A draft bill offering consumers better redress

Expanded powers for the Competition Appeal Tribunal and new opt-out rules for groups actions would be good news for consumers, says John Doherty

On 12 June 2013, the Department for Business, Innovation and Skills (BIS) published its draft Consumer Rights Bill, with a mandate to stimulate growth and empower consumers by simplifying, consolidating, clarifying and, in places, modifying consumer law. Some of the most radical changes are to private proceedings for violations of competition law, where the proposed changes to SMEs' and consumers' rights to obtain redress take private litigation in the UK into uncharted waters.

Complex processes

Losses suffered by businesses and consumers as a result of others' breaches of competition law are recoverable as a matter of law. However, in practice, the complex processes and procedures faced by prospective claimants mean that this cause of action is often ignored. Between 2005 and 2009, for instance, only 41 competition claims reached judgment and only one consumer collective action has been mounted since their introduction in 2002.

Although this state of affairs may spare big business some litigation headaches in the short-term, the current regime fails to maximise the potential for a robustly enforced compliance regime to stimulate much needed economic growth and to help deliver a healthier, rebalanced economy.

Limited options

At present, a victim of anti-competitive behaviour has two options. They can either bring a claim before the High Court; or where there has already been a regulatory decision that anti-competitive behaviour has taken place, bring a 'follow-on' claim before the Competition Appeals Tribunal (CAT).

The High Court is an unspecialised tribunal which carries with it a high level of cost, risk and procedural complexity. The CAT, however, despite being a specialised tribunal of competition experts, has shorter limitation periods, cannot grant injunctions to stop unlawful behaviour and can only hear follow-on cases.

The problems with the present regime are compounded for consumers. Where a consumer group wishes to bring an action on behalf of those it represents, it must do so through the cumbersome opt-in procedure, whereby every consumer who wishes to be part of an action must expressly opt in. Any damages won are limited to the losses sustained by those claimants who have opted in. As a result, the vast majority of competition claims - often characterised by small losses suffered by a great number of consumers - are not economically viable.

Furthermore, the current regime makes little or no provision for ADR, leaving even the most well-intentioned parties without any assistance to reach a negotiated settlement.

CAT potential

The draft Bill seeks to realise the untapped potential of the CAT by taking competition cases out of the High Court and putting them on a specially designed fast track procedure within the CAT. The draft Bill widens the powers of the CAT, removes some of the inconsistencies between the CAT's powers and those of the High Court (for example, giving the CAT the power to grant injunctions) and streamlines the CAT's procedures.

For the first time the CAT will have the power to hear stand-alone actions. The draft Bill also harmonises the limitation periods applied by the CAT with the longer periods applied by the High Court.

These provisions are welcomed as a substantial remodelling of the relationship between the CAT and the High Court. They will do much to bridge the "enforcement gap" between time-consuming, expensive and unduly complex High Court actions and the limited procedures, powers and availability of the CAT. Additionally, both claimants and defendants will benefit from more claims being heard by a specialist tribunal whose procedures are tailored for competition disputes.

By allowing the CAT to hear stand alone actions, the draft Bill will remove the CAT's reliance on primary enforcement action. It was never clear what made competition claims, compared to any other cause of action, so explosive that potential defendants could only be pursued after a regulatory finding of guilt. This anomaly is abrogated by the draft Bill, and this is to be commended.

Fast-track procedure

Coupled with proposals to increase access to the CAT, the draft Bill also aims to make the CAT more efficient with the introduction of a special fast-track procedure. This will include more active case management by the CAT and mandatory costs capping.

Even with procedural reforms, however, much of the success of these proposals will depend on whether the CAT is up to the job. The CAT is underfunded at present and no plans have been announced for an increase in funding commensurate with the CAT's greatly expanded role. With all competition claims channelled through the CAT and not shared with the High Court, much of the workability of BIS's scheme will depend on the ability of the CAT to adapt and replicate its previous successes to its new role.

Opt out for collective redress

The right of certified consumer representative organisations to bring actions on behalf of consumers who are the victims of anti-competitive behaviour was introduced by the Enterprise Act 2002. However, the shortcomings of the current regime are clearly underlined by the fact that only one such action was brought in the past ten years - by the consumer group Which? in respect of resale price maintenance of replica football shirts.

The draft Bill attempts to resolve the difficulties with the current system by introducing a limited opt-out collective action regime, subject to certain safeguards to prevent abuses and to limit the scope for bringing without-merit claims.

Most controversially, the CAT will have the power to decide on a case-by-case basis whether a particular claim should be limited to those consumers who have expressly opted-in, or pursued on behalf of all consumers except those who have expressly opted-out. In opt-out cases, compensation will be assessed to reflect losses incurred by the whole class of consumers (less those who have opted out).

This aspect of the reforms lays bare the precarious balance between the need to empower individuals and consumers to obtain redress for competition breaches, and fear of a US-style litigation culture.

To limit the risk, the draft Bill includes various limitations on consumer actions, including:

• only automatically opting-in UK domiciled consumers;

• prohibiting exemplary damages;

• retaining the "loser pays" presumption on costs; and

• prohibiting CFAs.

Those restrictions would be reinforced by an early stage judicial certification test (akin to seeking "leave" or "permission" in judicial review claims) which the claim must pass in order to progress. The court will have regard to the merits of the claim, the standing of the consumer representative and the appropriateness of collective action as a means of obtaining redress.

As the losses suffered from breaches of competition law are often small and dispersed, it seems this has been sufficient to prevent most consumer groups from reaching the "critical mass" necessary to bring a claim. The proposed reforms to collective action provide a practical way in which unlawful behaviour can be challenged, however small and dispersed the losses, and do therefore seem to secure the Government's aim of competition accountability.

However, collective actions could place a massive burden on businesses, and it remains to be seen whether the proposed limits will be effective at protecting commercial interests too. Early-stage judicial certification must have teeth; and, while respecting the right to bring a claim, must also recognise that a collective action will not be appropriate in many cases.

Furthermore, in many respects these proposals go beyond what is necessary to secure the Government's aims. For example, businesses will be permitted to participate in collective actions - a detail that does not sit well with the claim that these actions are designed to protect consumers. Similarly, unclaimed compensation in opt-out actions will be distributed to charity, rather than returned to the defendant. This casts serious doubt on the objective of these actions as being compensatory rather than punitive.

Encouraging ADR

BIS clearly hopes to limit the potential headache that such simplified court procedures could cause for defendants by encouraging ADR, both within private claims and collective actions.

All claims will be governed by a new pre-action protocol for competition claims. More importantly, however, the draft Bill includes provision for an opt-out collective settlement regime in opt-out actions. Where such a settlement is concluded, it will be subject to approval by the CAT which would ensure that any settlement was "fair, just and reasonable". This is doubtless a necessary counterbalance to opt-out collective actions - it would be nonsensical to allow collective actions by a potentially huge class of consumers on an opt-out basis, whilst restricting the defendant from utilising the same opt-out format in concluding an agreement.

No over-simplification

These reforms give rise to far-ranging questions about competition law and its relationship with both commerce and consumers. While private actions are no substitute for rigorous market investigations by well-funded and well-advised regulators (at both UK and EU level), no system of commercial law should grant rights without providing an effective and accessible means of redress for breaches.

More particularly, however, we must ask to what extent it is possible (or, indeed, desirable) to over-simplify competition actions. Competition law is by its nature complex, and any competition action will require a level of expert analysis and evidence that is rarely available on a shoestring.

While it is important that claimants have access to a forum where their claims may be properly adjudicated in a timely and cost-effective manner, straying too far towards "rough justice" would be a regressive step. An overly simplistic application of competition law may have a chilling effect on lawful competition at a time when private sector-led growth is central to economic recovery.

 

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John Doherty (pictured) is a partner at Penningtons Manches. He is grateful to David Kirton, trainee, for his help in the preparatin of this article

 

 

 

 

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