November 30, 2007
There is a growing belief that competition law in Europe should not be enforced solely by competition authorities, but also by private claimants in the civil courts. With this in mind, competition authorities in Europe and the UK are looking at how to change current processes and introduce rules that will facilitate this new approach.
In the 2007 Pre-Budget Report the UK Government announced the start of a consultation process, which is to finish at the end of 2007, seeking views on its stated intention to remove barriers to effective redress for anti-competitive behaviour. The Office of Fair Trading (OFT), the UK’s consumer and competition authority, this week published its recommendations to the UK Government, which were drawn up following six months of consultation with businesses, law firms and consumer groups.
The OFT’s stated aims include the need to balance improved access to effective redress against the risk of encouraging the perceived excesses of the US litigation culture.
We set out below an overview of how the OFT believes this can be achieved.
Representative actions on behalf of consumers and businesses
Currently in the UK, follow-on and stand-alone claims for competition law breaches can be brought in the High Court. Follow-on actions are claims where the anti-competitive behaviour has already been subject to an infringement decision by the European Commission or UK competition authority. Stand-alone actions are claims where there has been no such previous decision and therefore the breach of competition law has to be proved. However, follow-on actions for competition law breaches benefit from an additional forum in the UK, as they can also be brought in the Competition Appeal Tribunal (the CAT) under a specific procedure governed by the UK Competition Act. This alternative procedure provides for collective representative claims to be brought by specified consumer bodies on behalf of a defined group of consumers (but not, except in limited circumstances, on behalf of businesses).
The OFT highlights the importance of being able to bring stand-alone, as well as follow-on competition claims. The OFT also notes the vital role of injunctive relief in addition to damages. Concern is raised over the fact that procedures are not currently in place to enable representative actions to be brought on behalf of businesses, as well as consumers. The OFT recommends that the Government should consult on whether, and how, to enable representative bodies to bring stand-alone and follow-on representative actions for damages and injunctions under competition law on behalf of consumers and businesses.
In terms of the model of action to be used, the OFT considers that the current opt-in approach fails to optimise economies of scale and gives rise to unnecessary costs and complexity. The OFT believes that representative actions on behalf of consumers and businesses at large should be possible, and that the Government should consult on the required procedures. The OFT advocates the use of judicial discretion in determining, in the circumstances of each case, which model of claim would be appropriate.
Cost and funding arrangements
If nothing else, the sheer complexity of competition cases can make the costs involved prohibitive for all but large corporates. In the UK, there are further disincentives: for example, the starting principle is that the loser pays the successful party’s costs, and in certain contested discovery applications (important if the claimant is to have access to the necessary documents in competition claims) the successful party has to pay both the other side’s legal costs as well as the costs of the discovery exercise itself. In addition, when it comes to funding a claim, UK lawyers can take on cases under a Conditional Fee Agreement (CFA), so that the client pays nothing unless successful, but the lawyer’s success fee is capped at 100% of their costs. Contingency fees, where the lawyer receives a percentage of the final damages award, are not permitted. At the moment, therefore, both potential claimants and lawyers face significant costs issues in considering whether to bring a competition claim.
The OFT notes that the current rule for the allowable percentage increase in normal fees under conditional fee agreements may not sufficiently incentivise lawyers to take on well-founded cases. Therefore, the Government should consult on whether there is a case for allowing a greater percentage uplift to be recovered from the losing party, under judicial supervision, with any further increases to be paid out of the damages recovered.
In order to provide a level of certainty on potential exposure and to encourage efficient litigation, the OFT recommends that the Government consults on the possibility of codifying rules on the court’s discretion to cap cost liabilities in competition cases. The OFT notes that, in certain cases, the claimant’s liability for the defendant’s costs could be capped at zero.
Protection of the leniency programme
The OFT has a special interest in ensuring that cartels, the most serious form of anti-competitive agreement, are uncovered and broken up. Leniency is the process by which the OFT grants lenient treatment to those who come forward with information about a cartel in which they are involved. Such lenient treatment encompasses immunity from, or a reduction in, the level of fines imposed, and immunity from criminal prosecution for the individuals involved. Leniency is a relatively new phenomenon in Europe and there has been much debate over how to safeguard the incentives for potential whistle-blowers to come forward.
The OFT stresses the importance of maintaining the effectiveness of its leniency programme, and is committed to not undermining this policy through the disclosure of leniency documents in private actions. The OFT therefore recommends that the Secretary of State be given the power to provide, by Statutory Instrument, that: (i) such leniency documents are excluded from use in litigation without the consent of the leniency applicant; and (ii) joint and several liability is removed from immunity recipients so that they are only liable for the harm which they have caused. It should be immaterial whether or not the case proceeds to a decision that competition law has been infringed.
Status of OFT decisions and guidance
When determining issues under EC competition law, the English Courts are currently required to have regard to any relevant decisions or statements of the European Commission. However, there is no such general duty to have regard to decisions and guidance of the UK competition authorities.
The OFT reiterates the need to ensure consistent application of competition law across the EU, especially as the number of private actions and other competition court cases grows. The OFT therefore recommends that courts and tribunals should also be required to have regard to guidelines and decisions of the OFT and other UK competition authorities generally when determining issues under the UK Competition Act.
The OFT has also commented on several further issues, although no concrete recommendations have been made. It considers that these areas (set out below) either require further investigation or experience, or that the issues would be more appropriately dealt with at the EU-level:
In addition to the consultation process of the UK Government, the European Commission also intends to publish a White Paper on private actions for breach of EC competition law in early 2008. Changes are clearly afoot in both the UK and Europe, and further guidance on how competition claims will develop is imminent.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or Philip Rocher (+44 20 7071 4202, firstname.lastname@example.org), Rosamund Browne (+44 20 7071 4275, email@example.com) or Allan Neil (+44 20 7071 4296, firstname.lastname@example.org) in the firm’s London office.
© 2007 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.