Strength In Numbers Class Actions in the UK
On 1 October 2015 the Consumer Rights Act 2015 introduced significant changes to the way actions can be brought for competition (antitrust) law infringements in England and Wales by amending the Competition Act 1998.
For potential claimants who consider they may have suffered damage as a result of a competition law infringement in the past six years, the new collective proceedings regime could be a new means to recover such damages. The main advantage of the new regime for such potential claimants is that the requirements to prove damages and causation have been lowered.
Similarly, any company within the reach of the EU competition provisions needs to evaluate whether they may have exposure to “collective proceedings” or class actions being commenced against them in England and Wales. Those entities which have been subject to a UK or EU competition authority or a UK sector regulator infringement decision in the last six years should consider implementing a defence strategy in respect of possible damages claims arising as a result of these decisions (so called “follow-on claims”). If collective proceedings are brought, defendants will need to consider whether they can attack the certification of claimants as a class or mount substantial arguments that no damages have been suffered.
Initiation of the proceedings
Prior to the change, claimants could often choose whether to bring stand-alone claims against entities which had caused them to suffer loss as a result of competition law infringements or to bring follow-on claims where certain competition authorities in either the UK or EU had already made a finding of infringement. However, there was little opportunity for collective action, particularly in circumstances where the claimant was a business entity (i.e. not a consumer).
In the context of litigation in England and Wales this presented several practical challenges to a potential claimant, particularly to foreign entities from civil law backgrounds. When deciding whether to bring a claim careful consideration had to be given to the significant outlay of costs and the risk exposure of having to bear the defendant’s costs if a claim was unsuccessful. Even though the introduction of follow-on claims was intended to make the process simpler because the claimant was no longer obliged to prove the infringement itself but only that the infringement caused a certain loss to the claimant, the focus then shifted to expending significant time and effort on proving both the amount of loss suffered and that the infringement caused this loss.
Under the new regime it will now be possible for competition related claims (both stand-alone and follow-on claims) to be brought as collective proceedings before the Competition Appeal Tribunal (“CAT”) provided that there is some nexus with the United Kingdom.
Such proceedings will be available to both business entities as well as individual consumers. The key to whether a claim can be brought as a collective action will be whether the CAT considers that the claims raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings. Further notable changes are that stand-alone competition infringement claims can now also be brought before the CAT (in the past they could only be brought before the High Court) and that the limitation period for claims before the CAT has now been extended from two to six years.
When collective proceedings are commenced, the CAT will appoint a representative (either one of the claimants or a third party entity) to litigate on behalf of a defined class of claimants, who individually will have little or no involvement in the case itself. The CAT will also define precisely who fits within this class and therefore who may ultimately be bound by its decision.
Opt-out actions only available for UK-domiciled entities - only opt-in available for foreign entities
The new legislation provides for two types of class actions: opt-out and opt-in actions. The CAT will decide which type applies to the particular claim. An opt-out regime means claimants are automatically included into the action unless they “opt-out” in a manner decided by the CAT on a case by case basis. As the statute itself states, the purpose of introducing opt-out collective actions is to allow consumers and businesses to easily achieve redress for losses they have suffered as a result of breaches of competition law. Opt-out claims only apply to claimants domiciled in the UK. This means, unless steps are taken to actively opt out within the time frame prescribed by the CAT, those falling within the class definition will be bound by the CAT’s decision. A successful opt-out claim is likely to lead to aggregate damages being awarded which are then divided between the various members of the class. Under the new provisions, the CAT has express discretion to make an award of damages without undertaking an assessment of the amount of damages recoverable in respect of each entity represented in the claim. Foreign domiciled entities are not automatically included in an opt-out claim but can choose to take part and will then be treated in the same way as the remainder of the class of claimants.
Opt-in claims are available to both UK-domiciled and foreign entities. The outcome of an opt-in claim will only be binding on those members of the class who actively choose to participate in the proceedings during the time period set by the CAT. It is more likely in opt-in claims that the individual loss suffered will be considered by the CAT (although not obligatory) and that as a result of this consideration the damages awarded will be higher than in opt-out claims.
Distinguished from US Class actions
Unlike U.S. class actions, the CAT has no power to award treble damages or punitive damages. While damage based agreements are expressly prohibited under the new legislation, conditional fee arrangements, where a premium is paid on success are allowed. Unlike in the U.S., successful claimants are likely to recover a large proportion of their legal fees from the defendant.
Effect on potential claimants
The Consumer Rights Act 2015 makes England and Wales a significantly more attractive forum for claimants seeking damages as a result of competition infringements. It potentially makes bringing claims more affordable. In particular third party litigation funders are showing an interest in becoming involved in financing these types of claims. The workload and internal burden is reduced for class members who are not the representative of the class. Perhaps the biggest advantage is for those claimants who would otherwise struggle to prove either the amount of loss they have suffered or that the infringement actually caused the loss. The CAT has a discretion when awarding damages to dispense with the requirement to prove the amount of individual loss suffered by each class member – it will be sufficient to simply demonstrate that some damage has been suffered.
Effect on potential defendants
Defendants have an opportunity to oppose collective proceedings through a process known as certification. Defendants should focus on using the discretion of the CAT to their advantage. Note that the CAT only deals with competition law infringement claims and is therefore specialized and knowledgeable. Focus should be put on reducing the size of the class at the certification stage. Attempts to point out that issues of law and fact are not sufficiently similar should be seriously considered. Potential defendants should also bear in mind the requirement of a PR strategy.
If a relevant UK competition authority or the European Commission has made a finding of an infringement, the risk of a private action (follow-on claims) is likely to increase. This is because a final decision prejudices the question of whether there is an infringement in favor of the potential plaintiffs.
Any company with operations that have a nexus to the UK now needs to evaluate whether additional exposure to collective proceedings being commenced against them in England and Wales exists. This is particularly so for those entities which have been subject to a UK or EU competition authority infringement decision in the last six years. These entities should be considering implementing a defence strategy in respect of possible follow on claims. For any entity currently being investigated for potential competition infringements, care will need to be taken during that investigation to avoid taking any steps which may increase exposure to future collective actions.
If you would like to receive further information regarding exposure to collective actions in the UK, please contact Sebastian Janka.
Any questions? Please contact: Sebastian Janka
Practice Group: Litigation, Arbitration & ADR