Claims for damages for breach of competition law have traditionally been the preserve of those with particularly deep pockets or who can rely on a prior finding of infringement of the competition rules by the European Commission or other national competition authority (a follow-on claim).
The recent case of Socrates Training v The Law Society shows that this need not necessarily be so.
In Socrates, the Competition Appeals Tribunal ("CAT") found that The Law Society of England and Wales ("The Law Society") abused its dominant position by requiring member firms of its Conveyancing Quality Scheme ("CQS") to purchase including Anti-Money Laundering ("AML") and mortgage fraud training exclusively from The Law Society.
The case is notable because it is the first case to have followed the fast track procedure under the CAT's rules. The fast track procedure was introduced in October 2015 by the Consumer Rights Act 2015 as a means to deal expeditiously with less complex cases and to encourage SMEs to pursue competition damages claims. The possibility of using the fast track procedure has been raised in previous claims before the CAT but Socrates is the first occasion on which it has been used through to trial and judgment.
So how fast was it? The trial was held 7 months after Socrates' claim and lasted 4 days. The CAT set a strict case management timetable, imposed a cap on the costs recoverable by each side, ordered limited, specific disclosure and restricted the scope of the expert evidence the parties could adduce. Rather slower, though not unusually so, was the delivery of the CAT's judgment which was given on 25 May 2017, 6 months after the conclusion of the main hearing on liability.
On costs, the CAT imposed a cap on Socrates' costs from The Law Society of £200,000, and on The Law Society's costs from Socrates of £350,000. It increased the caps to £230,000 and £402,500 respectively on 8 November 2016 following an application from Socrates. The cap was closer to Socrates' original costs budget of £220,000, whereas The Law Society's original costs budget was £637,000.
The case also illustrates a number of general points about the scope of competition law and how dominance can arise in narrow and specialised markets, especially those involving quality accreditation services offered by professional regulatory or representative bodies.
- Dominance can change over time
The Law Society started developing the CQS accreditation scheme in 2010 as a recognised quality standard for solicitors' firms engaged in residential conveyancing. The CQS included mandatory training in various areas, including AML and mortgage fraud from early 2015 to late 2016. Solicitors wishing to participate in the scheme had to obtain AML and mortgage fraud training from The Law Society. Socrates provides online training, primarily for law firms, including AML and mortgage fraud training.
At first sight this is not the most obvious candidate for an abuse of dominance case. There is no legal requirement for firms to be members of the CQS in order to provide residential conveyancing and the evidence before the CAT suggested that take up of the CQS by solicitors was initially slow. This changed, however, as mortgage lenders began to make CQS accreditation a condition for admission to their conveyancing panels. By April 2015, over 60% of lenders required CQS accreditation as a condition for membership on their panels. The tipping point was when Nationwide, the UK's largest mortgage lender, announced on 20 April 2015 that CQS accreditation was required for panel membership. At this point, the CAT considered that CQS accreditation was a 'must-have' for most conveyancing firms and concluded that The Law Society, as the sole provider of CQS accreditation, was dominant in the market for the provision of quality accreditation services to conveyancing firms.
Whilst these facts are specific to this case, they show how, once a particular form of accreditation becomes an "industry standard", it can lead to a position of dominance.
- Abuse can occur even if there is limited impact on the market
Although The Law Society was found to be dominant in the market for the provision of quality accreditation services to conveyancing firms, the conduct that was found to be abusive – requiring solicitors to purchase AML etc. training only from The Law Society – affected a different market, namely the supply of training courses in AML, mortgage fraud and financial crime to firms in the UK that require AML training under the Money Laundering Regulations. This is a competitive market with many providers and a customer base that encompasses a large range of professionals and others including accountants, estate agents, solicitors in England and Wales who do not engage in residential conveyancing, lawyers in Scotland and Northern Ireland and so on.
So, whilst The Law Society's conduct in "tying" AML etc. training to CQS accreditation may have had some impact on Socrates' business, its impact on the market as a whole is likely to have been limited given the wide range of other customers potentially available to training providers . There was also no suggestion that The Law Society was seeking to expand its presence in the AML etc training market more widely than the provision of training in connection with CQS accreditation. Its reason for tying training to accreditation was to maintain quality standards. However, the CAT rejected this as a justification for the tie.
The question of whether it is necessary to show anti-competitive effects in order to make a finding of abuse of dominance is a controversial one. Whilst normally no evidence of actual effects is required, it is necessary to show that the conduct in question is capable of having an anti-competitive effect. The CAT in Socrates interpreted this as meaning that provided conduct is reasonably likely to have an anti-competitive effect, the fact that that effect has not been realised yet is no answer to an allegation of abuse. It went onto consider whether any effect was "appreciable", that is to say, more than de minimis or insignificant.
On the question of appreciability, the evidence before the CAT seems to have been somewhat thin on the ground and certain parts of it, on both sides, were dismissed as being insufficiently robust or dependable to be of assistance. Nevertheless, and notwithstanding the fact that the training market was UK-wide and covered training for other professionals, the CAT concluded that by reserving at least a significant part of the demand for AML/mortgage fraud training to itself, the Law Society had impaired actual or potential competition from other suppliers to this segment of the market – hence there was an appreciable effect.
As a matter of administrative priority and to ensure rigour in decision-making, competition authorities tend to look for evidence that allegedly abusive conduct is having, or is likely to have, an actual impact on competition before proceeding with an investigation or making a finding of infringement.
It may be that, in the case of standalone damages claims before the CAT, the combination of an activist and (arguably) claimant-friendly court with the exigencies of the fast-track procedure (if available) will encourage more claims to be brought where the evidence of anti-competitive impact would struggle to gain the interest of a competition authority.
- Quantification of loss remains the $64,000 question
The CAT's ruling was purely on the question of liability for breach of competition. It did not seek to quantify what loss Socrates may have suffered. Instead, the proceedings were stayed for two months for the parties to seek to agree an appropriate sum by way of damages, failing which there will be a further hearing on issues of quantum. In the light of what is said above the apparently limited impact of The Law Society's conduct on providers of AML etc. training, it might be thought that Socrates' losses are likely to be limited. Issues of whether Socrates could have mitigated any alleged losses – for example, by expanding its business with other professionals, will no doubt form an important part of the parties' negotiations and any future hearing before the CAT.
Co-authored by Nick Pimlott and Caroline Ellard