Today, the Permanent Representatives Committee of the European Council (Coreper) has voted favourably on the full text of the draft EU Damages Directive, as recently agreed upon between negotiators of the European Commission (the Commission), the European Parliament and the Council. The proposal seeks to harmonise the approach of national judicial systems to aspects of civil claims based on breaches of competition law. The main areas are outlined below, but include important provisions regarding the binding nature of national competition decisions, the disclosure of evidence and other procedural rights of parties. While the text does not contemplate the introduction of class actions at national level, it does include broad provisions designed to facilitate the effective recovery of damages by parties injured by competition law breaches.
In terms of timing, the Parliament will most likely vote on the text during its plenary session on 15 April 2014. The text of the Directive may therefore be adopted just before the EU elections and the Commission’s goal that the Directive be adopted before the end of 2014 year therefore seems realistic.
After its adoption, Member States will have two years to implement the Directive into national legislation. It is anticipated, however, that national judges will start to take the Directive into account in pending civil damages proceedings before the end of the implementation period, to the extent they can do so within existing legal frameworks.
While the Directive has mostly been debated in the context of follow-on damages actions against cartelists, it is important to note that it applies to any violation of European competition law and competition law of the Member States, including the abuse of a dominant position and non-hard-core violations within horizontal or vertical cooperation arrangements, as well as licensing agreements.
In our earlier briefing of June 2013, we discussed the key areas of the initial proposal of the Commission. This briefing focuses on the agreed changes that are of significance and on the practical impact of the implementation of the Directive on national legislation. The extent of that impact will vary considerably between Member States, depending on each Member State’s current laws.
Disclosure of evidence (Articles 5-8)
The Directive introduces extensive rights for national courts to order disclosure of evidence. However, the Institutions do not want to allow fishing expeditions. Judges are therefore only required to order disclosure of evidence if the request for disclosure is proportionate, precise and narrow. Member States are permitted to have more expansive disclosure rules as a matter of national law if they wish.
Member States are also required to give full effect to the applicable legal professional privilege rules and to ensure that there are effective mechanisms to protect the confidentiality of information that is disclosed.
In relation to documents that form part of the relevant competition authority’s file, the Directive provides for a “grey”, “black” and “white” list:
- Leniency corporate statements and settlement submissions are blacklisted and therefore may never be disclosed (the prohibition on disclosure extends to extracts from such documents which appear in otherwise grey or white list documents);
- The grey list contains documents which are disclosable after proceedings are closed by the adoption of the competition authority’s decision or otherwise (which presumably means after all appeals are resolved, though this is not stated in the Directive), such as requests for information and the statement of objections of the authorities, replies of parties to request for information and settlement submissions that have been withdrawn; and
- The white list includes any document that does not appear on the grey or black list, such as pre-existing documents. Such documents may be disclosed at any time.
The rules on disclosure of documents will probably be the biggest change for the legal systems of many Member States. The required disclosure will be far wider than currently available in many Continental national courts, and so is likely to increase the costs and administrative burden of damages litigation for all parties. Furthermore, particularly after investigations have closed, evidence from competition authority investigations will become more easily accessible for claimants.
NCA decisions (Article 9)
The Directive no longer prescribes that decisions of national competition authorities (NCA) of one Member State will be binding before a court in another Member State (although they are binding before the courts of the Member State whose authority has taken the decision). Instead, NCA decisions rendered in another Member State will be considered at least prima facie evidence that an infringement has occurred. The presumption may be rebutted.
Limited periods ( Article 10)
The Directive’s provisions on the harmonization of limitation periods are essentially unchanged. The limitation period will be a minimum of 5 years throughout the EU, 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. Furthermore, the limitation period is suspended/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. A novelty is the introduction of suspension while the infringer and the victim are involved in consensual dispute resolution, albeit in that case the suspension may not exceed two years.
Limitation of joint and several liability (Articles 11 and 18)
Undertakings which infringed competition law must be jointly and severally liable, subject to several important exceptions:
- The immunity recipient is liable only to its own direct and indirect purchasers, unless the claimant can prove that it cannot obtain damages from other infringers; and
- SMEs that did not lead or coerce others into the infringement nor committed a competition law infringement before shall only be liable to their own direct and indirect purchasers if (i) their market share was below 5% during the infringement and (ii) application of the normal rules would jeopardize their economic viability.
Infringing undertakings must be able to bring contribution claims against one another, although immunity recipients will only be liable for the amount of harm caused to their own direct and indirect purchasers. Protection from contribution claims is also provided for infringers who reach consensual settlements with claimants.
The protection for small SMEs and immunity recipients from joint and several liability will be a novelty in most, if not all, Member States and may also help to strengthen the immunity regime and the importance of obtaining immunity.
Passing-on of overcharge (Articles 12a–15a)
The Directive aims at enabling all natural and legal persons that have suffered harm caused by an infringement of competition law to claim and obtain full compensation for that harm, but over-compensation is to be avoided. Damages may not have a punitive character. As a result, Member States must ensure that compensation for actual loss at any level of the supply chain does not exceed the overcharge harm suffered at that level.
The passing-on defence will be available to all defendants, but 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.
The exception to the recognition of the passing-on defence, where the overcharge had been passed on to indirect purchasers for whom it was legally impossible to claim compensation for their harm, has been removed.
Indirect purchaser claimants will bear the burden of proving that the overcharge was passed down to them. The Commission is to issue guidelines for national courts on how to estimate the share of overcharge that has been passed down to indirect purchasers.
Presumption and quantification of harm (Article 16)
As regards the rebuttable presumption of harm, the Institutions have stressed that while there is a rebuttable presumption that the cartel infringements cause harm, this does not entail a (double) presumption that harm was caused to any particular claimant. This is still to be proven by the claimant. The national courts are to estimate the harm caused where it is impossible or excessively difficult to precisely quantify the harm.
Temporal application (Article 20a)
Another interesting new element is that the Directive now provides that the provisions of the Directive may not apply in actions for damages claims already before a national court before entry into force of the Directive.
The Directive in its current form seems likely to achieve the Commission’s aim of facilitating an increase in civil damages being paid, whether as a result of litigation or simply as a result of settlements following more credible threats of litigation (not only in relation to cartel infringements but in relation to all types of competition law infringements). Claimants seem to benefit most from the directive, particularly by the rules relating to disclosure of documents and the rebuttable presumption of harm. On the other hand, aspects of the Directive are advantageous for defendants as well. Defendants will also benefit from the disclosure regime to obtain documents from claimants relevant to the passing-on defence and the Directive ends once and for all in all Member States the debate on whether or not a passing-on defence is available. It also provides greater clarity on the entitlement to bring contribution claims.