Brexit and its Impact on Competition Litigation in the UK

Introduction

Prime Minister Boris Johnson famously successfully campaigned for Brexit by arguing that it was time for the UK to take back control of its laws. In this chapter, we consider the extent to which Brexit has in fact resulted, or may in the future result, in material changes to English law governing private damages actions based on breaches of competition law.

Historically, private damages actions in the UK have developed alongside developments in European law concerning infringements of competition law. Prior to Brexit, the doctrine of supremacy of EU law,^[2] coupled with the incorporation of EU law into UK statute through acts such as the European Communities Act 1972 and provisions in the Competition Act 1998 (the CA 1998), meant the English courts were required to follow and implement relevant developments in EU competition law. The adoption of the Damages Directive in 2014^[3] was a significant step towards harmonising private damages actions across Europe, and the subsequent incorporation of provisions of the Damages Directive into English law (discussed below) led to many of the key principles of European law relevant to private damages actions being reflected in English national law.

Brexit has now given the UK legislature and courts an opportunity to develop competition law in their own way. In what was hailed by the then Secretary of State for Exiting the EU as ‘a landmark moment in taking back control of our laws from Brussels’,^[4] the European Union (Withdrawal) Act 2018 repealed the European Communities Act 1972 and, following amendments by the European Union (Withdrawal) Act 2020 to reflect the Brexit transition period, incorporated EU regulations that were operative immediately before 31 December 2020 into UK law.^[5] It provided that statutory instruments could be published to remove aspects of EU law seen as ‘deficiencies’ that would otherwise be maintained.^[6] The key statutory instrument made in pursuance of these powers with an impact on private damages actions is the Competition (Amendment, etc) (EU Exit) Regulations 2019 (si 2019/93).^[7] As explained below, this makes important changes to existing law in this area by removing the applicability of key regulations such as Regulation 1/2003 to English law and amending the CA 1998.

While this will undoubtedly result in important changes to private damages actions in the English courts, it remains to be seen precisely how far in practice this will result in a divergence from EU law. In a number of private damages actions currently progressing through the English courts, initial pretrial disputes have already been determined by reference to EU law. For example, in Royal Mail’s and BT’s claims against DAF in respect of the Trucks cartel (scheduled for trial commencing in April 2022), disputes concerning the extent of disclosure from the Commission File and which parts of the Commission decision are binding have been determined by applying EU legal principles before the expiry of the transition phase for exiting the EU on 31 December 2020. Further, in other claims relating to Commission investigations that were initiated prior to 1 January 2021, key aspects of EU law concerning private damages actions continue to apply. It is therefore likely to be a number of years before the true extent of any divergence from EU law in private damages actions becomes fully apparent.

As explained below, recent case law is encouraging in suggesting that the courts will take a proactive approach in the development of private damages actions. Even before Brexit was officially implemented into UK law, the courts had taken steps following the result of the Brexit referendum to shape the law on private damages actions in a way more closely aligned to English common law principles while avoiding any direct conflict with European law. This, together with the harmonisation of many aspects of private damages actions across the EU and the UK through the implementation of the Damages Directive into UK law means that there are a number of aspects of private damages actions for which Brexit is likely to have less of an impact than might otherwise have been the case.

EU case law

Prior to Brexit, UK judicial and administrative authorities were required to apply national competition law consistently with EU case law and principles. Section 60 of the CA 1998 required that whenever a national court determined a question under Part I of the CA 1998, it was required to act:

with a view to securing that there is no inconsistency between — (a) the principles applied, and decision reached, by the court in determining that question; and (b) the principles laid down by the Treaty and the European Court, and any relevant decision of that Court, as applicable at that time in determining any corresponding question arising in law.

An example of this was National Grid’s disclosure application in its claim for damages in respect of the Gas Insulated Switchgear cartel. Following the European Court of Justice’s Pfleiderer judgment,^[8] National Grid applied for the disclosure of certain documents considered to be leniency material. The High Court determined that Pfleiderer set out the balancing test that it needed to apply and applied this test when deciding that certain extracts of the relevant documents should be disclosed.^[9] As explained below, the implementation of the Damages Directive through amendments to the CA 1998 subsequently prohibited disclosure of leniency documents.

As a result of Brexit, section 60 of the CA 1998 has been replaced by section 60A. This provides that the English courts, Tribunals and the Competition and Markets Authority (CMA) must now act to ensure that there is no inconsistency with:

the principles laid down by the Treaty on the Functioning of the European Union and the European Court before IP completion day [31 December 2020], and any relevant decision made by that Court before IP completion day, so far as applicable immediately before IP completion day in determining any corresponding question arising in EU law, subject to subsections (4) to (7).

Subsections (4) to (7) list a number of ways in which the English courts, tribunals and CMA will not be required to apply EU law in this way. This includes differences between markets in the United Kingdom and markets in the European Union, differences in ‘generally accepted principles of competition analysis or the generally accepted application of such principles’ and even ‘the particular circumstances under consideration.’

Section 6(4) of the European Union (Withdrawal) Act 2018 provides that the Supreme Court is not bound by any retained EU case law^[10] and Section 6(5) provides that when considering whether to depart from EU case law decided prior to 31 December 2020, the Supreme Court must apply the same test as it would apply in deciding whether to depart from its own case law.

In respect of EU cases decided after 31 December 2020, Section 6 of the European Union (Withdrawal) Act 2018 provides that the English courts and Tribunals are ‘not bound by any principles laid down, or any decisions made’ by the European court but ‘may have regard’ to relevant cases.^[11]

Interestingly, Paragraph 114 of the explanatory notes to the European Union (Withdrawal) Act 2018 provides that ‘although all courts can have regard to post-exit CJEU decisions, unless and until the UKSC or HCJ have departed from pre-exit CJEU case law, the latter remains binding on lower courts even if the CJEU has departed from it after exit day’. It is, therefore, possible that English courts will be bound to apply pre-exit CJEU case law even where that no longer reflects the position under EU law.

Commission decisions

One example of how Brexit will have a material impact on private damages actions is in the changes to the scope of Commission decisions and their treatment in English law.

Scope

Prior to 1 January 2021, the European Commission (the Commission) had jurisdiction to investigate and rule on competition law infringements that occurred in the UK and other EU Member States^[12] and the CMA had concurrent jurisdiction to investigate the aspect of the infringement that occurred in the UK.^[13] The CMA and the Commission were required to ‘apply the Community competition rules in close cooperation’,^[14] and, if the Commission chose to initiate proceedings in respect of an alleged infringement, this had the effect of relieving the national competition authorities of their competence to apply Articles 101 and 102 of the Treaty of the European Union (TFEU).^[15] In practice, this meant that for competition law infringements that related to both the United Kingdom and other EU Member States, it was the Commission rather than the national enforcement agencies that often issued decisions concerning the UK and other EU Member States. By way of example, the Office of Fair Trading initially opened its own national investigation into a suspected cartel involving vehicle manufacturers on the UK market but closed its investigation to allow the Commission to progress its own Europe-wide investigation.^[16]

Following the expiry of the Brexit transition period, this will no longer be the case unless the Commission investigation into the relevant infringement had already commenced before the end of that period.^[17] The Commission will typically no longer rule on competition infringements in respect of the UK,^[18] and the CMA will be the primary body responsible^[19] for investigating competition law infringements in the UK and issuing infringement decisions against relevant parties by reference to the national competition rules in the CA 1998, rather than to Articles 101 or 102 TFEU.^[20] This is likely to lead to more CMA infringement decisions being adopted. Andrea Coscelli, the CMA’s Chief Executive, has stated that:

The CMA has been planning extensively for the UK’s departure from the EU, and we are ready to assume our new responsibilities at the end of the transition period. As we take on a more active role in global cases from January 2021, we are determined to be a robust champion for competition and for UK consumers.^[21]

One likely positive result for claimants of this shift is that CMA infringement decisions for UK aspects of international cartels are likely to contain more detail in respect of the operation of the cartel in the UK than would typically be the case in a Commission decision. This should provide prospective claimants with more detail of how an international competition law infringement operated and impacted the UK market than has historically been the case and allow them to rely on this additional detail when initially pleading their claims.

If, however, following 31 December 2020, a national regulator such as the CMA does not open its own investigation into the UK aspects of a suspected international competition infringement, and the Commission has not already opened an investigation before this date, there will be no finding of infringement covering the UK market for claimants to rely upon as the basis for a ‘follow on’ private damages action. Instead, any prospective claimants who suspect that the infringement covered the UK market will need to consider whether to commence a fully stand-alone claim.

Binding nature of Commission decisions

Prior to 1 January 2021, the English courts were required to act in accordance with Article 16(1) of Regulation 1/2003. This provides:

[w]hen national courts rule on agreements, decisions or practices under [Article 101 and 102 TFEU], they cannot take decisions which would conflict with a decision contemplated by the Commission. They must also avoid giving decisions which would conflict with a decision contemplated by the Commission in proceedings it has initiated. To that effect, the national court may assess whether it is necessary to stay its proceedings.

These requirements have historically led to private damages actions in the English courts being delayed for a number of years while the defendants’ appeals of Commission decisions slowly progressed through the European courts. For example, National Grid’s claim for damages in respect of the Gas Insulated Switchgear cartel was issued in 2008 but only timetabled for trial to commence in 2014. When considering what case management orders to make in that case, the High Court stated ‘that this court should take all the steps required to ensure that the trial does not come on before all appeals to the CFI and, if brought by any party, to the ECJ have been finally concluded’.^[22] In contrast, it is likely that any appeals of a CMA decision through the English courts will be capable of resolution much more swiftly, accelerating the progress of private damages actions to trial.

Important decisions on this topic were still being made by the UK courts by reference to EU law in the Brexit transition period. In March 2020, in Royal Mail’s claim against DAF referenced above, the Competition Appeal Tribunal determined which parts of a Commission Decision were binding in the UK as a matter of EU law pursuant to Article 16(1) Regulation 1/2003.

From 1 January 2021, Regulation 1/2003 has been revoked from English law,^[23] and the CMA, National Courts and Tribunals ‘must’ instead ‘have regard to’ any relevant decision or statement of the Commission made prior to 31 December 2020 and that has not been withdrawn.^[24] The ‘saving and transitional provision’ in Schedule 4 of the Competition Amendment (Exit) Regulations SI 2019/93 protects claimants’ rights to rely on a Commission decision that was issued prior to this date in ‘follow on’ claims, and Paragraph 14(2) of Schedule 4 provides that for infringements that occurred before 1 January 2021, a person may continue any claim that has already commenced in relation to that infringement before a court or tribunal in the United Kingdom. A person may also make any claim (or any defence to any claim) in relation to that infringement in proceedings before a court or tribunal in the United Kingdom that could have been made before 1 January 2021.^[25] Where claimants do seek to rely on this, it appears likely that the courts will still ensure that a trial only occurs after any relevant appeal of the Commission Decision by defendants has been determined.

By contrast, Commission decisions adopted from 1 January 2021 in respect of investigations that were also commenced after this date will no longer be binding on the English courts and tribunals, although the UK courts and tribunals ‘may have regard’ to anything done by an EU institution (including the Commission) after this date.^[26] In such cases where claimants seek to rely on a Commission decision, it remains to be seen whether a court will allow a trial to occur before any relevant appeal by the defendants of the Commission decision has been determined.

In respect of Commission settlement decisions, the English courts have taken the proactive approach of applying the English common law principles of abuse of process to prevent defendants in follow on damages actions from contesting the findings recorded in the recitals of the relevant settlement decision, subject to certain exceptions. This approach was taken by the Competition Appeal Tribunal in 2020 in its judgment in Royal Mail’s claim against DAF trucks (referenced above)^[27] and upheld by the Court of Appeal.^[28] The Tribunal held that it would be an abuse of process for the defendants to seek to challenge or not admit the factual findings in the remaining recitals that were not already binding as a matter of EU law unless those findings fell within a narrow list of exceptions set out in Paragraph 141 of its judgment. It emphasised that the application of the abuse of process doctrine requires a close examination of the facts of each particular case. However, the logic of this decision would appear to apply to all Commission settlement decisions. This means that the English courts are now able to rule that the findings in settlement decisions will be effectively binding on the infringing party in subsequent private damages actions in the UK. As this is the application of English common law as opposed to European law, Brexit should not affect its application to private damages actions in the future.

In respect of CMA decisions, both pre- and post-Brexit, the binding nature of those decisions is governed by Sections 58 and 58A of the CA 1998. These provides that the ‘court or the Tribunal is bound by the infringement decision once it has become final’ and that ‘findings of fact’ by the CMA in an infringement decision are binding on the parties once the infringement decision becomes final ‘[u]nless the Court [or Tribunal] directs otherwise’, An infringement decision becomes final once the time for any appeal of the CMA decision has expired or the CMA decision has otherwise been upheld on appeal. The courts therefore have discretion on the facts of each case to decide whether particular reasons exist that mean that the court should reach a different conclusion to a particular CMA finding of fact.

Jurisdiction

Brexit has resulted in significant changes to how jurisdiction is established in the UK. In summary, it has increased the complexity for parties to establish jurisdiction in the UK courts and potentially increased the opportunity for satellite disputes concerning jurisdiction.

Prior to Brexit, the English and other EU Member State courts applied the Brussels (Recast) Regulation and the Lugano Convention to determine whether the English or other European courts had jurisdiction over a claim involving parties from countries in the EU and European Free Trade Association (EFTA). This limited (but did not extinguish) the scope for disputes concerning jurisdiction arising in private damages actions in the UK.

Under Article 67 of the Withdrawal Agreement, the English and other EU Member State courts will continue to apply the Brussels (Recast) Regulation where English proceedings were ‘instituted’ (meaning issued) on or before 31 December 2020.

In respect of claims issued on or after 1 January 2021, the precise way in which English and European courts will treat jurisdiction in respect of claims where one party asserts the courts of England and Wales should have jurisdiction is in a state of development.

The UK government originally wished to enter into a new bilateral agreement with the EU that would enable the UK to continue to be treated as a Brussels Regulation state under the Brussels (Recast) Regulation.^[29] However, no such agreement was reached. In April 2020, the UK applied to re-join the Lugano Convention as an alternative way of achieving the implementation of common rules concerning jurisdiction following Brexit.^[30] This required the consent of each of the EFTA Member States and the EU. Although each EFTA Member State supported the UK’s application,^[31] it appears unlikely that the EU will do so. On 4 May 2021, the Commission published a ‘Communication from the Commission to the European Parliament and the Counsel’^[32] in which it stated:

the Commission takes the view that the European Union should not give its consent to the accession of the United Kingdom to the 2007 Lugano Convention. For the European Union, the Lugano Convention is a flanking measure of the internal market and relates to the EU-EFTA/EEA context. In relation to all other third countries the consistent policy of the European Union is to promote cooperation within the framework of the multilateral Hague Conventions. The United Kingdom is a third country without a special link to the internal market. Therefore the Hague Conventions should provide the framework for future cooperation between the European Union and the United Kingdom in the field of civil judicial cooperation. Stakeholders concerned, and in particular practitioners engaged in cross-border contractual matters involving the European Union, should take this into account when making a choice of international jurisdiction.

The Hague Convention on Choice of Court Agreements 2005 (the Hague Convention) contains a set of mutual rules for the allocation of jurisdiction and enforcement of judgments as between the signatory states. Prior to Brexit, the UK was a party to the Hague Convention as a result of being an EU Member State. However, the Brussels (Recast) Regulation took precedence in terms of allocating jurisdiction between member states including the UK. Now that the UK is no longer an EU Member State, it has acceded to the Hague Convention in its own right and its significance has increased for disputes between English and EU parties.

Article 2(2)(h) of the Hague Convention, however, provides that the Hague Convention does not apply to ‘anti-trust (competition) matters’. Paragraph 62 of the explanatory report to the Hague Convention by Trevor Hartley and Masato Dogauchi^[33] explains that actions ‘in tort for damages for breach of anti-trust/ competition law . . . are excluded by Article 2(2)h) even though they are between private parties’.^[34] In circumstances where the UK is currently not a signatory to either the Brussels (Recast) Regulation or the Lugano Convention, it therefore appears that the local laws of the court asked to determine jurisdiction will apply to such claims.

Under English common law, the jurisdiction of the English courts is founded on the procedural rules on service. For cases involving Defendants based outside of the UK, unless ‘a contract contains a term to the effect that the court shall have jurisdiction to determine that claim’,^[35] a contractually agreed method of service or other method of serving a foreign party within England and Wales, it is likely that permission to serve out of the jurisdiction will be required to be obtained from the English court to establish the jurisdiction of the English court over the dispute. To obtain permission, a claimant will need to show that one or more of the gateways in Paragraph 3.1 of the Civil Procedure Rules Practice Direction 6B is met, that there is a good arguable case and that England is the appropriate forum for the dispute.^[36] Even if a claimant is successful in such an application, it will then be open to a defendant to dispute jurisdiction following service. Defendants might also subsequently issue and pursue parallel proceedings in another jurisdiction and if this occurs in an EU Member State, then a claimant will no longer be able to rely on the Brussels (Recast) Regulation to prevent those parallel claims from continuing.^[37]

Pass on

Pass on is an area in which the steps taken by the English courts means that Brexit should not have a big effect. This is because in the Sainsbury’s v MasterCard litigation the English courts have developed an English law doctrine of pass on within the pre-existing English law on mitigation of damages in a way that is consistent with the EU principles of pass on.

At first instance in 2016, the Competition Appeal Tribunal recognised that the concept of a pass on defence had been recognised by the Court of Justice^[38] but explained that the precise ambit of the defence had been left for national courts to determine subject to the principles of equivalence and effectiveness.^[39] Although the Tribunal noted that there had been no previous case in English law that had substantively dealt with the pass on defence,^[40] it proceeded to articulate a pass on defence under English national law that was considered to be consistent with the EU legal principles.^[41]

Following an appeal of limited aspects of the Tribunal’s ruling on pass on, in 2018, the Court of Appeal^[42] took this one step further and ruled that the pass on defence was simply part and parcel of the English common law rules of mitigation and that the EU principles concerning pass on were ‘entirely consistent’ with this.^[43]

In MasterCard’s appeal to the Supreme Court, a debate arose in respect of which party bears the burden of proof in respect of pass on. As part of its reasoning in determining that the legal burden of proof rests upon a defendant but there exists an evidential burden on a claimant, the Supreme Court also considered both the EU and English law concerning pass on in detail.^[44] Although the Supreme Court noted that the Damages Directive was not applicable to Sainsbury’s claim due to the timing of the infringement, it noted that it ‘cast light on the pre-existing requirements of EU law’ and that it ‘leaves it to the English Courts to apply the normal rules of English law of mitigation of damages, including the effect of pass on’.^[45]

Subsequent cases following Brexit have added to this. In Royal Mail Group Limited v DAF Trucks Limited & Others,^[46] the Competition Appeal Tribunal rejected DAF’s application to amend its Defence to plead a general pleading of ‘mitigation by cost reduction’. DAF had sought to rely on the Supreme Court’s reasoning in Sainsbury’s v MasterCard concerning the linked English law concepts of pass on and mitigation to support its application. The Tribunal disagreed with DAF’s position and concluded that:

it cannot be enough for a Defendant to plead that a claimant’s business input costs as a whole were not increased, or that as part of a claimant’s businesses ordinary financial operations and budgetary control processes its overall expenses were balanced against sales so that profits were not reduced. There must be something more to create a proximate causative link between the overcharge and a reduction in other input costs so as to constitute mitigation.^[47]

The approach taken by the English courts in developing pass on as a subset of the English law of mitigation but in a way that is consistent with the EU legal principles, means that Brexit should have little impact on this area. It remains possible that other EU Member States will interpret and apply the pass on rules in the Damages Directive (referenced below) as incorporated in their own national laws in a slightly different way. However, this was something that was possible regardless of Brexit given that the precise way that this part of the Damages Directive is implemented may differ across Member States.

The Damages Directive

The UK legislature implemented the relevant provisions of the Damages Directive that it deemed necessary to ensure alignment of English law with the contents of the directive on March 2017.^[48] This resulted in the addition of Schedule 8A to the CA 1998. Key examples of aspects of the Damages Directive that were made part of English law as a result of this include the following:

• Pass on: the rules concerning the burden of proof contained in Articles 13 and 14 and of the Damages Directive are reflected in Paragraphs 9 to 11 of Schedule 8A.
• Small and medium enterprises: the rules providing for exclusion of liability of small and medium enterprises that had a market share of less than 5 per cent in the period of infringement and where liability for damages ‘would irretrievably jeopardise its economic viability and cause its assets to lose all their value’ contained in Article 11 of the Damages Directive are reflected in Paragraph 12 of Schedule 8A.
• Presumption of harm: the presumption that cartels cause harm contained in Article 17 of the Damages Directive is reflected in Paragraph 13 of Schedule 8A.
• Liability of immunity recipients: the exclusion of liability in private damages actions for immunity recipients subject to certain exceptions such as for its direct and indirect customers and where the exclusion would otherwise prevent a claimant from obtaining full compensation for its losses arising from the infringement contained in Article 11 of the Damages Directive are reflected in Paragraphs 14 and 15 of Schedule 8A.
• Limitation: the rules on limitation contained in Articles 10 and 18 of the Damages Directive are reflected in Paragraphs 17 to 26 of Schedule 8A. These paragraphs provide that the limitation period for claims under English law is six years^[49] and that this commences on ‘the later of (a) the day on which the infringement of competition law that is the subject of the claim ceases, and (b) the claimant’s day of knowledge’.^[50] They also provide that the limitation period will be suspended for the period of a Competition Authority’s investigation and during any period of consensual dispute resolution process.
• Disclosure: the rules preventing the disclosure of settlement submissions and leniency statements contained in Article 6 of the Damages Directive are reflected in paragraph 28 of Schedule 8A. Paragraph 32 also confirms that settlement submissions and leniency statements that have not been withdrawn are inadmissible in competition proceedings. Paragraph 33 provides that, subject to certain exceptions, a Competition Authority’s investigation material will not be admissible in evidence at any time before the competition authority has closed the investigation to which those materials relate.

The above Paragraphs of Schedule 8A of the CA 1998 have been retained following Brexit, limiting the scope for divergence between English law and European law in the relevant areas. There has, however, been an important amendment to the definition of ‘competition authority’ in Paragraph 3(1) of Schedule 8A. Whereas this previously included the Commission, this now only includes the CMA and English regulators who hold concurrent investigatory powers to the CMA.

One effect of this amendment is that there will not be a suspension of a limitation period for the time in which the Commission conducts an investigation under Paragraph 21 of Schedule 8A. It remains to be seen, however, whether the English court will find a way to interpret the rules concerning the commencement of the relevant limitation period^[51] to prevent claims that seek to rely on the findings in a Commission Decision from becoming time-barred before the issuing of that Decision. The transitional rules concerning infringements before 1 January 2021^[52] may also be used to argue that such claims should not be time barred in this way.

Another effect of this amendment appears to be that the rules on disclosure concerning investigation material and leniency and settlement submissions in Paragraphs 28 to 33 no longer apply to leniency and settlement submissions made to the Commission or to documents on the Commission’s file. It appears likely, however, that, at least in the immediate years following Brexit, the English courts will resist any disclosure request by a claimant that seeks to take advantage of this and that the rules on disclosure of such documents will continue to be applied in a manner consistent with the provisions of the Damages Directive.

Notes