06 June 2016
CMA guide to the paths for legal action over breaches of competition law
In May 2016, the Competition and Markets Authority (CMA) published a guide to taking action for breaches of competition law entitled ‘Competition law redress’. The idea behind the guide is to highlight the effective systems of redress, including court actions, open to aggrieved parties that have suffered loss and damage due to a competition law breach.
The CMA states in its guide that private enforcement actions complement and reinforce public enforcement, as well as enabling those who suffer harm from unlawful behaviour to obtain redress − be it compensation or injunctive or declaratory relief.
The guide is more than a useful overview for individuals and business. With this document, the CMA is highlighting the importance it attaches to the deterrent effect of private actions.
The timing is also significant. It signifies that the CMA regards the private litigants’ enhanced rights and legislative toolkit to seek redress now fully complete.
The publication comes shortly after the enhanced competition litigation powers and procedures under the Consumer Rights Act 2015 came into force − and with the implementation of the European Damages Directive on the horizon (subject of course to the result of the EU Referendum on 23 June).
There are several ways individuals and businesses can seek compensation or redress for breach of UK or EU competition law. A claimant can start either a standalone or follow-on action before the High Court or in the specialist competition law tribunal, the Competition Appeal Tribunal.
A standalone action is a claim brought where the claimant seeks to prove that competition law has been broken, without relying on an infringement decision made by the EU Commission, the CMA or another competition authority.
Where the CMA, a sector regulator or the European Commission has made a final decision that competition law has been infringed, claimants can rely on that decision before the courts and the CAT. A claimant can therefore use the decision as proof that competition law has been broken and may rely on any of the findings of fact within it. This is invaluable as in most cases it means a claimant only has to prove they suffered loss from the infringement.
There is a special fast track procedure available for competition claims before the CAT. This is open to individuals and companies and is generally aimed at small or medium-sized businesses (but not exclusively so). The idea behind this procedure is to widen the access to justice for SMEs that need a fast and effective remedy, but risk being deprived due to the cost of ordinary competition law litigation.
This procedure allows less complex claims to be brought and decided quickly with limited risks as to costs. In fast track cases, the main substantive hearing of the case will normally take place within six months, or sooner if practicable. The legal costs that a successful party can recover are capped, reassuring claimants that should they not succeed they would not have to pay the very substantial costs of a well-resourced defendant.
The CAT will determine whether a claim is suitable for the fast track procedure. It will take into account whether one or more of the parties are SMEs, the complexity and novelty of the case, its value and number of witnesses required, as well as extent of disclosure needed.
Following Schedule 8 of the Consumer Rights Act 2015 coming into force, both follow-on and standalone actions may be brought before the CAT by a representative person or body on behalf of a defined group of other individuals or businesses in collective proceedings. Each claim must raise the same, similar or related issues of fact and law and be suitable to be brought together as a collective action.
The representative must apply to the CAT for a collective proceedings order (CPO). The claim will only proceed if the CAT considers that it is just and reasonable to grant a CPO. This will also consider the suitability of the representative. It will also include whether the claim should be brought on an opt-in or opt-out basis and the class of persons whose claims are eligible for inclusion.
These are where the claim is brought on behalf of each class member, who notifies the representative that they want to be included in the action. Those persons not opting in within the prescribed time allowed will not be able to benefit from any award resulting from the action.
These are automatically brought on behalf of all class members, without needing to notify the representative that they wish to be included. Instead, any class member wishing not to be included in the claim needs to notify the representative to that effect.
However, non-UK class members will need to opt-in to collective proceedings, irrespective of whether they are started on an opt-in or opt-out basis.
Simply being within the class eligible for any award does not make a person liable for costs, regardless of the outcome of the case. Costs may be borne by the class representative, who the CAT may order to pay some or all of their own or a defendant’s costs.
If the CAT awards damages in respect of collective proceedings, it will make an order specifying how the money is to be paid to the class members. In opt-out proceedings, if damages are not claimed by class members by a certain time they will be paid to the Access to Justice Foundation, unless the CAT orders them to be paid to cover the representative’s costs.
It is uncertain how the position of litigation funders will be recognised in these latest reforms. The legislation’s success is likely to turn on how ready the CAT is to use its discretion to award costs out of the fund to a successful representative (and their supporting funder) to recognise the contribution that funders make to the access to justice. Without their contribution, many cases would not be brought.
In advance of a judgment by the CAT, it is always open to the parties to reach an agreement in principle on the details of a proposed settlement. However, they will need the CAT to approve it, to ensure that the terms are just and reasonable.
It is possible to settle a claim brought as a collective proceedings before a collective proceedings order is made. In such a case the CAT will first have to decide whether to grant a collective settlement order based on the same criteria as a CPO. It will then assess whether the terms of settlement are just and reasonable.
Collective settlements are intended to make it easier for individuals who have suffered loss and damage as a result of competition law breach to receive compensation, without having to resort to a full hearing of the case – something which is invariably complex and the result uncertain.
A business which has been held by a competition regulator to have breached competition law may apply to the CMA or relevant sectoral regulator for approval for a redress scheme. Such a scheme has to be devised in accordance with the statutory process.
It must contain certain information and terms as to how the offending business is going to adequately compensate those individuals and businesses that have suffered loss by reason of the former’s unlawful behaviour. The scheme has to be drawn up by an independent chairperson and a board of experts appointed for that purpose, and put to the CMA for approval.
The introduction of an approved statutory redress scheme will not remove the possibility of independent litigation by third parties which decide not to take advantage of the settlement terms − although the court may have regard to these terms when assessing compensation in any
However, for claimants, what is agreed under the statutory scheme is likely to be a starting figure in any subsequent litigation. It is also not clear how attractive offending companies will find such a scheme, given the likely double jeopardy of separate litigation.
To date we have seen the first collective action before the CAT, following the CMA decision on mobility scooters. The fast track competition action procedure before the CAT has also been used on several occasions since it came into force in October last year, although no case has so far been taken to judgment. The reforms are therefore exciting interest.
However, the crucial test for the success of the collective proceedings procedure will be the recognition of the position of litigation funders in underwriting litigation. Without this, collective proceedings are likely to be more a theoretical device rather than a practical remedy.