Demystifying the Impact of the Consumer Rights Act on CAT
Q&A with Bruce Kilpatrick on the impact of some of the changes which the UK Consumer Rights Act 2015 will introduce regarding the work of the Competition Appeals Tribunal (CAT).
Q: How has the threshold for interim measures been reduced and is this likely to lead to more orders by the CMA?
A: The threshold for the CMA and other regulators to impose interim measures in competition cases was lowered in April 2014. An applicant no longer needs to show that intervention is necessary to prevent “serious, irreparable damage”; instead the CMA must be satisfied that this is necessary to prevent “significant damage” to competition.
This is an important development for potential claimants and defendants to be aware of. The OFT (Office of Fair Trading) rarely imposed interim measures prior to April 2014. Their last attempt to do so came in 2006 when the OFT ordered the London Metal Exchange not to extend the trading hours on its electronic trading platform, LME Select, following an application by a competitor, Spectron. That decision was reversed on appeal to the CAT and we have not seen a successful interim measures application since that date.
However, since the threshold for interim measures was reduced, the CMA has ruled on an application by Worldpay for interim measures. This would have required Visa to align the interchange fees it applies in the UK for domestic card transactions with those applying to cross-border transactions, following on from the commitments which Visa gave to the European Commission. The CMA gave careful thought to Worldpay's application but ultimately did not order interim measures in that case. Nonetheless, the CMA's reasoning in Worldpay indicates that we are likely to see more interim measures applications being made (and granted) in the future.
We are expecting the CMA to impose interim measures more often in future and think the playing field has certainly been tilted in favour of claimants. Addleshaw Goddard have advised a number of clients which have been threatened with applications for interim measures (particularly in letters before action relating to alleged abuse of dominance cases) since ERRA came into force. This is certainly an area where the threat of regulatory intervention has increased significantly, particularly where the would-be complainant is a small business or an SME and there are initial indications that the firm in question might have infringed competition law.
Q: Now that the CAT will have the power to issue injunctions, are we likely to see a significant increase in the number of applications?
A: Previously only the High Court had the power to order an injunction in a competition law case. An applicant needs to show that the claim is triable (i.e. there is a reasonable prospect of success at trial), damages are not an adequate remedy, and the "balance of convenience" favours the grant of an injunction. So the bar is set relatively high (as it should be, given the impact on the defendant's business).
In the High Court, cross-undertakings in damages are ordered as a matter of course. That has meant that smaller companies/SMEs have tended to be less willing to apply for an injunction in competition law cases. This is because they would be assuming significant financial risk by setting aside significant funds at the outset to cover the harm suffered by the defendant if it subsequently turns out that the injunction was wrongly granted.
There were two high profile applications for injunctions in the High Court in 2003; Barclays v Dahabshiil and Chemistree v AbbVie. Both cases alleged an unlawful refusal to supply goods or services by a dominant company to an existing company, contrary to Chapter II of the Competition Act and/or Article 102 of the TFEU. Ultimately, Dahabshiil's application for an injunction against Barclays was successful. The Court noted that the requirement to show a triable issue is a relatively low threshold in practice and (in that case) that damages would not be an adequate remedy for the claimants since there was a far greater danger of irreversible prejudice to the claimants if the injunction was not granted. In contrast, in Chemistree, there was no reasonable prospect of the claim succeeding at trial on the basis of the claimant's "evidentially unsupported theory". Both cases serve as a reminder of the risks for a dominant company of terminating supply to an existing customer (even where the dominant firm does not compete with that customer in the downstream market).
The Consumer Rights Act now gives the CAT a new power to make injunctions, applying the same principles which the High Court would apply. But more significantly, the Consumer Rights Act provides the CAT with the power to waive the usual requirement for an applicant to provide a cross-undertaking as to damages (or to cap the level of the cross-undertaking). This means that an applicant will not have to provide an up-front sum of money as security for any harm suffered by the defendant, providing it is using the "fast-track" procedure (as indicated below). This cost certainty is likely to lead to more applications from SMEs.
Q: Given the changes what will the new fast-track procedure in the CAT look like?
A: The Consumer Rights Act also enables the CAT Rules to provide a "fast-track" procedure for competition law claims (and to specify the factors which are relevant to determining whether a claim is suitable to be dealt with under this procedure).
Initially the fast-track procedure was intended for "simple" competition cases, but it is more likely to be appropriate for cases which can be managed within an expedited timetable. The CAT is therefore likely to have regard to the length of trial and number of witnesses needed. This makes the fast-track process particularly well suited to applications for an injunction or declarations. This is does not mean that all competition law claims brought by SMEs will be suitable for fast-track treatment, particularly those which raise complex factual or legal issues.
One of the points which an applicant will need to consider, within a relatively short timeframe, is whether to apply for interim measures to a UK competition regulator or to apply for an injunction (or do both). In the past the High Court has been critical of applicants which have applied for interim measures from a regulator and have delayed their application for an injunction, particularly where this does not provide the Court with sufficient time to consider the merits of the case. Applicants will therefore need to consider their regulatory strategy at an early stage to ensure they consider which route is most appropriate (and has the greatest prospect of success).
Q: So do these changes mean that defendants are facing increased regulatory risk?
A: There is no doubt that these changes will assist SME claimants and reduce the financial risks associated with applications for interim relief (both from the regulators and the CAT). There is also, for the first time, an expert tribunal (in the form of the CAT) available for injunction applications.
In practical terms, these changes mean that defendants (and particularly firms which are, or may be, dominant) need to factor in the risk of an application for interim relief where they are terminating supply to an existing customer, or taking other decisions which may have a significant impact on a customer's business, and formulate a clear strategy for identifying (and mitigating) any competition law risks.
