Lawyers give mixed response to launch of new Competition and Markets Authority

Antitrust lawyers have given a cautious welcome to the creation of a single super-regulatory competition body that will crack down on cartels.

Luke Tolaini
Luke Tolaini

The Competition and Markets Authority (CMA) will bring together the Competition Commission and the competition functions of the Office of Fair Trading (OFT).

Experts in the legal community today acknowledged the improved efficiencies and streamlined processes the reforms will bring, but questioned whether the lower threshold for cartel prosecutions could pose a threat to the UK’s internationally renowned reputation.

The CMA should be in place by April 2014 and will have a primary duty to promote effective competition. Merger regulation will be broadly unchanged, with voluntary notification welcomed. Market investigation deadlines are also being tightened up, with the most radical reforms to be felt in the antitrust sphere, with the Government deciding to stop just short of a US-style prosecutorial-led criminal regime.

Instead, it will beef up the civil side with extra questioning powers and interim measures mid-investigation, and will also remove the ‘dishonesty test’ for criminal cartel prosecutions. This has proved controversial among some lawyers.

Clifford Chance antitrust partner Luke Tolaini said: “This is widening the goalposts in the hope that the OFT’s scoring record in criminal cases will improve. It doesn’t seem quite right to do that when the OFT has not yet brought a single case before a jury. What justifies widening the goalposts when you haven’t yet mustered a single shot on goal?

“The worry now is that people could go to jail for something that they may not recognise as wrongful behaviour. Everyone knows that fixing prices in smoke-filled rooms could land you in jail, but this reform will make less blatant conduct more easily prosecuted.

“It means that employees at risk really need to be trained in what they can and can’t do when it comes to communications with competitors.”

Tolaini’s Clifford Chance colleague, antitrust partner and former OFT director of mergers Alastair Mordaunt, said: “The merger makes a lot of sense both for business and the Government – cutting out all the duplication and delay of the current two-step [OFT and Competition Commission] process.  But it’s a big risk – the current regime is internationally renowned and many people have questioned the need for reform.

“The big question is whether the proposed checks and balances will be sufficient to keep the new super-regulator in check, and in particular whether the ’second pair of eyes’ of the Competition Commission can be replicated within a single institution.”

Hogan Lovells partner Angus Coulter said it would be business as usual when the CMA comes in, apart from the “problematic” removal of the dishonesty test for criminal antitrust prosecutions.

He said: “The difficulty is that this seems to suggest lots of executives engaged in putting together commercial agreements could find themselves on the wrong side of the law. The caveat is that if you want to prove the agreement is legal you have to publish it. That seems like a strange backward step to a previous system.”

Ashurst competition partner Euan Burrows said: “In respect of the civil anti-trust regime, the proposal to legislate to distinguish clearly between officers charged with the conduct of an investigation and, in contrast, the decision making body responsible for the final decision within the CMA has the potential to be a helpful development if designed appropriately. However, it’s the retention of a full merits appeal to the CAT [Competition Appeals Tribunal], as exists under the current framework, that remains the crucial factor to ensure that the overall regime remains compliant with fundamental fair hearing rights.”

Rod Carlton, managing partner of Freshfields Bruckhaus Deringer’s antitrust, competition and trade practice group, said the proposals extend the regulatory net but lack certainty for businesses and CMA users on the scope of the law, actual processes and leadership, and muddy the waters of an already unclear markets regime.

Carlton said: “It’s telling to see the emphasis on planned government monitoring of the CMA’s and sectoral regulators’ antitrust enforcement activities: the pressure is on.

“In the antitrust enforcement and market investigations areas, we predict continuing tension between ’robustness of regulators’ decisions’ and ’speed and predictability for business’.”

The City of London Law Society competition law committee worked closely with the Government to develop the proposals.

Its chairman Robert Bell, who is a competition partner at Speechly Bircham, said he broadly supports the reforms, in particular the injection of what he sees as “greater fairness” into antitrust investigations. But he labelled removing the dishonesty element premature, claiming that it will make the offence “highly problematic to enforce”.

Bell added: “Additionally, this change lowers the bar to criminal prosecution; therefore giving rise to potential miscarriages of justice.”

OFT chairman Philip Collins said: ‘We look forward to a new Competition and Markets Authority which builds on the existing strengths of the two organisations, has the potential to make better use of public resources, enhances overall consistency and predictability for business and can be a strong voice for the benefits of competition in the UK and internationally. In particular, we intend to make significant further improvements to our Competition Act processes to improve their speed, quality and robustness, in support of the Government’s decision to retain an administrative system rather than move to a prosecutorial system – a decision we welcome.  We will shortly be consulting on revised guidance which will include a proposal to change the OFT’s decision-making structure and further improve its transparency to companies we are investigating.’

Business Minister Norman Lamb said a CMA Board will be required to publish rules and guidance describing its procedures and decision-making to ensure clear roles, openness and transparency.

He said: ”We want to see a simpler, more streamlined structure so that a single competition authority can provide strong leadership and improve the speed and quality of decisions for business. Above all competition drives prices down and quality up, which benefits consumers and improves UK productivity and growth.”