Between 2006 and 2012 approximately one quarter of Europe‟s competition and anti-trust infringement decisions led to claimants suing for compensation and most of these actions involved large corporations in the United Kingdom, Netherlands and Germany.1 On 17 April 2014, the European Parliament passed a directive aimed at making it simpler for a broader range of victims of competition law breaches to efficiently and effectively claim damages for the economic harm that they have suffered.2
Damages claims are traditionally an intensive and lengthy form of litigation that can involve extensive documentary and economic evidence with the associated costs and differing legal frameworks across European Union (“EU”) Member States. The Directive seeks to reduce these barriers by, inter alia, providing an express right to compensation, allowing victims to rely on the infringement decisions of competition authorities as evidence of an infringement, providing a regime for disclosure of evidence (including evidence held by competition authorities) and holding infringers jointly and severally liable for the entire harm caused by a breach. The practical impact of these changes is two fold. First, they will provide a further incentive to comply with EU competition laws as the increased risk of damages actions for a breach of those laws is increased. Second, the changes make it simpler for organisations that have suffered loss as a result of a breach to recover those losses and, in doing so, provide them with an opportunity to generate positive public relations with their customers.
- The Directive
The EU prohibitions on anti-competitive conduct are contained in Articles 101 and 102 of the Treaty on the Functioning of the European Union. While Articles 101 and 102 do not provide an express right to damages, the European Court of Justice (“ECJ”) has previously recognised an implied right for an individual to claim damages for losses that result from a breach of these provisions.3 While the right to claim damages was found to exist in EU law, the ECJ considered that it was “for the domestic legal system of each Member State... to lay down the detailed procedural rules” governing such actions.4 The Directive changes this by introducing a minimum set of procedural rules that will apply across all Member States. The Directive is awaiting formal approval by the European Council following which Member States will have two years to bring their domestic laws into compliance.
Right to Full Compensation (Article 2)
The Directive provides that any person “who has suffered harm caused by an infringement of competition law is able to claim full compensation for that harm”. In practice, this is a codification of the existing right identified by the ECJ in the Courage and Manfredi cases. The term „full compensation‟, however, means sufficient compensation to place the victim in the economic position that they would have been but for the infringement (Article 2a). This definition excludes claims for punitive, multiple or other types of damages which claimants may have historically been entitled to under the national laws of individual Member States.
Disclosure of Evidence (Articles 5 to 8)
The Directive attempts to make it easier for claimants in damages actions to obtain evidence held by infringers, competition authorities and other third parties. Where a claimant has presented a “reasoned justification containing reasonably available facts and evidence sufficient to support the plausibility of its claim for damages”, a national court must be able to order that the defendant or a third party discloses the evidence under their control (Article 5(1)). This disclosure is subject to the following qualifications:
- Proportionality: Disclosure is to be limited to that which is proportionate taking into account the “legitimate interests” of all parties and third parties concerned (Article 5(3)). Member States are entitled to maintain or introduce “rules which would lead to wider disclosure of evidence” (Article 5(8));
- Confidential Information: Disclosure of confidential information can be ordered but national courts must be able to ensure its protection (Article 5(4));
- Legal Professional Privilege (“LPP”): While the laws on LPP have not been harmonised across the EU, the Directive prevents the disclosure of documents that are covered either by EU LPP or the LPP of a Member State (Article 5(5)). As national rules on LPP vary between Member States, it is unclear whether this provision will operate to enforce the LPP rules of one Member State in damages actions in other Member States or just the national rules of the Member State where the damages action is being pursued;
- Right to be heard: Parties or third parties from whom disclosure is sought must be given the opportunity to be heard before a disclosure order is made (Article 5(5a));
- Competition Authority Documents: Subject to the below, where a competition authority has commenced an investigation or proceedings in relation to an alleged breach of competition laws, a court may order disclosure of evidence contained in the authority‟s file (Article 6(3)). Any evidence that is obtained from a competition authority‟s file may only be used for the purposes of an action for damages by the person that it was disclosed to or his successors (Article 7(3));
- Documents Prepared for or by a Competition Authority: After a competition authority has closed its proceedings or made a final decision, a court may order the disclosure of: (a) information prepared specifically for the proceedings of a competition authority; (b) information that the competition authorities have drawn up and sent to the parties in the course of proceedings; or (c) settlement submissions that have been withdrawn (Article 6(2)); and
- Leniency Statements & Settlement Submissions: A court must not order disclosure of leniency corporate statements or settlement submissions (Article 6(2a)).
If documents are obtained in breach of these rules then, in the case of leniency statements and settlement submissions, the documents will be inadmissible in any damages action (Article 7(1)). In the case of documents prepared for or by the competition authority, they will be inadmissible until such time as the competition authority has closed its proceedings or made a final decision (Article 7(2)).
Penalties (Article 8)
Courts are to be empowered to impose effective, proportionate and dissuasive penalties including in response to (a) failure or refusal to comply with an order for disclosure; (b) destruction of relevant evidence; (c) failure or refusal to comply with a court order concerning the protection of confidential information; or (d) breach of limits on the use of evidence. Where these breaches occur, penalties may include the drawing of adverse inferences, dismissing claims or defences in whole or in part, as well as ordering the payment of costs
Binding Effect of National Decisions (Article 9)
Where a competition authority has determined that an infringement has occurred, those findings will, for the purposes of a damages action, be treated as irrefutable evidence that the infringement occurred (Article 9(1)). Where the determination is made by a competition authority in another Member State, the determination will be treated at a minimum as prima facie evidence that the infringement occurred (Article 9(2)). In practice, this will mean that victims will ordinarily only be required to prove the causal link between the infringement and their loss, not the infringement itself. Article 9 does not alter the existing position that Member States are not permitted to apply national law in a way that leads to a determination different to that of the European Commission (“EC”).5
Limitation Periods (Article 10)
The Directive establishes a minimum limitation period of five years from the point at which a person could reasonably be expected to have knowledge of the infringement and the harm caused by it (Articles 10 (4) and (5)). This period is suspended for the duration of any investigation or proceedings by a competition authority in respect of the infringement until at least one year after the infringement decision has become final or the proceedings are terminated (Article 10(5)).
Joint and Several Liability (Article 11)
Where the breach of competition law involves more than one infringer (e.g., a cartel), subject to the below, the infringers will be jointly and severally liable for the loss caused (Article 11(1)). Accordingly, victims will be able to seek compensation from any and all infringers rather than being limited to their direct supplier. Where a claim is brought against a single infringer, the defendant will be entitled to claim a contribution against any co-infringers (Article 11(3)). The two exceptions to these rules are where an infringer is a small or medium sized enterprise (“SME”) or has been awarded immunity by a competition authority:
- SMEs: An SME is not liable to its own direct and indirect purchasers if: (i) its market share was below 5% at any time during the infringement; and (ii) its economic viability would be irretrievably jeopardised if it were to be jointly and severally liable (Article 11(2)). This exception does not apply if the SME was a ring-leader, encouraged others to participate in the infringement or if it has previously infringed competition law.
- Immunity Applicants: To ensure that firms continue to assist competition authorities uncover cartel conduct, where a firm is granted immunity from prosecution by a regulator, they will not be jointly and severally liable to all purchasers. They will, instead, be liable only to those that purchased the goods or services directly from them. In addition, victims will be required to seek to recover their loss from all other infringers before claiming the remainder from the immunity recipient (Article 11(1)). Co-infringers are only entitled to seek contribution from a firm that has been granted immunity up to the level of harm that that firm caused (Article 11(2)).
Indirect Purchasers and Passing-On of Overcharges (Articles 12 and 13)
It is a defence against an action for damages that the claimant has passed on the whole or part of the overcharge and has, therefore, not suffered any loss (Article 12(1)). This defence will not be available where the overcharge has been passed on to another party who is not legally able to claim compensation for that harm (Article 12(2)). Where an indirect purchaser claims in respect of the passing on of an overcharge, it is for the indirect purchaser to show the existence and scope of the passing-on (Article 13(1)). The existence of such an overcharge will be deemed to be proven where an indirect purchaser can show that: (a) the defendant committed the infringement; (b) the infringement resulted in an overcharge for the direct purchaser; and (c) the indirect purchaser purchased the goods or services that were the subject of the infringement or purchased derivative goods or services.
Presumption and Estimation of Harm (Article 16)
According to the EC, 90% of all cartels cause a price increase.6 As a result, where the infringement involves cartel conduct, the Directive creates a rebuttable presumption that harm has been caused (Article 16(1)). While this provision does not provide any guidance on determining the level of harm, it requires that national courts be empowered to estimate the amount of harm that a claimant has suffered where “it is practically impossible or excessively difficult to precisely quantify…on the basis of the available evidence”. In any case for damages where a national court considers it appropriate to do so, they will be permitted to seek the assistance of the national competition authority to determine the quantum of damages (Article 2b).