We have begun a journey into the unknown. The new collective action regime for competition litigation, which came into effect on 1 October, has set the market abuzz with speculation. For example, in the wake of the recent benchmark manipulation scandals, what impact will the new regime have for banks?
The new rules will certainly make it easier for claimants to pursue antitrust damages claims in the UK. The final piece of the government’s wide-ranging reforms to UK competition law, the rules’ main objective is to promote the Competition Appeal Tribunal (CAT) as the principal venue for competition claims in the UK. This includes the introduction of a collective action regime, similar to US class actions, designed to facilitate redress for victims of competition infringements whose individual losses are insufficient to justify the costs of a claim.
For its part, the CAT is hoping that the first cases brought under the new regime will be relatively simple and will help the CAT establish itself as a favoured venue for class actions. But will fate be so kind?
The CAT was established in 2003 as a specialist tribunal to hear cases involving competition issues. However, limits on the CAT’s jurisdiction resulted in many claims involving competition law being brought before the civil courts (typically the High Court). Even in follow-on damages cases, where there was a choice, claimants often chose to bring actions before the High Court. One important reason for doing so was that claims could be launched in the High Court before the European Commission or UK competition authority issued an infringement decision, which could not be done before the CAT. This allowed claimants to establish jurisdiction early, before any other party launched the case in a less claimant-friendly jurisdiction, and thereby avoid the possibility of an infamous ‘Italian torpedo’.
New Collective Actions
Introduced by the Consumer Rights Act 2015, the new collective action procedure will allow a representative to bring an action before the CAT on behalf of a class of claimants whose cases raise the ‘same, similar or related issues of fact or law’. Collective proceedings may be brought on an opt-out basis (no positive assertion required by potential claimants to become members of the class) or an opt-in basis (which would require the representative to sign up all participating claimants), although claimants not domiciled in the UK will always have to opt in. Before the Act, only ‘specified bodies’ could, and very rarely did, bring representative actions before the CAT on behalf of consumers on an opt-in basis.
Under the new procedure, the CAT will decide whether to allow collective proceedings and whether they should be opt-in or opt-out. It will also consider the suitability of the representative bringing the action. The representative need not be a class member, but the CAT has to be satisfied that it is ‘just and reasonable’ for that person to act as representative, including whether the representative has conflicts of interest with class members and whether it has the ability to pay the defendant’s costs if ordered to do so. Importantly, claimants cannot use damages-based agreements (contingency fees) to bring opt-out collective proceedings.
In tandem with the introduction of collective proceedings, the Act also establishes a collective settlements regime in the UK. This is available for both opt-in and opt-out collective actions. The CAT is responsible for approving a proposed collective settlement if and when it is satisfied that its terms are ‘just and reasonable’. In the case of opt-out collective proceedings, an approved collective settlement is binding on all of the members of the class who are domiciled in the UK and did not opt out of the collective proceedings, and all those non-UK-domiciled members who opted in. Class members are allowed to opt out of the collective settlement.
In order to implement the changes brought about by the Act, new CAT rules and a new guide to proceedings were published in September 2015. Together with the Act, these rules align a number of the CAT’s procedural rules with the Civil Procedure Rules that apply to High Court cases. The rules also provide more detail as to how the CAT will handle collective proceedings (which are available only in the CAT). Of particular significance will be the new limitation periods for CAT cases, fast-track procedure and settlement offer procedure.
A six-year limitation period will now apply to all private actions in England, Wales and Northern Ireland, running from the date of the breach (or, in the case of concealed breaches, the date when the victim could reasonably have become aware of the breach). In Scotland, the limitation period will be five years, in line with the Scottish Court of Session. Previously, the two-year limitation period for follow-on claims before the CAT began once the relevant infringement decision became final, which led to much satellite litigation in the CAT regarding the running of the limitation period. Uncertainty around the running of the limitation period in the CAT and as to the nature of claims as standalone or follow-on, as well as a desire to establish jurisdiction without waiting for appeals against the underlying infringement decision to be resolved, encouraged many claimants to bring damages claims in the High Court rather than the CAT.
There is also provision for special rules on limitation periods for collective proceedings. The limitation period for bringing any claim is suspended from the date on which collective proceedings are commenced, allowing sufficient time for claimants to bring collective actions.
The Act introduces a fast-track procedure designed to facilitate access to justice for small and medium-sized businesses. The CAT is also responsible for determining whether proceedings should be subject to the fast-track procedure. Among other things, it will consider the complexity and novelty of the issues involved, whether the time estimate for the main substantive hearing is three days or less, the number of witnesses involved and the likely extent of any necessary disclosure.
Cases under the fast-track procedure will proceed to substantive hearing within six months and the amount of recoverable costs will be capped at a level to be determined by the CAT. A case may be removed from the fast track using the same eligibility criteria.
Offers to Settle
The new rules introduce provisions similar to those in the Civil Procedure Rules, setting out procedures for making a formal offer to settle with defined costs consequences, called a Rule 45 offer. The rules provide for adverse cost consequences in the event that a claimant refuses to accept a Rule 45 offer and ultimately fails to beat it.
Importantly, a Rule 45 offer cannot be made in collective proceedings. Parties in collective proceedings are limited to making Calderbank offers, ie, offers made ‘without prejudice save as to costs’ that do not attract the same strict cost consequences of a Rule 45 offer, but which may be taken into account by the CAT at the end of a case when considering what order to make as to costs.
Voluntary Redress Schemes
The Act also gives the Competition & Markets Authority (CMA) and other UK competition authorities the power to certify voluntary redress schemes proposed by companies that are found to have infringed competition law. Where a voluntary redress scheme is certified for an infringement under investigation, the CMA or other UK competition authority may grant the company under investigation a discount on any fine of up to 20%.
Likely Impact of the Changes
These reforms have the potential to radically alter the landscape for private competition enforcement, not only in the UK but across Europe. Within the UK, the CAT should enjoy a renaissance of its role as a forum for private enforcement, through its new powers to hear standalone actions, the ability of claimants to bring collective proceedings and the ability of the High Court to transfer appropriate proceedings to the CAT.
The most profound change is the introduction of opt-out class actions. When introducing the draft damages directive, the European Commission shied away from harmonising the rules on collective proceedings and issued only a recommendation that member states introduce a mechanism for collective redress. The UK’s decision to introduce a fully-fledged, US-style opt-out class action regime (albeit with safeguards) marks a watershed moment for private enforcement in Europe. There should be a strong desire among victims of antitrust infringements, as well as specialist law firms, to establish the UK regime as a model for securing redress for smaller and dispersed victims, and to encourage other member states to adopt similar mechanisms.
Many questions remain, however, over the viability of the collective action regime, given the UK government’s attempts to avoid the perceived excesses of the US ‘class action culture’; in particular, the effects of the prohibition on damages-based agreements in opt-out cases and the risk of an adverse costs order against the representative. These aspects could present major challenges for claimants. Moreover, it is uncertain how willing the CAT will be to certify opt-out proceedings and how strict it will be in assessing the suitability of representatives. While we expect to see attempts to capitalise on the new regime, whether the UK can become an established venue for class actions is still anything but clear.
Sunil Gadhia is a partner and Paul Gilbert counsel in the London office of Cleary Gottlieb Steen & Hamilton.