UK: UK Government Publishes Response To Consultation On Options For Reform Of Competition Law Private Actions

On 29 January 2013, the UK Department for Business, Innovation and Skills ("BIS") published the Government's response to its earlier consultation on options for reform of private actions in competition law.

The reform, which represents a far-reaching overhaul of the way parties claim damages for competition breaches in the UK, is part of the Government's wider plans to reform the general UK competition regime, and is intended to address certain of the shortcomings identified by the Office of Fair Trading ("OFT", or in due course, the "Competition and Markets Authority", or "CMA") specifically related to private enforcement. According to the OFT, UK consumers benefited from the competition regime by £810 million in 2011-2012. However, OFT research also highlights that many smaller businesses and consumers simply do not bother to seek redress for competition infringements due to high legal costs and complexity, as well as a genuine lack of incentive to act on their own in court for often small amounts. These findings prompted the Government to launch a stakeholder consultation in April 2012 on how to improve the system in relation to private enforcement. The results of this consultation are now publicly available and spell out the Government's intention to implement reforms in four main areas.

First, the role of the Competition Appeal Tribunal ("CAT") is to be enhanced into the main jurisdiction for private action competition cases in the UK. Under the Government's plans, the CAT's competences would be expanded to hear stand-alone actions on top of follow-on actions. The new system would also enable courts to transfer both types of claims to the CAT and vice versa. In addition, the CAT would be granted the power to issue injunctions, and a fast-track procedure for simpler competition claims in the CAT would be introduced to help primarily, but not exclusively, SMEs challenge anti-competitive behaviour affecting them. However, in light of the concerns expressed by stakeholders during the consultation process, the Government decided against its initial plans for introducing a rebuttable presumption of loss for cartel cases, and addressing the passing-on defence in legislation.

Second, with regards to collective actions, the Government intends to introduce a new limited opt-out collective actions regime for competition law to benefit consumers and businesses, subject nonetheless to certain safeguards. This would cover both follow-on and stand-alone actions. In order to ensure that only meritorious claims can proceed, the CAT will be required to certify whether a collective action should be allowed to be brought under an opt-in or opt-out basis. For this purpose, the CAT's assessment should involve a preliminary test on the merits, an assessment of the adequacy of the representative and a requirement that a collective action must be the best way of bringing the case. Importantly too, only claimants or "genuine representatives" of the claimants, such as trade or consumer associations, but not law firms, third party funders or special purpose vehicles, will be able to bring claims. Other safeguards include maintaining the "loser-pays" rule, the absence of treble damages, and a prohibition on contingency fees for lawyers in opt-out collective action cases so as to avoid a US-style "litigation culture".

Third, the Government would like to encourage strongly the use of Alternative Dispute Resolution ("ADR") in competition law private actions, wherever possible. ADR would not, however, be made mandatory. Businesses subject to private competition claims should also have the option to settle quickly and easily on a voluntary basis through the Government's new opt-out collective settlement regime, inspired on the Dutch Mass Settlement Act (2005). In addition, the Government is to grant the OFT a limited discretionary role in certifying voluntary redress schemes, but again not impose one. Parties offering redress schemes could potentially qualify for fine reductions.

Fourth and finally, the Government aims to ensure that private actions truly complement the public enforcement regime. In particular, much emphasis in the Government response is put on the protection of leniency applicants and the documents they provide which may or may not be the subject of disclosure in private actions. As the European Commission is expected to submit proposals on this issue within the next few months, the Government has decided for now not to take any domestic action in this area. 

The majority of the Government's proposed reforms will now have to be implemented through primary legislation in accordance with the usual parliamentary procedure. Although no timeline for this has been stated yet, it is believed that draft primary legislation could be introduced during the next parliamentary session (i.e., May 2013-April 2014).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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