The government closed its consultation on reforming competition and consumer policy at the beginning of October 2021. One of its three themes was “promoting competition to drive enterprise, innovation, growth, and productivity” and it makes various competition policy proposals for meeting the challenges of the 21st-century economy. Leah Keen reviews the consultation from the perspective of cartel damages claims.

The government raised concerns about overall levels of competition being in decline and, with some businesses enjoying increased market power, the risk of rising prices and decreased output. In this context, the focus of the consultation was, unsurprisingly, on strengthening public enforcement of the competition rules by the Competition and Markets Authority (“CMA”). However, if the government implements its proposals, there could be significant ramifications for private enforcement, particularly cartel damages claims.

Cartel damages claims

Cartel victims typically need to rely on the important investigative work of competition authorities, who uncover secretive conduct in the first place. These authorities then piece together what has happened in order to reach a finding of infringement. Therefore, reinforcing the CMA’s public enforcement function is generally welcomed. That said, losses caused by cartel conduct have to be recovered independently of the public enforcement process, therefore it is crucial the proposed reforms do not inadvertently hinder private enforcement of the competition rules.

One of the helpful reforms contemplated by the government is to expand the territorial scope of Chapter I of the Competition Act 1998. As it stands, the Chapter I prohibition only applies to anti-competitive agreements implemented in the UK, and the CMA’s enforcement powers are limited to these kinds of agreements. Under the proposed reforms, the Chapter I prohibition would be expanded so that the CMA can act in relation to anti-competitive agreements that have or are likely to have direct, substantial and foreseeable effects in the UK (provided the other relevant criteria are also met). This is an important tool in a globalised world where agreements implemented outside the UK may harm competition or consumers in UK markets.

The proposed legislative reform would also provide affected businesses and consumers with a broader legal basis for claims for breach of UK competition law. The reform would, in principle, allow cartel victims to seek compensation for cartelised goods that have been supplied indirectly to the UK (eg, via an innocent third party abroad) even where the cartel itself was implemented elsewhere. Additionally, any private enforcement founded on UK competition law with a new, broader territorial reach could, in principle, allow claimants greater scope to consolidate multi-jurisdictional claims in the English courts (therefore benefitting from procedural efficiencies and lower costs).

Extension of leniency regime

Separately, the government is considering an extension of the leniency regime. The proposal is that whistle-blowers who reveal the existence of secret cartels not only receive immunity from fines but also benefit from full immunity from private damages claims.

If implemented, this proposal could present a practical challenge to private competition law enforcement. It would remove the prospect of pursuing one of the cartelists (the cartel whistle-blower), where cartel victims can already face obstacles to claiming compensation. The government suggests cartel victims could nonetheless “continue to recoup their losses from the other cartelists, who are not holders of full immunity in the public enforcement process”. While this may be the case in principle, the practical reality may be different.

Identifying defendants

A fundamental part of pursuing a cartel damages claim is identifying the most appropriate defendant(s) from a legal, practical and viability perspective. For example, a defendant’s nationality can have a bearing on the jurisdictional scope of the claim (including the scope of losses that can be included).

Certain cartelists will have more documentary evidence than others, making them more appropriate defendants (for example, if they were the cartel ringleader or careless with their unlawful communications). Not all cartelists will necessarily have the financial resources to compensate their victims, whether on the basis of joint and several liability or even towards their direct and indirect purchasers. And finally, a cartel victim may have made most of its purchases from just one of the cartelists. Cartel victims should, therefore, have the right to sue any one or all those responsible for the cartel to ensure the best chance of being compensated for harm they have suffered.

If the cartel whistle-blower is removed from the pool of possible defendants by the government’s proposal, there is a significant risk of limiting the viability of a cartel victim’s claim. It may even extinguish the prospect entirely if, for example, the other cartelists have gone bankrupt. It is important to consider these practical considerations for cartel victims alongside any possible benefits to the CMA’s leniency regime.

It is not yet clear when a decision will be reached as to the proposed reforms as the government is currently analysing the responses to its consultation. In the meantime, the consultation document can be viewed here.

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