Antitrust,
Competition & Trade
Regulation
The Beginning of US Style Class Actions in the
UK? The Risks Associated with Past and Future
Anti-Competitive Behaviour Just Increased
Insurance Coverage
By Neil Baylis, Jane Harte-Lovelace and Zanda Romata
Commercial Disputes
On 1 October 2015 the UK introduced a new class action regime for breaches of
competition law (specifically cartel conduct or abuse of dominant position) permitting
collective proceedings for damages claims which will be heard before the Competition
Appeals Tribunal (“CAT”). This will make class action type proceedings for competition
cases significantly easier to get off the ground than a Group Litigation Order and also
gives the CAT power to grant injunctive relief.
October 2015
Practice Group(s):
Although, unlike in the US, the Consumer Rights Act 2015 ("CRA") does not permit
multiple or exemplary damages and has other safeguards to deter unmeritorious claims
(including the need for the CAT to authorise any collective proceedings) the changes
introduced are likely to increase the attractiveness of the UK for cartel damages claims. A
number of “plaintiff lawyers” are already encouraging clients to bring claims, for example
against investment banks in relation to foreign exchange manipulation.
Claims can be brought by any person who has suffered loss or damage, including both
consumers and businesses, provided the claims raise the same, similar or related issues
of fact or law. They are commenced by a proposed class representative who must be
approved by the CAT which must be satisfied that the representative can act in the
interest of the class members, does not have a conflict of interest, can pay the
defendant’s costs if so ordered and has a plan as to governance and consultation. The
action can only proceed if the CAT has made a collective proceedings order, which will
specify whether the claims can be brought on an opt-in or opt-out basis. The first battle
for companies facing claims will be in the context of certification.
Claims can be based either on an alleged infringement of competition law (so-called
stand-alone actions which were prior to the CRA coming into force out of the CAT’s
jurisdiction) or a competition law infringement decision of the Competition and Markets
Authority, the sectorial regulators (for example Ofcom or OFGEM), the CAT or the
European Commission (so-called follow-on actions). This would include infringements of
the prohibitions on agreements, arrangements and concerted business practices which
prevent, restrict or distort competition within the UK or the EU and abuse of a dominant
position affecting trade within the UK or between EU member states. Companies that
have been granted immunity from fines or leniency for their cooperation with the
authorities in the investigations are not exempted from damages actions.
Proceedings can be opt-in (brought on behalf of every member of a class who opts in by
notifying the class representative) or opt-out (brought on behalf of each member of a
defined class except anyone domiciled in the UK who opts out and anyone not domiciled
in the UK unless they opt in). This means that it will now be possible for claims to be
brought in the UK without needing to identify every individual claimant. This is familiar
territory in the US but a major change for the UK.
The Beginning of US Style Class Actions in the UK? The
Risks Associated with Past and Future Anti-Competitive
Behaviour Just Increased
It remains to be seen how the CAT will exercise its judgement in assessing the
appropriateness of applications for collective proceedings orders and who will and will not
be approved to be the class representative and rules and guidance are due to be issued.
Another significant change is that the CAT can award damages in collective proceedings
without assessing the amount of damages recoverable by each individual class member
which may well increase the low value consumer claims. Judgement in the collective
proceedings will bind all parties represented by the class representative. At the same
time a right to make a claim in collective proceedings does not affect the right to bring
any other proceedings in respect of the claim.
Where there are unclaimed damages in an opt-out case, they will be paid to a charity,
and not returned to the defendant.
In an effort to avoid some of the excesses of the “litigation culture”, damages based fee
agreements, such as those common in the US, by which the claimant's lawyers are paid
out a percentage of the damages awarded are not permitted in opt-out collective
proceedings and would be unenforceable. However other alternative fee arrangements,
such as success fees (an uplift in the legal fees) and third-party funding are allowed.
Such arrangements reduce the risk for claimants although, as is usual in the UK, the
general rule that unsuccessful claimants will be ordered to pay the defendant’s costs
should still deter the more speculative claims.
The changes are likely to lead to a significant increase in the risk of litigation for
companies currently under investigation by the authorities or in respect of which the
regulator's investigations have been concluded. Infringing companies can try to avoid
litigation by establishing a voluntary redress scheme to provide compensation to victims
of their conduct. Such scheme will have to be approved by the CMA.
Conclusion
The ability of claimants to share their legal fees by bringing a collective action, taken with
the growth of third-party funding and the arrival of aggressive “plaintiff” firms, gives rise to
a significantly increased risk to companies who may have breached competition law to be
sued as part of a class action with a potentially considerable and unknown liability for
damages where those collective proceedings are on an opt-out basis.
The enhanced injunctive relief which the CAT can grant may encourage competitors to
take action as part of a tactical attack.
Companies need to pay particular attention to infringement investigations by the
regulators since the CAT is bound by an infringement decision once it is final.
Companies should assess the risk of being pursued under the new regime and seek to
protect against it including reviewing their competition compliance programs and
contracts with customers and competitors.
The costs of defending proceedings may be insured or insurable and relevant insurance
policies and what is disclosed to underwriters in the run-up to renewal should be carefully
reviewed.
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The Beginning of US Style Class Actions in the UK? The
Risks Associated with Past and Future Anti-Competitive
Behaviour Just Increased
Lawyers from the K&L Gates Antitrust, Competition & Trade Regulation Practice Group
are engaged globally in the defence of significant complex criminal and civil cartel
enforcement investigations and litigation for clients in key industry sectors and in private
actions customarily following agency enforcement action. We help clients navigate
competition litigation to seek the earliest and most advantageous exit. Our lawyers have
not only the experience to litigate class actions, but the judgment to know whether to take
a leading role in the defence or to minimize cost by taking a supporting role; whether to
aggressively pursue an exit strategy or to wait and conserve credibility; and how best to
distinguish our client from other defendants to minimize exposure. With fully integrated
offices across the world, our experience can seamlessly be shared between our lawyers
for the benefit of clients.
Authors:
Neil A. Baylis
neil.baylis@klgates.com
+44.(0).20.7360.8140
Jane Harte-Lovelace
jane.harte-lovelace@klgates.com
+44.(0).20.7360.8172
Zanda Romata
zanda.romata@klgates.com
+44.(0).20.7360.8270
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