For nearly a decade, the European Commission (EC) has been encouraging private enforcement of EU competition rules (i.e. enforcement by national courts of Member States, on the basis of actions for damages filed by individuals) and stressing its complementary nature to public enforcement by the EC and National Competition Authorities (NCAs). However, despite the EC’s effort, the reality is that, to date, private enforcement has been under-exercised. Indicatively, only 25% of antitrust infringements found by the EC in the past seven years have been followed by actions for damages – and these have been mostly initiated by large businesses and in limited specific jurisdictions (e.g. the UK, Germany, and the Netherlands).
After eight years of heated internal and public consultations, as well as an aborted comprehensive legislative package on collective redress, this week the EC landed with a draft “Directive on certain rules governing actions for damages under national law for infringements of the competition law provisions of Member States and of the European Union” (the draft Directive). The draft Directive pursues a narrow set of goals. Importantly, it:
- Shields the leniency procedures from disclosures to claimants in follow-on private damages actions
- Seeks to harmonize a number of commonly found issues in private damages actions, including the binding effect of infringement decisions, limitation periods, and presumptions of passing-on and harm
- Completely omits collective redress, which is only dealt with under a simultaneously issued non-binding Recommendation addressed to Member States (the Recommendation)
EC Seeks to Shield the Leniency Procedure from Disclosure Attempts
Access to evidence is a key aspect of any civil damages action as evidence is necessary to prove an infringement, establish causality between the infringement and the harm suffered, and quantify antitrust damages. However, most of the evidence a claimant needs is in the possession of either the defendant(s), or the EC or NCAs. The difficulties a claimant faces when trying to access such evidence constitutes a major obstacle to effective private enforcement of EU competition rules.
The draft Directive proposes a set of EU-wide rules to ensure that in all Member States there is a minimum level of effective access to the evidence claimants need to prove their claims. At the same time, the draft, as expected, delineates exceptions regarding the disclosure of specific evidence held in the file of the EC or NCAs. The purpose of such exceptions is to protect public enforcement of EU and national competition rules from private litigation interferences.
In particular, pursuant to the draft Directive, national courts are not permitted to order the disclosure of:
- Information provided by the parties to the EC or NCAs (e.g. reply to a request for information), as well as information drawn up by the EC or NCAs (e.g. statement of objections) that is being used as part of public enforcement proceedings, as long as the proceedings are still on-going
- Leniency corporate statements and settlement submissions, at any time, except pre-existing information submitted in support of a leniency application
By imposing an absolute prohibition on the disclosure of corporate leniency statements and settlement submissions, the EC attempts to settle the legal uncertainty that has prevailed following the preliminary ruling of the Court of Justice of the EU (CoJ) in Pfleiderer (2011). In Pfleiderer, the CoJ ruled that, in the absence of EU rules, it is for the national court hearing a damages action to decide ad hoc and on the basis of national law whether to allow the disclosure of leniency documents. In substance, the CoJ called upon national courts to embark upon a complex balancing act between the integrity of the public enforcement process and the rights of claimants to fair and effective compensation. The application of this ruling by courts in Germany and the UK led to slightly divergent outcomes and raised concerns that leniency statements were exposed to a significant risk of subsequent disclosure to private claimants, which would discourage companies implicated in cartel activities to come forward to the regulators.
The draft Directive responds to such concerns by opting for a disclosure model that shields the leniency and settlement procedures, with the EC effectively endorsing the approach of Advocate General Mazák in Pfleiderer, which the CoJ chose not to follow. As a result, if the draft Directive is adopted as proposed, Pfleiderer and, more recently, Donau Chemie, will be rendered obsolete.
Other National Rules under Harmonization
In addition to harmonized rules on the disclosure of evidence (including use of evidence obtained solely through access to file of the EU or NCAs), the draft Directive puts forward a number of measures to facilitate damages actions for breaches of EU and national competition laws. In particular, the draft Directive proposes that:
- Final infringement decisions adopted by NCAs may not be second-guessed by national courts hearing damages claims.
- Victims of an EU competition law infringement should have at least five years after becoming aware of the infringement, the harm it caused, and the identity of the infringer to bring damages claims before national courts. This period is to be suspended where a relevant investigation by the EC or an NCA, or a consensual dispute resolution process between the parties, is initiated.
- Where a number of undertakings have jointly breached EU competition law, they will be jointly and severally liable for the entire damage caused: i.e. each undertaking will be bound to compensate for the harm in full and the claimant may require full compensation from any of them until it is fully compensated. However, joint and several liability will generally not apply to the immunity applicant under national or EC leniency programs and the immunity applicant will only be responsible for the harm that it caused to its direct or indirect purchaser or providers.
- The defendant may invoke the passing-on of the overcharge resulting from the infringement as a defense against damages claims. At the same time, the draft Directive establishes the indirect purchasers’ right to sue upon a showing of antitrust liability and damage.
- A rebuttable presumption that cartel infringements have caused harm to the claimants is also introduced. In addition, national courts are granted the power to estimate the amount of harm caused. The EC has issued, together with the draft Directive, a Communication on quantifying harm in antitrust damages actions to guide national courts in this exercise.
Arguably, the issue of collective redress has been omitted from the draft Directive due to the lack of political consensus. Not only are collective redress mechanisms foreign to the legal orders of a number of EU Member States, but also concerns have been voiced that the EU may eventually become trapped in the same pitfalls that beset the US class-action system.
The EC has, therefore, opted to take only a small and tentative step forward by issuing the Recommendation. Notably, an opt-in system is preferred over an opt-out one, standing is reserved to eligible representative bodies, no contingency fees are allowed, and no punitive damages are provided for. This restrictive approach to collective redress and all the above limitations raise the question of whether consumer organizations will have the necessary incentives and funding to prosecute small claims against cartelists. The UK experience with the opt-in mechanism may be instructive in this respect.
The Recommendation is horizontal in that it applies to breaches of any EU rule (not only competition ones). It is non-binding (i.e. it does not oblige Member States to introduce collective actions) and will be effective upon publication in the Official Journal.
If the Member States follow the Recommendation, the Recommendation may prove to be a useful complement to the proposed Directive and further bolster private enforcement of EU competition rules. As mentioned above, to date, private enforcement has been mostly exercised by large businesses. Consumers and small and medium enterprises (SMEs) are less likely to be able to absorb the upfront costs of bringing legal action, given that the damages suffered by them are usually low-value. Collective action may improve their chances of being effectively compensated.
N.B. The draft Directive will now be discussed by the European Parliament and the Council of the EU. If the two EU institutions agree on a final text, the Directive will be adopted at the EU level. Member States will then have two years to implement the Directive’s provisions in their legal systems.