The Department for Business, Innovation and Skills (BIS) today published a keenly anticipated statement giving its conclusions on an April 2012 consultation with proposals to reform competition private actions.
BIS has decided to go ahead with most of the proposals including, controversially, a proposal to establish opt-out class actions for competition claims in England. The impact is likely to be to generate significantly more claims and substantially increase the damages payable in each case. It is likely to be a couple of years before the proposals will be implemented but any corporate groups that have been mixed up in cartels in recent years will need to be aware of their increased exposure to damages claims in England.
In summary, the Government has decided to implement radical reforms in four key areas.
1. The Competition Appeal Tribunal
The Government will widen the scope of the CAT's jurisdiction so that it is analogous to the existing High Court powers and procedures. The CAT will be able to hear stand-alone (and not just follow-on) claims, and claims will be able to be transferred between the High Court and CAT. Additionally, the CAT will be able to issue injunctions, require cross-undertakings in damages, and enforce breaches of these remedies. The High Court six year limitation period will also apply to all private action cases in the CAT (whether stand-alone or follow-on).
To facilitate smaller claims, there will be a fast-track procedure where costs will be capped by the CAT Chair. This procedure will principally be applicable to SMEs but will also be available for other claimants in certain circumstances. The CAT Rules of Procedure will be amended to set out the factors that will be taken into account in deciding whether the fast-track procedure is applicable, such as the likely length of trial, number of witnesses, and level of damages.
The Government has also confirmed that there will be no rebuttable presumption of loss in cartel cases and that it has decided not to legislate on the passing-on defence.
2. Opt-out collective actions regime
A new opt-out collective actions regime will be implemented, such that alleged victims or genuine representatives of the alleged victims (such as trade associations or consumer associations) can bring collective actions in the CAT. The proposal remains problematic since it will still allow claimant law firms and funders to drive the decision to bring claims as long as they can find a victim to front the claim (the same position as in the United States).
To limit frivolous claims, the proposed scheme will include a set of safeguards. For example, the CAT will certify the suitability of any representative body and assess the merits of the claim at a preliminary hearing in all cases. The Government has also decided to maintain the rule that the losing party pays and prohibit treble damages and exemplary damages. Damages-based agreements are also prohibited, although conditional fee agreements and after-the-event insurance will still be permissible.
The Government has indicated that any unclaimed sums will be paid to the Access to Justice Foundation with damages to be assessed on the total loss caused to claimants domiciled in the UK, even if only a few potential claimants actually seek to recover damages. This will substantially increase damages exposure given that, to date, typically only a minority of potential claimants have sought damages.
3. Alternative Dispute Resolution
In parallel with the collective action regime, an opt-out collective settlement regime will also be introduced. In each case, the CAT will certify that the case is suitable for such a settlement and ensure that the settlement itself is 'fair just and reasonable', then set a time limit to allow any claimant to opt-out.
Further, the Government proposes to give the Competition and Markets Authority (CMA) power to certify voluntary redress schemes in return for a 5-10% reduction in fines. This is a development that has been sought by businesses for a long time and is to be welcomed albeit that it will have limited effect unless a similar approach is adopted by the European Commission.
4. Synchronisation of private actions and public enforcement
The Government aims to ensure greater consistency between the CAT and the CMA, such that CMA can act as intervener if appropriate in private action cases, and allow the CAT to stay cases being investigated by a competition authority.
In terms of leniency, the European Commission is due to issue proposals in the next few months and therefore the Government has not issued any proposals in this area. However, the Response does suggest that EU legislation will prevent the use of leniency documents in civil proceedings.
These radical proposals are likely to lead to a procedure that is open to abuse by claimant lawyers and funders and are inadequate in a number of respects. The proposals also fail to deal with all the jurisdictional issues arising as a consequence of any proposal for opt-out claims in that there is nothing to prevent a UK domiciled claimant from pursuing the same action overseas for the same loss with a resulting risk of double payment.
The changes to the CAT rules may be introduced speedily by way of secondary legislation but the introduction of opt-out class actions is likely to require primary legislation and should therefore be delayed by at least two years. No doubt there will continue to be lobbying against the proposals in the meantime.