The claims in respect of loss or damage arising from competition infringements (Competition Act and Other Enactments (Amendment)) Regulations 2017 were published in March 2017 and implement Directive 2014/104 (referred to as the Damages Directive) on certain rules governing actions for damages under national law for infringements of the competition law provisions of the member states of the EU.
The Regulations implement the Damages Directive by introducing new sections into the Competition Act 1998. Helpfully, it was not necessary for the Regulations to implement every element of the Damages Directive as many requirements are already enshrined in UK law. The UK’s competition damages regime is already highly sophisticated and therefore changes have only been made where the outstanding provisions need to be incorporated.
Pending Brexit, the Regulations bring the UK into line with the new harmonised EU competition rules, reflecting the current legal climate, a feature of which has been an increase overall in competition claims in recent years, not least as a result of the interchange fee claims currently flooding the UK courts.
However, the Regulations will only apply to claims relating to infringements which occur after 9 March 2017, although some ‘procedural’ requirements will apply in relation to claims which are commenced after that date relating to earlier infringements.
As the Damages Directive already substantively reflected UK law, the most important changes in this jurisdiction relate to limitation, burden of proof, passing on of overcharges and liability in competition damages claims.
Part 10 of newly introduced Schedule 8A of the Competition Act states that the substantive provisions of the Regulations will only apply where an infringement occurred on or after 9 March 2017. However, the so-called ‘procedural’ provisions relating to disclosure and use of evidence will apply to all proceedings which begin after that date. Therefore, there will be a period of overlap where, for example, a claim is issued after 9 March 2017 but relates to an infringement which took place before that date. That claim will have to comply with the ‘procedural’ provisions in the Regulations but not the substantive ones.
The Damages Directive aimed to ‘enable those damaged by breaches of competition law to effectively exercise the right to claim full compensation for that harm’ through harmonising the rules across member states. The implementation of the Damages Directive makes it clear that the UK remains a full member of the EU until Brexit negotiations are concluded and the government still has to implement and apply EU legislation.
Although the UK system was already comparatively claimant-friendly, the Damages Directive certainly improves the position for claimants across the EU. Therefore, the overall effect may be to increase the exposure of companies to claims relating to infringements of competition law and make defending such claims more difficult. However, we may also see more whistleblowing occurring as defendants can rely on immunity and/ or leniency if they self-report.
In reality, the consequences of the new Regulations will not truly be known for some time given the delay which often occurs between an infringement taking place and an eventual finding that an infringement has occurred, and this can only be exacerbated by the provisions for the extension of limitation in certain circumstances.
The main changes
The substantial changes for UK law relate to:
1. Disclosure of evidence
The UK courts have long established wide-ranging powers in relation to disclosure. The new Regulations curb those powers somewhat by limiting the ability to order disclosure of certain documents from a competition authority’s file. The courts are not allowed to order disclosure of investigation materials from a competition authority before an investigation is closed
There is now a rebuttable presumption that cartel infringements cause harm. This is completely new to English law and considerably assists claimants. The burden of proof to show that the cartel did not cause loss and damages then rests with the defendant
3. Limitation periods
Limitation is suspended whilst a competition authority is conducting an investigation. The time limit is suspended from the point when a formal investigation starts until one year from the date on which a decision finding an infringement becomes final or, if a decision is not made, a year from the date the investigation is closed.
The Regulations state that the limitation period starts on the later of the date on which: (i) the infringement ceases; or (ii) the claimant has knowledge of certain matters including when the claimant ‘knows or could reasonably be expected to know... that the claimant has suffered loss or damage arising from [the] infringement’. Therefore, the limitation does not kick in until the infringement has ceased and the claimant knows about it, and that it has suffered loss and know who has caused it.
These rules may substantially extend limitation, and also cause some dispute as to whether limitation has actually started given the uncertainty which often surrounds the issue of damage and loss
4 Joint and several liability
There are circumstances where a defendant can avoid being jointly and severally liable for the damages caused by a cartel, for example, if they have been awarded leniency following whistleblowing or self-reporting. In those instances the defendant will only have to compensate its own purchasers (direct or indirect) and not those of the whole cartel. This is a key change; whistleblowing and self-reporting are actively encouraged. It opens up an attractive option for defendants as they are able to manage their liability and is very likely to result in more defendants disclosing cartel activity to obtain immunity
5. Indirect purchasers
The Regulations blur the distinction between direct and indirect purchasers, ensuring that full compensation can be claimed by either. There is a rebuttable presumption that an indirect purchaser suffered loss if they can show that they purchased goods or services from a direct purchaser who suffered an overcharge/ underpayment as a result of an infringement. Again, the position is made tougher for defendants and improves the position for indirect purchaser claimants
6. Passing on of overcharges
The burden of proof is borne by the defendant to prove that a claimant passed on any overcharge to their customers. It has already been shown that this may be very difficult to prove in certain cases. For example, in the recent interchange fee litigation, MasterCard was unable to demonstrate to the tribunal that Sainsbury’s had passed on any overcharges in relation to debit and credit card transactions to its end customers
7. Consensual dispute resolution
The courts may now suspend damages actions for up to two years where parties are involved in consensual dispute resolution (including arbitration or mediation)
Other changes include the prohibition on UK courts awarding exemplary damages in competition claims, and the new rule that final decisions of the competition authorities of other member states are prima facie evidence of an infringement.