New opt-out regime set to increase competition litigation
14 March 2013
Practice Area: EU and Competition
The UK Government has recently announced proposals which will reform private actions in competition law. The proposals include the introduction of an opt-out collective action regime, similar to the U.S class actions system. The measures aim to make it easier for consumers and businesses to pursue damages claims for infringements of competition law.
The main proposals include:
introducing a new opt-out collective action regime before the specialist Competition Appeal Tribunal (CAT) to enable representative actions to be brought before the CAT on behalf of all members of class;
promoting alternative dispute resolution (ADR), including a new collective settlement regime, to ensure that court actions are the option of last resort;
extending the role of the CAT by allowing it to hear stand-alone damages actions, as well as follow-on actions; and
creating a new fast-track procedure for simpler competition claims before the CAT.
Opt-out Collective Actions
Under the proposals, opt-out collective actions can be brought in the CAT by consumers, businesses and genuine representative bodies (e.g. trade or consumer associations). Law firms, third party funders, and special purpose claims vehicles will not be permitted to bring collective actions.
The new regime will apply to both follow-on (i.e. those “following-on” from an infringement finding by a competition authority) and stand-alone cases (i.e. those where a breach of competition law has to be established). With each case, the CAT will have to certify whether a collective action should proceed on an opt-in basis (where members of a group have to confirm whether they want to join the action or not) or an opt-out basis (where all members of the group will be bound by the result unless they actively opt-out).
A range of safeguards will be introduced to protect against abusive litigation, including:
judicial certification to assess the preliminary merits of each case, the adequacy of the representative and whether collective action is the best way to bring the case;
prohibition on treble or exemplary damages;
prohibition on contingency fees;
application of the “loser pays” principle for costs and expenses.
The proposed out-out regime would be among the first in the EU and signals a change to the current, significantly more limited, opt-in group litigations and forms of representative follow-on actions allowed in the UK. The new regime will allow representative claims to be brought by a wider range of claimants, whether or not a competition authority has already made a finding of infringement.
Promotion of Alternative Dispute Resolution
The proposals would allow businesses accused of anti-competitive conduct and representatives of potential claimants to apply jointly to the CAT for approval of a settlement arrangement. The CAT would approve the settlement to ensure that it is fair, just and reasonable, i.e. that it gives adequate compensation to those who have suffered loss while taking into account the degree of alleged loss and the likelihood of a collective actions claim succeeding. These collective settlements would bind all members of a class unless they opt-out.
The procedure is proposed to be voluntary but businesses may be under pressure to agree such settlements to avoid large scale and expensive collective actions.
The Government also proposes to give the new Competition and Markets Authority (CMA) a limited role in certifying (but not imposing) redress schemes which businesses, who have been found to have breached competition law by the OFT or the European Commission, have put in place voluntarily.
Enhanced role for the CAT
The proposals will see the jurisdiction of the CAT extended by allowing it to hear stand alone claims as well as follow-on claims. They will also give the CAT the power to grant injunctions and enable courts to transfer competition law cases to the CAT and vice versa. It is also proposed to align the limitation periods of the CAT with those of the High Court of England and Wales and the High Court of Northern Ireland (i.e. six years). It is hoped that this will improve legal efficiency and prevent unnecessary twin track litigation.
Fast Track Procedure
The proposed new fast-track procedure is intended to primarily benefit small and medium sized businesses (SMEs). Indeed, there will be a presumption that all cases brought by an SME will be treated as a fast track case, with the CAT making the final decision. However, cases by larger companies can also be fast-tracked with the agreement of the CAT Chair and with the mutual consent of the parties.
The fast track procedure will focus on injunctions as an end to anti-competitive behaviour. In addition, all cases will be cost-capped. The CAT will also have the power to limit the amount of evidence and expert witnesses produced by each side.
One cause for concern with this new procedure is that costs caps, including caps on cross-undertakings in damages, may be too restrictive. The caps may enable claimants on the fast-track to submit claims and seek injunctions with very little exposure to cost. However, these concerns may be outweighed by the potential of having claims resolved more efficiently and the fact that the CAT will have flexibility in deciding what cases should be fast-tracked and what limits should be placed on each case.
The proposals are intended to encourage more competition litigation and could lead to the CAT becoming a favourite venue for claimants in Europe.This is to be welcomed as the competition law expertise of the CAT and its flexible procedures mean that it is well suited to handling complex competition litigation.
Many of the proposals will require changes in primary legislation and are not expected to come into force before the end of 2014. Some changes may be enacted sooner if this can be achieved through changes in procedural rules.
It remains to be seen whether the proposals will increase redress for competition law breaches and thus ultimately create a more competitive environment for businesses or whether UK businesses will be stifled by unmeritorious claims. Either way, the proposals, if implemented, will increase the risk of private damages claims for businesses operating in the UK and create new opportunities for potential claimants to bring claims. The proposals thus highlight the need for all companies to have effective competition law compliance programmes in place.