While companies currently face the possibility of damages proceedings for competition law breaches in national courts in the European Union, private enforcement actions remain infrequent in Europe when compared with the US. A number of recent proposals to enhance the ability of claimants to seek “collective redress” are intended to address this situation and provide a greater role for private enforcement whilst guarding against the perceived excesses of US litigation.
In recent months there have been a series of legislative proposals and recommendations both at EU and domestic level within Europe. This article considers the key developments in the sphere of collective actions and briefly touches on other proposed developments for competition damages actions. The article focuses on the following:
- EU developments – public v private enforcement
- EU recommendation on collective actions
- UK: opt-in v opt-out collective actions
- Germany: No collective actions
- France: Collective actions debate
- Italy: Collective actions legislation
- Spain - some elements of collective actions
- Collective actions in the future
EU developments – public v private enforcement
One of the European Commission's key aims in recent years has been to promote private enforcement of competition law breaches, including seeking to ensure that the domestic legal orders of the Member States do not render compensation too difficult. In doing so, the Commission has been conscious not to prejudice or jeopardise public enforcement regimes, either at EU or domestic level. It was against this backdrop that, on 11 June 2013, the Commission published proposals for a Directive to facilitate the bringing of actions for competition damages, together with proposals on collective redress mechanisms and a communication on quantifying harm in competition damages actions.
The EU Member States are currently considering the legislative proposals and the draft law is still open to amendments from both national governments and the European Parliament before an agreed final version would come into effect. The Commission would like to adopt the proposal before summer 2014. Assuming the legislation is adopted and subsequently implemented, whether in its current or in an amended form, it is anticipated that competition damages claims in the EU will increase.
EU recommendation on collective actions
The proposal which has perhaps received the most attention in the legal press is the Commission recommendation in favour of collective redress mechanisms, which suggests that collective actions for injunctive or compensatory relief for all breaches of EU law (including competition law infringements and consumer law) should be made "fair, equitable, timely and not prohibitively expensive”.
The Commission’s recommendation aims to facilitate access to justice, prohibit illegal practices and enable victims of such practices to obtain appropriate compensation. It provides for opt-in actions to be brought by non-profit making representative entities on behalf of two or more natural or legal persons (Opt-In Collective Actions). Opt-In Collective Actions are to follow the ‘loser pays’ principle with regard to costs.
The Commission is keen to promote private enforcement of EU law breaches and the recommendation therefore advocates the use of collective alternative dispute resolution and settlements to encourage out-of-court resolution of collective actions. The Commission is, however, mindful of the potential for abuse of collective actions and is wary of encouraging what it perceives to be the excesses of the US class action system and unmeritorious claims. The recommendation therefore suggests certain procedural safeguards such as prohibiting punitive damages and contingency fees that might risk creating an incentive to litigation.
There is a degree of scepticism as to whether Opt-In Collective Actions will achieve the desired increase in private enforcement. There are other proposals contained in the draft Directive (such as recognition of the principle of joint and several liability; the rebuttable presumption of harm for cartel infringements; and the ability for indirect purchasers to bring actions subject to them proving that an overcharge was passed on) that, if adopted, may go further to facilitating expedient resolution of competition law damages actions.
It remains to be seen whether the recommendation on collective actions will be adopted, and, whether it will bring about the desired increase in private enforcement of EU law breaches. If current opt-in mechanisms in certain EU jurisdictions are to be used as an example, however, it is doubtful that the Commission's recommendation will produce the desired increase of collective redress actions.
UK opt-in v opt-out collective actions
Taking the UK as an example, since 1998 there has been an opt-in collective action mechanism available to victims of competition law infringements. This has, however, not been particularly successful in encouraging claimants to bring actions and to date only one such action has been brought by the consumer body, Which?, on behalf of purchasers who had bought overpriced replica football shirts from a leading sports store in the UK. Despite obtaining what it considered to be a fair level of compensation for consumers, Which? has indicated that the level of resources and legal costs were disproportionately high. Deborah Prince, Head of In-House Legal at Which?, in its response to the European Commission's consultation on collective redress has noted that the opt-in system "clearly does not work. It is highly unlikely that the system will be used again".
Interestingly, to address this issue, the UK government, as part of a recent legislative proposal, has suggested introducing an opt-out collective action mechanism (including provisions for collective settlements) for use as a means of redress for breach of competition laws in the UK. The proposed opt-out collective action mechanism forms parts of a wider package of legislative proposals (in the form of a draft Consumer Rights Bill) put forward by the UK government to encourage and facilitate the enforcement of consumer rights, including pursuit of private competition damages actions in the UK. The UK draft legislation is at a more advanced stage than the European Commission’s draft Directive and has been consulted on over the European summer. Barring any major comments or objections, we would expect the UK government to be moving toward implementation of the legislation over the European autumn.
Whilst on the face of it, the UK proposal appears to contrast with the Commission’s Opt-In Collective Actions proposal, it is generally considered that these contrasting approaches are unlikely to lead to conflict. It seems more likely that the Commission's cautious phraseology is designed to reassure some Member States that they are not obliged to introduce opt-out collective action regimes.
No collective actions in Germany
The German civil procedural rules do not currently provide for collective actions (whether opt-in or opt-out). The German courts have, however, allowed the purchase of damages claims by ‘professional' claimants from companies that have been affected by cartel conduct. The mechanism is such that the affected company assigns its claim to the ‘professional' claimant who is then able to bring a damages action in its own name.
In addition to this, German competition law provides for consumer associations to bring proceedings against companies who have infringed EU or German competition laws to recover the proceeds from the infringement. Given that any awards from successful actions are to be paid into the Federal budget, the knock-on effect is that these actions are rare as there is no economic incentive for consumer associations to bring a claim.
In light of the current absence of collective actions under German civil procedural rules, discussions are ongoing as to how the European Commission’s proposals could be implemented into German law.
Collective actions debate in France
In France, the debate surrounding the government’s proposed introduction of collective actions into the French legal system has reached its second phase. The proposal has already been adopted by the French National Assembly and is currently being debated by France’s upper house.
The scope of the amendment is set to include claims for breach of competition law. On the opening day of the debate, ministers suggested that enabling collective actions would be a "democratic achievement" that would result in victims of cartel conduct being rightfully compensated by infringing companies.
Under the proposal, class actions can be brought by one of the sixteen accredited consumer associations for infringements of both French and EU competition rules. As a follow on action, their admissibility is conditioned on the pre-existence of a final court decision of breach of the competition law.
French class actions would be divided in two stages. First, the judge decides whether the “class action” is valid or not. Second, if the judge considers that the “class action” is valid, the necessary measures to inform potential victims will be published for opt-in purposes by all relevant consumers.
Collective actions legislation in Italy
In 2012, Mario Monti, at the time the Italian Prime Minister, adopted a decree on liberalization (which was then converted into law). This introduced a number of much welcome changes to the Italian competition rules, including in connection with private enforcement. Amongst others, changes refer to the new Italian class action regime (as governed by Article 140-bis of the Consumer Protection Code). One of the most notable changes concerns the ability to bring class actions not only where "identical" situations/rights are involved, but also where "homogenous" situations/rights are under review. The new system is based on the individuals’ opt-in system approach, and it also enables redress for "collective interests".
All private actions will be heard by the newly established Enterprise Court of First Instance/Tribunale delle Imprese (while in the past two courts shared this jurisdiction), and then by the Appeal Court in case of challenges of the first degree decisions. Following Monti’s reform, the new Enterprise Court of First Instance has jurisdiction over claims for private right enforcement based on both Italian and EU competition rules, including claims for damages, annulment, and interim measures.
The new system is expected to facilitate the exploitation of class actions to redress collective interests, and to award damages in situations where similar (as opposed to only identical) situation/rights are affected by unlawful conduct. Against this background, we expect to see more and more efficient class actions in the Italian judicial system in the near future.
Spain - some elements of collective actions
In principle, mechanisms for collective action similar to those in the US regime are not available under Spanish law. Nevertheless, the Spanish law of civil procedure recognises:
- On the one hand, the right of consumers, individuals of a user group (at least 50 per cent of the group) who have suffered loss deriving from cartel conduct, and consumer associations to bring a claim for compensation before the Mercantile Courts in circumstances where the individuals are already determined or easily determinable. The difference lies in the fact that the final award is granted to each individual claimant and not to the whole injured collective. Where collective interests are defended before a Court, it will be essential to demonstrate that all the necessary steps have been taken in order to identify all the interested parties represented in order for them to intervene in the process.
- On the other hand, when the consumers or users are undetermined or not easily determinable, only the statutory users and relevant consumer association are able to bring a claim for damages. In order to avoid abusive claims on behalf of user groups, only those affected by the infringement in question will be allowed to file a claim (e.g. a consumer group for food products would not be allowed to file a claim against a prohibited practice in the car sector). In these cases, the interests at stake are intended to be those of the consumers. This is a broad concept under Spanish law, which includes both individuals and legal entities, who may purchase goods, products, services or activities from both public and private providers, provided that they do not act as professionals in the case.
In a follow-on damages action initiated by the consumer advocacy group AUSBANC against Telefónica España following the European Commission’s Decision of 4 July 2007 fining Telefónica over EUR151 million for over five years of margin-squeezing practices in the Spanish broadband market, the Spanish Mercantile Court Nº 4 of Madrid of 22 June 2010 declared the admission of the AUSBANC claim, ordered its publication and set a two-month deadline for affected persons to join the claim and become co-claimants. However, the Mercantile Court stayed its proceedings according to Article 16 of EU Regulation 1/2003 in order to guarantee the uniform application of EU competition law in view that the Commission’s decision to fine Telefónica was subject to appeal before the EU General Court. The General Court of the European Union confirmed the fine imposed by the European Commission by judgment on 29 March 2012. The case is currently under appeal before the European Court of Justice.
Also under Spanish law, it is possible for affected groups to bring a joint action (for instance an association of companies claiming damages after the abuse of dominant position by a competitor) or for third parties, having a direct and legitimate interest, to join already initiated proceedings as co-claimants. Only the parties represented during the proceedings will have benefit of the judgment. By way of example of the above, two judgments were rendered by two different Spanish Courts in one of the first cases on damages actions in relation to the well-known Sugar Cartel case (i.e., the judgment of the Provincial Audience of Valladolid on appeal of 9 October 2009 and the judgment of the Court of First Instance Nº 50 of Madrid of 1 March 2010). Both rulings granted the respective claims for damages lodged by Nestlé and several biscuit manufacturers against the sugar manufacturers Acor in Valladolid and Azucarera Ebro in Madrid (i.e., a EUR1.1 million damage claim against Acor and EUR2 million against Azucarera Ebro). One of the more controversial aspects of these judgments was the court’s reasoning and decision as to the quantification of damages. We note that these judgments are subject to appeal.
However, while a judgment in the Azucarera Ebro case on 3 October 2011 of the Provincial Court of Madrid dismissed the claims initially partially granted by the judgment of the Court of First instance Nº50 of Madrid on the grounds of the passing on defence and the lack of consistency of the claimant’s expert report, the final judgment of the Supreme Court on 10 May 2012 in the Acor case rejected the passing on defence and confirmed the EUR1.1 million damage claim granted by the Provincial Audience of Valladolid.
Collective actions in the future
The landscape for competition law damages actions and, in particular, for collective actions is changing in Europe. Regardless of the precise final form in which the legislation is adopted, there will almost certainly be changes to the way in which collective actions and claims for breach of competition law are brought and fought in Europe.
Existing collective redress mechanisms (such as the opt-in procedure currently available in the UK) have not been wildly successful leading the UK to consider changing its process. The aim of the EU proposals is to boost the number of collective actions and therefore facilitate recovery of compensatory relief. However, concern remains in Europe to ensure that the proposals do not veer towards the perceived extremes of the US class action system. The Commission and the domestic competition authorities are also keen to ensure that public enforcement regimes are protected. How this balance between public and private enforcement will be struck will be at the heart of the on-going debates surrounding the legislative proposals. It is anticipated that the majority of the sticking points surrounding the proposed reforms will centre on how different Member States balance these two objectives within the scope of their domestic legal systems. However it is done, change is certainly on the horizon.