The first consumer representative damages action under UK competition law, The Consumers' Association v JJB Sports PLC, has been settled. The settlement is a mixed result. It provides consumers with compensation (up to £20 each), but because of the very small sums involved, it shows that the threat of consumer representative claims under the current rules is unlikely to be a substantial deterrent to other would-be infringers of competition law. The problems that the case highlights are, however, addressed in the recent OFT recommendations to the UK Government for reform in this area.
Background To The Which? Claim
The Competition Act 1998 allows designated bodies to bring representative damages claims on behalf of named consumers following an Office of Fair Trading ("OFT") or European Commission decision finding that the defendant has infringed EC or UK competition law.
JJB was part of a cartel involving seven companies fined over £16 million in 2003 by the OFT for fixing the price of replica football shirts in 2000 and 2001. In March last year, following findings made by OFT, the Consumers' Association, now known as Which?, used these powers for the first time and commenced a damages claim on behalf of a number of named consumers against JJB.
The Settlement
JJB has agreed to pay £20 to each of the consumers who joined in Which?'s claim. Other fans who bought one of the affected shirts, but were not joined to the case, will be able to claim up to £10. It is also understood that JJB will be making a payment in respect of Which?'s legal costs.
A Mixed Result
Competition authorities see representative consumer claims as having two objectives, consumer redress and as a deterrent to other would-be infringers. Measured against those objectives the Which? claim can be seen as only a partial success. Its success is that all consumers who were overcharged will now be entitled to receive compensation. This success has been achieved in some respects despite the current rules rather than because of them.
Under the current law governing representative actions in competition cases, the consumers on whose behalf the claim is brought have to agree to participate in the claim and have to be named (a so called "opt in" system). Which? was only able to get together a few hundred consumers, despite widely publicising the claim. As a result it could only claim compensation for those consumers. The success of the claim is that despite that limitation JJB is offering compensation to all consumers who bought a relevant shirt.
However, the Which? claim shows that representative claims do not currently meet their other objective of being a deterrent to potential infringers. The compensation paid by JJB is thought unlikely to be very significant -- it has been reported that JJB has set aside £100,000 to cover payments under the settlement. The case highlights two main weaknesses in the current system if it is to meet a deterrence objective. The first is the use of an "opt in" system (described above) and the second is that only compensatory damages are available.
The claim made by Which? before the CAT in March 2007 included a claim for exemplary or restitutionary damages (ie. damages over and above the amounts actually lost by the claimants and based on the defendant's profits) in the sum of 25 per cent of the JJB's relevant turnover. These exemplary and/or restitutionary damages could have been substantial, as it is understood that some 1 million shirts were sold at up £39 each. However, in October 2007 the High Court decided in Devenish Nutrition Ltd & Ors v Sanofi-Aventis SA (France) & Ors [2007] EWHC 2394 (Ch), that restitutionary damages are not available in competition actions in the UK and that exemplary damages cannot be recovered if the defendant has already been fined by a competition authority, as JJB had in this case. As a result, Which?'s claim would have been limited to compensatory damages and because of the opt in system, with only a small number of consumers signed up to the claim, the total damages would have been very small, and the claim would not have been viable.
The Message For Businesses
The problems in the Which? claim would be faced in any other consumer representative action at present and so potential infringers are unlikely to face the threat of substantial damages claims under the current regime.
However, that may all be about to change because the OFT made some important recommendations to the UK Government at the end of last year, which if adopted would address many of the problems experienced by Which? in bringing this claim. These recommendations could result in legislation allowing claims of this sort to be brought on behalf of all consumers except those who opted out. The recommendations also make proposals that would make the assessment of damages in representative claims easier and more favorable to claimants, introducing restitutionary damages. The damages that might have to be paid in such claims could, therefore, be much larger in the future, and prove to be a much greater deterrent to anti-competitive behaviour.
It appears that the OFT's recommendations have a real prospect of being adopted, as the OFT is understood to have political support for reform. The European Commission is also due to publish a White Paper on competition damages claims within weeks and this too can be expected to encourage collective consumer claims in this area. There is now a considerable momentum building behind reform and businesses operating in the EU must now take competition law damages claims seriously, even if they are not based there. Whether they are a potential claimant or defendant, businesses will need to plan ahead and understand the real risks (and opportunities) that representative claims present.
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