OFT welcomes DBIS proposals for reforms in private enforcement of competition law

Many readers will now be familiar with the proposals for the reform of private competition claims launched by the Department for Business Innovation and Skills (‘DBIS’) in April 2012 (‘Private actions in competition law: A consultation on options for reform’). Published at the end of July 2012 when most people had better things to do, the OFT’s Response has generated less attention. It nonetheless provides a general endorsement of the DBIS proposals.

The OFT has noted that one of the key barriers to collective actions to date has been the low take up by claimants where the prospective recovery for each individual is modest. The OFT has therefore strongly supported the suggested introduction of an “opt-out” regime for collective actions, subject to certain caveats. First, the OFT recognises that appropriate safeguards need to be built into any scheme to dissuade abusive litigation. It recommends a strong court certification procedure to oversee the appointment of the representative body and retention in principle of the normal costs’ rules. Secondly, it is lukewarm about the DBIS proposal for all such actions to be heard in the CAT in the first instance. One senses that resource constraints in relation to the CAT are a driver of this reaction. But a proposed concurrent jurisdiction with the High Court is also accompanied by the suggested removal of the jurisdictional limitations on section 47A claims in the CAT. Few can doubt that such a proposal would be sensible. The Enron experience has successfully deterred claimants from commencing follow-on claims in the CAT. Thirdly, the OFT has cautiously welcomed the conferral of a power on the CAT to grant interim injunctions, but favours retaining in principle the need for a cross-undertaking in damages. Fourthly, the OFT has pointed out that expansion of the CAT’s jurisdiction will require synchronisation of applicable limitation periods in civil actions.

In addition, the OFT has backed DBIS’s proposal for a rebuttable presumption of a 20% overcharge to be applied in claims against cartels. It accepts that the risk of inconsistencies in the application of such principles across the EU Member States will need to be addressed. It also considers that other safeguards will have to be established to prevent vexatious claims. A mechanism will also be needed to deal with cases that involve both direct and indirect purchasers. In relation to the connected – and vexed – issue of the “passing on” defence, the OFT favours this question being addressed at a European level.

Thought has been given to the funding constraints that affect competition claims. The OFT accepts that the success of the current reform proposals will depend on ensuring that costs and funding arrangements “strike an appropriate balance between removing disincentives for claimants to bring meritorious claims and avoiding unfairness to defendants.” It endorses costs-capping orders. It also suggests that there should be no absolute restriction on the use of contingency fees or damages based agreements in competition claims, including opt-out collective actions. Instead the OFT advocates the adoption of appropriate safeguards against the risk of abuse.

The greatest reservations expressed by the OFT essentially relate to matters that may impact upon its public enforcement role. The OFT states that it is crucial that protection is given to leniency documents. It stands firmly behind the recent joint resolution of the NCAs in the EU on the perceived need to protect leniency material from disclosure in the context of civil damages actions. It also notes that the EU Commission is actively considering a proposal for legislation on this issue in the light of the Pfleiderer judgment. This stance is a little curious, since as long ago as April 2008, the Commission Services paper accompanying the Commission’s White Paper on damages identified the main problems with damages actions as “the very complex factual and economic analysis required, the frequent inaccessibility and concealment of crucial evidence in the hands of defendants and the often unfavourable risk/reward balance for claimants.” The informational asymmetry facing would-be claimants in competition claims has recently been recognised by the Court of Appeal in KME Yorkshire Ltd v. Toshiba Carrier UK Ltd [2012] EWCA Civ 1190. The OFT’s view is clearly driven by the very strong desire to preserve the efficacy of the leniency regime, come what may. In an effort to maximise the benefits for leniency applicants, the OFT also endorses the removal of joint and several liability for undertakings granted Type A immunity. The problem with this proposal has always been how it could successfully address leniency applicants that are exposed to actions in more than one Member State. The OFT acknowledges this practical constraint. It suggests the issue might better be addressed at a pan-EU level.

Two proposals from the OFT may raise more eyebrows. First, it suggests that there should be a statutory requirement (in the CA 1998) for the UK Courts and Tribunal to have regard to the OFT’s (and other regulators’) decisions and guidance when determining competition issues. Secondly, it also recommends the adoption of a power to permit a Masterfoods-style stay of domestic court proceedings while there is an OFT investigation pending in the same area.

The need to address a number of issues on a pan-EU level and constraints in Parliamentary time make any proposed legislation unlikely in the current Parliament. But it would be a shame if the DBIS proposals were left to gather dust. Back in 2008, the Commission staff working paper concluded that consumers in the EU were not securing – and were not able to secure – adequate redress for the harm done to them by competition infringements. The Commission described this as “a clear deficit in terms of corrective justice.” The working paper identified the size of the harm done in relation to hardcore cartels with a pan EU impact as ranging from €13 billion to €37 billion. The DBIS Proposals, with the backing of the OFT, represent a good opportunity to do something about this deficit.

The OFT Response can be seen here.