Illegal counterfactuals: the Court of Appeal shuts the back door

Suppose a defendant to a competition claim runs a defence that, in the counterfactual world in which no anticompetitive conduct occurred, pricing would have been no different; and that the claimant replies, “maybe so, but only because you were at the same time operating some independent anti-competitive scheme, which must also be purged from the counter-factual”. Can the claimant amend his claim to plead the independent anti-competitive scheme raised in his Reply as the basis for a new substantive claim even where it would ordinarily be time-barred?

In February last year, Barling J appeared to answer, “Yes”, in a judgment given in the MasterCard litigation. On one view, the curious result of that judgment was that a claimant could apparently circumvent limitation rules by introducing a time-barred allegation of unlawfulness in his Reply, then using that as a basis to apply to amend his original claim. In other words, when a limitation point blocked the front door, claimants could still bring in new claims through the back.

The Court of Appeal, however, has now shut this back door, by overturning the High Court’s judgment. For the background to the judgments, and the details of Barling J’s decision, see my previous post here.

The issue before the Court was whether or not the new claim, premised on MasterCard’s Central Acquiring Rule (CAR) arose out of the same or substantially the same facts as the existing claim, premised on MasterCard’s Multilateral Interchange Fees (MIFs) (see CPR 17.4 and section 35(5) of the Limitation Act 1980). If it did, the Court could permit an amendment notwithstanding that it was time-barred. Barling J had held that it did on the following two grounds: first, the existing claim would already require an investigation into and evidence on the CAR; and, secondly, the claimants’ reply had pleaded that the CAR was unlawful and had to be excised from MasterCard’s counterfactual – so the new claim arose out of facts already in issue with respect to the existing claim.

The Court of Appeal disagreed with Barling J on both scores. Sales LJ said that the facts underlying each claim could not be said to be the same because the counterfactual inquiry required by each claim was so different (§46). On the existing claim, the counterfactual world was one in which the MasterCard rules in dispute (principally the MIFs) were excised but the CAR remained in place. On the new claim, however, the Court would have to investigate both the counterfactual world in which the MasterCard rules were excised as well as the CAR and the counterfactual world in which all the MasterCard rules remained in place but the CAR was excised.

Sales LJ, doubting the obiter comments of Waller LJ in Coudert Brothers v Normans Bay Ltd [2004] EWCA Civ 215, further said that the claimants could not introduce the new claim by pointing to their reply and saying that the CAR’s lawfulness was already in issue. The proper rule was that, where the defendant had pleaded facts by way of defence to the original claim, the claimant could introduce a new claim premised on those facts: Goode v Martin [2002] 1 WLR 1828. However, that was not the case here because MasterCard did not specifically rely on the CAR in its defence.

The Court of Appeal was further clearly motivated by a concern about the avoidance of limitation rules. Sales LJ said at §64:

“…it would be unfair to a defendant and would improperly subvert the intended effect of limitation defences set out in the Limitation Act if a claimant were to be able to introduce new factual averments in its reply (which are not the same as or substantially the same as what is already pleaded in the claim), after the expiry of a relevant limitation period, and then rely on that as a reason why it should be able to amend its claim with the benefit of the “relation back” rule to circumvent that limitation period.”

The curious result of Barling J’s judgment has therefore been reversed by the Court of Appeal. A claimant can no longer pull himself up by his own bootstraps; limitation now guards the back door as jealously as the front.

 

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Collective Proceedings in the CAT: mobility scooters roll on for now

Last Friday the CAT handed down a judgment on the first ever-application for a collective proceedings order under the new regime introduced by the Consumer Rights Act 2015. The judgment will generally be welcomed by potential claimants, but it has a sting in the tail which may cause serious difficulties for class actions in other vertical infringement cases.

The new collective proceedings regime, contained in section 47B CA98 and CAT Rules 75-98, was one of a suite of claimant-friendly measures aimed at improving the remedies for individual victims of competition infringements whose losses were low (other measures included, for example, the new fast-track procedure). Consistently with the regime’s objective, the CAT, although stopping short of reaching a final decision, said much about the scheme which will encourage claimants.

The proposed collective action is a follow-on claim against Pride, formerly the UK’s largest supplier of mobility scooters. The OFT (the national competition regulator) had found that Pride infringed the Chapter I prohibition by object by entering into 8 vertical agreements with retailers forbidding them from advertising mobility scooters online at prices below RRP. Those 8 agreements were in fact the result of a market-wide policy that Pride had been operating and which it had communicated to all of its retailers.

The key issues before the CAT were (broadly) the authorisation of Dorothy Gibson as the class representative (under section 47B(5) and CAT Rule 78), and certification of the claims for inclusion in collective proceedings on the basis that they raised common issues. On both issues, the CAT’s approach to the claimants was benevolent.

The CAT first dismissed the defendant’s preliminary objection. Pride pointed out that both the OFT decision and the underlying infringement pre-dated the introduction of the collective proceedings regime. On that basis, it fired a salvo of arguments based on Article 1 Protocol 1 of the ECHR, the EU Charter, and EU principles of legal certainty/legitimate expectations, the thrust of which was that the CAT should interpret the regime so as to disallow its “retrospective” application. The CAT shot down all these arguments in a comprehensive discussion that should see the end of any similar threshold points about collective proceedings applications.

The CAT also had little difficulty in authorising Ms Gibson as the class representative. Although not a mobility scooter consumer, her status as an advocate of pensioners’ rights (she is the chair of a representative body, the National Pensioner Convention), who had experienced lawyers, satisfied the CAT that she would act fairly and adequately in the interests of the class (§139; see CAT Rule 78(2)(a)). Moreover, the CAT was not concerned about her ability to pay Pride’s costs (see CAT Rule 78(2)(d)). Even though Ms Gibson’s ATE insurance cover level was less than Pride’s anticipated costs, the CAT stated shortly that those costs might not be reasonable or proportionate, so it would not be appropriate to disallow collective proceedings at that stage (§145).

The CAT’s approach to certification and commonality was also – in principle – liberal. Although it said that it could not “simply take at face value” (§102) the applicant’s expert evidence, it nonetheless rejected Pride’s submission that it should take a hyper-rigorous US-style attitude. Rather, the CAT endorsed the Canadian approach, approving at §105 the following comment of Rothstein J in Pro-Sys Consultants Ltd v Microsoft Corp [2013] SCC 57:

“In my view, the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement. This means that the methodology must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class (i.e. that passing on has occurred). The methodology cannot be purely theoretical or hypothetical, but must be grounded in the facts of the particular case is question.”

The stumbling block for the claimants, however, was the CAT’s reasoning on the proper counterfactual. The claimants posited a world in which not only the 8 infringing vertical agreements were absent but also where Pride had operated no policy of prohibiting below-RRP advertising at all. The CAT, however, endorsed a narrower counterfactual from which only the specifically unlawful agreements (i.e. the 8 vertical agreements about which the OFT had made findings) were assumed to be absent (§112). With this narrower counterfactual, the CAT held that it was not clear whether there was sufficient commonality in the issues of loss, or whether the likely damages would justify the costs of collective proceedings. However, the CAT (again perhaps generously) did not dismiss the application altogether but rather adjourned it to enable the claimants’ expert to formulate a case on common loss on the basis of the revised counterfactual.

Notwithstanding the generally claimant-friendly approach, the CAT’s reasoning on the counterfactual could render other collective cases premised on vertical restraints very difficult in practice. In a large number of vertical restraint decisions, the infringer has adopted a market-wide policy but the regulator focuses, for practical reasons, on a small number of ‘implementations’ of the policy as the basis for its infringement findings. If one only excludes from the counterfactual the particular instances of unlawful implementation, rather than the more general policy which underlay them, the issues between class members may diverge: some will have been direct victims of the anti-competitive agreements, while others will have suffered only from what would have to be characterised as an “umbrella effect”. In addition, if claimants cannot proceed on the basis that the entire policy should be excluded from the counterfactual, the likely quantum may fall to a level where collective proceedings are not worth the candle. It remains to be seen whether the mobility scooter claimants will overcome these difficulties.

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When is an antitrust/competition claim caught by an arbitration clause? The Microsoft Mobile decision

The decision of the High Court in Microsoft Mobile Oy (Ltd) v Sony offers some helpful guidance as to when a competition law tort claim will be caught by an arbitration clause in a sale or supply agreement.

Competition law claims frequently complain about prices, on ground of collusion or abuse.  Those prices may already have been charged, or they may yet to be charged.  If the price in issue has already been charged then it will almost invariably be contained in a written sale or supply agreement.  It may be the product of a specific contractual mechanism to settle a price.  If the relevant agreement contains an arbitration clause, does it catch a competition law claim complaining about the price charged?

The starting point in this regard is that a detailed semantic analysis of the particular arbitration clause in question is unlikely to provide the answer.  As Lord Hoffmann observed in Fiona Trust v Privalov [2007] 4 All ER 951 at para 13:

“…the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to have entered to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”

This “one-stop shop” presumption has helped greatly in reducing disputes about the ambit of arbitration clauses.  But its application in the competition law context has been less straightforward, because of debates about precisely what the rational businessman would intend in respect of such claims.

The net effect of the law to date is that competition law claims will be regarded as coming within an arbitration clause only if they are closely related factually to a viable contractual claim which has already been, or could be, made.  Thus, for example, in ET Plus SA v Welter [2006] I.L.Pr. 18, the key consideration for Gross J in finding that competition law claims were within an arbitration clause was that they were “simply a variant on the familiar factual theme” which could be discerned from contractual claims already made (see para 51).

Conversely, in Ryanair Ltd v Esso Italiana Srl [2015] 1 All ER (Comm), the Court of Appeal held that the absence of any viable form of contractual complaint about an allegedly cartelised price rendered it impossible to claim that a competition law complaint about the same price was within an exclusive jurisdiction clause.  Having referred to the one-stop shop presumption in Fiona Trust, Rix LJ then held at para 53 that:

“Such reasoning, however, does not carry over into a situation where there is no contractual dispute (by which I intend to include disputes about contracts), but all that has happened is that a buyer has bought goods from a seller who has participated in a cartel. I think that rational businessmen would be surprised to be told that a non-exclusive jurisdiction clause bound or entitled the parties to that sale to litigate in a contractually agreed forum an entirely non-contractual claim for breach of statutory duty pursuant to article 101, the essence of which depended on proof of unlawful arrangements between the seller and third parties with whom the buyer had no relationship whatsoever, and the gravamen of which was a matter which probably affected many other potential claimants, with whom such a buyer might very well wish to link itself.”

The English Courts therefore treat competition law claims essentially as falling outside the one-stop shop presumption unless they are, factually, simply a variant on the theme of an arguable contractual claim.  This was, furthermore, the approach of the CJEU in Case C-352/13 CDC v Akzo [2015] QB 906, in which it was held that a clause “…which abstractly refers to all disputes arising from contractual relationships” would not cover tortious liability as a result of a cartel, because “…the undertaking which suffered the loss could not reasonably foresee such litigation at the time that it agreed to the jurisdiction clause” (paras 69-70).

The latest word on this topic is the Microsoft decision.  Microsoft brought a claim in the English Courts for damages for the allegedly anti-competitive tortious conduct of Sony, LG and Samsung in relation to the pricing of Li-Ion batteries.  All the allegedly cartelised supplies by Sony had been made pursuant to an agreement with an arbitration clause requiring “any disputes related to this Agreement or its enforcement” to be settled by ICC arbitration.  Sony applied to stay the proceedings under section 9 of the Arbitration Act 1996, arguing that the arbitration clause covered the tort claims made against it.

Mr Justice Marcus Smith held that, on an orthodox application of the principles identified in Ryanair, the question of whether the tortious claims were within the arbitration clause depended on whether the conduct giving rise to the tortious claims also gave rise to an arguable contractual claim.  As he observed, “…it is difficult to see how a tortious claim can arise out of a contractual relationship when the only claim in contract that can be said to be related is unarguable” (para 54).

The unusual incentives created by this (correct) understanding of Ryanair can be seen from the fact that Sony was accordingly required, in order to succeed in its application, to formulate a contractual claim against itself which Microsoft had not advanced.  Sony argued that because the relevant prices had been subject to an express obligation that they be negotiated in good faith, and because Sony was subject to a further obligation to disclose events that reasonably may affect its ability “to meet any of its obligations” under the agreement, the operation of a cartel would have been a clear breach of contract as well as tortious.

The Court accepted this submission, holding that it was “very difficult” to see how Sony could have engaged in the conduct complained of in the tort claims, without also breaching the contract.  On that basis, the competition law claims fell within the arbitration clause.  It did not matter in this regard that Microsoft had not advanced the contractual claim which Sony successfully contended it could have done, because otherwise “…it would be easy for a claimant to circumvent the scope of an arbitration or jurisdiction clause by selectively pleading or not pleading certain causes of action” (para 72(ii)).

The upshot for practitioners is that a decisive consideration when assessing whether a competition law claim falls within a jurisdiction clause is likely to be whether there are any viable contractual claims which “…would be sufficiently closely related to the tortious claims actually advanced by the Claimant so as to render rational businessmen likely to have intended such a dispute to be decided (like a contractual dispute) by arbitration” (Microsoft at para 72).  The existence and extent of any express or implied contractual obligations to observe competition law therefore looks set for detailed examination in competition law claims in the future.

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Brexit and implications for UK Merger Control – Part 2/3: Implications for the CMA’s workload and what not to do

The Competition Bulletin is pleased to welcome the second in a three-part series of blogs on Brexit and merger control by Ben Forbes and Mat Hughes of AlixPartners.  Ben and Mat are (with others) co-authors of the new Sweet & Maxwell book, “UK Merger Control: Law and Practice”.

Part one focused on the voluntary nature of UK merger control and can be found here.

Introduction – the CMA’s mergers workload will increase

At present, UK mergers that meet certain turnover thresholds fall exclusively under the jurisdiction of EU Merger Regulation[1]. However, Brexit is likely to end this “one-stop” merger control regime for UK companies, leading to more mergers being caught by UK merger control.

To put this in context, the Competition and Markets Authority (CMA) published 72 decisions concerning qualifying mergers in 2014/15, and 60 such decisions in 2015/16.  Even 20 or 30 more UK merger decisions would therefore represent a very substantial increase in the CMA’s workload, and large-scale European mergers may impact multiple UK markets.  The CMA’s workload will further increase as Brexit will also mean that the UK authorities acquire sole responsibility for enforcing all competition law in the UK.

This part of our blog series focuses specifically on two particularly poor, but often-discussed, options for reducing the CMA’s mergers workload (i.e. what not to do):

  • Removing the ‘share of supply’ test; and
  • Integrating the CMA’s Phase 1 and Phase 2 review teams.

The reason for this starting point is that the UK merger control regime has been subject to extensive fine-tuning in recent years, and it is important to ensure that future changes do not compromise the efficacy of the regime.

The third part of this blog series will focus on much more sensible options for adjusting UK merger control.

Should the CMA look at fewer mergers, and is the ‘share of supply’ test an appropriate jurisdictional threshold?

As set out in the first part of this blog, the CMA focuses more of its investigations on anti-competitive mergers than under the EU Merger Regulation. Nevertheless, another distinctive feature of UK merger control is that mergers may qualify for investigation where the merger creates (or enhances) a market share of 25% or more in the UK, or a “substantial part” of the UK (the so-called “share of supply” test). They may also qualify where the UK turnover of the target firm exceeds £70 million (the “turnover test”).

The share of supply test can be applied very narrowly at both:

  • The product level – This is because the share of supply test is based on the “description” of goods and services. These descriptions can be very narrow and do not need to correspond to economic markets; and
  • The geographic level Small parts of the UK (such as Slough), which the CMA considers to be a “substantial” part of the UK.

The share of supply test often creates uncertainty for the parties. Often they do not know the products and geographic area over which the CMA will apply the test. They may also not know their competitors’ sales, making market shares difficult to calculate.  It is therefore legitimate to question whether the share of supply is an appropriate jurisdictional threshold.

However, we believe there are two good reasons for retaining the share of supply test.  First, the share of supply test captures effectively mergers that may be problematic. From 1 April 2010 to 30 September 2016, 56% (53 cases) of the 95 Phase 1 merger cases that were either cleared subject to undertakings in lieu of reference or referred only qualified for investigation under the share of supply test.  Abandoning the share of supply test would therefore grant a “free pass” to these mergers – unless the turnover test is reduced.

The jurisdictional basis of Phase 1 merger cases either cleared subject to undertakings in lieu of reference or referred

ap

Source: AlixPartners analysis

Second, the share of supply test is a highly effective and focussed way of enabling the CMA to investigate mergers that may lead to a SLC.  In particular, UK merger control focuses on mergers that create or enhance high market shares, or that reduce the number of competitors from four to three (or fewer). Between 1 April 2010 and 31 March 2016, 94% of Phase 1 mergers where undertakings in lieu were accepted or the merger was referred, involved horizontal mergers between competitors where:

  • The merger created or enhanced high market shares of 40 per cent or more;
  • The merger reduced the number of competitors from four to three (or fewer), or where the merged undertaking’s market share exceeded 35% (calculated on various different bases).[2]

Should the CMA be fully integrated such that there is no distinction between the review teams at Phase 1 and Phase 2?

Creating the CMA as a single, integrated competition authority was intended to yield various synergies. In particular, the CMA has responsibility for both Phase 1 merger review (previously carried out by the Office of Fair Trading) and Phase 2 merger review (previously carried out by the Competition Commission).  However, a clear distinction between Phase 1 and Phase 2 has been retained.  In contrast to most other competition authorities, at Phase 2, a new case team is appointed, with largely separate staff to Phase 1 and the decision makers at Phase 1 are not involved at Phase 2.  The purpose of this structure was to retain the independence of the decision makers at Phase 2, with the CMA Panel making the final decisions at Phase 2.

The particular concern is that an integrated Phase 1 and 2 process would suffer from “confirmation bias”, namely a case team finding a competition problem at Phase 1 may be predisposed to follow suit at Phase 2.

The CMAs’ costs, and possibly those of the parties, could be reduced to some degree by dispensing with the separation of the Phase 2 and Phase 1.  However, as the government indicated when it created the CMA, the independence and impartiality of the Phase 2 regime is a particular strength of UK merger control.  Whilst the government consulted in May 2016 on the precise structure, identity and number of CMA panel members, there are strong arguments for retaining the independence and impartiality of the CMA panel.

Conclusions

Notwithstanding the inevitable increase in the CMA’s workload we would not recommend either:

  • Abandoning the share of supply test. This test is a strength of the UK regime as it focuses UK merger control on mergers that experience suggests are most likely to lead to competition concerns; or
  • Changing materially the independent and impartial nature of the CMA in relation to its investigation of Phase 1 and Phase 2 mergers.

Part three of this blog series considers, in our view, much more sensible adjustments to UK merger control to reduce the CMA’s workload without compromising its effectiveness.

[1]    There are provisions for mergers to be referred down to individual member states and up to the Commission from member states.

[2]    See further s.6-009 of “UK Merger Control: Law and Practice”, Parr, Finbow and Hughes, Third Edition, Sweet & Maxwell, November 2016.

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Brexit and implications for UK Merger Control – Part 1/3: Should UK merger control filings be mandatory?

The Competition Bulletin is pleased to welcome the first in a three-part series of blogs on Brexit and merger control by Ben Forbes and Mat Hughes of AlixPartners.  Ben and Mat are (with others) co-authors of the new Sweet & Maxwell book, “UK Merger Control: Law and Practice”. They can be contacted on bforbes@alixpartners.com and mhughes@alixpartners.com.

Introduction

Brexit will have wide-ranging impacts on the UK economy and society, including on merger control in the UK.

The focus of this blog is the voluntary nature of UK merger control.  Our subsequent blogs will consider the UK Competition and Markets Authority’s (CMA) workload post-Brexit, and the appropriate mitigating steps to manage the likely increase in workload.

Why are merger filings voluntary in the UK when they are mandatory from Albania to Uruguay?

In contrast to most other countries’ merger control regimes, including the EU Merger Regulation, UK merger control is “voluntary”. This means there is no requirement for mergers to be notified to the CMA prior to completion or at all. Whilst this is not a new issue, it is appropriate to revisit this point as post-Brexit the CMA will have sole responsibility to assess mergers that affect UK markets, which raises the question of whether the UK system should be made mandatory, as it is in most countries.

One important issue is whether UK merger control would be more efficient or effective if UK merger filings were mandatory prior to completion.

Mandatory regimes are not efficient – finding needles in haystacks

Considering first efficiency, it is highly unlikely that anyone wishing to reduce the CMA’s workload would propose mandatory filings. This is because mandatory regimes require the parties to file – and the competition authority to investigate – regardless of whether the merger raises any real competition issues that warrant investigation.[1]

However, just how inefficient would a mandatory regime be? Over the last five years, only 7.0% of the mergers notified to the European Commission were either cleared subject to commitments at Phase 1 or subject to Phase 2 review.[2]

By contrast, over a similar period,[3] 30.4% of the CMA’s Phase 1 decisions relating to qualifying UK mergers were either: (a) clearances subject to undertakings in lieu of reference; (b) clearances on de minimis grounds (which is not a basis for clearing mergers under the EU Merger Regulation – covered in part three of this series); (c) or subject to Phase 2 review. Moreover, over this period, 40.5% of qualifying UK mergers were subject to a case review meeting (such meetings are called by the CMA in relation to all mergers that may warrant detailed Phase 2 investigation).

These figures indicate that the UK merger control regime, with its voluntary filing rule, is far more focussed on investigating mergers that may be anti-competitive, rather than finding needles in haystacks.

Mandatory regimes may fail to capture all anti-competitive mergers – keeping it (jurisdiction) simple may be stupid

Another difficulty with mandatory regimes is that, because notification is mandatory, in order to make the system business-friendly the jurisdictional criteria tend to be relatively simple. Accordingly, mandatory regimes typically apply to certain types of merger transactions and depend on the turnover of the parties.[4]  However, there are trade-offs between the simplicity of these criteria (and legal certainty), failing to capture anti-competitive mergers, and inefficiently investigating and delaying mergers that are not problematic.

For example, the European Commission has consulted on extending the EU Merger Regulation to the acquisition of minority stakes in rivals or firms active in related markets, even where the firm has not acquired “control”.[5]  Similarly, the European Commission has consulted on whether the EU’s turnover thresholds should be expanded by adding more thresholds.  In 2016, the Commission observed that turnover based jurisdictional thresholds may be particularly problematic “in certain sectors, such as the digital and pharmaceutical industries, where the acquired company, while having generated little turnover as yet, may play a competitive role, hold commercially valuable data, or have a considerable market potential for other reasons.”[6]  In both instances, the concern is that anti-competitive mergers may be escaping scrutiny under EU merger control.

Whatever the precise scale and seriousness of any enforcement gaps in EU merger control, any such gaps are smaller in relation to UK merger control. In large part this reflects the more subjective nature of the jurisdictional tests applied. For example, UK merger control applies where firms acquire “material influence” over another firm, which is less than “control” under the EU Merger Regulation.  Similarly, UK merger control is not limited to a turnover based threshold. This is because a merger may also qualify if market shares of 25% or more are created or enhanced in the supply or acquisition of particular goods or services, whether in the UK as a whole or a substantial part of the UK. Accordingly, the CMA can investigate the acquisition of small competitors with low turnovers where the so called “share of supply” test is satisfied.

The downsides of voluntary filings are low

There are two potential downsides of voluntary filings. First, the CMA may fail to investigate some anti-competitive mergers that were not voluntarily notified. While this is possible, this is likely to be rare. In particular, from 1 April 2015 to 8 March 2016, the CMA’s Merger Intelligence Committee (MIC) reviewed more than 550 transactions to assess whether they warranted investigation. Ultimately, the CMA only investigated a small minority of these mergers, but approximately 20% of the CMA’s decisions over this period resulted from MIC investigations into non-notified mergers.[7]

In short, the parties to anti-competitive mergers, even in small markets, should not assume that by not notifying they can “fly under the radar” and avoid investigation.  It is particularly unlikely that large UK mergers that currently fall for consideration under the EU Merger Regulation will escape scrutiny from the CMA.

A second potential downside is that, after merger integration, it may be difficult for the CMA to re-create two independent firms. However, this issue is largely addressed by the CMA’s power to impose “hold separate orders” in relation to completed mergers that prevent merger integration pending the CMA’s final decision.  The CMA routinely exercises this power, but it may revoke the order earlier if it becomes clear that there are no issues.

Conclusions

The voluntary nature of UK merger control is unusual compared to most merger control regimes. Brexit naturally raises questions as to whether this should persist as the UK CMA is likely to acquire sole responsibility to investigate mergers affecting the UK.  However, in our view, there is not a good case for the UK to impose a mandatory regime on either efficiency or efficacy grounds.  This is particularly the case in light of the likely increase in the CMA’s mergers workload post-Brexit, which is the focus of our next two blogs.

[1]    In 2011, the UK government considered and rejected both mandatory pre-notification for mergers, and a hybrid system that would require mandatory filings above the current UK turnover threshold of £70 million.

[2]    These figures do not consider the impact of merger cases that were referred to and from member states.

[3]    The UK statistics cover the period from 1 April 2012 to 31 December 2016.

[4]    This is obviously a simplification, and some countries’ jurisdictional thresholds are highly complex. A good review of merger control in 50 countries is set out in “The International Comparative Legal Guide to: Merger Control 2017”.

[5] See further the Competition Law Forum’s discussion of these issues, available at http://www.biicl.org/documents/346_the_clf_response_to_the_european_commissions_consultation_towards_more_effective_eu_merger_control.pdf?showdocument=1

[6]    European Commission, “Consultation on Evaluation of procedural and jurisdictional aspects of EU merger control”.

[7]    https://events.lawsociety.org.uk/uploads/files/0a14983f-fb2f-4297-9884-aa9382c52b90.pdf

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Islands of jurisdiction for competition damages claims in a post-Brexit world

By Naina Patel and Andrew Scott

When the UK leaves the EU, the rules governing jurisdiction in cross-border competition damages claims will likely change. Most immediately, this will impact those who had acquired pre-Brexit causes of action for breach of statutory duty under section 2(1) of the European Communities Act 1972, based on Articles 101 and Articles 102 TFEU. The doctrine of acquired rights would preserve such causes of action;[1] but it is unlikely to preserve EU rules of jurisdiction in relation to them. Thereafter, the changes will impact those able to establish post-Brexit causes of action based on foreign laws, as Kieron Beal QC has explained. In either case, Claimants may wish to establish English jurisdiction, including as against EU domiciled defendants. This post considers some of the issues likely to be encountered.

Currently, jurisdiction in such cases is governed by the Recast Brussels Regulation (EU) No. 1215/2012 (the “Recast Regulation”). Despite the Prime Minister’s suggestion that the Great Repeal Bill will convert the entirety of the ‘acquis’ into British law, it seems unlikely that the Regulation will survive without more. It is a prime example of EU legislation predicated on reciprocity and the principle of mutual trust and recognition: see e.g. Recitals (3) and (26) of the Recast Regulation. In the absence of an arrangement between the UK and the rest of the EU to maintain post-Brexit common rules on jurisdiction and the recognition and enforcement of judgments, the premise for the Recast Regulation falls away.

At present, there are no such arrangements in place between the EU and third states.[2] It is true that Denmark entered into an agreement with the rest of the EC in relation to the predecessor of the Recast Regulation, the Brussels I Regulation. But Denmark was and remains a Member State. Whether a similar agreement is sought by or available to the UK as a non-Member State remains to be seen.

An alternative would be for the UK to seek to accede to the Lugano Convention 2007, which applies between the EU and Norway, Switzerland, Iceland and Denmark. However, Article 70 of the Convention restricts accession to members of EFTA, members of the EU acting on behalf of non-European territories which form part of them or for whose external relations they are responsible, and those states that can satisfy the conditions in Article 72, which include the unanimous consent of the Contracting States. It is reasonable to think that a condition of any such consent would include submission in some form by the UK to the jurisdiction of the CJEU in relation to interpretation of the Lugano Convention. Even if such consent were forthcoming, it is worthwhile noting that there are important differences between the Lugano Convention and the Recast Regulation. For example, Article 31(2) of the Recast Regulation has gone some way to disarming (in exclusive jurisdiction clause cases, at least) the “Italian torpedo” which still fires under the Lugano Convention owing to its rigid “first seised” lis pendens rule.  Further, the process of recognition and enforcement of judgments under the Recast Regulation is more streamlined than that which prevails under the Lugano Convention.

Failing either of these options, there is a serious question over whether the UK remains a party to the Brussels Convention, having acceded to it in its own right in 1978.  The Recast Regulation and its predecessor make clear that these instruments superseded the Convention as between Member States, except as regards the territories of the Member States which fell within the scope of the Convention but were excluded from the Regulations pursuant to Article 299 TEC and Article 355 TFEU respectively. The UK was a Member State when these Regulations were adopted and was not excluded from their provisions superseding the Brussels Convention. Brexit will not turn the UK into a territory of a Member State excluded from the Recast by virtue of Article 355 TFEU, only into a country to which TFEU does not apply at all.  It is therefore difficult to see how the application of the Brussels Convention to the UK can be revived. In any event, as Adrian Briggs QC has underscored, no country ratified the Convention after 2001 so it would not create a framework for jurisdiction with all EU Member States.

In the absence of an agreed bilateral framework, the UK will revert to applying its domestic rules on jurisdiction. These would permit the English Court to assume jurisdiction over EU domiciled defendants based on a far broader range of factors than are presently provided for by the Recast Regulation. Defendants with a mere (including fleeting) presence in the jurisdiction would be liable to be served here, even if domiciled elsewhere. Defendants with no such presence would also be liable to service outside the jurisdiction, with the Court’s permission, based on a far broader range of territorial and other connections under CPR r. 6.37 and PD 6B than are presently available under the Recast’s jurisdictional rules.

The purpose of the Recast Regulation and its predecessors is to protect EU domiciled defendants from such national rules of jurisdiction: see Article 5(2). A post-Brexit world in which the EU refuses to agree a new bilateral arrangement on cross-border jurisdiction with the UK will result in the application of English domestic law rules against EU citizens for the first time since accession to the Brussels Convention. Depending on how the English Court’s discretionary powers to stay proceedings or permit service out on forum conveniens grounds are exercised, there is real potential for the English Courts to enlarge their effective jurisdiction over competition law claims against EU domiciled defendants.

To take a few examples:

  • At present, an EU domiciled defendant can only be sued in England in “matters relating to tort etc.” where England is the place where the “harmful event” “occurs or may occurs”: see Article 7(2) of the Recast. That requires showing in a cartel case that England is where the cartel was “definitively concluded” or that England is where “the [victim’s] own registered office is located”: see CDC (C-352/13) [2015] Q.B. 906. The equivalent common law gateway for service out in CPR PD 6B, para 3.1(9) is broader in scope, e.g. it would require only that the damage sustained results from an act committed… within the jurisdiction” (emphasis added). It would likely suffice that some substantial and efficacious aspect of the cartel could be located in England.
  • At present, an EU domiciled defendant can only be joined as a co-defendant to English proceedings where an English-domiciled anchor defendant has been sued here: see Article 8(1) of the Recast. There is no such limitation under the common law necessary or proper party gateway in CPR PD 6B, para. 3.1(3). Thus, if English jurisdiction can be established by service on an anchor Defendant – whether within or outside the jurisdiction – that suffices to expose other Defendants to the risk of joinder to English proceedings. In a cartel case, for example, the requirements of the necessary and proper party gateway will ordinarily not be difficult to satisfy.
  • At present, an applicable jurisdiction clause for another Member State court has a “trump card” status under the Recast. Even if the party able to rely on that clause is one of many sued in England, and even if the sound administration of justice would favour not giving effect to it in the circumstances, the English Court is nonetheless bound to do so under Art. 25(1) of the Recast. Not so at common law, where the Court would retain a discretion – and in an appropriate case could decline to give effect to the clause so as to ensure that the entire dispute remain in the English Court: see e.g. Donohue v Armco [2001] UKHL 64; [2002] 1 All E.R. 749.
  • On account of the common jurisdictional rules in place under the Recast Regulation and the underlying principle of mutual trust, EU law prevents English Courts from granting anti-suit relief in respect of proceedings before courts elsewhere in the EU.[3] In the absence of a similar multilateral arrangement post-Brexit, English Courts are unlikely to feel inhibited from applying ordinary principles on anti-suit relief, e.g. to restrain a party from pursuing in the EU proceedings brought in breach of jurisdiction or arbitration clauses, or proceedings which are vexatious and oppressive or otherwise unconscionable.

Perhaps then, at least in the context of competition damages claims, if the effect of Brexit is that we return to common law rules, there will be some hidden treasure.

So in what direction should clients be advised to row their boats in the run up to Brexit?  English jurisdiction and arbitration clauses are likely to remain valuable tools in dispute resolution so it will continue to make sense to include them in new contracts; it may also be prudent to review old contracts to insert such clauses or to revise those drafted by reference to EU legislation. In doing so, it will be important to pay close attention to the remarks made by Rix LJ and the CJEU respectively in Ryanair Limited v Esso Italiana Srl [2013] EWCA Civ 1450 and the CDC case. The effect of each is that (at least some) tort claims founded on breaches of competition law will not ordinarily be caught by even broadly-worded jurisdiction clauses (e.g. those providing for jurisdiction over “all disputes arising from contractual relationships”): express words will be necessary. The scope of the principles stated in these decisions is likely to be a fertile area of dispute in competition law cases, not least because some claims (e.g. those in a bid-rigging context) have a more obvious connection to contracts containing such jurisdiction clauses than others (e.g. the price-fixing cartel contexts of Ryanair and CDC).

As for litigation strategy more generally, depending on which jurisdictional framework the UK ends up embracing, there may be significant value in re-considering the torpedoes and injunctions which we have seen submerged in EU competition litigation in recent years.

[1] Subject, of course, to any transitional arrangements to the contrary.

[2] While the EU and several third states are party to the Hague Convention on Choice of Court Agreements 2005, it deals only with exclusive jurisdiction agreements.

[3] See, for example, the decisions in Turner v Grovit (C-159/02 [2004] ECR I-3565) and West Tankers (C-185/07).

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Competition Law claims post-Brexit: the issue of applicable law

Once notification is given by the UK Government of its intention to withdraw from the European Union under Article 50 TFEU, EU law will cease to apply in the UK after the expiry of two years (absent an agreement between all 28 Member States extending the relevant period). What then happens to the UK’s competition law regime, which is closely intertwined with EU law, both substantively and procedurally?

The answer will depend to a large extent on the terms of the Great Repeal Bill. What is clear, however, is that the provisions of Article 101 and 102 TFEU will no longer apply within the territory of the United Kingdom. Those Articles presently have direct effect in the UK legal order. General principles of EU law, including the principle of direct effect, are binding in the UK under Article 6 TEU, read in conjunction with sections 2 and 3 of the European Communities Act 1972. But it seems inevitable that the Great Repeal Bill will remove the direct effect of substantive EU competition law. Moreover, Regulation 1/2003 (the Modernisation Regulation) will no longer be directly applicable in this jurisdiction. But the terms of the Competition Act 1998 (‘CA 1998’) will still apply. The Chapter I prohibition, for example, prohibits cartel conduct producing an actual or potential effect on trade within the United Kingdom. The provisions of the CA 1998 can no doubt continue in force largely unamended, save of course for section 60 CA 1998 with its focus on aligning as far as possible the position adopted by domestic and EU law on parallel issues.

It will be no secret to those reading this blog that competition law claims in the UK have increased in number in recent years. The ‘mystery of the reluctant plaintiff’ finally seemed to have been resolved.[1] Many of these claims have been brought on the basis of Articles 101 TFEU, Article 53 of the EEA Agreement and the Chapter I prohibition contained in section 2 CA 1998. Indeed, some of these claims have also incorporated claims based on the applicable laws of tort in other Member States of the EU. Does the departure of the UK from the EU mean that these claims will no longer be brought? The answer is very likely to be no. There are two principal reasons.

First, there has been no suggestion that claims seeking to enforce accrued rights to damages cannot be brought once the UK leaves the EU. Anyone who is the victim of cartel conduct, for example, will continue to have rights under EU law which confer a right to damages up until the UK’s departure from the EU. The Great Repeal Bill cannot lawfully deprive victims of the benefit of these accrued rights without seriously risking falling foul of Article 1 of Protocol 1 to the European Convention on Human Rights. The English legal system should accordingly continue to recognise the tortious liability of Defendants for damage that occurred while EU law was applicable in this jurisdiction.

Secondly, a distinction needs to be drawn between jurisdiction and applicable law. Once jurisdiction is established against one or more Defendants within this jurisdiction, the question of which claims may be pleaded and proved against them is a question of the applicable law of the tort. At the moment, the applicable law for competition claims for loss arising after 10 January 2009 is determined by the application of the Rome II Regulation[2] (and principally by Article 6(3)). That Regulation will no longer be binding on English courts once we leave the EU. But absent any legislative intervention in the Great Repeal Bill, the default position will then be that the pre-Rome II legislative framework will continue to apply. Section 15A of the Private International Law (Miscellaneous Provisions) Act 1995 (‘PILMPA 1995’) suspends the application of that Act when the Rome II Regulation applies. It follows that, when the Rome II Regulation is not applicable (either by virtue of its temporal or geographical scope), then the provisions of PILMPA 1995 remain fully effective.

The 1995 Act abolished the common law requirement of “double-actionability.” So free-standing claims for breach of the competition laws of other Member States – and of Articles 101 and 102 TFEU – can still be advanced in the courts of England and Wales, if the criteria for liability under those laws is met. Where, for example, a claimant sustains loss both in the EU markets and in the UK, there is no reason in principle why a claim for all of its loss cannot be brought in England. Expert evidence would be needed as to what the contents of those laws – including of EU law – are. See section 4(1) of the Civil Evidence Act 1972. But it is common for commercially significant cases to involve the pleading and proof by experts of causes of action based on foreign laws. Sections 11 and 12 of the PILMPA 1995 determine how the applicable law of the relevant tort or torts is to be selected.

One potential issue that arises is whether or not the enforcement of a foreign competition law would fall foul of the prohibition on English courts enforcing foreign, penal laws. Section 14(3)(a)(ii) of the 1995 Act provides that nothing in Part III of that Act “(a) authorises the application of the law of a country outside the forum as the applicable law for determining issues arising in any claim in so far as to do so— . . .(ii) would give effect to such a penal, revenue or other public law as would not otherwise be enforceable under the law of the forum.”

But this provision is highly unlikely to prevent a claim being brought for compensation on the basis of the foreign laws of one or more jurisdictions. A claim for compensation based on a breach of a foreign competition law (or foreign law of tort or delict) is not the enforcement of a penal law. Such claims do not amount to an attempt to enforce a competition law which gives the national competition authorities in those foreign jurisdictions powers to fine cartelists. In Huntington v. Attrill [1893] AC 150, PC, Lord Watson at p. 157-158 stated: “A proceeding, in order to come within the scope of the rule, must be in the nature of a suit in favour of the State whose law has been infringed.” That is not the case where a claimant (who is in any event not likely to be a public body in a foreign state) is claiming a compensatory remedy rather than enforcing a fine or penalty. See United States Securities and Exchange Commission v. Manterfield [2009] EWCA Civ 27; [2010] 1 W.L.R. 172, CA per Waller LJ at [19] to [23].

It follows that if jurisdiction of the English Courts can be established, then there is no insuperable impediment to claimants bringing claims for loss arising from cartels and other anti-competitive conduct in much the same way as they do at present.

[1] The “mystery of the reluctant plaintiff” was a reference by J. Maitland-Walker at a conference in London, 1982, cited in Enric Picañol, Remedies in national law for breach of Articles 85 and 86 of the EEC Treaty – a Review, Legal Issues of European Integration, Deventer No. 2 (1983) 1 at page 2. Comprehensive reasons why there were not more claims under the pre-Modernisation competition regime were provided by John Temple Lang in EEC Competition Actions in Member States’ Courts – Claims for damages, declarations and injunctions for breach of Community Antitrust Law (1983-4) vol. 7 Fordham Intl L.J. 389 at page 407.

[2] Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations.

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