England and Wales

In the UK, a settlement procedure for infringements of Chapters I and II of the Competition Act 1998 (and Articles 101 and 102 of the Treaty on the Functioning of the European Union during the transition period under the Withdrawal Agreement) has existed on a statutory basis only since 2014. This statutory regime built on the informal practices and policies implemented by the predecessor of the Competition and Markets Authority (CMA), the Office of Fair Trading (OFT), since 2006.

This statutory regime and accompanying written guidance now govern the settlement process in the UK. The settlement procedure in the UK offers double the maximum discount on fines compared with the European Union’s settlement procedure, and also permits settlement even after the CMA has issued a statement of objections (whereas the European Union’s guidance on its process suggests that it will not).^[2] There is also no need for settling parties in the UK to draft and submit a settlement submission, as required by the European Commission. Instead, settling parties need to base their admissions on the facts set out by the CMA. Notwithstanding these apparently more generous aspects of the UK regime, more parties have taken advantage of the European Union’s procedure in comparison, although this may simply reflect the greater caseload of the European Commission relative to the CMA.^[3]

There are three means by which a party facing an allegation of infringing competition law in the UK can mitigate a maximum enforcement outcome: (1) leniency; (2) settlement; and (3) commitments. Leniency claims are beyond the scope of this chapter. However, it is important to note that a party can apply for leniency in conjunction with settlement. In fact, nothing prevents a party from using any combination of the three options, when available, to secure a substantially reduced penalty.

As in other jurisdictions, competition enforcement in the UK is driven significantly by incentives and resource burdens. A leniency regime is intended to incentivise cartel members to come forward with evidence of illegal activity in return for immunity or lower fines, reducing the detection and investigation effort required from the CMA. Similarly, settlement is intended as an incentive for accused parties to admit to the infringements early and to waive procedural rights otherwise available in their defence, reducing the procedural burden on the CMA and, in theory, bringing a swifter end to the proceedings.^[4] This provides certainty to the parties and up to 20 per cent reduction in fines, and cost savings to the authority and taxpayer.

There are disadvantages to settling a case in the UK, however: public admission of liability and its attendant publicity; potentially less favourable outcomes compared to non-settling parties; and the inability to benefit from a successful appeal against the infringement decision by a non-settling party. Moreover, parties do not have a general right to settle: the CMA is able to withdraw from the process if it views the case as no longer appropriate for settlement, or it may even not agree to discuss settlement at all.

This chapter first sets out the process for the settlement of antitrust investigations in the UK. It then describes the extent to which admissions and materials generated in the course of settlement become public or disclosable to other parties. The chapter also describes the level of cooperation required, and briefly touches upon the relationship between settlement, leniency and commitments. Finally, the chapter describes the complications of ‘hybrid’ settlements, in which not all parties to an investigation settle, and the implications of hybrid settlements for a settling party.

The settlement process

Pre-conditions for settlement

For a party to settle, first, the conditions for the CMA to offer settlement must be met, and second, the CMA must make an offer to settle, which is entirely discretionary.

The CMA has the power to offer settlement only when it has met the evidential standard to issue a statement of objections. This is because settlement does not release the CMA from issuing an infringement decision (and therefore a statement of objections).^[5] As noted above, unlike leniency, settlement is intended purely to incentivise procedural efficiency, rather than evidential or investigatory expediency. This means that settlement is not an appropriate tool unless and until the CMA’s investigation has yielded sufficient evidence for a statement of objections. In circumstances where a company discovers conduct that could lead to an infringement decision, but the CMA has not already begun an investigation, a leniency application would be a more appropriate way for an involved party to mitigate enforcement risk.

If this evidential condition is met, the CMA may consider whether settlement is appropriate. Given the intention behind the settlement procedure, the CMA will consider the likely procedural efficiencies and resource savings that will be achieved, and whether a settlement can be achieved in a reasonable time frame. In particular, when considering what efficiencies might be available, the CMA will consider what stage the investigation has already reached (especially whether a statement of objections has been issued and whether the parties have responded to it) and whether settlement would shorten the investigation timetable and free up case team resources. It is clear from the CMA’s published guidance that these considerations continue throughout the settlement process,^[6] such that where these efficiencies, savings or a reasonable time frame are no longer likely to materialise, the CMA may terminate the settlement discussions and revert to the full administrative procedure. This has particular ramifications if only few of many parties under investigation choose to settle, as explained further below.

Requirements to settle

If the CMA is both able and willing to open settlement discussions, the settling party must meet several criteria, applicable regardless of the timing. The applicant must:

• give the CMA a ‘clear and unequivocal admission of liability in relation to the nature, scope and duration of the infringement’.^[7] Admission of facts alone is insufficient;
• to the extent that it has not already done so, immediately cease the infringing conduct from the date on which it begins settlement discussions with the CMA;
• agree to pay up to a maximum penalty that reflects the applicable settlement discount;
• agree to a streamlined administrative process, including:
  • restricted access to the CMA’s file;
  • revoking any previous, substantive responses to a statement of objections;
  • limiting responses to a statement of objections to pointing out material factual inaccuracies;
  • waiving the right to oral hearings; and
  • waiving the right to a separate draft penalty statement (the CMA will not appoint a case decision group); and
• agree to be bound by an infringement decision, even if another infringing party successfully appeals the decision. If the applicant itself appeals the infringement decision following settlement it loses any discount on the penalty from settling, but its admissions of liability remain binding.

The CMA may, in addition, impose specific requirements for the settlement process depending on the stage it has reached in its investigation. An example of these requirements might be making employees available for interview and providing witness statements, either during the investigation or during another infringing party’s subsequent appeal against the infringement decision.

If the CMA considers that any of these conditions is no longer met, even after conclusion of the settlement discussions, it may withdraw from the settlement process. Thereupon, the investigation will revert to the full administrative process, resulting in the loss of any settlement discount and reduced timetable to close the case.^[8]

Initiation of settlement discussions

The settlement process begins with a discussion initiated either by the CMA or by a company under investigation by the CMA.

The timing of the conclusion of that discussion determines the ceiling of any reduction in fine. If a party settles before the CMA issues a statement of objections, the ceiling is 20 per cent, the maximum reduction available. If a party settles after a statement of objections, the ceiling drops to 10 per cent.^[9] This reflects the administrative burden for the CMA in issuing a statement of objections in anticipation of a defence from a party under investigation.

If a company wishes to settle, at whatever stage, it ought to initiate discussions with the leader of the CMA case team conducting the investigation. Expression of interest in settling in this way is ‘without prejudice’.^[10]

At this stage, if it has not done so already, the CMA will assess whether it is able and willing to enter into settlement discussions, based on the considerations described above. The decision does not rest solely with the case team leader, but must be agreed with a senior decision-making body in the CMA.^[11]

If the CMA is investigating multiple companies for the same infringement, at the time it enters into settlement discussions with one party, it will invite the other companies involved in the investigation to open settlement discussions,^[12] possibly informing them that one or more parties are already exploring settlement.^[13] If any of the other companies under investigation declines to settle, that does not prevent the CMA from continuing to settle with others, creating a hybrid settlement.^[14] For the companies not wishing to settle, the full administrative procedure will apply. This situation is described in more detail below.

While the CMA keeps records of its discussions with each party regarding settlement, it will not disclose those records to other companies under investigation. Any party that has entered into settlement discussions with the CMA must not publicise that fact, or the contents of the discussions, especially with other companies under investigation.^[15] The CMA usually pauses the overall timetable of the investigation while settlement discussions are under way.

Following the approval to proceed, the discussions are oral rather than written, and typically occur under the supervision of a senior responsible officer (SRO).^[16] The CMA will set a timetable for the settlement discussions based on the circumstances (e.g., the number of parties involved in the investigation); there is no prescribed period in the CMA’s published guidance.

It is worth highlighting that the CMA makes clear that the purpose of the settlement process is not plea-bargaining.^[17] It will not accept full admission of liability for an infringement of lesser severity, scope or duration in return for dropping its original accusation. It will also not permit parties to negotiate the conditions of the settlement process described above. The CMA may interpret an attempt to do either as evidence that settlement is no longer appropriate and could cause it to terminate the settlement discussions.

Statement of objections

The next steps depend on the stage of the investigation at that time. If the settlement approach takes place before the CMA has issued a statement of objections, the CMA may present the settling party with a ‘summary statement of facts’. This sets out the facts specific to that party’s alleged infringement and, where there are multiple parties involved in the investigation, the facts common to each party’s alleged infringement. The CMA will enclose the key documents upon which it intends to rely as against the settling party and a full list of documents on its file. The settling party may request access to documents listed but not provided; however, doing so may influence the CMA’s assessment of procedural efficiency and therefore the appropriateness of settling. These documents, and those enclosed with the statement of objections, represent the entirety of the settling party’s access to the CMA’s file, which is significantly less compared to the access to file afforded to non-settling parties. This is seen by the CMA as a key procedural efficiency.

The CMA will provide a short time frame for the settling party to point out any material factual inaccuracies. If a settling party’s response essentially rejects the CMA’s version of events, the CMA may revisit the appropriateness of settlement.^[18] However, subject to any factual corrections that the settling party might point out, the summary statement of facts forms the basis of the admission of liability that the settling party must make in order to proceed with settlement.

If the party accepts settlement closer to the stage at which the CMA would have issued a statement of objections, the CMA may instead send a draft statement of objections, especially if this has already been mostly drafted and it would be more procedurally efficient to do so. This does not affect, however, the ceiling of the fine reduction available to the settling party, and will also form the basis of the admission by the settling party.

Once the settling party has agreed to the basis of its admission of liability, the CMA provides a draft penalty calculation. As with the summary statement of facts, it contains elements common to all parties under investigation, and elements specific to the settling party. The calculation shows the starting percentage fine, the relevant turnover figure for the settling party, the duration of the infringement and any adjustments for deterrence, aggravating and mitigating factors, and any reductions due to settlement or leniency. It is worth noting that settlement is not the only path to reduction in fines. The CMA lists several mitigating factors and adjustments that might be available,^[19] which include demonstrating the steps taken by the party being fined to improve its compliance with competition law in future and cooperation with the CMA’s investigation beyond the CMA’s expectations.^[20] The CMA permits a settling party to make representations in response to the draft calculation, although not to the extent that such representations are inconsistent with the admission of liability.^[21] It is at this point that the settling party must accept the terms of the settlement to enjoy the higher reduction from accepting settlement before the CMA issues the statement of objections.

The CMA will then proceed with issuing a statement of objections to the settling party, although perhaps reduced in substance given the party’s acceptance of liability and agreement of the underlying facts.

If, however, the CMA has already issued a statement of objections to the parties under investigation and settlement discussions have not yet begun, it may enquire of the recipients whether they wish to explore settlement. In this scenario, the statement of objections forms the basis of any admission as part of the settlement. The more time that elapses after the CMA issues the statement of objections, the lower the potential procedural efficiencies to the CMA of offering settlement. This is particularly the case if a party that ultimately decides to settle initially responds substantively, either in writing or at oral hearings, to the statement of objections. That is not to say that the CMA will not entertain settlement if a party has already responded to a statement of objections. However, the CMA will require the settling party to withdraw its substantive response and limit any replacement response to correcting material factual inaccuracies. Settling at this late stage will reduce the level of discount the CMA may apply.^[22] The CMA will then provide the settling party with a draft penalty calculation, as described above.

Accepting the settlement

The key event is the full admission of liability and acceptance of the conditions of settlement, which ordinarily must be provided to the CMA in writing on the settling party’s letterhead. The CMA may accept verbal admissions in exceptional circumstances justified by the settling party, which would then be transcribed by the CMA.^[23] In either case, the CMA places a record of the admission on the investigation file.^[24]

In contrast to the EU settlement procedure, there is no need for the settling party to draft a full settlement submission:^[25] the admission is instead made by reference to the facts as set out by the CMA. Where the settling party accepts the settlement before the CMA issues the statement of objections, the admission of liability is based on the summary statement of facts or the draft statement of objections, whichever the CMA provided. If the settling party accepts after the CMA issues the statement of objections, the admission of liability is based on the statement of objections, subject only to the limited representations by the settling party as to material factual inaccuracies, and not to any other more substantive responses.

The SRO must then obtain final approval for the settlement.^[26]

Withdrawal from settlement

Once the settlement is approved, the settlement process is concluded. However, the conditions for settlement must be preserved and the CMA may withdraw the settlement at any time prior to issuing its final infringement decision. Before withdrawing, it will give notice to a settling party on why it believes the conditions for settlement are no longer met and will give that party an opportunity to respond.^[27]

In fact, the CMA and the settling party may withdraw from the settlement process at any time. However, there is a follow-on litigation risk from withdrawing from the settlement process after accepting the settlement, which is described more fully below.

In addition, if the CMA does not intend to use the settling party’s admission of liability in either the statement of objections or the final infringement decision, it will give the settling party an opportunity to withdraw from the settlement process and revoke its admission.^[28] This might happen because evidence may have come to light exonerating the settling party, or at least weakening the CMA’s evidential position to the extent that it no longer meets the threshold to issue an infringement decision.^[29]

In both cases, the case will revert to the ordinary administrative procedure (and, in the event of sufficient exculpatory evidence, may lead to the termination of the investigation as regards the settling party). To the extent that it has not already done so, the CMA will not disclose the fact of the settling party’s admission to other companies involved in the investigation.

Confidentiality and follow-on damages

During the investigation

While settlement discussions take place, there is a high degree of confidentiality. At most, the CMA will reveal only to the other companies involved in the investigation that one or more parties are exploring settlement, as an incentive for these other companies to consider doing likewise. The CMA will not reveal the names of parties exploring settlement at this stage. If there are only a few companies involved, it may be easy for them to deduce who is exploring settlement. The CMA acknowledges that this risk exists, but will continue this disclosure because it considers it to be the minimum level of transparency necessary for an effective settlement procedure. For example, settlement discussions usually impact the overall investigation timetable, so the CMA views it as fair to be transparent with other companies involved as to the reason for the delay. The CMA will emphasise that those parties are merely exploring settlement, and will not divulge the content or level of maturity of those discussions.^[30] The CMA’s predecessor, the OFT, encountered a number of problems in its informal settlement practices due to its inconsistent approach to transparency, which the CMA seeks to avoid repeating.

The CMA will not publicly announce that settlement discussions are taking place. It will also not make any public disclosure contemporaneously with any settlement discussions ending unsuccessfully.^[31]

Settling parties must not disclose the content of settlement discussions, the fact that those discussions have taken place, or the content of any documents obtained through the streamlined access to file, to any third party (including other settling parties), without the CMA’s prior authorisation.^[32]

Importantly, the CMA will keep all notes that it takes from the settlement discussions in the case file. The CMA will not disclose those notes to third parties (including other settling parties) during the investigation.

When the settlement discussions have concluded, the level of confidentiality tapers, ultimately leading to disclosure in the CMA’s published infringement decision of the fact of settlement, the identity of the settling parties, the dates on which settlement was discussed and accepted, and the calculation of the discount. All parties under investigation, whether they settle or not, that receive the infringement decision have an opportunity to claim confidentiality for information contained in it before a non-confidential version is published. The CMA does not typically permit redaction of information relating to settlement from its infringement decisions.

Before the infringement decision is published, the CMA may issue a press release when a party accepts settlement that is subsequently approved by the CMA. The CMA may name the settling parties in the press release.^[33] The CMA will usually give the settling party an hour’s notice before publishing the press release.

Follow-on litigation

In the event of follow-on litigation, the statement by the settling party in which it admits liability to the CMA is not admissible in the Competition Appeal Tribunal, and disclosure cannot be ordered by the High Court, regardless of whether the submission was made verbally or in writing, except if it was subsequently withdrawn.^[34] This includes part of a settlement submission, quotations from a settlement submission, all or part of a record of a settlement submission, and a copy of all or part of a settlement submission or of a record of such a submission.^[35] This means, effectively, that the content of the admission is inadmissible, and would also make it difficult for a litigant to obtain disclosure of related parts of the CMA’s file for use as evidence in its damages claim.

However, it is important to note that this protection falls away if the settling party withdraws the settlement submission, which leaves a potentially significant pitfall that settling parties should avoid. Where a settling party withdraws a settlement submission and the CMA issues an infringement decision against it, the submission becomes available to a claimant to use in the High Court and the Competition Appeal Tribunal. This will significantly strengthen a potential claimant’s case against the formerly settling party. The formerly settling party will not only have lost any benefit from the settlement process, but will also have weakened its defence in follow-on litigation as to liability (rather than quantum of damage).

In addition, settling parties should note that although the content of their admission is not admissible in evidence, the fact of their admission is mentioned in the CMA’s published non-confidential infringement decision, which may not only weaken any potential defence in follow-on litigation, but also encourage potential litigants to bring claims due to the publicity of the admission.

Settling parties ought, therefore, to carefully consider these risks and costs in deciding to settle, and whether the reduction in penalty and the costs of representation in a potentially shorter process might later be outweighed by increased damages exposure.

Cooperation, leniency and commitments

During the settlement process, the CMA expects a minimum level of cooperation from a settling party for it to continue to be eligible for settlement. This minimum requirement extends until the CMA issues its infringement decision. The CMA has typically also added the requirement for settling parties to use best efforts to make employees and directors available for the CMA as witnesses in any appeal of the infringement decision by another party.

The standard of cooperation relates predominantly to procedural efficiency, in keeping with the intention of the settlement procedure. In other words, the CMA relies upon the settling party to waive, and not make use of a number of procedural protections otherwise available to it, such as oral hearings and full substantive responses to the statement of objections. It is not a general requirement, as in leniency and immunity applications, to cooperate in terms of providing evidence. The settlement procedure is available only when the CMA has sufficient evidence to issue a statement of objections on its own,^[36] so it is not designed to provide incentives to settling parties to produce further evidence to aid the CMA’s case. That does not prevent settling parties from doing so, however, and extensive cooperation (such as making employees available for interview) may lead to an additional discount in the penalty calculation separate from the settlement discount, as described above.

Another option available to parties under investigation by the CMA, in addition to leniency and settlement, is offering commitments under Section 31A of the Competition Act 1998. This option is not appropriate for ‘hardcore’ competition law breaches. However, there are benefits in offering commitments that are not available by settling. Consequently, some parties have pursued a dual-track approach.^[37] The maximum potential benefit of offering commitments is to avoid the CMA issuing an infringement decision altogether, depriving would-be follow-on litigants of the ability to pursue follow-on damages. Given the increase in risk of such litigation flowing from settlement, settling parties may wish to consider this option in their assessment of the benefits and disadvantages of settling. A company under investigation by the CMA may offer commitments at the same point in time that it can explore settlement with the CMA, namely when the CMA has sufficient evidence to issue a statement of objections. Another key difference with settlement is that commitments are publicised very quickly after the formal proposal to enable the CMA to consult on their effectiveness. In contrast, the CMA does not publish a separate settlement decision at all (unlike the European Commission): it may publish a press release when it settles with a party under investigation, and a more detailed summary of the settlement is included in the non-confidential infringement decision published after the conclusion of the investigation.

Hybrid settlements

The CMA’s guidance does not provide detailed insight into how hybrid settlements will work under the CMA’s settlement procedure, although it does recognise the possibility of only some parties under investigation settling, with others preferring to follow the full administrative procedure. The guidance expressly allows the CMA to take into account ‘the number of businesses who are interested in settlement out of the total number involved in the investigation’,^[38] when deciding whether to offer settlement to any of those parties. This ties in with the CMA’s stated policy that settlement is not available as a right.^[39]

The CMA’s predecessor body had mixed experiences with hybrid settlements, often resulting in litigation. A hybrid settlement (or ‘early resolution agreement’, as the informal practice was then known) also led to one particularly negative outcome for the OFT. In the Tobacco case,^[40] the OFT settled with six out of 12 parties in 2008. One of the settling parties, Asda, joined other non-settling parties in appealing the OFT’s infringement decision in 2011, ultimately succeeding and having the decision quashed. This left the parties that had settled but not appealed in the invidious position of having paid what they thought was a reduced fine, while those that did not settle had to pay no fine, regardless of whether they had appealed. Two settling parties, Gallaher and Somerfield, tried to appeal the infringement decision after Asda’s successful appeal, and discovered that the OFT had promised another settling party, TM Retail Group, that it could benefit from Asda’s successful appeal and recover the fine it had paid. However, the OFT succeeded in preventing Gallaher and Somerfield from doing so on administrative law grounds. This led to protracted litigation reaching the Supreme Court in 2018, ultimately resulting in the OFT’s successor, the CMA, including a standard term in its settlement procedure whereby a settling party that does not appeal the infringement decision (and therefore retains its settlement discount) cannot benefit from the successful appeal of the infringement decision by another settling party (which would lose its settlement discount if it lost).

A key motivation behind the settlement procedure from the CMA’s perspective is to reduce the likelihood of litigation of the infringement decision. There is clear precedent both in the UK and in the European Union with similar procedures^[41] that hybrid settlements significantly increase complexity of the case and the likelihood of litigation, especially when compared with the situation in which all the parties follow the full administrative procedure. The Tobacco case lasted 15 years from the beginning of the OFT’s investigation to the handing down of the judgment from the Supreme Court. The OFT spent seven years in the administrative process. This suggests that there might be little procedural efficiency to be gained from hybrid settlement. The CMA has reserved its ability to account for this risk when determining whether to offer settlement at all in circumstances where a minority of the parties under investigation wish to settle.

Notes