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Private enforcement of competition law, is an increase in litigation on the horizon?

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Jonathan Hitchin

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Joanna Page

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11 March 2013

Commentators have been predicting a flood of private damages actions for breaches of competition law in the UK. They have pointed to the ability to join all members of a cartel to one legal action, with wide ranging disclosure and loser pays costs principles as standard, marking out the UK as the jurisdiction of choice in Europe for private damages claimants.

Private damages actions have indeed increased in the UK, but the anticipated flood is yet to be seen. This article considers whether publication of the UK government's response to its consultation on options for reform of private actions in competition law published last month (the Consultation Response), EU-wide proposals that are expected imminently, and the introduction of Lord Justice Jackson's litigation costs reforms, mean that the flood really is now around the corner.

Background

The Commission and national competition authorities (NCAs) have long sought to encourage claimants to bring private actions for damages for breaches of competition law.

When publishing its Green Paper, "Damages actions for breach of the EC antitrust rules", in December 2005, the Commission stated that it wanted to "make exercising the right to claim damages for breach of Community competition law easier... " and to tackle the "…obstacles to a more effective system of damages actions. "

The Green Paper was followed by a White Paper in April 2008 and a much anticipated draft directive was published in 2009 but it was withdrawn at the last moment.

More recently, in its Commission Work Programme 2012, the Commission set two key objectives in respect of private enforcement: a) to ensure effective damages actions before national courts for breaches of EU antitrust rules; and b) to clarify the interrelation of private actions with public enforcement by the Commission and NCAs, especially in the context of the protection of leniency programmes.

Against this background, the Commission is expected to publish proposals for reform shortly.

In the UK, until relatively recently, there were rumblings about reform, for example the Office of Fair Trading's 2007 Discussion Paper titled "Private actions in competition law: effective redress for consumers and business" but nothing concrete developed.

However, with publication of its 2012 consultation and the Consultation Response, the UK Government has focussed on the issues, arguably stealing a march on the Commission and seeking to secure the UK's position as the forum of choice for private enforcement of competition law in Europe.

The Consultation Response

The 2012 consultation proposed a number of procedural reforms. The Consultation Response confirms that the UK Government will proceed with many of these, including:

  • Establishing the Competition Appeal Tribunal (the CAT) as a major venue for private actions;
  • Promoting Alternative Dispute Resolution (ADR) by, among other reforms, establishing a new opt-out settlement regime in the CAT for competition claims;
  • Establishing a fast track procedure for simpler cases in the CAT; and
  • Introducing an opt-out collective (class) action procedure for competition claims.

Private enforcement claims brought in the UK have often been subject to rather complex and time consuming procedural disputes. The proposed reforms may limit those disputes in the future.

But will they result in more private actions?

The answer is not clear. For example, the purpose of the new fast track procedure is to encourage resolution of claims quickly at low cost. This may result in more claims by encouraging claimants who might have been deterred by the risks, costs and time of bringing a claim to 'try their luck'. On the other hand, the fast track procedure is to be limited to 'simpler cases'. What is a 'simple case' remains to be seen. There is a risk that this lack of certainty will itself result in costly and time consuming procedural battles, which, while they remain unresolved, may discourage claimants from bringing new claims.

More eye-catching is the proposal to introduce an opt-out collective action procedure for private damages actions. This procedure enables a court or tribunal to certify that all members of a class of claimant, having a particular sort of claim, will automatically become claimants in the collective action unless they choose to opt-out of it.

At first blush it looks as if the availability of a collective action, which will enable a group of individual claimants (most notably consumers) who have each suffered a small loss to bring their claims together, will result in more private damages actions, because claimants will be able to share the costs and risk of litigation.

However, because of an underlying concern in the UK about the perceived excesses of the US class action system, the government has proposed two sets of safeguards:

  • only claimants or genuinely representative bodies (such as trade or consumer associations) will be entitled to bring collective actions. Law firms, third party funders and special purpose vehicles will not be permitted to do so; and
  • the Government is committed, in relation to collective actions, to: (i) banning punitive damages; (ii) maintaining the loser pays rule (except in exceptional circumstances); and (iii) banning damages based agreements (DBAs) in which lawyers receive a portion of a damages award as their fee (DBAs will soon be permitted in other areas of civil litigation).
     

These safeguards are intended to provide a degree of control and restraint to the otherwise potentially far reaching consequences of the introduction of an opt-out collective action regime. Unlike in the US, there is little prospect of law firms and third party funders 'hunting' for potential claims and claimants. The safeguards, together with the fact that the opt-out element of collective actions will apply to UK domiciled claimants only, will, we believe, significantly limit, the impact of the reform.

While, in our view, the reforms will result in an increase in private damages actions, that is likely to be a steady stream rather than a flood.

What is the Commission doing?

With publication of its Consultation Response, the UK government has set the tone for developments in private enforcement of competition law across Europe for 2013. Action by the Commission is unlikely to be far behind.

The Commission's recent focus has been on clarifying the interrelation of private actions with public enforcement. In particular, the issue has been the extent to which private damages claimants should have access to documents on the Commission (or NCA) file to aid their claims. The concern is that, where this includes leniency documents, there could be a significant impact on the effectiveness of leniency programmes (and therefore public enforcement of competition law, which relies heavily on whistleblowers to learn about potential breaches). The tension between permitting claimants access to leniency documents, thus encouraging private damages actions, and the impact of allowing such access on the public enforcement regime has been evidenced by a number of recent cases before national courts, including in the UK, Germany and Austria.

Despite these cases, and the referral of each of them to the European Court of Justice the position remains unclear.

In our view, the lack of clarity limits private actions in the UK. The benefits to claimants of the wide ranging disclosure regime in the UK are limited if claimants are denied access to the very documents that are likely to be incriminating and therefore the most useful support for a claim.

The Commission has the difficult task of balancing its interest in encouraging private actions, so as to facilitate the recovery of losses suffered as a result of anti-competitive behaviour, with preserving the effectiveness of the public enforcement regime.

It is expected that proposals will be published by the Commission imminently. We will have to wait and see precisely what these proposals will be. However, given the Commission's clear desire to encourage private damages actions, they may be significant.

The Jackson reforms

The impact of the Jackson reforms is the final, and perhaps unexpected, piece in the jigsaw in considering whether there will be more private damages actions for breaches of competition law in the UK.

The much anticipated Jackson reforms in respect of costs in litigation in England introduce a number of fundamental changes to the English litigation costs regime. Some of the most notable for present purposes are the introduction of DBAs, new controls on the scope and costs of disclosure and the abolition of the recoverability of after the event (ATE) insurance premiums.

DBAs

The introduction of DBAs enable claimants to bring claims with a reduced costs burden and may encourage individual claimants to bring private damages actions when they otherwise might not have done. However, the Government's clear position in the Consultation Response that DBAs will not be available as part of the proposed opt-out collective actions regime may curtail their effect.

Disclosure

The introduction by the Jackson reforms of new controls on the scope and costs of disclosure, as a result of which, parties to litigation will have to produce reasonable and justifiable costs schedules for disclosure, which they will be held to, may also limit the effect DBAs might otherwise have on private damages actions. The extensive disclosure of evidence which forms part of the English court process is one of the key features of the English court system which makes England an attractive jurisdiction for claimants. Where the breadth and extent of disclosure is curtailed this attractiveness is also, arguably, curtailed.

ATE insurance premiums

ATE insurance provides cover for legal costs incurred in litigation. Presently, if a winning party to litigation invests in ATE insurance, the premium paid in respect of that insurance is recoverable from the losing party. Insurance for the costs of litigation and, more importantly, the right to recover the premiums paid, may encourage claimants to bring private damages actions because of the reduced costs risk.

The Jackson reforms are abolishing the right to recover ATE premiums. This may have the effect of reducing private damages actions.

Impact

It is not clear to what extent, if at all, the Jackson reforms will apply to specialist tribunals, including the CAT. If, as intended by the Consultation Response, the CAT becomes a major venue for private damages actions in the UK, it may be that the Jackson reforms will not have a noticeable or, indeed, any, effect.

So, while the Jackson costs reforms will have a wide-ranging effect on the UK litigation landscape, the effect the reforms will have on private damages actions seems likely to be limited.

Conclusion

There has been much discussion about the rise of private enforcement of competition law in the UK in recent years and a slow but steady increase in the number of cases brought. However, the cases that have been brought have been slow to progress and characterised by procedural wranglings.

Changes to the procedural and regulatory landscape proposed in 2013 will have an impact on where and how private damages actions for breaches of competition law are brought in the UK and the wider EU. However, we think it is unlikely that the changes will result in a substantial increase in such actions.