Immediate implications of the Referendum result
- As regards merger control, in the event that the UK does not reach an agreement that sees continued application of the EU Merger Regulation, then many deals will become subject to parallel review by the Competition and Markets Authority (CMA) in the UK, whereas previously they would have benefited from the “one stop shop” principle applicable to EU filings made in Brussels. The CMA’s approach is typically very thorough, and deals that are subject to such an approach may therefore face materially greater regulatory burdens.
- Until the negotiation outcome is implemented, UK competition law will remain unchanged – both UK and EU competition and merger control law, as well as State aid law, will continue to apply in the UK. In many respects, UK competition law mirrors EU law in any event – particularly in cartel enforcement and abuse of dominance law. To this extent, the rules applicable to businesses will not change significantly, although who enforces them may do – and there may be less need to adopt a consistent approach with the way EU law develops in the future.
- Bigger questions remain about what, if any, equivalent to current EU State Aid law would be enacted to apply in the UK, governing whether failing industries could be bailed out.
- The current state of play (below) remains applicable until such a time as the UK leaves the EU/EEA.
Current state of play
- EU competition law supports the completion of the EU-wide single market by providing a unified legal framework and common processes across the 28 member states.
- The EU’s general antitrust rules prohibit cartel conduct and abuse of a dominant market position.
- The European Commission and the national competition authorities (NCAs) of EU member states can investigate and impose substantial fines (up to 10 per cent of worldwide turnover) for breaches of these rules.
- If the Commission or an NCA establishes that there has been a breach of EU antitrust rules, the parties concerned can be exposed to third-party actions for damages in national courts within the EU.
- A new Damages Directive is being implemented across the EU, which is designed to further harmonise the approach of national judicial systems to such actions.
- The EU Merger Regulation provides a one-stop shop for the regulation of proposed mergers, acquisitions or joint ventures involving companies operating in Europe (where the parties concerned meet certain worldwide and EU-wide thresholds).
- ‘State aid’ by member states, which can operate as a form of protectionism to the detriment of other undertakings or products, is tightly controlled as it has the potential to distort normal market competition.
What should I be thinking about now?
- Given that the UK has adopted national legislation (the Competition Act and Enterprise Act) that run parallel to the EU provisions, a Brexit is unlikely to change the fundamentals of competition regulation in the UK.
- Indeed in certain respects (eg in relation to private actions), the UK is a frontrunner, with many of the measures sought by the EU in its new Damages Directive (eg disclosure obligations) already a feature of UK law and procedure.
- The adoption of the UK Consumer Rights Act in 2015, which establishes, among other things, an opt-out class action regime for competition damages, demonstrates an ongoing commitment at national level to effective competition regulation and enforcement.
- As far as mergers are concerned, companies will still need to be cognisant of the EU thresholds and will remain subject to EU regulation in cross-border deals. In any event, if the UK were to remain part of the European Economic Area (EEA), post-Brexit, very little will actually change in terms of the obligations of UK undertakings, including in relation to merger control.
- Nevertheless, a Brexit will inevitably raise substantive and procedural legal issues as the UK regime is decoupled from EU standards, processes and enforcement.
What could the position be following a Brexit?
The answers to many of the above questions would depend on the nature of a post-Brexit UK/EU relationship.To give an idea of the range of possible outcomes, we have considered what the position would be under the ‘Norwegian option’ and the ‘World Trade Organisation (WTO) option’ – on the basis that these are at opposite ends of the spectrum of existing models for an alternative relationship with the EU.
The Norwegian option
- Under the Norwegian option, the UK would join the European Free Trade Association (EFTA) and remain part of the EEA.
- The UK would be bound by the EEA Agreement (which replicates the EU rules on competition law). The content of the competition law applied in the UK would remain broadly identical following Brexit.
- The CMA and the UK courts would apply the equivalent rules under the EEA Agreement along with domestic UK competition law (which is heavily modelled on EU competition law).
- A merger between a UK company and an EU company would still be susceptible to a merger review by the European Commission. Other mergers may still be subject to review by the EFTA Surveillance Authority (ESA) if they involve EFTA countries, although this has yet to happen in practice. The same concept applies to cartel and dominance cases: a UK company could be susceptible to a European Commission investigation if the relevant conduct occurred substantially in a EU member state rather than an EFTA state.
- The enforcement powers of the EFTA Surveillance Authority are the same as those of the Commission.
- In cartel cases where the Commission has jurisdiction, the Commission immunity and leniency regime applies to EFTA states as if they were EU states, meaning that EFTA states could approach the Commission directly. In cartel cases where the ESA has jurisdiction, the ESA has adopted a Leniency Notice. This echoes the Commission regime with the intention of ensuring uniform application of EEA competition law across EU and EFTA states. Therefore, the possibility of immunity from or a reduction in fines for cartelists would remain open under the Norwegian option.
- EFTA states are subject to the EFTA Court, which is the EFTA equivalent of the Court of Justice of the EU. It deals with cases and appeals between the ESA and EFTA states, handles disputes between EFTA states and gives advisory opinions to EFTA states on the interpretation of EEA rules.
The WTO option
- Under the WTO option, the UK would leave the EU without any free trade agreement in place. It would instead rely solely on rights and obligations under WTO rules.
- The WTO does not have a formal competition regime. It does, however, continue to apply rules under the General Agreement on Tariffs and Trade in relation to state subsidies. These rules are similar to the EU state aid rules. However, the WTO regime is slightly narrower and may only be enforced by WTO member states (ie not by private parties directly). As such, the WTO regime is less interventionist than the EU rules.
- Leaving aside state subsidy regulation, competition policy following Brexit would be determined at national level, potentially supplemented by bilateral trade agreements with competition-relevant provisions or protections.
- There would, therefore, be the prospect of a dual track emerging – companies active in both the UK and the EU would be susceptible to regulation by both UK and EU authorities pursuant to separate UK and EU rules. In the absence of co-ordination between relevant regulators and courts, businesses may become subject to parallel filing obligations and could face parallel investigations that apply both potentially divergent legal standards and separate fines in relation to connected conduct. This clearly risks raising compliance issues and costs for businesses.
