Planning for “no deal”: The UK competition regime readying for Brexit and its new, expanded role
Posted in Antitrust and competition
The Competition and Markets Authority (CMA) has published guidance on how the UK merger control and antitrust regimes will be affected by the UK exiting the EU on 29 March 2019 in a possible “no deal” scenario. There are potentially significant implications, in particular, for businesses planning M&A transactions in the near future, as well as for parties who are currently or become involved in EU antitrust investigations between now and Brexit. The key points are:
- Where the European Commission issues an EUMR decision before 29 March, the CMA will not have jurisdiction over the relevant transaction;
- Where an EUMR process has started, but not finished, on 29 March, the CMA could assert jurisdiction to review the UK aspects of the transaction;
- The CMA therefore recommends parties to transactions that could straddle this timeframe engage with the CMA in parallel to engagement with the European Commission;
- In addition, parties to EU investigations of anti-competitive conduct (anti-competitive agreements or abuse of dominance) which have not concluded by 29 March could also face the risk of parallel CMA proceedings;
- Finally, it was reconfirmed that the CMA will continue to take an approach consistent with pre-Brexit EU case-law until it is deemed that appropriate circumstances have arisen justifying a departure.
The CMA’s guidance in this respect is discussed in more detail below.
The EU and UK competition regimes are closely entwined, meaning the UK regime must be separated to remain effective and give businesses certainty when the UK exits the EU. If a deal is agreed, it is likely to include a transition period until the end of 2020, effectively extending the application of the EU competition regime in the UK during that period. But to ensure a smooth transition in a “no deal” scenario and make necessary changes to the UK competition legislation, a statutory instrument – The Competition (Amendment etc) (EU Exit) Regulations 2019 (the Competition SI) – was laid before Parliament on 29 October 2018, and the CMA published its new guidance a day later.
Currently, if an M&A transaction meets the thresholds for mandatory notification to the European Commission under the EU Merger Regulation (EUMR), no notifications are required to national competition authorities in individual EU Member States, including the UK (subject to certain limited exceptions). Post-Brexit, transactions can qualify for a CMA review under the UK merger control regime as well as a Commission review under the EUMR. The position of transactions that have signed or announced before 29 March but not yet received EU merger control clearance has been less clear cut – with related implications for transaction costs and timelines, as well as the drafting of conditions in transaction SPAs.
The CMA’s new guidance clarifies that if the Commission issues a decision under the EUMR on or before 29 March, then unless the decision is annulled (in full or in part) on appeal, the CMA will not have jurisdiction over that transaction. But where the Commission has not issued a decision by that date, such as “live” cases that are still in “pre-notification discussions” or where the Commission has started but not yet completed its formal review, the CMA could review the UK aspects of the transaction if its jurisdictional thresholds are met. The CMA is encouraging merging parties to contact its mergers team at an early stage if they anticipate being in this position, and is monitoring potentially relevant transactions. However, given the voluntary nature of the UK regime, the CMA is only likely to review transactions raising substantive UK competition concerns, and therefore parties should seek advice from their competition advisers on whether and how best to engage with the CMA.
An important issue not addressed in the CMA’s new guidance is the more complex scenario where a transaction meets the EUMR thresholds only if the parties’ UK turnover is included, so could potentially trigger filings to the national competition authorities in multiple EU Member States after Brexit instead of an EUMR filing. As 29 March 2019 is just five months away, and noting it can take many months to prepare filings and for the “clock to start” on a formal review, parties should already be considering whether their jurisdictional analysis of merger control filings that are required in the EU might change if UK turnover no longer counts as EU turnover.
In relation to antitrust enforcement, the CMA will no longer apply the EU provisions that prohibit anti-competitive agreements (Article 101 TFEU) and abuse of dominance (Article 102 TFEU) once the UK leaves the EU, but the equivalent UK national provisions in the Competition Act 1998 (respectively the Chapter I and Chapter II prohibitions) will continue to apply. Post-Brexit, the CMA cannot investigate suspected infringements of UK competition law if the Commission has investigated the same conduct under the EU rules and reached an infringement decision (provided this is not annulled), but the CMA can investigate if there is no Commission decision yet. For parties to ongoing EU investigations, this could mean not only facing the burden of an additional investigation if the conduct has an effect in the UK and a UK-specific fine if the CMA finds an infringement, but also the possibility of key individuals facing the more stringent personal sanctions (such as fines, director disqualification and even imprisonment) provided for in the UK competition regime. Also, to the extent a party has sought leniency from the Commission but not made follow-up applications to the authorities in individual EU Member States, they would be well-advised to apply for leniency from the CMA in particular now.
An issue subject to much debate has been whether and how the requirement in Section 60 Competition Act 1998 – to interpret the UK competition prohibitions in a way that is consistent with the decisions and principles laid down by the EU Court of Justice – might change post-Brexit. This is relevant not only to the CMA, but also to the sector regulators with concurrent competition powers and the UK courts. Under the Competition SI, Section 60 Competition Act 1998 will be replaced – including for cases opened on or before 29 March – by a new Section 60A providing that the competition regulators and UK courts must continue to ensure there is no inconsistency with the pre-Brexit EU competition case-law, unless departing from that case-law is “deemed appropriate in the circumstances”. It seems likely the application of this new provision will be a contentious issue in future cases, especially where future EU case-law departs from the pre-Brexit case-law and views differ about the “appropriate” approach.
While the new Section 60A arguably introduces uncertainty in respect of some detailed aspects, the Competition SI and CMA guidance helpfully add some clarity by confirming the seven EU block exemption regulations will be retained in UK law. Arrangements that meet the criteria set out in the block exemptions will therefore remain exempt from the UK competition prohibitions after 29 March, at least until the block exemptions expire or are amended in future.
Another important issue addressed by the Competition SI is that damages claimants wishing to pursue a follow-on damages claim in the UK courts will no longer be able to rely on an infringement decision of the European Commission made after Brexit as a binding finding of an infringement under the Competition Act 1998. They would instead need to bring a standalone claim, or pursue a damages claim based on a CMA infringement decision. In practice, this seems unlikely to be a major deterrent for claimants wishing to pursue a claim in the High Court, given the facts as found by the Commission while not binding seem likely to be persuasive in the UK courts.
Overall, the CMA is likely to have a bigger role post-Brexit, investigating larger and more complex merger cases – as well as becoming the UK’s new state aid enforcer (with new secondary legislation expected to transpose the EU state aid rules into UK law). The CMA is gearing-up for its expanded role, including increasing its headcount. A senior official also recently announced the CMA will soon open a new case in the financial services sector to build its experience, given its likely expanded role in these sorts of cases post-Brexit.
While the CMA is preparing to take on larger and more complex cases – and has already launched a high profile investigation into a transatlantic airline joint venture it would not have taken on but for Brexit – there are no signs of the CMA ceasing to investigate the smaller, regional cases comprising much of its case-load in recent years. Indeed, the CMA’s latest campaign encouraging whistle-blowers highlights new research showing many firms do not know enough about competition law (e.g. only 57 per cent of those surveyed knew it was illegal to fix prices), and targets industries deemed particularly susceptible to cartels (including construction, manufacturing, recruitment, estate agents, property management and maintenance), but where recent CMA cases and fines have been small. In a period of uncertainty, therefore, one prediction that can be made with confidence is that the CMA will continue to be busy with cases large and small throughout the Brexit transition.