On June 17, 2016, the United Kingdom’s (“UK”) Competition Appeal Tribunal (“CAT”) rejected an application to apply its so-called Fast-Track Procedure (“FTP”) to a follow-on damages claim[1] arising from a 2014 settlement of a case brought by the European Commission (Case AT.39801 – Polyurethane foam) (the “Foam Decision”). The CAT’s judgment provides much needed guidance in the UK to both claimants and legal practitioners as to the way in which the CAT will apply its rules governing applications for the FTP.

The Fast-Track Procedure

Hailed as a panacea for private enforcement actions in the UK, the FTP was ushered in as part of a wide regime change brought about by the UK’s Consumer Rights Act 2015. The FTP is intended to dispose of less complex damages claims in the most expedient and cost effective manner, thereby eradicating the barriers to litigation that have, for so long, restricted the ability of small and medium sized enterprises (“SMEs”) to litigate claims arising out of anticompetitive behavior. Rule 58 of the CAT Rules 2015 (the “Rules”) requires that when cases are allocated to the FTP:

  1. they must be heard within six months following a CAT order granting the FTP; and
  2. the amount of recoverable costs is to be capped.

The Rules provide sufficient scope for the CAT to decide whether a claim is well suited for the FTP. Broadly, the CAT is to take into consideration all matters it thinks fit, including: whether one or more of the parties is an SME, whether the time estimate for the main substantive hearing is three days or less, the extent of any disclosure or evidence required by the parties, the remedy being sought, and the complexity and novelty of the issues involved.

The European Commission’s Foam Decision

In its Foam Decision, the European Commission found that from October 2005 until July 2010 (the “Cartel Period”), four polyurethane foam producers, participated in a single and continuous infringement of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”), by implementing a European-wide agreement and/or concerted practice that sought as its main aim to pass-on raw material price increases to their customers and to avoid aggressive price competition between the cartelists. The Commission levied a hefty fine of €114 million on all the cartelists with the exception of one company which obtained immunity because it had alerted the Commission to the cartel.

The CAT’s Judgment in Breasley Pillows v Vita Cellular Foams

The claimants in the follow-on damages action, Breasley Pillows v Vita Cellular Foams, are UK based converters of flexible polyurethane foam. They allege that the cartelists raised the price of the products sold to the claimants, thereby causing them loss and damage. The claimants asked the CAT for damages, interest, costs and such other consequential orders the CAT thought fit. The claimants also applied to have their claims dealt with by way of the FTP.

In denying the claimants’ application for fast-track designation, Mr Justice Roth commented that the contention that the claim could be heard in three days was “always unrealistic,” and rejected as “fundamentally misconceived” the argument that the three-day guideline set out in the Rules applies on a per claimant basis, so that in this case 18 days would be the effective threshold (on the basis of six claimants) instead of three days. Accordingly, on this ground alone the claimants’ application failed.

With respect to the appropriateness of the FTP to damages claims, Mr Justice Roth declared that when a claim for damages relates to a cartel of several years, it is unlikely that it will come within the criteria for the FTP notwithstanding that it is a follow-on claim. Relying on the CAT’s Guide to Proceedings, he stated:

Given that competition cases generally tend to be heavy, complex and often involve consideration of novel issues, it is unlikely that the Tribunal will designate a case as suitable for the FTP unless it is a clear-cut candidate for such an approach. Generally, such a case is likely to arise or be linked to a scenario where injunctive relief is being sought, or, in the case of a claim for damages, where all the parties are clearly committed to a tightly constrained and exceptionally focused approach to the litigation.”

However, the following scenarios were also mentioned as potentially worthy of fast-track designation:

  1. where claimants have direct purchases and/or are end consumers, therefore negating (at least in part) any pass-on arguments;
  2. where the competition authority has gone some way to quantify the effect of the cartel on prices in a manner that would effectively bind the Tribunal in the damages action; or
  3. where the claimants have carefully circumscribed their claim to the overcharge imposed by the cartelists.

In the circumstances, the examples cited above were far removed from the case before the CAT. Accordingly, the claimants’ application was dismissed.

Costs Related to Fast-Track Applications

In dealing with costs, the CAT ordered that defendant should recover its costs (in line with the loser pays principle in English litigation), which were to be summarily assessed if not agreed. The costs for defending the Claimants’ fast-track application amounted to over £22,000. Rule 104(4) of the Rules provides that in determining the amount of costs, the CAT may take account of a number of factors, including whether costs were proportionately and reasonably incurred and reasonable in amount. The CAT took note of the fact that the claimants’ application was heard in less than half a day, no bundle of documents was produced for the hearing, and no witness testified. In light of these factors, the CAT determined that costs claimed by the defendant were disproportionate and unreasonable, and ultimately awarded a lower amount ( £15,000) to be paid.

Looking Ahead

Although, the fast-track procedure has been lauded as a cost effective redress mechanism for SMEs, this accolade is now somewhat in doubt following the Breasley judgment. Mr Justice Roth was stern in stating that “the FTP is not designed to be the remedy for all concerns about costs.” Engaging in litigation can be an arduous process for an SME, potentially exposes it to substantial legal fees, and requiring its directors and/or managers to spend time on the legal proceedings rather than managing the day-to-day running of a business. Mr Justice Roth made the point that follow-on damages claims – although commonly described as “only about causation and quantum” – can be complex in relation to the evidence needed to prove loss. Therefore, SMEs would be wise to look to the various conditional fees or damages-based agreements available for competition claims, as well as to the growing “after-the-event” insurance market and third party funding offerings, as a means of addressing the challenges, from a cost perspective, of bringing damages actions without speculating about the availability of the FTP.

We anticipate that claimants and their lawyers will, in light of this judgment, be cautious about putting in an application for the FTP in future follow-on damages claims. The fast-track procedure may only be available in the simplest of cases from a legal perspective, however small the value of the underlying claim.

The Breasley judgment should not, however, be viewed in isolation. The recent CAT judgment of Socrates Training Limited v The Law Society of England and Wales [2016] CAT 10, shows that in the right case the FTP will be available. In that case, Socrates Training Limited, a provider of online training, claimed that the law society was abusing its dominant market position, and sought an injunction and damages. The claimant was an SME with an annual turnover of some £750,000. While the point at issue was considered to be an important one with much wider ramifications, crucially the trial was only estimated to last three to four days.