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Cartels to face private lawsuits under OFT plans

Extending the right to sue

Internet Security Threat Report 2014

Companies that break competition law could face lawsuits from trade and consumer bodies if the UK Government adopts new proposals published by the Office of Fair Trading (OFT) today. The right to sue will no longer depend on action by a competition authority.

The OFT also wants to change UK laws and procedures which limit the funding of actions, to ensure that claimants can find lawyers willing to represent them. It wants courts to have more discretion to limit the risks of claimants having to pay the other side's costs; and it wants to ensure that funding is available for meritorious cases which would not otherwise be brought.

Under the Competition Act of 1998, a representative action can be brought at present – but only in the Competition Appeal Tribunal, and only when the when the OFT, a concurrent regulator or the European Commission has made an infringement decision. As competition authorities have finite resources, this limits the number of cases in which consumers and businesses can seek redress. According to its recommendations paper, competition authorities detect around only 15 per cent of cartels.

"If competition authorities were to pursue every single alleged infringement, this would weaken rather than strengthen the competition regime," says the OFT in its paper. "Resources would have to be thinly spread over a great number of cases."

Instead, the OFT wants to focus on the cases that pose the greatest threat to consumer welfare or vulnerable groups. The introduction of standalone representative actions on behalf of consumers and businesses would allow a greater number of meritorious cases to be brought without prior action by a competition authority, it argues.

"Small and medium-sized businesses should be on an equal footing with both consumers and big business insofar as a realistic prospect of obtaining redress for harm caused by anti-competitive behaviour is concerned," says the OFT. "Actions by business are a step towards balancing the economic harm caused by the offending parties."

The OFT recommends a Government consultation on whether and how to allow representative bodies to bring standalone and follow-on representative actions for damages or injunctions on behalf of businesses in competition law.

The OFT does not want such actions to be limited to "named" consumers or businesses; rather, it should be possible to sue in the name of consumers or businesses at large, though it should be left to a judge to decide this on a case-by-case basis.

The OFT says the plans do not signal a slide towards a US-style litigation culture. It points out that the US litigation system will remain different in important ways.

The OFT's representative actions will differ from America's class actions, which can be brought by a single individual. "A representative action is an action brought by a designated body or a body given permission by the court," it explains. "In both cases, criteria would apply, ensuring that only responsible bodies genuinely acting in the interest of consumers or businesses are given standing."

The UK also has a far more limited concept of punitive damages than the US, compensation is never decided by a jury in England and Wales (it can be in Scotland, though such cases are rare), and multipliers of damages are not available in the UK, unlike the US, where damages can be trebled for "wilful" behaviour. Also, the losing claimant in the US is not liable for the defendant's cost. In the UK, it is common practice for costs to be awarded against the losing party – though the OFT says "there may be merit in clarifying the powers of the court to cap costs or grant the claimant cost-protection on a case-by-case basis".

OFT chairman Philip Collins said: "An effective private actions system will enable consumers and businesses to obtain redress where they have suffered loss as a result of unlawful agreements or conduct. Increasing the incentives of businesses to comply with competition law will stimulate interest in good corporate governance and encourage the development of a competition culture, in which responsible business leaders and boards recognise the benefits of competition in properly functioning, open markets. This will have positive effects on the productivity and competitiveness of the UK economy."

See: The recommendations (55 page/209KB PDF)

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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