The Beginning of US Style Class Actions in the UK? The Risks Associated with Past and Future Anti-Competitive Behaviour Just Increased

by K&L Gates LLP

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.

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.

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.  

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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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