UK: Brexit And Competition Law

Last Updated: 6 July 2016
Article by John Handoll

"Brexit" – the departure of the UK from the European Union – has been approved by a majority of voters in the recent referendum. Just when the process will start remains unclear. The date when the UK will formally notify the European Council of its intention to withdraw (Article 50 of the Treaty on European Union) is not yet decided, and after that it is likely to take two years or more before withdrawal actually happens. There even seems to be a slender chance that Brexit will not happen.

A lot is to be played out and played for. More than forty years of membership – the span of most people's working life – has created a cast of mind and complex legal structures which it will not be easy to displace and replace. The future character of the UK and its relationship with the EU and its other partners is a work in progress, and we are at the very beginning of an uncertain process. Various models of future engagement with the EU and the rest of the world are being mooted. The prognosis for current policies is unclear. This is as true for competition law and policy as it is for many other policies.

Competition law and policy was not, of course, at the forefront of the minds of those who voted in the referendum. It is, however, clear that a strong competition policy has been at the heart of economic policy in the European Union and the UK alike. If competition policy was considered at all, it was in the rigorous application of the State aid and public procurement rules by the European Commission and the European courts, which have rejected protectionist pressures in the Member States in favour of the Single Market imperative.

The status quo will formally continue for the next two years or longer, though isolationist sentiment may result in some disregarding of the EU State aid and public procurement regimes. As far as mainstream competition law and policy is concerned, a dual competition regime will continue to apply. In addition to the EU regime which applies where there is an Union dimension (or an effect on trade between Member States), the UK's own regime will apply to "domestic" cases. The EU regime applying to restrictive agreements and abuses of dominant positions will thus continue in the meantime to apply to the UK, and the UK Competition and Markets Authority will continue to exercise its role as a "National Competition Authority" responsible for the decentralised application of EU competition law. The UK courts (including the specialist Competition Appeal Tribunal) will continue to hear cases – it should be remembered that Treaty provisions on competition law are directly effective, giving rights that national courts are bound to protect. The UK courts will continue to be able to hear follow-on actions for damages claims, though it is unclear how the UK will progress in the implementation of the 2014 Damages Directive, which is due to be implemented by the end of December 2015. In relation to merger control, the European Commission will continue to apply the "one-stop shop" Merger Control Regulation to large concentrations with a Community dimension. The UK will remain part of the European Competition Network of Member State competition authorities and the European Commission.

At the same time, UK competition law will continue to operate in tandem with the EU regime. The Competition Act 1988 contains provisions prohibiting restrictive agreements (including criminal law provisions applying to cartels) and abuses of dominant position. The Enterprise Act 2002 provides the basis for the review of mergers and acquisitions which are not covered by the EU regime.

So what will change when "Brexit" comes about?

In any case, UK competition law as it stands can continue to apply. It seems unlikely that its broad lines will change over the foreseeable future. It could, however, be freer to evolve along its own path if it no longer operates in tandem with EU law and policy. It will have the freedom to adapt its competition law to changing circumstances and needs (in the same way as, for example, has recently been happening in Australia). Over the long term, compliance and other costs could increase for players subject to both jurisdictions.

However, that begs the question whether the break with EU competition law will be all that final and acrimonious. One option for the UK is to adopt the "Norway" model, joining the EEA and a competition law regime running parallel to and together with that of the EU. If so, the institutional framework will change, but the substance will not. The EEA rules on restrictive agreements, abuses of dominant position and State aids are essentially the same as the EU rules; which regime will apply will depend on where the effects on trade occur. The one-stop EU merger regime will continue to apply. However, the UK would have no real say in the future design of the rules. This is really a matter for the EU and the UK will no longer be in the driving seat.

The position will differ if the UK decides on a more complete rupture (which may be the case if the remaining EU Member State insist on a take it all or leave it approach). If so, the benefits of "one-stop shops" and "hand-in-glove" dual enforcement systems may disappear.

In the case of restrictive agreements and abuses of dominant position, UK companies could find themselves subject to parallel EU and UK enforcement procedures and penalties. As well as facing two separate procedures, infringers could face two separate penalties (as the principle of "double jeopardy" may not apply). There would no longer be a requirement on the UK authorities to ensure that there is no inconsistency between the application of UK and EU competition law, so the two systems could diverge in terms of substance, methods of enforcement and procedures. The UK would become another primary participant in the global fight against cartels. It could cooperate with other jurisdictions in the same way as, for example, the US and the EU cooperate. The UK would also cease to be bound by the Damages Directive, so that damages actions would in future be for breaches of UK competition law. It is not clear whether and how the UK courts would be able to entertain damages claims for breaches before "Brexit".

In the case of mergers, the EU regime would continue to apply to concentrations with a Community dimension, and this may continue to cover cases where a party has operations/sales in the UK. In addition, the UK merger rules may apply, and, although this is a voluntary notification regime, the costs of clearance could increase for parties if the UK authorities take an interest in a merger that has a Community dimension with effects in the UK. There is also the increased risk of a negative decision where there are more authorities to review a merger.

In the case of State aid, the EU rules would cease to apply, and, subject to international rules relating to State subsidies, the UK could decide to provide funding to protect "national champions" or to attract foreign investment (which would have previously been prohibited or subject to approval by the European Commission). This, or course, cuts both ways; UK industry would lose the opportunity to challenge State aid granted by remaining EU Member States. A similar conclusion would apply to the EU rules on public procurement.

As will be clear from the above, the status quo would be best preserved by the UK adopting the EEA model. Yet it may be argued that this will defeat the clear wishes of the UK voters who opted for "leave" as well of other EU Member States who would prefer a complete rupture to a "half-in, half-out" status. In 40 years or so, these questions may be of historical interest. In the next year or so, resolution of these issues will be pivotal to the development and operation of UK, and EU, competition policy.

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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