More guidance required on 'no deal' UK competition law

The Competition and Markets Authority (CMA) recently highlighted how Brexit would see the UK go it alone with its own 'state aid' regime and how a 'no deal' scenario could impact businesses going through mergers.

While the CMA's draft guidance also offers broader insights into how UK competition law might develop post-Brexit in the event of a 'no deal' scenario, it remains unclear, however, what sort of changes might be made and how they might impact businesses.

New legislation will provide flexibility

The UK government has prepared draft legislation, laid before parliament, which would update UK competition law from the point at which the UK leaves the EU.

The legislation would change provisions currently set out in the Competition Act 1998 that recognise the primacy of EU law.

At the moment, the CMA, other sector regulators in the UK and UK courts are obliged to ensure that they, as far as possible, follow the principles of the Treaty on the Functioning of the EU (TFEU) and Court of Justice of the EU (CJEU) case law on 'Article 101' prohibitions relating to anti-competitive agreements and 'Article 102' prohibitions on the abuse of dominant market position when interpreting the equivalent prohibitions set out in Chapters I and II of the Competition Act. Regard must also be given by the UK authorities and courts to any "relevant decision or statement" of the European Commission. Those requirements are set out in section 60 of the Competition Act.

After Brexit, that situation will change:

Provisions contained in The Competition (Amendment etc.) (EU Exit) Regulations 2019 will repeal the section 60 provisions and replace them with a new section 60A which would give the CMA, sector regulators and the UK courts freedom to depart from the principles of the TFEU and pre-Brexit CJEU case law where they consider it "appropriate" to do so and where at least one of a number of stipulated factors applies.

The freedom to deviate from EU law could be exercised given:

• pre-Brexit differences between UK competition law and corresponding provisions of EU law;
• differences between markets in the UK and markets in the EU;
• developments in forms of economic activity since the time the principle or decision was laid down or made;
• generally accepted principles of competition analysis or a generally accepted application of such principles;
• a principle laid down or a decision made by the CJEU on or after Brexit;
• the particular circumstances under consideration.

In its guidance, the CMA further explained that neither it, nor other UK regulators or the UK courts will be "required to act with a view to securing consistency with the TFEU or CJEU principles or decisions" in cases where they are "bound by a principle or decision of a court or tribunal in England and Wales, Scotland or Northern Ireland that requires them to act otherwise".

The CMA said all cases, whether new or still 'live', will be subject to the new regime from the point at which the UK leaves the EU.

More clarity needed

Confirmation of the "default position" post-Brexit is welcomed. It means that the current requirement on the UK regulators and courts to pursue consistency with the TFEU and pre-Brexit CJEU case law will be retained but that flexibility has been built in to enable them to depart from the EU position.

Businesses will want to know more about the circumstances in which the regulators and courts could exercise such discretion, particularly if the practical impact of change is that practices they engage in in the UK are prohibited, but permitted for the EU arms of their business, or vice-versa.

The factors which provide for UK differences to emerge are very wide in scope and some of them are vague. Further guidance on this would therefore be very helpful in order to provide businesses with greater legal certainty, especially having regard to the serious consequences of breaching competition law.

Vertical agreements and passive sales

A further area that would benefit from further guidance concerns how certain 'passive sales' made through vertical agreements will be treated under UK competition law post-Brexit.

A vertical agreement is one entered into between two or more parties, each of which operates for the purposes of the agreement at a different level of the production chain, where the primary purpose of the agreement is to purchase, sell or resell goods or services. Vertical agreements that satisfy the criteria of the Vertical Agreements Block Exemption (VABE) are exempt from the prohibition on anti-competitive agreements contained in the TFEU, although prohibitions concerning dominant companies continue to apply.

The VABE is provided for in the EU Vertical Agreements Block Exemption Regulation (VABER). VABER is one of the seven EU block exemptions that will carried across into UK domestic law as "retained exemptions". The exemption will apply in the UK until the expiry of the current VABER on 31 May 2022.

We do not know at this stage when the CMA intends to begin a consultation exercise on what should replace the retained VABER, and if there are there any parts to which it will pay particular attention. 

In its draft guidance, the CMA confirmed that the geographic scope of the VABER retained in the UK will be amended so as to apply only to the UK market rather than the wider EU market. This change in scope, however, is relevant to the concept of 'passive sales', which are sales made in response to unsolicited customer queries - different to sales that companies actively pursue directly with customers.

Under the VABER, vertical agreements which have as their object the restriction of passive sales into an exclusive territory reserved to the supplier or allocated to another buyer are deemed to be outside the scope of the exemption and liable to infringe the prohibitions outlined in law relating to anti-competitive agreements.

The CMA said that "in certain circumstances, passive sales affecting sales to a UK market or UK customer are capable of falling within the scope" of the prohibition on anti-competitive agreements set out in UK law.

The circumstances in which the CMA could or would seek to apply UK competition law to agreements entered into outside the UK that restrict passive sales into the UK are unclear, however. Again, further guidance should be provided by the CMA on the circumstances in which these types of restrictions could fall foul of UK competition law post-Brexit.

Alan Davis is a competition law expert at Pinsent Masons, the law firm behind Out-Law.com.