This comes at a time when the national authorities and the EC are grappling with their enforcement priorities. Much has been made in the last five to 10 years of the fight against hardcore price-fixing and market-sharing cartels. Fine levels are at an all-time high at national and European Union levels and set to increase further as the authorities arm themselves with greater fining tools and other powers to root out these most serious infringements; and yet these cases demand significant time and resources. High-profile merger cases and investigations into the conduct of large corporations also absorb much of the competition authorities’ limited resources.
Faced with the stark reality that they are unable to investigate all meritorious cases, the authorities are encouraging the victims of competition infringements to seek compensation in the national courts. Not only will this ease the burden on the agencies, it will also (we are told) further deter companies from ignoring the competition rules.
But will increased private enforcement really achieve greater deterrence? If the authorities are looking for measures to promote private enforcement, is there a risk of stalling the competitive process if the pendulum swings too far in the direction of the claimant? What safeguards will be put in place to ensure that defendants do not find themselves the victims of unmeritorious litigation of the type that the authorities so vehemently want to avoid?
State of play
The current system is stacked against claimants, and the incentives for beginning an action are in most cases simply insufficient. For example, the ‘loser pays’ costs rule seeks to balance the interests of the litigating parties - claimants are discouraged from bringing unmeritorious claims at the risk of having to bear the costs of both sides, should they lose. In the competition law field, relatively few cases have been brought before the English courts and early settlement has so far stifled the emergence of a body of substantive and procedural precedents. Faced with such legal uncertainty, and the prospect of additional fees generated by greater numbers of hearings and appeals on discrete points, few, if any, claimants today will take such a risk on costs. This is so, in particular, when the reward for taking such a risk will be limited to single (compensatory) damages without the possibility of multiple damages or restitutionary relief, and in the absence of exemplary damages in cases where the defendant has already been fined for the misconduct (as recently decided by the High Court in Devenish). Curiously, even in the Competition Appeal Tribunal (CAT) where there is no ‘loser pays’ costs rule, claimants have been so far unwilling to commence actions for damages.
There is also no effective group litigation mechanism that classes of claimants can use to seek collective redress. Many victims of the most serious competition infringements are consumers or small businesses - the very people and entities unlikely to bring individual claims owing to the disproportionate cost involved when compared to their damage. Legislation already permits certain limited consumer representative actions to be brought in the CAT for pure ‘follow-on’ actions (for example, where the OFT or another authority has already found the existence of a competition law infringement and any appeal from such decision has been finally determined).
However, as a result of the limits on public resources and enforcement, there are likely to be a relatively small number of decisions on which representative groups can rely to claim damages. The recent settlement in the football shirts litigation, in which consumer organisation Which? sought damages on behalf of fans overcharged for shirts after JJB Sports and others had been found guilty of fixing the prices of replica football shirts, demonstrates the ineffectiveness of the current system. The matter settled before any final decision by the CAT with the manufacturers agreeing to pay compensation of £20 to anyone in the group; however, even in this highly-publicised case, only 130 individuals bothered to opt in to the action.
Public apathy, risk aversion to opting-in (which is hardly surprising when the risks are still high) and the absence of sufficiently wide representative action mechanisms create an environment in which private competition enforcement will continue to stutter its way forward. All indications suggest that in the absence of legislation, private litigation will not open up significantly while the courts are not able or willing to tackle the substantive and practical hurdles themselves.
For these reasons, the EC and national authorities are pushing the legislative agenda, with the OFT at the forefront of this debate. In April 2007, the OFT published a discussion paper identifying barriers to consumers and businesses bringing private actions. Following a public consultation, the OFT published its recommendations on 26 November which, in the OFT’s view, should be made to improve access to private competition law remedies.
The trickle of cases brought so far illustrates how ineffective the current legal framework is, a fact also acknowledged by CAT president Gerald Barling. Barling spoke earlier this month of the “significant anomaly” that is the CAT’s lack of jurisdiction to hear standalone actions, and also called for the expansion of existing provisions governing consumer follow-on claims to include others, including small to medium enterprises.
In its recommendations, the OFT meets these concerns and suggests that standalone representative actions should be permitted. Legislation would most likely be required either to extend the relevant provisions in the Competition Act 1998 or to modify the generic multi-party procedure. There are undoubtedly advantages to having effective representative actions: they limit the cost and time that consumers have to invest.
It is, however, important to ask critically whether this important development in litigation is desirable. It is hard to argue against meritorious actions, and a system should be designed to allow well-founded claims to be brought. However, reform must be driven by a careful and balanced assessment of the situation without letting either side of the debate, claimant or defendant, to disproportionately influence the debate.
A balanced model is needed that takes into account the needs of claimants in these types of cases while not prejudicing the rights of defendant companies. At all costs, a situation in which defendants have the financial incentive to settle rather than fight cannot be allowed to arise (as is often the case in the US). Great care must taken to create a model that balances all of the constituent parts: the incentives offered by expanding representative actions, modifying funding and costs rules, the damages model, and greater access to evidence interplay with each other and cannot be defined in isolation. As a safeguard, the court must be afforded sufficient power to prevent or stop abusive litigation tactics and unmeritorious claims that come before it.
If we are to proceed down the road of private litigation reform (and it seems inevitable that we are) we cannot afford simply to rely on the oft-quoted mantra that we do not have a litigation culture here in Europe as a passive way of ensuring that one does not flourish. Opening the courts up to competition law claimants should not unfairly tilt the balance in their favour at the expense of defendants’ rights.
Tom McQuail is a partner and Sarah Jordan a senior associate at Howrey in London.