The UK Department for Business Innovation & Skills (BIS) has now published the UK government’s response to a consultation regarding private actions for damages arising from infringements of UK competition law. In this publication, Private Actions in Competition Law: a Consultation on Options for Reform: Government Response1, the government has made a number of proposals that will – if enacted – have a significant impact on the way private enforcement of competition law is litigated in the UK.
The UK government consulted on proposed reforms to the UK’s private actions regime during the summer of 2012. It has now articulated the government’s policy intentions and set out a series of specific proposals. It claims that these would ease the task for groups of consumers and companies wishing to take collective legal action against businesses that have acted in an anti-competitive way.
The UK government acknowledges that the use of class actions is controversial, and that the government ‘has no wish to introduce a regime that would create a “litigation culture”.’ However, it also recognises that individuals or businesses often find it difficult and costly to seek compensation or other civil remedies for price fixing and other types of behaviour that distort competition. In order to ensure that applications by individuals or businesses are resolved more quickly, the government has made the following principal proposals:
- a new limited opt-out collective action process for competition law claims will be introduced, with certain safeguards to protect undertakings from frivolous applications;
- the Competition Appeal Tribunal (CAT) will become the principal forum for actions for competition-related damages in the UK. This will include a fast-track regime that will allow the CAT to hear follow-on actions (those that are subsequent to a finding that the defendant has infringed competition law) as well as standalone actions (those where the applicant seeks to establish the infringement de novo and to claim damages in respect of it). Civil courts will have the ability to transfer cases to the CAT, which will also be provided with the power to grant injunctions; and
- alternative dispute resolution (ADR) will be promoted as a means of encouraging the resolution of claims without resorting to court.
OPT-OUT COLLECTIVE REGIME
The concern is that price fixing and other infringements of competition law may affect very large numbers of individuals or businesses – but possibly by amounts that are individually rather small, and that this discourages individual applications (which, in any event, would be an inefficient outcome). The proposed solution is to put in place an ‘opt-out’ collective regime. Claimants or appropriate representative bodies, such as trade associations and consumer groups, will be able to take a group or collective action for damages on behalf of affected individuals or businesses. All relevant consumers and/or businesses will automatically be included in the action, unless they expressly opt-out.
There will be a requirement for the CAT to certify whether a collective action is suitable and whether it should proceed on an opt-in or opt-out basis. This is intended to be a safeguard to ensure against unmeritorious class actions. For example, cases brought by a small number of clearly identifiable businesses might be more appropriately brought on an opt-in basis. In addition:
- the opt-out aspect of a claim will only apply to UK-domiciled claimants; non-UK claimants would be able to opt in to a claim;
- no multiple or exemplary damages will be available, a recommendation that appears to be at odds with the CAT’s recent decision in 2 Travel Group plc (in liquidation) v Cardiff City Transport Services Ltd , where it awarded exemplary damages to 2 Travel having found that the defendant’s conduct had been an ‘outrageous’ breach of competition law, noting that there was something ‘inherently repugnant in a service being commenced by a dominant undertaking for the sole reason of excluding another’2;
- applicants’ lawyers will not be able to act on a contingency fee basis. However conditional fees and after-the-event insurance will still be permitted3;
- maintaining the ‘loser-pays’ rule – so that those who bring successful cases are awarded costs in ‘the vast majority of cases’4; and
- there will be no presumption, even a rebuttable one, that cartel conduct gives rise to losses.
In justifying its confidence in these safeguards, the government takes comfort from the fact that the introduction of similar opt-out regimes in Norway, Canada and Australia, and analogous schemes in Spain, Poland and Portugal, have not led to US-style class actions or widespread abuses.
Claims may not be brought by law firms, third-party funders or special purpose vehicles, but only by claimants or by genuine representatives of the claimants, such as trade associations or consumer associations. Any sums remaining unclaimed from the pool of damages would be allocated to the Access to Justice Foundation5.
CAT FAST-TRACK PROCEDURE
By establishing the CAT as the principal forum for determining competition-related damages claims, the government claims that the CAT will become more expert and efficient in the disposal of such cases. The system is predominantly intended for small and medium-sized enterprises, which might otherwise find it more difficult to obtain access to justice, although the government makes clear that there will be no absolute limits on who can bring cases.
A new fast-track system will be introduced for simpler cases, aimed at resolving disputes in a less expensive and more timely fashion. The speed of the process will in part be achieved by providing the CAT with the power to limit the amount of evidence adduced and expert witnesses produced. In addition, it is envisaged that the fast-track would not normally be available for collective actions, or for what the CAT considers to be novel cases; these would need longer consideration. A key focus of the fast-track procedure will be to provide injunctive relief, since the government recognises that often a business’ primary concern is to ensure that the anti-competitive behaviour is brought to an end. Considering whether a preliminary injunction is required will be done very early in the process.
Costs in all fast-track cases must be capped, as would any cross undertakings for damages required from the applicant in return for the award of an interim injunction. However, there will be no limit to the level at which these caps may be set – with the level ultimately being set on a case-by-case basis by the CAT. This will ensure the claimant has certainty from the outset as to the maximum exposure.
The government has also outlined changes that will ensure that ADR is promoted and used wherever possible, with the intention of saving time and money. The principal measures include:
- establishing a new opt-out collective settlement regime in the CAT to allow businesses to settle cases quickly on a voluntary basis. It would be the CAT’s role to certify that the case was suitable for any such settlement and that the amount was fair, just and reasonable; and
- giving the Office of Fair Trading (OFT), and its replacement body – the Competition and Markets Authority – a limited discretionary role in certifying redress schemes to make them legally binding. The government also believes that those who offer a redress scheme could qualify for a possible reduction of fine, in accordance with the OFT’s current guidance.
The government is aware of the need to ensure that private actions complement the public enforcement regime, particularly the UK and EU leniency programmes. This really requires that leniency documents are protected from disclosure during litigation. Indeed, following the decision of the Court of Justice of the EU in Pfleiderer AG v Bundeskartellamt 6, where member states were told to consider the needs of claimants and leniency applicants when deciding whether or not to order disclosure of leniency materials, Commissioner Almunia has recognised the need to legislate to ‘strike the right balance between the protection of leniency programmes and the victims’ rights to obtain compensation.’7 The government has therefore chosen to wait for the European Commission’s proposals before introducing any specific measures in this area. However, the government’s response makes clear that if the Commission does not implement such legislation, or it does not offer the necessary protections, then it will consider further whether it should introduce measures at a national level.
On the whole, these proposals will be broadly welcomed, particularly the measures to streamline procedure and to introduce alternative forms of dispute resolution. However, the decision to choose an ‘opt-out’ mechanism for collective actions is likely to draw criticism because of the fear that the safeguards proposed will be insufficient to guard against the perceived ‘excesses’ of US-style class action litigation becoming a feature of competition litigation in the UK.
As some of the respondents to the government’s public consultation highlighted, there is a concern that an ‘opt-out’ procedure will simply result in litigation being pursued in the name of people who may not want to litigate and who cannot exercise any control over what is being done, supposedly in their name. The decision to choose an ‘opt-out’ mechanism is perhaps even more surprising, given that, when the Commission’s consulted on the same question in 2011, it was reported that:
‘… the majority of national governments, some sectoral regulators, almost all business representatives and most legal experts, especially lawyers, propose an opt-in system. In their view, opt-out mechanisms violate basic principles of law as well as constitutional procedural guarantees of member states and the European Convention on Human Rights.’8
The fact that the government has brought forward the proposals now comes as no surprise when one considers the length of time that the European Commission has taken to progress its policy in this area. The Commission’s green paper on the topic was issued in 2005; in 2008, the Commission published a white paper containing proposals to overcome certain legal and procedural hurdles within member states that were considered to hinder antitrust actions for damages.9 Latterly, the Commission has focused on collective redress and quantification of harm. However, despite a legislative proposal being foreseen in the Commission’s Work Programme for 201210, no legislation has yet appeared from Brussels. The UK has seized the initiative.
In addition, the government has effectively put the Commission ‘on notice’ that, should its measures for the protection of leniency materials not be forthcoming, or if it fails to provide the necessary protections, the government will press ahead and introduce measures that it considers are required to provide the safeguards in this area.
It will be some years before the full effect of these proposals is known, as companies, consumers and practitioners get used to the new measures. However, one thing that can be foreseen is the increasing popularity of the English courts as a venue for private damages actions in Europe.
- Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/69123/13-501-private-actions-in-competition-law-a-consultation-on-options-for-reform-government-response.pdf.
- However, the facts in this case were unusual, in particular the defendant had not been fined for a competition law infringement due to the application of the Competition Act 1998 (Small Agreements and Conduct of Minor Significance) Regulations 2000.
- Contingency fee arrangements (also called ‘damages based agreements’) provide that the legal fees for successfully litigating a case will be based upon an agreed proportion of the total damages awarded. Conditional fee arrangements (also called ‘no win, no fee’) provide that, in the event of losing, the client will not be liable to pay any fees to its lawyer. However, if the case is won, ‘normal’ costs will be payable. After-the-event insurance is an insurance policy that provides cover for the legal costs incurred in the pursuit or defence of litigation and arbitration. The policy is purchased after a legal dispute has arisen.
- The government recognises that while the loser-pays rule should be applied in the vast majority of cases, there may be exceptions – for example by cost capping, in the interests of access to justice or to reflect the conduct of one of the parties. Aside from this specific measure, the government agrees that the CAT’s existing costs principles are already sufficient to cover such circumstances.
- The Access to Justice Foundation was established to receive and distribute additional financial resources to facilitate pro bono legal assistance for those who need it most. Pro bono legal assistance complements, but is not a substitute for, legal aid. The Foundation is directed to supporting the delivery of pro bono advice or assistance, but not in place of the legal aid system.
- Available at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=85144&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=2085442. See also our previous advisory on this case: http://www.arnoldporter.com/public_document.cfm?u=DiscoveryofLeniencySubmissionsinEuropeThePfleidererJudgmentDawnofaNewEraorNothingNewUndertheSun&id=17707&key=15H3.
- See paragraph 7.10 of the BIS proposal document, and http://europa.eu/rapid/press-release_SPEECH-12-428_en.htm.
- Evaluation of contributions to the public consultation and hearing: ‘Towards a Coherent European Approach to Collective Redress’ prepared for the Commission by Prof Dr Burkhard Hess and the University of Heidelberg, available at: http://ec.europa.eu/competition/consultations/2011_collective_redress/study_heidelberg_summary_en.pdf. The full consultation document Towards a coherent European approach to collective redress is available at: http://ec.europa.eu/justice/news/consulting_public/0054/ConsultationpaperCollectiveredress4February2011.pdf.
- White Paper on Damages Actions for Breach of the EC Antitrust Rules, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.
- Communication from The Commission to the European Parliament, The Council, The European Economic and Social Committee and The Committee of the Regions, Commission Work Programme 2012, available at: http://ec.europa.eu/atwork/pdf/cwp2012_annex_en.pdf.