In October 2015, the Consumer Rights Act is expected to come into force.
The Act will introduce a new type of alternative dispute resolution for parties to competition investigations, allowing them to bypass potentially costly litigation and instead settle compensation claims through a voluntary redress scheme.
Under the new system, where the Competition and Markets Authority (CMA), the European Commission or one of the sectoral regulators (such as the FCA, Ofgem or Ofcom) formally decides that a business has breached the competition law rules, the CMA will have the power to approve a voluntary redress scheme put forward to it by that party.
The new procedure will enable a business to compensate third parties who can demonstrate that they have suffered loss because of its anti-competitive behaviour, whilst at the same time barring them from pursuing damages actions in respect of that loss through the courts.
In order to be approved by the CMA, a voluntary redress scheme will need to be set up in accordance with certain rules, which will be set out in Regulations issued by the Secretary of State. The Regulations will specify how the scheme must operate and will cover matters such as the information that a potential beneficiary must provide in order to claim compensation and the length of time for which the scheme will run.
Any voluntary redress scheme must put in place an independent board, which will be responsible - amongst other things -- for determining the amount of compensation payable under the scheme. The board must consist of a lawyer or judge and an economist familiar with competition law and practice, an industry expert and a representative of potential beneficiaries of the scheme.
An approved scheme will have statutory force and failure to comply may result in private enforcement through damages actions or an injunction.
The CMA will retain discretion as to whether or not it approves a voluntary redress scheme. The CMA will only approve a scheme where this fits with its administrative priorities. However, once a scheme has been approved, the CMA will have no power over the compensation awards.
Given their formal nature, coupled with the time and cost implications of establishing a voluntary redress scheme, it is likely that only parties who anticipate a real risk of follow on damages actions will wish to consider putting one in place. To incentivise use of this new mechanism, the CMA is proposing to offer a reduction (of up to 10%) off the fine that imposes on the business for the anti-competitive conduct.
This is a novel approach to facilitating compensation claims for anti-competitive conduct. Time will tell whether the new arrangements will successfully persuade businesses (both prospective defendants and claimants) to adopt them in place of costly and drawn out court proceedings.
The CMA is currently consulting on its draft guidance on these voluntary redress schemes. Interested parties have under 29 March 2015 to comment.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.