Competition reform could boost collective litigation

Government proposals to reform competition law, making it easier to bring class actions against firms in breach, could ‘fuel’ claims and ‘create a new business in collective litigation’, the Confederation of British Industry has warned.

A consultation published this week by the Department for Business, Innovation and Skills introduces an opt-out procedure for businesses and consumers bringing actions for shared losses caused by companies acting in an anti-competitive manner. Currently companies and individuals have to opt-in to such cartel actions.

The government says that although the total damage caused by anti-competitive behaviour may be very large, the individual loss for each business or consumer harmed is often small, making the expense of going to court impractical. This can mean that consumers and businesses lose out even where those guilty of price-fixing have been caught.

The reforms will allow the Competition Appeal Tribunal to hear more kinds of competition cases and give it additional powers to allow small and medium-sized enterprises to challenge behavior that is restricting their ability to grow. The government says it will promote alternative dispute resolution to ensure courts are the option of last resort, while also ensuring that private actions complement the public enforcement regime, in particular by protecting incentives for companies to blow the whistle on cartels.

Business minister Norman Lamb said: ‘Our main aim for these reforms is to promote fairness and act as a further deterrent for firms behaving anti-competitively. Small businesses and consumers will be better equipped to represent their own interests, stop anti-competitive behavior and seek redress if they have suffered loss.’ He said the proposals complement changes announced recently to the UK competition regime and will help boost productivity, innovation and economic growth.

Matthew Fell, the CBI director for competitive markets, welcomed the plans but said the group is ‘extremely concerned’ by the government’s preference towards opt-out class actions. This would magnify the total amount of potential claims and fuel litigation, he said.

‘The introduction of opt-out actions risks sowing seeds of a class action beanstalk. In the US they grow out of all proportion to the damage they were seeking to redress and had to be reined in by Congress,’ he said. Fell said: ‘Opt-out actions will be inextricably linked with third-party investors and as a result are likely to create a new business in collective litigation, which is not the sort of industry we want to encourage in the UK.’

The consultation closes on 24 July.