The OFT has published its recommendations to the Government for improving the effectiveness of private damages actions for breaches of competition law. The recommendations focus on a greater use of representative actions, both for consumers and businesses, and on more flexible costs and funding arrangements. In its proposals the OFT also aims to balance the need for greater access to redress against the risk of creating a US style litigation culture.
The OFT finds that although most of the key structural and legal elements for private actions in competition law are already in place in the UK, the likelihood of obtaining compensation remains remote and the incentives for businesses to comply with competition law are more limited than was intended in the Government's White Paper "A World Class Competition Regime" that resulted in the introduction of the Enterprise Act.
OFT surveys record that companies and their advisers view private actions as the least effective aspect of the competition regime in achieving compliance and the most commonly cited reason for not bringing an action is that the expected costs outweigh the benefits.
The OFT recommends that the Government consult on the following proposed measures.
Representative actions for Consumers and Businesses
Consumers and businesses should be able to recover compensation either under claims for damages in follow-on representative cases brought after public enforcement actions or under stand-alone representative actions.
Currently, representative actions on behalf of named consumers are only allowed in follow-on cases (under Section 47B of the Competition Act). The OFT recommends that the Government consult on allowing representative bodies to bring stand-alone representative actions, as this would allow a greater number of meritorious cases to be brought without prior action by a competition authority.
There is, at present, no provision allowing representative actions to be brought on behalf of businesses. This is seen as a serious shortcoming to the system, as businesses face barriers to effective private redress similar to those faced by consumers. The OFT therefore also recommends that the Government consult on provisions which would allow both follow-on and stand-alone representative actions on behalf of businesses.
As for the appropriate model for such representative actions, the OFT has concluded that representative actions exclusively on behalf of named consumers fail to optimise economies of scale and give rise to unnecessary costs and complexity, and that there would be a number of benefits in allowing such actions to be brought on behalf of consumers and businesses at large. Although objections have been expressed against such actions in that they are more likely to lead to a US style litigation culture, it should be possible to introduce procedures, criteria and filters which ensure that fairness (both to the harmed parties and to the defendants), efficiency and cost-effectiveness are achieved.
Costs and Funding arrangements
Under conditional fee arrangements (CFAs), the current allowable percentage increase in normal fees (up to 100%, subject to court supervision) if a case is won, may not provide a sufficient incentive for lawyers to take a well-founded stand-alone case. The OFT recommends that the Government consult on the possibility of allowing a percentage increase of more than 100% in CFAs in competition cases, subject to continued judicial supervision of the funding arrangement.
In order to ensure predictability and to cap liability at a level that does not deter well founded claims, the OFT is asking the Government to consult on the codification of a court rule to cap the parties' costs liabilities in competition cases. It also recommends that in appropriate cases the courts should have discretion to give the claimant full cost protection (i.e. zero cost liability).
The OFT is keen to encourage third party funding. In addition it would like to see the creation of a merits-based litigation fund for competition claims for which funding on a commercial basis is not available. A number of complex issues would have to be addressed before such a fund could be introduced (such as who should administer the fund and how the fund would be rewarded) and the OFT recommends that the Government consult on these issues.
Interface with Public Enforcement
The OFT is committed to protecting the effectiveness of the leniency programme and recommends that the Secretary of State provide, by Statutory Instrument, that leniency documents be excluded from use in litigation without the consent of the leniency applicant. A Statutory Instrument should also provide that immunity recipients are not jointly and severally liable with other wrongdoers, so that they are only liable for the harm they caused themselves.
Consistency of Policy
In order to ensure a continued consistent development of competition policy in the UK, courts and tribunals should be required to have regard to guidelines and decisions of the OFT and other UK competition authorities when determining issues under the Competition Act. With a greater number of private actions and more cases decided by the courts, the need to ensure consistent application of competition law is likely to become more acute. The OFT accepts that the courts would not be bound by such guidelines.
Other issues considered by the OFT
The OFT sets out its views on a number of other issues but without making recommendations at this stage, either because it considers that further investigation or experience is required, or because it considers that the issues would be best taken up at EU level:
- Use of county courts to hear lower value competition claims
- Introduction of a pre-action protocol for competition claims
- Competition Ombudsman
- OFT administrative settlements
- Standing of indirect purchasers and passing-on
- Binding effect of decisions of other EU national competition authorities
The EC Commission is currently preparing its White Paper on damages actions for breach of the EC competition rules and one of the key issues being considered is that of collective redress mechanisms. The White Paper is due to be published early next year.