On June 11 2013 the European Commission published a draft directive(1) and a recommendation(2) which seek to facilitate damages claims before national courts by alleged victims of antitrust violations.
The draft directive introduces a series of claimant-friendly measures, while at the same time ensuring the effectiveness of public enforcement of competition law by immunising leniency statements and parts of the regulator's file from disclosure.
The recommendation exhorts EU countries to introduce collective actions for all types of mass harm and recommends opt-in class actions (ie, class actions where potential claimants must actively decide to join the group in order to get a share of the compensation). However, the United Kingdom almost simultaneously announced precisely the opposite; that opt-out claims would become part of UK civil procedure.(3)
The draft directive introduces a series of claimant-friendly measures which would introduce a number of substantial changes to:
- limitation periods;
- pass-on defence;
- exposure to indirect customers;
- joint and several liability and contribution; and
- quantification of harm.
Claimants would be given largely unlimited access to any documents held by the defendant or any other third party (ie, any (in)direct customers or a national competition authority). While this is still subject to judges' discretion,(4) and does not apply to privileged documents(5) or certain other specific documents, this level of disclosure runs contrary to most disclosure rules in civil law jurisdictions.
The draft directive seeks to harmonise the minimum limitation term and time triggers. However, by doing so, it effectively introduces a longstop date for actions which far exceeds most national civil procedure rules.
The limitation period will not start to run before an infringement has ceased and the victim is aware of the following:
- the behaviour constituting the infringement;
- the fact that the behaviour could infringe EU or national competition law;
- the fact that the infringement caused harm to it; and
- the identity of the person that caused the harm.(6)
Limitation periods run for:
- a minimum of five years from requisite knowledge of the violation; and/or
- one year from an authority's final decision in the matter.(7)
Since, the limitation period would be suspended during the authority's investigation and any appeals, claimants would have a long time during which to decide whether a suit is worth pursuing.
The draft directive confirms that it is permissible for defendants to argue that claimants/customers suffered no harm because they were able to pass on any increase in price achieved by the cartel to their own customers. However, it creates some difficulties for the defendant in running the arguments. In particular, the defendant cartelist will have the burden of proving pass-on and cannot claim this defence where it is "legally impossible" for the indirect customer to claim compensation.(8) The defendant will typically need sales records from direct customers. If those records are missing, shredded or incomplete, then the cartelist will struggle to meet this burden.
Exposure to indirect customers
In addition, the draft directive facilitates claims brought by indirect customers. They are presumed to have suffered a cartel overcharge if they purchased the relevant products from direct customers of the cartelists.(9) A defendant could end up paying more than the total loss suffered if it cannot discharge the burden of proving pass-on in the action(s) by direct purchasers and cannot overcome the presumption of loss in the action(s) by indirect purchasers.
Joint and several liability and contribution
The proposal establishes that claimants (both direct and indirect customers) can hold cartelists jointly and severally liable,(10) and thus a claimant could claim damages for the entire harm suffered from any of the defendant cartelists whether or not it purchased the cartelised product from that cartelist. Most practitioners already assumed that this was the case, but it has been questioned occasionally in some jurisdictions.
Quantification of harm
Proving quantum of damages in cartel cases can be difficult. Defendants typically argue that the prices would have been more or less the same even in the absence of the cartel, and that there was therefore little or no loss to be compensated.
The draft directive responds by introducing a presumption that harm was caused in relation to cartel infringements.(11) This would seem to be a retrograde step and is one which applies to no other form of tort. Every violation should be assessed on its merits. Especially as liability for cartel conduct is widely drawn under EU case law - including one-off communications, attempted cartels which are never implemented and certain types of information exchange - a one-size-fits-all approach to harm is inappropriate.
The court is then empowered to quantify harm and award damages based on estimation only.(12)
While judges have the benefit of some guidance from the commission on how this could be applied in practice,(13) the methods and techniques envisaged by the commission are subject to "considerable limits as to the degree and precision", as even the "best estimates [rely] on assumptions and approximations".(14)
If adopted, the directive would introduce a number of measures aimed at protecting those which have blown the whistle on a cartel and received immunity or a reduction of fines. In particular, the current draft directive provides:
- complete protection for corporate leniency statements and settlement submissions;(15) and
that other national authority documents would become discloseable only at the end of the administrative proceedings leading to a decision or case closure.(16) This would apply to:
- requests for information;(17)
- responses to these requests; and
- statements of objections.
The claimant-friendly rules on passing-on are somewhat balanced by the proposal, which introduces an obligation on the courts to take into account any other actions brought against the defendant by the parties in the same or other member states, and by other levels in the supply chain.(18) However, the wording of the draft on this point leaves it to the court's discretion, and the defendant has little ability to control how this may be exercised. Moreover, it is difficult to see how it could work in practice, unless courts in different member states are prepared to stay related actions so that they can be resolved sequentially, which has not been the experience to date.
Equally, the draft directive introduces a couple of measures aimed at counterbalancing the application of joint and several liability. It includes a right of contribution between defendants. For example, if a defendant pays more than its share of the overall cartel harm to a claimant, it can seek contribution from the other cartelists.(19) This simply reflects the position that most lawyers had already assumed applies. The draft directive also puts immunity applicants (which do not appeal the decision) in a privileged position, by ensuring that they have to pay only their share of damages and are not jointly liable for the entire harm caused by the cartel.(20) However, there is a catch: if claimants cannot recover their damages from other defendants, the remainder can still be claimed from the immunity applicant.(21) This results in residual legal uncertainty for the immunity applicant. The proposals largely mimic rules previously adopted in Hungary.
The commission has come up with a firm recommendation that collective actions involving a violation of EU rights should be introduced in all member states.(22) The proposals are intended to complement any existing national collective action mechanisms by setting out certain common principles to be adopted, including:
- limitations on use of representative organisations;(23)
- third-party funding; and
- contingency fees.(24)
Perhaps the most interesting development - though not unexpected - is that the recommendation falls short of recommending US class-action-style litigation mechanisms, pointedly not recommending opt-out class actions. Opt-out class actions are where a class of potential claimants is automatically bound by the outcome of proceedings launched by one member of the class, unless they specifically opt out at an early stage.
Exceptions are allowed if they are duly justified by reason of sound administration of justice.(27) Thus, the recommendation is unlikely to have much effect on member states which have already introduced opt-out actions or which are planning to introduce them. For instance, the day following the publication of the EU proposals, the UK government published a draft Consumer Rights Bill, which includes provisions intended, among other things, to introduce opt-out collective actions for antitrust claims in the United Kingdom. The draft bill offers some safeguards - for example, requiring certification that the case is suitable for an opt-out action and leaving discretion for the tribunal to require the case to proceed on an opt-in basis instead.(28) The circumstances in which opt-out collective actions may be so certified is likely to be contentious and the subject of much litigation, similar to the kind of challenges seen in the United States. The perception is that once an opt-out action is certified, the defendants are under immense pressure to settle rather than risk the company in litigation with such a broad class. So fighting about opt-out certification may be the key battleground in litigation.
The recommendation does not oblige member states to take action. As events in the United Kingdom attest, states have already moved in divergent directions. It remains to be seen whether states that do not already have collective actions will introduce them within two years,(29) as requested by the commission or in the form set out in the recommendation.
Though the draft directive contains many innovations - largely for the benefit of civil claimants and unfavourable to defendants - the bigger question is whether it will survive the legislative process. The prior legislative package on civil redress ran into significant difficulties and was abandoned. By decoupling collective redress and other procedural rules, the commission has a greater chance of steering the directive through to become law, but time is not on its side, with a new Parliament and commission to be constituted in May and October 2014, respectively. The draft directive must approved by both the European Council (and some governments have already expressed criticism) and the European Parliament before it becomes law, and there will no doubt be much lobbying by member states and others.
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(1) Draft Commission Directive COM(2013) 404, see http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0404:FIN:EN:PDF.
(2) Commission Recommendation C(2013) 3539/3, see http://ec.europa.eu/justice/civil/files/c_2013_3539_en.pdf.
(3) Consumer Rights Bill (Cm 8657), see www.official-documents.gov.uk/document/cm86/8657/8657.pdf.
(4) Judges are still obliged to consider whether there is a plausible infringement (Article 5(1)) and that the request of evidence is relevant (Article 5(2)(a)), proportionate (Article 5(3)), and that business secrets and other confidential information is protected (Article 5(4)).
(13) The communication (2013/C 167/07) from the commission, as well as the Practical Guide (SWD (2013) 205) for quantification, provide some guidance in this respect intended to assist judges and parties in national courts. See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:167:0019:0021:EN:PDF and http://ec.europa.eu/competition/antitrust/actionsdamages/quantification_guide_en.pdf.