Upsetting the balance of power

Years of debate between competition authorities and lawyers have failed to secure much progress on a framework to encourage more damages claims against cartelists. Sensibly balanced, such reform could complement enforcement and offer a disincentive for companies to infringe competition rules.

Yet, over the same period, the number of cases has risen dramatically. More often than not, these cases have been brought by sizeable businesses for large-scale losses.

Recent proposals from the Department for Business, Innovation and Skills include the possibility of a fundamental shift to an opt-out collective action regime. This would allow claims to be brought on behalf of a group.

A Government goal is to increase access to redress for victims of cartels, where individual losses would mean that raising an individual damages action would be prohibitively expensive. Claimants would not have to be individual consumers; businesses could bring actions too, and the proposals are particularly geared toward SMEs.

The challenge is to strike a balance between holding wrongdoers to account and avoiding frivolous claims. There is a desire to safeguard the leniency programme that has led to the imposition of fines. If the risks of mass claims become too great prospective leniency applicants may opt to stay silent in the hope the cartel will remain undetected. Perhaps most significantly, there is no desire to encourage a feeding frenzy for claimant lawyers.

The current proposal envisages the creation of an opt-out regime, with safeguards to avoid the undesirable elements of US-style class actions. These include a requirement for the court to certify collective actions, a prohibition on punitive damages; and a continuation of application of the principle that the loser pays the winner’s costs.

When introduced, damages-based fee agreements may not be available in opt-out actions for breach of competition law. There are concerns that damages-based fee agreements could make such cases lucrative for lawyers and encourage ambulance chasing. In contrast, the Civil Justice Council’s working group on the implementation of Lord Justice Jackson’s review of costs has said that damages-based fee agreements should be available for commercial cases including competition claims.

The Government is right to seek a system that discourages anti-competitive behaviour and allows the recovery of losses that individually are small but collectively are large. This is easier said than done.

Businesses seeking leniency already carry out a balancing act. Add another layer of risk and they may not come forward. If that is the outcome, consumers’ ability to obtain redress for goods on which they were overcharged may be outweighed by the cost of more anticompetitive behaviour being allowed to continue.

The dice are in the air and no matter where they fall, the question of effective consumer redress may trouble policymakers for some time to come.

Maclays senior solicitor Jennifer Marshall assisted with this article