Cartel damages claims: Court of Appeal curbs disclosure in follow-on claims

Written on 15 Oct 2015

Cartels are by their nature secret. When it comes to private cartel damages claims, therefore, a natural information asymmetry exists. The extent to which this can be offset through court-ordered disclosure from the cartelists and/or relevant investigating authority is often a source of great contention, and differs between EU Member States.

Disclosure: A balancing act

English courts have typically taken a robust approach to ordering disclosure. Recent decisions of the English courts have strongly supported follow-on litigation in cartel cases by ordering disclosure of documents which assist the claimant in making out its case – in particular the European Commission’s full Decision, subject to the use of confidentiality rings where appropriate. This robust approach has been applied even where the European Commission itself tended against disclosure. This has made England a popular jurisdiction for claimants seeking damages from cartelists who have concealed the behaviour which led to losses being suffered by their customers.

However, following a Court of Appeal judgment yesterday, the English courts will have to pay more regard to the need to preserve the presumption of innocence.  Courts will therefore be more cautious about ordering the disclosure of parts of Commission Decisions which could unfairly incriminate persons mentioned in them. The concern is that where a Decision refers to conduct which was not ultimately found to constitute an infringement, those statements cannot be challenged by the relevant person (before the Commission) and so they should not be publicised.

What did the Court of Appeal decide?

The Court of Appeal yesterday overturned a High Court decision in Emerald Supplies v British Airways that would have allowed an unredacted Commission Decision to be disclosed to the claimants in a follow-on claim – albeit within a confidentiality ring and subject to certain safeguards. The Court ruled that no safeguards could have justified the dissemination of the Decision, however limited the group receiving it. It found that the first instance judge had misapplied a European Court of Justice (ECJ) decision and should not have deviated from a general rule that no incriminating information relating to innocent parties should be published.

Background: The air cargo cartel and the current claims

The decision handed down yesterday relates to claims brought by users of air cargo freight services provided by British Airways and other airlines, which were the subject of a cartel finding by the EU Commission in November 2010. Fines totalling €799 million were imposed on eleven air cargo operators found to have colluded to fix fuel and security surcharges over a period of six years between December 1999 and February 2006. This Decision spawned a series of claims against the airlines involved, seeking to recover the over-charges.

The claimants in Emerald Supplies applied to court for the disclosure of the Commission’s Decision in the competition case. Peter Smith, J in the High Court initially ruled that the court would make a redacted version available to the affected parties. The redactions were necessary because the Decision included references to parties who were not addressees of the Decision (that is, against whom no adverse finding had been made) and to alleged behaviour of the cartelists which the Commission had not ruled against in its Decision. The order for redactions was in line with the ECJ’s decision in Pergan Hilfsstoffe für industrielle Prozesse GmbH v Commission, which had considered the particular impact of disclosing unredacted Decisions on companies which were not addressees of a decision, that is, which had not been found by the Commission to have breached competition law. The ECJ had concluded that the presumption of innocence may be offended by disclosure of unredacted Decisions. In that case, therefore, it held that references to such companies in documents to be disclosed should be redacted.

However, the parties in Emerald Supplies were unable to agree redactions with the cartelists and therefore, in a second application, asked the court to undertake the exercise for them. Smith J declined to do so, ruling that this was beyond his capacity, particularly since he did not know the necessary background to the Commission’s Decision. In a revision of his earlier position, he ordered instead that the entire Decision should be made available to a “confidentiality ring”, subject only to redactions for legal professional privilege and “leniency material” which had been supplied to the Commission in the context of its programme to encourage cooperation in its investigations. As further protection, he ruled that the Decision could not be used to bring further claims. Despite these conditions, this was a less protective line than in Pergan, and the defendants appealed.

Today’s Court of Appeal decision found in favour of the defendants and reversed the High Court decision. The Court of Appeal found that the judge should not have concluded he had discretion to dilute the ruling in Pergan, and ruled that in any case the safeguards he had ordered would have been inadequate. The following points were made in the judgment:

  • The principle of the presumption of innocence was determinative in concluding that redactions should be made. It was not adequate, as Smith J had ruled, that any non-addressees, (who should be presumed to be innocent) would have an opportunity of defending themselves in any claim. Mere dissemination of the information relating to them offended that principle.
  • The presumption of innocence also extended to any allegations against addressees which were not the subject of the Commission’s adverse finding.
  • The ECJ Decision in Pfleiderer (see below), which concluded it was for the national courts to weigh up the arguments in disclosure applications, was not authority to deviate from Pergan, which had considered a different issue. 
  • The order made by the judge was contrary to the principle that no national court should make a decision which risked being in conflict with another EU court, or the ECJ. There was a real risk in this case of such a conflict with other proceedings.
  • It would be impossible for the members of the confidentiality ring to put the confidential material out of their minds, and therefore the use of the ring was insufficient protection against further use of the disclosed material. 
  • Furthermore, the terms of the order implied that any third party could obtain the confidential information in future by issuing proceedings and applying for disclosure of the unredacted Decision.
  • The Court of Appeal did not accept that it was not possible for the judge to assist the parties in agreeing a redacted version of the Decision, pointing out that he need not have undertaken the entire exercise unaided.

The ECJ’s approach to disclosure

The ECJ has declined to set down firm rules on the disclosure of relevant documents such as leniency submissions and confidential decisions in follow-on claims. In Pfleiderer AG v Bundeskartellamt, it ruled that EU law did not preclude a claimant seeking damages being granted access to documents relating to a leniency application involving a perpetrator of the infringement. It went on to elucidate the principle that disclosure should balance between two competing sets of interests:

  • The claimants’ interests in being awarded fair compensation, and the wider benefits to competition of supporting civil claims; and 
  • The need to protect legitimate business secrets and the impact on the leniency programme of disclosing documents which companies had expected to remain confidential.

The ECJ held that that it was a matter for national courts to decide on a case-by-case basis how to weigh these factors against each other.

The English approach

In considering disclosure applications in cartel cases, the English courts have followed the principles set out in Pfleiderer by weighing competing interests, but have done so through the filter of a legal system in which disclosure obligations are relatively wide, as compared with other European jurisdictions. Competing interests such as confidentiality and the interests of third parties are frequently dealt with by putting in place safeguards such as confidentiality rings.

As a consequence, the English courts have on occasion gone further than the ECJ might have done. For example, in a disclosure application by National Grid Electricity Transmission Plc in a damages action against members of the gas-insulated switchgear cartel (National Grid Electricity Transmission Plc v ABB Ltd & Others), the High Court ordered disclosure of certain leniency documents. This was despite the ECJ having submitted observations favouring non-disclosure.

In the recent judgment in Sainsbury’s Supermarkets Ltd v Mastercard International Inc & Others, the Court ordered disclosure of a confidential report prepared in the course of an investigation into interchange fees. In reaching the view that a confidentiality ring should review an unredacted version of the report, prior to release to those outside the ring, Barling J took into account that: (1) the investigation had concluded and would not be prejudiced; (2) the document was directly relevant to a key issue in the proceedings; and (3) that the information was not available from another source.

So, where does this leave us?

Although they will not be receiving an unredacted version of the Commission’s Decision, the claimants do now have a redacted, non-confidential version of that Decision which has been released by the Commission. This may prove sufficient for the claimants and, had this version of the Decision been released earlier, the applications in the English court may have not have been required at all. Indeed, the delay of more than four years in releasing a non-confidential version was a key factor in Smith J’s decision to order disclosure in the first place.

Disagreements over what needs to be redacted to protect parties’ interests are not uncommon. The clear message from the Court of Appeal’s decision is that the English courts will not step in to assist follow-on claimants at the expense of other parties in the meantime. With the implementation of the incoming EU Damages Directive, the door is also being firmly shut on the possibility of claimants obtaining leniency materials. However, other aspects of the Damages Directive, such as the removal of the requirement to prove that a cartel caused harm, will make it easier in other ways for affected parties to bring follow-on claims where a cartel has been found to have operated. Despite the Court of Appeal’s decision, the English disclosure regime remains relatively robust compared to some other jurisdictions, and England, along with Germany and the Netherlands, will continue to be one of the venues of choice for cartel claims.