A new law now in effect in Britain has dialed up the litigation risk for global businesses, paving the way for more American-style class-action lawsuits in cases where companies might have violated competition law.
At issue is the comprehensive new Consumer Rights Act, which went into force on Oct. 1. The law consolidates several older consumer protections previously scattered across different statutes and regulations, and expands consumers’ right of redress for losses caused by anti-competitive behavior by advocating the use of private actions. It also designates the Competition Appeal Tribunal as the primary court for competition claims in the United Kingdom, rather than the High Court.
The practical upshot for U.S. companies with operations in Britain: Keep this new legal realm in mind when implementing strategies to reduce antitrust risks.
The law “makes it easier for both consumers and companies to bring claims for anti-competitive conduct,” says Alan Davis, a partner at law firm Jones Day in London who practices in British and European competition matters. The law also smoothes the path for aggrieved parties to “adequately be compensated for the loss they would have suffered as a result of the anti-competitive activity by the consumer-facing companies,” he says.
The collective action provision is just one more incentive for companies to review their antitrust compliance policies and ensure they’re current. “It’s still the case in Europe that the primary risk of non-compliance comes from government investigations, rather than litigation—albeit the risk of litigation is increasing particularly for companies that are also on the receiving end of an investigation,” says Becket McGrath, a partner in the antitrust and competition practice at law firm Cooley in London.
Prior to enactment of the Consumer Rights Act, any company or individual who suffered harm as a result of anti-competitive conduct could bring claims before the courts under two broad categories: “follow-on” actions, where claimants relied on prior infringement decisions of European Commission or U.K. Competition Commission rulings; or “standalone” actions, which involved no prior infringement decisions, meaning that the claimant needed to prove liability.
Under the new law, the Competition Appeal Tribunal has much greater authority to oversee competition law cases. For example, it will for the first time have jurisdiction to hear standalone actions, where historically it only heard follow-on actions. The Competition Appeal Tribunal also will have the power to award injunctive relief as well as damages.
The most significant change in the new law introduces “opt-out” class-action lawsuits for competition law claims. That is, parties who fall within a class participate automatically, unless they expressly opt out. In such cases, the claim is brought by a representative of the class. This brings Britain in line with U.S.-style class-action litigation, where opt-out is the norm. (Think of those unsolicited letters you receive in the mail, that you might be eligible for a few dollars as part of a class-action settlement, and you had no idea the suit was going on.)
“It’s anticipated that there will be a lot more litigation in English courts going forward because of these changes.”
Alan Davis, Partner, Jones Day
Until now, class actions were only possible as an opt-in basis, Davis says. Requiring that individuals expressly join proceedings brought on their behalf by an approved consumer body ultimately made it difficult to bring actions on behalf of a large group of consumers. How badly did that approach fail? In 10 years it resulted in precisely one class-action lawsuit, against a maker of football jerseys, where 130 claimants ultimately received a whopping £20 each.
“There has been very little exposure to what American companies have been used to for many years, in terms of class actions for damages as a result of breaches of antitrust law,” Davis says. (Consumers and companies outside the U.K. still must affirmatively opt in if they want to join an action.)
Collective actions can be brought in the Competition Appeal Tribunal on behalf of a class—whether by a consumer or business—in both follow-on and stand-alone cases. “It’s anticipated that there will be a lot more litigation in English courts going forward because of these changes,” Davis says.
Risks and Mitigation
Despite the changes to the British competition litigation regime, “it will still be nowhere near the level of risk that exists in the United States,” where companies often are plagued by meritless claims, McGrath says. To avoid that scenario in Britain, the Consumer Rights Act has built in a number of safeguards.
COLLECTIVE ACTION PROCEEDINGS
Below is a partial text of the Consumer Rights Act, addressing collective action proceedings.
Authorization of the class representative
78.—(1) The Tribunal may authorize an applicant to act as the class representative—
(a) whether or not the applicant is a class member, but
(b) only if the Tribunal considers that it is just and reasonable for the applicant to act as a class representative in the collective proceedings.
(2) In determining whether it is just and reasonable for the applicant to act as the class representative, the Tribunal shall consider whether that person—
(a) would fairly and adequately act in the interests of the class members;
(b) does not have, in relation to the common issues for the class members, a material interest that is in conflict with the interests of class members;
(c) if there is more than one applicant seeking approval to act as the class representative in respect of the same claims, would be the most suitable;
(d) will be able to pay the defendant’s recoverable costs if ordered to do so; and
(e) where an interim injunction is sought, will be able to satisfy any undertaking as to damages required by the Tribunal.
(3) In determining whether the proposed class representative would act fairly and adequately in the interests of the class members for the purposes of paragraph (2)(a), the Tribunal shall take into account all the circumstances, including—
(a) whether the proposed class representative is a member of the class, and if so, its suitability to manage the proceedings;
(b) if the proposed class representative is not a member of the class, whether it is a pre-existing body and the nature and functions of that body;
(c) whether the proposed class representative has prepared a plan for the collective proceedings that satisfactorily includes—
(i) a method for bringing the proceedings on behalf of represented persons and for notifying represented persons of the progress of the proceedings; and
(ii) a procedure for governance and consultation which takes into account the size and nature of the class; and
(iii) any estimate of and details of arrangements as to costs, fees or disbursements which the Tribunal orders that the proposed class representative shall provide.
(4) If the represented persons include a sub-class of persons whose claims raise common issues that are not shared by all the represented persons, the Tribunal may authorize a person who satisfies the criteria for approval in paragraph (1) to act as the class representative for that sub-class.
Source: Consumer Rights Act.
Unlike in U.S. cases, for example, where claimants can receive triple damages, damages awarded in collective actions by the Competition Appeal Tribunal must compensate for the actual loss suffered, and no more. Furthermore, contingency fees expressly aren’t allowed for opt-out collective actions, “so lawyers don’t get a big slice of damage awards,” McGrath says.
U.S. companies are not immune from legal liability. For example, if a U.S. company has a number of subsidiaries across Europe (let’s say France, Germany, and Italy), and one of those subsidiaries gets involved in a price-fixing cartel in German, French, and Italian markets, with no actual effect in the United Kingdom—yes, it’s still possible that the damages action could be brought in English courts by the victims of the anti-competitive behavior, because a subsidiary of that company is based in Britain, Davis says.
The good news: You cannot have a class action without a breach of competition law. So compliance officers at U.S. companies with operations in Britain will want to ensure that middle managers and sales and marketing employees are made aware of that enhanced risk and of their obligations not to breach competition law, Davis says.
The risk of violating competition laws are the same they have always been: investigation costs, individual prosecutions, fines and penalties, lawsuits, reputational damage—the list goes on.
“Those seeking to minimize the risk of a collective suit should consider the scope of likely claims against them, and the arguments that might be raised to support the position that the claims are not apt for collective litigation,” says Francesca Richmond, a partner with law firm Baker & McKenzie.
Antitrust experts don’t expect the effect of the Consumer Rights Act to be felt immediately. “I think it’s going to be awhile before the true level of risk emerges,” McGrath says.
That’s because the law includes a “transitional” provision, which provides that claims can only be brought under the new regime if damages have occurred after Oct. 1, 2015. If harm occurred before that date, the old rules will apply, making it more difficult to bring actions.
“You’re not going to have floodgates opening in terms of claims,” says Sakil Suleman, a partner with law firm Reed Smith. For at least the next five years, it’s going to be a slow start and then, depending on how it evolves, he says, “we might see it a bit more engrained in the culture here.”