A new era for private competition actions

Summary

The Consumer Rights Act 2015 (the “Act”) came into force on 1 October 2015, bringing about a major overhaul of the regime for private actions in the UK for breaches of competition law. The reforms are intended to promote the rights of private parties to claim compensation for harm suffered as a result of competition law infringements, and to establish the Competition Appeal Tribunal (“CAT”) as the preferred forum for private actions in the UK. We consider below the two most significant developments: the introduction of a new regime for collective actions and changes to the jurisdiction of the CAT.

The developments fall against the backdrop of a changing framework at the EU level. In November 2014, the EU adopted Directive 2014/104/EU on antitrust damages actions (the “Directive”), which aims to improve and harmonise procedures for the private enforcement of competition law across the EU. Together with Germany and the Netherlands, the UK is being used extensively as a jurisdiction for EU-based competition actions. However, there are now concerns that some aspects of the Directive will have a chilling effect on claims being brought in the UK, for example the creation of a blanket ban on the disclosure of leniency documents in private actions, which will limit the evidence available to claimants in certain cases. This will potentially counteract the otherwise positive developments in the Act.

Collective actions

The effectiveness of collective actions in the UK has long been impeded by the requirement for victims to ‘opt-in’ to any collective action against an infringer, meaning only those members of a class who have consented to participate can be included the proceedings. The difficulty in identifying potential claimants is one reason why this mechanism has only been used once in its 13 year history (The Consumers Association v JJB Sports plc, 2007).

The Act has introduced a new regime for collective proceedings, granting the CAT the power to hear ‘opt-out’ claims whereby a potential claimant (a member of a class sharing common characteristics) will have to choose actively not to participate in the proceedings. This ‘opt-out’ procedure will only apply to claimants resident in the UK, although non-UK residents will be able to opt-in to the claim.

The only actions eligible for collective proceedings will be those ‘certified’ by the CAT by way of a ‘collective proceedings order’ (“CPO”). Under the Competition Appeal Tribunal Rules 2015 (the “Rules”), which also came into force on 1 October 2015, the CAT has a wide discretion regarding certification and may take into account “all matters it thinks fit”, including whether the claims raise “the same, similar or related issues of fact or law” and are suitable for collective proceedings. Each collective action must also have a representative acting on behalf of the class who must be authorised by the CAT where it considers the appointment ‘just and reasonable’. Prior to the Act coming into force, the Government had suggested it would exclude law firms, funders and Special Purpose Vehicles from acting as representatives, with a view to avoiding the creation of a US-style litigation culture. However, such a prohibition was ultimately not included in the Act or the Rules. These bodies would arguably be best placed to act as representatives given their resources and access to funding and it remains to be seen whether the CAT will be inclined to certify them in practice.

Two additional ‘safeguards’ have been introduced to avoid frivolous and/or excessive claims being brought as collective proceedings. First, claiming exemplary (punitive) damages will be prohibited, meaning only ‘true’ compensation can be awarded. Secondly, damages-based agreements between claimants and law firms will be unenforceable if they relate to opt-out proceedings, meaning lawyers will be unable to link their remuneration to the amount recovered at the end of such cases. Conditional fee agreements are still permitted.

The introduction of opt-out proceedings is expected to lead to a significant increase in competition law claims. The availability of large groups of potential claimants will incentivise representatives to bring actions, but the safeguards ensure the changes stop short of facilitating US-style class actions.

CAT jurisdiction

Since the CAT consumer claims regime was introduced in 2003, the CAT has only been able to hear ‘follow-on’ actions, where the claimant relies on an infringement decision of the Competition and Markets Authority (“CMA”) or the European Commission to support its claim for damages. The CAT had no power to hear ‘stand-alone’ cases, where there is no infringement decision and the claimant must prove liability as well as damage. This has been one reason why the High Court has been the preferred forum for competition actions in the UK.

The Act has now expanded the CAT’s jurisdiction to include ‘stand-alone’ cases, with a view to making the CAT the preferred forum for all competition law claims. The limitation rules, the availability of injunctive relief and other procedural rules have been brought in line with the High Court, such that all the attractions of bringing claims before the High Court should now be present for claims before the CAT. Claims must now be initiated within six years (instead of the previous two years) of the date on which the cause of action accrued. Where there has been deliberate concealment of wrongdoing however, this period will not begin to run until the claimant discovers, or ought reasonably to have discovered, the concealment. The CAT also now has the power to grant injunctions (e.g. to restrain further competition infringements), which have the same effect and enforceability as those granted by the High Court.

The expansion of the CAT’s jurisdiction and powers is likely to raise the CAT’s profile and should make it a far more attractive option for private enforcement than it has been to-date.

Further developments

Other important changes introduced by the Act are:

• Collective settlements: where the claimants’ representative and the defendant/s reach a settlement in relation to claims under the ‘opt-out’ procedure, they may apply to the CAT for approval of the settlement. The CAT will give its approval where it considers it ‘just and reasonable’ to do so, and the settlement will then be binding on all persons falling within the class of persons described in the CPO.
• Settlement offers: outside the collective action procedure, the Act has introduced rules equivalent to Part 36 of the Civil Procedure Rules, whereby a party’s offer to settle carries with it certain negative cost consequences if the other party rejects the offer then either loses or fails to recover more than the offer at trial.
• Fast-track procedure: Straightforward cases that involve few parties and do not require significant disclosure or evidence may now be eligible for the CAT’s new fast-track procedure. The CAT will consider various factors before allocating a case to the fast-track, including whether one or more of the parties is an individual or a micro, small or medium sized enterprise (SME). These must then go to trial within six months.
• Voluntary redress schemes: where a business has been found to have breached competition law, it now has the possibility to offer compensation to the victims of its infringement in return for a reduction of up to 20% of the fine imposed by the CMA. These schemes are a form of alternative dispute resolution (ADR) which may facilitate the resolution of disputes and reduce the need for litigation and its associated costs and risks.

The bigger (EU) picture

The developments in the UK fall against the backdrop of a changing framework at the EU level. In November 2014, the EU adopted the Directive, which aims to improve and harmonise procedures for the private enforcement of competition law across the EU (for further information, see our Law Now). Member States have until 27 December 2016 to implement the Directive. The UK already has in place many elements of the Directive such as the principle of joint and several liability and a limitation period of at least five years, so it is not anticipated that this basic framework will have a significant impact on the ability of potential claimants to initiate competition proceedings in the UK.

However, it has been suggested that some aspects of the Directive may impact the attractiveness of the UK as a forum for private competition enforcement. The Directive provides that national courts should be able to require defendants or third parties (including competition authorities) to disclose certain information, with a view to increasing the evidence available to claimants and facilitating damages actions. The UK’s disclosure regime is in line with the Directive in this respect as it is already quite wide; the courts generally order broad access to such documents.

However, the Directive also defines certain categories or documents that should not be disclosed, including leniency applications and settlement submissions, effectively creating a per se rule against the disclosure of these documents. This overrides the decision of the Court of Justice of the EU in Pfleiderer that it is for national courts to decide on a case-by-case basis whether to permit disclosure of leniency documents. The UK courts typically carry out thorough examinations of the documents in question where there are disagreements about disclosure. In the National Grid case for example, applying the Pfleiderer test, the court carefully reviewed each of the leniency documents concerned and ordered that only certain sections could be disclosed. The Directive’s blanket ban on the disclosure of leniency applications will limit the amount of evidence available to claimants in certain cases, potentially creating a chilling effect on claims. This aspect of the Directive risks counteracting the otherwise positive steps taken in the Act towards creating a more claimant-friendly private enforcement environment in the UK.

Conclusion

The introduction of ‘opt-out’ collective proceedings and the extension of the CAT’s jurisdiction arguably revolutionise the rules governing private actions in the UK. They are designed to improve the conditions for efficient and cost-effective private competition claims, which is good news for businesses and consumers that have been victims of infringement, and is likely to lead to a significant increase in damages actions. They may equally offer greater comfort for infringers of competition law who currently face a patchwork of potential follow-on damages claims for breaches of EU competition law. It remains to be seen though whether the extent of the increase could be tempered by the uncertainty surrounding the disclosure provisions in the Directive. In the meantime, the increased risk of litigation means all businesses should take steps to ensure they are operating in compliance with competition law and, particularly where they are already involved in competition investigations, should consider the financial and reputational costs to which any such litigation could give rise.