Brexit: UK competition law in a deal or no deal scenario
Following many months of negotiation and related speculation, the UK Government has published the text of the EU/UK withdrawal agreement (“Withdrawal Agreement”), which is intended to govern the UK’s orderly withdrawal from the EU on 29 March 2019 (“Exit Day”), as well as the UK’s relationship with the EU until such time as a new treaty is put in place. The Commission has also published an Outline Political Declaration on the Future Relationship, which sets out the broad framework for a potential future trading relationship between the EU and the UK.
The Withdrawal Agreement was approved by the 27 EU Member States and the UK on 25 November. However, before it can enter into force, it must be ratified by the UK Parliament, the prospect of which is, at the time of writing, extremely uncertain. If the Withdrawal Agreement fails to be ratified, the UK will leave the EU on Exit Day without any deal on the terms of its departure.
To the extent that the Withdrawal Agreement is not ratified, the UK Government has laid regulations (“Regulations”) before Parliament, which make provision for a standalone UK competition regime in the event that the UK leaves the EU without a deal on Exit Day. The Regulations are accompanied by an explanatory memorandum, and various guidance notes issued by the UK Competition and Markets Authority (“CMA”) as to its role in a “no deal” scenario.
The current framework
Currently the UK merger control and antitrust enforcement regimes are integrated into an EU-wide system. The Commission has exclusive jurisdiction to review mergers which meet the applicable EU jurisdictional thresholds under the so-called “one-stop shop” principle. It also has jurisdiction to investigate potential competition law infringements (i.e. anti-competitive agreements – including cartels – and abuses of dominance) that impact on competition in the EEA, including in the UK. The CMA and sectoral regulators are required to apply the EU competition rules alongside the equivalent UK rules and cannot take action where the Commission has already opened a formal investigation. They are also required to apply the equivalent UK rules, so far as possible, consistently with EU case law.
The deal: Life under the Withdrawal Agreement
The Withdrawal Agreement is not intended to deal with the future relationship between the EU and the UK. Instead, its fundamental purpose is to settle all outstanding issues and liabilities relating to the period of the UK’s membership, and to provide for a transition period (currently proposed to last until December 2020) during which most EU law will continue to apply to the UK as if it were still a Member State, including the provisions relating to competition. After the transition period, the EU and the UK may agree to align their antitrust regimes for the long-term. The CMA has confirmed that, once a deal is reached, it will consult on its proposed approach to mergers and antitrust activities during the transition period.
Jurisdiction over “live” cases during the transition period
The Commission will continue to have jurisdiction over antitrust and merger cases “initiated” before the end of the transition period. In relation to state aid proceedings, the Commission will be competent to initiate (and later determine) new proceedings in respect of aid granted before the end of the transition period, for a period of four years after the end of the transition period.
Binding nature of decisions
Decisions adopted by the Commission or the EU Courts before the end of the transition period, or after the transition period as set out above, and addressed to the UK or to natural or legal persons residing in the UK, shall be binding on and in the UK. The legality of such a decision shall be reviewed exclusively by the Court of Justice of the EU (“CJEU”).
Monitoring and enforcement of commitments and remedies
Unless otherwise agreed between the Commission and the CMA, the Commission will continue to be competent to monitor and enforce commitments given or remedies imposed in, or in relation to, the UK in connection with competition or merger proceedings unless the Commission and the CMA agree otherwise.
The Ireland/Northern Ireland backstop
If the EU and UK fail to agree the terms of any future trading relationship before the end of the transition period, the Withdrawal Agreement provides for the implementation of a so-called “backstop” arrangement. The UK has agreed to adopt rules equivalent to the current EU rules relating to anticompetitive conduct, merger control, state aid and public monopolies and to interpret them in a manner consistent with the EU rules themselves. EU state aid law will be regulated by the CMA and will apply to the UK in respect of measures which affect trade between parts of the single customs territory (i.e. the EU and the UK). These arrangements will remain in place unless or until the EU and the UK enter into a free trade agreement.
No deal: Life under the Regulations
In a no deal scenario, the UK will cease to be part of the EU competition regime on Exit Day. According to the Government’s explanatory memorandum, powers for the CMA and sector regulators to investigate and enforce EU competition law and reciprocal investigation cooperation “would be inappropriate if there is no agreement in place”. The Government has already issued a number of technical notices in order to provide guidance to businesses active in the UK should the UK leave the EU without a deal, including in relation to merger control and antitrust. The CMA has
also issued guidance as to its role in the event of a no deal Brexit.
Separately, the CMA has announced its approach to state aid. For the period after Exit Day, the UK will transpose the existing body of EU state aid rules into UK law and provide for the CMA to take on its new state aid role, following which it will publish further details of how it will operate this new function. However, as part of any future agreement with the EU, the UK may agree to remain in step with the EU state aid rules beyond the Implementation Period.
Key changes envisaged by the Regulations
EU legislation implements Single Market competition rules across the EU. In relation to competition law, for example, Regulation 1/2003 sets out the framework for an EU-wide antitrust enforcement regime, while the EU Merger Regulation establishes the one-stop shop principle for merger cases and sets out which transactions must be notified to the Commission. On Exit Day, this EU legislation will become part of the body of retained EU law under the provisions of the EU Withdrawal Act 2018 (“EUWA”). This is also the case for Commission decisions issued under EU legislation.
The Regulations are intended to separate the EU and UK competition systems by revoking certain elements of EU law retained under the EUWA and amending existing domestic legislation to ensure that it operates correctly and appropriately on Exit Day, for instance by removing references to EU law and institutions and duties on UK bodies which relate to current EU obligations. The key changes are set out below.
One-stop shop principle under EU merger control will no longer apply to the UKThe Regulations revoke the EU Merger Regulation so that the UK will no longer be subject to the one-stop shop principle. To the extent that the UK jurisdictional thresholds are met, the CMA will be the only regulator with the power to review mergers that affect the UK market – even if the transaction is also being reviewed by the Commission. Meanwhile, businesses (including UK businesses) which operate throughout the EU that meet the EU turnover thresholds will still be required to notify the Commission for clearance in the same way as they do now.
CMA will no longer apply the EU competition rules and need no longer apply the UK rules consistently with EU law
The Regulations provide that the CMA and sector regulators will investigate anti-competitive conduct in the UK market solely under UK law.
Before the Regulations were published, a key question relating to how Brexit would affect the application of competition law in the UK was whether the UK should – or would – retain the obligation to interpret UK competition law consistently with EU law (as enshrined in section 60 of the Competition Act 1998 (“CA98”)).
Perhaps controversially, the Regulations will repeal section 60 in its entirety and replace it with a new section 60A, under which the UK competition regulators and courts must ensure no inconsistency with pre-Exit Day competition case law when interpreting UK competition law, but that they may also depart from it in light of certain specified circumstances; e.g., differences between UK and EU markets, or EU decisions made after Exit Day. Section 60A will apply from Exit Day to all investigations and cases whether the facts arose before or after Exit Day.
EU Block Exemption Regulations (“BERs”) will continue to apply in the UK
The seven BERs will be transposed into UK law and businesses that currently benefit from the BERs will continue to be exempt under UK law. A new section 10A CA98 will empower the Secretary of State to vary or revoke the BERs, acting in consultation with the CMA.
EU infringement decisions will no longer be binding on UK courts
If an infringement decision is reached by the Commission after Exit Day, claimants wishing to pursue follow-on private damages claims in the UK courts will no longer be able to rely on that decision as a binding finding of an infringement under CA98. Similarly, UK courts will not be required under CA98 to treat infringement decisions of an NCA made after Exit Day as “prima facie” evidence of an infringement. Claimants will continue to be able to bring claims for alleged breaches of EU competition law on a “standalone” basis (i.e. without relying on an infringement decision to prove the infringement) based on anti-competitive conduct that took place while the UK was still a member of the EU.
Practical implications for merger control
Deals where there is a decision before Exit Day
If the Commission has reviewed a transaction and issued a decision on or before Exit Day then, unless the decision is annulled in full or in part following an appeal, the CMA has no jurisdiction over that same transaction, regardless of whether the UK thresholds are met.
Deals already notified (or for which jurisdiction has crystallised) before Exit Day
Transactions which meet the EU thresholds and for which the triggering event for notification (e.g. signing of the transaction agreement) occurs before Exit Day will need to be notified to the Commission, which will have jurisdiction to review the transaction and reach a final decision. A reasonable approach might be that this would still be the case even where, following Exit Day, the loss of the turnover attributable to the UK would otherwise mean that the EU thresholds are no longer satisfied. This is analogous to the situation in which the turnover of a business of the merging parties has to be taken into account even if it is subsequently sold.
Powers to prohibit deals or impose remedies
The Commission can block a deal or impose remedies where it can establish harm to competition in the Single Market. If, after Exit Day, the only harm which can be established is in the UK, then the Commission fails that test. This outcome will not result in an enforcement gap (although it may cause procedural chaos) since, from Exit Day, the CMA will additionally acquire jurisdiction over all transactions which meet the UK jurisdictional tests, even if the triggering event for notification occurred before Exit Day and the EUMR is also applicable. Therefore, parties should consider whether to notify any relevant transactions that fall within this category to the CMA before closing, to avoid the risk of the CMA opening an investigation on its own initiative up to four months following closing.
The CMA may in particular seek to scrutinise transactions already under review by the Commission where, following Exit Day, the Commission will no longer be able to reach a decision and impose remedies in relation to the UK. In such a scenario, the CMA may consider it has a duty to intervene to avert an anti-competitive outcome in the UK. The CMA may indeed seek to run its own investigation in parallel with the Commission’s review in a number of other scenarios; e.g. where the high-profile or sensitive nature of the sector makes it politically more acceptable for the CMA to carry out its own investigation.
Early CMA engagement advised for live Commission cases
For live transactions already being reviewed by the Commission but raising issues in the UK, the parties are advised to consider early engagement with the CMA and potentially request a referral back to the CMA of the UK aspects of the transaction before Exit Day. Indeed, the CMA advises parties to engage with it at an early stage – “for example, around announcement”. The CMA has advised that it will continue to monitor non-notified cases, including those falling within the jurisdiction of the Commission in relation to which the UK may obtain jurisdiction over the UK aspects after Exit Day. The Commission’s final decision will then bind the remaining Member States only. If there is a likelihood of a parallel UK investigation, parties should consider whether to include an appropriate condition precedent in their agreement.
The Commission will retain jurisdiction until Exit Day to make pre – and post-notification referrals to the UK. Equally, the UK would still count as a relevant Member State, before Exit Day, in relation to submitting a pre or post-notification referral request to the Commission. However, for the latter cases, the EUMR process would then run in parallel to the CMA’s newly acquired jurisdiction after Exit Day.
Deals occurring after Exit Day
Transactions which still meet the EU thresholds after Exit Day will need to be notified to the Commission, and this review may run in parallel with a review by the CMA under the UK rules.
Transactions which, at the planning stage, are expected to meet the EU thresholds – but for which the triggering event has not yet occurred – may no longer qualify for review under the EU rules once the turnover attributable to the UK is deducted. As a result, parties may want to consider whether or not to delay entering into these transactions.
If the EU thresholds are not met at the triggering date, national filings will need to be considered, including a possible notification to the CMA under the UK merger control rules. However, pre and post-notification referrals between the Commission and the CMA will no longer be possible.
Practical implications for antitrust
Investigations where the Commission has already issued a decision before Exit Day
As explained in the CMA guidance, if the Commission has already issued a formal decision under EU law on or before Exit Day the CMA cannot open an investigation into that same infringement, unless the decision is annulled in full or in part following an appeal.