The UK remains a member of the EU until it leaves

It might sound obvious but the UK has not yet left the EU and is unlikely to do so for at least two years. It still has to negotiate and agree the legal arrangements underpinning the future relationship. These negotiations have not yet started.

As far as competition law and policy are concerned, the possible outcomes of the negotiations range from:

  • little or no change (if the future UK/EU relationship is modelled on existing EU or EEA arrangements);
  • the separation of the UK and EU regimes with dual-track processes (raising business costs) but with close collaboration on policy and/or procedures to minimise the risks of divergent outcomes;
  • the separation of the UK and EU regimes but with no formal agreement or collaboration arrangements such that business costs are likely to increase, as are the risks of divergent outcomes and uncertainty.

If there is a separation, we would expect transitional rules to be agreed to deal with issues such as liability for pre-Brexit breaches of EU competition law. Rules regarding which authority has jurisdiction over investigations and leniency applications which were on-going at the time of Brexit will need to be adopted. There may also have to be detailed consideration of how to deal with damages claims in which the cause of action arises pre-Brexit but the claims are brought post-Brexit. Going-forward, a key issue is whether there will be mutual recognition of competition decisions in the national courts.

Separation could also tempt regulators on both sides of the Channel to take broader political issues into account in their deliberations to protect national interests. Theresa May – the UK’s new Prime Minister – has already signalled potential reform to competition law as a means of tackling anti-competitive behaviour by large businesses in concentrated markets and enabling political intervention in deals that involve foreign takeovers in key strategic sectors.

We would also expect the UK to enter into cooperation agreements with competition authorities in other countries such as the US, China and Canada.

However, none of these changes is imminent.

Immediate implications

For the time being we expect any change to be relatively nuanced, but potentially important.

Mergers

  • No change is expected to current EU and UK merger control laws whilst the UK remains a member of the EU. The jurisdictional, substantive and procedural rules will remain the same. Most deals will not be affected.
  • However, we may see more UK centric deals being referred by the EU Commission back to the UK following requests by the CMA.
  • Regulatory attitudes may also become more challenging to predict, particularly where the deal involves economically or politically sensitive sectors, companies or assets.

Cartels, abuse of dominance and other behavioural cases

  • The current jurisdictional guidelines, substantive tests and procedural rules are expected to apply whilst the UK remains a member of the EU.
  • The EU Commission’s enforcement activities in the remaining 27 EU member states will likely remain unchanged – or may even increase as it demonstrates that its authority is undiminished by the referendum result.
  • We may see the UK authorities become more prominent in enforcement activities involving the UK (including issuing more information requests and opening more proceedings) with the EU taking more of a back seat.
  • These considerations may bring into sharper focus your decision as to which competition authority is the recipient of your leniency application or complaint.

Competition litigation in the UK

  • No change is expected to the ability to bring claims based on EU competition law in UK courts whilst the UK remains a member of the EU.
  • New claims are likely to continue to be brought post-Brexit where claims arise from pre-Brexit infringements of EU law.
  • If a valid claim has arisen pre-Brexit, the ability to make the claim is unlikely to be lost because of Brexit.
  • It is uncertain to what extent claimants seeking damages in UK courts in relation to post-Brexit infringements will be able to recover damages for their EU losses. Parallel damages actions may therefore be brought in the UK as well as in an EU jurisdiction.
  • It is possible that additional claims will be brought, or will be brought sooner (pre-Brexit), to take advantage of the favourable features of the UK’s judicial system.

State aid

  • The current state aid rules will continue to apply whilst the UK remains a member of the EU.
  • But state aid issues are frequently a relatively politicised area of the law so attitudes towards strict compliance (by the UK) and enforcement of the rules (by the EU Commission) may be affected, raising strategic timing issues.

Issues for clients to consider now

  • How important is the EU’s “one-stop shop” for your business? Should you be lobbying the UK government, other governments or the EU Commission for any particular outcome to the negotiations, either generally or in relation to any particular sector?
  • How are those deals which previously looked too difficult to do based purely on competition grounds going to be assessed if merger control decisions do take broader national interests into consideration? Is the converse true?
  • Might UK competition claims be brought more quickly against your company (and should you consider accelerating any such claims you may have)?
  • Where should you lodge your leniency application or complaint?
  • Will the UK’s attitudes towards government assistance be more flexible despite the existence of EU state aid rules? How will the EU Commission react and when?

Next steps

As the UK and EU begin to prepare to negotiate the terms of Brexit, the practical implications of these changes will become clearer. For more detail on any of the issues at any stage, please get in touch with your usual contacts in our antitrust, competition and trade team.