Part of the Collyer Bristow Competition Law Survival Pack
Historically, competition law has been a matter for public enforcement, with those who infringe it being subject to penalty from public bodies. However, there is an increasing impetus towards so-called "private enforcement" where the victims of anticompetitive behaviour sue for damages. In this regard, two developments are of particular interest:
- the introduction of follow-on actions; and
- the present government consultation to reform the damages regime generally.
In England and Wales, the ability to sue for damages resulting from competition law infringement was established in a court decision back in 1984, but the right lay dormant until the landmark claim of publican Bernie Crehan against Courage brewery and Inntrepreneur which managed its pubs portfolio; a case which ran from 1994 to 2006 (and in which the writer represented Mr Crehan).
To cut through the difficulty of bringing a damages action, UK and European legislation in 2002 and 2003 introduced "follow-on" or "piggyback" claims in which the decisions of UK and European regulators are binding in such actions. In other words, where regulators find that companies have unlawfully engaged in anticompetitive collusion or abuse of dominance (see our Introduction to Competition Law), those who believe they had suffered as a result can sue - either before the Courts or the Competition Appeals Tribunal (the "CAT") - and, in that action, the unlawful behaviour is taken as given, so the proceedings can move straight to the questions of:
- whether the behaviour caused loss to the claimant; and
- if so, how much.
Thus the position of anyone who suspects they are suffering from anticompetitive behaviour is vastly improved by a regulatory finding to that effect. The dawn of "follow-on" actions means anyone who believes themselves adversely affected by behaviour subject to a finding should consider whether the loss is large enough to merit such a claim as, in one go, they can avoid the risk of the Court (or CAT) deciding there was no infringement and the enormous cost of proving that there was one.
Despite the comparative ease of follow-on actions, it is still not realistic to expect such actions where millions of consumers have each lost, say, £10, so the 2002 legislation also enabled the government to empower so-called "super-complainants" like Which? to bring follow-on actions on their behalf. If successful, compensation can be paid to any consumer with evidence like a shop receipt to show they were affected by the infringing behaviour.
Whilst the availability of follow-on actions is welcome for the victims of behaviour found to be infringing, it is not an example of private enforcement replacing public enforcement. It takes no weight off the regulators' shoulders because it requires a regulator's decision beforehand.
The latest initiative is the encouragement of "stand alone" actions like Crehan. Such actions are not founded on infringement decisions. Rather, the private sector takes on cases which may be sitting in a regulator's in-tray. Such actions have not really taken off because of various issues which the UK government is presently seeking to address, analysing responses to a Department for Business, Innovation and Skills consultation which closed last July.
A key problem is the large cost of bringing such a claim, especially in circumstances where the ultimate loser is often a large numbers of consumers each of whom has lost little.
There may be a smaller number of larger losers higher up the distribution chain, but claims by them are vulnerable to the so-called "passing-on" defence that they have passed the loss down the chain by inflating their own prices.
Key proposals subject to consultation are:
- The introduction of representative actions. The current Civil Procedure Rules permit group litigation, but not with one claimant acting on behalf of the group. Everyone has their own say, making the model impractical where claimants get over a certain number.
- Making such actions "opt-out", where all victims, identified or not, are deemed part of the action unless they decline. The only form of representative action at present -the super-complainant follow-on action mentioned above - is rendered less effective by being "opt-in". In the first such action, Which? incurred enormous legal fees but only recovered £18,000 on behalf of the less than 0.1% of effected consumers who knew about the action and opted into it.
- As an ancillary issue, "opt-out" actions will lead to a pot of funds unclaimed by victims, so the consultation is looking into what might be done with it, such as giving it to an institution thought relevant to the claimants - the cy-près principle used in the United States - or giving the money to a charity.
- - Expanding the jurisdiction of the CAT
- to hear stand-alone actions, perhaps with a streamlined, cost-capped procedure for SMEs, so they can afford to bring a claim; and
- to grant injunctions.
- Promoting alternative dispute resolution where the combatants attempt to negotiate an agreed settlement, making the Court or the CAT a last resort.
- Ancillary issues such as:
- Whether the passing-on defence should be available.
- Whether punitive or exemplary damages should be available, in case there is no effective deterrent if the perpetrator only risks having to pay back its ill-gotten gains.
- Where the regulator is informed of a cartel by one of its members in exchange for leniency -see our Introduction to Competition Law - whether the surrounding documents should be protected from disclosure to victims lest the risk of a damages action dissuades cartelists from coming forward.
The consultation will involve a balancing exercise, as these issues are not separate. For example, if the passing-on defence was available, it might curtail the damages an SME could hope to win, disincentivising action despite any fast track regime. If the defence was not available, perpetrators may face being left doubly out-of-pocket, having to pay damages to direct and indirect purchasers but, if the idea of a punitive or exemplary regime is not objectionable, that might not matter.
It has for some time been the government's intention to reduce the pressure on the regulators by introducing a regime similar to the United States, but without its perceived disadvantages of sometimes costly, unmeritorious claims. The outcome of the consultation is eagerly awaited, as perhaps being the long-anticipated tipping point in making damages actions a normal feature of competition law.