The Competition & Markets Authority (CMA) recently published guidance about how a new form of compensation scheme might operate in the UK for firms and individuals that have been harmed by breaches of competition law. The new scheme is voluntary and would involve the creation of an independent board to oversee the quantification of harm and distribution of compensation. Oxera has reviewed the CMA’s guidance regarding how such a scheme would be approved.
We see the merits of the voluntary redress scheme as an alternative to private litigation in courts, and agree that it has the potential to provide a convenient and inexpensive way for people and companies that have suffered harm from a competition law infringement to receive compensation for that harm. We have considered the questions set out in the consultation document and provided comments to the CMA. Our response highlights two important issues:
the draft guidance potentially misses an important question relating to incentives. It is important to consider the implications of a new regime from an incentives perspective and, in particular, what incentives the regime creates for different groups. It is therefore important to consider whether a potential 10% penalty discount for firms that have infringed competition law is large enough, or perhaps even too large, to encourage firms to wish to set up such a scheme;
the guidance in its current format provides for a situation in which the applicant is signing up to a compensation scheme with the potential for unlimited liability. Businesses may feel encouraged to sign up to the scheme if the guidance were to allow for an overall damages cap. This would, for example, protect applicants from inflated liability resulting from frivolous claims. The damages cap could be linked to the level of harm suggested by the infringement decision, in order to allow for all affected parties to be compensated while protecting the compensating parties from inflated claims.
Our full response to the CMA is detailed below.