Anneli Howard QC of Monckton Chambers charts what the future holds for competition lawyers now the United Kingdom has left the EU the new terrain.
Four years ago, if you had asked about the impact of the United Kingdom’s impending departure from the European Union for competition lawyers, the response would have been a collective sigh of relief. After 40 years of English law aligning closely with EU competition law, there was some certainty that, plus ca change, plus c’est la meme chose. It was the ultimate irony, as we edged closer and closer to the expiry of the transition period on 31 December 2020, that competition and state aid looked like the potential deal breakers for any future trading arrangements.
The EU-UK Trade and Cooperation Agreement (TCA) was published on Christmas Eve and signed just before the New Year’s Eve cut-off – it looks set to be ratified by Spring 2021. So what does the TCA envisage and what are the knowns, unknowns and potential unknown unknowns for the future competition law landscape?
The TCA competition regime
Title XI TCA contains the recognition, by the UK and EU, of the importance of the “Level Playing Field” provisions for open and fair competition. However it is clear that the TCA does not involve any harmonisation of competition law. Although the UK has committed to maintaining and improving its high standards in Article 1.1(4) Title XI, going forwards this will be on the basis of its own domestic law in the Competition Act 1998. Further, the TCA recognises each Party’s autonomy to determine the levels of protection that it considers appropriate and to adopt or modify its regulatory policies as it sees fit, provided that is consistent with its international commitments, per Article 1.2.
Chapter 2 of Title XI sets out the broad principles for competition policy-namely to avoid distorted competition in the key areas in which competition law is to apply. Note that the definitions used do not incorporate the familiar concepts of EU law. Instead they are framed in general terms about anti-competitive agreements, abuse of dominant position and mergers. Similarly there is no express reference to objective justification or the well-known exemptions in Article 101(3); instead Article 2.2 (3) recognises that each Party can pursue legitimate public policy objectives, even if strictly speaking, they are not limited to economic efficiencies as such. Article 4 extends competition to public law entities, state monopolies and those with special rights of privileges, the equivalent of Article 106 of the Treaty on the Functioning of European Union.
Article 2.3 commits each Party to public enforcement measures and there is a clear commitment to ongoing cooperation and exchange of information between the UK competition authorities and the EU Commission and EU27 National Competent Authorities, where it is possible and appropriate to do so.
There is nothing in the TCA regarding private enforcement of competition law or anything regarding the UK succession to the Lugano Convention for the purpose of establishing jurisdiction in cross-border claims.
State to state dispute resolution
If there is a dispute between the EU and UK regarding competition law issues, it will not be governed by the normal Dispute settlement provisions in Part Six TCA. Note that this process is confined to contracting states not private parties. Part Six provides for initial consultation within the framework of the Partnership Council or Specialised Committees and, if there is no consensual agreement, a referral to the Arbitration Tribunal for remedial measures and/or suspension of obligations. Instead, Article 9.1 provides for an initial 30 day consultation process between the Parties, who may involve domestic advisory groups and experts. If that does not address the issue, a Party may request a Panel of three experts to be convened, who will examine the issue (with written submissions from relevant persons) and issue an interim report within 100 days and a final report within 175 days, per Article 9.2. The parties will then agree implementing measure to comply with the findings and recommendations (if any) of the Panel, Article 9.2(16) with a referral to the Panel to determine the measures if they cannot be agreed. In the event of a failure to comply with the measures and recommendations, the matter can be referred to the Arbitration Tribunal.
Competition law “knowns”
Regarding Northern Ireland, the Northern Ireland Protocol (NIP) provides that provisions of EU law will have direct effect and have the “same legal effects” as the Treaties. EU competition law concepts will, in their implementation and application, be interpreted dynamically in conformity with relevant CJEU case law. This means that, insofar as the claim relates to Northern Ireland, courts will be bound indefinitely by CJEU rulings both pre-and post-transition. Article 10 in particular, provides that state aid provisions in Annex 5 will apply “in respect of measures which affect trade between Northern Island and the Union”. The EU doctrine of effect on trade is notoriously broad, applicable not just to actual or potential effects but also direct and indirect effects. That means that the entirety of the Treaty state aid provisions, the EU Commission’s notification procedure, Block Exemption Regulations and Guidance will apply to state funding measures even when there is even only a transient risk to the pattern of trade with the EU.
The provisions of the Withdrawal Agreement, including the NIP, are given effect to by Section 7A of the EU Withdrawal Act 2018 (EUWA), which is akin to Section 2 (1) of the 1972 Act, in that “all rights, powers, liabilities are to be given legal effect” in the United Kingdom.
The status of the NIP was thrown into doubt by Sections 45 and 47 of the draft Internal Market Bill, which conferred enabling powers for the Secretary of State to issue regulations regarding the interpretation, application or modification of the state aid provisions in Article 10 NIP. Those regulations may remove the right of action for individuals, the duty to recover aid as well as alter the interpretation of Article 10 NIP so that it is not interpreted in line with EU law and is only to be interpreted in accordance with domestic regulations. However, those provisions have since been withdrawn during the TCA negotiation process.
As regards EU retained law, the EUWA cuts and pastes Articles 101 and 102 TFEU plus the Treaty state aid provisions into domestic law, along with key Council Regulations, such as Regulation (EC) No 1/2003 and the EU Merger Regulation (as amended). Tertiary legislation such as Commission Block Exemption Regulations (including the Vertical Agreement and Technology Transfer Block Exemptions) will also be retained as well as numerous other regulations, such as Commission Regulation 2013/361. The application of Article 101(3) TFEU to research and development or specialisation agreements will also be carried across. The status of Commission Guidance, Notice and Staff Working Documents is not clear. Particularly important recent examples on exclusionary abuses, the quantification of competition damages and passing-on. Nor is it clear whether the retained EU provisions that have been carried across will actually be workable within the domestic legal system – they may need further amendment to correct any deficiencies.
Competition law “known unknowns”
There are a number of uncertainties that arise from the carve outs in the EUWA.
Section 5 EUWA excludes rights that have been created from directives. This is on the premise that most directives will have already been implemented into domestic legislation. The Damages Directive 2014/104 is a curious example because some of its provisions were not specifically implemented by statute or statutory instrument. Some aspects were implemented through amendments to the Companies Act 1998 by, The Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017. Since the directive was modelled on UK practice, there was no need to transpose all of its requirements. Instead, some issues were left to “soft law”, including the Civil Procedure Rules, practice directions, Competition Appeals Tribunal Rules or judicial interpretation. This may create legal uncertainty going forwards, particularly as regards estimating damages.
The EUWA creates a watershed, whereby only EU provisions that are in force and operative prior to 31 December 2020 will be carried across as retained EU law. The status of “in flight” provisions, adopted by the EU legislature prior to the end of transition but whose transposition deadline falls thereafter, will not be carried across. There are important proposals in the pipeline such as the revised VBER, European Competition Network Plus (ECN+), new competition scrutiny tool, and the new Digital Services Act which straddle or post-date the transition watershed. They are not binding on UK authorities and it remains to be seen what weight, if any, will be given to them.
From 1 January 2021, the EU law doctrines of supremacy, direct effect or duty of sincere cooperation fall away. Similarly, EU principles of effectiveness and proportionality no longer apply. It remains to be seen what effect their removal will have on domestic policy formation, interpretation and application of competition law in the UK. Some EU competition concepts are based, not on economics efficiencies, but on the desire to promote the Internal Market. That premise has fallen away now the transition period is over and courts are no longer be under a duty of sincere cooperation in their interpretation of EU concepts. It may be that core policies, such as export bans, passive sales, fidelity rebates, e-commerce prioritisation are refined in a UK-centric environment which may follow the approach in other jurisdictions such as the USA.
Preliminary references to the CJEU from courts in the EU27 will continue to be made seeking clarity on the interpretation or application of concepts that are covered by EU Retained Law but those rulings will not be binding on UK courts. The extent to which UK courts will “have regard” to future CJEU rulings, and the weight that they will give to them in their interpretation of EU retained law, is as yet unknown.
The Unknown Unknowns
UK companies, that plan to sell products and services into EU27 markets, will still need to comply with the EU competition law. If UK companies fail to comply, they will remain subject to EU anti-trust investigations by the Commission or ECN and face enforcement measures including fines. The Commission will not however, be able to conduct dawn raids or compel the production of documents or evidence from UK-domiciled entities. They will, of course, be able to challenge any fines before the EU courts but, on the basis of the TCA Legal Services provisions, will not be able to instruct UK-only qualified solicitors and barristers to represent them in any investigation or appeals. Section 7 TCA permits UK qualified solicitors and barristers to provide legal services under their home professional title, but that only extends to UK law and public international law not EU law (SERVIN 5.48(a)). The designated activities do not extend to legal representation before the EU Commission or national administrative authorities and agencies or national or EU courts. See definition of “Legal Services” in SERVIN 5.48.
What is more, the Competition and Market Authority (CMA) has recently announced its intention to conduct separate investigations under Articles 101 and 102 during the transition period and under Chapters 1 and 2 thereafter. See paragraph 6(2) of Schedule 4 of the Competition (Amendment etc.) (EU Exit) Regulations 2019. The CMA may investigate the same conduct in parallel with the Commission where there is an effect on UK trade after 31 December 2020. See CMA Guidance issued on 1 December 2020. The CMA has also clarified that it will not recognise leniency applications made to the EU or EU27 under the Model Leniency Program. See Paragraphs 4.36-4.39 of OFT 1495 and CMA Guidance, paras 4.25 to 4.27. That means that UK companies face double jeopardy in the form of double legal costs for being investigated twice and being fined twice for the same conduct without the protection of full immunity. The cooperation provisions in the TCA may hopefully mitigate this risk.
For the last 20 years, UK competition law has applied the infamous “Section 60 CA98” where national authorities and courts have interpreted UK competition law in line with the treatment afforded under EU law. That alignment will now disappear, with the risk of increasing EU and UK divergence. It is clear that there will be future EU developments, such as the Digital Services Act, which the UK will not follow as it is developing its own national policy in the same field.
Brexit marks the Brave New World, where the UK can redefine its competition law policy and set its own agenda for furthering consumers interests, supporting disruptors and promoting digital markets and levelling up the economy. The recent Penrose Review, Tyrie Call for Evidence and the Furman Review will set new strategic imperatives and recommendations for changes to the UK’s competition framework. It remains to be seen what impact this “conscious uncoupling” will have on future UK competition policy and wider EU relations.
Under the new Section 60A CA98, UK authorities and courts will be free, in all “live” cases after transition (even those relating to events pre-2021), to depart from the principles of the TFEU and CJEU case law in “appropriate cases”. See Section 60A CA98 and CMA Guidance, para 4.22. The circumstances in Section 60A(7) may include differences in markets or economic activities between the UK and EU or developments in competition principles or economic analysis as well as “specific and limited circumstances” of the individual case that warrant a different approach. So, although there is a ‘no inconsistency’ principle, that will not rule out future divergence and autonomy.
The recent consultation on the extent to which first instance and appellate courts may depart from existing Commission Decisions and CJEU rulings shows the enthusiasm to minimise the “fossilisation” of EU law within the UK regime, to promote regulatory flexibility and faster initiatives. But, at some point, the UK will need to choose between regulatory freedom and market access. The greater the divergence in law and policy, the bumpier the playing field and the less extensive market access for UK businesses to trade in the EU27 markets. For some sectors, especially regulated industries and cross-border activities, such as aviation, telecoms, digital services, e-commerce and health, there may need to be some degree of cooperation and pragmatic alignment as a practical necessity.
Lastly, litigation. The UK of course was first to recognise the right to competition damages in the 1980s judgment in Garden Cottage Foods, nearly two decades before the seminal EU Courage v Crehan ruling. The last 20 years has seen a phenomenal increase in competition litigation, spearheaded in the UK by follow-on litigation and US style funding arrangements. Much of that industry has been built on the relative security provided by the status of Commission Decisions, which, once final, are binding on UK courts. That comfort has now been put in doubt by Brexit.
There is some continuity provided by the transition regime in the EUWA and the Competition Exit Regulations. See the Competition (Amendment etc) (EU Exit) Regulations 2020 (“the Competition Exit Regulations”) – underlining added.
“1. The institutions, bodies, offices and agencies of the Union shall continue to be competent for administrative procedures which were initiated before the end of the transition period concerning: (a) compliance with Union law by the United Kingdom, or by natural or legal persons residing or established in the United Kingdom; or (b) compliance with Union law relating to competition in the United Kingdom.
2. Without prejudice to paragraph 3, for the purposes of this Chapter an administrative procedure shall be considered as having been initiated at the moment at which it has been formally registered with the Union institution, body, office or agency.”
Section 2.15 of The Competition Exit Regulations provides:
“Claimants seeking damages for breaches of competition law on a follow-on basis will
be able to rely upon European Commission decisions adopted before the end of the
Transition Period, and after that in relation to continued competence cases, as binding
evidence of a breach of competition law under the Competition Act 1998.”
The new Section 35A(3) of the Enterprise Act 2002 clarifies that “continued competence cases” include antitrust and merger investigations where the EU Commission has competence on and after 31 December 2020. Article 92(1) EUWA establishes that such competence is established where the EU Commission initiated the investigation prior to 31 December 2020, which also means where the administrative procedure was “formally registered”. That means that the UK courts will continue to have follow-on jurisdiction for the best part of a decade, given that investigations opened in December 2020 could take a minimum of five years to conclude and the appeal process could extend for several years thereafter.
For complaints and investigations initiated after 1 January 2020, the CMA Guidance states that, “claimants who wish to pursue follow-on damages claims in UK courts will no longer be able to rely on an infringement decision under EU law reached by the European Commission as a binding finding of an infringement under the CA98 , cases initiated after 31 December 2020” (CMA Guidance, para 4.37. Similarly claimants will not be able to rely on a EU27 NCA infringement decision as prima facie evidence of an infringement.) Instead the status of the Commission’s findings will be a matter of relevance and weight for the national court to determine, as it considers appropriate.
If UK courts can depart from the Commission’s infringement findings or call into question the evidence or admissions made in the context of anti-trust investigations, there will be little incentive for funders to commit resources to litigation in the UK. That is particularly so if there is no ability to claim for losses outside of the UK by consolidating cross border claims before the UK courts.
Although the CMA and UK sectoral regulators may issue national infringement decisions, their productivity will be subject to their limited resources not being consumed with additional tasks such relating to merger reviews, state aid, the Office for the Internal Market and the new Digital Markets Unit. The scale of CMA decisions is likely to be much smaller than EU decisions, confined to effects within the UK territory and purchases made by UK business and consumers. The value of commerce affected may simply not be high enough to meet funders’ hurdle rates.
Without the harmonisation in the Recast Brussels Regulation and the Hague Service Convention, there may also be difficulties in serving proceedings and enforcing judgments on defendants in the EU27. It may be difficult to consolidate multijurisdictional claims before the UK courts as a one-stop shop for fear of overreaching their jurisdiction or offending judicial comity. It is no surprise that leading international firms such as Hausfeld have established operations in the Netherlands and Germany with a view to bringing pan-European competition law claims in alternative jurisdictions.
That is not to say that there are no advantages from Brexit. Practitioners are already seeing a shift away from follow-on litigation towards stand-alone claims, which are not affected by the status of Commission decisions. Standalone claims can still be brought after 31 December 2020 in relation to infringements of Articles 101 and 102 (either on their own or in parallel with the Chapter I/II) where the infringements occurred before 31 December 2020. See CMA Guidance, para 4.37. They can be brought on a fast track basis before the UK courts who no longer owe any duty to suspend their proceedings pending a Commission investigation or subsequent appeals. The UK courts will not be bound to stay the proceedings pending any preliminary references regarding the application of the Damages directive but can proceed to issue their own interpretation and application of those retained provisions within the UK legal system. That pragmatic autonomy may give UK proceedings a time advantage which is attractive to funders and claimants, combined with efficient case management and alternative dispute resolution.
Likewise, we may see an increase in anti-suit injunctions or forum shopping to seise the UK courts with jurisdiction in cross border claims. The UK courts are highly experienced in competition law and it will be possible to plead EU law, or the law of a EU27 state, as foreign law before the UK courts. Judges may also have the flexibility to conduct a comparative law appraisal of certain defendants’ conduct by having regard to an analogous findings in Commission statements or decisions, alongside similar findings in Department of Justice or Federal Trade Commission rulings or other authorities in the former Commonwealth. In that way, rather than following an isolationist path, UK competition law may become truly global.
So in surveying the competition enforcement terrain after the end of transition, there will be pitfalls and trip hazards on the path ahead. The substance of competition law will continue to be broadly the same for some time to come but companies face a double regulatory burden and enforcement risks. For practitioners, the volume of competition law litigation in the UK may be smaller and UK-centric unless there are ways to maintain the UK’s credentials as a global litigation hub.