Has the UK opened the floodgates to private enforcement of competition law?

(by Sebastian Peyer) Private antitrust enforcement is the least effective part of competition law in the UK. Yesterday, the government said what it intended to do about it. Its outline for a new regime of private actions in competition law followed a consultation on options for reform in 2012. It proposes fixes for a number of well-known litigation problems such as the limited jurisdiction of the specialist Competition Appeal Tribunal (CAT). However, of potentially greater interest to consumers and businesses will be the introduction of opt-out class actions. The debate about opt-out class actions has been fierce on national and EU levels but this is still a surprising move – will it work?

Before addressing that question, it is worth highlighting the three major changes. The Government, through the Department for Business, Innovation and Skills (BIS), identifies three main areas of reform. It plans to establish the CAT as the major venue for competition actions in the UK. It also promotes alternative dispute resolution (ADR) to facilitate out-of-court agreements between claimants and defendants. Finally, it has decided in favour of an opt-out class (collective) action for consumers and business.

The extended remit of the CAT was widely expected. In the present framework the Tribunal only adjudicates follow-on actions in which the claimants are strictly bound by the findings of the competition authority. Thus, the CAT is confined to an assessment of causation and damages in private damages litigation and cannot devote resources to genuine competition law problems – a poor use of the CAT’s valuable expertise. The new regime will concentrate cases at the CAT: the Tribunal will be able to deal with stand-alone cases, transfer cases to the courts (and the courts can transfer cases to the CAT) and hear injunction claims. BIS also proposes to align limitation periods in the CAT with the general limitation period of six years – the current shorter limitation period in the Tribunal has led to uncertainty and spawned satellite litigation. To reduce the costs of litigation, BIS proposes a fast track procedure for injunction claims. The fast track procedure is interesting and a concession to high litigation costs and complex proceedings in the courts. But the devil is in the detail. The Government has proposed a cost cap to separate complex cases that are unsuitable for fast track procedure from those that could be dealt with in shorter time. Whether or not this will work, depends on how this flexible cost cap will be shaped. Overall, the altered role of the CAT is to be welcomed. A fast track procedure may, depending on its design, help to reduce notoriously high litigation costs and the time parties spend in court.

BIS also embraces alternative dispute resolution (ADR) to reduce the number of disputes that actually go to the CAT or courts. The proposals include a voluntary opt-out collective settlement regime in the CAT and discretionary powers for the new Competition and Markets Authority (CMA) to certify redress schemes. Opt-out collective settlements and certified voluntary redress are sensible options as compared with drawn-out court proceedings. They increase the chance that compensatory payments will be made. Firms willing to enter into a CMA certified redress scheme may qualify for a fine reduction. However, it is not clear from the proposals how payments are supposed to reach consumers. The Government has yet to flesh out the details of the collective settlement procedure to ensure that compensation reaches the victims of anticompetitive conduct. Groups of harmed consumers or firms will benefit from the proposed redress schemes only if payments are passed on them.

The final reform proposal will (or should) make headlines: BIS has decided to introduce opt-out class actions to empower consumers. Cartels and other violations of competition law can lead to small individual losses that harm a great number of individuals. Consumers and businesses are often unwilling to risk considerable legal costs in order to recover small losses. Claim aggregation may overcome the incentive problem. One individual or representative body can, according to the Government’s plan, bring an opt-out class action on behalf of all injured consumers and businesses.

Opt-out class actions will raise litigation costs. While the other reform options may lead to time and costs savings, class actions are a costly solution to the problem of dispersed individual losses. What type of antitrust claim is commonly brought as a class action? Normally, collective actions are follow-on proceedings prompted by government investigations into anti-competitive conduct. This is an unnecessary duplication of enforcement efforts. Thus follow-on claimants impose further costs on the legal system when a (CMA-imposed) certified redress scheme would have been an easy fix. The consumer organisation ‘Which?’ has claimed that class actions have a “hugely positive impact.” This is wishful thinking. There is little evidence that antitrust class actions empower consumers or that most of the compensation derived from class actions will reach injured parties.

Critics have stressed the problems of a “US litigation culture” (a horrible phrase), and prompted BIS to emphasise the safeguards of the future framework.  Due to these safeguards, it is unlikely that we will see a wave of class actions being brought in the UK courts. Firstly, only UK-domiciled claimants will have standing to bring cases. Secondly, the linchpin for any class action regime will be the certification of the class – a task to be undertaken by the CAT. The proposed merits test at the certification stage is likely to create a high bar for potential class-action claimants. Questions as to the common interest of the class will emerge when consumers and businesses – as it was hinted at in the government document – become part of the same class. Thirdly, opt-out cases involve a great financial risk and need proper funding. Commercial funders have been reluctant to support competition litigation in the UK. As the framework for litigation has not changed, they will have few incentives to support class actions.

If the BIS proposals become law, they may disappoint the supporters of damages class actions but please businesses looking for a quick dispute resolution in the CAT. Critics who fear that the floodgates have been opened to class actions, can rest easy. Under the current framework, class actions may work as a threat to incentivise firms to take part in collective settlements and CMA certified opt-out redress schemes, but they are unlikely to become everyday business in competition law. The discussion over the next few months will show whether or not the opt-out proposal will survive.

One Response to Has the UK opened the floodgates to private enforcement of competition law?

  1. […] UK government proposes changes to the way private antitrust damages cases are […]

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