On 26 May 2017 the Competition Appeal Tribunal (CAT) found that the Law Society of England and Wales breached UK competition law by requiring firms to purchase training from it as a prerequisite for maintaining Conveyancing Quality Scheme accreditation. The judgment, in a claim brought by a rival training provider, Socrates Training Limited, is the first issued under the CAT's 'fast track' procedure designed to enable private antitrust actions to be brought more quickly and cost-effectively, including via the use of strict cost caps.
This judgment follows a number of previous fast track cases in which the parties settled shortly after the claim was issued, and is likely to further encourage use of the procedure by claimants. Potential defendants should be aware of the increase in their risk profile when dealing with customers and competitors.
As outlined in our previous ebulletin (here), the fast track procedure (FTP) came into force on 1 October 2015, and is designed to facilitate the bringing of less complex private competition law actions in the CAT, and to do so more quickly and cost-effectively, with some certainty as to costs. Although not limited to such cases, the FTP was considered particularly suitable for claimants bringing 'stand-alone' claims and seeking injunctive relief preventing allegedly anti-competitive behaviour (in particular in abuse of dominance claims).
If a claimant applies for a claim to be allocated to the FTP, the CAT will determine whether the case is suitable, taking into account in particular whether any of the parties is an individual, a micro-business or a SME. Other relevant factors include the complexity of the issues, whether the time estimate for the hearing is 3 days or fewer, the scale of witness and documentary evidence, and the relief sought (including the level of any damages claimed). If a case is allocated to the FTP, the main hearing must commence within 6 months of allocation, and the amount of recoverable costs must be capped (with the level at the discretion of the CAT). The CAT also has the discretion to grant an interim injunction waiving the usual requirement for the claimant to provide an undertaking as to damages or setting a cap on the amount of the undertaking.
2. Claim against the Law Society
Socrates Training Limited (STL) is a provider of online training including anti-money laundering (AML) and mortgage fraud training, as is the Law Society. The Law Society also provides a number of accreditation schemes for solicitors' firms, including the Conveyancing Quality Scheme (CQS) for firms involved in residential conveyancing (CQS accreditation now being a mandatory requirement for access to many mortgage lenders' legal panels). The CQS incorporates an element of mandatory training, which includes (or previously included) AML and mortgage fraud training.
STL brought a claim in April 2016 alleging that the Law Society had started to require firms to purchase AML and mortgage fraud training exclusively from the Law Society as a condition for maintaining the CQS accreditation, and that this was an abuse of dominance in breach of the Chapter II prohibition (constituting the tying or bundling of the training with the grant of the accreditation). In the alternative it alleged that the incorporation of this requirement in the CQS terms breached the Chapter I prohibition on anti-competitive agreements. STL sought damages and injunctive relief.
The CAT ordered the trial be split between liability and damage, and agreed that the liability trial be subject to the FTP. It limited the legal costs recoverable by the Law Society from STL to a maximum of £350,000 (the Law Society's costs were estimated at £640,000, which the CAT's President stated was "disproportionate" in light of the nature of the claim). The CAT limited the legal costs recoverable by STL from the Law Society to a maximum of £200,000 (STL's costs were estimated at £220,000). The caps were later increased to £402,500 and £230,000 respectively. In accordance with the FTP only limited disclosure was ordered.
The four day liability trial took place in November 2016. Each side was permitted to call two factual witnesses, and one expert witness (who were heard concurrently in a so-called 'hot tub').
3. CAT judgment
The CAT issued its judgment (here) on 26 May 2017.
The CAT found that the Law Society had sufficient market power to place it in a dominant position on the market for the supply of accreditation to law firms providing residential conveyancing in England and Wales by the end of April 2015. This was when the CAT found the CQS became a 'must have' product (taking account of the number of lenders requiring this accreditation and the number of solicitors firms entering the scheme). The Law Society was not dominant in the relevant market when the CQS was set up in 2010, following this, or in the period from 2012-2013 (when the mandatory training requirements were introduced) to April 2015.
The CAT found that the requirement within the CQS scheme for AML/mortgage fraud training to be obtained from the Law Society (the tying/bundling) reserved to it (at least) a significant part of the demand for such training from (at least) a significant number of conveyancing firms, appreciably impairing potential competition from other training providers.
The CAT went on to reject the Law Society argument that the CQS requirement for mandatory training by the Law Society itself (as opposed for a requirement for training more generally) was objectively justified. It pointed to different methods which could be utilised to ensure that satisfactory training had been carried out, and highlighted the fact that the Law Society had not put forward any evidence that lenders required the training to be provided by the Law Society itself or would lose confidence in the CQS without this.
It therefore found that the Law Society had breached the Chapter II prohibition from April 2015
Chapter I prohibition
The CAT held that the requirement in the CQS terms to obtain AML/mortgage fraud training from the Law Society also breached the Chapter I prohibition on anti-competitive agreements from April 2015. The agreements in question were the agreements between the Law Society and each individual law firm when it applied to be CQS accredited or re-accredited and thus subject to the mandatory training requirements.
The CAT recognised that a breach could theoretically have occurred at an earlier date (given the absence of a requirement to prove dominance), but that an appreciable effect on competition before that date had not been established on the facts.
The CAT will consider damages and any other necessary relief unless the parties reach agreement (damages were claimed in the region of £100,000, but this was calculated on the basis of a longer infringing period than that found by the CAT). The Law Society has said it will look at the training elements of its CQS scheme in light of the judgment, but has indicated that the training modules in question are no longer part of the CQS scheme.
It remains to be seen what order will be made as to costs (given that the claimant's claim succeeded only for part of the period claimed). In any event, as noted above the claimant's recoverable costs are capped at £230,000 (with actual costs reportedly over £300,000).
4. Wider use of the FTP
Despite initial uncertainty as to the level of take-up of the FTP (in particular given that competition cases are inherently complicated, regardless of whether they involve a smaller claimant or not), a number of other claimants brought claims seeking use of the FTP.
Three of those claims were stand-alone claims which settled and were withdrawn relatively shortly after the claim was filed. The first was a claim by NCRQ Limited, seeking interim injunctive relief and damages, against the Institution of Occupational Safety and Health (IOSH). NCRQ alleged that IOSH, responsible for the accreditation of qualifications in the health and safety sector, had abused a dominant position by refusing to accredit one of NCRQ's diplomas. The second was a claim by a land-owner against Tesco, seeking damages and injunctive relief, alleging that a restrictive covenant within a land transfer agreement was anti-competitive and/or constituted an abuse of dominance. The third was a claim by Westpoint Group Trading Limited against various veterinary practices seeking damages and injunctive relief for alleged foreclosure of the claimants from the TB testing market in breach of Chapters I and II. These cases demonstrate early successes in the regime, in that smaller claimants were able to bring a claim and achieve a presumably satisfactory settlement.
One application for allocation to the FTP has been rejected to date. This was a follow-on damages claim based on the European Commission's Polyurethane foam cartel decision. This decision was unsurprising (the application being described by the CAT as misconceived, reflected in the costs award against the claimants) given the number of parties involved, the duration of the cartel, and the likely extensive disclosure on the questions of overcharge and passing-on required. In deciding not to allocate the case to the FTP, the CAT also pointed to the lack of urgency of the claim.
A further planned fast track application, again involving an accreditation and training scenario, is on hold pending determination of a preliminary issue.
The CAT's judgment against the Law Society demonstrates that smaller business can challenge suspected anti-competitive behaviour by larger rivals effectively and secure a change in their behaviour, albeit that damages may be small relative to the costs incurred. The case also demonstrates that it is possible for an – inevitably still complex – competition case to proceed at greater speed and at lower cost than would normally be the case, albeit without the same level of scrutiny being applied to each and every element of the case. The time and costs involved are still significant, but the cost-capping involved provides claimants with certainty as to their adverse cost risk and enables them to assess whether to continue.
The case – and the previous settlements achieved following the launch of a FTP application – is likely to encourage potential claimants to use the procedure. Potential defendants (in particular those with market power) should therefore be alive to this risk when commercial disputes raise potential competition law issues, and more generally consider potential competition law challenges from competitors and customers when determining their conduct on the market.