Enforcement reinforced: the UK Government’s plan to reform competition and consumer law

Following its recent consultation on wide-ranging reforms to the UK’s competition and consumer law regimes, the UK Government recently published its response to feedback received from over 180 stakeholders and made clear its intention to legislate to promote competition and consumer rights in the recent Queen’s Speech.

While the draft legislation has yet to be published, and so the finer detail of the proposals is yet to be revealed, it is clear that the proposed reforms, taken as a whole, are likely to represent a step towards the stronger and more active enforcement of competition and consumer law. Certain of the proposed reforms have been contemplated for a number of years and, particularly in light of the current economic climate, the case for the expedited progress of the draft legislation, to secure improved outcomes for consumers and for the wider economy, is a strong one.

Background

In July 2021, the Department for Business, Energy & Industrial Strategy (“BEIS”) published the consultation Reforming Competition and Consumer Policy: Driving growth and delivering competitive markets that work for consumers (“RCCP Consultation”) which invited views on a range of potentially significant changes to competition and consumer law and policy, including new powers for the UK’s Competition and Markets Authority (“CMA”) to directly enforce consumer protection rules in a similar manner to competition law.[1]

The proposals indicated ambition and intent on the part of the Government to improve the enforcement of competition and consumer law, and outcomes for consumers, in line with its Building Back Better plan for growth to make the UK’s competition regime ‘best in class’. The proposals recognized not only the CMA’s increased role and responsibilities as a global competition and consumer protection authority in the wake of both Brexit and the COVID-19 pandemic, but also that the CMA, in common with other regulators, needs to step up to address the concerns that are being echoed globally about the ability of competition and consumer law enforcement to adequately protect consumers in an age of increasing digitalization.

The RCCP Consultation received 188 responses from stakeholders across businesses, academia, the legal industry (including Hausfeld – see here) and consumer organizations. In April 2022, the Government published its consultation response (the “Response”) outlining its position in light of the feedback received.[2] In this article, we provide an overview of the key points emerging from the Response, principally addressing the enforcement aspects of competition and consumer law.

Competition law enforcement

Market inquiries

Consultation respondents were supportive of the Government’s view that the market inquiry process should be as efficient and flexible as possible, and generally agreed with the Government’s assessment that a process lasting more than three years, involving both a market study and a market investigation, may be too long.[3] In our view, this is especially true for fast-moving digital markets where, by the time a market inquiry is completed, the harm in question may have already become entrenched. However, many respondents also noted that procedural efficiencies should not come at the expense of procedural safeguards and expressed concerns about the structural reform options proposed by the Government. For example, concerns were expressed that remedies at the market study stage could be imposed prematurely, without the necessary analysis required to determine the level of any intervention, and would result in inaccurate determinations.[4]

In light of that feedback, the Government confirmed that it intends to retain the current structural framework for market inquiries, in which the CMA may conduct market studies and market investigations, and will only impose binding remedies by order in the context of the latter.[5] However, the Government does, it said, intend to provide the following procedural reforms, which should be a welcome first step towards ensuring swifter and more effective market inquiries:

  • allowing greater flexibility for the CMA to accept binding undertakings at any stage during market studies and market investigations. The idea is that the CMA will be able to accept commitments and make them legally binding when they address a potential adverse effect on competition under consideration;
  • providing the CMA with greater flexibility to define the scope of market investigations; and
  • removing the requirement to consult on a market investigation reference within the first six months of a market study.[6]

Stronger and faster enforcement against illegal anticompetitive conduct

Territorial reach of the Chapter I and Chapter II Competition Act 1998 prohibitions

The RCCP Consultation set out proposals for expanding the territorial scope of both the Chapter I prohibition (which prohibits agreements restricting competition in the UK) and the Chapter II prohibition (which prohibits the abuse of a dominant position) so as to capture conduct occurring outside of the UK but capable of harming competition and consumers in the UK.[7]

Following feedback, the Government was persuaded that the case for expanding the territorial scope of Chapter I is stronger than that for Chapter II. Accordingly, it has confirmed that it intends to amend the Chapter I prohibition such that it can apply to agreements, concerted practices, and decisions which are implemented outside of the UK, depending on the effects of the conduct within the UK.[8] This is a welcome development that promises to help fill the enforcement gap, although the precise scope of the changes remains to be seen. Meanwhile the Chapter II prohibition will remain unchanged, meaning it will not (for example) apply to conduct by a dominant undertaking that is not dominant in the UK market.

Extending the Competition Appeal Tribunal’s jurisdiction

The Government proposed in the RCCP Consultation to extend the jurisdiction of the UK’s specialized competition court, the Competition Appeal Tribunal (“CAT”), to be able to grant declaratory relief – a legally binding statement on the application of competition law to a set of facts which would avoid parties having to go to lengths to formulate their claims as damages claims (or applications for an injunction), and could facilitate the settling of disputes. Respondents were broadly supportive of this proposal, and the CAT itself welcomed it as enhancing its ability to deal appropriately with collective proceedings and providing an important element of flexibility.[9]

In addition, the Government also made clear that it intends to return to the courts and the CAT the discretion to award exemplary damages for breaches of competition law in a limited set of cases (and not in collective proceedings), so as to create additional deterrence, which is a welcome development for claimants. Awards of exemplary damages are prohibited under the EU Damages Directive, but can now be reintroduced following the UK’s departure from the EU.[10]

Leniency

The RCCP Consultation also raised the prospect of increasing the number of leniency applications made and sought to explore whether applications may be encouraged if holders of full immunity in the public enforcement process were also provided with additional immunity from private damages actions.[11] The Response indicates that the Government received mixed views on the extent to which leniency applications are reduced by virtue of private enforcement, with some respondents indicating that it may be inappropriate to introduce further protections to leniency applicants in circumstances where protections introduced by the Damages Directive[12] in 2017 have not yet been fully tested given their recent implementation. This is perhaps unsurprising, not least in light of the message that full immunity from private damages actions as well as any form of regulatory fine may be thought to convey. In short, the Government concluded that it may be premature to introduce reforms conferring private immunity at this stage - however, it was noted that it will keep under review any impact of the private damages regime on leniency programmes.[13]

Interim measures

BEIS recognized in the RCCP Consultation that interim measures play an important role in competition enforcement and may be a particularly useful tool in tech/digital markets, and as such that the framework for their application should be as practicable as possible.[14] The RCCP Consultation therefore sought views on updating the legal framework for the CMA to apply interim measures in the course of Competition Act cases, and specifically on whether appeals against interim measures decisions should be determined by the CAT according to the principles of judicial review, rather than by considering the full merits of the CMA’s decision.

The Response confirms that the Government intends to proceed with this amendment to the framework, in light of the support received from respondents, as:

  • full merits appeals are likely to entail a closer appraisal of the CMA’s decisions, involving narrower margins of discretion compared to the judicial review standard. In this instance, applying interim measures would likely take longer and be less efficient if subsequent appeals are determined on the merits basis; and
  • a decision to apply interim measures involves a significant degree of technical judgment on the facts of an individual case as it involves balancing the likely harms of the conduct against the costs to businesses to determine whether interim measures are necessary and proportionate. On that basis, the CAT’s assessment of whether interim measures are necessary should not be given greater weight than the assessment of the expert economic regulator.

However, the Government confirmed that a merits standard will continue to apply to appeals against CMA infringement decisions (including decisions on the appropriate financial penalties).[15]

New evidence gathering powers for the CMA

Despite the mixed feedback received from respondents, the Government confirmed that it is determined to strengthen and expand the CMA’s investigative powers in Competition Act investigations, as follows:

  • broaden the power to interview individuals. The Government noted that the restriction of interview powers to individuals with a connection to the businesses under investigation has proved too restrictive and has raised challenges in previous investigations;[16]
  • extend the legal duty to preserve evidence that exists in the context of investigations into breaches of Chapter I to all Competition Act investigations;
  • give the CMA powers to "seize-and-sift" evidence when it inspects a domestic premises under a warrant; and
  • strengthen the CMA’s powers to obtain information stored remotely when executing a warrant.[17]

Settlement and voluntary redress

The CMA is able to use voluntary resolution procedures, which can in theory help achieve efficiencies in Competition Act cases including by resolving investigations sooner and freeing up the CMA’s resources to open more cases. The RCCP Consultation accordingly sought views on how the existing voluntary resolution tools might be improved to ensure maximum take-up.

One of the proposals focused on introducing a new mechanism for businesses to resolve abuse of dominance investigations by entering into an Early Resolution Agreement (“ERA”) with no admission of liability to an infringement and without the ERA being binding as to liability in any subsequent private damages claims. This proposal was however abandoned in recognition of the fact that such a mechanism would involve trade-offs between the speed of public enforcement and deterrence, and could weaken the relationship between public and private enforcement.[18] In this regard, a number of respondents stressed that the proposed ERA mechanism may hinder the ability of consumers or competitors to bring damages claims who are assisted by the business admitting liability or being found to be liable through public enforcement, whilst not increasing deterrence.

With regard to settlement procedures more broadly, the Government advised that it may revise the CMA Rules[19] to allow the CMA greater autonomy in relation to ensuring settlement processes are sufficiently robust.

Access to file

The Response makes clear that the Government intends to introduce a new statutory, standard framework for confidentiality rings in Competition Act cases. This will include civil penalties to ensure that the CMA has the tools necessary to protect confidential information disclosed into the confidentiality ring. It is also considering whether to extend these arrangements to the CMA’s other competition powers.[20]

Consumer law enforcement

Importantly, the RCCP Consultation acknowledged that there are currently weaknesses in the current consumer law enforcement regime, which have adverse consequences for deterrence and consumer confidence.

Strengthening enforcement by the CMA and other enforcers

At present, the CMA must go to court to enforce consumer law, unlike competition law wherein the CMA has the power to decide whether the law has been infringed, and to impose directions and fines without having to go through the courts, namely an ‘administrative model’ of enforcement.[21]

The case for reform to align consumer and competition law in this respect is a strong and long running one. The Government confirmed that it intends to legislate to give the CMA the power to enforce certain consumer laws directly, meaning it would be able to decide whether an infringement took place, impose fines, and award redress to consumers or make appropriate directions to bring the infringement to an end / secure positive action by the relevant business.[22]

However, the CMA will not gain powers to enforce the entire range of consumer protection laws directly, which the Government states would not be necessary or proportionate. This is because, in the Government’s view, there are many consumer laws dealing with matters that go beyond the structural market issues adversely impacting consumer choice which the CMA is tasked to address. The CMA would therefore gain the power to enforce a subset of consumer protection legislation, to be specified by the Government in future legislation.[23] The Government also intends, it said, to introduce a statutory duty of expedition for the CMA in relation to its consumer and competition law role.[24]

Decision-making process

Regarding the CMA’s decision-making process in relation to the new enforcement powers, many respondents called for robust internal scrutiny within the CMA, including an objective and independent panel, before a final decision and fines are imposed, so that there is separation between the investigative and adjudicative roles within the CMA. The Response takes this view on board and, additionally, it confirms that the CMA will be required to publicly consult on its rules of procedure, which will need to be approved by Government and Parliament.[25]

Appeals

Administrative enforcement decisions will be appealable on the merits, with the appeal body being granted the power to review issues of fact and law, admit fresh evidence, and quash or substitute decisions.[26] The Government’s view is that the appeal body designated to hear such cases should be experienced in hearing cases involving legislation of cross-cutting application, and that a new specialist consumer tribunal (or an expansion of the CAT) is undesirable as it would add an extra judicial decision-maker likely to lead to less consistent jurisprudence. It therefore intends to legislate for the High Court to hear all appeals of CMA direct enforcement decisions.[27] All other, non-fining decisions, actions, or omissions by the CMA during the administrative enforcement process will remain subject to the supervisory jurisdiction of the courts through judicial review proceedings.[28]

Sanctions for non-compliance with information gathering

The Government acknowledged that the current powers available to consumer enforcers for non-compliance with a statutory information notice do not provide adequate deterrence and therefore consulted on the possible introduction of financial penalties. Despite mixed feedback on the topic, the Government has now stated its intention to introduce fixed or turnover-based fines where an information notice is not complied with, where false or misleading information has been given, or where documents have been destroyed, concealed or falsified. As a new administrative enforcer, the CMA will be able to impose these fines directly, whereas other enforcers (such as the sectoral regulators) will have to apply to the courts to impose the fines.[29]

Undertakings by businesses

Although undertakings are valuable as a means of achieving a faster resolution in contrast to a full investigation and court (or administrative) procedure, the current undertakings regime effectively allows businesses to continue unfair practices, as undertakings cannot be directly enforced and sanctions are an unlikely prospect. As such, the RCCP Consultation set out several options for reform. Respondents mostly advocated for making undertakings enforceable in their own right (without the need to prove an underlying breach of consumer law) and introducing fines for breaches, though some argued that breaches of undertakings should instead be treated as an aggravating factor when considering breaches of consumer protection law. The Government now intends to make undertakings enforceable in their own right and introduce fixed or turnover-based fines for breaches, on the basis that this will increase the perceived certainty for the consequences of breaching undertakings and therefore deter businesses from carrying out harmful practices.[30]

Collective redress

The RCCP Consultation also sought views on the case for strengthening the UK’s collective redress regime, making remedies for consumer law infringements more accessible to consumers. Despite, in our view, the clear deficiencies in the current mechanisms for the private enforcement of consumer law and the advantages in expanding the opt-out collective redress regime available to victims of competition law breaches, the Government cited mixed responses on this aspect of the RCCP Consultation and has decided not to take immediate action at this stage.

Conclusion

Given the backdrop of the CMA’s increasing workload in light of Brexit, and the growing challenges to regulators which emerge from the macro-economic picture and the increased power of a few global technology companies over consumers’ lives, this is a critical time for competition and consumer law policy and enforcement.

The Government’s stated intention to legislate to promote competition and strengthen consumer rights is therefore welcome, if – in relation to some of the reforms which appear likely to be adopted – a long time coming. The aligning of the CMA’s fining powers for breaches of consumer law with those available to it pursuant to the competition law regime, for example, have been mooted for some time but now appear likely to be implemented. While the opportunity to enhance access to justice which would have come with the expansion of the opt-out collective redress regime to consumer law breaches appears to have been put on ice for now, the Government does not appear to have closed the door to reforms in this area in the medium or longer term.

Footnotes

[1] The Hausfeld firm was among those submitting views.
Alongside the RCCP Consultation, the Government also conducted a parallel consultation ‘A new pro-competition regime for digital markets’ (the “Digital Markets Consultation”), which sought views on the proposed design of a new pro-competition regime to address the unique issues arising from digital markets, in particular the harmful effects and sources of substantial and entrenched market power in those markets. The Government published a separate response to the Digital Markets Consultation on 6 May 2022, which is beyond the scope of this article
[2]  See: https://www.gov.uk/government/consultations/reforming-competition-and-consumer-policy/outcome/reforming-competition-and-consumer-policy-government-response
[3] Response, paras 1.22-1.23.
[4] Response, para 1.24.
[5] Response, paras 1.29.
[6] Response, para 1.30.
[7] RCCP Consultation, paras 1.147-1.149.
[8] Response, paras 1.96-1.97.
[9] Response, para 1.195.
[10] Response, paras 1.197 – 1.201.
[11] RCCP Consultation, paras 1.160-1.161.
[12] Implemented in the UK by The Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017 (SI 2017/385).
[13] Response, para 1.106.
[14] RCCP Consultation, paras 1.168-1.70.
[15] Response, paras 1.164-1.166.
[16] Response, para 1.127.
[17] Response, paras 1.126-1.132 for further details.
[18] Response, para 1.139.
[19] The Competition Act 1998 (Competition and Markets Authority's Rules) Order 2014.
[20] Response, paras 1.146-1.148.
[21] Response, para 3.4.
[22] Response, paras 3.6-3.11. The CMA will continue to be able to use its current enforcement powers through the courts, even when granted additional enforcement powers.
[23] Response, paras 3.18 – 3.19. The Government has stated that the power will be compatible with the principle that the CMA should be allowed to directly intervene in areas where general consumer protection legislation applies across the economy as well as where legislation deals with closely related subject matter, protects the economic interests of consumers and where the CMA has relevant experience.
[24] Response, para 3.60.
[25] Response, paras 3.20-3.23.
[26] Response, paras 3.24-3.26.
[27] Response, paras 3.27-3.32.
[28] Response, para 3.26.
[29] Response, paras 3.42-3.48.
[30] Response, paras 3.52-3.55.