On 28 May 2015, the Government published the EU Referendum Bill, paving the way for a referendum to ask the British public for the first time whether we wish to stay in the European Union.
As the deadline looms, the debate will feature increasingly in the headlines. It will raise significant questions for clients and solicitors alike, particularly in areas with a competition law element such as company and commercial law.
So what can we expect to see? Below we look at the possible effects of an exit on UK competition law.
While a “No Vote” will not affect common law, it will impact legislation where the EU has latterly had an input, including competition law. Competition law regulates economic activity by ensuring undertakings (businesses) operate on a level playing field, so that consumers enjoy a greater choice of goods and services at the most competitive price. UK legislation takes the form of the Competition Act 1998 and Enterprise Act 2002. The former is closely modelled on the EU regime, transposing core provisions of the Treaty on the Functioning of the European Union (‘TFEU’) into UK law, and so in theory could be largely substituted following ‘Brexit’ – Britain’s exit from the EU.
The problem is that EU competition law applies not just to EU Member States but also undertakings whose activities have an effect on trade between them; this means both regimes would have separate but concurrent UK application in many instances, even after our departure from the Union. Businesses with a UK presence would have to deal with two regulators operating in parallel, instead of either the European Commission or the Competition and Markets Authority (’CMA’).
Under this parallel regulatory system, we would likely see:
1) no more UK access to EU enforcement;
2) no more one-stop shop EU merger review; and
3) fewer UK actions for private damages.
Enforcement to be reckoned with?
Currently, the EU competition regime supersedes ours in cases of conflict. Under Regulation 1/2003, national courts and competition authorities must also apply EU law in cases which could affect trade between Member States, but they cannot apply national law prohibiting anti-competitive agreements which, while affecting trade between Member States, do not breach Article 101 TFEU.
Post-Brexit, the CMA and UK courts would no longer be subject to this when dealing with infringements and could enjoy greater flexibility to deviate from EU findings. There is a risk, however, of divergence between CMA and Commission competition policy and enforcement, with conflicting decisions being reached in respect of the same conduct. This could be compounded by the UK no longer participating in decision-making in Brussels and the European Competition Network
Brexit would mean no further recourse to EU competition law at national level, despite UK-incorporated undertakings continuing to trigger the EU regime through anti-competitive behavioural effects for conduct caught under articles 101 and 102 TFEU (i.e. affecting trade between Member States), and regardless of our courts’ newfound freedom. So the result is the same for businesses, except that now they would face the costs, delays and uncertainty of submitting parallel complaints to the CMA and the Commission when seeking recourse under both regimes.
It is unclear whether UK courts would still follow CJEU decisions, but they would presumably be unable to seek decisions by the latter on interpretation.
To merge or not to merge
Regulation 139/2004 establishes clear jurisdictional rules deciding whether the competitive effects of a “concentration” (i.e. merger or acquisition) should be reviewed by the Commission or Members States’ national competition regimes, with either one or the other reviewing a proposed transaction to determine its impact on competition, not both.
Brexit would see the loss of UK access to this “one-stop shop” merger review system, as well as our entitlement to “call in” an EU merger for consideration where the merger’s effects were expected to be experienced here. All the while, EU merger control rules will continue to apply in the UK where its jurisdictional tests are met, since concentrations affecting UK competition might still require review and approval by the Commission wherever the effect on interstate trade test is satisfied.
This will apply even where undertakings have their commercial activities in the UK and not the EU, and so is a particularly relevant consideration for undertakings benefitting from EU market integration, which are more susceptible to the inefficiencies of concurrent merger control review in London and Brussels. Increased transactional costs, regulatory uncertainty and divergent findings could discourage UK M&A activity and lower the number of new entrants, to the detriment of London’s position as a financial centre and export platform to Europe.
Choosing the right forum
Under Directive 2014/104/EU, UK courts must grant probative effect to findings of anti-competitive conduct by the Commission (and Member States) when considering private enforcement actions for competition breaches. So an advantage of Brexit is that UK courts would no longer be bound by such decisions and could deviate. In addition, they could retain their current “wide” disclosure rules rather than follow the Directive, which exempts leniency statements from mandatory disclosure.
However, given the volume of follow-on actions for damages reliant upon Commission findings, this move could deter private enforcement in the UK; when considering a forum to issue proceedings, decisions in other EU jurisdictions may influence a party to take action in another Member State whose courts, unlike ours, consider such decisions evidence of an infringement. Moreover, with our loss of Member status presumably Member States would be correspondingly free to ignore UK court decisions.
At a time when civil court fees are rising, additional costs and delays to follow-on actions for damages could further dampen parties’ appetites to seek redress through UK courts and regulators, in turn damaging their reputation and efficacy as arbiters of competition law.
State aid and public procurement rules might no longer apply in the UK, allowing the Government to intervene in business, but in sectors including agricultural exports access to EU markets could suffer (unlike areas like financial services, though, where EU markets are relatively open).
Increased government involvement risks being perceived as protectionism, and could see a rise in the number of state aid claims against the UK.
To sum up
Currently, we benefit from a clear and certain interplay of regimes, with simultaneous access to UK and EU competition rules at national level, a one-stop shop for merger review and approval, and EU rules facilitating commencement of follow-on actions for anti-competitive conduct before UK courts.
While the effect of Brexit on the structure of UK competition regulation may not be so drastic, our departure is liable to lead to a parallel system of regulation, which will undermine existing advantages and adversely impact businesses with a UK presence entering into arrangements which could affect trade in the EU.