The European Commission (the "Commission") on 11 June 2013 adopted a package of measures aimed at facilitating competition law private actions in the EU, consisting of:
- A draft Directive on competition law private damages actions in the EU containing measures to facilitate private actions and to regulate the interaction between public and private enforcement of EU competition law.
- A Recommendation on "horizontal" collective redress in the EU inviting Member States to adopt a collective redress system for injunctive and compensatory relief for all violations of EU law that follows a set of common principles.
- A Communication on quantifying harm in EU competition law damages actions, together with a staff working paper containing a practical guide to quantification, providing non-binding guidance on the quantification of harm in damages cases.
These measures, if and when the draft Directive is adopted and implemented, are likely to lead to an increase in competition law claims across the EU, which are already being routinely brought in some Member States, including in particular the UK.
1. Background to reform package
Private redress in competition law has been on the agenda for some time at EU and national level. In particular, the Commission published a Green Paper on competition law damages actions in 2005 and a White Paper in 2008, which included policy suggestions to encourage private enforcement of European competition law and on competition law-specific collective redress. In 2008 the Commission issued a Green Paper on consumer collective redress, and in 2011 the Commission conducted a public consultation "Towards a more coherent European approach to collective redress".
In the UK, the introduction of a competition specific collective action, together with other measures to improve the private enforcement regime, were announced earlier this year and are expected to be legislated for in the forthcoming Consumer Rights Bill (the "UK proposals") (see our e-bulletin here).
The issue of the relationship between private and public enforcement of competition law, in particular the question of whether private claimants can obtain access to materials created by whistle-blowers for the purposes of a leniency application (whether from the Commission or a national competition authority, or inter partes) has also increasingly been a matter of concern to the Commission and national competition authorities, in particular since the judgment of the Court of Justice of the EU in the Pfleiderer case1. In 2012 Heads of European Competition Authorities published a resolution on the protection of leniency material in the context of civil damages actions. The UK proposals deferred action in this area pending action at EU level, which has now been proposed.
2. Draft Directive on competition law private damages actions
Aims of the Directive
The aims of the proposed Directive are stated to be to ensure effective enforcement of the EU competition rules (and the national competition law rules when applied in parallel with EU law) by: (i) optimising the interaction between public and private enforcement of competition law; and (ii) ensuring that victims of infringements are granted equivalent protection throughout the EU and can effectively obtain full compensation for the harm they have suffered.
The key proposals in the draft Directive are summarised below.
Disclosure of evidence (Articles 5 – 8)
These provisions are aimed at addressing the so-called "information asymmetry" in competition law private claims (i.e. that much of the evidence required by the claimant to prove its case can be in the possession of the defendant or third parties), without reducing the incentives of undertakings to apply for cartel leniency or to engage in settlement procedures.
The draft Directive provides that Member States must ensure that national courts can order proportionate disclosure of evidence in competition law cases from defendants, claimants or third parties, subject to certain conditions, and that appropriate confidentiality measures be available. Whilst this should not require action in the UK, given the wide inter partes disclosure rules in place, this may have an impact in other Member States where disclosure obligations are more limited.
The draft Directive introduces, however, limits to the disclosure of evidence included in the file of the Commission or a national competition authority. It provides for two categories of protected documents:
- Absolute protection for two documents which are considered to be crucial for the effective operation of the public enforcement regime, namely voluntary leniency corporate statements and settlement submissions. National courts "cannot at any time" order disclosure of these documents.
- Temporary protection for documents the parties specifically prepared for the purpose of the public enforcement proceedings (for example, the parties' replies to the competition authority's requests for information) or those documents which the authority has drawn up in the course of its proceedings (for example, the Statement of Objections). These documents can be disclosed for the purpose of a competition law damages action only after the competition authority has closed its proceedings.
These protective measures also apply in cases where a party has acquired the protected documents through access to the file of a competition authority (for example, in the exercise of the parties' rights of defence in the context of public enforcement proceedings).
Clarifying the type of evidence that may/may not be potentially available to damages claimants is welcome news for leniency applicants who, following the Pfleiderer judgment, have been faced with uncertainties as to whether national courts will order disclosure of leniency materials at the crucial time of making a decision whether to blow the whistle. However, it is not clear whether this proposal is consistent with the recent judgment of the Court of Justice in the Donau Chemie case2 which ruled that EU countries cannot adopt national laws that "systematically" refuse access to documents in the file of national competition authorities. Overall, it is too early to say whether the fact that the protection from disclosure remains relatively limited will deter whistle-blowers from coming forward, in particular as private actions increase.
Rebuttable presumption of overcharge in cartel cases (Article 16)
The draft Directive provides that Member States must introduce a rebuttable presumption of overcharge in cartel cases. This is intended to assist victims of a cartel proving damage and quantifying harm caused by the competition law infringement. It will be for the defendant to rebut the presumption.
It remains to be seen how this proposal will be implemented in the UK considering that a similar proposal originally put forward by the UK Government 3 was not ultimately taken up due to widespread opposition both on the basis of principle (i.e. the departure from the general English law position that loss must be proven and that claimants can only claim damages for loss which has actually been suffered) and that this would be unworkable in practice where claimants may be at different levels in the supply chain.
A key difference between the two proposals is that the Commission does not introduce a fixed amount of an overcharge (for example, 20%). Instead, the Directive provides that Member States shall ensure that the burden and the level of proof required for the quantification of harm do not render the exercise of the claimant's right to damages practically impossible/excessively difficult. It is not clear therefore whether the presumption would lead to any change in practice given that defendants would in any case advance evidence to the effect that no loss has been caused, or that any loss is less than has been claimed.
Joint and several liability (Article 11)
The draft Directive provides that Member States must ensure that, where several undertakings infringe the competition rules jointly (as in a cartel case), they should be jointly and severally liable for the entire harm caused by the infringement, but have a right to claim contribution from the co-infringers (in light if relative responsibility for the harm caused).
The draft Directive provides an exception to this for an undertaking which has been granted immunity from fines under a leniency programme, which is only required to pay damages for harm it caused to its direct or indirect customers/suppliers. Member States must therefore ensure that an immunity recipient is not jointly liable and that its liability is limited to its sales. However, the immunity applicant must remain liable as a last-resort debtor if the victims are unable to obtain full compensation from the other infringers.
This proposal is aimed at counter-balancing the risk that claims are more likely to be brought for the entirety of the loss against immunity recipients only, who are less likely to appeal an infringement decision.
The draft Directive also makes provision (Article 18) for the impact of settlement on contribution claims.
The passing-on defence and indirect purchasers (Articles 12 - 15)
The draft Directive expressly recognises that a defendant in action for damages should be able to invoke the "passing-on" defence if the claimant passed on the whole or part of the overcharge to its customers. This provision is not expected to have a material impact on private damages actions in the UK, as the "defence" is assumed to apply (although it has not to date been expressly endorsed in English law).
However, the draft Directive provides that Member States must provide that the passing-on defence cannot be invoked if the overcharge has been passed on to persons at the next level of the supply chain "for whom it is legally impossible to claim compensation for their harm". This appears to relate to situations where, for example, national rules on causation or remoteness prevent de jure indirect purchasers from making a claim, not merely where it is practically difficult to do so (for example, due to the low value of individual claims).
In relation to indirect purchaser claims, the draft Directive contains provisions intended to facilitate such claims, effectively providing that passing-on to an indirect purchaser is to be presumed (although the defendant can bring evidence to the contrary).
Limitation periods (Article 10 and Article 17)
The draft Directive provides for Member States to implement rules to ensure that the limitation period does not start to run until claimant knows or could reasonably be expected to have knowledge of its claim, and that the limitation period is at least 5 years.
In addition, Member States must ensure that the limitation period is suspended if a competition authority is investigating the infringement to which the action for damages relates, and that the suspension shall end at the earliest 1 year after the infringement decision becomes "final" or the authority's proceedings are otherwise terminated. A infringement decision is stated to become final when it can no longer be reviewed. A limitation period in a similar form has given rise to significant preliminary litigation in private actions before the Competition Appeal Tribunal (CAT) in the UK because of the uncertainty as to which appeals suspend the limitation period, causing such issues that the UK proposals seek to replace this in favour of the normal 6 year limitation period applicable to tort claims (as in the High Court). The Commission proposals risk replicating some of these issues at EU level.
Although detailed legislation implementing the UK proposals is yet to be seen, it appears that there may be some conflict between the UK proposals and those in the draft Directive in this respect.
The draft Directive also provides that a "consensual dispute resolution process" (although there is lack of clarity as to what exactly this includes) must suspend the limitation period from running for the parties involved (which in the UK would normally be dealt with contractually between the parties).
Effect of national decisions (Article 9)
The draft Directive provides that national courts cannot take decisions counter to final infringement decisions of national competition authorities and courts in other Member States. This is in contrast to the UK proposals, which specifically rejected the possibility of making decisions of other national competition authorities binding in damages actions. The draft Directive does not specify whether this would include underlying legal findings or findings of fact made by national competition authorities/courts, in addition to the existence of an infringement.
The draft Directive will now be subject to the EU legislative process, and may therefore be subject to change. If adopted, Member States will have 2 years to implement the Directive, to the extent that its provisions are not already contained with existing national laws.
3. Recommendation on collective redress
Summary and aims
The Recommendation (and the accompanying Communication) invites Member States to adopt collective redress systems at national level that follow the same basic principles, taking into account the legal traditions of Member States and safeguarding against abuse. The Recommendation takes the form of a horizontal framework which means that it does not just apply to collective actions in the field of competition law claims; it also applies in other fields where EU law rights exist, for example consumer protection, environmental protection, financial services legislation and protection of personal data. It addresses both compensatory and injunctive collective redress.
There is no obligation on the Member States to implement the Recommendation but they are invited to do so within 2 years of its publication. The Commission will then assess whether further action is required.
Key proposals and the interaction with the UK proposals
The proposals in the Recommendation overlap to a large extent with the UK proposals for collective redress in competition law claims, which go significantly further than the EU recommendations. However, other Member States may choose to implement competition law (or wider) collective actions in accordance with the Recommendation's suggested measures.
The key proposals in the Recommendation include:
- An opt-in model for collective redress for both stand-alone and follow-on claims. This is in contrast to the UK proposals which specifically (and controversially) include a creation of an opt-out system. However, the Recommendation provides that exceptions to the opt-in model should be possible if "duly justified by reasons of sound administration of justice".
- Rules on standing to bring representative collective actions (as opposed to group actions brought by the injured parties themselves), which provide that claims can be brought by entities which have been officially designated in advance based on stipulated requirements, or entities which have been certified on an ad hoc basis by a national court/authority for a particular representative action.
- Safeguards for minimising risks of abusive litigation, including: verification by the courts that a collective action is an appropriate form of redress; judicial control to ensure that manifestly unfounded cases are not continued; the "loser pays" principle to apply in respect of reimbursement of legal costs; the availability of contingency fees only exceptionally and with appropriate regulation; limitations on third party funding (including that the funder cannot seek to influence procedural decisions including on settlement, and that funders cannot base remuneration on the amount of settlement reached/damages awarded unless regulated by a public authority); and no punitive damages.
- Encouragement of collective alternative dispute resolution and judicially-approved collective settlement before and throughout the litigation.
Given the overlap in the policy proposals in the Recommendation and the UK proposals, it appears doubtful that the recommendations will be taken forward in the UK in respect of competition law claims. It remains to be seen whether the UK Government will introduce further collective redress mechanisms more generally as a result of the Recommendation, and what the approach will be in other Member States.
4. Communication on quantifying harm in competition damages actions
Following a consultation in 2011, in order to facilitate the quantification of harm in competition law private actions, the Commission has published guidance on this in its Communication on quantifying harm in competition law cases. The Communication is accompanied by a Commission staff working paper containing a practical guide to quantification in respect of different types of infringement. Within these documents the Commission provides examples of various economic models and techniques to assist national judges and the parties in the assessment of damages (which is a matter for national law). The Commission also emphasises that it may be necessary for courts to quantify harm on the basis of approximate estimates only.
The Commission's guidance is for information and assistance purposes only and is not binding on the national courts.