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Brexit: competition and State aid Contents

Chapter 3: Short-term implications of Brexit

Antitrust

The relationship between UK and EU antitrust law

52.As noted in the previous chapter, the antitrust provisions in Chapters I and II of the Competition Act 1998 are, in the words of Baker McKenzie LLP, “mirrored” in the corresponding EU provisions in Articles 101 and 102 TFEU.48 The CAT also explained that the interpretation of these Chapters was governed by the ‘consistency principle’ under section 60 of the Competition Act 1998, which sets an obligation on UK courts and tribunals to ensure “no inconsistency with the treatment of corresponding questions of EU law, and in particular any principles applied and decision reached by the EU Courts”.49

53.Most witnesses agreed that Brexit would not require amendments to these domestic antitrust prohibitions. Hausfeld & Co LLP, for example, described the immediate post-Brexit statutory position in this regard as “no change”.50

54.This leaves open the question of the relationship between UK and EU competition law after Brexit. The CMA said that the ‘consistency principle’—or “section 60 in its current form”—would not be required after the UK left the EU.51 Dr Anca Chirita, Assistant Professor in Competition Law, Durham University, on the other hand, emphasised the value of the existing body of EU case law to the UK, suggesting that the UK’s own body of antitrust case law was “insufficiently developed”, compared to what Professor Richard Whish QC, Emeritus Professor at King’s College London, described as the “rich jurisprudence” of the CJEU.52 Vodafone Group plc added that maintaining some form of legislative link with EU law would also “mitigate the burden” for UK businesses, particularly cross-border businesses that would continue to be required to comply with both regimes.53

55.A number of witnesses suggested that the present ‘consistency principle’ under section 60 could be replaced with a softer duty, whereby UK authorities would be required to ‘have regard to’ EU law and precedent.54 Prof Whish, however, emphasised that this duty “should not be an onerous one”, nor should it result in a situation where a UK judge had “to spend a huge amount of time explaining his or her reason for departure” from EU case law.55

56.Although witnesses generally agreed that the UK should retain a link with EU antitrust law, Prof Akman suggested that this would not necessarily be a desirable approach in the long-term. She imagined a situation 20 years in the future where UK courts and the CMA were still obliged to ‘have regard to’ EU case law which had developed without UK judges sitting on EU Courts. Prof Akman pointed out that the Competition Act 1998 also required UK courts to have regard to Commission decisions, a duty which she told us would be “unimaginable” after Brexit.56

57.Dr Matthew Cole, Lecturer on Competition Law and Mergers and Acquisitions at the University of Exeter, favoured an approach of “voluntary coherence”, where “as far as practically possible” the UK continued to apply antitrust law in the same way the EU applied its own antitrust rules, but in a “voluntary” and “non-binding” manner.57

Block exemptions

58.Hausfeld & Co explained that block exemptions—where specified types of commercial agreements between certain types of undertakings were effectively “exempt from the usual scrutiny of competition rules”—were permitted under both EU and UK competition regimes.58 The UK Chamber of Shipping gave the example of Regulation (EC) 906/2009, which provided a block exemption for consortia of liner shipping services. This enabled them to reach “various technical, operational or commercial arrangements” to supply joint services, such as using the same vessels and port installations.59

59.At present, EU block exemptions automatically apply in the UK by virtue of section 10 of the Competition Act 1998, creating a system of ‘parallel exemptions’, which Baker McKenzie LLP explained were “heavily relied on by companies for legal certainty”.60 This view was echoed by the Competition Law Committee of the City of London Law Society (the CLLS Competition Law Committee), who said that, after Brexit, the “simplest approach [would] be to preserve these parallel exemptions and guidance in their present form”. The CLLS Competition Law Committee added that the intention of the EU (Withdrawal) Bill, as introduced, appeared to be that existing block exemptions would be incorporated into UK law, though they noted “a small risk that the definitions in the Bill may not pick them up”.61

60.The CLLS Competition Law Committee further highlighted that block exemptions and related guidance were of “limited life”, and suggested that there would be value in the UK taking a “common approach” to the EU when legislating for future exemptions after Brexit.62 Prof Akman pointed to the advantages of this for cross-border businesses, as divergence could lead to UK and EU parties to the same contract (operating under block exemptions) being subject to different competition rules.63

61.Baker McKenzie suggested that section 10 of the Competition Act 1998 could be limited to “preserving the parallel exemptions that are in force as of the date of Brexit for the life of the relevant EU block exemption”, and envisaged that the CMA could then “consult on each block exemption as they come up to expiry”.64 On the other hand, Professor Eyad Maher Dabbah, Professor of Competition Law and Policy at Queen Mary University London, said that the UK might not want to wait for current block exemptions to expire, but instead time-limit them—though this would depend on whether the CMA was “willing and planning to adopt its own block exemptions regime”.65

Private actions and the role of UK legal services

62.Private individuals or businesses can currently bring cases for damages before UK courts following breaches of either domestic or EU antitrust law, and many of our witnesses highlighted the UK’s status as an attractive jurisdiction for these private litigants. COMBAR described how private actions in the UK had seen a “substantial boom in the last fifteen years”, with litigants “attracted by the reputation of [UK] courts, the procedural protections available and professional expertise”.66 The CLLS Competition Law Committee also pointed out that this had been “a valuable source of work to UK-based lawyers and specialists such as economic experts”.67

63.Oxera told us that the “largest” private actions in UK courts were frequently made as ‘follow-on’ claims to breaches of European competition law, and were based on Commission decisions.68 Hausfeld & Co noted that in such cases litigants “do not have to prove the underlying infringement of competition law as this has already been established by the Commission”.69

The status of EU antitrust prohibitions

64.The CLLS Competition Law Committee explained that the EU (Withdrawal) Bill, as introduced, would provide that “rights derived immediately before Brexit” would “continue to be recognised and available under UK law”. They told us this would enable claims under Articles 101 and 102 TFEU “entirely relating to the pre-Brexit period” to continue to be brought in the UK, but “would provide no basis for claims under EU treaty articles arising after Brexit”.70

65.For this reason, the CAT concluded that “full policy consideration” would need to be given to whether “contravention of Articles 101 or 102 should continue to be an infringement of UK law”—particularly as, after the UK ceases to be a Member State, those articles would only “concern conduct producing effects wholly outside the UK”.71

66.The CAT also pointed out that if Articles 101 and 102 were not part of UK law after Brexit, “EU antitrust law would be foreign law”—although COMBAR noted that UK courts were “often called upon to apply foreign law”, and suggested that “EU law should, in the future, be no exception”.72

The status of Commission decisions

67.The CLLS Competition Law Committee argued that the status of Commission antitrust infringement decisions after Brexit would be “of at least equivalent practical significance” to the ongoing status of Articles 101 and 102 TFEU in maintaining the UK’s “attraction as a venue for EU competition cases”.73 Hausfeld & Co said that Commission decisions would cease to be binding on UK Courts after Brexit, unless the UK retained membership of the European Economic Area (EEA), meaning that claimants could be “required to prove the underlying infringement of competition law”. This could lead them to bring claims elsewhere.74

68.Baker McKenzie argued UK courts should regard Commission decisions as “persuasive” after the UK left the EU.75 Gowling WLG went further, calling for an express legislative provision that “the CAT should be able to accept a (final) European Commission decision without the need for a claimant or defendant to re-prove the content of the decision”.76 On the other hand, Eversheds Sutherland (International) LLP considered it “unlikely” that Commission decisions would be considered binding in UK courts after Brexit, as this “would entail accepting continuing ultimate jurisdiction” of the CJEU.77

69.Oxera, while acknowledging that the attractiveness of the UK as a jurisdiction for antitrust damages depended on the future status of EU law and Commission decisions, pointed out that London, in particular, had numerous “agglomeration advantages” that could not easily be replicated. These included its “reputation for robustness and independence of the courts, and the clustering of legal and economic advisers, including for complementary services such as international arbitration”.78

70.A number of witnesses noted that the UK’s status as a leading forum for antitrust damages would also be affected by the extent to which UK judgments were recognised and enforced in the EU after Brexit, currently provided for by the Brussels Regulation.79

Merger control

71.Merger control in the UK is governed by the Enterprise Act 2002 and enforced by the CMA. Mergers qualify for review by the CMA based on the size of UK turnover of the business to be acquired, or on the level of market share in the UK created by the merging parties. The CMA undertakes a two-phase process during which it determines if the merger will result in the substantial lessening of competition in the UK. The CMA may clear a transaction unconditionally, clear it subject to binding remedies, or prohibit it.80

72.As described in Chapter 2, the domestic system of merger control operates alongside the EU Merger Regulation (EUMR), where mergers with a ‘European (or community) dimension’—based on turnover thresholds—are subject to exclusive review by the Commission. This arrangement is known as the ‘one stop shop’. As COMBAR noted, the UK will no longer be able to participate in the ‘one stop shop’ after Brexit, “barring a bespoke agreement” to facilitate this.81

Loss of the ‘one stop shop’

Impact on the CMA and the CAT

73.Witnesses set out a number of practical consequences arising from the loss of the ‘one stop shop’ after Brexit, including the potential for parallel reviews by the Commission and the CMA—if mergers met relevant turnover and market share thresholds in both jurisdictions—and a likely increase in the number of reviews undertaken by the CMA, as a result of assuming responsibility for cases which would previously have fallen under the exclusive jurisdiction of the Commission.82 In the financial year ending 31 March 2017, the CMA completed 57 Phase 1 merger reviews and five Phase 2 reviews; the CMA estimated that Brexit could result in an additional caseload of 30 to 50 Phase 1 mergers and “half a dozen or so” Phase 2 cases each year.83

74.Witnesses also commented on the likelihood that an increase in the number and complexity of merger cases subject to review by the CMA would require substantial additional resources for the authority. The implications of Brexit for the capacity of the CMA and the CAT are discussed in Chapter 7.

Impact on businesses

75.The CLLS Competition Law Committee explained that the timeline for review, for submission of remedy proposals, and for gathering third party feedback on remedies were “very different” under UK law, compared to the EUMR. This, they said, could “place great strain on the ability of merging parties to ensure consistent results between both authorities”.84 Hogan Lovells noted that businesses could also expect transaction costs to rise, because most mergers investigated by the CMA were subject to a fee, “whereas no fee is payable for transactions reviewed under the EUMR”.85

76.In relation to the potential burden placed on businesses by having to notify mergers to both the Commission and the CMA, Skadden, Arps, Slate, Meagher & Flom LLP drew a distinction between large multijurisdictional transactions—where “one extra filing may not add significant additional cost”—and smaller transactions currently “subject to notification only in a small number of jurisdictions”, where an extra filing would “present a more noticeable burden”.86 The CMA, on the other hand, noted “the many practical similarities and synergies between the EU and UK merger review processes”, arguing that these might “mitigate the extent to which businesses must carry out significantly different work for the two investigations”.

77.The CMA also suggested that businesses could streamline potential dual review requirements by “agreeing to waivers allowing the European Commission and the CMA to share and discuss information”, and confirmed that it would continue to “work on procedural efficiencies that minimise the burden of notification”. The CMA further considered that the similarities between how the UK and EU approached merger reviews meant that there were not likely to be frequent “significant divergences” in the outcomes of parallel reviews by the Commission and the CMA.87

Impact on the EU

78.Witnesses noted that Brexit would also have implications for merger control within the EU. Hogan Lovells, for example, explained that UK turnover would no longer count towards EUMR thresholds after Brexit, meaning that “some mergers involving UK parties or markets may fall below [these] thresholds”. They suggested that, as a result, there could be more notifications in individual Member States, and that this could in turn potentially “trigger a reassessment” of EUMR review thresholds.88

The Government’s position

79.Margot James MP, Minister for Small Business, Consumers and Corporate Responsibility at the Department for Business, Energy and Industrial Strategy (BEIS),89 was clear that, after Brexit, the UK would still have “strong, well-established competition law and a world-class competition authority”. Ms James also confirmed that BEIS was “currently drafting statutory instruments” to ensure that UK competition law could “function effectively and independently” after Brexit, but did not provide any further detail on the content of these instruments.90

80.In relation to private actions, BEIS told us that the UK had been “at the forefront of promoting private enforcement of competition law”. Its “acknowledged expertise” made the UK a popular forum of choice for private actions. BEIS observed that, regardless of the future UK-EU relationship, UK consumers and businesses would be able to bring follow-on actions based on the decisions of UK competition authorities, the number of which, they suggested, could increase as a result of UK authorities undertaking more investigations after Brexit. BEIS acknowledged that other aspects of the UK’s private actions regime would be subject to changes resulting from Brexit, but said that the Government was “committed to providing as much certainty and clarity as soon as possible to businesses and consumers”.91

81.With regard to the implications of losing the EUMR ‘one stop shop’, BEIS thought that the additional burden on businesses would be “limited”, pointing to the UK’s voluntary notification regime and the fact that many international mergers already involve “multiple jurisdictions and merger filings with multiple authorities”. BEIS noted that the burden of an additional notification would be alleviated by the many “practical similarities” between the EU and UK regimes, and by measures introduced by the CMA to make its merger review process as “efficient and effective” as possible.92

Conclusions

82.Although Brexit does not necessitate a fundamental revision of the UK’s well-established domestic competition framework, the ‘consistency principle’ under section 60 of the Competition Act 1998 will no longer be appropriate in its current form after the UK leaves the EU and EU law no longer has primacy. It would be desirable to replace section 60 with a softer duty, whereby UK authorities might ‘have regard to’ EU law and precedent, although such an approach may not be appropriate in the longer-term. We call on the Government to clarify this during negotiations on the UK’s future relationship with the EU.

83.The current EU block exemptions are valued by UK businesses in helping them to ensure that certain types of agreements do not fall foul of either EU or UK antitrust prohibitions. Similar arrangements should continue to apply under UK law after Brexit. To provide certainty and minimise disruption for businesses, the Government should clarify whether the EU (Withdrawal) Bill is intended to facilitate the ongoing application of current exemptions, and for how long. The Government will also need to decide the extent to which the UK will continue to take account of future EU block exemptions.

84.The loss of the ‘one stop shop’ arrangement whereby larger mergers fall under the exclusive jurisdiction of the Commission is likely to increase the number of mergers subject to review by the CMA and the number of appeals heard before the Competition Appeal Tribunal (CAT). We welcome the CMA’s commitment to continue to work on procedural efficiencies to minimise the burden of dual notifications to businesses, and we support measures to reduce the impact of differences between the statutory timelines for CMA and Commission reviews.

85.A further issue is the effect of Brexit on specialist legal services. A number of factors have enabled the UK, and London in particular, to develop into Europe’s foremost jurisdiction for private damages actions resulting from breaches of competition law. Many of these features are likely to endure beyond Brexit, but uncertainty surrounding the future status of EU antitrust prohibitions and Commission decisions could put this leading status at risk. The Government should take this into account when it decides whether to repeal or amend the legislative basis for ‘follow on’ claims in the Competition Act 1998, and whether to allow UK bodies to continue to accept final Commission decisions.


48 Written evidence from Baker McKenzie LLP (CMP0026)

49 Written evidence from the Competition Appeal Tribunal (CMP0042)

50 Written evidence from Hausfeld & Co LLP (CMP0018)

51 Written evidence from the Competition and Markets Authority (CMP0002)

52 Written evidence from Dr Anca Chirita (CMP0013) and 22 (Prof Richard Whish)

53 Written evidence from Vodafone Group plc (CMP0019)

54 See for example written evidence from Baker McKenzie LLP (CMP0026), Centre for Law, Economics and Society at UCL (CMP0032), and Dr Maria Ioannidou (CMP0028)

55 Q 22 (Prof Richard Whish). See also Brexit Competition Law Working Group, Conclusions and Recommendations (July 2017): http://www.bclwg.org/wp-content/uploads/2017/07/BCLWG-Conclusions-and-Recommendations-Final.pdf [accessed 5 December 2017]

56 Q 22 (Prof Pinar Akman)

57 Written evidence from Dr Matthew Cole (CMP0040)

58 Written evidence from Hausfeld & Co LLP (CMP0018)

59 Written evidence from the UK Chamber of Shipping (CMP0015)

Some EU block exemptions are sector-specific, such as Regulation (EC) 906/2009 (OJ L 256, 29 September 2009) for shipping, while others apply generally, such as the Commission’s Vertical Agreements Block Exemption Regulation (VABER)—Regulation (EU) 330/2010 (OJ L 102, 23 April 2010).

60 Written evidence from Baker McKenzie LLP (CMP0026)

61 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017)

62 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017). See also Q 23 where Prof Whish told us that block exemptions normally last for approximately 15 years, after which they may be renewed.

63 Q 23 (Prof Pinar Akman)

64 Written evidence from Baker McKenzie LLP (CMP0026)

65 Q 23 (Prof Eyad Maher Dabbah)

66 Written evidence from the Commercial Bar Association (CMP0038)

67 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017)

68 Written evidence from Oxera (CMP0012)

The legal basis for such ‘follow-on’ claims is set out under sections 47A and 58A Competition Act 1998 which specify that a Commission decision finding an infringement is binding on the High Court and/or the Competition Appeal Tribunal.

69 Written evidence from Hausfeld & Co LLP (CMP0018)

70 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017)

71 Written evidence from the Competition Appeal Tribunal (CMP0042)

72 Written evidence from the Competition Appeal Tribunal (CMP0042) and the Commercial Bar Association (CMP0038)

73 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017)

74 Written evidence from Hausfeld & Co LLP (CMP0018)

75 Written evidence from Baker McKenzie LLP (CMP0026)

76 Written evidence from Gowling WLG (CMP0023)

77 Written evidence from Eversheds Sutherland (International) LLP (CMP0024)

78 Written evidence from Oxera (CMP0012)

79 The Brussels Regulation provides for the principle of mutual trust and recognition between the courts of EU Member States. As such, judgments rendered by courts in one Member State are automatically recognised and enforced in other Member States, without any declaration of enforceability being required. Written evidence from the Competition Appeal Tribunal (CMP0042), COSLA (CMP0033) and Dr Maria Ioannidou (CMP0028). See also European Union Committee, Brexit: justice for families, individuals and businesses? (17th Report, Session 2016–17, HL Paper 134)

80 The CMA has the jurisdiction to examine a merger where: either the UK turnover of the acquired enterprise exceeds £70 million, or the two enterprises supply or acquire at least 25% of the same goods or services supplied in the UK and the merger increases that share of supply. Competition and Markets Authority, A Quick Guide to UK Merger Assessment (March 2014): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/288677/CMA18_A_quick_guide_to_UK_merger_assessment.pdf [accessed 5 December 2017]

81 Written evidence from the Commercial Bar Association (CMP0038)

82 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017)

83 Written evidence from the Competition and Markets Authority (CMP0002). See also Competition and Markets Authority, Annual Report and Accounts 2016/17 (12 July 2017): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/628984/cma-annual-report-accounts-16-17-web-accessible.pdf [accessed 5 December 2017]

Phase 1 covers the CMA’s initial examination of a merger case including pre-notification discussions on a voluntary notification, the formal merger notification, and an initial assessment. The CMA can then either clear the merger, clear it subject to undertakings from the parties involved, or refer it for a Phase 2 investigation. A Phase 2 ‘full investigation’ may involve written submissions and oral hearings from the parties involved and interested third parties. The CMA can then either clear the merger unconditionally or subject to certain undertakings, or prohibit the merger. ‘Merger control in the UK’ (England and Wales): overview, Timothy McIver and Anne-Mette Heemsoth, Debevoise & Plimpton LLP: https://uk.practicallaw.thomsonreuters.com/0-500-7317?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1#co_anchor_a733361 [accessed 15 December 2017]

84 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017)

85 Written evidence from Hogan Lovells (CMP0027)

86 Written evidence from Skadden, Arps, Slate, Meagher & Flom LLP (CMP0031)

87 Written evidence from the Competition and Markets Authority (CMP0002)

88 Written evidence from Hogan Lovells (CMP0027)

89 Margot James MP gave evidence to us on 2 November 2017 when she was Parliamentary Under Secretary of State and Minister for Small Business, Consumers and Corporate Responsibility at BEIS. She was replaced as Parliamentary Under Secretary of State at BEIS by Andrew Griffiths MP on 9 January 2018.

90 Q 49 (Margot James MP)

The European Union (Withdrawal) Bill, introduced in the House of Commons in July 2017, creates a new category of domestic law for the UK: ‘retained EU law’. Clauses 5 and 6 provide instructions to the courts on the status and interpretation of retained EU law, which are relevant to the consideration in this inquiry of how the UK might continue to ‘have regard to’ EU competition law and precedent after Brexit. European Union (Withdrawal) Bill [Bill 5 (2017–19)]

91 Written evidence from the Department for Business, Energy and Industrial Strategy (CMP0041)

92 Ibid.




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