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Reforms of private enforcement of competition law receive cautious welcome

Tue, 29 Jan 2013

Plans to make it easier for groups of consumers and companies to take legal action against anti-competitive businesses received a cautious welcome from competition experts at the University of East Anglia today.

While welcoming the essential reform of the UK competition enforcement regime, Prof Morten Hviid and Dr Sebastian Peyer of the ESRC Centre for Competition Policy (CCP) at UEA doubt the benefits of class action for consumers, saying it could raise litigation costs.

The proposals, announced today by the UK Department for Business, Innovation and Skills (BIS), aim to reduce the cost of legal action and ease access to litigation. It would see the Competition Appeal Tribunal (CAT), an expert body for competition claims, becoming the main forum for all legal actions related to competition law, including a new fast track procedure, and the introduction of opt-out collective redress, or class actions, to empower consumers. The third proposed change is promoting mechanisms to encourage alternative dispute resolutions (ADR), to make sure that wherever possible any disputes are resolved without resorting to cour! ts.

"Individual claims against firms that have violated competition law have been the least effective part of competition law enforcement in the UK," said Dr Peyer. "BIS' plan contains anticipated fixes for well-known litigation problems but also embraces a novel and controversial class action device."

Cartels and other violations of competition law can lead to small individual losses that harm a great number of individuals. Consumers or businesses are often unwilling to risk legal proceedings to recover small losses. BIS proposes that a representative body can bring an opt-out class on behalf of all affected consumers and businesses without them having to 'sign in'.

However, collective actions as a means to compensate consumers or businesses are costly and not very effective and Prof Hviid said the proposal does not empower consumers: "The reform does not empower consumers but consumer organisations on behalf of consumers. Overall, the collective action proposals are patchy and likely to raise litigation costs."

Dr Peyer stresses: "A key test will be whether compensation reaches consumers. Most direct victims are other businesses. Consumers must prove both that the cartel caused harm and that it was passed on by those businesses."

Prof Hviid added: "Making CAT the main court for all legal actions was expected and will redress the current complications of competition litigation. A fast track procedure may, depending on its design, help to reduce notoriously high litigation costs and the time parties spend in court."

Prof Hviid and Dr Peyer say that while encouraging the use of ADR may reduce time and costs of a court-bound disputes resolution, the CCP response to the government's consultation on reforms shows that ADR are already available in many instances in which parties would like to settle the case out of court. However, consumers could benefit from a court-approved redress schemes provided that they receive payments made under the scheme.