UKCompetitionprovisionsoftheEnterpriseAct2002enterintoforce

31 July 2003

Patricia McDermott

The Enterprise Act 2002 has introduced substantial reforms to competition law and enforcement of consumer law in the UK. The new competition law provisions, the majority of which came into force on 20th June 2003, supplement the Competition Act 1998, replacing the Fair Trading Act 1973. The result is a clearer framework for markets and enterprise.

Already, from 1st April 2003, the Office of Fair Trading (the “OFT”) was established as a corporate body, on a statutory basis, consisting of a Board composed of a chairman and chief executive, and at least four other members, appointed by the Secretary of State. Previously, the OFT existed as an administrative support for the Director General of Fair Trading, whose role has now been abolished, and his functions transferred to the OFT. The reforms have also seen the appeals tribunal of the Competition Commission (the “CC”) being replaced by an independent body, the Competition Appeals Tribunal (the “CAT”), which as well as taking over the hearing of appeals, has some new roles, including hearing claims for damages where competition law infringement has been established, hearing representative claims for damages brought by specified bodies on behalf of individual consumers, and reviewing decisions on mergers or market investigations references.

The Act has largely replaced the merger control regime of the Fair Trading Act 1973 with new rules, the most significant of which are:

  • future, nearly all decisions will be taken by the OFT and the CC acting as independent authorities. The Secretary of State will now only be involved where there are defined public interest issues, such as national security and, since the coming into force of the Communications Act 2003, newspaper mergers;
  • mergers will now be assessed against a clear competition test, rather than the wider public interest test. Mergers will now only be prohibited or remedies required where there is, or may be expected to result in, a ‘substantial lessening of competition’.

The assets test has also been abolished and replaced with a turnover test, which will likely see more UK transactions become the subject of a merger enquiry; in the future mergers will be investigated where UK turnover of the target company exceeds £70 million. The alternative 25% market share test continues as before. The Act introduces a new right of appeal for parties to a merger, or persons sufficiently affected by a decision on a merger taken by the OFT, CC or Secretary of State. They can now apply to the CAT to review the reasonableness, lawfulness and fairness of a decision, which if necessary can require it to be reconsidered by the relevant authority.

The Act also introduces a new function for the CAT to hear claims for individual damages for infringements of Chapter I and II prohibitions of the Competition Act (on restrictive agreements and abuses of dominant position) or Articles 81 and 82 EC, where these have already been established by the OFT or the European Commission. This is in addition to the existing right to bring damages actions in the courts. Claims can also be brought where it is the CAT which finds a breach as a result of an appeal of an earlier OFT decision. However, for so long as an infringement decision remains subject to appeal, no claim can be brought. Under this new function, representative claims for damages can also be made by specified bodies acting on behalf of individual consumers (so long as they are not using or receiving the goods/services in question in the course of business). Damages are awarded directly to the consumer.

The Act introduces criminal penalties for individuals (directors and employees) who dishonestly engage in the worst types of cartels, such as horizontal price fixing, market sharing or bid-rigging, coupled with new investigatory powers of the OFT. The offence, which will be committed irrespective of whether the agreement reached is actually implemented by the undertakings involved, or whether the individuals have the authority to act on behalf of the company at the time of agreement. The new offence will operate alongside the existing regime of civil sanctions imposed on undertakings which breach the Competition Act 1998. Conviction could result in up to five years imprisonment and/or an unlimited fine. However, the OFT may grant total immunity from prosecution or a substantial reduction in fines, to “whistleblowers” who in a timely manner, inform the OFT of a cartel and co-operate fully in the OFT’s investigation. The OFT has published guidelines on the application of this leniency policy.

The Act amends the Company Directors Disqualification Act 1986 to provide the OFT with power to apply to the High Court for orders disqualifying directors of companies which have committed a breach of UK or EC competition law. Therefore, as well as prosecution, company directors will now also run the risk of disqualification of up to 15 years if their company breaches competition law, and if their conduct (or omissions) in relation to such breaches, is such as to render them unfit to be involved in the management of a company.

The new legislation provides for consumer bodies, designated by the Secretary of State, to make ‘super-complaints’ to the OFT where they believe that certain features of a market, such as the general conduct of firms operating in that market, may be significantly harming consumers. This provision relates only to features affecting markets as a whole, and therefore will usually not apply to the specific behaviour of individual businesses. When a super-complaint is made, the OFT must publish its response within 90 days, stating whether it has decided to take action, and if so, outlining what steps it intends to take. As the Act does not restrict what type of action may be taken, possible outcomes could include an OFT investigation into the market, enforcement action under the Competition Act, recommendations to amend legislation, or a referral of the market to the CC for further investigation.

The Act also gives the OFT and specified sectoral regulators the power to refer a market to the CC for investigation where it has reasonable grounds to suspect that the structure of the market or the conduct of players on it is harming competition. This market investigation system replaces the monopoly enquiries process of the Fair Trading Act 1973. A reserve power has also been created for Ministers to refer markets to the CC in special circumstances. An appeals system similar to that of the mergers regime is now also in place.