On 23 June 2016, the UK electorate voted (by a 52 per cent to 48 per cent majority) to leave the EU. Since then, the leave vote, or Brexit, has caused much political, economic and legal uncertainty. On 29 March 2017, the then British Prime Minister, Theresa May, triggered article 50 of the Treaty on European Union, formally starting the two-year withdrawal process.
On 25 November 2018, the European Council endorsed a draft Withdrawal Agreement and Political Declaration on the future relationship between the UK and the EU. Following the rejection of the draft Withdrawal Agreement by the UK parliament, the date for the UK’s withdrawal from the EU was extended to 31 October 2019. At the time of writing, it is unclear whether that date will be extended again or whether the UK will leave the EU on 31 October 2019 pursuant to a revised version of the draft Withdrawal Agreement or under a ‘no deal’ scenario.
The far-reaching impact of the Brexit vote will also be felt in EU and UK cartel regulation. At present, a cartel that relates to a market in the UK could be investigated by either the European Commission (the EC) or the UK Competition and Markets Authority (CMA), with the latter able to apply both EU and national competition laws, depending on the geographic scope of the alleged infringement. The EC and the CMA also closely cooperate with each other within the framework of the European Competition Network (ECN). The withdrawal of the UK from the EU may therefore have a significant impact on cartel regulation and enforcement in the UK (and also at the EU level).
Current cartel regulation and enforcement at the EU and domestic UK levels
The EC, specifically the Competition Directorate General, and the CMA are the principal competition enforcement agencies in the EU and UK, respectively.
Pursuant to Regulation 1/2003, national competition authorities (NCAs) throughout the EU are fully competent to apply EU competition law. However, the EC (rather than the CMA) is generally considered to be the most suitable authority to investigate a suspected cartel where:
- the relevant market covers more than three EU member states;
- issues raised by the case are closely linked to other EU rules that may be exclusively or more effectively applied by the EC;
- an EC decision is needed to develop EU competition policy; or
- it is more appropriate for the EC to act to ensure effective enforcement of competition rules.
Cooperation between the EC and NCAs with respect to cartel matters, among other things, is enhanced through membership of the ECN. The ECN facilitates the communication and coordination of the members of the ECN, to help ensure that EU competition laws are being applied consistently and effectively across the EU. In particular, within the ECN framework, the EC and NCAs cooperate in relation to competition law enforcement, including cartels, and NCAs are entitled to consult the EC on the domestic application of EU competition rules. Further, the EC and NCAs are entitled to exchange and use as evidence information – including confidential information – for the purposes of applying articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
The ECN also established a model leniency programme, which, although not binding, sets out the key substantive and procedural requirements that every EU member state’s leniency programme should have.
For further information regarding EU or UK cartel regulation, see the EU and UK chapters of this book.
Post-Brexit cartel regulation under the draft Withdrawal Agreement and Political Declaration
The draft Withdrawal Agreement covers the terms under which the UK will leave the EU, while the Political Declaration sets out the framework for the future EU–UK relationship. The texts envisage that the EU and UK will develop an ‘ambitious, wide-ranging and balanced economic partnership’, which will encompass ‘a free trade area as well as wider sectoral cooperation’. The texts also envisage that the final agreement should include provisions to ensure open and fair competition between the parties.
The draft Withdrawal Agreement provides for a transition period until 31 December 2020, which may be extended by mutual agreement. During the transition period, there will be no change to the status quo. EU law will continue to be directly applicable in the UK and the European Court of Justice (ECJ) and European institutions, including the EC, will continue to have jurisdiction over the UK.
The draft Agreement does not deal with competition law post-Brexit in any detail except in the context of a draft Protocol on Ireland/Northern Ireland. This protocol envisages the establishment of a single EU–UK customs territory, which would come into effect if an agreement on the future EU–UK relationship is not reached by the end of the transition period. To prevent undue distortions of trade and competition in this scenario, the draft protocol introduces a new category of substantive provisions, which can be enforced by both the CMA and the EC in their respective territories. The new substantive provisions mirror the current EU competition rules except that, instead of applying to the extent that trade between member states is affected, they apply to the extent that trade between the UK and the EU is affected.
With regard to transitional arrangements, the draft Withdrawal Agreement envisages that the EC will retain jurisdiction over cartel cases where proceedings are initiated in accordance with article 2(1) of Commission Regulation (EC) No. 773/2004 before the end of the transition period. Where cartel conduct begins after the transition period, the CMA will hold jurisdiction in respect of the effects in the UK, while the EC will have jurisdiction over UK businesses to the extent that their conduct has effects in the EU.
At present, the UK competition rules largely mirror EU competition rules. In the short term at least, it seems unlikely that UK competition law would significantly shift from this position. However, in the longer term, UK competition law could diverge from EU competition law. The UK government has published a draft statutory instrument which envisages that section 60 of the Competition Act 1998, which requires UK competition law to be interpreted in line with EU rules, would be repealed. It would be replaced by section 60A, which provides that competition regulators and UK courts will continue to be bound by an obligation to ensure no inconsistency with the pre-exit EU competition case law when interpreting UK competition law, but that they may depart from such pre-exit EU case law where it is considered appropriate in the light of particular circumstances.
Post-transition, a significant shift in enforcement may be expected as businesses would be unlikely to benefit from a ‘one-stop shop’ for cross-border cases involving the UK and other EU member states. Accordingly, businesses that are active in the EU and UK could face parallel investigations by the EC and CMA, with the CMA having jurisdiction over a case insofar as the conduct has effects in the UK, and the EC having jurisdiction insofar as the conduct affects trade between EU and EEA member states. The risk of parallel investigations is particularly important for potential leniency applicants. Any potential leniency applicant that is subject to both the UK and EU regimes would need to consider lodging applications in both jurisdictions. Parallel investigations may also lead to the CMA and the EC arriving at different, and potentially inconsistent, outcomes in relation to cartel cases arising from the same set of conduct. This could result in compliance becoming more complicated and difficult for multinational businesses.
Post-transition, the CMA would no longer be subject to Regulation 1/2003 and is unlikely to be a member of the ECN. Without a new cooperation agreement in place, the CMA and the EC would not automatically be able to coordinate their cartel investigations and share with each other information relevant to those investigations. They would also encounter increased difficulties in obtaining information pursuant to compulsory information requests, where the specific business does not have premises located in the jurisdiction of the relevant authority (eg, the EC may have difficulties in enforcing compliance with an information request in respect of a business in the UK only without premises in the EU). The EC would also be unable to carry out dawn raids of premises located in the UK, nor would it be formally entitled to request that the CMA does so, irrespective of whether documents are available at those premises that are relevant to an EC investigation. The UK government recognises these risks and has indicated in a White Paper that it wants to work with the EU to continue its cooperative arrangements, including provisions on sharing confidential information and coordinating on cases.
Alternative models for post-Brexit cartel regulation
The UK government and the EU have both acknowledged that they must prepare for all eventualities, including a ‘no deal’ scenario in which the UK leaves the EU without a Withdrawal Agreement and framework for its future relationship with the EU in place. To prepare for this possibility, the UK government and the EC have published a series of technical notices with the intention of helping businesses and citizens prepare for such a ‘no deal’ scenario.
In a ‘no deal’ scenario, the UK could choose to trade with the EU market pursuant to World Trade Organisation (WTO) rules. The position for cartel regulation would be much the same as discussed above, with the main difference being that there would be no transition period and therefore the UK’s competition regime would apply in parallel to the EU regime from 31 October 2019. In those circumstances, the proposal that the EC would retain jurisdiction for ongoing competition cases initiated pre-Brexit could not be taken for granted. A ‘no deal’ scenario would also likely have an impact on the ability of the regulators to cooperate and gather information for the purposes of cartel investigations. The UK government’s ‘no deal’ notice is silent on whether and how the CMA and the EC would cooperate on any resulting parallel cases. In the absence of any agreement, such cooperation would have no formal basis.
As an alternative to the WTO route, some stakeholders have called for the UK government to drop the proposals set out in the draft Political Declaration and negotiate for the UK to become a member of the European Economic Area (EEA) and of the European Free Trade Association (EFTA) – the Norwegian model. The EEA currently consists of the 28 EU member states, as well as Iceland, Liechtenstein and Norway (Switzerland is a member of EFTA but not of the EEA). Under the EEA agreement, all EEA countries adopt all EU legislation in agreed policy areas, namely the free movement of goods, services, capital and people. Joining the EEA would mean that the UK would remain subject to the majority of EU legislation, including EU competition law.
Under the Norwegian model, UK competition law and cartel regulation would largely remain as it is now. From a legislative perspective, section 60 of the Competition Act 1998 would probably be amended to require the UK courts to interpret UK competition law in accordance with EEA (rather than EU) law. In practice, this would be unlikely to have a significant impact on the way in which UK courts interpret UK competition law, given that the key competition provisions of the EEA Agreement – namely articles 53 and 54 – mirror articles 101 and 102 TFEU. The EFTA states are, however, subject to the jurisdiction of the EFTA Court, which is required, under the agreement establishing the EFTA Court, to pay due account to the principles laid down by the relevant rulings of the ECJ. Practice has shown that the EFTA Court often refers to ECJ precedents in its judgments.
In terms of enforcement, the CMA would – as is currently the case – continue to deal with antitrust cases that only have effects in the UK. Where a specific case has effects across EU member states and EFTA states, jurisdiction could be assumed by either the EC, the EFTA or the CMA, depending on the specific circumstances of the case.
The EFTA Surveillance Authority (ESA) currently enforces the provisions of the EEA Agreement in Iceland, Liechtenstein and Norway. Article 56 of the EEA Agreement provides for a one-stop shop whereby either the EC or the ESA will assume jurisdiction in a specific case (although there are various cooperation provisions by which the other authority can still assist with the investigation) as follows.
The EC assumes jurisdiction where trade between EU member states is appreciably affected (regardless of the effect on trade between EFTA states). As a result, the EC typically deals with the majority of cases with an EEA-wide impact.
The ESA assumes jurisdiction where only trade between:
- the EFTA states is affected (for example, only trade between Norway and Iceland); or
- an EFTA state and an EU member state (but not between EU member states) is affected (eg, trade between Norway and Belgium) and the undertakings concerned derive 33 per cent or more of their EEA-wide turnover from the EFTA states.
Under the Norwegian model, it is likely that the EC would still assume jurisdiction in most of the same cases it does today, given the relatively limited circumstances in which the ESA would assume jurisdiction.
The EC would continue to have the power to conduct dawn raids of premises located in EU member states, but would be unable to do so in premises located in the UK. Instead, the ESA (as well as the UK authorities) would be able to conduct dawn raids in UK premises. ESA officials undertaking a dawn raid could be joined by CMA officials, at the request of either authority. The EC would also be able to ask the ESA to carry out dawn raids in the UK related to EC cartel investigations. As well as the CMA, EC officials would then also be entitled to attend the dawn raid.
Other potential issues
Correspondence between a company and its EEA-outside counsel relating to the company’s rights of defence in the context of a cartel investigation is covered by legal professional privilege under current EU rules and is protected from disclosure to the EC. According to case law of the European courts, this privilege currently only applies to external counsel who are qualified to practise within the EEA (so would not apply, for example, to counsel who are only qualified to practise in the US). The draft Withdrawal Agreement envisages that this privilege will continue to apply to counsel who are qualified to practise in the UK (ie, as a solicitor, barrister or advocate in England and Wales, Scotland or Northern Ireland) until the end of the transition period. It remains to be seen how this issue will be dealt with under the future relationship between the EU and UK.
Owing to their significant experience with follow-on litigation and their rules on disclosure and limitation periods, UK courts – in particular the High Court and the UK’s specialist competition judicial body, the Competition Appeals Tribunal (CAT) – have so far been a favourite place to bring actions for cartel damages in Europe. Whether this will still be the case after Brexit remains to be seen, particularly given the uncertainty regarding the enforceability of EC decisions in UK courts post-Brexit. The EU Damages Directives aims at harmonising follow-on litigation by adding some features of the UK’s regime, such as disclosure rules, to the legal order of other member states. Against this background, Brexit could encourage some claimants to shift cartel damage claims from UK courts to other increasingly important continental fora such as, for example, Germany or the Netherlands.
There remains a great deal of uncertainty regarding what the trading relationship between the EU and UK will look like post-Brexit. Depending on its ultimate form, there may (or may not) be significant changes to cartel regulation and enforcement. As such, the post-Brexit developments will remain of high interest to businesses, legal practitioners and competition regulators alike.