On 17 June 2016, the Competition Appeal Tribunal published a judgment refusing permission for a claim against the polyurethane foam cartel to be tried on the fast track. The reasons given in the judgment set a high bar for any cartel damages action to be admitted to the fast track.
Breasley Pillows Ltd and others v Vita Cellular Foams (UK) Ltd and another
Last month, we reported here on the commencement of a damages claim against two members of the Vita group (“Vita”) who had participated in the polyurethane foam cartel. The claimants had applied for the claim to be designated to the fast track procedure (“FTP”).
We commented that, whilst it was the fourth claim to seek such designation, it was the first in a “traditional” antitrust damages action, but we queried whether the FTP was appropriate given the apparent size of the claim. Indeed, given the difficulty of quantifying damages in any cartel case, it has widely been envisaged that the FTP would instead be used primarily for injunctions to prevent anticompetitive conduct.
Last Friday, the CAT published the judgment of Mr Justice Roth which not only rejected the application for designation to the FTP but also indicated that the FTP would rarely be appropriate for any cartel damages action.
He said that, whilst damages claims may be subject to the FTP:
when one is concerned with damages for a cartel, particularly where it is a cartel of several years’ duration, I think it is unlikely to come within the criteria for the FTP.
He confirmed that this was his view even in follow-on claims where the existence of the cartel is already established by a competition regulator, so the claimants need only establish that the cartel caused them loss.
He said “there may be rare follow-on cases where such a claim could qualify”, such as:
- where there is no suggestion that the claimants had increased their own prices to pass the loss on to their own customers;
- where the regulator’s decision has gone some way to quantifying the overcharge; or
- “conceivably” where the claimants are simply claiming repayment of the overcharge during the cartel period.
The damages claimed from Vita were far from being so restricted. They included damages for:
- The period after Vita left the cartel.
- An alleged “run-off” period after the cartel ended, whilst normal market dynamics reasserted themselves.
- “Umbrella” damages in respect of purchases from non-cartelists whose prices were allegedly higher because they were free from competitive constraints.
- An alleged “volume effect” on purchasers who passed some or all their loss on; i.e. they suffered from reduced sales as a result of their increased prices.
- Alleged losses from having to finance the overcharge.
The CAT noted that the disclosure required to support these claims was far in excess of what was appropriate for the fast track, and the claims would be complex to try not least because the levels of any pass-on, volume effect and financing costs would vary between the six claimants.
According to the CAT Rules, one of the criteria for fast track designation is whether the trial will be three days or less. An audacious argument by the Claimants – that this should be construed as 18 days (three per claimant) – was rejected out of hand.
Even had this argument succeeded, the claimants did not address the further difficulty that there is a mandatory six months between FTP designation and commencement of trial, which could hardly be sufficient time for claims as complex as those advanced by the claimants. They did not suggest that the six months should be multiplied by the number of claimants.
The claimants asked rhetorically how small businesses that are victims of a cartel can hope to bring a claim economically if they cannot benefit from the FTP. The Judge's response is revealing.
I have some sympathy with the claimants’ concern about costs running to several millions of pounds when they quantify their claim at less than the £9.5 million. For this reason, if for no other, issues such as disclosure will require the careful case management to which I have referred, irrespective of the fact that the claim is not dealt with under the FTP. The fact that Vita’s solicitors have indicated in correspondence that they are likely to spend £3 million on their defence does not mean that costs of that scale will be regarded as proportionate in the event that Vita should at some stage obtain an order that their costs are recoverable from the claimants.
Whilst such comments give the claimants some comfort as to the likely scope of their own costs and any adverse costs order, it remains to be seen whether it is sufficient comfort for them to continue their claim outside the FTP.
The Judge went on to acknowledge the government’s position – that the new damages regime (including the FTP) aims to empower small businesses to tackle anticompetitive behaviour – but he responded:
I, of course, recognise the importance of that policy underlying the new regime introduced by the Consumer Rights Act 2015. But that statement applies to the regime generally, including, for example, the new forms of collective action and what is there described as a “radically enhanced system of ADR”. The FTP is not designed to be the remedy for all concerns about costs. Follow-on cartel damages claims may be described as “only about causation and quantum” but they are of considerable complexity in terms of evidence and proof. Accordingly, such claims may have to be advanced by resort to various funding mechanisms such as conditional fees or damages-based agreements. I believe there is now an active market in ATE insurance and a growing market for third party funding for soundly based follow-on claims. It is through such means and not recourse to the FTP that costs problems of bringing these claims have to be addressed.