- In recent months, the UK Government and the European Union have separately been consulting on legislative changes which will impact on the way that private enforcement of competition law based claims operates in the UK. While both sets of proposed changes have the potential to enhance the effectiveness of private competition enforcement, there are discrepancies between the two which will need to be resolved.
What has the European Commission proposed?
In terms of hard law, the only Commission measure is a draft Directive on antitrust private damages actions (other than collective actions). This needs the approval of both the European Parliament ("EP") and Council of Ministers. The Commission hopes that this will be obtained before the EP elections in Spring 2014. Member States will have two years to put in place domestic provisions which implement, in relation to breaches of EU (and national Competition Laws where these also apply), the following:
- Antitrust claims can be brought by representative entities.
- Those harmed are entitled to full compensation for actual losses, lost profits on lost sales and interest from the date of harm until payment.
- Minimum limitation periods allowing claims to be brought up to five years from adequate knowledge of the infringement and up to one year after a regulatory decision becomes final, e.g. at the conclusion of the European Court appeals process.
- Minimum standards of disclosure of evidence in national court proceedings. These are significantly lower than standard disclosure in the English Court but significantly higher than those in civil law jurisdictions.
- Absolute protection for corporate leniency and cartel settlement statements in order to protect the Commission's "leniency" or whistleblower programme (the key to public cartel enforcement) and cartel settlements programme.
- Other documents in the public authority's file disclosable at varying points, e.g. after conclusion of the public investigation.
- Immunity applicants (i.e. those who escape fines altogether) should be liable to claimants, and to defendants in contribution proceedings, for harm caused by their behaviour only, rather than jointly and severally liable. Again, this is to protect public enforcement incentives.
- Rebuttable presumptions that cartels cause harm and that some of the cartel overcharges are passed on to indirect purchasers (where direct purchasers have paid overcharges flowing from infringements), thus giving them standing to claim.
- No pass on defence in relation to overcharges passed on to indirect purchasers who would find it "legally impossible" to claim. This may include consumers in the absence of effective collective actions procedures.
- National laws not covered by the Directive, such as those relating to causation/remoteness of harm, must not be applied in ways contrary to the EU law principles of effectiveness and equivalence, e.g. to make recovery by indirect purchasers practically impossible or excessively difficult: this is the example given of where it may be "legally impossible" to claim.
- Powers of national judges to estimate damages.
- Each national court to recognise decisions of other National Competition Authorities/review Courts as binding as to liability.
- Promotion of Alternative Dispute Resolution ("ADR").
The other key (non-binding) elements of the private damages package are:
- A Recommendation to the Member States and accompanying Communication on Collective Actions (see below)
- A Communication on "practical guidance" for national judges on quantifying harm in damages actions
Recommendation and Communication on Collective Actions
- The Commission has abandoned attempts to legislate on collective antitrust damages actions: the issue is dealt with as part of a "horizontal" cross-sectoral Recommendation to Member States. Competition laws are one of the areas to which such actions could apply.
The Recommendation contains a number of elements of particular interest from a UK perspective:
- The opt-in model should be the norm, in line with civil law tradition; opt-out actions are to be possible (but exceptional) and to be very closely regulated.
- In cross-border cases, national courts must recognise non-domiciled representatives officially designated as such in advance in their country of domicile as being able to seize the jurisdiction; this could allow the commonly used Dutch/German SPV model (which takes assignments of tort claims) to operate in circumstances where it might otherwise not be recognised as having a valid claim due to the general common law prohibition on the assignment of tort claims. It would be surprising if this model is not tested in the English Courts.
- Third party funding is to be allowed, but subject to extremely restrictive conditions including prohibitions on the charging of "excessive interest", of conflicts of interest between the funder and claimants, and on any attempted influence by the funder over procedural decisions, including settlement. Funding linked to damages is to be allowed only if publically regulated in the interest of the parties. Success fees for lawyers should be allowed if they are not linked to the damages recovered.
- Contingency fees are to be prohibited unless, exceptionally, there is appropriate national regulation which takes into account a claimant's right to full compensation.
- Exemplary/punitive damages should be prohibited.
The UK Government Proposals: The draft Consumer Rights Bill 2013 ("the Bill")
- The Bill was published on 12 June 2013. Part 3 contains provisions which amend the Competition Act 1998 and the Enterprise Act 2002 in order to implement the Government's proposals on the private enforcement of antitrust laws. There is an unexpected further consultation: the closing date for comments is 13 September 2013.
The key proposals include the following:
- The Competition Appeal Tribunal ("CAT") is to have powers to hear both "stand alone" and "follow on" damages actions, removing the previous limitation to follow on claims only, and allowing "hybrid" claims with elements of both.
- The CAT is to introduce a "fast track" damages (but not collective) claims procedure, intended primarily for the benefit of SMEs.
- The CAT is to have powers to order injunctive relief.
- The CAT is to have power to hear opt-out and opt-in collective damages claims (and to determine which is appropriate for a given claim) and wide discretion as to whether a representative claimant is recognised as such.
- The CAT is to establish a procedure for opt-out collective settlement agreements and to promote ADR.
- The Competition and Markets Authority ("CMA") is to have power to recognise voluntary redress schemes offered by infringing parties.
- Limitation periods in the CAT are to be brought into line with the High Court/Scottish Court of Session: 6 and 5 years respectively.
What are the main areas of difference between the Commission's and the UK Government's Proposals?
- The UK Government Bill recognises that opt-out collective actions are the only viable solution to mass harms comprising individual harms of a small scale that are insufficient to incentivise opt-in group actions by individual claimants.
- The UK Government also recognises that third party funding of antitrust claims is essential for access to justice (in particular, in relation to consumers and SMEs) and that this is a nascent market which premature and/or over-prescriptive legislation could harm or even destroy.
- The Bill gives wide discretion to the CAT to draw up rules in relation to the authorisation of a representative claimant, including in opt-out collective claims Such authorisation should be "just and reasonable". This is no prohibition of SPVs, as previously proposed, nor reference to lawyers/funders being prohibited.
- The Bill does not contain provisions in relation to the draft Directive's proposals concerning protection/disclosure of leniency documents, the binding nature of decisions of other national competition authorities or suspension of limitation periods for ADR. No doubt this is because the draft Directive has far to travel before its provisions are agreed.
- The UK Government's attitude towards success fees for lawyers is, surprisingly, more restrictive than that of the Commission; the Commission allows contingency fees for collective actions, provided they are appropriately regulated, whereas the UK Government proposes their prohibition in collective actions.
- The UK Government rejected the use of a rebuttable presumption as to harm caused by cartels (the proposed 20% overcharge) and decided to leave pass-on issues to the Courts/CAT.
- The UK Government limits collective opt-out actions to those domiciled in the UK (foreigners can only opt-in). The Commission points out that, in cross-border cases, representative entities lawfully established in one Member State must be allowed to seize the jurisdiction of the court in another Member State. Could a German/Dutch SPV representing all foreign claims opt in to a UK opt-out claim, in effect creating a hybrid mechanism which could offer a European-wide solution?
- The UK system recognises exemplary damages in limited circumstances; the EU regime prohibits them.
- The harmonisation of the limitation periods for the CAT and the High Court, which implies the loss of the CAT's two year "follow on" rule after a decision becomes final, may require re-considering as the draft Directive proposes a minimum one year period following a regulatory decision having become final. Also, the draft Directive proposes the suspension of limitation periods during settlement negotiations.
- Overall, the combination of UK Government and EU proposals has the potential to significantly enhance the effectiveness of private enforcement of competition law rights in the UK. There is evidence of a "levelling-up" rather than a "dumbing down" process, at least as regards the UK Proposals and the draft Directive (if not the Recommendation on collective actions). The UK's position as the preferred jurisdiction in the EEA for antitrust damages claims may be strengthened by the draft Bill, although continuing competition from other jurisdictions, notably the Netherlands (which is reviewing its opt-out settlements law) and Germany can be expected.
However, the devil will be in the detail. In particular, the UK proposals, whilst not in any way removing the jurisdiction of the High Court, place a heavy burden on the CAT which is the sole jurisdiction for opt-out collective actions and fast track damages. The detail will be contained in revised Tribunal Rules. These are therefore critical. Obvious issues include:
- How far is the wholesale adoption of the Civil Procedure Rules of the Court workable?
- What additional resources will the CAT have and will they be adequate?
- Will the new procedures become mired in procedural litigation, as has been the case concerning the CAT's current jurisdictional and procedural rules?
Collective Damages Actions: Comparison between UK and EU Proposals
Click here to see table.