The UK Government's Department for Business, Innovation and Skills ("BIS") recently published a response to a consultation paper on reforms to private actions in competition law.  These proposals, which are aimed at encouraging and facilitating private enforcement of competition law in the UK, include a limited opt-out collective actions regime to allow consumers and small businesses collectively to sue companies found to have breached competition laws.

On 29 January 2013, BIS published a paper entitled "Private Actions in Competition Law: A consultation on options for reform – government response", which set out a number of wide-ranging proposals for reform in relation to private actions in competition law. These proposals were made in response to feedback received to a BIS consultation paper on options for reform which was put forward between April and July 2012.  In making these proposals, the UK Government has made it clear that it has "no wish to introduce a regime that would create a ‘litigation culture’", therefore, it has also proposed a series of safeguards designed to protect businesses against frivolous claims. A number of these proposals relate directly to collective actions in competition law, including the following proposals:

  • the introduction of a limited opt-out collective actions regime with safeguards to allow consumers and businesses collectively to obtain redress for losses caused by breaches of competition law; and
  • the establishment of a new opt-out collective settlement mechanism.

The other main proposals, which may also impact upon collective actions in competition law, are:

  • to give the new Competition and Markets Authority ("CMA") a limited role in certifying redress schemes;
  • an extension to the specialist Competition Appeal Tribunal's ("CAT") jurisdiction to allow it to hear standalone (as well as follow-on) cases and grant injunctions; and
  • the establishment of a fast track procedure for simpler cases to be heard in the CAT (aimed primarily at empowering small and medium-sized enterprises to challenge anti-competitive behaviour).

Other proposals not pursued

The UK Government has decided neither to pursue the introduction of a rebuttable presumption of loss in cartel cases nor to propose any legislation relating to the passing-on defence.  The proposals also make clear that the UK Government does not want to discourage whistle-blowers from informing on cartels, and therefore it continues to support the protection of statements submitted by leniency/immunity applicants.  As a result of this, it has decided at this stage not to propose any domestic reforms to protect the leniency regime. However, the UK Government has indicated that it will consider bringing forward its own proposals for reform, for example, the protection of leniency documents from disclosure, if the proposals on leniency which are expected from the European Commission are significantly delayed or fail to provide the necessary protections for the leniency regime. 

The proposed reforms to collective actions in more detail

  1. Limited Opt-Out Collective Actions Regime

The UK Government's proposed opt-out collective actions regime is intended to make it more cost-effective for actions to be brought by consumers and businesses collectively to sue companies found to have breached competition laws.  It is also hoped that such a regime will act as a deterrent against the potential infringement of competition law.  The UK Government has recognised that proposals for reform in this area could lead to frivolous or unmeritorious litigation; therefore, it has proposed a number of safeguards to protect businesses from such claims. These include:

  • the strict judicial certification of cases (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);
  • the prohibition of treble damages and contingency fee arrangements with lawyers;
  • the "loser-pays" rule will apply so groups who are unsuccessful in their claim will have to pay their opponent's recoverable costs, and 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); and
  • finally, claims can only be brought by the claimants themselves or by "genuine representatives of the claimants", such as trade associations or consumer associations.

The introduction of an opt-out class action regime is a truly ground-breaking reform and companies which are subject to competition investigations or have been found to have infringed competition law should consider how to protect themselves from future follow-on damages actions.  Although the safeguards that have been put in place should go some way towards filtering out frivolous or unmeritorious claims, the introduction of an opt-out collective regime is a development of real concern to many businesses as it is likely to lead to an increase in follow-on damages claims and will assist claimant law firms in creating large classes of claimants. Businesses should also be sensitive to the risk of antitrust claims being brought against them by groups of previously "untapped" claimants, for whom the bringing of an individual claim would not have been cost-effective given the legal costs involved. However, how the CAT actually applies this proposed certification function will have a large impact on the number and size of collective actions in the future.

  1. Opt-Out Collective Settlement Mechanism

Under the proposed opt-out collective settlement mechanism, parties will have to apply jointly to the CAT to approve a mutually agreed settlement agreement which applies to all affected potential claimants on an opt-out basis. The UK Government has confirmed that the CAT, in approving the settlement, would have to be satisfied that the proposed settlement would be "the most satisfactory way of ensuring that as many members of the identifiable class as possible receive redress". 

The opt-out collective settlement mechanism (and a non-compulsory OFT certified redress scheme, which is another of the proposed reforms) encourages consumers and businesses to settle their disputes quickly and simply on a voluntary basis by offering an alternative route for redress. Therefore, it should be welcomed by businesses because it will give them the opportunity to settle with large groups of potential claimants without having to face lengthy and costly litigation. Depending on the nature of the settlement that has been agreed, it may also provide the opportunity for a low-key confidential settlement.

Timeline for Implementation

It is presently unclear when delivery of these proposed reforms is expected. The UK Government recognises that the majority of the reforms will require changes in primary legislation and 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 as soon as possible.