Class actions for competition law infringements come to the UK

30 September 2015


The Consumer Rights Act 2015 comes into force on 1 October 2015, and introduces to the UK the possibility of parties bringing competition law claims on a collective (or "class") action basis.

This new UK class action regime is (at least) intended to differ from the US model. The UK government's professed aim has been to ensure in particular that small and medium-sized enterprises (SMEs) and consumers can claim compensation for harm caused by breaches of UK and/or EU competition law, while shielding business from the perceived excesses of the US model (e.g. triple damages).

However, with early cases likely to attract close scrutiny, claimant parties and their advisers can be expected to test the boundaries of the new UK class action regime in order to seek to establish the most advantageous means to bring and progress their actions.

This briefing addresses:

  • the background to the new class action regime in the UK;
  • the key features of the UK's new regime;
  • the interaction of the UK regime with EU policy choices; and
  • what to expect as a result of the changes to the competition law litigation landscape in the UK.

Limited availability of the 'class action' in the UK

In the UK, the recent history of collective action procedures - where a representative pursues a claim on behalf of a defined group of other claimants - is a chequered one, at least in the context of competition litigation.

A form of representative action with origins in the mid-19th Century has been available under the English civil procedure rules, and is still in use today. These rules allow a representative party to sue or be sued on behalf of all others having the same interest in the claim being made: it now is used mainly by or against unincorporated bodies - for example, private members' clubs, where the secretary or chairman acts on behalf of the rest of the members.

The courts of England and Wales have been very careful not to allow this well-established procedure to become a vehicle for group claims by less homogenous classes than the average club. In particular, the courts have insisted on the requirement that the interest of all of the members of the represented group be the same. This has given rise to specific issues in competition litigation in England and Wales.

For example, in Emerald Supplies & Anor v British Airways Plc, purchasers of air freight services could not use the 'traditional' English representative action before the High Court to claim damages on behalf of a class of claimants that had purchased air freight services from a party alleged to be a member of a cartel. The High Court held that the claimants' claims were not the same, given that some claimants had contracted with airlines directly for air freight services, whereas others had purchased air freight services through intermediaries[1].

Importantly, the High Court held that it was not possible to determine at the time the action was brought which of the claimants actually formed part of the represented class. Rather, the identity of the claimants that would form part of the represented class was dependent upon the success of the action. The claimants' argument that this did not matter in the context of a representative action was rejected by the High Court[2]. This was upheld on appeal, whereby the Court of Appeal held that:

"In this case a judgment on liability has to be obtained before it is known whether the interests of the persons whom the claimants seek to represent are the same. It cannot be right in principle that the case on liability has to be tried and decided before it can be known who is bound by the judgment"[3].

These judgments followed the cautious approach to class actions in the UK. However, this approach has meant that, even where groups have very similar (but not identical) interests, they have found it difficult to bring claims on a collective basis. The hurdles for individual claimants to bring small claims have discouraged all but the most persistent from seeking to claim compensation before courts in the UK.

Availability of class action regimes outside of the UK

The barriers to collective claims in the UK, and other 'common law' countries (as well as the resulting lack of an effective remedy for many cases of mass harm in national procedural laws) has from time-to-time attracted the attention of legislators.

The earliest modern class action regime - and still the most well-known - was introduced in the US in 1966 as Rule 23 of the US Federal Rules of Civil Procedure.

Of wide application, this new rule permitted a Federal court to do two novel things.

  • Firstly, a court was permitted to certify that one or more plaintiffs could represent a group of other parties having common claims. The group could be described, so that it was not necessary to name each plaintiff at the time of certification.
  • Secondly, the court was permitted to order on certification that all persons within the group described would be bound by its judgment on the common issues, unless they gave notice within a fixed time that they did not wish to be bound (i.e. they 'opted-out' of the class action).

Both of these features made it much easier for representative plaintiffs (and their attorneys) to bring together a 'critical mass' of claimants with common claims against defendants who had caused them a mass harm.

Since 1966, a substantial body of US case law has explored how the discretion to order the certification of a class action should be exercised. The basic factors for the court to consider are set out in Rule 23 itself, although inevitably their precise application in a given case is often substantially argued.

Australia followed the US, with federal class action legislation in 1976. This adopted only one of the US innovations - the 'opt-out'. Class certification does not occur - instead, the representative party brings the claim on behalf of the class and it continues as a class action unless either the defendant or a member of the class (who does not agree that they should be a part of the action) applies to the court for the 'class' element of the representative's claim to be discontinued.

Canada - the other main common law 'class action' jurisdiction to date - does not presently have a federal level class action. However, many of the provinces have adopted class action regimes comparable to the US model. The most important of these is the Ontario Class Proceedings Act 1992, on which the new UK competition class regime is largely based. The Ontario regime gives the court the power both to certify a class and to direct that it be continued as an 'opt-out' action.

However, as in the UK and Australia - but in contrast to the US - litigation in Canada is based on the assumption that the loser generally pays all of the (reasonable) legal costs of the claim, both their own and those of the winning side. This 'cost shifting' rule is intended to encourage the settlement of claims before trial, and in practice aims to disincentivise plainly unmeritorious claims being brought.

Introducing the class action to competition litigation in the UK

Importantly, the availability of the new class action in the UK is limited to claims against infringers of UK and/or EU competition law. Despite calls for a wider use of the 'class' mechanism, the UK government has decided to limit the use of class actions to competition claims, at least for the foreseeable future.

The introduction of the UK class action regime to competition litigation has arisen in the context of increasing efforts within the European Union (the EU) to ensure that victims of competition law infringements are able to seek damages in EU Member States to compensate for any harm caused.

At an EU-level, the first impetus came from a judgment of the Court of Justice of the EU in 2001[4] confirming that - as a matter of EU law - any victim of an infringement of EU competition law must have effective access to a remedy to claim compensation for any loss caused by the unlawful behaviour. Subsequently, the European Commission (the Commission) began work on EU initiatives designed to create as level a playing field as possible for competition claims, taking into account the differing national legal systems of each of the EU Member States.

The Commission's work spanned nearly a decade - from a first consultation in 2005, though to a White Paper of conclusions in 2008, and a formal proposal for legislation in 2013. The debate of the proposals - particularly before the European Parliament - was prolonged, with legislation emerging in 2014 in the form of the so-called 'Damages' Directive (Directive 104/2014). In addition, the Commission issued a Recommendation on 'Collective Redress', which was published in 2013.

At the same time as the Commission proposals were being developed and debated, various bodies in the UK were working on proposals for a competition class action in the UK.

In 2007, the Office of Fair Trading (which has now been replaced by the Competition and Markets Authority) recommended that the then government should introduce legislation allowing for 'opt-out' class actions in claims against cartels. Further, in 2010, the statutory advisory body on civil procedure for England, the Civil Justice Council, produced draft rules of court for class actions, drawing on practices in other common law jurisdictions with class action procedures.

However, neither of these projects resulted in the immediate adoption of a class action procedure in competition claims in the UK. This was not achieved until this year, with the enactment of the Consumer Rights Act 2015.

What will the UK competition class action look like?

The Consumer Rights Act 2015 sets out the underlying framework for the new UK competition class action, leaving the detail to be developed in procedural rules, guidance and decisional practice.

The main features of the UK competition class action regime include:

  • it applies only to claims for actual or alleged breaches of UK and/or EU competition law;
  • the action must be brought before the UK's specialist Competition Appeal Tribunal (the CAT) - the civil courts are not able to certify a class action;
  • the action can be brought as a 'follow-on' action (i.e. following-on from a finding of competition law infringement by a relevant authority), or as a 'stand-alone" action (i.e. where the action alleges and seeks to establish a competition law infringement);
  • the class can be certified by the CAT under a so-called 'collective proceedings order' on either:
    • an 'opt-in' basis, whereby claimants are required to opt-in to the class in the manner and time specified; or
    • an 'opt-out' basis, whereby UK-domiciled claimants will be included within the class automatically unless they opt-out in the manner and time specified (with non-UK-domiciled claimants able to opt-in to be included within the class);
  • unlike the US model, the CAT is unable to award exemplary damages, meaning that 'treble' damages will not be awarded in the UK; and
  • the 'costs shifting' rule will apply to the UK competition class action regime, meaning that proposed class representatives will need to show how they will pay the defendants' reasonable costs if the class was to lose the claim.

In the context of this framework, the Government has published revised rules of procedure for the CAT (the CAT Rules), which include details of the stages of the class action process[5]. In addition to the CAT Rules, a revised Guide to Proceedings for the CAT is expected to be adopted shortly (the CAT Guide to Proceedings), which will expand upon the practical application of the new regime.

The CAT Rules come into force on 1 October 2015, and provide further detail on the CAT's role in relation to class certification, including:

  • any person (including a company or trade association) may apply to become the class representative - however, it remains to be seen whether the CAT will provide further guidance which seeks to limit who may act as a class representative;
  • the CAT is able to exercise a broad discretion in deciding whether to certify a class in any case, and shall be satisfied by the proposed class representative that the relevant claims:
    • are brought on behalf of an identifiable class;
    • give rise to common issues; and
    • are suitable to be brought on a collective basis;
  • in determining whether an action is suitable to be brought on a collective basis, the CAT shall have account of "all matters its thinks fit", including:
    • whether collective proceedings provide an appropriate means by which to resolve the common issues fairly and efficiently;
    • the costs and benefits of continuing the collective proceedings;
    • the size and nature of the identifiable class;
    • whether the claims are appropriate for an aggregate damages award; and
    • the availability of any (non-litigation) 'Alternative Dispute Resolution' process, including any available 'voluntary redress' scheme. In this context, potential class action defendants may seek to avail themselves of the process introduced by the Consumer Rights Act 2015, whereby they may apply to have a 'voluntary redress' scheme formally approved.

      Under this process, a party that has infringed UK and/or EU competition law is able to seek the approval of the Competition and Markets Authority (or concurrent regulator) in respect of a 'voluntary redress' scheme. Such a scheme would be intended to ensure that victims of competition law infringements received timely compensation for the infringement in question, thereby avoiding the need to commence litigation. In addition, if a scheme was to be approved, the infringing party may (at the approving authority's discretion) receive a discount of up to 20% on any financial penalty imposed in respect of the infringement. However, potential claimants would not be required to participate in any approved scheme, and would therefore remain able to seek compensation through other means.
  • In addition, in exercising its discretion to decide whether collective proceedings should be 'opt-in' or 'opt-out', the CAT may take into account the strengths of the claims; the exact scope of the test the CAT might choose to apply is yet to be confirmed.

In the course of the public consultation that preceded the publication of the CAT Rules, the UK government indicated that the package of procedure rules was intended to enable adequate access to collective compensation proceedings, while ensuring that 'unmeritorious' claims were apparent at an early stage.

Certainly, when set against non-EU comparator jurisdictions, the UK competition class action regime includes a greater number of tests to be satisfied to enable a class to be considered for certification by the CAT.

How does the UK collective action compare to the Commission's Recommendation of 'Collective Redress'?

The Commission's 2013 Recommendation on 'Collective Redress' recommended that all EU Member States should introduce effective forms of collective action by 26 July 2015.

In this context, the UK competition class action regime incorporates many of the recommended features and safeguards set out by the Commission, including:

  • a 'cost shifting' (or a 'loser pays') rule;
  • a court or tribunal should have a wide discretion as to how it calculates damages;
  • collective 'ADR' (e.g. arbitration or mediation of collective claims) should be encouraged;
  • an early hearing to decide whether the collective action is 'manifestly unfounded' is recommended; and
  • punitive damages should be prohibited in collective actions.

However, there remain areas of apparent divergence between the Commission's recommendations and the UK regime, including:

  • the Commission's Recommendation covers all claims, while the UK class action regime only covers claims against infringers of UK and/or EU competition law;
  • the Commission's Recommendation outlines that EU Member States should designate 'not-for-profit' entities to bring representative actions - the UK regime does not directly address this aspect; and
  • the Commission's Recommendation guides EU Member States to adopt a collective action regime based on the 'opt-in principle', whereby judgments will only bind class members who expressly adhere to the action (unless exceptional circumstances support the use of 'opt-out'). The UK competition class action regime can proceed on either an 'opt-in' or an 'opt-out' basis at the CAT's discretion.

Notably, the 'opt-out' provisions under the Consumer Rights Act 2015 only apply to claimants domiciled in the UK. As such, where an action is certified by the CAT as an 'opt-out' action, UK-domiciled claimants will be bound by the CAT's judgment if they do not 'opt-out'. However, parties domiciled outside of the UK will not automatically be bound by the judgment, but are instead able to elect to 'opt-in' to join the class so as to be bound the judgment. This 'opt-in' option for non-UK-domiciled parties therefore arguably does accord with the Commission's Recommendation.

What will the new UK competition class action regime mean in practice?

Considered in the round, it appears that the impact of the new UK regime upon businesses may be less severe than the US model.

First, as the regime is limited to claims under UK and/or EU competition law, it is unlikely that there will be a large number of class actions commenced within a short timeframe.

Most competition claims - whichever procedure they use - tend to rely (at least in part) on an infringement decision of either the Commission or a national competition authority. In view of the finite resources of public authorities, only a limited number of competition cases are investigated at any given time, and certainly not all of those investigated will result in a finding of infringement. Moreover, it is likely to take time for the new regime to be sufficiently predictable for claimant parties, meaning that they may be reluctant in its initial stages to seek to launch 'stand-alone' class claims (i.e. claims in the absence of an infringement decision).

Second, the safeguards that the government has sought to build into the new regime are likely to make potential representative claimants more cautious. Although a number of possible class actions are rumoured to be planned, the potential representative claimant will need to ensure that they have obtained sufficient insurance (or other funding) not only to cover their own costs of pursuing the claim, but also the potential costs of the defendants should the class lose the case (wholly or in part).

It is as yet unclear how much commercial appetite there will be within the litigation funding community to support competition class actions in the UK. Much will depend on the initial receptiveness of the CAT to applications for fixing or capping costs in class actions.

Third, the limitation of the class action procedure to competition law infringements may give rise to jurisdictional issues if claims can be brought both as claims for breaches of UK and/or EU competition law, as well as for breaches of other legislation.

An example could be class actions against banks for 'rigging' LIBOR rates, which may be breaches both of UK and/or EU competition law, and of financial services legislation. It remains to be seen how the CAT and the courts will approach this issue of dual causes of action - some form of co-ordination of case management would be required, but previous practice in this area (which might be expected to inform the CAT's approach) is relatively limited.

However, despite the novelties and potential difficulties of bringing a competition class action in the UK, parties will doubtless use this regime change to pursue new claims. While not all of these claims are likely to result in applications to the CAT to certify a class, the apparent interest in the UK's reformed competition litigation landscape suggests that the process will be used promptly, and these early cases may be expected to influence the perceived success of the new regime.

Footnotes

[1] Statutory Instruments 1630/2015 and 1648/2015.
[2]Emerald Supplies Ltd & Anor v British Airways Plc [2009] EWHC 741 (Ch).
[3]Emerald Supplies Ltd & Anor v British Airways Plc [2010] EWCA Civ 1284, paragraph 65.
[4]Case C-453/99Courage Ltd v Bernard Crehan ECLI:EU;C:2001:465.
[5] SI 1648/2015.


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