Relaxing whilst doing Competition Law is not an Oxymoron

Reform of Private Enforcement of Competition Law in the UK: the Government’s Proposals

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[Our friends Christopher Brown (Matrix Chambers and Eutopialaw) and Scott Campbell (Stewarts Law LLP) have kindly offered us a very interesting post on the reform of private enforcement of competition law in the UK. To the best of my knowledge, this is the first written piece commenting on the substance of the proposed reform. With those proposed changes, the UK may be trying to position itself as the leading forum for private actions in Europe. An absolute must read].

A while back, one of us blogged on the UK Government’s consultation, launched in April 2012, on possible reform of the private actions regime in the UK.  The consultation was wide-ranging and included several radical proposals designed to facilitate redress for victims of anti-competitive conduct – most notably, the introduction of an ‘opt-out’ collective actions mechanism.  Reaction to the consultation from lawyers and business was extensive: the Government received 129 formal responses, and opinion was sharply divided on some issues.

It has inevitably taken some time for the Government to take on board the responses and consider the way ahead, but, since the publication last week of its response to the consultation, we now know what it intends to do.  In summary, the Government proposes to

  • Strengthen the private law jurisdiction of the specialist judicial body, the Competition Appeal Tribunal (CAT);
  • Introduce a “limited” opt-out collective actions regime, with “safeguards” designed to prevent frivolous or unmeritorious claims being brought;
  • Promote alternative dispute resolution (ADR); and
  • Take some limited action designed to ensure that private enforcement complements public enforcement.

In this post, we take a look at the main proposals, considering some of the likely practical implications of the reforms in the event that they are passed into law.

1. Putting the CAT front and centre of private enforcement in the UK

The first broad proposal is one on which most respondents agreed, at least in broad outline: to make the CAT the ‘go-to’ venue for private competition litigation in the UK.  Since acquiring its private law ‘follow-on’ jurisdiction upon the entry into force of the Enterprise Act in 2003, the Tribunal has seen relatively little action, and much of the action it has seen has been in the form of procedural skirmishes relating to the ambit of that jurisdiction (several of which have gone on appeal to the higher courts).  In many cases, claimants have preferred to commence follow-on proceedings in the High Court instead.

There are a number of reasons for the side-lining of the CAT.  One is that claimants in the CAT are, as the law presently stands, restricted to the infringement as found in the competition authority’s decision: they cannot claim, for instance, that the violation of competition law extended to other products or to earlier or later periods of time. Nor, of course, can claimants bring a pure ‘standalone’ claim in the CAT. Another is that claims in the CAT are not viable where there is a real risk of ‘torpedo’ action by the prospective defendants in another EU Member State.  This is because if claimants do not wish to wait until the competition authority’s decision becomes ‘final’ (upon the exhaustion of the often lengthy appeals process at EU or domestic level), they need to seek the CAT’s permission to commence proceedings.  Such a course of action would tip off the prospective defendants and enable them in some circumstances to commence their own proceedings for a negative declaration in a jurisdiction which is perceived to be less attractive to claimants.

The Government proposes to remedy this imbalance between the High Court and CAT.  First of all, it proposes to give the CAT the power to entertain standalone as well as follow-on claims and to enable the CAT to grant injunctions.  These proposals had been trailed in the consultation document and were in general the subject of approval by respondents.  Most commentators agreed that the CAT was an under-used specialist resource, and that its mix of relevant expertise and active case management would lend themselves to taking on a broader range of private enforcement work.  As part of reform in this area, the Government also recognises the need to harmonise the different limitation periods which apply in the High Court and CAT: at present, claims in the High Court are subject to the usual 6-year rule, whereas follow-on claims in the CAT may be brought within two years of the infringement decision becoming ‘final’, with claimants able to claim in respect of loss suffered throughout the period of infringement.  The proposal is that all claims will be subject to the 6-year rule (5 in Scottish cases).

Secondly, the Government proposes to create a fast-track mechanism for “simpler cases” with a view to empowering SMEs in particular.  Interestingly, though, the proposal looks rather different from that floated in the consultation.  For instance, whereas the consultation had suggested limiting its availability to claims brought by SMEs, the Government now recognises that there should be “no absolute limits on who can bring cases”.  Likewise, the rather rigid proposed design of the mechanism set out in the consultation (costs to be capped at £25k; a possible cap on damages; limits on disclosure and length of hearings) has been softened such that the CAT would have discretion: it would decide the level of such caps on a case-by-case basis and have the power to limit the amount of evidence, including expert evidence, adduced by each side.  The Government stresses that the fast track should focus on granting injunctive relief, on the basis that “the most important thing for a business is often for the anti-competitive behaviour to simply stop” (pp21-22).

Many commentators will welcome this more flexible approach.  What will make a case suitable for being resolved rapidly will depend not on the size of the claimant but, more likely, on the complexity of the issues and the amount of evidence required to resolve the dispute justly.  That is something for the CAT to consider in concreto on the facts of each case, although time will tell how easy it is for the CAT to perform this role: seasoned litigators know that a case usually develops over time, and frequently cases which look straightforward on their face at the outset mutate into something quite different once the factual and expert evidence is sought and adduced.

In addition to the action the Government is taking, it is also worth noting what it has decided not to do.  In particular, it has decided (rightly, in the view of most commentators) not to introduce a rebuttable presumption of loss in cartel cases. It has accepted commentators’ views that to do so would depart from ordinary compensatory principles, would in reality lead to little reduction in the amount of economic evidence that is adduced in such cases and would be particularly problematic in cases where there are both direct and indirect purchasers.  Nor will Government seek to clarify whether the so-called passing-on defence is permissible: to the extent there is any doubt about the issue (which in our view there is not), it should be left to the common law to develop.

2. An opt-out collective actions regime

Perhaps one of the more contentious suggested reforms, if one reviews the scale of reaction from respondents to the Government’s consultation, is that of the proposed opt-out collective actions regime.  Whereas there are already a number of tools available to the courts for the purpose of managing numerous claims arising from the same or a similar cause of action – group litigation orders and representative actions under CPR 19.6 in the High Court and ‘consumer representative actions’ in the CAT under section 47B to the Competition Act 1998 – it is a tool kit which is seldom used or inappropriate in the context of competition damages claims.  The relative paucity of collective follow-on claims, either under section 47B or CPR 19.6 clearly indicates a need for reform if the viability of collective actions both for consumers and businesses is seen as desirable.

Arguably, the greatest obstacle to collectivising similar claims arising from a single mass tort is the need for claimants to ‘opt-in’ to an action.  In particular, where a mass tort has caused loss of a relatively small amount to a large number of people, the ‘opt-in’ model is unlikely to provide a realistic prospect of meaningful collective redress.  This was witnessed in the case of Consumers’ Association v JJB Sports plc, discussed in the earlier post, where too few claimants opted in or were even aware of their claims for the consumer representative action to be seen as a success.  Given this experience, where unlawful activity has affected, for example, all of an economic market (as is usually the case for a cartel) then an ‘opt-out’ mechanism for all buyers in the market appears, at least in principle, to be an appropriate and efficient means for collective action.  However, the appearance of excess in the US class action model, where apparently ‘unmeritorious’ claims have led to large settlements, has generated an aversion to this device in Europe.  Nevertheless, the Government’s proposed opt-out model should, in practice, avoid the perceived excesses of the US experience given the safeguards envisaged.

Whereas in the US the class action bar formulates and pursues claims, the Government’s proposed opt-out mechanism envisages both follow-on and standalone claims in the CAT being brought on behalf of claimants only by their ‘genuine representatives’ (such as trade associations and consumer groups) rather than by third parties such as law firms, litigation funders or special purpose vehicles formed to pursue claims.  Furthermore, in order to ensure that only ‘meritorious’ claims are brought, the CAT will be required judicially to certify the proposed case and to decide whether it is appropriate to deploy the opt-out mechanism in favour of the traditional opt-in model following an assessment of the (prima facie) merits of the case, the adequacy of the proposed representative and the appropriateness of collective action.  Thereafter, if the case goes to trial no treble or exemplary damages will be available.  If the case settles, the CAT must approve the proposed settlement (as well as any fee element) and claimants will also be given the opportunity to opt-out if they wish.  As to costs, the ‘loser pays’ rule will be preserved but contingency fees, as envisaged under the Jackson Reforms (a package of reforms to civil litigation in England and Wales named after the Court of Appeal judge on whose review of civil litigation costs the reforms are based), will not be available to opt-out actions in the CAT.

While the general tenor of the proposed reforms is to be welcomed, there is a risk that some of the safeguards to the opt-out mechanism that are proposed may render it impractical and unattractive to run opt-out claims.  While collectivising claims goes some way to generating costs savings and efficiencies, the burden of both the fee associated with pursuing claims as well as exposure to adverse costs in the CAT will by no means be a minor consideration of the genuine representative of the claimants.  This, taken in conjunction with the proposed carve out to the Jackson Reforms which would otherwise allow the claimants’ lawyers to offer their clients a contingent fee structure rather than the traditional ‘pay as you go’, may well deter trade associations and consumer groups from pursuing claims.  It would be an unfortunate missed opportunity if, for the want of a viable means of funding opt-out claims, genuine representatives of claimants failed to come forward.  However, this concern aside, the proposed opt-out mechanism does appear fundamentally to be a sensible and workable reform.

3. Promoting ADR

The Government remains committed to improving ADR.  The most notable proposal to emerge is that, contrary to the view it expressed in the consultation, it does now see the benefit of an opt-out collective settlement mechanism akin to the Dutch Mass Settlement Act (see here and here for discussion of that Act), which would allow infringing businesses voluntarily to settle potential claims quickly and easily on an opt-out basis.  The mechanism would work broadly as follows.  First, the potential defendant would come to an agreement with a representative (or, possibly, multiple representatives) of those domiciled in the UK who believe they have suffered loss as a result of the potential defendant’s conduct.  They would then apply jointly to the CAT for approval of the settlement agreement.  The CAT would need to satisfy itself of two things: that the case was suitable for settlement and that the settlement itself was fair, just and reasonable; “in other words, does it give satisfactory recompense to those who have suffered loss, taking into account both the degree of loss alleged and the likelihood of a collective actions claim succeeding (were [one] to be brought in the absence of settlement)” (para 6.23).  The CAT would be able to take into account “any information it considers relevant”, including representations of the parties and third parties, and would be able to appoint an expert to help it make its decision.  Once a settlement is approved the CAT would be able to issue directions as to the settlement mechanics and procedure (e.g. as to publicity and time limits for opting out of the settlement).

It will be very interesting to see how well this proposal works, assuming it makes its way onto the statute book.  One can see attractions for infringing firms in being able to settle claims without claims being commenced, although one factor which will no doubt influence firms is the likelihood of an opt-out collective action being brought in the absence of such a settlement: the less likely it is, the less incentive there will be for defendants to engage in such a process.  But important questions remain: will representatives be prepared to spend valuable time and resource investigating the outlines of a suitable settlement and negotiating with potential defendants?  How will legal assistance and representation be funded?  Will infringers actually be interested in this mechanism in anything other than simple consumer cartel cases?  How ‘hands-on’ will the CAT be in approving settlements?  Will it require good evidence of the likely scale of loss suffered by victims of the anti-competitive conduct or will it largely defer to the parties?  Should one cartelist be able to seek contributions from its co-cartelists if it decides to settle?  Answers to at least some of these questions would help in assessing how successful this mechanism might be.

4. Ensuring private enforcement complements public enforcement

The Government recognises the importance in ensuring that the facilitation of private enforcement does not have the effect of hindering public enforcement – in particular, making the leniency process less attractive for would-be cartel whistleblowers.  It had therefore consulted on the possibilities of protecting leniency documents from disclosure and of protecting successful immunity applicants from joint and several liability in damages.  It has decided, however, not to bring forward proposals in this respect, bearing in mind that the Commission has indicated its own intention to legislate in the near future and that legislation at the domestic level may be of limited effect if the same protections are not afforded to leniency applicants in other jurisdictions.  Interestingly, and perhaps with a view to steering the Commission’s position, the Government has set out its own high-level thoughts on what the EU legislative proposal should look like (see para 7.11).  in particular, the Government is clear that, if disclosure of documents is to be restricted, it should only encompass documents specifically created for the leniency process rather than pre-existing documents.

Looking ahead to change

So, looking to the future, where does this leave us?  One important practical question is whether there will be time and political will in the present Parliament to get these proposals onto the statute books.  Some of the proposals are controversial – not everyone will agree with the introduction into domestic law of an class action mechanism or that competition law is somehow ‘special’ and is thus deserving of such a mechanism to the exclusion of other areas of law – and then there is the simple point that there is little more than 2 years left of this Parliament, and the Coalition may take the view that there is more important business to be done.  We shall soon see how genuine the political appetite for change is.

Written by Nicolas Petit

6 February 2013 at 11:35 am

Posted in Guest bloggers

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