Chillin'Competition

[Note by Nicolas and Alfonso: In the second of his guest posts on reform of UK competition law and enforcement, Christopher Brown looks at potential reform of private redress mechanisms]-

On 24 April 2012, just weeks after announcing the Government’s intentions in respect of reforms to the public enforcement regime, BIS launched a Consultation on reform to the private enforcement of competition law in the UK.  Such reform might be said to be long overdue: it has been some five years since the OFT made recommendations to Government stressing the desirability of changes to facilitate private redress.

The Government’s stated objective is to encourage private-sector challenges to anti-competitive conduct to complement public enforcement.  Elsewhere in the document, it is said that the aims of the reform proposals are (i) to increase growth, by empowering small firms to tackle anti-competitive behaviour which is stifling their business, and (ii) to promote fairness, by enabling those who have suffered loss as a result of such anti-competitive conduct to obtain redress.  The principal proposed reforms are:

• to increase the role of the Competition Appeal Tribunal (CAT) as a forum for private actions, by allowing it to hear ‘standalone’ claims as well as ‘follow-on’ claims;
• controversially, to introduce an opt-out collective actions regime;
• to protect the leniency regime by preventing at least certain leniency documents from being disclosed to claimants bringing private law claims and protecting at least immunity applicants from joint and several liability.

These 3 proposed innovations are touched upon below.

(a) The role of the CAT

The proposals to make the CAT a major venue for private litigation based on competition law have been broadly welcomed. In its twelve years of existence, it has built up a strong reputation in its handling of appeals under the Competition Act 1998 (and other legislation) and follow-on private actions under section 47A of that Act. It is widely regarded as efficient, fair and competent.  It makes eminent sense, in principle, for the CAT’s jurisdiction to be extended so as to make most efficient use of the resources at its disposal.

Some of the detailed proposals in relation to the CAT are, however, more controversial.  In particular, the Government proposes the introduction of a “fast-track” system for claims brought by SMEs (which, as part of its growth agenda, the Government is very keen to support).  The Government is particularly concerned that SMEs are in practice prevented, or substantially deterred, from seeking redress for loss caused to them as a result of competition law infringements.  It points, with some justification, to the considerable cost of litigating in the UK and the length of time cases take to reach resolution.  What they need, the Government seems to think, is a quick and easy way of getting their complaints in front of a court.  The fast-track proposal is the Government’s suggested way of improving matters.  So what is it?

In essence, the proposal – inspired by a similar innovation in the Patents County Court – is to allow SMEs to bring claims in the CAT which, if the CAT agreed, could be processed quickly and be subject to strict cost-capping.  Under the proposal, if a claim were to be allocated to the fast-track, costs would be capped at no more than £25,000, the case would ordinarily be heard within six months, oral hearings would be kept to a minimum (a matter of days rather than weeks) and, possibly, damages would also be capped, the focus being on “non-monetary resolutions” such as injunctions.

Although laudable in principle, at least some practitioners have been sceptical about the merits of any such fast-track approach.  Most claims involving disputed liability, and even claims limited to the question of loss, under competition law give rise to complex issues of fact, law and economics and so are unlikely to be suitable for quick, light-touch determination:

• by their nature, such claims tend to involve extensive disclosure (the burden of which often falls heavily on the defendant), such that a six-month deadline for hearing the case is likely to be unrealistic;
• such cases tend to require consideration of significant amounts of documentary and witness evidence and would therefore rarely be suitable for adjudication on the papers and/or following a very short hearing;
• in addition, the remedies sought will, if granted, often have a broader impact on the market than the specific case, particularly in abuse cases (e.g. injunctions mandating access to an ‘essential facility’);
•  the suggested maximum costs cap of £25,000 is widely considered to be far too low for just about any competition case.

Moreover, the suggestion that the CAT should determine the suitability of a case for the fast-track right at the very outset, before it has had chance to get a feel for the merits of the case and the issues likely to be involved, has only exacerbated practitioners’ concerns.

As already mentioned, the idea of reducing the barriers for SMEs to bring claims is a laudable one.  Many practitioners would favour a system in which, rather than there being a “one size fits all” fast-track with pre-determined rigid cost caps, the CAT is given flexibility to apply the approach best-suited to the case at hand.  Guidance issued by the CAT could give claimants a degree of reassurance as to what they can expect, including on the issue of costs.

Another proposal which has courted some controversy is the suggestion to introduce a rebuttable presumption of loss, possibly as much as an assumed 20% overcharge, in cartel damages actions.  Practitioner criticisms can be summarised as follows.  First, it is inappropriate to talk of a presumption of loss, particularly in circumstances where the claimant may have passed on any overcharge to its own customers.  That would subject cartelists to a risk of double jeopardy, a risk which is accentuated by the fact that the cartelists are unlikely to have in their possession evidence relating to the actual loss suffered by any particular downstream purchaser.    Second, there is a real question as to whether a presumption of the amount of the overcharge would achieve anything of value.  The overcharge is only one of a number of elements that must be determined in order to calculate the loss suffered by a claimant.  The other elements (such as the amount of loss passed-through) are often at least as contentious and there would therefore be little saving in time or effort. Moreover, claimants and defendants will inevitably argue for higher and lower overcharges respectively.  A professional judge is unlikely to give much weight to a presumption in the face of detailed and case-specific expert evidence.  The presumption will therefore be superseded in most cases and there will be no saving of time or effort.  In the face of such criticisms, it is unclear whether the Government will wish to take this proposal forward.

(b) Collective actions

The proposal which has perhaps garnered most reaction is the one that relates to collective actions.  This is a complex issue to which the brief discussion below cannot hope to do justice.

By way of background, there is a commonly held view that existing mechanisms for obtaining collective redress for breaches of competition law are of limited value.  The law as it stands does not allow so-called “opt-out” actions, under which anyone falling within a particular class of victims of anti-competitive conduct is deemed to be represented by those bringing the claim unless they have specifically opted out of the litigation. (An innovative attempt to use rule 19.6 of the Civil Procedure Rules, which allows “representative actions” to be brought, to create a species of class action in the English courts was unsuccessful in the Emerald Supplies case.)  The law, in the form of section 47A of the Competition Act, does allow “opt-in” follow-on claims brought by a specified representative on behalf of consumers, but only one such claim has ever been brought, and it is widely regarded as having been a pretty abject failure: only 130 victims of the football replica kit cartel came forward to take part in the claim, which amounted to fewer than 0.1% of those affected, despite widespread publicity of the claim and an assurance that they would not be at risk of costs.  The reality is that in many cases, the amounts at stake for any individual consumer victim will simply not be worth the hassle of taking part.  As a result, representative bodies currently have very little incentive to bring such consumer claims, whilst the law does not provide a mechanism to bring collective actions – on either an opt-in or opt-out basis – by representatives of businesses.

So, if the law is seen as inadequate, what is the solution?  Well, the Government is suggesting the introduction of opt-out collective actions in the CAT, albeit with procedural safeguards to guard against abuse.  Such claims could, it is envisaged, be brought by suitable representatives of both businesses and consumers; and they could be brought in both stand-alone and follow-on cases.  The proposed design of such an opt-out system is detailed, and so will not be discussed here, but some key issues are:

• Who should be allowed to bring cases for collective redress?  Should private bodies – whether individual victims, representative bodies, third-party litigation funders, or even law firms – be allowed to claim?  Or should this be the preserve of the state, perhaps in the form of an ombudsman?  The Government prefers the former, with a robust certification scheme to ensure to the CAT’s satisfaction that the claimant was properly representative of the class represented.
• Should the current ‘loser pays’ costs rule apply in such cases?  And should lawyers be able to enter into contingency or conditional fee agreements so as to incentivise claimants to bring such cases (and the lawyers themselves to take the cases on)?
• Importantly, what should happen to any unclaimed amounts left in the ‘pot’?  Should there be some form of cy-près system, where the money is distributed for a purpose as near as possible to the objectives underlying the claim and the interests of the class members?  Or should unclaimed amounts be distributed to a named scheme such as the Access to Justice Foundation, or even to the Treasury?  Some argue that unclaimed funds should in fact revert to the defendants, on the basis that it would be consistent with the compensation principle and might encourage defendants to settle cases rather than engage in a prolonged fight.

Opinion seems to be divided as to the merits of introducing an opt-out regime.  Some see it as the only way to achieve a collective actions regime that is fit for purpose; others view it as likely to achieve little in practice other than force defendants to settle unmeritorious claims because of the heightened litigation and costs exposure they would face.  One thing is for certain: if an opt-out mechanism becomes a reality, competition litigation in the CAT will become big business.

(c) Protecting the leniency regime

The Government recognises that one significant risk of incentivising victims to bring more claims for breach of competition law is that it might disincentivise participants in some of the most egregious forms of anti-competitive conduct – cartels – from disclosing their existence to the authorities.  It therefore proposes to legislate for

• the protection of certain leniency materials – namely any written leniency application and any other documents which would not have been produced but for the leniency application (e.g. witness statements produced as part of the leniency application) – from disclosure in subsequent private proceedings, and
• the removal of joint and several liability of immunity applicants for loss arising from cartels.

In general, both proposals have been favourably received.  The Pfleiderer judgment of the CJEU has generated considerable uncertainty as to which documents will be the subject of a disclosure order in any particular case, albeit some of that uncertainty has been dissipated, at least in England and Wales, by the judgment of Roth J in the recent National Grid case (see here for a summary).  Limiting protection to those documents which would not have been created but for the leniency application would ensure that defendants would remain obliged to produce all relevant contemporaneous documents relating to liability and/or loss (as the case may be).   Removing joint and several liability of whistleblowers for the full damage caused by the cartel would rectify the current position, where it is far from unknown for whistleblowers alone to be pursued by victims, particularly where the other parties to the cartel bring appeals against liability, leaving the whistleblower to seek to join other parties and/or recover contributions from them.  That hardly acts as an incentive to blow the whistle in the first place.

Concluding remarks on the reform agenda

It will be clear from this brief and necessarily selective overview of both sets of reforms that there are many difficult issues for the Government (and now, in the case of reform to public enforcement, Parliament) to grapple with.  It is hopefully no exaggeration to say that the competition law enforcement architecture is a delicate ‘ecosystem’: tinker with one aspect and it can have unintended consequences for others.  Whilst bold action may well be justified in certain areas, Government and Parliament must tread carefully nonetheless.