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Competition law in post-Brexit Britain: how will it impact your business?

Fri 24, 11 2017

At present, both UK and EU competition laws apply in the UK. However, this is set to change when Brexit takes effect on 29 March 2019. Assuming – as seems most likely – that the UK leaves common market entirely, this article considers how Brexit will affect competition law enforcement in the UK and the implications for UK businesses.

Assuming – as seems most likely – that the UK leaves common market entirely, this article considers how Brexit will affect competition law enforcement in the UK and the implications for UK businesses - Competition law in post-Brexit Britain Click To Tweet

Merger control

Post-Brexit, the EU Merger Regulation – with its “one-stop-shop” system of merger review – will no longer apply in the UK. As a result, large-scale mergers that previously only had to be notified to the European Commission will probably also have to be notified to the UK’s Competition and Markets Authority (CMA).

This will almost certainly increase the caseload – and the complexity of the cases – being dealt with by the CMA.

It could also increase the transaction costs for merging businesses. That said, the many similarities between the EU and UK merger review processes suggest that the additional burden should be fairly limited. There does remain, however, a risk that the two authorities reviewing the same transaction could reach differing decisions.

Antitrust

While the EU competition rules (Articles 101 and 102 of the Treaty on the Functioning of the European Union) will continue to apply to anti-competitive conduct by UK businesses in the EU, post-Brexit they will no longer apply to conduct in the UK. Agreements/conduct affecting UK markets will only be caught by the UK antitrust rules (Chapter I and II Competition Act 1998).
This will have several effects on competition law enforcement in the UK.

  • First, while the European Commission will still be able to investigate the conduct of UK companies, its powers of investigation will be limited to written requests for information. It will no longer be able to conduct on-site inspections (dawn raids) of UK premises or request the CMA to carry out such inspections on its behalf
  • Second, as with merger control, UK companies may increasingly find themselves subject to parallel investigations by the EU and UK competition authorities
  • And finally, once Section 60 Competition Act 1998 (which requires the CMA to apply the UK competition rules consistently with those of the EU) is repealed, UK and EU competition rules could begin to diverge. This could increase the cost and complexity of complying with competition law as companies are forced to navigate two sets of rules. However, any divergence is likely to take a number of years and is likely to be limited. Not only are the rules likely to remain substantively similar, but the UK courts will continue to be bound by the substantial body of UK case law that has developed in line with EU competition law jurisprudence.

Brexit will also have implications for how UK companies manage antitrust investigations. In particular:

  • It may no longer be possible to refuse to disclose UK legal advice in an EU antitrust investigation. As the EU rules on legal privilege only cover the advice of EEA-qualified lawyers, advice of UK-qualified lawyers will no longer be protected
  • Leniency applicants in cartels operating in both the EU and UK may now need to submit full leniency applications at both EU and UK national level. Companies filing a full EU leniency application will no longer be able to safeguard their position in a UK leniency queue through a short-form UK application

State aid

There are several indications that the UK government may maintain some form of state aid control after Brexit. In particular:

  • The EU (Withdrawal) Bill provides for the preservation of the EU State aid rules. While the UK is unlikely to agree to notify UK state aid to the European Commission once outside the EU, it could appoint, for example, the CMA to apply EU State aid principles in a UK context.
  • The EU negotiating mandate explicitly refers to state aid in the context of any future trade agreement between the EU and UK
  • All of the EU’s recent Free Trade Agreements (FTAs) with third countries have included state aid or subsidy controls that go beyond the WTO rules.
    It remains to be seen, however, what form any UK subsidy rules will take.

Private enforcement

Finally, Brexit could affect companies’ ability to bring follow-on damages actions for EU competition law infringements in UK courts. Under the current system, claimants can rely on EU decisions as proof of the infringement, such that they need only establish causation and quantum of damages. Post-Brexit, however, it is unclear whether EU infringement decisions will continue to bind UK courts in this way. Until this issue is clarified, UK companies contemplating competition damages claims may wish to think carefully about whether the UK is the most appropriate forum.

Brexit could affect companies’ ability to bring follow-on damages actions for EU competition law infringements in UK courts - Competition law in post-Brexit Britain Click To Tweet

Conclusion

The full effects of Brexit on UK competition law will inevitably take some time to emerge. In the short term, the most likely impact on UK businesses will be the increased burden of parallel merger and antitrust investigations. Longer term, the possible divergence of UK and EU competition law could create both risks and opportunities. While complying with two sets of rules may bring increased costs and complexity, a UK competition policy unconstrained by single market objectives may give UK companies greater flexibility to, for instance, impose territorial restrictions prohibited under EU competition rules.

Georgina Eclair-Heath, Harrison Clark Rickerbys

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