ADR central to UK Government's far-reaching reform of competition law class actions

The Government yesterday published its plans for reforming the UK regime for competition law private actions, following a detailed consultation exercise carried out last year. The wide-ranging reforms controversially include the creation of an opt-out collective action for competition law claims on behalf of both businesses and consumers, despite concerns that this may lead to some of the excesses of US-style class action antitrust litigation.  Under an opt-out regime, a claim can be brought on behalf of a defined group without all the individual claimants needing to be identified, and all parties who fall within the defined group will be bound by the result of the case (including a settlement) unless they actively opt out. A central element of the reforms concern the promotion of non-mandatory ADR, including introducing an opt-out collective settlement regime in the Competition Appeal Tribunal (CAT) and giving the new Competition and Markets Authority (CMA) the power to certify voluntary redress schemes.

It remains to be seen whether the Government's desired balance of increasing redress for competition law breaches, in particular for consumers and SMEs, without creating disproportionate risks of unmeritorious claims or a 'litigation culture' can be successfully achieved. It is clear, however, that despite attempts to also encourage ADR, the reforms will lead to a significant rise in private competition law litigation in the UK, increasing both burdens on business and potential opportunities for bringing claims.  We review here the rationale for the reforms and the range of ADR proposals.

Background and rationale for reforms

In April 2012 the Government consulted on reforming the UK competition law private enforcement regime (see our e-briefing here). It outlined concerns that the level of private actions being brought was low and that businesses view private enforcement as the "least effective" aspect of the UK competition law regime, both in terms of 'stand-alone' actions to establish a breach of competition law and 'follow-on' actions seeking damages once a competition authority has found an infringement.

In the Government's 29 January 2013 consultation response (here), it reiterates concerns that cost and complexity remain an "insuperable" barrier to the vast majority of consumers and SMEs challenging competition law breaches or obtaining redress through private actions. The stated aims of its wide-ranging reforms are accordingly to empower individual consumers and businesses to hold to account those who have breached competition law and to obtain compensation for loss caused by anti-competitive behaviour.

ADR Proposals

Although its proposals are designed to promote private actions in the courts, the Government also proposes to promote ADR (although not make this mandatory), to ensure that the courts are the option of last resort.

Opt-out collective settlements

The Government's main proposal is to introduce a new opt-out collective settlement regime for competition cases in the CAT, similar to the Dutch mass settlements regime (although applying to non-UK claimants on an opt-in basis only), to allow undertakings to settle cases on a collective basis without the need for a claim to be brought.

Cases would need to be certified by the CAT as suitable for such a settlement, and settlements themselves as fair, just and reasonable. The CAT will be able to issue directions as to the timing and mechanics of the settlement, including as to publicity.

OFT/CMA power to certify redress scheme

The Government proposes to grant the OFT (and in due course its successor the CMA) the discretionary power to certify a voluntary redress scheme put forward by an undertaking which has been found by the OFT or the European Commission to have infringed competition law. The OFT will not have the power to order an infringing party to implement a redress scheme. It will have the power to take enforcement action should the terms of a certified scheme not be complied with.

Unlike the CAT, the OFT's role will be limited to certifying that a scheme had been created in accordance with a reasonable process, not that the compensation itself is reasonable.

The Government proposes that the OFT continue to consider whether to grant a (5-10%) reduction in fines where a business has made such redress. This will obviously only be relevant in OFT as opposed to EU cases, and it is not clear how this will operate in circumstances where an offer of redress may only be made after an infringement decision has been issued.

The Government is silent on the question of the relationship between the certification of a voluntary redress scheme and the opt-out collective action regime, for example whether this is a factor to be taken into account by the CAT when considering certification.

Settlement offers

Finally in this area, the Government proposes that the provisions of the CAT's Rules of Procedure on settlement offers be aligned with the position in the High Court (i.e. Part 36 of the Civil Procedure Rules).

Next steps

The majority of the proposals will require changes to primary legislation, and the timing for their introduction will therefore be subject to Parliamentary schedules and approval. Amendments will also need to be made to the CAT's Rules of Procedure, the timing for which is not yet clear.