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Competition law reforms

25 November 2013

In one of the most far-reaching overhaul of the competition regime in the UK, the existing dual system is to be replaced with a single, master regulatory Authority responsible for  "Competition and Markets". This new body will be armed with a reformed regulatory regime, supplemented by a strengthened private claims landscape.

In 2011 the Government decided to consult on how to make our competition regime more targeted and effective. The consultation, published in March 2012, came up with four main reforms:

  • Merging the Office of Fair Trading (OFT) and the Competition Commission (CC) into a new body, the Competition and Markets Authority (CMA)
  • A more robust decision-making processes in investigations and enforcement actions under the Competition Act 1998 (CA98)
  • Faster and more efficient merger control reviews and market investigations. With enhanced powers introduced for the authorities to intervene at an interim stage in transactions and to step up markets work where cross-market and public interest issues arise
  • Changes to the criminal "cartel offence", by removing the element of dishonesty from the offence, making it easier to secure a conviction (albeit there are now some new exceptions and defences, such as for having published the proposed terms of an agreement).

The reforms have been introduced by way of a series of chapters in the Enterprise and Regulatory Reform Act 2013 (ERRA13). This amended the relevant parts of the CA98, which deals with cartel offences and other infringements of competition law, and the Enterprise Act 2002, which deals with mergers and markets work.

Since they came into force, these pieces of legislation have been enforced by the OFT. The OFT has investigated price-fixing and other infringements of competition law (eg bid rigging in the construction industry) (ie CA98 matters) and reviewed merger notifications and instigated market studies (ie EA02 matters).  

Its role in CA98 matters has been to investigate and seek to impose fines or enforce remedial orders, which protagonists could appeal to the Competition Appeal Tribunal (CAT). Its role in EA02 matters has, essentially, been to carry out the first phase review within a relatively short time frame. If it was decided there were significant issues to address it would refer the matter on to the CC, whose experts (including specialist economists) would carry out an in depth review in order to determine whether the proposed corporate deal should be allowed (and, if so, on what conditions) and/or if the market under scrutiny created problems which required action.

Reform and the CMA: what's the big deal?

The CMA was established on 1 October 2013 and will become fully operational from April 2014, combining the key functions of the OFT and CC into one unitary authority, which will have full regulatory oversight over competition law in the UK. The aim is to make competition regulation and enforcement swifter, and more objective and efficient. Soon after the initial plans to create the CMA were announced, Lord Currie took on the role of Shadow and, now, acting Chair and described its core objectives:

"deploying resources more effectively and flexibly to the different parts of its work"

The reforms aim to strengthen the CMA, but also make it more efficient. This is reflected in shorter time-scales for the CMA to work under. The CMA will also have greater powers to issue financial penalties against uncooperative companies or individuals.

The tightening of timetables will be felt particularly in the merger control regime, with a compulsory 40 day period for phase 1 investigations (albeit it will be possible to 'stop the clock' where information is not provided promptly by the parties).  There will also be early consideration of remedies following the first phase review, which will be released with accompanying reasons after the CMA has decided to refer a merger to the second phase.
Meanwhile, Phase Two market investigations (which are currently taken up as a simple "market investigation" by the CC after the OFT has completed a shorter "market study"), will have to complete within 18 months rather than 24, as at present.

"using new powers to make antitrust investigations more efficient and fair"

There will be a degree of streamlining and restructuring following the CMA's launch, which will involve an initial 'teething' period of transition to new teams and practices.

However, the inception of the CMA is underpinned by the introduction of new administrative processes that will keep its decision-making functions separate from its investigative departments. The goal is to ensure the independent review of decisions and avoid confirmation bias between separate phases of a case. This will essentially be achieved by the appointment of one team for the investigation of suspected competition law infringements and then another (the "Case Decision Group"), once evidence has been gathered, to decide on appropriate action and, if appropriate, sanctions.

"tackling hard-core cartels more effectively to ensure that markets can be as dynamic and innovative as possible to help achieve the economic growth that the country needs, through the proposed removal of the dishonesty test"

There is already a criminal offence under competition law, which is contained in the EA02. It opens to the threat of prosecution by the OFT (and so, from Spring 2014, the CMA) any individual or company that has participated in hard-core cartel activity. This means fixing prices, sharing markets or rigging bids (eg as in the 'construction industry cartel', which saw a raft of firms fined by the OFT in 2009, albeit these fines were reduced on appeal).  However, since its inception the cartel offence has only been prosecuted on one, unsuccessful occasion, which saw problems with evidence lead to the collapse of the trial of four British Airways executives in relation to the alleged agreeing of surcharges on long haul passenger air fares with Virgin Atlantic.

The barren (albeit short) history of the offence prompted a rethink, and the ERRA13 removes the requirement for the prosecution to prove that the accused acted dishonestly (judged in terms of whether they were acting dishonestly by the standards of reasonable and honest people and, if so, whether that person would have known that they were acting dishonestly) in doing what they did. The quid pro quo is that defendants can now resist conviction if they notified their arrangements or if they can show that they either had no intention of concealing their behaviour from customers or the CMA; or obtained prior legal advice (including from in-house lawyers). 

The changes to the cartel offence have come in for some degree of criticism, as the bar to prosecution has now been significantly lowered. Some have argued, meanwhile, that the new exceptions and defences could be open to exploitation (eg obtaining legal advice in an attempt to 'clear' illicit arrangements). That said, detailed and issue-sensitive guidance on applying the offence should focus the CMA in exercising its prosecutorial discretion. 

What else is changing?

Other important features of the reforms include:

  • the power to conduct consolidated market investigations concerning issues cutting across multiple markets - eg if there is a certain buying practice among major companies across a range of related sectors
  • enhanced powers for the CMA to impose interim measures in merger reviews and markets investigations (eg unwinding steps to integrate merging businesses where it is in the process of completing without clearance or making 'hold separate' orders for parties to freeze completion steps), with the threat of penalties to enforce them.

In a speech on 14 November 2013, CMA Chief Executive Alex Chisolm also highlighted the importance of the new regime being (as far as possible within the bounds of confidentiality and privilege of parties under investigation) open and transparent in its policies, case load and investigative and enforcement action. The outcomes of consultation on guidance concerning these areas will make for very interesting reading.

"Track two": Liberalising private anti-trust litigation in the UK

Running alongside the various reforms to the competition law regime set out above, the Government also instigated a far-reaching review of the private claims arena. 

Traditionally, if someone believing they have suffered a loss as a result of anti-competitive behaviour (the classic example being a business which has purchased at an inflated price from a supplier involved in a cartel), have had to bring a High Court claim in order to seek compensation (or, in certain circumstances, an injunction order to stop the anti-competitive conduct), or very similar proceedings before the CAT (albeit in the latter case only where the UK or EU authorities have already decided there was an infringement of the law). This has been a deterrent for a lot of would-be claimants, owing to the cost exposure and the difficulty of gathering evidence to show that the breach of competition law committed by the defendant actually caused them a loss, and how much that loss came to.

Last year the Government consulted on a series of proposals to make private competition law actions faster and more cost-effective. A number of the proposals provoked criticism, but nonetheless a series of headline measures, contained in the Draft Consumer Rights Bill 2013 (Bill), remain on course to be introduced. These are summarised below:

  • Making the CAT the main forum for private litigation - The Bill will empower the CAT to hear 'stand-alone' competition actions (ie those brought prior to any infringement decision having been made by the OFT/CMA), as well as 'follow-on' claims, and to grant injunctions.  As with the High Court, it will be open for claimants to commence actions even where appeals against CMA decisions are pending, and the same general limitation period (ie six years from when the cause of action first arose) will apply. However, the CAT will bring greater competition expertise and experience, as well as making life easier for claimants.  It will be possible for less complex cases to be run on a 'fast-track' procedure, with truncated timetables, limits on the amount of evidence that can be submitted and tight caps on the costs than can be recovered. It is hoped that this streamlined and less expensive process, which in appropriate circumstances may enable swift injunctive relief to be obtained, will help encourage more small and medium-sized enterprises ("SMEs") to bring actions. 
    The competition law expertise of CAT panel members should, meanwhile, enable swifter justice to remain robust and, if anything, become even more astutely administered.
  • New 'opt-out' regime for collective actions - The existing regime for bringing competition law claims recognises that infringements often cause losses to a large group of people, but currently only allows 'class' actions to be brought on an 'opt-in' basis, in which individual members of the claimant class have to voluntarily elect to participate if they wish to claim a share of the compensation. To date, this has only once been invoked, in the Replica Kits case (CAT Case ref 1078/7/9/07). The Consumer Association, Which?, instigated a so-called 'follow-on' action on the back of the OFT's decision to fine a number of retailers for regulating the prices of Umbro-manufactured football kits. This opt-in system has subsequently been seen as too consumer-focused and of limited value to individual claimants, since less than 1,000 of an estimated 1 million affected consumers 'opted in' and the case settled for a sum of £20 per participating consumer. 
    By contrast, an 'opt out' action, which the Bill will for the first time permit, sees all members of a defined claimant class included in the calculation of any damages sum, the remainder left unclaimed following judgment being paid over to the Access to Justice Foundation. It will be possible to bring any competition law claim, whether 'stand-alone' or 'follow-on', on a collective basis, subject to first obtaining certification from the CAT to do so. It will be open for representative claimants (which can include consumer groups, industry bodies and trade associations, but not law firms or litigation funders) to bring such actions on an 'opt out' basis, but this will only apply to UK claimants. It will only be possible to include non-UK claimants if they voluntarily opt into the proceedings. Importantly, it will be the representative body or association which foots the defendants' costs bill in the event the claim fails, and not individual members of the claimant class.
  • Enhanced role for settlement schemes - The introduction of a fast-track and of 'opt-out' collective actions are designed to make justice much more accessible for the victims of competition law infringements. However, the Government's reforms did not envisage that competition law disputes will only ever be resolved before the CAT. Rather, it has also promoted pre-trial settlement by introducing a collective settlement procedure. Collective settlements would be negotiated out of court by a representative of all potential members of a claimant class, once those representatives have obtained approval from the CAT as to their own suitability to take the case and of the proposed settlement terms. Furthermore, the Government promotes a new opportunity for defendants to negotiate voluntary schemes of redress with claimant consumers and businesses where it is feasible to do so. The CMA will be able to certify such schemes and then enforce them, taking account of the compensation paid out thereunder when subsequently calculating the level of applicable fine.

It to be further noted that the above developments in the UK are being bolstered at EU level by the following:

  • A draft Directive on competition law private actions, which will deal with the interaction between public and private enforcement of competition law among other things. It will protect leniency statements (relating to applications by parties for reductions or immunity from fines in exchange for information and cooperation) and settlement papers from disclosure, provide for joint and several liability as between multiple defendants (who will be entitled to sue one another if they did not contribute equally to the damage caused) and introduce a presumption that a defendant has overcharged customers in cartel cases. This will be rebuttable, but it will be for the defendant to rebut on evidence adduced by them, making it easier for claimants to bring, and win, cases. The original UK Government consultation considered introducing this presumption as part of the Bill, but many respondents considered this element best left for the EU to legislate on. Importantly, the draft Directive will also require member states to ensure that time stops running for the purposes of limitation where the parties have engaged in a "consensual dispute resolution process". Settlement sums recovered from any of the defendants will be deducted from the amount of damages recoverable in any subsequent proceedings that may still be brought against defendants that refuse to cooperate. Once the Directive is introduced by the EU it will have to be implemented by all member states, meaning some elements of the above UK-specific proposals set out in the Bill (which had already been independently formulated when the draft Directive was published), may have to be amended
  • A Recommendation encouraging collective redress schemes to be introduced in all member states for any breach of EU law
  • A Recommendation and accompanying practical guide working paper on quantifying harm in competition law damages actions.

To note, a Recommendation, unlike a Directive, is not absolutely legally binding on EU member states, although it is likely to be persuasive authority before a judge.

The UK and EU proposals for reforming and promoting private competition law actions are somewhat different in scope and emphasis, but they share an underlying rationale, to make private redress more accessible, affordable and attractive, so that the number of claims soars and become a true complement to public enforcement.


The overhaul of competition regulation and private competition law actions should go hand-in-hand in ensuring infringers are brought to justice more quickly and effectively. This means it will really pay to be:

  • compliance-conscious, to avoid falling foul of competition law (which can quite easily happen in a variety of commercial contexts) and risking swift regulatory action, fines, reputational damage and even criminal prosecution for company directors, not to mention the possibility of having to pay off whole groups of customers in a collective action or settlement scheme
  • aware of your rights, so that you are ready to take speedy legal action if necessary to get compensation or, in especially urgent cases, an injunction if you are losing out as a result of anti competitive behaviour by a supplier or a rival. It may be that in future your affiliated trade or industry body will take up an anti-trust case, in which case you should ensure you offer what assistance you can to the case and claim your share of the damages once a judgment has been obtained.

This is undoubtedly a time of broad and, in places, quite radical change in the competition law field.  Knowing your rights and how to avoid coming unstuck is more important than ever.

For more information please contact Rory Ashmore, Associate

T: +44 (0)20 7427 1031