On 20 March 2013, George Osborne delivered his Budget to Parliament. The Government announced[1] that in summer 2013 it will proceed with several of the competition reforms outlined in its recent response to the Department for Business Innovation & Skills' consultation on options for reform of private damages in competition law.[2] This note highlights the key conclusions reached by the Government, which will introduce some fundamental changes to the UK private enforcement regime.

New opt-out collective actions regime

The wide-ranging reforms controversially include an "opt-out" collective actions regime, both for consumers and businesses.[3] This represents a significant departure from previous resistance to opt-out actions. The Government is keen to stress, however, that it does not wish to bring a US-style class action culture to the UK. The proposed reforms include a range of safeguards aimed at limiting speculative claims, including ￜ

• strict certification process aimed at weeding out unmeritorious claims and determining whether a claim should proceed under an opt-in or an opt-out basis;
• maintaining the "loser pays" costs principles and a ban on contingency fees;
• treble and exemplary damages will not be available;
• restricting who can bring such claims to claimants or genuine representatives of claimants only (excluding law firms, third party funders or special purpose vehicles); and
• judicial approval of settlements and legal fees.

The opt-out will only apply to UK-domiciled claimants, but non-UK claimants will be able to opt-in.

The Government stopped short of adopting a rebuttable presumption of loss for cartel cases or compulsory mediation of claims. Nevertheless, the introduction of an opt-out regime would mark a radical change to the litigation arena in the UK. Indeed, opt-out actions almost by definition will cover a much larger group of consumers and businesses than opt-in actions. The potential damages claims will also be of different magnitude, since damages sought will extend to the entirety of the losses suffered by the class of claimants (even where its members are yet to be identified). The Confederation of British Industry (CBI) promptly issued a statement condemning the proposals as fuelling a litigation culture in the UK.[4] The level of use of opt-out actions will depend, however, on many factors, including the availability of funding (in the absence of contingency fees) and the speed and complexity of the certification process.

New opt-out collective settlement regime

Related to the opt-out collective actions, the Government has proposed a new voluntary opt-out collective settlement regime in the Competition Appeal Tribunal (CAT),[5] similar to the mass settlement regime that exists in the Netherlands. Under this system, a representative of any would-be claimants and a potential defendant may apply to the CAT to approve, on an opt-out basis, a mutually approved settlement agreement. Unlike the Dutch regime, however, the UK settlement regime will cover only UK class members, although non-UK claimants could opt-in, if desired. The CAT will need to certify cases as suitable for such a settlement and settlements themselves as "fair, just and reasonable". As such, the opt-out collective settlement regime is likely to be a particularly important mechanism to promote early settlement and could help to achieve finality in large scale disputes. It is possible, however, that business may be pressured into agreeing to opt-out settlements even in weaker cases merely to avoid drawn-out opt-out litigation. The key to whether this mechanism works in practice will be the ability of the CAT to case manage the opt-out settlements and ensure that both parties are getting a "fair deal".

Expanded role of the CAT

The proposals will also transform the CAT into the primary venue for antitrust actions in the UK. The Government intends for the CAT to hear standalone cases as well as follow-on cases[6] and for other national courts to be able to transfer competition-based claims to it. At present, the CAT's jurisdiction is limited to follow-on actions. It cannot hear standalone claims. The narrow scope of the CAT's jurisdiction has limited its attractiveness as a forum for antitrust claims in favour of the High Court, which has jurisdiction over standalone and follow-on claims. The proposed reform is aimed at reversing this trend in favour of the CAT. Additionally, the CAT will have a new "fast track" to deal quickly and inexpensively with "simple" competition claims, primarily to benefit small and medium enterprises, and will be able to grant injunctions. The High Court six year limitation period[7] will also apply to all private action cases in the CAT.[8] Whilst the ambition to create a more accessible, faster and lower cost route to resolving competition claims is to be welcomed, it will be important for the CAT to maintain the necessary capacity and expertise to fulfill this ambition.

Next steps

The majority of the proposals will require changes to primary legislation and their implementation will be subject to Parliamentary timing and approval. It is anticipated that draft primary legislation will be introduced during the next Parliamentary session with legislation coming into force no earlier than 2014.

[1] At http://cdn.hm-treasury.gov.uk/budget2013_complete.pdf  
[2] The Government's response is available here.
[3] The UK currently operates an "opt-in" follow-on consumer action system, under section 47B of the Competition Act 1998. This allows a group of consumers to be represented by a body specified by the Secretary of State in actions before the Competition Appeal Tribunal. It requires individuals to join the action as members of the represented group within a specified timeframe. In an opt-out case, however, all parties who fall within the definition of the represented group are bound by the outcome of the case (unless they actively opt-out of the actions).
[4] See 'CBI comments on Government proposals on private actions in competition law', dated 29 January 2013.
[5] The CAT is an independent, specialist judicial body. It can hear actions for damages and other claims under the Competition Act 1998. The CAT also has jurisdiction to hear appeals from decisions of the UK competition authorities and sectoral regulators. Decisions of the CAT are reviewable by the Court of Appeal or, for Scottish cases, the Court of Session.
[6] A follow-on action is a claim where the alleged breach of competition law is already the subject of an infringement decisions issued by UK or EU competition authorities. A standalone action is brought where there is no prior infringement decision.
[7] As set out in the Limitation Act 1980.
[8] This limitation period will apply to cases brought in England, Wales and Northern Ireland. In Scotland, the limitation period will be five years in line with the Scottish Court of Session.