On 24 April 2012, the Department for Business, Innovation and Skills (BIS) launched a consultation on how best to encourage damages actions based on breaches of competition law.  At present, the level of these claims is very low in the UK.  Current disincentives against bringing such claims include the difficulties and expense of going to court and the fact that although large sums may be at stake, they are spread across many businesses or consumers with each one having lost only a small amount.

BIS’ proposals focus on four areas:

  • extending the remit of the Competition Appeal Tribunal (CAT) for competition damages actions in the UK;
  • introducing an opt-out collective actions regime for competition damages claims;
  • promoting Alternative Dispute Resolution (ADR) to ensure the courts are the option of last resort; and
  • protecting the incentive to blow the whistle on cartels (‘leniency’).

Extending the CAT’s remit

Currently the CAT can only hear competition damages claims where there exists a prior decision that competition law has been infringed (e.g. a Competition Act 1998 infringement decision by the Office of Fair Trading (OFT) or an Article 101 TFEU infringement decision by the European Commission).  These are known as follow-on claims.

BIS’ proposals include:

  • the CAT should be able to hear competition damages claims where there is no prior infringement decision (“stand-alone claims”);
  • allowing the High Court to transfer cases (or parts of cases) alleging competition law infringement to the CAT;
  • giving the CAT the ability to hear applications for injunctions.  BIS believes that frequently redress and damages are less important to the claimant than simply causing the anticompetitive activity to stop;
  • introducing a ‘fast-track’ procedure in the CAT for competition damages claims.  This would: (i) allow swift granting of interim injunctions; (ii) allow cross-undertakings for damages to be waived or limited; (iii) aim to hear cases with six months of their being laid; (iv) resolve issues on paper wherever possible; (v) keep oral hearings to a minimum; (vi) have no or limited court fees; and (vii) cap liability for defendants’ costs (up to a maximum of £25,000).

BIS is also considering whether to make it easier for claimants to quantify the losses they have suffered due to a cartel by introducing a rebuttable presumption of loss.  This would be likely to take the form of a presumption (which could be disproved by either side) that a cartel had affected prices by a fixed amount e.g. 20%.  This represents a radical departure from the current position, where the onus to quantify loss is on the claimant, who often lacks precise information to enable him to carry out a overcharge analysis.

In addition, BIS is inviting comments on issues relating to the passing on defence, relevant to business to business claims.  The passing on defence could allow a defendant to show that the claimant had in fact suffered no loss on the basis that the claimant passed on any cartel price overcharge to someone who bought goods/services from him (an indirect purchaser).  BIS is considering whether the passing on defence should be dealt with directly in legislation, either explicitly allowing it or forbidding it, or introducing some kind of rebuttable presumption. However, overall BIS takes the view that any clarification of the use of the passing on defence should be dealt with at EU level, in the context, for example, of any further deliberations by the European Commission on damages actions for breaches of the antitrust rules.

Opt-out collective actions

Currently in the UK collective actions regarding breaches of competition law are open only to consumers.  Such actions must be brought by particular representative bodies based on a previous infringement decision (i.e. follow-on cases only).  They are ‘opt-in’ actions.  To date, there has only been one such claim (Which?’s case against JJB Sports in relation to replica football shirts). 

Opt-in means that individuals must actively election to join the action.  Opt-out means that all parties who fall within the definition of the represented group are bound by the outcome of the case unless they actively opt out of the action.

BIS is seeking views on:

  • whether to introduce a CAT opt-out collective actions regime for competition law redress, covering both businesses and consumers, for both follow-on and stand-alone claims;
  • how to prevent speculative or unmeritorious claims; and
  • who should be permitted to bring such actions, with those under consideration including individual companies and consumers, representative bodies, legal firms, third party funders and public sector bodies.

BIS emphasises that these considerations relate only to competition law and that it does not favour the introduction of a generic collective redress mechanism covering all sectors either in the UK or at EU level.

Encouraging ADR

BIS is minded to ensure that courts and the OFT can use ADR wherever suitable, and to encourage private and third sector bodies to provide further forms of ADR to reflect any change in the number or nature of private actions. It is seeking views on:

  • whether mediation should be purely voluntary, mandatory, or a default but non-mandatory approach;
  • whether pre-action protocols should be introduced for competition cases in the CAT, and if so, what forms these should take;
  • whether the competition authorities should be given a power to order a company found guilty of a competition law infringement to implement a redress scheme, or certify a voluntary redress scheme. Such redress schemes would be a new feature in the competition landscape and would be in addition to fines/other sanctions imposed by competition authorities.

Protecting leniency

When a company involved in a cartel blows the whistle on that cartel to a competition authority, it may qualify for leniency - immunity from fines (or a substantial reduction in fines).  This is the way that competition authorities discover the majority of cartels.

When it blows the whistle, a cartel member is admitting its involvement in a breach of competition law.  A claim for leniency involves the disclosure of substantial information about the activities of the whistle blower and its cartel associates.  The whistle blower may be particularly concerned that its opening up to the competition authority also opens it up to private actions for damages.  The question of whether companies can be forced to release documents created in relation to leniency is currently a hot topic.  Recent EU and UK level cases have held that such documents are indeed candidates for disclosure, subject in each case to a balancing exercise between national law and interests protected by EU law.  This changes the incentives for whistleblowing. 

BIS is minded to protect certain aspects of leniency documents from disclosure.  Its current thinking is that documents directly involved in the leniency application and which would not have been created if the company had not sought leniency should be protected.  However, it requests views on the precise details of which documents should be protected and which should be disclosed.

Another area raised by the BIS consultation is whether whistleblowers should be protected from the joint and several liability that currently exists between cartel members for damages awarded.  This would mean that whistleblowers’ liability would be limited to the damage they cause, not the entirety of damages caused by the cartel.  BIS notes that there are complexities in how to extend this protection to other leniency applicants, such as those that receive less than 100% immunity from fines.

Next steps

The consultation raises many wide-ranging issues and is open for submissions until 24 July 2012.  Several of the options raised represent a radical departure from the current position.  The proposals for opt-out collective actions and for a presumption of loss (albeit rebuttable) in cartel cases will be particularly controversial.  This consultation is also emerging at a time when a European Commission consultation on similar issues is expected.

This is an important opportunity to make your views known and influence the future shape of competition litigation in the UK.