8

REAL REDRESS FOR HARMED PARTIES

	Private actions are a very important limb of an effective competition regime. Where behaviour is illegal under competition laws, parties who are harmed should be able to bring action against the perpetrators ­ getting the compensation they deserve.
	The Government proposes to widen the remit of the Competition Commission Appeal Tribunals enabling them to hear claims for damages brought by harmed parties.
	There will be a new right of appeal for third parties seeking interim measures under the Competition Act 1998 to stop anti-competitive behaviour.
	The Government intends to repeal the exclusion of vertical agreements under the Competition Act.
	The Government believes that consumer groups should be able to bring actions for damages on behalf of consumers who have suffered harm as a result of anti-competitive behaviour.
	The OFT will be able to seek a court order disqualifying company directors where serious breaches of competition law have been found.

PRIVATE ACTIONS

The importance of private actions

8.1      Competition between firms protects consumers. Efficient markets mean that consumers get better products and services at lower prices. In markets where competition is distorted, consumers' interests are harmed. It is essential that where this happens, consumers can obtain redress. Private actions are therefore a very important limb of an effective competition regime. Where behaviour is illegal under competition laws, parties who are harmed should be able to bring action against the perpetrators. There are two main advantages:

• Those who are harmed get the compensation they deserve for the harm they suffer.
• It draws private resources into the enforcement process. In the US, for example, 90% of competition cases are private actions. This allows the US authorities to focus their energies on more important cases ­ leaving less significant cases to be pursued privately.

The European dimension

8.2      Although the possibility of private actions is a basic tenet of Community law in Europe, and Articles 81 and 82 have had direct effect in the UK since we joined the European Community in 1973, in fact no reported cases have resulted in a damages award in the UK courts. Similarly, no cases have yet been successful under the Competition Act, though the Act has only been in force for a relatively short time. There is, however, some anecdotal evidence that cases are occasionally settled out of court.

8.3      The contrast with the US is striking ­ but needs to be viewed with some caution. Many US commentators view the number of private antitrust cases in the US as too high. In particular, unscrupulous lawyers can be quick to file vexatious actions ­ attracted by the prospect of treble damages.

8.4      The Government is keen to achieve a system in the UK where private actions are less inhibited than at present ­ but in doing so, wishes to guard against the risks of the US system.

8.5      The European Commission's modernisation proposals will make a significant contribution in this area. At present, if a firm wishes to delay an action against an anti-competitive agreement, it can seek an exemption from the European Commission (the only body which can grant such an exemption). This precludes the court from considering the case until the Commission has acted. After modernisation, UK courts will be able to make the judgment about whether the agreement infringes Article 81(1) including whether it is eligible for exemption on the grounds of countervailing benefits under Article 81(3). This should pave the way for an increased level of private actions.

New procedures to encourage private actions

8.6      At present, private actions are likely to be brought before the High Court or, in Scotland, the Court of Session. The costs can be high, and the judge considering the case is likely to have limited knowledge of competition law. The Government intends to streamline the judicial process so as to make it easier to bring these cases.

8.7      The Government proposes to expand the role of the Competition Commission Appeal Tribunals enabling them to hear claims for damages in competition cases brought by harmed parties. This would make better use of existing judicial resources. It is also likely to reduce the costs for the parties. The Tribunals currently do not award costs and operate less expensive procedures. Although their rules on costs would need to be revised in light of their new powers, it might be possible to retain some flexibility in awarding costs where a private action is also in the public interest.

8.8      The Tribunals could hear damages claims both immediately after considering the substantive appeal against a decision of the OFT and in cases where the OFT's decision is accepted and no appeal is subsequently made. This would bring procedural efficiencies as the Tribunals would be able to act more swiftly where they are already familiar with the facts of a case against an undertaking. Clear tests of whether a claimant had just cause and the formula by which the Tribunals would calculate damages would be laid out.

8.9      In addition, where private actions are brought before the courts, they could be dealt with more swiftly if determinations of infringements under the Competition Act 1998 were binding on the courts. This would be relevant both to the findings of the Appeal Tribunals and, where no appeal is made, decisions of the OFT. The Government intends to amend the law to give the decisions of the competition authorities this status.

8.10      The Government also wishes to strengthen the powers of the Competition Commission Appeal Tribunals to enforce their own orders. This is procedurally more efficient and could be addressed by giving the Tribunals some or all of the powers of a superior court of record.

8.11      The Leggatt Review of Tribunals, which is due to be published shortly, has examined the diverse models in operation in current tribunal practice. The Government intends to consult widely on the outcomes of the review before deciding how, and in what way, they might be implemented. The Government will consider further what implications, if any, this review might have for our plans to streamline the process of bringing private actions.

Interim measures

8.12      Interim measures are available under the Competition Act 1998 for parties who are claiming serious, irreparable harm as the result of anti-competitive behaviour. They can apply to the OFT asking it to require the offending company to stop its damaging behaviour. At present, if the OFT makes such a direction, the person to whom it is addressed has a right of appeal, but if the OFT decides not to make an order, the injured third party cannot appeal the decision although they can subsequently seek judicial review. The Government wishes to offer third parties with sufficient interest a quicker route for reviewing the OFT's decision not to apply interim measures. The Government intends to introduce a new right of appeal to the Competition Commission where the OFT decides not to give an interim measures direction.

8.13      In addition, the Government will require the OFT to set out a formal timetable for deciding interim measures.

Vertical agreements

8.14      In 1997, the Government decided that vertical agreements should be excluded from the Competition Act in order to guard against the risk of large numbers of notifications of benign agreements. Along with the decision to allow the OFT to charge for notifications, and the OFT's campaign to discourage notifications, this policy has been successful ­ with only 12 notifications in the first year of operation of the new legislation.

8.15      In June 2000, the European Commission brought into force a block exemption which covers vertical agreements. The Commission's block exemption is more narrowly drawn than our domestic exclusion ­ in particular, it does not cover agreements where one of the parties has a market share exceeding 30%.

8.16      The Government believes that there is a risk that the more permissive domestic exclusion may have the effect of discouraging some private actions. Now that a European-level block exemption is in place (with parallel effect in the UK), there is no strong case for retaining the domestic exclusion. Therefore, the Government intends to repeal the domestic exclusion of vertical agreements.

ACTIONS ON BEHALF OF CONSUMERS

8.17      The Government wishes to take specific steps to facilitate damages actions on behalf of consumers. Often such cases will involve a large number of harmed parties ­ each of whom may only have suffered relatively small loss. In such cases, it is much more sensible that claims are brought on behalf of those that suffer by representative consumer bodies.

8.18      To date, our legal system has not allowed such claims. The Government has recently conducted a review of representative claims¹, and concluded that representative organisations (such as consumer or environmental groups) should be able to bring claims on behalf of a wider group of consumers.

8.19      Enabling a representative body to take a claim on behalf of a group of consumers is not without its difficulties. In the majority of competition cases, especially those involving long-standing breaches of competition law which affect consumer markets, identifying exactly who has been harmed and in what way is a significant hurdle. The would-be plaintiffs are either not known or a huge additional effort would be required to identify them.

8.20      The Government is concerned that consumer groups will have little incentive to bring cases if they are required to identify large numbers of harmed parties. This will be further compounded if the court is then unable to award damages. However, the principle of allowing action in the wider public interest where harm to consumers can be shown is an important one. The Government therefore wishes to consider further how to enable cases to be brought in seemingly intractable areas such as competition.

8.21      One option would be to enable selected bodies, such as the Consumers' Association, the National Consumer Council or sectoral consumer bodies, to make a claim for damages on behalf of a wider group or class of consumers in specific circumstances. Following the general legal principle that a plaintiff should have just cause to seek damages and be able to demonstrate the nature and extent of the harm suffered, a representative body would need to be able to identify the numbers of consumers falling into the class and the overall economic harm suffered. This might be possible where the OFT has found that an undertaking is in breach of competition law. In making its decision, the OFT will already have defined a market and determined the economic effect of the company's behaviour. The case would then be brought in the wider public interest.

8.22      A key issue arising out of this approach is how damages which are awarded either by the courts or by the Competition Commission Appeal Tribunals should be handled. The Government seeks views on the uses to which such recovered damages could be put. It recognises that this is a difficult area where procedural difficulties are likely to arise. One option might be to keep any damages awarded in trust for a limited period so that claimants could come forward. In this scenario, once the period had expired, the Competition Commission Appeal Tribunals could be given the role of determining individual claims against the fund. A further option would be that once the costs of the action had been covered, residual monies could be used for other purposes which benefit consumers of the product in question or those in related markets. This could include better provision of consumer information or, where there was a limited geographical market, specific community facilities. The Government seeks views on these and other alternatives.

PROTECTING THE PUBLIC

8.23      In certain circumstances, UK law enables directors, whose conduct makes them unfit to be involved in the management of a company, to be disqualified from doing so unless they have permission from the court. The law operates in the public interest to prevent abuses of limited liability status. Breach of a disqualification order is a criminal offence and also imposes personal liability for the debts of the company incurred during the period of the breach.

8.24      The Government believes that it is also in the public interest that directors who have engaged in serious breaches of competition law should be exposed to the possibility of disqualification on that ground alone. It therefore proposes to legislate to enable the OFT to seek a court order disqualifying a director from acting in the management of a limited liability company where serious breaches of competition law have been found. The OFT would be able to do this irrespective of whether a criminal prosecution has taken place and irrespective of whether the director was aware that agreements were in breach of EC and UK competition law. The type of conduct which could lead OFT to seek a disqualification would be clearly laid out.

8.25      Following the model recently introduced by the Insolvency Act 2000, the OFT could be empowered to accept an undertaking from the director not to act in the management of a company. The undertaking would have the same legal effect as a disqualification order and breach of the undertaking would be an offence. Adopting such a model would have the benefit of streamlining the disqualification process and reducing the burden placed on the courts.

8.26      The maximum period of disqualification for a director, who is found to be unfit to act in the management of a company, is currently 15 years. The Government considers that this is an appropriate maximum period for disqualification arising from serious breaches of competition law.

8.27      The Government proposes that the OFT should extend its leniency policy so as not to disqualify those directors who have come forward to assist the OFT in detecting serious breaches of competition law. The Government believes that the wider public interest is best served by not creating a potential additional deterrent for individuals who want to blow the whistle on their co-conspirators. In offering leniency however, the OFT will not be able to influence the outcome of any other proceedings against the director under the Company Directors Disqualification Act 1986. The Government invites views on whether this approach is in the wider public interest.

¹ "Representative Claims: Proposed New Procedures", published February 2001 is available on the Lord Chancellor's Department website: www.lcd.gov.uk