CAT finds Law Society abused its dominant position in training market

Published on 30th Jun 2017

On 26 May 2017, the Competition Appeal Tribunal (CAT) handed down its judgment on a claim brought by Socrates Training Limited against the Law Society of England and Wales for an alleged abuse of dominance in certain legal training markets. The final award for damages is awaited.

Background

The Law Society is the professional body for solicitors in England and Wales. In 2013 it launched the Conveyancing Quality Scheme (CQS), which solicitors firms could apply to be a part of (for a fee) as a mark of quality in the area of residential conveyancing.

Solicitors firms are obliged to provide anti-money laundering (AML) training to their staff. In 2015, the Law Society required firms wishing to remain part of the CQS scheme to purchase their AML and mortgage fraud training from the Law Society.

In April 2016, Socrates, a provider of online training (including AML training) brought a claim for damages against the Law Society for abuse of its dominant position, by requiring firms to acquire their training through the Law Society.

Relevant market

The CAT found there were two relevant markets that needed to be considered:

  • The upstream market for the provision of quality certification / accreditation to law firms for residential conveyancing in England and Wales; and
  • The downstream market for the provision of training, particularly to firms and practices requiring anti-money laundering training, in the UK.

Abuse of dominance

In assessing whether the Law Society was in a dominant position, the CAT examined if and when the CQS became a “must have” for firms supplying services in residential conveyancing.  The CAT looked at the number of mortgage lenders requiring firms they worked with to have this accreditation. In 2014, this was 23% of lenders, but by 2015, that number had jumped to 38%. Furthermore, by 2015, 61% of solicitors firms held the CQS accreditation. The CAT therefore held that the Law Society was dominant in the upstream market – especially given that no other entity could provide the now “must have” accreditation.

Rejecting the Law Society’s argument that mortgage lenders had acted as a competitive constraint, the CAT found that the Law Society had abused its dominant position to the detriment of other training providers such as Socrates. In particular, the CAT considered that the following issues pointed to a dominant position and to an abuse of that position:

  • There were no rival suppliers in the upstream market to provide an alternative accreditation scheme, and no prospect of one. As such, if firms wanted the “must have” accreditation, they had to go through the Law Society.
  • The large number of firms who were members of the CQS meant that the Law Society had a large number of captive customers.
  • Any firm who wanted to be part of the CQS had to buy their courses from the Law Society, and there was no sign that this may change.
  • Several of Socrates’ customers had cancelled their subscriptions for training with them because they wanted to become members of the CQS.

Conclusions

The CAT found that, because of its dominant position in supplying “must have” accreditation to conveyancing firms, the Law Society was able to abuse its position in supplying training courses to those same firms, which it required they have in order to keep their accreditation.

By excluding the other providers of AML courses, the Law Society’s actions led to decreased competition within the downstream market.

Why this is important?

Given the significant number of quality certifications and accreditations, spanning the vast majority of industry sectors, this case is an important reminder to the operators of those schemes that they may be caught by EU and/or UK competition law.  Where the certification or accreditation is a “must have” for businesses operating in that market, the scheme operator must be aware not to act in a manner that could be abusive.

This case is also an important illustration of the fact that dominance and abuse do not need to exist in the same market. If an undertaking is dominant in one market and can leverage this to abuse its position and distort competition in a separate connected market, this will still constitute an infringement of competition law.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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