Out-Law / Your Daily Need-To-Know

Out-Law News 7 min. read

Government plans for private right of redress against competition law breaches unveiled

Businesses will be able to ask a competition tribunal to rule whether actions by rivals are anti-competitive under plans drafted by the Government.

The Department for Business, Innovation and Skills (BIS) said businesses would no longer have to rely on competition authorities investigating alleged cases of anti-competitiveness before they could themselves take action and has proposed a "cost-effective" scheme that will enable those firms, as well as consumers, to seek redress.

BIS said that the difficulty and expense consumers and small businesses in particular face in bringing legal proceedings against firms they believe have acted anti-competitively has meant that it is "rare" for redress to be achieved through the existing court system. Although the Office of Fair Trading (OFT) - the UK's current competition regulator - is able to take action on behalf of consumers, it does not take action in cases "where it would be an inefficient use of public resource to bring the full force of an investigation to bear", BIS said.

BIS has therefore proposed that the role of Competition Appeal Tribunal (CAT) be "expanded" so as to be able to make it easier for small businesses in particular "to challenge anti-competitive behaviour that is harming them".

"This will include allowing cases to be brought even when they have not first been investigated by the OFT, allowing the CAT to grant injunctions and introducing a fast track procedure for SMEs that will allow simpler cases to be dealt with much more quickly and cheaply," BIS said in its consultation. (71-page / 569KB PDF)

BIS is considering making amendments to the Competition Act to enable civil hearings to take place through the CAT without "a prior administrative decision" being required to allow that action to go ahead, as is currently the case. Judges could also decide to switch cases from the High Court to the CAT if new regulations under the Enterprise Act are introduced.

Under the Enterprise Act the Lord Chancellor can draw up regulations that would enable the High Court to transfer cases for the CAT to rule upon. However, BIS said that it would be up to judges to decide "whether this would be an appropriate step to take" in each particular case brought to the High Court.

"The Government believes that expanding the role of the CAT would allow it to play a central role in competition private actions and would build on and strengthen its position as a centre of competition expertise," BIS said. "The Government considers that the CAT has capacity to take on extra work whilst still carrying out its function of hearing appeals quickly and effectively."

Plans to introduce a "rebuttable presumption of loss in cartel cases" are also being consulted on. BIS said that this would "likely" involve there being a presumption that a cartel has "affected prices by a fixed amount" based on "the amount that the current economic literature suggests prices can be raised by cartels". Companies accused of operating in a cartel would have to provide evidence otherwise to argue against this presumption.

"Such a presumption could reduce the disincentive for parties to start litigation against cartelists," BIS said. "The ability to estimate likely damages could help the benefits of litigation ... become clear and would reduce the need to assemble extensive economic evidence, a process that is likely to be costly and time-consuming, if it is possible at all."

"Such a presumption could be particularly helpful for purchasers at, or near the end of the distribution chain, such as consumers: these are often those most harmed by antitrust infringements, but given their distance from the infringement they find it particularly difficult to produce sufficient proof of the existence and extent of passing-on of the illegal overcharge along the distribution chain," it said.

Proposals to establish an "opt-out" system whereby consumers and businesses can obtain collective redress for breaches of competition law have also been unveiled.

Currently collective actions can be brought on behalf of consumers as a result of anti-competitive behaviour by firms by a listed "representative body" under the Competition Act, however there is no such ability for businesses to bring collective cases. The consumer collective redress, however, requires affected consumers to 'opt-in' to the action.

However, BIS said that there had been only one case involving consumer collective redress initiated in almost a decade – which fewer than 0.1% of affected consumers had opted-in to – driving the need for reform. BIS is consulting on whether the collective redress plans should be enabled for "stand-alone" cases or just to "follow-on" cases where infringement of competition law has been established.

Arguments in favour of restricting the system to follow-on cases is that it "would help to prevent spurious cases, or ‘fishing expeditions’ where a case is brought to try to pressure a company to settle," it said. However, BIS is of the view that such a restriction would "significantly limit the amount of redress and deterrence generated by the reforms".

BIS also favours a purely 'opt-out' system for the collective redress reforms which it said would have the advantage of allowing the most number of consumers affected by anti-competitive behaviour to claim their share of damages as well as presenting the best chance of obtaining redress in cases where the value of "damages per claimant is very low". Opt-out cases could only be brought in the CAT which would have the power to determine "whether or not this was the most suitable means of bringing the case".

Collective actions could be brought by businesses or individual consumers on behalf of others, BIS said. Organisations can represent the businesses or consumers in bringing claims, but only if they themselves have "suffered harm" or "could reasonably be considered to represent the wider interests of those who have suffered harm". This would safeguard against a "litigation culture" forming by preventing "lawyer-driven claims" from being initiated, BIS said.

"Breaches of competition law, such as price-fixing, often involve very large numbers of people each losing a small amount, meaning it is not cost-effective for any individual to bring a case to court," BIS said. "Allowing actions to be brought collectively would overcome this problem, allowing consumers and businesses to get back the money that is rightfully theirs – as well as acting as a further deterrent to anyone thinking of breaking the law."

BIS' plans also included ways to encourage the use of alternative dispute resolution (ADR) in order to reduce court involvement in competition cases. ADR should not be "mandatory" however, it said.

BIS also said it wanted to ensure that its proposed reforms provide incentives for companies to 'blow the whistle' on cartels. It said companies that come forward and disclose their involvement in the anti-competitive behaviour should only be liable for "damage they directly cause" in any future private legal action against them. The whistle-blowers should not be liable for damages of others involved, it said.

"The vulnerability of leniency recipients to private actions, particularly if leniency documents can be used in cases, has a knock-on effect in terms of joint and several liability," BIS said.

"Joint and several liability enables an individual or business who suffers loss as a result of an anti-competitive agreement to obtain full compensation from any party to that agreement. The party which has paid full compensation may then pursue the other parties to recover the appropriate contribution from each of them. However, in practice, this often means that a single party can be found liable for the entire loss suffered as a result of the agreement and has to face additional legal costs in recovering from other parties," it said.

"As it currently stands, challenging anti-competitive behaviour is costly and complex, well beyond the resources of many businesses, particularly SMEs," Norman Lamb, Minister for Consumer Affairs, said.

"Even though the total damage caused by the behaviour may be very large, the sums involved for each individual business or consumer harmed are often small, making the expense of going to court impractical. This means that even if the perpetrators of a price-fixing scandal are caught, consumers and businesses still lose out – something that is fundamentally unjust. We want this to change."

"While the public competition authorities are at the heart of the regime, they have finite resources and cannot do everything. A greater role for private actions would complement public enforcement, enhancing the benefits of the competition regime to our economy," Lamb said.

Respondents have until 24 July to submit their views on the BIS proposals.

The Government has already announced plans to establish a new Competition and Markets Authority (CMA) through the merger of the competition functions of the Office of Fair Trading (OFT) with those of the Competition Commission (CC) as part of wider reforms to the UK competition regime.

The CMA will have the power to "investigate practices across markets". The CMA will also be obliged to investigate any "public interest issues alongside competition issues" that the Business Secretary asks it to.

The CMA will bring a more coherent practice in relation to competition issues and streamlined decision making "through strong oversight of the end-to-end case management process", BIS said last month. The body will also be able to be more flexible in how it resources the way "competition problems of the day" are addressed, whilst "better incentives" will also be available to encourage "sector regulators" to use "antitrust and market tools" to address problems, it said.

Among the other changes the Government has announced is that it would make amendments to the Enterprise Act in order to change the rules around criminal cartel offences. Under the Act a person can spend up to five years in jail and/or face unlimited fines if he "dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented" certain "arrangements" in relation to "at least two undertakings".

The 'arrangements' can relate to price fixing, the limitation or prevention of supply or production, the carving up of supplies or customers between them or "bid-rigging". There are other rules that set when some of those arrangements constitute a criminal offence.

However, there have been only two criminal cartel offence convictions since 2003. The Government said establishing 'dishonesty' was too difficult and said it would change the legislation to omit that requirement.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.