News that the Office of Fair Trading (OFT) had last week provisionally found that large supermarkets and dairy processors had colluded to increase the prices of dairy products at a cost to consumers to the tune of around £270 million will have been music to the ears of the growing number of law firms who specialise in raising US-style 'class actions' on behalf of those ripped off by this sort of anti-competitive practices.
The law certainly permits consumers and others to claim damages for the losses they suffer at the hands of firms who behave in this way. But is litigation really a practical option for the average supermarket customer? I suspect not.
The reality is that class or collective actions to enforce competition law in the UK courts are not yet a practical proposition. At the moment, consumer claimants face multiple obstacles in terms of complex rules of evidence and procedure – could you, for instance, find the receipt for the milk you bought yesterday, let alone two years ago? In addition, there is the prospect of having to pick up the other side's legal costs if claims are unsuccessful.
Consumer group Which? recently launched a collective action in London on behalf of a number of consumers who had bought replica football strips at rigged prices, but that case is unlikely to open the litigation floodgates any time soon.
Both the OFT and the European Commission recognise the problem and each is running a consultation at present about how to enhance the rights of consumers in this area and therefore make private enforcement, as it is known, more of a reality than at present. They are looking, for instance, at altering the rules of evidence to favour claimants, increasing the level of potential damages awards and lowering their potential liability to pay legal costs if they lose.
So, as matters stand, there is little practical incentive for the large numbers of consumers harmed by anti-competitive agreements or practices to take the law into their own hands. And at the same time, the OFT is not allowed to distribute the money it receives in fines in the form of compensation – all such revenues go straight to HM Treasury.
So is there a better way of dealing with the problem? In short, there is. One only has to think of the example shown by the Financial Services Authority in establishing a compensation fund for unfortunate investors caught up in the split capital investment trust scandal.
Indeed, the OFT itself has direct experience in setting up a consumer compensation fund in connection with a cartel case. In that case, which was decided in 2006, a group of independent schools were caught fixing school fee levels. In addition to imposing fines the OFT ordered them to set up a charitable trust – and fund it to the tune of around £3 million – for the benefit of pupils who had attended the relevant schools during the time that the fees were being fixed.
That sort of approach could be very useful in cases involving a large number of individual claimants who each have relatively small claims to pursue. In particular, the trustees of a settlement fund could organise pay outs without bothering about formal rules of evidence and organising expensive hearings. It could be organised entirely on-line for instance, with consumers being able to register claims via a website. It would also be possible for the trustees to authorise payments for specific projects, such as consumer education programmes, in addition to cash pay outs to individuals.
The OFT could also take account of the sums paid into a settlement fund when calculating the level of fine paid by the guilty parties. In that way they would be assured of avoiding a double hit in terms of enforcement action.
Of course, the running costs of a settlement fund, which would be spread among all potential claimants, would also be substantially lower than those of a class action. And as we all know, every little helps.
Gordon Downie is a partner specialising in competition and regulation at law firm Shepherd and Wedderburn.