Consumer Rights Act 2015: Out-of-court compensation programmes for infringements of competition law to be approved by the CMA

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The Consumer Rights Act 2015 ("CRAConsumer Rights Act 2015: Reforms to damages litigation in the UK for infringements of competition law") is set to reform the enforcement of competition law through the courts in the UK. The wide ranging reforms will make it easier for companies which have suffered harm as a result of an infringement of competition law both to bring a damages claim and, ultimately, to obtain compensation. In particular the reforms promote the UK's specialist competition tribunal, the Competition Appeal Tribunal, as the main forum to bring such claims (for more details see ).

One of the reforms introduced by the CRA is the introduction of voluntary redress schemes. A voluntary redress scheme is a statutory compensation programme which is designed to provide victims of competition law infringements with a means to obtain compensation without having to go to court. The CRA empowers the Competition and Markets Authority ("CMA") to approve redress schemes, and pursuant to the CRA, the CMA is required to publish guidelines on the procedures for the application, approval and enforcement of redress schemes.

In March 2015 the CMA published a consultation entitled Draft guidance on the CMA's approval of voluntary redress schemes. The consultation sets out the CMA's proposed approach to the implementation of voluntary redress schemes. Below we detail the key features of voluntary redress schemes as set out in the CMA's draft guidance, although it should be noted that the guidance is still subject to consultation and the precise content may change.

Key features of voluntary redress schemes

A company which has been found to have committed an infringement of competition law and wishes to establish a voluntary redress scheme must submit an application to the CMA. The application should include the following details:

• the category of persons that will be entitled to compensation pursuant to the scheme;
• the documentation that a claimant is required to submit in order to prove that it has suffered harm as a result of the infringement;
• the scope of the compensation available - for example, whether or not compensation is variable dependent on the level of harm suffered; and
• details of how the scheme will be notified to those entitled to claim.

In addition, the CMA will require information about the board which will be appointed to administer the scheme on behalf of the infringing company. The board must comprise a senior lawyer or judge as the chair and at least four other members - including an economist, an industry figure, a representative of those entitled to compensation under the scheme and other suitable persons, such as accountants or market experts. The application should also include confirmation that the majority Board approves of the scheme and that the scheme will operate for at least nine months.

It should be made clear to claimants applying to the scheme that they do so in full and final settlement. This means that once a claimant has received compensation through the scheme, they will not be able to bring a claim for damages in the courts with respect to the same harm caused by that infringement. In the event that the board does not approve a claim for compensation, the claimant will not be prevented from seeking damages through the courts.

Approval and enforcement of redress schemes

The CMA may not approve a scheme until the relevant competition authority (for example, at EU level, the European Commission or in the UK, the CMA) has taken a final infringement decision. The CMA will assess a scheme to determine whether or not it has been created according to the rules set out above and will not look at the details of the scheme itself. The CMA has set itself a target of three months for the processing of applications. The CMA's decision, along with brief reasons, will be published on the CMA's website.

Once approved, the redress scheme will become binding on the applicant and gives an enforceable right to those entitled to compensation. The CMA is also empowered to take enforcement action where it is considered that the applicant is in breach of its duty to comply with the approved scheme.

What will redress schemes mean for those affected by a competition law infringement?

The obvious benefit of a redress scheme is that it will save all parties involved in a competition law dispute the high costs of litigation. For claimants who are clearly within the scope of a redress scheme it means a clear path to compensation without all the uncertainties associated with litigation - however it remains to be seen whether the compensation awarded pursuant to a scheme will be comparable to the level of damages awarded by a court.

In addition, infringing parties stand to gain some benefit from engaging in a voluntary redress scheme. The CMA has indicated in its draft guidance that volunteering to enter into a redress scheme might stand as a mitigating factor in the calculation of a penalty for breach of competition law. The CMA has a discretion to grant a penalty discount where it considers it appropriate, and it is thought that creating a voluntary redress scheme is likely to amount to a reduction of up to a maximum of 10% of the penalty the CMA would otherwise have imposed. A reduction of fine is an obvious inducement for infringing parties to seriously consider creating a redress scheme.

Another advantage for infringing parties is that by setting up a redress scheme the infringing party can control the scope of those entitled to compensation as well as the amount of compensation awarded. Of course, any party that considers it has suffered a loss as a result of the infringement can still choose to pursue compensation through the courts regardless of whether it is entitled to compensation from the scheme or not - but to the extent that fewer claimants bring damages actions because of the existence of a redress scheme infringing parties will have more control over the financial liability arising as a consequence of the infringement.