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Collective redress

15 October 12

The UK Government faces a delicate balancing act in devising an effective remedy for consumers against losses caused by price-fixing cartels

by Catriona Munro, Jennifer Marshall

The UK’s regime for collective action in competition law could be set for a fundamental overhaul, following proposals by the Department for Business, Innovation and Skills to allow claims to be brought on behalf of a defined group, without identifying each individual claimant or requiring individuals to sign up to the action. It follows several years of debate between competition authorities and lawyers, which has failed to secure significant progress on a new framework to encourage more damages claims against cartelists for loss caused by price fixing or market sharing.

Sensibly balanced, such reform could complement public enforcement and offer a clear disincentive for companies to infringe competition rules. Change is well overdue, with the number of cases brought by sizeable businesses for large-scale losses, usually in the tens of millions of pounds, increasing dramatically in recent years, while there have been no collective cases since 2009.

Not the USA

The current proposal envisages the creation of an opt-out regime, with safeguards to avoid the undesirable elements of US-style class actions. These include a requirement for the court to certify collective actions, and continued application of the general principle that the loser pays the winner’s costs, to discourage spurious claims. It is also proposed that punitive damages would not normally be available.

Individuals or SMEs who are victims of cartels will welcome these proposed changes. Currently, raising an individual damages action is not an option for these groups, due to the high cost. An opt-out regime would provide a mechanism for all victims to be compensated. Such actions would typically be brought on the basis of an estimate of the total size of the group, with claimants being able to claim their entitlement after judgment is issued and the level of damages quantified. The reforms, therefore, aim to make it possible to recover losses which individually are small but collectively are large. If such actions take off, we could see the emergence of mass litigation on a scale so far unknown in the UK.

In the balance

Once an opt-out process becomes available for one type of litigation, in this case competition actions, it may however turn out to be difficult to restrict it from spreading to others. This type of action would also be unusual in the Scottish legal system, where there is currently no formal procedure to deal with multi-party actions or for grouping similar cases together, although cases dealing with similar issues may be grouped informally.

A key challenge in structuring a new regime is to ensure that a balance is struck between holding wrongdoers to account, while avoiding frivolous claims. There is a desire to safeguard the highly successful cartel leniency programme, which has led to detection and the imposition of fines. If the risks of mass claims become too great, prospective leniency applicants may opt to stay silent, in the hope that the cartel will remain undetected. Perhaps most significantly, there is no desire to encourage a feeding frenzy for claimant lawyers.

When opt-out actions are introduced, damages-based fee agreements may not be available. There are concerns that these could make such cases highly lucrative for lawyers and encourage “ambulance chasing”. In contrast, the Civil Justice Council’s working group on the implementation of Lord Justice Jackson’s review of civil litigation costs has commented that damages-based fee agreements should be available for all commercial cases, including competition claims.

Much will depend on which funding options become available. In Scotland, the outcome of the Taylor review of civil litigation funding is not yet decided. Irrespective of how litigation is funded, funders will be gambling on the success of such actions, as the law on private damages actions is still developing, with a slew of major judgments over the last 12 months.

Cost analysis

Few would dispute that a future system should actively discourage anti-competitive behaviour while offering an opportunity to recover losses that individually are small but collectively large. However, this is easier said than done. If businesses that might have looked for leniency decide not to come forward, consumers’ ability to obtain some measure of redress for goods on which they were overcharged might well be outweighed by the cost of more anticompetitive behaviour continuing undetected.

As the Government contemplates its next step, the question of effective consumer redress remains one of the major challenges to creating a framework that recognises these key issues and secures a sensible balance.

Catriona Munro is a partner and Jennifer Marshall a senior solicitor in the EU, Competition & Regulatory team at Maclay Murray & Spens LLP e: catriona.munro@mms.co.uk and jennifer.marshall@mms.co.uk

 

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