Where the paths of competition litigation and regulation cross

Since the UK legal system opened shop for collective actions in 2015, and following the Supreme Court’s judgment in Merricks v Mastercard on the certification threshold, applications for Collective Proceedings Orders before the Competition Appeal Tribunal have swelled from a trickle to a deluge.

More than 50 collective actions have been filed with the Competiton Appeal Tribunal (CAT), including more than 40 new cases registered over the past three years. Many features of these actions merit discussion, but one in particular is of interest: a lot of the collective actions brought to date have raised issues to do with a regulatory competency. That is either because they relate to companies in existing or newly regulated industries (utilities, digital) or because they pertain to issues that are subject to other regulation (privacy, consumer protection).

In this article, we take a look at the possible reasons behind this trend, and the key complexities and questions that may arise in these types of collective action over the coming year

Born from the constraints of the system

The overlap between Collective Proceedings Orders (CPOs) and regulatory issues that we are seeing is likely to have much to do with the boundaries of the legal system under which collective actions are permitted in the UK. Namely, they may be brought only before the CAT, and in relation to infringements of competition law specifically. The competition law framework requires a class representative’s case to allege harm either from an abuse by a dominant undertaking or from an agreement or information exchange between competitors. While cases may be brought as a follow-on claim, where there has already been a finding of an infringement of competition law by a relevant authority, they may also be brought on a standalone basis if there is no such existing finding.

Most of the collective actions brought in the last few years have the following features:

  • Firstly, most have been standalone claims (i.e., there has been no finding of an infringement in respect of the specific allegation made in the claim, although there may have been an infringement decision in another jurisdiction or contiguous market).
  • Secondly, the majority of these claims have been framed as an abuse of dominance.

The considerable overlap between these types of CPO and regulatory issues is perhaps not surprising, given that:

  • Bringing an abuse of dominance case requires the proposed class representative to establish that the target of the claim had a dominant position during the claim period. This may be more likely to hold in some regulated industries where dominance is an explicitly recognised characteristic of the sector and,  indeed, in some cases is the raison d’être of the regulation. Even where regulation is not motivated by the existence of undertakings that are considered to be dominant, it may be inspired by concerns that dominant positions or related competition issues could otherwise arise. This is at least partly the case, for instance, with the Digital Markets Act (‘DMA’).
  • Claimants are required to motivate a credible theory of harm. Again, this may be more straightforward in a standalone claim if a regulatory investigation in the relevant sector has already established similar competition concerns. For example:
    • In the digital sector, the adoption of the DMA and the establishment of the Digital Markets Unit (‘DMU’) have provided a backdrop for collective actions against tech firms (for example in Gutmann v. Apple).
    • In Le Patourel vs BT, the claim arose following a probe into pricing by Ofcom. The class representative sought to make use of the regulator’s findings to support the theory of harm. 

Testing the boundaries

The overlap between collective actions and regulation (whether sector- or issue-based) presents interesting questions for the UK collective actions regime, spanning practical, policy and economic issues:

  • Practical considerations. These include questions about the interaction and sequencing of regulatory action and private enforcement.
    • For example, in the Water CPOs, which relate to claims that water companies abused a dominant position by under-reporting sewage spills, there are concurrent regulatory investigations and enforcement actions by Ofwat in relation to management of sewerage by water companies. This has raised a number of case management issues at the certification stage, including around the sequencing of Ofwat’s probe and the CPO. 
    • Similar questions about sequencing have arisen in connection with the Motor Finance claims filed in 2023. These concern alleged overcharging of consumers for used car finance, following an investigation and regulatory action by the Financial Conduct Authority (‘FCA’) in relation to the use of discretionary commission arrangements in the sector. The FCA is now investigating with the explicit aim of securing consumer redress. The CAT has stayed the collective proceedings pending the FCA's investigation, providing an example of a regulator appearing to pick up the baton from a class representative.
  • Economic issues. Collective actions with regulatory angles also raise interesting questions of economics. These include how to quantify loss when dealing with theories of harm that are relatively novel (a feature of many standalone claims brought to date) and/or apply to regulated sectors with specific dynamics and in which competition damages claims have been more limited to date. The CAT is similarly having to grapple with how to establish possible counterfactual scenarios in the context of markets that are subject to economic regulation, for example in the water, rail and telecoms industries.  A further example is the CAT’s judgment in relation to excessive pricing in the Hydrocortisone proceedings, a case outside the collective action regime which followed an investigation by the CMA. The case provides an example of where economically regulated market outcomes were found to infringe competition law.
  • Policy questions. These include the role of the CAT as a commentator on regulatory issues arising in competition cases. For example, in some instances the CAT has identified gaps in the effectiveness of existing regulation in its consideration of abuse of dominance cases brought in regulated sectors. In the Hydrocortisone case – which was outside the collective action regime – the CAT opined on the Department of Health and Social Care's regulation of drug pricing. The judgment described the regulatory regime as “cumbersome, ineffectual and unused” and outlined deficiencies in the regulation of drug prices. This raises a question as to whether the CAT will become a more regular commentator on regulation, given the overlap between collective actions and regulation that has arisen. That raises another policy question: how should regulators respond?

Looking to the future

The framing of the UK’s evolving CPO regime within competition law seems to have created something of a natural pre-selection process, leading to a large number of cases that intersect with regulation. This, in turn, draws attention to thorny issues concerning how courts, regulators and litigants navigate the boundaries of these cases. Over the next 12 months, a number of milestones are expected on cases where these issues are relevant that may shed more light on the questions outlined above.