What does the new Consumer Rights Act mean for big businesses?

The new Consumer Rights Act, which came into effect at the start of October, has significant ramifications for the UK’s legal landscape – and particularly for big businesses.

The law effectively introduces US-style class actions to the UK, allowing one or more people to sue an organisation on behalf of several others – making it much easier for groups to seek compensation from firms that have colluded on price fixing and formed cartels. Furthermore, it brings in “opt out” actions, in which everyone who is affected automatically becomes a member of the group that is suing.

Consumer groups have hailed the move as a significant step forward in helping people and small businesses to secure compensation from large organisations.

According to Citizens Advice, UK consumers spend £90 billion a month. Giving them more transparent rights on a range of issues – such as what should happen when goods are faulty, and what to do if a business is acting in an anti-competitive manner – should help them to make better choices when buying, and ultimately save them time and money.

What has changed?

Previously, the Competition Appeal Tribunal (CAT) could only hear claims following on from infringement decisions made by competition regulators. However, the new act means standalone claims can now be put forward, and also introduces a procedure for collective settlements. What’s more, the CAT can now stop anti-competitive behaviour by issuing injunctions.

There are certain requirements around the new class actions. Two types of action exist: opt in (under which a claimant chooses to join the class) and opt out (claimants are automatically part of the class unless they request to be removed). The latter action can only be brought by UK claimants; foreign claimants must specifically opt in.

The Consumer Rights Act also eradicates the need for consumers or small businesses to incur large financial risks in order to bring about such an action. What’s more, small and medium-sized enterprises that wish to take action will be considered for a fast-track procedure, which sets a maximum trial duration of six months – ensuring it is both quicker and easier to seek compensation.

The impact of these changes

Low-value, high-volume claims – such as the high-profile example of price-fixing on replica football shirts – have become a viable option in the UK thanks to the introduction of the Consumer Rights Act. So what does this mean for big businesses, who will ultimately be the targets for these actions?

Bruce Kilpatrick, competition partner at Addleshaw Goddard, believes it will have a substantial impact on the behaviour of certain organisations. “It will act as a significant deterrent in practice for companies that are maybe engaged in anti-competitive activity, particularly in those consumer-facing markets, and also will help to bring an effective redress mechanism for consumers and small businesses for the first time,” he told Legal Business.

For big businesses concerned about the outcome of this new legislation, Freshfields Bruckhaus Deringer litigation and antitrust partner Mark Sansom points out that safeguards have been put in place to prevent spurious claims being made. “Also we don’t have US-style treble damages,” he noted. “Any damages at the end of the process would be compensatory only, we don’t have jury trials and we have the ‘loser-pays’ costs rule, all of which should disincentivise bad claims.”

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