Synopsis of Monckton EURL Webinar (3): “Competition Law post Brexit”

In this post, Ciar McAndrew of Monckton Chambers provides a summary of the third in a series of six webinars on EU Relations Law (“EURL”) from Monckton Chambers: “The legal regime after Brexit – what every lawyer needs to know”.  The third webinar was titled “Competition Law post Brexit”.

The webinar was chaired by Daniel Beard QC. The other speakers were:

James Bourke

Laura Elizabeth John

Josh Holmes QC

Robert Palmer QC

Speakers covered a range of issues relating to competition law in the UK after the end of the transition period on 31 December 2020. Topics included the scope of retained EU competition law, the future of private damages claims, reliance on decisions of the European Commission, and the scope for ongoing UK-EU regulatory co-operation. The discussion is summarised below. A YouTube recording of the webinar can be found here.

Retained EU competition law

James Bourke started the webinar by discussing the changes to UK retained competition law which were introduced by the Competition (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/93) (the “Competition SI”) (as amended by the Competition (Amendment etc.) (EU Exit) Regulations 2021 (SI 2021/1343)).

The Competition SI is a gargantuan piece of secondary legislation which amends or revokes over 30 legal measures.  Cutting through the legislative maze, James explained that it essentially makes changes to four broad categories of retained EU competition law:

EU Regulations, which were carried into domestic law as retained EU law pursuant to section 3 of the EU (Withdrawal) Act 2018 (the “EU(WA) 2018”).  In a seismic shift to the UK competition landscape, Schedule 3 of the Competition SI now revokes certain key EU competition regulations as of 31 December 2020 (including Regulations 1/2003). The EU merger regulation (Regulation 139/2004) has also been revoked. The EU Block Exemptions continue to remain part of retained EU law, with the existence of parallel UK-EU regulations giving rise to a possible source of divergence between the two regimes (for example, with respect to the Vertical Block Exemption Regulations and accompanying Guidelines, in respect of which the European Commission is already consulting, and the CMA has announced its intention to conduct a review).

EU Directives, which were generally not carried over into UK law by the EU(WA) 2018 (subject to certain exceptions, as discussed by Jack Williams in this blog post).  Domestic law which implements an EU Directive does form part of EU retained competition law. However, new EU Directives will not be implemented and thus will not form part of UK domestic law, again giving rise to the potential for future divergence.

EU Court Judgments. Under section 6 of the EU(WA) 2018, questions on the validity, meaning and effect of retained EU must generally be decided in accordance with retained EU case-law (that is, EU case law from before 31 December 2020), subject to limited exceptions for the senior appellate courts.  National courts may have regard to future EU case law (i.e. which is handed down post-1 January 2021).

Section 60 of the Competition Act 1998 (the “CA98”), which previously sought to ensure consistency of EU law regardless of when it was handed down, has been replaced by a new, and much weaker, section 60A. The default position under section 60A is that domestic courts and competition authorities must act to ensure that there is no inconsistency between their decisions on competition law issues and those of the EU Courts which precede 31 December 2020 and which determine a corresponding issue under EU competition law. This obligation is subject to various exceptions where the UK court or authority considers it appropriate to act otherwise (for example, because of differences between the UK and EU markets, or in light of the particular circumstances of the case).

Treaty Provisions. After 31 December 2020, Articles 101, 102 and 106 TFEU are no longer recognised in UK domestic law.

Private damages claims

Next, Laura Elizabeth John explained what Brexit will mean for private damages claims brought in the UK. In respect of follow-on claims, Laura identified two key questions which practitioners will be required to consider.

First, which Commission decisions can now be relied upon for the purposes of a follow-on claim?

The answer to this question is to be found buried deep in the Competition SI, as amended. In summary:

• After 31 December 2020, litigants can continue to issue follow-on claims based on Commission decisions taken before that date (Schedule 4, Part 6, paragraphs 14-15)).

• Litigants can also rely on Commission decisions taken after 31 December 2020 which are the culmination of proceedings which had already been initiated prior to that date (i.e. decisions in which the European Commission has continued competence in accordance with Article 92 of the Withdrawal Agreement) (Schedule 4, Part 6, paragraph 15 and Schedule 4, Part 4, paragraph 7(3)(b)). For these purposes, proceedings will be initiated “at the moment at which the European Commission has decided to initiate proceedings in accordance with Article 2(1) of Commission Regulation (EC) No 773/2004” (Article 92(3) of the Withdrawal Agreement). Practitioners should look out for the Commission’s published announcements that it has so initiated proceedings or, failing that, consider writing to the Commission.

In practice, the above provisions mean that UK competition practitioners are likely to be looking at a long ‘tailing off period’ in respect of follow-on private damages claims.

Second, what are the limitation rules that apply to any such claims?

The relevant limitation rules are set out in Schedule 8A, paragraph 21 of the CA98, as amended by the Competition SI. In summary:

• In respect of decisions made before the end of the transition period, the limitation period expires one year after the date on which the decision becomes final (paragraph 21(3)(a)).

• Where the competition authority closed the investigation before the end of the transition period, but did not make any decisions, the limitation period will expire one year after the date on which the authority closed the investigation (paragraph 21(3)(b)).

• For all other purposes, the limitation period will expire one year after the end of the transition period (paragraph 21(3)(c)). This means that where an investigation is commenced prior to 31 December 2020, the clock will be stopped one year after the end of the transition period, regardless of whether the investigation is ongoing. In practice, this means that claims in respect of ongoing Commission investigations may require to be issued on a standalone basis in order to avoid being out of time.

Laura also noted that future standalone claims based on a breach of Articles 102/102 TFEU will require to be pleaded as a breach of a foreign tort. Quite what this means remains as yet unclear, but expert evidence will be required to prove issues of foreign law.

Reliance on European Commission decisions

Next, Josh Holmes QC offered some observations on the extent to which recitals in EU Commission Decisions are binding in domestic proceedings, with specific reference to the Trucks litigation.

As Josh explained, Commission Decisions are like icebergs. They consist of a short operative part comprising the articles (which set out the bare bones of the infringement, but none of the underlying evidence), the fine or any direction to desist from the infringing conduct and details of the addressees. However, the overwhelming bulk of the Decision lies below the surface, in the recitals.

The Decision itself, as set out in the operative part, is binding on domestic courts as a matter of EU law (pursuant to regulation 16 of Regulation 1/2003, which precludes national courts from taking decisions which run counter to the Commission’s Decision). Until recently, the operative part of a final Commission decision was also binding as a matter of UK law (as was reflected in the old section 58A of the CA98).

The question therefore arises as to which of the recitals underlying the Decision are binding on domestic courts. This arises in particular with respect to follow-on damages claims, in which the Decision is relied upon to establish liability. Despite the UK’s exit from the European Union, and the end of the transition period, there remain many cases in which Commission Decisions will still form the basis for litigation and need to be considered by UK courts. This includes, for example, where a follow-on claim has already been brought prior to the end of the transition period, or where a Commission Decision was adopted during the transition period, or in respect of investigations in which the Commission has continuing competence, as described by Laura John.  Further, domestic courts may still have regard to other Commission Decisions (under section 6(2) of the EU (Withdrawal) Act 2018), albeit the precise weight to be ascribed to such Decisions remains to be seen.

The binding scope of Commission Decisions is therefore likely to remain an important question for some time. The latest guidance on this issue is to be found in the decisions of the Competition Appeal Tribunal and Court of Appeal in the Trucks litigation, from which a number of points emerge:

• First, the basic test laid down in EU law is well-established and was not disputed in Trucks. In summary, a recital is binding insofar as it constitutes an essential basis, or necessary support, for the operative part, or is necessary to understand the operative part, of a Decision. Recitals can also be relied upon as an aid to the interpretation of the operative part insofar as it is ambiguous.

• Second, the Tribunal accepted that recitals may also be binding in other circumstances. Recitals may be challenged as erroneous in proceedings before the European Courts, where they affect the substance of the Decision as set out in the operative part (for example, on the basis that the evidence does not support the Commission’s finding as to the duration of the infringement). Where no such appeal is brought, or is brought and fails, the Commission’s finding in the relevant recital should properly be regarded as binding, alongside the operative part itself.

• Third, however, where a finding of infringement is sustained by multiple pieces of evidence in a number of recitals, those individual pieces of evidence cannot be regarded as the essential basis for the decision. For example, in Trucks, the Competition Appeal Tribunal held that a number of recitals were binding insofar as they described the Defendants’ collusive behaviour in broad terms, but found that the recitals setting out the details of the evidence of such behaviour (of which there were multiple) were not.

• Fourth, the Trucks litigation adds a further domestic gloss to the EU test as applied to settlement decisions, which arises out of the English law concept of abuse of process. The Tribunal concluded (and the Court of Appeal agreed on appeal) that it could constitute an abuse of process for settling parties to deny or not admit findings contained in the Commission Decision to which they had been prepared to admit during the course of the settlement procedure in front of the Commission. In this regard, the Tribunal was influenced by the many advantages which settling parties receive as part of the settlement process (for example, the lower penalty). However, the Tribunal’s conclusion was subject to two caveats, namely that:

• A settling defendant can plead a positive case in defence to a follow-on damages claim which contradicts a recital on the basis that the recital does not accurately reflect the underlying document referred to. In such cases, the underlying document can be relied upon.

• A settling defendant is not precluded from relying on new evidence which it could not reasonably have had access to at the time of the Commission Decision.

Co-operation between the Competition and Markets Authority and the European Commission

The baton then passed back to James Bourke, who discussed co-operation between the Competition and Markets Authority(the “CMA”) and the Commission going forwards.

James noted that the CMA and the Commission are likely to have a strong desire to continue to co-operate (as they have been doing for years), and will be well aware that international co-operation is very important for competition enforcement. However, they will face a number of significant challenges.

For example, the UK is no longer a member of the European Competition Network, which is the key forum for enforcement. There is a real risk of parallel enforcement going forward, and the UK no longer has the safety mechanisms, set out in Regulation 1/2003, which are aimed at ensuring consistency between EU and domestic competition authorities. Further, there is no co-operation agreement in place between the UK and the EU (such as the EU has entered with a number of countries, including the United States). Whilst the Trade and Co-operation Agreement contains some woolly language on co-operation, and anticipates that a future co-operation agreement might be concluded, the co-operation locker remains fairly empty for the moment. 

Two types of antitrust investigations illustrate the particular issues which might arise in respect of co-operation going forward:

• Where the EU retains continuing competence, the pre-Brexit rules relating to co-operation apply. The CMA can carry out inspections for the Commission, there will be information sharing, and the CMA will be invited to advisory committee meetings. The CMA cannot open investigations into competition concerns which are the subject of the Commission’s continuing competence (similarly to the pre-Brexit position, pursuant to Article 11(6) of Regulation 1/2003). However, the CMA can investigate conduct which continues after 31 December 2020 and affects trade in the UK (although whether it decides to do so will be a matter of the CMA’s administrative priorities).

• Parallel investigations may also arise where neither the Commission nor the CMA has initiated an investigation by 31 December 2020. The CMA will only be able to investigate conduct under the domestic rules, whilst the Commission will retain jurisdiction in respect of the actions of UK businesses which affect competition in the EU (under the implementation and effects doctrines). In such cases, the Commission will not be able to conduct raids in the UK, and the provisions in the CA98 pursuant to which the CMA could investigate on the Commission’s behalf are revoked. Requests for information will therefore become the Commission’s main investigative tool.

In respect of both types of investigation, it remains unclear how the CMA and the Commission will continue to co-operate, and both sides are likely to be eager to achieve a co-operation agreement as soon as possible.

Sectoral regulation and co-operation

Finally, Robert Palmer QC spoke on a separate dimension of regulatory co-operation, namely the changes to the regimes for sectoral regulation.

Robert began with the simple observation that the single market has long been characterised by an acknowledgment that the simple application of ex post competition law was itself inadequate to ensure the effective and competitive functioning of sectors such as financial services, utilities and communications. Until Brexit, these sectors were subject to EU regimes designed to liberalise markets previously characterised by monopolies, whilst at the same time providing for universal service obligations.

Under the old EU regime, those regulatory objectives were given practical effect by national regulatory authorities in each Member State (for example, the FCA, Ofgem and Ofcom). The underlying logic motivating those regulatory objectives doesn’t alter at all with Brexit, and national regulators will continue to regulate the markets as they did before (largely pursuant to retained EU law). However, after years of co-dependence, our domestic markets and the EU markets have become closely intertwined, and questions will arise as to how the regulatory regimes will interact in the future (most obviously in respect of financial services).

Where do we find answers to these questions? The Withdrawal Agreement itself had nothing to say about the future of sectoral regulation. Accordingly, we must look at the Trade and Co-operation Agreement (the “TCA”), Part 2, Heading 1, Title II of which deals with services and investment.  

Taking telecommunications as a starting point, the new European Electronic Communications Code was implemented in UK law with effect from 21 December 2020 – for a grand total of 10 days, before being modified to remove references to the EU regime. For example, whereas previously Ofcom had a duty to have “utmost” regard to Commission recommendations, Ofcom now “may” have regard to such matters if it considers them to be relevant.  

The TCA continues to require the existence of an independent national regulatory authority as before, and a right of appeal against Ofcom’s decisions. However, it is possible to see circumstances in which divergence may occur (for example, there is a suggestion that the standard of review of Ofcom’s decisions will be a pure judicial review standard). The TCA also imposes a number of broad-brush, principle-led requirements focussed on transparency, objectivity and non-discrimination (for example, in respect of the rights of providers to negotiate interconnection).

In respect of competition specifically, there is an obligation to introduce and maintain safeguards against anti-competitive practices, such as anti-competitive cross-subsidisation. Again, however, this obligation is very high level. The one matter which has attracted media attention is the future of international mobile roaming services, in respect of which there is a fairly loose obligation on the parties to endeavour to co-operate in promoting transparent and reasonable rates for such services.

In respect of other sectors, the TCA contains very little detail (for example, incredibly, just four pages of the TCA are concerned with the critical area of financial services). Whilst more detail is provided in Title VIII in relation to energy, this Title will cease to apply on 30 June 2026 (subject to a limited possible extension).  

What’s coming up next?

Full details of the entire Monckton webinar programme (and registration forms) are available here. The next webinar, on Thursday 18 February 2021 at 1pm – 2pm is entitled “The UK Internal Market”. You can sign up here.

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