Brexit - The decision by the UK to leave the EU
Following the referendum held on 23 June 2016, the UK Government submitted a notification to the European Union (EU) on 29 March 2017 of its intention to withdraw the UK from the EU. If there is a no-deal Brexit, the UK will leave the EU at 11pm (GMT) on 29 March 2019 and World Trade Organisation rules would begin to apply to trade in goods and services between the EU and the UK. The UK therefore becomes a "third country" in relation to the EU and its Member States (including Ireland). A key feature of the post-Brexit economy both in the EU and in Ireland is how competition law will be applied. This note provides some thoughts on the issues and challenges.
Competition law in the UK and implications for Ireland
In a ‘no deal’ Brexit scenario, the UK will cease to be part of the EU competition law system. The Competition and Markets Authority (CMA) will continue its role of investigating and making decisions on mergers and anti-competitive conduct which affect markets in the UK.
(i) Changes to UK competition law
Changes to UK law will be required under the Competition (Amendment etc.) (EU Exit) Regulations 2019 (Regulations) (itself made under the EU Withdrawal Act 2018 (EU Withdrawal Act)). These Regulations remove references to EU law and institutions as well as duties on UK bodies relating to current EU law obligations. For example, powers relating to the European Commission’s (Commission) ability to undertake dawn raids on businesses in the UK will be removed. In addition, the CMA and the UK courts will no longer be bound to follow future case law of the Court of Justice of the EU (COJ).
(ii) On-going application of prohibitions on anti-competitive agreements and abuses of dominance
Domestic UK competition law regime will remain in place and all businesses operating in the UK (including Irish businesses) will continue to have to comply with UK competition law. Anti-competitive agreements and abuses of dominance affecting competition in markets in the UK will continue to be prohibited. The CMA (and a number of sectoral regulators such as Ofcom) will continue to investigate possible breaches of UK competition law.
(iii) Use of EU Block Exemption Regulations
The EU Withdrawal Act will maintain the EU Block Exemption Regulations.These currently apply in the UK as parallel exemptions to the UK prohibition against anti-competitive agreements. They exempt certain types of agreements from competition rules where there are benefits for consumers. For example, in relation to exclusive agreements between suppliers and distributors as well as certain limited agreements between competitors. Modifications will be made to the exemptions so that they can apply under UK law after Brexit (e.g. amounts in euros will be converted to sterling). The stated intention of the UK Government is that existing agreements between companies that take advantage of the parallel application of an EU Block Exemption Regulations to the UK antitrust prohibitions prior to Brexit should continue to benefit from that exemption in the UK.
(iv) Jurisdiction issues with UK and EU competition law
In a no-deal Brexit scenario, there may be no agreement on jurisdiction over current EU merger and antitrust cases to the extent that they address effects on UK markets. Businesses may continue to be subject to an ongoing antitrust investigation by the European Commission and/or the CMA. The way in which, for example, any adverse findings of the Commission would be enforced in the UK is unclear. The UK would likely seek to retain the Rome I and Rome II Regulations for choice of law in contractual and non-contractual matters but there remains uncertainty as to how this would apply in practice immediately post-Brexit. The rules governing jurisdiction and enforcement of judgments between EU Member States (under the Recast Brussels Regulation 1215/2012) would not apply to the UK. Also, the Lugano Convention, which governs jurisdiction and enforcement between the UK and Iceland, Norway and Switzerland, would not apply, though the UK may try to adopt the 2005 Hague Convention on Choice of Court Agreements.
Irrespective of Brexit and the way in which EU competition law is enforced in the UK, businesses in the UK may still act in a way that breaches EU competition law (just as businesses in other third countries are subject to the application of EU competition law in the EU). For example, a UK business that enters into a cartel with other UK competitors to fix prices in Ireland will still be fully subject to proceedings in Ireland for a breach of EU competition law.
(v) The CMA and regulators with co-competition enforcement powers in the UK
Once the UK has left the EU, although the Commission can investigate mergers or anti-competitive behaviour within the EU, it will no longer begin investigations into the purely UK aspects of mergers or cases involving anti-competitive behaviour in the UK. Instead, only the CMA and regulators with co-competition enforcement powers (e.g. Ofcom, the Financial Conduct Authority and Ofwat) will investigate anti-competitive conduct that affects UK markets under UK competition law. The CMA will be the only authority with jurisdiction to review mergers for their effects on competition in the UK.
(vi) Damages actions following competition law decisions
In a no-deal Brexit scenario the UK will not be part of the EU civil judicial cooperation regime, which governs aspects of claims for damages for infringements of EU competition law. In the event of a no-deal Brexit, the UK would repeal most of its existing civil judicial cooperation rules and instead use the domestic rules which each UK legal system currently applies in relation to non-EU countries. In some specific areas, the UK would retain elements of the current EU rules where they either do not rely on reciprocity to operate or where they currently form the basis for the UK's existing domestic or international rules.
If a decision is made by the Commission after Brexit, the UK Government has said that claimants who wish to pursue private damages claims in UK courts for infringements of EU competition law will no longer be able to rely on that decision as a binding finding of an infringement in follow-on claims. Consumers and businesses will continue to be able to pursue private damages claims before UK courts based on CMA decisions (or decisions by a competent co-competition sectoral regulator) under UK competition law.
(vii) State aid
In a no-deal Brexit, the UK government intends to create a UK-wide subsidy control framework to ensure the continuing control of anti-competitive subsidies. The EU State aid rules would be be transposed into UK domestic legislation under the European Union (Withdrawal) Act. This will apply to all sectors and would mirror existing EU State aid Block Exemptions such as the 2014 Agricultural Block Exemption Regulation. The CMA would enforce and supervise the application of the UK State aid rules for the whole of the UK (including Northern Ireland). The new regime will apply to all businesses with operations in the UK – whether UK, EU or third country based. From then UK public authorities will need to notify state aid to any undertaking, through by reference to ongoing Block Exemption or by notifying the CMA rather than the Commission. Existing State aid approvals, including approvals by reference to Block Exemptions, would remain valid and be carried over into UK law under the Withdrawal Act. The UK Government has also said that any full notifications not yet approved by the Commission should be submitted to the CMA.
Implications for businesses in Ireland
(i) Merger control
A key change for businesses in Ireland will be that, in some cases, mergers that currently meet the relevant EU thresholds will be reviewed by both the CMA and the Commission (or possibly by the Competition and Consumer Protection Commission (CCPC) in Ireland). The UK’s voluntary notification regime will remain. The recent Irish changes to its merger control thresholds (i.e. combined Irish turnover of all parties involved in the merger of at least €60m and each of at least two of the parties involved in the merger with Irish turnover of at least €10m) were in part designed to enable the Mergers Division of the CCPC to cope with more mergers as a result of Brexit. Part of this may be because if the UK element of the EU thresholds is removed, there will be greater likelihood of mergers not reaching the EU thresholds but instead meeting the Irish thresholds for notification.
(ii) General competition law implications
- After the UK exits the EU, Irish companies may be investigated by both the Commission (or CCPC) and the CMA in parallel for breaches of EU and UK antitrust rules where there are effects in both markets
- All businesses that conduct business in the EU (or that otherwise act in a way that affects competition in the EU) will continue to be subject to EU competition law
- Irish firms that conduct business in the UK will continue to be subject to UK competition law
- Competition infringement decisions of the Commission that are made before the UK exits the EU will continue to have the same legal status as they have now in the UK, meaning that Irish claimants may bring follow-on claims based on those decisions in UK courts
What kind of actions should businesses in Ireland be considering?
Businesses in Ireland, including those not subject to an ongoing investigation or considering a merger transaction, will need to continue to comply as normal with the prohibitions on anti-competitive agreements and the abuse of a dominant market position that will continue to apply in the EU and the UK.
The EU merger regime continues to apply as normal until Brexit. If businesses are considering a merger transaction in the run up to March 2019 – for which they are unlikely to have an EU decision before exit – and are in doubt as to whether parallel notification in the UK and the EU (or Ireland) is advisable, they may want to consider early pre-notification contacts to discuss the issue with both the CMA and the Commission (or CCPC as the case may be).
Businesses in Ireland operating in the EU that meet EU (or Irish) merger control notification thresholds for merger review will still be required to notify the Commission (or CCPC) for clearance as they do now. This is subject to the fact that the UK will no longer be part of the EU for the purposes of the application of the relevant EU thresholds (the Irish turnover thresholds only relate to Irish turnover of the merging parties involved).
After Brexit, because the EU’s “one-stop shop” for mergers will no longer apply in the UK, businesses considering a merger that has an impact in EU and UK markets after exit will need to comply with both EU (or Irish) and UK merger rules.
Businesses in Ireland benefiting from EU Block Exemption Regulations should check with the UK modifications to the preserved Block Exemptions in the UK though there may not be a significant change post-Brexit.
The Commission (and CCPC) will continue to have the power under EU law to investigate UK firms if they engage in conduct that distorts competition within the EU.