or merger cases. It is likely that the CMA will have exclusive jurisdiction of investigations launched post-Brexit into pre-Brexit agreements or conduct with effects in the UK, although this too may be the subject of negotiation.

Transitional arrangements will need to establish a suitable “cut-off point” to avoid an “enforcement gap” and to ensure certainty as to which pending or on-going investigations and merger cases before the European Commission will continue to be conducted in line with EU competition law and procedure. The precise point at which an investigation or case should cease to be reviewed under EU law is open to debate, with some suggesting, for example, that the European Commission should retain jurisdiction in investigations in which a Statement of Objections has been issued at the time of Brexit, or in merger review cases where a case team allocation request has been submitted by that time. Legal certainty requires these questions to be resolved between the EU and the UK well in advance of 29 March 2019.

Regardless of such cut-off point, affected businesses to which EU law or decisional practice may continue to apply will want to be assured of their continued rights of appeal before the CJEU, making it likely that any such appeals will be on-going for some time. Similarly, existing commitments affecting UK markets which have been agreed with the European Commission pre-Brexit may be stated to apply for some time following it. It is to be expected that the decisions which formalise such commitments will form part of the retained acquis of EU law and therefore continue to bind those to whom they are addressed. The question then will be whether the European Commission retains the power, on a transitional basis, to enforce the commitments or whether such power is transferred to the CMA. Whilst similar considerations will need to be had in respect of merger remedies, the majority of such remedies tend to be of a shorter duration, although the same question of enforceability applies.

Private enforcement of competition law in the UK

Unless otherwise agreed, it appears that sections 47A and 58A CA98 will no longer have effect in respect of future Commission decisions, which will cease to be directly effective in the UK following Brexit. While it will remain possible to prove the content of these decisions as a matter of foreign law, absent agreement to the contrary, these decisions and judgments of the CJEU will have no more than persuasive authority before UK courts. As a result, the UK will no longer be an attractive forum for follow-on actions based on EU decisions, which actions are likely to become limited to decisions of the CMA or sectoral regulators on a regional or national scale. The UK judicial system is currently viewed as a leading jurisdiction for EU private competition litigation, and in particular for follow-on claims, not least because of its procedures for extensive disclosure and collective redress (both of which go beyond the minimum requirements of the Damages Directive (2014/104/EU) which was incorporated into English law by regulation (SI 2017/385) with effect from 9 March 2017.

Against this background, following Brexit, the UK may find it increasingly difficult to compete with, in particular, the German and Dutch regimes as litigants ‘forum shop’ in jurisdictions where liability is already established on the basis of a Commission decision. Unless the locus of the principal damage is the UK, it can be expected that litigants will commence proceedings elsewhere. Whilst not specific to competition law, questions of jurisdiction and enforceability will also have a material influence on private enforcement in the UK of competition law infringements, and negotiation of the UK’s continued participation in the EU’s jurisdictional and enforcement system post-Brexit will be fundamental to the future role of the UK courts in (inter-alia) multi-jurisdictional competition litigation.

There is clearly a great deal for the UK Government and EU institutions to consider in respect of the future application of competition law alone. In that sense, 29 March 2019 does not feel so far away and, to avoid significant legal uncertainty, it is suggested that much will have to be achieved considerably before that date.

Following the triggering of Article 50 of the Treaty on European Union, the process for the UK’s exit from the European Union commenced on 29 March 2017 and minds have now turned to negotiating the terms of such exit. Whilst there is already much conformity between substantive EU and UK domestic competition law, the practical impact of Brexit in the application and operation of such law for regulators, businesses and litigants alike will be more acute. The topic has been the subject of much commentary since the referendum result, including the recent Provisional Conclusions and Recommendations of the Brexit Competition Law Working Group (“BCLWG”); this article outlines certain key relevant considerations (but not in relation to state aid or public procurement).

Although still uncertain, the underlying assumption is that, consistent with current Government policy, the UK will leave the EEA and the single market. In this context, particular consideration should be given to the differences between the UK’s withdrawal agreement with the EU, which falls under the EU’s exclusive competence, and any agreements as to the on-going relationship between the UK and EU, which is likely to form part of a separate ‘mixed agreement’, requiring the consent of all remaining 27 Member States. However, some aspects of the future relationship between the UK and EU competition authorities may proceed on the basis of separate bilateral agreements or other forms of common accord, for example, analogous to the EU/US Best Practices on Co-operation in Merger Investigations.

Immediate impact of Brexit on competition law in the UK

The Government indicated in its White Paper of 2 February 2017 that the Great Repeal Bill (the “Bill”) will not only repeal the European Communities Act 1972 (“ECA”), thereby bringing to an end the applicability of EU law in the UK, but will also convert into domestic law the existing ‘acquis’ of EU law (of which final decisions of the European Commission form part). The Government’s separate White Paper of 30 March 2017 relating to the Bill clarifies that historic case law of the Court of the Justice of the European Union (“CJEU”) will be afforded the same binding, or precedent, status in the UK courts as decisions of the Supreme Court. While it appears unlikely that this will extend to section 60 of the Competition Act 1998 (“CA98”), relating to the consistent treatment in the UK of corresponding questions of EU law, it remains to be seen whether, as proposed by the BCLWG, section 60 will be amended such that UK courts and regulatory bodies will be required to have regard to relevant CJEU judgments and Commission decisions.

As for the principal sources of substantive competition law in the UK, the Chapter I and Chapter II prohibitions of the CA98 were specifically incorporated into English law to reflect the key concepts now contained in Articles 101 and 102 of the Treaty on the Functioning of the European Union. The Enterprise Act 2002 (“EA02”) modernised the UK’s merger control regime without replicating the EUMR. Consequently, it is not thought that the Bill will, at least in the short term, have a significant impact on substantive competition law in the UK nor on the role of UK regulators, and the Government has indicated that the Bill will not act as a ‘vehicle for policy change’. In addition, the jurisdiction of the European Commission will continue to apply to mergers with a Community dimension and to agreements or conduct involving UK businesses that are capable of affecting inter-state trade.

In practice, the greater implications of Brexit will arise as a result of two broadly similar yet distinct systems of competition law and procedure operating in parallel post-Brexit. Where there is an effect on inter-state trade in the EU and UK, businesses will have to comply with both such systems and/or concurrently seek approval from both the UK and EU regulators, and consequently will face a duplication of costs and resources. It is also arguable that Brexit may have a significant impact for the Competition and Markets Authority (“CMA”) and sectoral UK regulators on the global stage to ensure coordination and co-operation in future interactions with regulatory authorities in matters which previously would have fallen within the jurisdiction of the European Commission.

Parallel systems of public enforcement

The conduct of parallel anti-trust investigations and merger cases brings with it the (not fanciful) risk to businesses of divergent and/or irreconcilable outcomes being generated, such as has occurred in past cases such as GE/Honeywell (COMP/M.2220).

In the context of mergers, the CMA is not currently bound to follow EU jurisprudence when reviewing cases that fall within its jurisdiction (unlike in antitrust matters), such that Brexit should not directly impact substantive law in the UK. However, as a result of the removal or potential dilution of the “one-stop shop” and the existing differences between the UK and EU legislation in this area, Brexit may provide scope for future gradual divergence between EU and UK merger practice. To take just three examples, the distinction between the UK and EU of merger review tests (substantial lessening of competition versus significant impediment to effective competition); the CMA's ability to review minority shareholdings through which a material influence may be exercised, as a result of a much lower threshold than the ‘decisive influence’ test in the EUMR (although the Commission’s publication of a study at the end of 2016 suggests its continued interest in this area); and the Government's indication of widening the powers to intervene in relation to certain categories of takeover, in all likelihood by adding further non-competition factors to sections 42 to 68 EA02.

There may be a decrease in EU merger notifications given that the turnover a business generates in the UK will no longer factor in the calculation of such business’ EU turnover (such that the EU jurisdictional thresholds are less likely to be satisfied). As a result, and coupled with the potential dilution of the “one-stop shop”, businesses with pan-European operations may be subject to a greater risk of multiple filings with several national competition authorities if the EU’s jurisdictional thresholds are not met, with resultant duplication of regulatory burdens (including significant UK filing fees).

As for anti-trust, the UK regulators and courts may no longer be under a duty of sincere cooperation to ensure consistency of outcomes with EU law, and correspondingly there will no longer be an obligation pursuant to Article 3 of Regulation 1/2003 to apply EU competition law to agreements and conduct which also affect inter-state trade. Businesses may be subject to a greater number of parallel investigations, resulting not only in increased costs and drains on resources but the real ‘double jeopardy’ risk of fines from regulators in both the UK and EU. A major concern for businesses is likely to be the future operation of leniency applications. Key questions will relate to the timing of such applications and the subsequent treatment of information that is submitted with the application. Uncertainties in these areas may have a chilling effect on businesses coming forward in the first place. For those that do, engagement with regulators on multiple fronts may await them.

Regulation 1/2003 will no longer directly apply in the UK and the CMA will cease to be a member of the European Competition Network (unless other arrangements are agreed), potentially affecting inter-agency cooperation and coordination. The prospect of cooperation agreements will no doubt be explored with the aim of enhancing the effectiveness and efficiency of the UK regime, although any such agreements with the EU or its Member States would likely form part of any post-Brexit trade deal negotiations (and therefore potentially subject to the approval of the remaining 27 Member States).

Transitional considerations

While the Government’s White Paper of 2 February 2017 acknowledges that, generally, a “phased process of implementation” will be in the mutual interests of the UK and EU following Brexit, this raises a number of very specific questions in a competition law context and, in particular, in connection with pending or on-going investigations and/or merger cases. It is likely that the CMA will have exclusive jurisdiction of investigations launched post-Brexit into pre-Brexit agreements or conduct with effects in the UK, although this too may be the subject of negotiation.

Transitional arrangements will need to establish a suitable “cut-off point” to avoid an “enforcement gap” and to ensure certainty as to which pending or on-going investigations and merger cases before the European Commission will continue to be conducted in line with EU competition law and procedure. The precise point at which an investigation or case should cease to be reviewed under EU law is open to debate, with some suggesting, for example, that the European Commission should retain jurisdiction in investigations in which a Statement of Objections has been issued at the time of Brexit, or in merger review cases where a case team allocation request has been submitted by that time. Legal certainty requires these questions to be resolved between the EU and the UK well in advance of 29 March 2019.

Regardless of such cut-off point, affected businesses to which EU law or decisional practice may continue to apply will want to be assured of their continued rights of appeal before the CJEU, making it likely that any such appeals will be on-going for some time. Similarly, existing commitments affecting UK markets which have been agreed with the European Commission pre-Brexit may be stated to apply for some time following it. It is to be expected that the decisions which formalise such commitments will form part of the retained acquis of EU law and therefore continue to bind those to whom they are addressed. The question then will be whether the European Commission retains the power, on a transitional basis, to enforce the commitments or whether such power is transferred to the CMA. Whilst similar considerations will need to be had in respect of merger remedies, the majority of such remedies tend to be of a shorter duration, although the same question of enforceability applies.

Private enforcement of competition law in the UK

Unless otherwise agreed, it appears that sections 47A and 58A CA98 will no longer have effect in respect of future Commission decisions, which will cease to be directly effective in the UK following Brexit. While it will remain possible to prove the content of these decisions as a matter of foreign law, absent agreement to the contrary, these decisions and judgments of the CJEU will have no more than persuasive authority before UK courts. As a result, the UK will no longer be an attractive forum for follow-on actions based on EU decisions, which actions are likely to become limited to decisions of the CMA or sectoral regulators on a regional or national scale. The UK judicial system is currently viewed as a leading jurisdiction for EU private competition litigation, and in particular for follow-on claims, not least because of its procedures for extensive disclosure and collective redress (both of which go beyond the minimum requirements of the Damages Directive (2014/104/EU) which was incorporated into English law by regulation (SI 2017/385) with effect from 9 March 2017.

Against this background, following Brexit, the UK may find it increasingly difficult to compete with, in particular, the German and Dutch regimes as litigants ‘forum shop’ in jurisdictions where liability is already established on the basis of a Commission decision. Unless the locus of the principal damage is the UK, it can be expected that litigants will commence proceedings elsewhere. Whilst not specific to competition law, questions of jurisdiction and enforceability will also have a material influence on private enforcement in the UK of competition law infringements, and negotiation of the UK’s continued participation in the EU’s jurisdictional and enforcement system post-Brexit will be fundamental to the future role of the UK courts in (inter-alia) multi-jurisdictional competition litigation.

There is clearly a great deal for the UK Government and EU institutions to consider in respect of the future application of competition law alone. In that sense, 29 March 2019 does not feel so far away and, to avoid significant legal uncertainty, it is suggested that much will have to be achieved considerably before that date.

This article was first published in the May edition of the Competition Law Insight.