UK: New Redress for Victims of Competition Law Breaches

The Enterprise Act 2002 introduces new possibilities for legal redress for parties who are harmed by infringements of competition law. This has been one of the Government’s stated aims in its overhaul of the UK competition regime. The Government’s objective to make it easier for third parties to bring damages claims against companies who have infringed European or UK competition law is intended to increase the role of third party litigation in competition enforcement.

There are three important changes brought about by the Enterprise Act. They are due to come into force on 20 June 2003.

• A new procedure allowing for damages claims (or claims for other monetary awards) to be brought directly before the specialist Competition Appeal Tribunal (the "Tribunal") by harmed parties.
• A new procedure allowing for representative claims to be brought before the Tribunal on behalf of groups of consumers.
• It will also become easier to bring monetary claims in the UK courts as the Enterprise Act makes infringement decisions by the Office of Fair Trading (OFT) and the Tribunal binding on the courts.

In addition, the Enterprise Act provides for the possibility of transferring cases to and from the Tribunal. Each of these new provisions is explored in more detail below.

Broadly speaking, the result of these changes is that, where companies or consumers are harmed as a result of other companies’ competition law infringements, their chance of obtaining redress is improved. On the other hand, for companies that have infringed competition law, the potential cost of such infringements is likely to increase because, in addition to the prospect of substantial fines, there will also be a greater likelihood of damages awards against them.

Under the current system the Tribunal cannot hear damages claims brought by third parties. This means that such claims have to be brought in the ordinary courts where there has so far not been a single successful damages award for breaches of European competition law or the UK Competition Act (although some cases have led to settlements). This is partly due to the fact that demonstrating liability, causation and quantum of loss can be difficult when bringing an action for damages in respect of competition law infringements in the UK courts.

Bringing a damages claim is expected to become easier through the new monetary claims regime introduced by the Enterprise Act and due to come into force on 20 June. A new section 47A of the Competition Act 1998 introduced by the Enterprise Act will allow such claims to be brought directly before the Tribunal. A claim in the Tribunal should benefit from specialist competition expertise, simplified procedures and a greater flexibility in handling evidence. Also, it is possible that there will be a desire on the part of the Tribunal to encourage such claims. Claimants will be able to bring claims for damages before the Tribunal in relation to both breaches of UK competition law and European competition law.

Further, it remains an option for potential claimants to bring proceedings in the ordinary courts. A claimant will thus have an option of either commencing a claim for damages in the courts or in the Tribunal.

In determining a monetary claim, the Tribunal is bound by any OFT or European Commission decision that established an infringement¹ . However, a claim cannot be brought in the Tribunal until there has been such a decision, any appeal has been decided and the time period for bringing further appeals has elapsed or until the further appeals have also been decided. (However, it remains open to claimants to bring proceedings in the ordinary courts prior to such points in time.) The infringement itself will therefore not need to be established before the Tribunal. Instead the Tribunal can focus on whether infringements caused a loss to the claimant and, if so, the amount of any loss.

The new monetary claims regime will have limited retrospective effect, currently envisaged to extend to the last six years (in England and Wales) prior to the date on which section 47A comes into force. The draft Tribunal rules provide that any monetary claim which is not yet time-barred by the time of the commencement of this part of the Enterprise Act (intended to be 20 June 2003) can be brought in the Tribunal in accordance with the new section 47A of the Competition Act. On the basis that the section comes into force as intended on 20 June 2003, the retrospective effect of the new section 47A will be limited (in England and Wales) to the six years prior to that date, i.e. the time period commencing with 20 June 1997.

There are six requirements for a claim to come within section 47A of the Competition Act:

• The claim is for damages or for a sum of money.
• The claim could be brought in civil proceedings in any part of the UK.
• The loss or damage results from an infringement of a relevant prohibition. Relevant prohibitions include the Chapter I and Chapter II prohibitions and the prohibitions in Article 81(1) and Article 82 of the EC Treaty.
• A relevant decision has established such an infringement. Relevant decisions include Chapter I or Chapter II infringement decisions by the OFT, decisions by the OFT that Article 81 or 82 has been infringed, decisions from the Tribunal that the Chapter I or Chapter II prohibition or Article 81 or 82 has been infringed and decisions of the European Commission that Article 81 or 82 has been infringed.
• The period for appealing the relevant decision has elapsed or, where the decision is already subject to an appeal, that the appeal has been determined and is no longer subject to further appeal. The Tribunal may give written permission to bring the claim regardless of the state of appeals from the relevant decision.
• The time limit for making a claim for damages set out in the Tribunal rules has not expired. The draft Tribunal rules provide for a limitation period of two years commencing with later of either (a) the date on which the cause of action accrued (usually when the loss was suffered) or (b) when the period for appealing the relevant decision has elapsed (or, where the decision is already subject to an appeal, when the appeal is decided and no longer subject to further appeal).²

The Tribunal will apply the same principles as would be applied by a court in awarding damages: damages can be claimed for losses caused by the infringement. Thus, the new UK regime has not gone down the route of US style punitive treble damages ³ . Nonetheless, in practice UK damages awards may well be substantial. This is because the UK system allows for interest on damages awards pre-judgment whereas the US system does not. As it can be expected that long periods of time will elapse between the relevant infringement and a Tribunal judgment, the interest on damages is likely to prove a significant part of any award.⁴

Enforcement of Tribunal decisions will be carried out by registering them with the High Court. There is also a new right of appeal from such Tribunal decisions to the Court of Appeal (or the Court of Session from Tribunal proceedings in Scotland) against the award of damages (or other sum) or against the amount of such damages (or other sum).

The Enterprise Act further introduces provisions allowing representative claims for damages to be brought on behalf of consumers. Such claims for damages may be brought by specified bodies on behalf of a group of named individual consumers under the new section 47B of the Competition Act 1998 introduced by the Enterprise Act.

The new procedure may also be utilised in respect of indirect purchasers. An example of a situation where such a claim could be brought would be where a number of consumers bought, for their own use, goods whose price has been inflated by a price-fixing agreement either among the suppliers themselves, or the manufacturers, or possibly among the manufacturers’ own suppliers. Absent the new provision, such purchasers would not be likely to bring a claim since their individual loss is likely to be small.

The Government has stated that the purpose of allowing these consumer claims is to provide an economical and effective mechanism for enabling consumers to obtain redress in such cases and to further deter companies from infringing the law. The new procedure therefore facilitates so-called class actions.

Who can be a specified body?

In order to be designated as a ‘specified body’ to bring claims on behalf of consumers, an organisation has to meet criteria published by the Secretary of State and apply to her to be so designated in a Statutory Instrument.

The criteria to be specified to bring claims on behalf of consumers are as follows:

• The body is so constituted, managed and controlled as to be expected to act independently, impartially and with complete integrity.
• The body is able to demonstrate that it represents and/or protects the interests of consumers. This may be the interests of consumers generally or specific groups of consumers.
• The body has the capability to take forward a claim on behalf of consumers.
• The fact that a body has a trading arm will not disqualify it from being able to bring consumer group claims, provided that the trading arm does not control the body, and any profits of the trading arm are only used to further the stated objectives of the body.

The Secretary of State has provided guidance on the sort of evidence that should be submitted by applicants in relation to each of these criteria. Applications will be published on the DTI website for a period of 12 weeks to facilitate a transparent application process.

The requirements for a claim to come within section 47B of the Competition Act are that:

• The claim is brought by a specified body.
• The claim is brought on behalf of two or more consumers. Consumers are individuals who received goods or services, or sought to receive them, otherwise than in the course of a business, notwithstanding that this was with a view to carrying on a business.
• The goods or services were supplied, or would have been supplied, to the consumers in the course of a business carried on by the person who supplied or would have supplied them. A business includes a professional practice, any other undertaking carried on for gain or reward and any undertaking in the course of which goods or services are supplied otherwise than free of charge.
• The individual consumers consent to the specified body pursuing their claims.
• The individual consumers’ claims are based on the same infringement of a relevant prohibition.
• The requirements for bringing a claim under section 47A as set out above are fulfilled.

Provided these conditions are met, it is also possible for existing claims by individual consumers to be taken over by a specified body and dealt with together.

The Tribunal’s function in relation to these consumer claims will be to determine entitlement, and assess and award damages, to the consumers. Any damages will either be ordered to be paid directly to the represented consumers for them to enforce, or alternatively, if both the specified body and the represented individuals consent, the Tribunal will order the sum awarded to be paid to the specified body who will then enforce the award on behalf of the individual consumers.

Assessing and awarding damages will clearly be complex. This will especially be the case in the context of claims brought by indirect purchasers where proving causation and damage through the chain of distribution can be expected to be difficult. There is some suggestion that the Tribunal could look at the Defendant’s gain for the purpose of assessing damages. However, such an assessment would not necessarily give an accurate reflection of the claimants’ loss. For example, in the case of indirect purchasers it will not be clear how much of the Defendant’s extra gain was actually passed on to the indirect purchaser through the chain of distribution.

The procedures for enforcing and appealing these Tribunal decisions are the same as in relation to individual monetary claims as set out above.

The Enterprise Act also makes previous findings of infringements by the OFT and the Tribunal binding in the courts for the purposes of subsequent claims for damages. Whereas currently the OFT’s findings of fact are prima facie binding on the parties under section 58 of the Competition Act, a new section 58A will in addition make findings of infringements binding on the courts. The relevant infringements are breaches of the prohibitions in Chapter I and Chapter II of the Competition Act and breaches of the prohibitions in Article 81 and Article 82 of the EC Treaty.

This new provision will therefore make it easier for claimants to bring damages claims in the UK courts against companies who have infringed European or UK competition law. However, unlike the new section 47A, the new section 58A has no retrospective effect and thus only applies in respect of infringement decisions made after 20 June 2003. This means that, where claimants wish to rely on a decision taken by the OFT or the Tribunal prior to that date, they need to bring their monetary claim directly before the Tribunal as those rules apply retrospectively (albeit only to a limited extent, as outlined above).

The Enterprise Act also provides for the transfer of claims to and from the Tribunal. Transfers from the Tribunal to the English or Scottish courts can be undertaken at any stage of the proceedings on the request of a party or of the Tribunal’s own initiative. Similarly, claims which could have been made under section 47A of the Competition Act can be transferred to the Tribunal from any court in accordance with the rules of court or any practice direction. It can only be speculated at the moment how, and to what extent, use will be made of such transfers. A potential example would be where a question of competition law forms part of a wider commercial dispute. In such a situation, a party to the dispute could request a transfer of the discrete competition law issue to the Tribunal if it considers the Tribunal best placed to evaluate, for example, complex economic data in question.

1. Section 58 of the Competition Act as it currently stands provides for the OFT’s findings of fact to be prima facie binding on the parties to court proceedings. The Enterprise Act extends this provision in a new section 58A making findings of infringements binding on the courts for the purposes of monetary claims. This is discussed in more detail below.
2. It can be expected that in most cases the cause of action will have accrued before the date on which the relevant decision is no longer subject to appeal. In most claims, therefore, the relevant starting point for the purpose of the limitation period is likely to be when a relevant decision is no longer subject to appeal. However, there may be situations where the course of action arises at a later stage, for example, where the claimant is an indirect purchaser and the loss occurs after the infringement decision. In such situations, the limitation period will then run from this later date.
3. Although it is at least arguable that even under English law at present courts could award exemplary damages for blatant competition law infringements, where compensation would be an inadequate remedy to punish outrageous conduct.
4. The Competition Commission Appeal Tribunal addressed the question of interest generally in its Napp Pharmaceuticals decision of 6 February 2002. It ordered interest to be paid at Bank base rate plus 1 per cent. Whilst this decision concerned the rate of interest to be applied to a penalty, which the Tribunal stated was designed to prevent the undertaking subject to a penalty from obtaining any benefit from the delay inherent in the appeal process, the same principle could also be said to apply to an undertaking that benefited from its anti-competitive behaviour.
5. The Competition Commission Appeal Tribunal stated in its decision of 15 January 2002 in Napp Pharmaceuticals: " We sympathise with the Director’s intentions in increasing the penalty, at Step 3 of his calculation, by an amount representing Napp’s ‘gain’ during the period of the infringement, in accordance with the Director’s Guidance (see paragraph 260 of the Decision). However, in our view that approach presents certain difficulties. […] This method of calculation, so it seems to us, is more suited to the process for assessing damages in civil litigation, rather than the fixing of a deterrent penalty."

© Herbert Smith 2003

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