European Union: UK Competition Law Enforcement, Merger Control And Brexit

Last Updated: 20 February 2019
Article by Cormac O'Daly

The UK is scheduled to leave the EU in less than two months. It is unclear whether this will happen under the terms of a deal negotiated with the EU (a "deal-based" Brexit) or without a deal ("no-deal" Brexit).

Under a deal-based Brexit, the UK's Competition and Markets Authority (CMA) and the European Commission (Commission) will both continue to enforce competition law in the UK until the end of 2020. However, if there is a no-deal Brexit, the Commission would no longer have jurisdiction over the UK effects of transactions or conduct. The CMA would be able to investigate the UK effects of cases that the Commission is already investigating (for example, a merger that is being investigated by the EC). This may lead to results that are similar to those of the Commission's investigation, but it may not. In a worst-case scenario, the CMA might even take a different view of a deal that the Commission is in the midst of reviewing on 29 March 2019, the scheduled Brexit day. Companies with deals that are likely to be under review on this date should therefore plan parallel contacts with the CMA and the Commission.

Current situation

Generally: Up to 29 March 2019, and after this date if the UK's departure from the EU is postponed, both the Commission and the CMA enforce competition law in the UK. When conduct affects only the UK, the CMA enforces competition law; when conduct affects the UK and another EU Member State, both the Commission and the CMA have jurisdiction, and in principle, the authority that is better placed enforces the law, which means that often the Commission handles the case.

Mergers: If parties to a merger or acquisition have sales exceeding certain thresholds, the Commission, rather than the CMA, has jurisdiction over the transaction. The Commission notification is a "one-stop shop," covering all potential notifications that could be made to the 28 EU Member State competition authorities, including the CMA. The Commission analyzes the transaction's effects throughout the European Economic Area, including in the UK.

Deal-based Brexit

Under the EU-UK draft agreement on the withdrawal of the UK from the EU,1 after Brexit, EU competition law would temporarily continue to apply in the UK as if the UK were still in the EU. EU competition law would apply until the end of a transition period, which is currently proposed to last until 31 December 2020. Between 30 March 2019 and the end of 2020, the UK and EU plan to negotiate the terms of their future trade relationship. The draft agreement provides that if the Commission is investigating a case or transaction at the end of the transition period, it would continue to investigate it, and the CMA would not acquire any new jurisdiction over UK effects.

No-Deal Brexit

Both the UK government and the CMA have published documents addressing how competition law would be enforced absent an EU-UK Brexit agreement.2 Most recently, the CMA issued draft guidance on a no-deal Brexit (Draft CMA Guidance).3 The government has also enacted legislation to revoke EU competition law in the UK on 29 March 2019 in case of a no-deal Brexit.4

Since both the EU and the UK prioritize investigating and sanctioning anticompetitive behavior, there are likely to be few, if any, immediate substantive changes to UK competition law, even under a no-deal Brexit. However, the way conduct is investigated, and how the law is enforced, will change significantly, and there may be more substantive changes in the future.

Comply with UK and EU law: Businesses operating solely in the UK will continue to have to comply with UK competition law. Companies with activities, including sales, in both the UK and EU, and companies whose conduct affects both the UK and any part of the EU, will continue to have to comply with both UK and EU law. The big difference, however, would be that when a UK company's conduct affects both the UK and the EU, the company could be faced with parallel investigations; the CMA could investigate effects in the UK while the Commission investigates effects in the EU. Companies seeking to benefit from amnesty or leniency programs for cartels would have to apply to both the CMA and the Commission if their conduct affects the UK and the EU.

Mergers: Companies that acquire or merge with other companies will have to consider notifying both the CMA and the Commission of their transactions. After Brexit, the Commission's one-stop shop will cover only the remaining 27 EU Member States and the Commission will have no power to examine a transaction's effects in the UK; instead, the CMA will be responsible for analyzing these effects. Parallel notifications to the CMA and the Commission will not always be needed because, under the UK system, notification to the CMA is voluntary—unless the CMA expressly requires it in a particular case, parties need not obtain the CMA's approval before closing a transaction. However, in practice, if a transaction risks affecting competition in the UK, parties will be well advised to notify both the Commission and the CMA of the transaction and await CMA and Commission approval before closing—otherwise the CMA could step in and halt the closing of the transaction or begin an investigation after the transaction has already closed.

Damages actions: In the future, it may become harder for customers to obtain compensation for having paid higher prices due to their supplier being part of an illegal cartel.

First, as well as proving losses, claimants may have to prove that their supplier infringed the law. Currently, customers can bring actions seeking compensation in UK courts and take advantage of the binding effect of Commission decisions on EU national courts, including UK courts. Because of this binding effect, customers normally need not prove that the defendants participated in a cartel since the Commission will have already established this. While Commission decisions adopted before 29 March 2019 will continue to have the same legally binding status in the UK as they currently have, the same will not be true of decisions adopted after Brexit. However, if the CMA also investigates conduct in parallel to the EC, customers would be able to base their UK claims on CMA decisions, which will continue to bind UK courts. But if there is no CMA decision, customers will need to prove illegal conduct.

Second, at present, claimants can sue in the UK for damages suffered throughout the EU against all relevant defendants.5 After Brexit, a claimant may arguably have to sue in the UK for UK damages and elsewhere in the EU for damages suffered in the 27 EU countries.

Future cooperation: It is likely that, in time, even after a no-deal Brexit, there will be an agreement providing for cooperation between the CMA and the Commission. The EU already has many similar agreements, including with the U.S. and Switzerland.

Ongoing Investigations Under No-Deal Brexit

There will be an immediate impact on Commission investigations that are ongoing on 29 March 2019. The CMA will become responsible for enforcing UK competition law in relation to the UK effects of these investigations with the Commission no longer having any powers regarding UK effects. Accordingly, the CMA could open a separate investigation into UK aspects of alleged cartels or other allegedly unlawful activity.6

Similarly, if the Commission has not yet closed an investigation into a merger or acquisition and if the transaction may affect competition in the UK, the CMA would be able to investigate the UK aspects (provided the transaction meets the jurisdictional thresholds for a UK merger investigation).7 In a worst-case scenario, the Commission could clear a transaction in the EU 27 shortly after 29 March 2019 and the CMA could then investigate its UK effects, decide to open an in-depth investigation at any time within four months of 29 March 2019, and finally order that the transaction's UK aspects be undone.8 Given this risk, parties to deals that will be under Commission investigation on 29 March 2019 should also be discussing any potential effects on competition in the UK with the CMA.

Post-Brexit CMA

Up to now, the Commission has been an active enforcer against anticompetitive conduct, including in the UK. After Brexit, the CMA will enforce competition law on its own when companies' conduct has no effect outside the UK, and it will be solely responsible for investigating effects in the UK even when the Commission is also investigating. This will require substantial financial and other resources. In March 2018, the UK government allocated an additional £23.6 million to the CMA's budget for 2018–19 specifically to enable it to prepare for Brexit (a significant increase, given that the CMA's annual budget has been between £60 and £70 million, although this increase will also cover the CMA's new powers over state aid/subsidies).9 The CMA plans to use these extra funds to recruit officials to deal with its increased workload.10 Recently, however, the CMA noted that it would not have all necessary staff in place by March 2019.11 At the same time, the CMA has emphasized its aim of taking on "a bigger role on the world stage" after Brexit.12

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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