On 17 April 2014, the European Parliament adopted a directive governing damages actions for infringements of competition law.
This directive has been long-awaited and turns an important new page for the EU competition law enforcement landscape.
Why the directive?
Historically, damages actions arising out of infringements of competition law have been more commonly seen in the United States, where the incentive of triple damages and the availability of class actions and contingency fees have encouraged private enforcement. Conversely, in the EU greater emphasis has been placed on the public enforcement regime, looking to investigations and fines by competition authorities to deter infringement. Effective private enforcement in the EU has largely been limited to a few jurisdictions, such as the UK, Germany, and the Netherlands. This is now changing.
This directive seeks to harmonise certain divergences between Member States' systems with a view to establishing a minimum standard which facilitates competition damages actions throughout the EU. It also seeks to fine-tune the interaction between private and public enforcement by, for example, clarifying the extent to which leniency applications can be ordered for disclosure in private litigation.
The key elements of the directive are as follows.
- Full compensation
Member States must ensure that victims of competition law infringements are able to obtain "full compensation". This should cover the "right to compensation for actual loss and for loss of profit, plus payment of interest". However, it is expressly provided that "full compensation" should not lead to "overcompensation, whether by means of punitive, multiple or other types of damages".
- Disclosure of documents
The Directive provides that national courts should have extensive rights to order the disclosure of evidence from a defendant or third party. However, these rights should be proportionate. The Directive seeks to avoid "fishing expeditions", by stating that national courts should "prevent non-specific search of information which is unlikely to be of relevance for the parties in the procedure". Furthermore, Member States shall ensure that national courts give full effect to applicable legal professional privilege under EU or national law, and that they have at their disposal effective measures to protect confidential information. Disclosure of evidence should be ordered from a competition authority only when it cannot be reasonably obtained from another party or a third party.
Whilst the new rules add little to existing English disclosure rules, they represent a radical change for certain Member States which do not currently require disclosure of documents.
- Evidence on the file of a competition authority - Protected documents
With respect to documents that form part of the relevant competition authority's file, the Directive establishes a black, grey and white list. The lists open up a wide variety of evidence on the competition authority's file to disclosure, but also seek to protect the attractiveness of leniency programmes by limiting the risk that certain documents provided to a competition authority in the context of a leniency application might later become available for use against leniency applicants in damages actions.
National courts cannot at any time order the disclosure of leniency corporate statements and settlement submissions. This prohibition on disclosure extends to extracts from such documents which appear in otherwise grey or white lists. The European Commission has been keen to exempt leniency statements from disclosure requirements in order to ensure that companies are not deterred from cooperating with it under its leniency programme. By imposing an absolute prohibition on the disclosure of leniency statements with this black list, the European Commission has attempted to resolve the uncertainty created by the Court of Justice of the European Union in Pfleiderer (Case C-360/09), which held that, in the absence of EU rules, it is for the national courts to determine, on a case-by-case basis, whether to allow claimants access to leniency documents submitted to a competition authority by a defendant.
After a competition authority has closed its proceedings by adopting a decision or otherwise, national courts may order the disclosure of documents such as requests for information and the statement of objections, replies of parties to requests for information and settlement submissions that have been withdrawn.
National courts can order the disclosure of documents that do not fall into any of the categories listed in the grey and black lists.
- Limitation periods
Member States shall ensure that the limitation period for bringing damages actions is at least 5 years. This period runs from the time when the claimant knows, or can reasonably be expected to know, that the particular defendant infringed competition law and caused the claimant harm. The limitation period is suspended or interrupted during a competition authority's investigation and until at least one year after an infringement decision has become final or proceedings are otherwise terminated. This rule has the potential to give rise to very long periods of exposure to claims.
- Joint and several liability
Member States shall ensure that undertakings which infringed competition law are jointly and severally liable. This is subject to two exceptions.
- An immunity recipient is liable only to its own direct and indirect purchasers, unless the claimant can prove that it cannot obtain full compensation from the other undertakings that were involved in the same infringement of competition law.
- Small or medium-sized enterprises that did not lead or coerce others into the infringement and have not committed a competition law infringement before shall be liable only to their own direct or indirect purchasers if (i) their market share was below 5% during the infringement and (ii) application of the normal rules would "irretrievably jeopardise its economic viability and cause its assets to lose all their value".
Infringing companies may recover a contribution from any other infringing undertaking, the amount of which will be determined in the light of their relative responsibility for the harm caused by the infringement. An immunity recipient will be liable in a contribution claim only for the loss that it has caused to its own direct or indirect purchasers. Protection from contribution claims is also provided for infringers who reach consensual settlements with claimants.
- Passing-on defence
The Directive requires all Members States to allow the passing-on defence, and thereby to exclude compensation being paid to claimants that have passed on their loss to others, such as their own customers. The defendant bears the onus of proving that the overcharge was passed on. For this purpose, defendants may reasonably require disclosure from the claimant and from third parties.
- National decisions
Member States shall ensure that a final decision of a national competition authority or a review court be presented before their national courts "as at least prima facie evidence that an infringement of competition law has occurred." The Directive no longer prescribes (as it did in its earlier draft) that decisions of national competition authorities or courts of one Member State be binding before a court of another Member State.
- Presumption and quantification of harm
It shall be presumed that cartel infringements cause harm. The infringer shall have the right to rebut this presumption.
Member States must allow national courts to estimate the amount of harm "if it is established that a claimant suffered harm but it is practically impossible or excessively difficult to precisely quantify the harm suffered on the basis of the available evidence."
- Collective actions
The directive does not provide for collective actions. However, in June 2013, the European Commission published a Recommendation on collective redress. Whilst this document is non-binding, it encourages Member States to introduce opt-in collective redress claims for breaches of EU law. A number of Member States have already introduced collective claims. France, for example, introduced collective claims based on breaches of competition law in March this year.
Member States have two years to implement the Directive within their own national legislation. However, national judges may well, even before then, begin to take the Directive into account in pending civil damages proceedings to the extent that they are able to do so within their current national rules and procedures.
Companies now need to brace themselves for a hardened enforcement landscape in the EU. Whilst the impact will be felt more in some Member States than others, the Directive contains significant changes for every jurisdiction.
On the one hand, claimants are bolstered by the long limitation period provided for in the Directive, the presumption of harm, and the disclosure rules which will have a large impact on the legal regimes of some Member States. On the other, defendants will benefit from the greater clarity and uniformity in relation to disclosure of leniency material, the rules on the passing-on defence and the entitlement to bring contribution claims. The Directive applies to any infringement of European competition law and competition law of the Member States. This could include abuse of dominance, and even non-hardcore infringements of competition law within vertical arrangements. This hardening of the competition enforcement regime in the EU therefore impacts not just those companies involved in a cartel. This adds further incentives for companies to ensure that the entirety of their competition law compliance programme is as effective as possible.