On 24 April 2012, the United Kingdom's Department for
Business, Innovation & Skills published a 70-page document
entitled Private Actions in Competition Law: A Consultation on
Options for Reform (the Consultation) (available at www.bis.gov.uk/assets/biscore/consumer-issues/docs/p/12-742-private-actions-in-competition-law-consultation).
The Consultation contains some far-reaching ideas. If many or all
are implemented, it could greatly increase private enforcement of
competition law in the UK. In particular, the Consultation
discusses:
- Introducing an "opt-out" collective action for damages; under this collective action, the Competition Appeal Tribunal (CAT) would assess damages for a represented group of claimants, which would be bound by the outcome unless they affirmatively opt-out of the action, but claimants could come forward after the damages' award to claim their share.
- Preserving the incentives for whistleblowers to inform
competition authorities about cartels by legislating to: (i)
protect leniency applications from disclosure in damages claims;
and (ii) absolve an amnesty applicant from joint and several
liability for all the damage caused by a cartel.
- Widening the specialist CAT's powers to allow it to (i)
rule more generally on claims for damages (and not only on claims
following from an earlier finding of an infringement by a
competition authority); and (ii) grant injunctions.
- Encouraging alternative dispute resolution (ADR) and enabling the Office of Fair Trading (OFT) to require that companies found to have infringed competition law compensate victims of their behaviour.
The Government's consultation period for the proposal runs until 24 July 2012.
An Opt-out Collective Action
The most radical proposal is an "opt-out" collective
action before the CAT.1 Currently, UK law only allows
collective claims for damages in the form of "opt-in"
follow-on claims on behalf of consumers. Under the current rules,
claimants must opt-in to the procedure and actually be named on the
claim form. Moreover, the procedure only applies when a competition
authority has already ruled that a company has infringed
competition law. And it only applies to consumers. The Consultation
argues that these conditions are too restrictive and notes that in
almost 10 years, there has been only one collective action case.
(That was an action brought by Which? following the OFT's
decision fining a sport equipment retailer, JJB Sports, UK
£6.7 million for fixing prices of replica football shirts,
where only 130 claimants (estimated to be only 0.1% of the affected
consumers) joined the action and each received UK £20 to
compensate for the estimated mark-up.)
The proposed opt-out system would allow both businesses and
consumers to participate in collective actions. These actions could
be brought on a stand-alone basis, rather than limited to cases
where a competition authority has already found a breach of
competition law. For a stand-alone claim, the claimant would have
to establish that competition law has been infringed and proof of
loss. The CAT, which would be the only court competent to hear
these claims, would assess damages based on an estimate of the
total size of the consumer group potentially affected by the
illegal conduct. If this change is implemented, it will greatly
increase defendants' exposure to damages in the UK.
The Government is wary of promoting a "litigation
culture", but believes that its proposal builds in enough
safeguards to protect defendants. In particular, it proposes
that:
- The opt-out collective action would be limited to competition
law infringements.
- Only actual, and not punitive or treble damages, would be
awarded.
- The existing "loser pays" rule, which requires
unsuccessful claimants to cover the defendants' costs, would be
retained.
- The CAT, as a specialised competition law tribunal, would enjoy
exclusive jurisdiction over the action.
- The CAT would have to certify that the individual or body
bringing the claim is suitable and sufficiently representative of
the class of claimants (this would normally exclude law firms and
third party funders from bringing an action).
- Lawyers would be prohibited from charging contingency fees, under which they take a percentage of the damages; lawyers could, however, charge conditional "no win no fee" fees and receive an increased fee if the case is successful.
Clearly this is all very controversial.
Protecting Whistleblowers and the Amnesty/Leniency Regimes
The Consultation recognises that vigorous private enforcement could alter potential whistleblowers' incentives when considering applying for leniency to the OFT or the European Commission. It emphasises the importance of public enforcement of competition law and the central role of leniency applicants in bringing cartels to the attention of authorities. To preserve whistleblowers' incentives, the Consultation suggests two important reforms.
- First, mainly in response to the European Court of
Justice's 2011 Pfleiderer judgment (Case C-360/09,
Judgment of 14 June 2011), the Government discusses legislating to
protect documents prepared exclusively for an amnesty/leniency
application from disclosure in private damages litigation. In
Pfleiderer, the European Court of Justice ruled that
Member State courts must balance the public interest in disclosing
to claimants documents submitted by a leniency applicant in a
public enforcement procedure (in that case to the German
Competition Authority), thereby possibly enabling claimants to
substantiate claims for damages, against the need to protect the
effectiveness of and incentives offered to applicants under
leniency programmes.2 The Consultation notes that the
European Commission may also legislate to prevent disclosure of
leniency documents but emphasises that, if the opt-out collective
action regime is implemented in the UK, such legislation would be
needed urgently. Beyond its immediate effects in the EU,
legislation by the UK or the EU to protect leniency documents might
also help defeat attempts by the plaintiff bar to obtain disclosure
in third countries (most importantly in the US), although it will
be for those countries' courts to consider what deference
should be granted to EU or UK legislation.
- Second, the Consultation proposes that the liability of leniency applicants be limited to damages directly caused by their conduct. They would no longer be jointly and severally liable for all damage caused by the cartel. This proposal may appear quite radical, but it is in line with the US ACPERA legislation (which does away with joint and several liability for immunity applicants and limits their liability to single damages, provided they cooperate with plaintiffs' efforts to sue other cartel participants).
Expanded Jurisdiction for the CAT
The CAT is a specialist competition court with an established
good reputation. To date, however, its jurisdiction has been
limited to follow-on damages claims (after a competition authority
has found illegal conduct). The Government proposes to expand this
jurisdiction to allow the CAT to rule generally on claims for
damages, whether or not a competition authority has already found
illegal conduct. In addition, the Consultation suggests enabling
the transfer of cases (or parts of cases) with competition law
aspects from the High Court (or Scotland's Court of Session) to
the CAT.
The Consultation also seeks views on two important evidentiary
aspects of private competition law enforcement:
- First, it proposes introducing a statutory rebuttable
presumption that cartels raise prices by a fixed amount, which is
currently suggested at 20%. Either the claimant or the defendant
could rebut this presumption with economic evidence. While the
Consultation considers that this presumption will encourage
consumers to bring cases, the underlying premise that cartels
normally increase prices by anything like 20% is highly
controversial and eminently questionable. The prevailing view among
economists is that there is no solid evidentiary support for such a
presumption.
- Second, the Consultation considers, but ultimately rejects, legislating to allow explicitly the passing-on defence under which defendants can argue that the claimant passed on the entirety of the cartel overcharge to an indirect purchaser. The Consultation recalls that courts have not yet definitively decided if this defence is part of English law, yet it expresses the view that there is no reason based on legal principle for it not to be. The Consultation also notes that it might be more appropriate to address this issue at the proper EU level.
The Consultation also proposes that the CAT have power to grant
injunctive relief, which it currently lacks. As the Consultation
recognises, in particular for small and medium enterprises (SMEs)
claimants, injunctions can be just as important a tool for private
enforcement as the possibility of damages.
The Consultation considers the possibility of a cheaper, quicker
and simpler fast-track procedure for SMEs. The Consultation
observes that the details would still largely need to be
determined, but it suggests that both the claimants' potential
damages and their liability for costs in case of failure would be
capped.
ADR and Potential OFT Role in Ordering Compensation
The Consultation considers whether ADR should be mandatory
before a claimant pursues private litigation, but rejects this. It
does, however, put forward some ideas on how the CAT could
encourage ADR; these include facilitating a formal collective
settlement (such a procedure already exists in Dutch law).
The Government also considers giving the OFT discretionary power to
oblige companies to compensate victims of their anti-competitive
conduct. This power would only be used if the OFT had already
concluded that the company had behaved illegally. The OFT would not
quantify individual losses, but might define the types of loss that
could be compensated and direct how compensation might be
calculated; the company would then have to apply the OFT's
guidance to individual cases. Rather than waiting for the OFT to
impose a compensation scheme, companies could voluntarily agree to
compensate and the Consultation suggests that in
certain–unspecified–situations voluntary
compensation might be a mitigating factor warranting a
"modest" (five to 10 percent) fine reduction.
Next Steps
The Consultation period is open to 24 July 2012. The Government will publish all responses online and, within three months of 24 July, publish its conclusions based on these responses. Many of the proposals, if they are ultimately retained, will need either primary or secondary legislation before becoming law.
Footnotes
1. The European Commission carried out a consultation on collective redress in 2011; see Towards a Coherent European Approach on Collective Redress available at ec.europa.eu/competition/consultations/2011_collective_redress/index_en.html. The Commission is apparently considering what follow-on proposals to make.
2. See also National Grid, in which the English High Court applied the principles of Pfleiderer to leniency documents submitted to the European Commission, Claim HC08C03243, National Grid Electricity Transmission plc v ABB Ltd and others, judgment of 4 April 2012.
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