UK preparations for a ‘no deal’ Brexit – competition law

by Hogan Lovells
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On 30 October 2018, the UK government published a draft version of a statutory instrument (Competition SI) and guidance issued by the Competition and Markets Authority (CMA) which, taken together, clarify how a 'standalone' UK competition regime would operate in the event of a 'no deal' Brexit scenario.  Though the Competition SI seeks to preserve as far as possible the current competition framework and policy, it makes specific provision for the immediate transition to such a standalone UK regime – in particular, confirming that the CMA, operating under newly repatriated powers, would be free to take jurisdiction over ongoing EU antitrust and merger reviews as of 30 March 2019.

Antitrust
 
By operation of the Competition SI,[1] section 60 Competition Act 1998 (CA98) will be repealed in its entirety. As it currently applies, section 60 CA98 requires that the UK courts and regulatory authorities interpret the UK antitrust provisions in a manner consistent with decisions and principles established by the Court of Justice of the European Union while also having regard to decisions and statements of the European Commission.  This change means the CMA and UK courts will not be obliged to follow (or have regard to) EU Court judgments or Commission decisions that occur after Brexit.
 
In place of section 60 CA98, the Competition SI will introduce a new provision, section 60A, which will govern the treatment of EU Court judgments and Commission decisions rendered before Brexit. In short, it will require UK authorities and courts to ensure there is no inconsistency with pre-existing EU case law when applying/interpreting UK competition law.  Nevertheless (under section 60A(7) CA98), the UK authorities and courts will be able to diverge in the future from pre-exit EU case law where it is considered "appropriate in the light of particular circumstances".[2] Specified circumstances include the development of post-Brexit EU case law, differences between markets in the UK and EU, developments in economic activity, and the particular circumstances under consideration. 
 
The UK authorities and courts will, therefore, have some flexibility regarding the extent to which they continue to track EU case law.  While the benefits of legal certainty for business would point against divergence, there will no doubt be cases where this is considered appropriate.  One can envisage future arguments being made in this respect about the inappropriateness of pre-Brexit EU case law where, for example, protection or promotion of the Single Market was a primary focus.
 
The Competition SI also confirms that after the UK's exit from the EU on 29 March 2019, the CMA (in addition to no longer being able to apply EU antitrust provisions – namely Articles 101 and 102 TFEU) will be unable to open an investigation into infringements of UK competition law where, before the UK's exit, the Commission:

  • had relieved the CMA of competence (ie where the Commission initiated formal proceedings in relation to conduct that affected inter-state trade, this would have prevented the CMA and UK courts from applying Articles 101/102 TFEU to that case); and
  • had reached an infringement decision (which has not since been annulled on appeal).  

However, where a Commission investigation remains ongoing as of 29 March 2019 (ie no decision has been published before the UK's exit), it will be open to the CMA to conduct its own investigation into possible infringements of UK law (happening before or after 29 March 2019).  The CMA will have regard to its 'prioritisation principles' taking into account the circumstances of the UK’s exit when deciding whether to open such a case.
 
The relevant EU block exemptions (seven in total) will be retained in UK law but amended accordingly (ie to account for the UK's departure – eg reference to "Euros", "EU", etc). The Secretary of State, acting in consultation with the CMA, will have the power to amend or revoke these block exemptions.  Given that the Vertical Agreements Block Exemption is up for review next year and renewal in 2022, it will be interesting to see how the UK government proceeds (in a 'no deal' situation or otherwise).  For example, unconstrained by 'Single Market' imperatives, will the UK take a less stringent approach to the analysis of vertical restraints – in particular, moving away from a view of resale price maintenance as (in principle) presumptively anticompetitive?
 
Mergers
 
In terms of mergers, the government confirms that where an 'EU dimension' concentration (ie one meeting the jurisdictional thresholds under the EU Merger Regulation (EUMR) and over which the Commission normally has sole jurisdiction to review) has been cleared by the Commission before 29 March 2019, the UK will not have jurisdiction to review as a 'relevant merger situation' under section 23 Enterprise Act 2002 (EA 2002) unless the Commission's clearance decision is subsequently annulled (in whole or in part following an appeal).[3]
 
However, where a Commission merger review straddles 29 March 2019 (ie remains ongoing), the CMA will not be excluded from taking jurisdiction over the UK aspects of the deal where the UK jurisdictional thresholds under EA 2002 are met.  The CMA recommends that parties who envisage the possibility of such a situation should engage with the CMA at the earliest possible opportunity – in particular, where the transaction throws up substantive issues in the UK (with the CMA suggesting that pre-notification discussions might begin at that point).  Going forward, the CMA states that it will continue to monitor non-notified merger cases, including cases falling under the EUMR. 
 
It has been speculated that Brexit will likely lead to a substantial increase in merger work for the CMA, with some estimates suggesting that an additional 30 to 50 transactions annually will now fall for review by the CMA (ones that would otherwise have been dealt with in Brussels).  While provisions and budget have already been made for such an expanded role, a 'no deal' scenario, potentially resulting in a sudden spike in additional cases, would no doubt represent a serious and immediate challenge for the CMA's resources. 
 
Additional thoughts
 
Beyond the gathering pace of preparation for a 'no deal' scenario (and the implications for mergers and antitrust specifically), there are of course other implications brought about by Brexit.  For example, where a competition law infringement decision is reached by the Commission after Brexit, claimants seeking to pursue follow-on damage claims in a UK court (traditionally the most popular European venue for such claims) will no longer be able to rely on the decision as a binding finding of infringement.  Instead, they will have to run a standalone claim, and prove infringement of one of the EU antitrust prohibitions as a breach of a foreign tort.  
 
The UK government has also committed to establishing its own domestic State aid regime.  Though the CMA has given assurances that the regime will look very much as it does currently (and that under any future EU agreement, the UK may agree to “remain in step" beyond the Brexit 'implementation' period), the challenges for the CMA as the post-Brexit State aid authority are considerable.  This would be particularly so in the context of a 'no deal' Brexit – ie in terms of the timely marshalling of requisite resources and expertise whilst also navigating the inevitable politics associated with State aid (a major point of contention in the Brexit debate).  Regardless of these obstacles, the CMA claims that the newly created State aid function will be ready for March 2019 “if necessary”.[4]
 
Finally, while the recent UK guidance and draft legislative provisions focus naturally on the UK's likely response to a 'no deal' situation, it is also necessary to consider how the Commission and the remaining Member State authorities might respond to the jurisdictional uncertainties thrown up by such a scenario.  Consider, for example, a merger being reviewed by the Commission under the EUMR in which the UK revenues of the parties, taken into account for jurisdictional purposes at the time of the transaction's signing pre-Brexit, are subsequently stripped out on 30 March 2019.  Arguably this could result in the merger ceasing to have an 'EU dimension' – with the Commission losing its EUMR jurisdiction and Member States potentially gaining jurisdiction under their national rules.  Gauging the Commission's view on such an eventuality (and, in particular, how it might plan to pre-empt any potential disruption by, for example, pre-determined arrangements with the remaining Member States) would seem highly prudent for parties whose transactions risk being live in front of the Commission at the time of Brexit (and regardless of whether the UK gains its own jurisdiction to review such deals).

 


[1] See also CMA Guidance: CMA's role if there's no Brexit deal

[2] See CMA Guidance CMA's role in antitrust if there's no Brexit deal

[3] See CMA Guidance CMA's role in mergers if there's no Brexit deal

[4] See CMA speech: "Post-Brexit state aid in the UK" – Juliette Enser, Director of State Aid (30 October 2018)

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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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