On Tuesday 29 January, the UK Government published detailed proposals for reform in relation to private actions in competition law. These proposals are in response to feedback received following an earlier public consultation on options for reform.
Unlike the US, where private litigation is more common, the burden of competition law enforcement in the UK has traditionally fallen largely on regulators, particularly the Office of Fair Trading ("OFT"). The announced proposals seek to change that balance, and are aimed at encouraging and facilitating private enforcement of competition law in the UK, particularly by SMEs. However, the Government has made it clear that it has "no wish to introduce a regime that would create a ‘litigation culture’", and has therefore proposed a series of safeguards designed to protect businesses against frivolous claims.
The main proposals are to:
- Establish the existing specialist Competition Appeal Tribunal (CAT) as a "major venue for competition actions in the UK". This includes extending the CAT's jurisdiction to allow it to hear stand-alone cases and grant injunctions, as well as the establishment of a fast track for simpler cases (aimed primarily at empowering SMEs to challenge anti-competitive behaviour).
- Introduce a limited opt-out collective actions regime, to allow consumers and businesses to obtain redress collectively for losses caused by breaches of competition law. In order to safeguard against "frivolous or unmeritorious litigation", the proposals include strict judicial certification of cases, a prohibition on treble and exemplary damages, a prohibition on contingency fees for lawyers, and the continuation of the "loser-pays" rule in relation to costs. Only genuine representatives of claimants will be allowed to bring such claims.
- Promote Alternative Dispute Resolution (ADR). This includes establishing a new opt-out collective settlement regime in the CAT, and giving the OFT a limited role in certifying redress schemes.
Proposals that the Government has decided not to pursue include the introduction of a rebuttable presumption of loss in cartel cases, and to legislate on the passing-on defence. In addition, although the Government has stated that it considers that whistleblowers should not be discouraged from informing on cartels, and supports the protection of statements submitted by leniency/immunity applicants, it has decided not to take its own domestic action in this area, unless the expected proposals from the European Commission are significantly delayed or fail to provide the necessary protections.
The introduction of an opt-out collective actions regime is a truly ground-breaking reform. Although it is intended to be subject to safeguards, many businesses will see this development as a real concern, with the potential for enormous classes to be assembled. The introduction of a class settlement mechanism and a non-compulsory OFT certified redress scheme, may be more welcome changes, affording the chance to reach settlements with large groups of potential claimants.
The proposed reform in more detail
- The jurisdiction and powers of the CAT
The Government has decided to:
- extend the jurisdiction of the CAT to allow it to hear standalone as well as follow-on cases.
- enable the courts to transfer (standalone or follow-on) competition law cases to the CAT and vice versa.
- in relation to all cases, whether stand-alone or follow-on, harmonise the limitation periods for the CAT and the High Court of England and Wales and the High Court of Northern Ireland (six years) and, in relation to Scotland, the Court of Session (five years).
- enable the CAT to grant injunctions (although it will not be able to issue interdicts in relation to Scottish cases).
- enable the CAT to grant pro-bono costs (although the Government accepts that this is not a high priority).
- Fast-track procedure for simpler cases
The Government has decided to introduce a fast track regime for simpler competition cases in the CAT. This is intended principally to benefit SMEs, although there will be no absolute limits on who can bring fast-track cases.
The fast-track procedure, which will be implemented through amendments to the CAT's Rules of Procedure, will focus on the grant of injunctive relief to bring an end to anti-competitive practices. The CAT Chair will decide whether to admit a case to the fast-track, although there will be a presumption that any case brought by an SME will be considered for fast-track. Cases brought by larger companies may also be fast-tracked, with the CAT Chair's agreement, but only if all parties consent. The fast-track procedure will not be used for novel or precedent-setting cases, or for collective actions.
All fast-track cases will have to be cost-capped and, if a cross-undertaking for damages has been awarded for an interim injunction, these must also be capped.
In fast-track cases, the CAT will have the power to limit the amount of evidence and expert witnesses produced by each side. For example, there will be a presumption that each side should use no more than two expert witnesses.
- The quantification of damages
Two areas where the Government has decided not to act relate to the quantification of damages.
In particular, the Government has decided not to introduce a rebuttable presumption of loss for cartel cases, on the basis that such a move would depart from one of the basic principles of English law that a claimant should prove his loss.
In addition, the Government has stated that it will not introduce legislation explicitly addressing the passing-on defence. The Government sees no reason why the passing-on defence should not be allowed under general principles of English tort law and considers that the fine details of the application of the passing-on defence is better addressed through judicial case law, rather than by legislation.
- Collective actions
The Government has decided to introduce a limited opt-out collective actions regime for competition law, in which the CAT would be required to certify whether a collective action should proceed under an opt-in or an opt-out basis. The regime would allow claims to be brought by either consumers or businesses (or a combination of the two), and by genuine representatives of claimants (such as trade associations or consumer associations) but not by law firms, third party funders or special purpose vehicles.
Safeguards, designed to avoid frivolous or unmeritorious cases being brought, will include:
- A strong process of judicial certification (including a preliminary merits test, an assessment of the adequacy of the representative, and a requirement that a collective action must be the best way of bringing the case).
- Establishing that the opt-out aspect of a claim will only apply to UK-domiciled claimants, although non-UK claimants would be able to opt-in to a claim if desired.
- A prohibition on treble or exemplary damages.
- Applying the loser-pays rule in the assessment of costs and expenses.
- Prohibiting contingency fees, although conditional fees and after the event insurance will be allowed.
- Requiring any unclaimed sums to be paid to the Access to Justice Foundation, although leaving defendants free to settle on other bases (subject to the CAT's approval).
- Requiring that any opt-out settlement must be judicially approved.
- Encouraging Alternative Dispute Resolution (ADR) and formal settlement offers
The Government has decided to "strongly encourage" ADR, but has decided not to make ADR mandatory.
However, the Government recognises that the current CAT rules governing formal settlements make it more difficult for litigants to reach settlements, compared to the High Court rules. The Government has therefore decided to align the CAT rules governing formal settlement offers with those of the High Court.
- Collective settlement regime
The Government has decided to introduce a new opt-out collective settlement regime for competition law in the CAT to allow businesses to settle cases quickly and easily on a voluntary basis. Under this proposal, parties would have to apply to the CAT to approve, on an opt-out basis, a mutually agreed settlement agreement. In approving the settlement, the CAT would have to be satisfied that it would "be the most satisfactory way of ensuring that as many members of the identifiable class as possible receive redress".
- Redress schemes
The Government has decided to give the OFT the discretionary power to certify a voluntary redress scheme, but not the power to impose one. The Government is concerned that a power to require a business to create a redress scheme (particularly where that business objects) would place too great a burden on the OFT and would detract the OFT away from its primary duty to enforce the competition regime.
The Government power to certify redress schemes will only be given to the OFT, and not to concurrent sectoral regulators.
- Protection of the leniency regime
The Government has decided not to take domestic action in relation to protecting the leniency regime at this stage, on the basis that the European Commission is expected to issue proposals in the next few months. However, if these proposals are significantly delayed, or do not offer the necessary protections, the Government has stated that it will consider bringing forward its own proposals, for example in relation to the protection of leniency documents from disclosure.
- Consistency between the CAT and the OFT
The Government has stated that "public enforcement must remain at the heart of the competition regime in the UK", and recognises that there is a need to ensure consistency between private and public enforcement. It has therefore stated that it intends to introduce the following measures:
- Amending the CAT rules to provide that it is required to notify the OFT when private actions are initiated.
- Amending the CAT Rules to provide an explicit power for the OFT to act as an intervener in private actions cases.
- Ensuring that the CAT has power to stay cases being investigated by a competition authority.
The Government recognises that a majority of the reforms will require changes in primary legislation. As a result, any changes will be subject to Parliamentary timing and approval.
In relation to those changes where Parliamentary approval is not required, the Government has stated that it will work with the competition authorities and other stakeholders to implement those other reforms.