Private Actions in Competition Law: Effective Redress for Consumers and Business
Response by Shepherd and Wedderburn LLP
1. Introduction
1.1 Shepherd and Wedderburn LLP welcomes the opportunity to comment on the issues raised by the OFT in its April 2007 Discussion Paper: Private Actions in Competition law: Effective Redress for Consumers and Business (the Discussion Paper).
1.2 In this response, we wish to make a number of general points that we consider should guide the OFT in its reform proposals (section 2), followed by more specific comment on certain proposals outlined in the Discussion Paper (section 3). For completeness, we also provide some further information on the position in Scots law that we hope proves useful to the OFT in its continuing work in this area (section 4).
1.3 We would make the following preliminary points:
· The OFT needs to decide as a matter of policy whether private actions should be encouraged as principally a device to (i) deter anti-competitive behaviour or (ii) allow the victims of anti-competitive conduct to obtain compensation for any loss they have suffered. It is not clear from the Discussion Paper where the OFT stands on this. A clear policy choice on deterrence or compensation impacts, and goes a long way to determining the approach to be adopted, on a number of the issues raised in the Discussion Paper (e.g. availability of the passing on defence);
· We consider that there is little fundamental difference between competition actions and actions based on other areas of law. There may be reasons why it would make sense in terms of administrative court efficiency to treat competition law claims differently, but, substantively, we consider compelling reasons would need to be put forward to justify diverging from current court practice;
· In promoting private actions, particularly in the damages arena, it is imperative to ensure that these do not undermine the continued effectiveness of the leniency programme by skewing the parties' incentives in such a way that it reduces the attractiveness of the programme.
2. General
Private Actions and Public Enforcement
2.1 The OFT rightly recognises that private actions are an “essential complement to public enforcement in the overall scheme of the competition rules…” and that “private competition law actions should exist alongside, and in harmony with, public enforcement”.
2.2 However, private actions should not be viewed as, or become, a substitute for the public enforcement of competition law. The OFT, with its investigatory powers and competition expertise, is often better placed than private claimants/representative bodies to investigate and determine a potential breach of competition law. Further, the coherent development and transparent application of competition policy and law in the UK is better served by the OFT than through private action inherently dependent on the ability and/or willingness of private parties to litigate (and often settled with no publicity).
2.3 The feedback received from our clients endorses this view. They do not, as a general rule, view litigation as a feasible alternative to OFT action, particularly in the light of the costs, management time, and uncertainty of outcome that litigation involves. In particular, despite the existence of relatively wide-ranging discovery rules, we do not believe there will be significant scope for obtaining sufficient evidence to establish an infringement of the competition provisions. Clients do, however, wish an end to perceived anti-competitive conduct. Accordingly, the OFT should remain primarily responsible for the investigation and enforcement of competition law in the UK, both in relation to the fight against cartels and more general potential breaches of competition law (e.g. potential abuse of dominance complaints).
2.4 Making stand-alone competition actions more attractive to private claimants, be it through procedural changes or increasing the scope of representative actions, should not be accompanied by a diminution in public enforcement. We are particularly concerned that the introduction of stand-alone representative actions in the courts should not be used as a mechanism to replace public investigation and enforcement, particularly as there are tools available to the OFT, as seen in the Independent Schools case, to ensure consumer redress in the context of the OFT's administrative settlement of cases.
Changes to substantive legal principle and procedure
2.5 Private enforcement of competition law cannot be considered in a judicial vacuum. Essentially, competition damages are the same as any other form of damages and should be considered in the context of civil litigation as a whole.
2.6 Competition law claims should not benefit from special substantive rules vis-à-vis other commercial litigation, such as fraud claims or personal injury claims, except with good reason and with reference to a legitimate policy objective. Equally, competition law should not be the driver for offending well-established principles of law applied by the courts, such as in relation to the burden of proof.
2.7 In relation to the procedural approach to be adopted, we do on the other hand consider that competition law actions could merit specific procedural rules, underlining the importance of active judicial management of such claims. We would envisage, for example, a dedicated chapter of procedure, specific to competition law actions, such as apply to, for example in Scotland, family law or personal injury actions.
2.8 Finally, we consider that the focus should be more on encouraging claimants to bring claims (particularly follow-on claims) in the Competition Appeal Tribunal (the CAT) than in the courts. The CAT is, after all, a specialist competition tribunal, with UK wide jurisdiction, ideally placed to develop procedural rules to accommodate any peculiar characteristics of an action based on competition law. Further the CAT has a proven track record of dealing with cases quickly, effectively and transparently. We consider that careful consideration should be given to widening the CAT's remit to include, for instance, representative stand-alone actions.
Deterrence and Compensation
2.9 The issue of damages for breach of competition law is currently being considered by the European Commission, and the Discussion Paper does not invite comments on issues such as whether or not exemplary damages should be available for breaches of competition law.
2.10 However, issues such as indirect standing and the availability of the "passing-on" defence are central to the question as to whether private action should be viewed as complementary to public enforcement or whether it is, in essence, to be viewed as a deterrence mechanism.
2.11 We consider that, as the OFT indicates, private enforcement should be viewed principally as complementary to public enforcement and, accordingly, private claims should be compensatory in nature, not punitive (which accords with the general principle applied by both the English and Scottish courts in assessing damages). If there is a lack of deterrence in UK competition law, there should be greater focus on the effectiveness of public enforcement.
3. Specific Comments
Representative Actions
3.1 In principle, we can see the merit in allowing representative actions to be brought on both a stand-alone and follow-on basis, and also on behalf of both consumers and business.
3.2 In both instances (stand-alone and follow-on actions), we consider that, as a matter of policy, representative actions should only be brought on behalf of named individuals/legal entities.
3.3 Assessment of loss in both England and Scotland is, in broad terms, an assessment of the monetary amount required to place a person back in the position they would have been in but for the wrongful act/omission. If a representative action were to be brought on behalf of consumers at large, assessment of loss would prove difficult, if not, on occasion, impossible. In the event of an award being made in favour of consumers at large, the distribution of such an award would be equally difficult where the award was not made to named individuals/ entities. Each of these problems could be avoided by allowing representative actions only to be brought on behalf of named individuals/ entities.
3.4 We recognise that there may be concerns that representative actions on behalf of named individuals/entities may not be viable where individual loss is low and therefore this would not encourage participation in a representative action. We also recognise that there may be a difficulty in identifying sufficient potential individuals to make a representative action viable.
3.5 However, where the loss suffered is of such a limited extent that ordinarily there would not be an incentive on the part of the "victims" to bring court action then we do not consider that gap should be filled by encouraging litigation to be brought on behalf of consumers as a whole. Rather, where difficulties are likely to be encountered in raising a representative action, the OFT should, as it did in Independent Schools, assess whether to deal with consumer compensation in the context of the administrative settlement of the case.
3.6 In relation to stand-alone representative actions we would welcome some further clarification from the OFT as to the type of actions envisaged and further detail as to what interests it considers are appropriately protected by such actions as opposed to regulatory action by the OFT. As previously noted, we are concerned that the introduction of stand-alone representative actions in the courts should not be used as a mechanism to replace public investigation and enforcement. Neither the aim nor the effect of such actions should be to encourage litigation by pushing individuals into court. We consider that OFT administrative settlement is a more efficient and welfare enhancing outcome than creating a whole US-style class action industry around a perceived potential issue.
3.7 We consider it may be appropriate, as suggested in paragraph 4.32 of the Discussion Paper, to allow individuals to join a claim after it has been raised. We believe, however, that such a right must have a restricted time frame so as to allow a relatively early crystallisation of the claim so that the defendant will have fair notice of the extent of the claim it faces.
Passing-On/Indirect Standing
3.8 The decision as to the availability of the passing-on defence/standing of indirect purchasers largely depends on whether or not private actions are to be viewed as deterrent or compensatory in objective. Based on the compensation principle, the passing-on defence would be allowed according to the principle that compensation should be awarded where the loss falls. However, the possibility of a passing-on defence is likely to constitute a significant disincentive to the commencement of both follow-on and stand-alone actions, particularly as the end purchasers who have really suffered the loss may not be inclined to seek compensation due to their concerns over the likely costs.
3.9 The OFT concludes that it is in favour of allowing indirect purchasers standing to sue for damages and that passing-on is, in principle, to be taken into account when determining whether a particular claimant has suffered loss. This is largely in accordance with the compensatory nature of private actions and will be subject to established restrictions on recoverability in terms of the principles of causation and remoteness of loss. We assume that the need for deterrence will be reflected in the OFT's fining policy.
3.10 The Discussion Paper proposes that the burden of proving any passing-on might rest with the defendant. As a matter of principle, it is for the claimant to prove their claim, including the level of relevant loss sustained, on the balance of probabilities. If it were contemplated that the substantive burden will effectively transfer to the defendant in respect of the establishment of passing-on this would mark a departure from this fundamental principle.
3.11 Further, the defendant may be at a disadvantage, as compared to the claimant, in relation to the information available to him in this respect. Recovery/disclosure of certain information, necessary in order to establish passing-on, may be resisted by the claimant on grounds of confidentiality. Access to information will accordingly be an important consideration in this area.
3.12 Fundamentally, the passing-on issue arises equally in damages actions further to a breach of other substantive areas of law and it can be queried why competition law should be treated differently.
Administrative Settlement
3.13 We consider that the settlement reached by the OFT in the Independent Schools case has the potential to point the way towards an innovative use of the fining and enforcement powers of the OFT that would benefit from many of the advantages of, whilst avoiding many of the difficulties associated with, civil litigation. It also provides a useful device to solve the potential enforcement "gap": that is those cases where individuals have not suffered sufficient harm to incentivise court action.
3.14 In particular, in suitable cases, the relevant enforcement decision could require the infringing undertaking(s) to establish a fund for the settlement of claims and to pay an agreed sum into the fund as part of the penalty imposed. We would envisage that the fund could potentially be established under the supervision of a body which was independent of the infringing undertakings and the OFT, such as the CAT. Parties would be entitled, within a defined period, to lodge claims on the fund in exchange for a waiver of their rights to pursue litigation.
3.15 In our view, there are a number of advantages that such settlement funds might have over follow-on litigation. In particular, disbursements from a fund would not necessarily be dependent on establishing standing, causation and loss to the standards required by the civil courts. Further, the operation of a fund for the benefit of a large group might be more cost effective (with operation expenses perhaps being charged to the fund) for all involved than the running of large-scale collective actions.
Leniency- Liability for Damages and Contribution
3.16 Leniency is, of course, an essential tool in the investigation of cartels. We strongly believe that in making it easier to bring private actions, undertakings must not be discouraged from applying for leniency and substantive and procedural rules that adequately protect the leniency applicant from private actions should be put/remain in place.
3.17 In particular, care is needed not to create a level of liability (for example, analogous to US treble damages) that may dissuade leniency applications. This could be achieved, as the OFT suggest, through the removal of joint and several liability or with the introduction of a claw-back mechanism allowing an immunity recipient to recover damages from its co-conspirators.
4. Some Additional Comments from the Scottish Perspective
The Gill Review
4.1 Lord Justice Clerk Gill is heading a review of the civil courts in Scotland. The formal remit is to review the provision of civil justice by the courts in Scotland, including their structure, jurisdiction, procedures and working methods, having particular regard to:
· the cost of litigation to parties and to the public purse;
· the role of mediation and other methods of dispute resolution in relation to court process;
· the development of modern methods of communication and case management; and
· the issue of specialisation of courts or procedures, including the relationship between the civil and criminal courts.
4.2 The Review is due to report within 2 years, making recommendations for changes with a view to improving access to civil justice in Scotland, promoting early resolution of disputes, making the best use of resources, and ensuring that cases are dealt with in ways that are proportionate to the value, importance and complexity of the issues raised.
4.3 We consider that this is a valuable opportunity for the issues raised by the OFT in this Discussion Paper to be discussed by, and with, the wider legal and political community, and for competition law actions to be placed in the wider context of civil claims more generally. We would encourage the OFT to feed into the review.
Disclosure/ Recovery of Documentation/ Pre-action protocols
4.4 Scottish procedure allows for recovery of documents via a court-driven procedure known as Commission and Diligence, in terms of which documentation sought may be set out in a document known as a Specification of Documents. Although arguably not as wide as the equivalent English provisions, in terms of the range of documentation that may be recovered , there is no reason, in our view, why the Commission and Diligence procedure could not accommodate any specific requirements of competition law actions. In particular, there do exist specific provisions in relation to documentation recovery under the Personal Injury procedure, in terms of which a Specification of Documents can be served at an early stage at the outset of an action, along with the Summons, in respect of certain specified documentation. It may be that a similar procedure could be considered in the context of a dedicated competition law procedure.
4.5 Pre-action protocols, although currently less established as the norm in Scotland as compared to England, could be developed to encourage the early exchange of information and the crystallisation of the matters in dispute at an early stage in the process.
Jurisdiction
4.6 The Sheriff Court in Scotland currently has a significant jurisdiction in civil cases and there is no upper limit on the value of claims that can be raised in the Sheriff Court. In our opinion, there is no reason in principle why representative actions should not be competent in the Sheriff Court and the Court of Session. The current rules would allow particularly complex, significant or high profile actions to be remitted to the Court of Session, if originally raised in the Sheriff Court. As has been suggested in relation to the Court of Session, it may be necessary to devise specific rules for the Sheriff Court to deal with competition actions, as has been done for example in Glasgow Sheriff Court to deal with commercial actions.
Costs (Expenses) and Funding
4.7 Scottish courts have little involvement with the financing of actions that are raised before it. The Rules of Court allow for "speculative fees" (known as "conditional fees" in England and Wales). They allow for an uplift of up to 100% on the solicitor's fee. The percentage uplift is a matter of agreement between solicitor and client and the court has no involvement.
4.8 Judicial expenses (costs in England) normally follow success in any action. Judicial expenses, calculated on the basis of the appropriate judicial scale, do not usually cover the actual expenditure (in legal fees/ outlays) incurred by a party. The Court of Session can however award an 'additional fee', subject to satisfying one or more of a number of specified criteria, relating, for example, to the complexity of the action and the number, difficulty or novelty of the questions raised. An equivalent provision operates in respect of the Sheriff Court. There is no tradition of cost-capping orders as such, although awards of expenses in Scotland are, as indicated, calculated in line with an established scale.
4.9 An issue in this area is the legitimate concern that may be felt by a prospective defendant/ defender to a representative action as to how the representative body is funded and whether, in particular, it will be in a position to meet any award of costs/ expenses made against it. A defendant/ defender in this context might look to obtain security for costs (in the form of an order for 'caution' in Scotland) against the representative body. We note and understand the comments made at paragraph 5 of the Discussion Paper in relation to the funding issues and costs risk to claimants/ pursuers, which can serve as an obstacle in bringing private actions (both competition law and other types of action). These issues should in our view be balanced by consideration of the legitimate concern, and appropriate degree of protection of, potential Defendants/ Defenders, bearing in mind, as is noted at paragraph 4.18 of the Discussion Paper, the cost and resource implications of ill-founded litigation.
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