Antitrust Alert: New UK Regime for Competition Damages Actions Comes into Effect
On October 1, 2015, the Consumer Rights Act 2015 ("CRA 2015") comes into force in the United Kingdom, introducing significant changes to how damages claims arising out of competition law infringements can be brought.
Under the new regime, it is expected that the Competition Appeal Tribunal ("CAT") will become the forum of choice for competition damages litigation in the UK. Until now, and despite being the specialist tribunal for competition cases in the UK, the CAT could only hear certain claims arising out of competition law infringements, in particular, where there had already been an infringement decision of a competition authority. As a result, competition damages claims have been spread across two main jurisdictions: the CAT and the English High Court. The CRA 2015 gives the CAT an expanded jurisdiction and additional powers, giving it the tools to apply fully its expertise in competition law cases. The CAT's procedural rules ("CAT Rules") giving effect to this new regime also come into force on October 1, 2015.
Stand-alone actions before the CAT
The CAT will now be able to hear "stand-alone" as well as "follow-on" claims for damages. Stand-alone claims require the party which brings the action to prove an infringement of UK or EU competition law (i.e. liability) as well as showing that they suffered a loss. Previously, the CAT could only hear "follow-on" claims, i.e. actions where liability had already been established in an infringement decision by the UK's competition authority, the Competition and Markets Authority ("CMA") or the European Commission. Until now, businesses or consumers that wished to bring stand-alone cases therefore had to bring their case before the High Court rather than the CAT.
Introduction of opt-out collective actions
One of the most high-profile reforms is the introduction of an "opt-out" collective actions regime before the CAT. An "opt-out" regime means that all claimants are automatically included in the action unless they opt out, that is, it is a class claim. Currently, the CAT can only hear "opt-in" collective actions (actions in which claimants must opt in to be able to claim damages). In addition, the consumer association Which? is the only entity authorized to bring a collective damages action before the CAT. The combined effect of these two features has been that the collective actions route before the CAT has remained largely unused. To date, only one collective action has been brought before the CAT in relation to the Replica Football Kit case (The Consumer's Association v JJB Sports Plc). This case was settled in 2008 and the claim withdrawn.
The new "opt-out" collective actions regime is available to all class members domiciled in the UK. Class members domiciled outside the UK may still participate but must opt in to join the collective proceedings. The regime also widens the range of representatives who can bring the collective action on behalf of the class to include any person the CAT considers "just and reasonable" to act as a representative. The "opt out" collective action will be able to cover all claims that raise the same, similar or related issues of fact or law and which are suitable to be brought in collective proceedings – again, the extent of the class must be certified by the CAT at the outset.
The CAT Rules set out the details as to how the CAT will apply the "just and reasonable" test (which includes a requirement that the person would "fairly and adequately act in the interests of the class members" and does not have conflicts of interest with the class members) and how it will go about certifying a class. The CAT also has to certify whether the collective action should be allowed to proceed on an "opt in" or "opt out" basis. The CAT Rules are relatively general on these points and give the CAT a broad discretion, and representatives of the CAT have already acknowledged that they will need to work through the many issues that are likely to arise, particularly as regards certification, when the first claims are filed.
The CRA 2015 introduces new rules relating to the award of damages in collective actions. In particular, the CAT will be able to award aggregate damages to the entire class. Aggregate damages are damages awarded in collective proceedings without the need to undertake an assessment of the claim of each represented person. This is designed to avoid the CAT having to spend time assessing each individual claim. Under the previous regime, a defendant was only liable for the amount of damages claimed by each claimant, as quantified on an individual basis. The possibility to award aggregate damages therefore increases the scope of potential liability for defendants. Any award of damages in opt-out collective proceedings which are not claimed by the represented persons within a specified period will be paid to a specified charity, presently the Access to Justice Foundation.
The new rules make it clear that the CAT will be unable to award exemplary damages (also known as "punitive" damages) or U.S.-style treble damages in collective actions. This was to avoid what was perceived to be a negative consequence of class action litigation in jurisdictions like the U.S. Likewise, contingency fees (damages-based agreements paying some of the damages to the legal representative) will not be permissible for collective actions.
The reform also notably provides for two mechanisms aimed at encouraging the parties to settle disputes. First, the CRA 2015 introduces an opt-out collective settlement procedure under which representatives and defendants will be able to settle cases on a collective basis. A collective settlement approved by the CAT will be binding on all claimants included in the class (all UK-domiciled claimants who have not opted out and all non-UK domiciled claimants who have opted in). Secondly, the CRA 2015 introduces a collective redress scheme under which the CMA will be able to certify voluntary redress schemes (schemes under which a company offers compensation following an infringement decision). The aim of the latter is to encourage parties who are found liable by the CMA for a breach of competition law to offer compensation to consumers or businesses and avoid the need for litigation. As an incentive, the CMA may offer up to 10% discount from any penalty.
Swifter justice: injunctions and fast track procedures
The new regime introduces two options for claimants seeking speedy relief in competition cases. First, the CRA 2015 gives the CAT the power to grant injunctions. Injunctions may be crucial in competition law cases, providing claimants with immediate relief against anticompetitive behavior. Currently, a party seeking an injunction prohibiting anticompetitive behavior needs to apply to the English High Court or to the CMA for an interim measures order. Injunctions granted by the CAT will be enforceable as if they were granted by the High Court. Second, the CRA 2015 creates a "fast track" procedure, which enables simpler claims brought by individuals or small and medium enterprises ("SME") to be resolved more quickly (within 6 months) and at a lower cost.
Increased limitation/prescription periods
The CRA 2015 introduces new rules on limitation. First, the limitation/prescription periods before the CAT are increased from two to six years, aligning with those applicable before the English High Court. Second, limitation/prescription periods will be suspended where claims are made in the context of collective proceedings (to discourage parties from also commencing separate individual actions before the CAT in order to protect their position).
With an expanded jurisdiction and greater powers, it is expected that the CAT will not only become the preferred venue for private antitrust enforcement in the UK but that the class actions in competition cases will become a reality and the number of stand-alone and follow-on damages claims will increase. This new regime will make the UK a more attractive venue for competition damages claims, even where the claim may cover multiple jurisdictions. This increases substantially the risk for companies that find themselves subject to cartel or abuse of dominance investigations by the UK and EU competition authorities, as well as the UK sector regulators who have concurrent jurisdiction to enforce the competition rules.
Further changes are also in the pipeline, as the UK will need to implement the EU Damages Directive by December 2016. This Directive provides that infringement decisions by national competition authorities should be binding on the national courts in damages actions and sets out the minimum limitation periods for bringing damages actions to be five years. It further clarifies rules relating to joint and several liability for damages, disclosure of evidence (including the prohibition of disclosure of leniency or settlement statements) and "passing-on." While the CRA 2015 already complies with many aspects of the Directive, some further changes will inevitably need to be made to existing procedural rules.
For more information, please contact your principal Jones Day representative or any of the lawyers listed below.
Marguerite Lavedan, an associate in the London Office, assisted in the preparation of this Alert.
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