Order No. 2017-303 and decree No. 2017-305 of 9 March 2017 implementing Directive No. 2014/104/EU of the European Parliament and Council of 26 November 2014 on certain rules governing actions for compensation of damages arising out of anti-competitive practices (the Damages Directive).
The French Government has just implemented the Damages Directive by way of order No. 2017 -303 (the Order). The Order establishes a specific civil liability regime to facilitate the recovery of damages suffered by victims of anti-competitive practices.
In a nutshell, what are the main characteristics of this new liability regime?
New provisions of the French Commercial Code state that “any natural or legal person which forms an enterprise or a body” causing damage, may be held liable by an alleged victim of anti-competitive practices under either European or French competition law. (This wording may create issues with regard to concepts that are specific to competition law (such as the notion of enterprise) and those of civil liability.) Regarding the relevant practices, the new liability regime is not restricted to actions for damages initiated as a result of anti-competitive agreements or abuses of dominant position sanctioned under European law and/or French law. It also applies to certain practices only sanctioned under French law, notably the abuse of economic dependency and abusive low pricing.
The Order establishes several legal presumptions, intended to facilitate evidence-gathering for victims of anti-competitive practices:
- the event giving rise to liability (the fault): there is now a presumption under the French Commercial Code that the existence of the anti-competitive practices of the infringer and its accountability are irrefutably demonstrated where both elements have been established in a decision issued by the French Competition Authority. The presumption applies to a decision which cannot “be subject to an ordinary recourse for the part relating to this finding” or by the courts seized of ordinary appeals. Decisions in France may not only be subject to ordinary recourse, that includes appeal, but also to extraordinary recourses, which includes recourses before the French Supreme Court. The Order does not set out what will happen if the decision is subject to extraordinary recourse, which may mean that the decision held in ordinary recourse could be overturned. It is regrettable that the Order does not provide that the decision of the French Competition Authority should be final for such an irrefutable presumption of fault to be invoked by the victim. Where the existence and accountability of these practices are established in a decision which may no longer be subject to an ordinary appeal by a competition authority or a court of another member State of the European Union (the EU), this decision merely constitutes evidence that this practice was implemented. The Order does not contain any specific provisions regarding the effect of infringement decisions issued by competition authorities and courts outside of the EU.
- the evidence of damage suffered by the victim is also facilitated by several presumptions:
- that an agreement between competitors causes damage: the victim will therefore not need to demonstrate that the agreement distorted the price-setting mechanism. However, no similar presumption is provided for the other anti-competitive practices;
- that the direct or indirect purchaser is deemed not to have transferred the price overcharge to its own direct contractors. This overturns French Supreme Court case law. The infringer of the anti-competitive rules may, however, provide evidence to the contrary by demonstrating that the price overcharge was totally or partially transferred by the plaintiff;
- although the direct or indirect purchaser must prove the existence and the quantum of the price overcharge it alleges to have incurred or that might have been passed onto him, the Order provides that the indirect purchaser is presumed to have satisfied the burden of proof upon demonstrating that:
- the defendant is engaged in an anti-competitive practice; and
- this practice resulted in a price overcharge for the direct purchaser; and
- it purchased the relevant goods or services affected by an anti-competitive practice.
What damages are recoverable?
The concept of recoverable damages is broadly interpreted under French law. It includes the loss incurred resulting from the price overcharge actually paid or the underestimate resulting from a lower price paid by the perpetrator of the offence, the lost gain, the loss of opportunity and moral harm. The court may seek the opinion of the French Competition Authority to assess the plaintiff’s damages.
How is liability for damages between several defendants dealt with?
The Order provides that natural or legal persons who have engaged in an anti-competitive practice are jointly and severally liable to compensate victims for any resulting damage. They must contribute to the relevant amount in proportion to the seriousness of their respective faults and of their “causal role” in the occurrence of the damage.
The plaintiff may seek compensation for all damages suffered from any one of the defendants. That defendant cannot object to the victim seeking all the damages from one of the joint debtors, nor can it require the victim to seek recovery from the other joint debtors in the first place. When a defendant has paid the victim, that defendant may request payment from the other joint wrongdoers for the amount of their respective contribution.
The Order provides for two exceptions to this joint and several liability principle:
- small and medium-sized companies, which under certain conditions, are not required to provide compensation for damage incurred by victims of the practice which are not their direct or indirect contractors;
- the leniency applicant having benefited from total exemption which is only required to jointly compensate the damage incurred by the victims which are not its direct or indirect contractors on a subsidiary basis, i.e. where these victims could not obtain full compensation for their damage from the other joint debtors, after having unsuccessfully sought collection from the latter beforehand.
What are the consequences of a settlement agreement entered into with a victim of an anti-competitive practice?
The Order provides for rules encouraging infringers of anti-competitive rules to settle with victims.
The victim may settle with one of the joint debtors (the “settlement joint debtor”). Giving credit for the amount that it has already received, the victim may claim the remaining monies from the joint debtors which were not parties to the settlement agreement (the “non-settlement joint debtors”). However, unless otherwise agreed, if the non-settlement joint debtors do not satisfy the remaining debt, the victim may revert to the settlement joint debtor for the balance of its damages.
Drafting a provision in the settlement to prevent the victim being able to revert to the settlement joint debtor for the balance ensures:
- the enforceability of any settlement agreement which, in theory, pursuant to article 2052 of the French Civil Code, prevents “the introduction or prosecution between the parties of a legal action with the same object”; and that
- the settlement joint debtor does not have to pay further sums in relation to which it may not have had any say as it may not have necessarily participated in the proceedings which established the quantum of damages.
The settlement is binding on the non-settlement joint debtors, as they may not claim from the settlement joint debtor any contribution to the sum that they are required to pay to the victim.
The French Competition Authority may decide to reduce the amount of the fine imposed on a company or body where such company or body, during the course of the proceedings before the authority, has paid the victim of the anti-competitive practice compensation owed under a settlement agreement. This new provision may interest the second and subsequent leniency applicants as well as companies not challenging the objections. The interest of this provision will depend on the percentage of the fine reduction granted by the French Competition Authority.
What is the protection granted to the confidentiality of the file in case of a leniency application and no-challenge procedures (non-contestation de griefs)?
The Order does not change the protection regime applicable to leniency files. All documents prepared or obtained under such program may not be sent by the French Competition Authority to the courts, as the objective is to maintain the attractiveness of the leniency procedures.
The Order establishes protection for documents prepared under the no-challenge procedure before the French Competition Authority or the Minister of the Economy or in the case of the commitments procedure before the Commission or the competition authorities of the other Member States.
What is the protection granted to documents covered by business secrecy?
The Order establishes protection for documents which, if produced for use in legal proceedings, could breach business secrecy. The court may derogate from certain guiding principles of civil trial, such as the principle of publication of proceedings or decision or of due process. The court may also decide to restrict the communication or production of the documents to certain excerpts.
How do class actions fall under this liability regime?
Where consumers are victims of anti-competitive practices, a registered consumer association may request compensation for financial losses suffered by consumers.
The report presented to the President of the French Republic further provides that the courts asked to rule on class actions in competition law matters shall apply the rules provided in the Order, especially as to evidence of professional misconduct.
Which courts have jurisdiction to hear such cases?
The dispute may be referred to eight specialised courts (Marseille, Bordeaux, Lille, Fort-de-France, Lyon, Nancy, Paris, and Rennes) and the appeal must be brought before the exclusive jurisdiction of the Paris Court of Appeal.
Should a public entity initiate the action in relation to a public contract, the administrative courts will have jurisdiction.
What is the limitation period of the action?
The action must be brought within five years from the day upon which the plaintiff knew or should have known all of the following:
- the acts or facts alleged against the defendant and the fact that they constitute an anti-competitive practice;
- the fact that this practice caused damage to the plaintiff; and
- the identity of one of the perpetrators of this practice.
However, the limitation period does not begin to run:
- as long as the anti-competitive practice has not ceased; or
- with regard to the victims of a person benefiting from a total financial sanction exemption, as long as these victims were not able to bring proceedings against the perpetrators of the anti-competitive practice other than the said person. In practice and contrary to the stated intention, this provision of the Order does not seem to defer the starting point of the limitation period with regard to the first leniency applicants.
When will the new regime become effective?
The Order provides that its procedural provisions (relating to the production and communication of documents) apply to all proceedings commenced from 26 December 2014.
Regarding substantive provisions, the Order provides that they shall enter into force on the day after its publication, i.e. on 11 March 2017.
In the absence of any specific details on the transition provisions, the Order governs the requests for compensation resulting from an event giving rise to liability (probably the anti-competitive practice and not the sanction decision) occurring after 11 March 2017 (pursuant to the principle of non-retroactivity). However, the Order shall apply to continuous offences, i.e. those which commenced prior to the effective date of the new provisions (i.e. 11 March 2017), and continuing after this date.