On 29 January 2013, the UK Government published its formal response to its April 2012 consultation on private actions in competition law (the Response). As stated in the original consultation document by the Department for Business, Innovation and Skills (BIS), and restated in the Response, the principal aims behind the reforms are to increase economic growth by empowering small businesses to tackle anticompetitive behaviour, and to promote fairness, by enabling consumers and businesses to obtain redress when they have suffered loss. (Our previous client advisory on the consultation is available at "Opting in to private competition law actions: UK Government consults on reform" and for our submission to the consultation please click here).
The Response confirms that the Government will adopt the main recommendations set out in the consultation, noting that the consultation showed a strong consensus that the current regime was in need of reform. In particular, while the Response acknowledges that private actions for competition law infringements appear to be more common that the consultation document suggested, it notes that such actions are almost exclusively between large companies, with smaller companies and consumers still having no realistic way of getting redress.
The Government's key proposals are:
- enhancement of the role of the specialist Competition Appeal Tribunal (CAT), by allowing it to hear stand-alone competition claims, as well as follow-on actions, and by giving it the power to grant injunctions;
- the creation of a new fast-track procedure before the CAT for "simpler cases";
- the introduction of a new opt-out collective actions regime, to enable actions to be brought before the CAT on behalf of all members of an identified class; and
- promoting alternative dispute resolution (ADR) for competition cases, to ensure that court actions are the option of last resort for claimants.
In this advisory, we consider the first three reforms in more detail.
Enhanced role for the CAT
The CAT was originally created in 2000, as a quasi-judicial tribunal to hear appeals from competition enforcement decisions of the Office of Fair Trading and sectoral regulators. Over time, its jurisdiction was expanded to include the review of merger control decisions and of certain regulatory decisions. In 2003, it gained a specific jurisdiction to hear follow-on monetary claims – that is, claims for damages based on a prior finding of infringement by a competition authority. The High Court (or the Court of Session for Scottish cases) retained the sole jurisdiction to hear standalone actions, in which there had been no prior infringement finding by a competition authority. The resulting case law showed that this distinction was a severe limitation of the CAT's jurisdiction in practice, since the CAT lacked the ability to hear any aspect of a claim that went beyond the letter of the original infringement finding. (In its latest judgment circumscribing the CAT's jurisdiction, the Court of Appeal confirmed in November last year, in its judgment in Emerson Electric v. Mersen, that the CAT could only hear claims against companies that had been the direct addressees of the infringement decision on which the claim was based.)
In the Response, BIS proposes to extend the CAT's jurisdiction by allowing it hear standalone claims as well as follow-on claims. This is a welcome move, as it removes what was a rather artificial limitation on the CAT's jurisdiction and places it on equal terms with the High Court. While the High Court will retain jurisdiction to hear competition claims, it will be made easier to transfer competition law cases from the High Court to the CAT. The CAT will also be given the power to grant injunctions (a power already available to the High Court), recognising that stopping anticompetitive behaviour is often more important to businesses than obtaining redress.
A related point, which the Response acknowledges must be addressed, is the issue of limitation periods. Under the current rules, claimants wishing to bring a follow-on action before the CAT must generally wait for all appeals against the decision on which the claim is based to be exhausted before lodging a claim (a process that can take six years or more, for EU enforcement cases) and must bring the claim within two years of the end of the appeals process or, in the absence of an appeal, within two years of the last date on which an appeal could have been brought. In contrast, a claim can be initiated at the High Court up to six years from the time when the cause of action arose, and may be progressed to an advanced stage while appeals are ongoing. The specific limitation rules for CAT claims are not always clear and have been the subject of extensive litigation. BIS proposes to address this by harmonising the limitation periods for CAT claims with the general civil law limitation period of six years.
The fast track procedure
The original BIS consultation document proposed the introduction of a fast track procedure, under which small and medium sized businesses (SMEs) would be able to seek rapid injunctive relief against allegedly anticompetitive conduct before the CAT. This proposal is retained in the Response, although access to the fast track will not be limited to SMEs and it will be for the CAT to decide which cases are appropriate for the fast track. Fast track cases will always be cost-capped (at a limit to be set by the CAT on a case-by-case basis), and any cross-undertaking of damages for an interim injunction (if awarded) must also be capped. The CAT will be able to limit the amount of evidence and the number of expert witnesses. The CAT's Rules of Procedure will be amended to reflect these proposals, and the CAT will be required to provide guidance on the process for bringing fast track cases.
It remains to be seen how much the new fast track will be used in practice. While similar regimes exist in other countries, notably Germany, it is significant that they often rely on different legal principles, with lower substantive thresholds, such as economic dependency. With good reason, competition cases are inherently complex and require consideration of extensive factual and economic evidence. This is particularly the case in abuse of dominance claims, which are the cases that are most likely to lead to SMEs seeking interim injunctions against larger competitors or suppliers. Even in the most 'straightforward' case, there will generally be significant dispute between the parties about whether an infringement of competition law has arisen, whether the claimant has suffered any loss and the amount of any loss that is has suffered. It is difficult to see how a robust assessment of such cases could be carried out in a fast track regime.
As noted by BIS, it is a particular challenge of competition cases that harm arising from anticompetitive conduct may be spread across a large number of businesses or end-consumers, with each being harmed only a small amount. In such circumstances, there needs to be an effective mechanism for aggregating such claims, to make it sufficiently cost effective and attractive to launch proceedings against the infringers. Although a special 'representative actions' procedure for consumers was introduced in 2003, this is widely acknowledged to have failed, largely due to the need for affected individuals to opt in to any proceedings.
BIS proposes to address this by introducing a limited opt-out regime before the CAT for both follow-on and standalone cases, which would be open to both consumers and businesses. Under the proposal, collective actions may be brought either by claimants or by representative bodies, such as trade associations or consumer associations, but not by law firms, third party funders or special purpose vehicles.
BIS proposes a range of safeguards to address the risk raised by respondents to the consultation that collective actions could encourage frivolous or unmeritorious claims, namely: a strong process of judicial certification before a claim can be brought; limiting opt-out claims to UK-domiciled claimants; prohibiting treble damages and contingency fees; applying the loser pays rules in assessing costs and expenses; and requiring judicial approval for opt-out settlements. to avoid extended disputes over what should happen to unclaimed sums, these are to be paid to the Access to Justice Foundation, although defendants will be free to settle on other bases (subject to CAT approval), including reversion of such sums to the defendants.
The CAT will be required to certify a number of factors in the collective action regime: whether a collective action should proceed on an opt-out or opt-in basis, its preliminary merits, whether a collective action can be brought by a business, and the suitability of a particular representative body to bring a collective action. This is the full extent of the guidance in the Response regarding the issues to be taken into consideration by the CAT when certifying an action, and it remains to be seen how the CAT will deal with certification in practice.
Other issues considered in the Response
Although the consultation document had considered options for establishing a rebuttable presumption of loss in cartel cases, and addressing the passing-on defence in statute, BIS has wisely decided not to proceed with these proposals, to which the majority of respondents were opposed.
The consultation also noted the importance of ensuring that private actions did not run counter to public enforcement, in particular by undermining the leniency regime. The consultation had proposed legislation to confirm protection from disclosure of leniency documents and removing joint and several liability from immunity recipients. However, since the publication of the consultation action has been promised at an EU level, with the European Commission stating that legislation would be proposed to "strike a balance between the protection of leniency programmes and the victims' rights to obtain compensation". BIS has therefore decided to take no action in this area itself, unless the promised EU action does not materialise.
In order to ensure consistency and cooperation between public and private actions, BIS also proposes that the CAT will be required to notify the OFT or from 2014 its successor, the Competition and Markets Authority (the CMA), when private action cases are initiated.
Although the connection between the proposed reforms and BIS's expressed aims of increasing growth and promoting fairness may be a little stretched, the proposals for reform are generally welcome. The CAT is a respected body, staffed by experts and overseen by experienced specialist judges, and the reforms should help unlock its potential in this area. A healthy private competition litigation regime should complement the public enforcement regime, without distorting it, and increase the likelihood of victims of anticompetitive behaviour obtaining redress.
The devil, however, will be in the detail, and in some key areas, including the more radical aspects of the reforms, it is not yet entirely clear what that detail will be. Much has been left for the CAT to decide. It is not clear how many cases will be viewed as simple enough for the fast track or, indeed, how fast that track will be. Similarly, it remains to be seen how far the CAT can strike the difficult balance between making the opt-out regime attractive enough to incentivise representative bodies to invest time and money bringing cases on behalf of potentially widely dispersed groups of claimants and avoiding the emergence of speculative class action claims and an overly burdensome 'litigation culture'. In the circumstances, the CAT is probably the best placed body to strike this balance in practice, as long as it resists the temptation to expand its own jurisdiction in this area as an end in itself.
Since many of the proposed changes will require primary legislation, it will be some years before all of the proposals take effect. Some may be introduced sooner, however, through changes to relevant procedural rules.