Cartel damages claims: More to follow?

Written on 20 Jul 2015

In the US, private antitrust actions have long performed an
important dual-role: compensating cartel victims (and more – claimants in US
antitrust claims can be awarded triple their losses), whilst also supplementing
public enforcement of antitrust laws.  Private
damages claims have been far less prevalent in the EU, where competition law
has traditionally been the domain of the European Commission and national competition
authorities.  

However, this is starting to change.  Jurisdictions such as England & Wales,
Germany and the Netherlands are now leading the way within the EU as venues for
cartel damages claims.  The recent EU
Directive (Directive 2014/104/EU, the “Damages Directive“, which Member States have until 27 December
2016 to implement) is aimed at making it easier for cartel victims to seek
compensation in any EU member state.

So-called “follow-on” claims look set to rise as a
result.  But differences are likely to
persist between Member States on some key areas, and it remains to be seen
whether claims will continue to be concentrated in the jurisdictions that are
currently favoured.  What is clear,
though, is that businesses that are not already attuned to the issues will need
to be more aware of cartel claims, both as a business risk and as a form of
redress if they have bought products from affected markets.

So, what are the key issues and recent developments that
businesses need to be aware of?

Follow-on claims: Redress for the market

As a starting point, if you have bought products in a market
that has been rigged, you may be entitled to compensation, whether you bought
products directly or indirectly from a cartelist.  You may even be entitled to compensation if
you have bought products elsewhere on the market, if the effect of the cartel
was to drive up prices across the market (known as “umbrella
pricing”). 

What’s more, if the European Commission has issued a
decision against the cartelists, you can rely on that decision as a basis for
your claim (so-called “follow-on” claims).  The Damages Directive will extend this to
decisions of national competition authorities and will also introduce a
presumption that you have suffered harm as a result of the cartel.  You simply need to demonstrate the level of
harm that you have suffered.

Levelling the playing field 

Disclosure

For a claimant bringing a follow-on claim, one of the key
challenges will be the information asymmetry between them and the
cartelists.  Cartels are by their nature
secret, although the European Commission or national competition authority is
likely to have obtained crucial evidence which could help the claimant prove
the extent of the harm they have suffered.

Disclosure rules vary greatly across the EU.  The Damages Directive looks to establish a
minimum level of information available to claimants, including by expressly
allowing national courts to order disclosure of certain documents from the
relevant competition authority’s files. 

One of the key documents that claimants will look for is the
competition authority’s final decision. 
However, where this contains confidential information or identifies
another party in it, this information may need to be protected.  If so, the competition authority may need to prepare
a non-confidential version of its decision prior to publication.  However, particularly where other parties are
involved, this process can take months or even years and then may contain so
many excisions that the final document is essentially useless to the claim.  Claimants will be particularly looking for
the confidential version of the final decision which, understandably, the
defendant cartelists will not want disclosed. 
In Emerald Supplies Ltd & Ors
v British Airways & Ors [2014] EWHC 3513
, the English High Court held
that the relevant parties’ interests could be protected by disclosing the full
confidential version of the decision into a “confidentiality club”.  Under these arrangements, only a small group
of named representatives of the parties, who give personal undertakings to the
Court, will be able to see the protected information.  This approach has since been endorsed by the
European Commission and will assist follow-on claimants to obtain decision
notices. Similarly, a German appeals court has asked to receive confidential
documents from the national competition authority’s investigation files for an in camera review.

By contrast, in order to avoid infringers being discouraged
from blowing the whistle on secret cartels and/or entering into settlement
discussions, the Damages Directive provides that leniency statements and submissions
made during settlement discussions cannot be ordered to be disclosed.  This accords with the protection of
“without prejudice” communications under English law, which the High
Court recently acknowledged could extend to discussions with regulators (see
our discussion of Property Alliance Group
v Royal Bank of Scotland plc
here).  However, the blanket protection from
disclosure goes further than that under current English law, as it cannot be
waived by the infringer.  

Limitation periods 

Another area of current divergence between Member States is the limitation period for bringing claims. The Damages Directive provides for a minimum limitation period of five years from the date that the infringing behaviour has ceased and the claimant knows or can reasonably be expected to know: 

  • of the infringement (and the fact that it constitutes an infringement); 
  • if the fact that the infringement has caused it harm; and 
  • the identity of the infringer. 

To this extent, the Damages Directive will not change the
position for claims in the English High Court, where the limitation period is
six years (claims in the UK Competition Appeals Tribunal have until now been
subject to different limitation periods, but from 1 October 2015 these are
being brought into line with English High Court claims).  However, unlike the current position for
claims in the English High Court, the Damages Directive provides that the relevant
limitation period under national law will be suspended whilst any competition
authority investigates or takes action. 
That suspension will continue until one year after that authority has
issued its final decision or otherwise terminated its proceedings.  The limitation period will also be suspended
for up to two years whilst any consensual dispute resolution (CDR) procedures
take place.  English law will need to be
amended to allow for the limitation period to be extended in this way for
claims based on breaches of competition law.

In a recent English follow-on damages claim, the High Court
considered whether limitation arguments should also be taken into account where
the defendant had settled with the claimant and then brought contribution
claims against the other cartelists.

In W.H. Newson Holding
Ltd & Ors v IMI Plc & Anor [2015] EWHC 1676 (Ch)
, the claimants
argued that although the primary limitation period had expired, this had been
extended by the defendant (IMI) concealing its infringement.  IMI denied that it had concealed its activity
from the claimants.  It also brought
contribution claims against the other cartelists.

IMI subsequently settled with the claimants and most of the
contribution claims also fell away.  The
remaining cartelist, Delta, argued that it should not be liable to contribute
as the primary claim was time-barred, on the same arguments that IMI had
previously advanced (that IMI had not concealed its activities from the
claimants).  To be entitled to a
contribution from Delta, IMI had to show that it would have been liable towards
the claimants had their factual case been proven, and that Delta would have
been liable for the same damage (Section 1 Civil Liability Contribution Act
1978).

The judge held that the question of whether IMI had
concealed its infringement was part of the claimants’ factual case.  Therefore, IMI was entitled to a contribution
from Delta.  Had the Court decided
otherwise, this could have discouraged parties from settling follow-on claims
where there is any dispute over limitation periods.

Encouraging settlement

The Damages Directive is aimed at enabling cartel victims to recover compensation for the harm they have suffered, through private actions which complement public enforcement powers. A key theme running through the Damages Directive is the encouragement of cartelists to settle liability consensually with both competition authorities and private claimants. This is encouraged in a number of ways: 

  • by limiting liability for immunity recipients (such as whistleblowers) to their direct and indirect purchasers, rather than joint and several liability towards the whole of the market, which other cartelists will bear. Although this limitation applies only where injured parties are able to receive full compensation from the other cartelists;
  • by protecting leniency submissions and settlement communications from disclosure (although this protection is lost if the cartelist pulls out of settlement discussions);
  • by encouraging CDR, for example by suspending limitation periods; and
  • by protecting defendants who settle follow-on claims from contribution claims by non-settling defendants. This provision is also watered down, however, with a derogation that allows claimants to go back to settling defendants if they are not able to get full compensation from the other defendants (although this derogation can be excluded by the settlement agreement).

Collective actions: Opt-in or opt-out?

Since follow-on claims can be brought by both direct and
indirect purchasers of products from the cartelists (or even by “umbrella
claimants” who have purchased elsewhere on the market from non-cartelists),
the pool of potential claimants can be very wide.  With the aim of securing redress for the
whole pool of potential claimants, from 1 October 2015 collective actions for
competition claims will be able to be brought in England and Wales on either:

  • an opt-in basis (where the action is brought by a representative on behalf of only those who sign up to the action); or 
  • an opt-out basis (brought on behalf of a whole class of persons, save for those who have specifically opted out of the action). 

Under the changes, which are being introduced as part of the Consumer Rights Act 2015, collective actions will need to be brought before the UK Competition Appeal Tribunal (CAT). The CAT will need to approve the collective action, and will also need to approve any settlement between the representative and the defendant. Where damages are ordered or a settlement is reached, the CAT will make an order for the representative to distribute the funds between those being represented. 

Until now, collective actions have been possible on an opt-in basis only, and have been very rarely used. If the opt-out procedure is taken up more widely, this could have a major impact on the level of follow-on damages paid out by those found to have operated as part of a cartel to those harmed by the cartel activity. 

So what do businesses need to do?

  • Businesses need to ensure that they understand what practices are prohibited by domestic or EU competition law.  Osborne Clarke’s competition lawyers have significant experience and can provide pan-European advice.
  • Competition authorities already have powers to impose substantial penalties for cartel infringements. But a rise in follow-on claims and the introduction of opt-out collective actions in the UK will significantly increase the business risk for competition law infringements. Compliance strategies should be robust and regularly reviewed. Any suspected infringement should be investigated swiftly and thoroughly.
  • On the other side of the fence, businesses purchasing from a market that has been rigged will have more options for seeking redress from the cartelists. Claimants can rely on regulatory decisions to establish the cartelists’ liability and will only need to prove the quantum of their loss.  Furthermore, with the growth in the third party funding market, claimants may well be able to pursue claims with little nor no upfront cost or adverse cost risk.  Speak to us about where and how claims can be pursued.