The Draft Directive
on Competition Law
Damages – What does it
mean for
Infringers and Victims?
Competition Law
ANNELI HOWARD
MA, BCL Barrister
Pros for Claimants:
In June 2013, the European Commission issued a
package of draft legislation governing procedural
rules for private damages actions across the 28
Member States of the EU. Those proposals include:
Compensatory
principle
Claimants are entitled to full
compensation, comprising of
actual loss, consequential loss of
profits and interest.
Joint and several
liability
A victim can elect to sue just
one of the infringers involved,
as they are jointly and severally
liable for the harm suffered by all
purchasers.
i.A draft Directive on private damages actions. 1
ii.An accompanying Commission Staff Working Rebuttable
There is a rebuttable presumption
Document containing the Impact Assessment presumption of of harm for cartel infringements.
harm
Report. 2
Indirect
An indirect purchaser can bring
iii.A Communication on quantifying harm in purchasers
action but the burden is on them
to prove an overcharge was
private actions and damages3 and passed on.
accompanying “Practical Guide” which sets If the indirect purchaser
out the general approach to quantifying harm purchased goods or services
from the direct purchaser that
in competition law cases and various methods were subject to an infringement
a rebuttable presumption shall
and techniques and simulation models.
apply.
iv.A public Consultation document on collective redress. 4
Pros for Defendants:
The raft of measures is designed to reduce the legal
uncertainty which, as the Commission identified in its
2005 Green Paper5 , results from the wide differences
between the now 28 Member States’ national
procedural rules on damages actions. Arduous legal
requirements and practical obstacles have put most
potential claimants off. The Commission wishes
to strike a balance between encouraging victims
to bring competition law actions and securing
effective redress yet, at the same time, preventing
the “abusive” litigation procedures which it perceives
Compensatory
principle
No multiple damage or gain based
damages
Joint and
several liability
As purchasers are jointly and severally liable but they can seek a contribution from other co-infringers.
Exemption for leniency applicants
so that they are only liable for loss
caused to their own direct and
indirect purchasers.
Pass-on
defence
Pass-on defence is available to
Defendants, unless it is legally
impossible for purchasers lower
in the supply chain to claim compensation.
Disclosure
Leniency and settlement statements
are protected from disclosure and
not admissible as evidence.
1 . A copy of the proposed Directive is at http://ec.europa.eu/competition/antitrust/actionsdamages/proposal_directive_en.pdf.
2 . Commission Staff Working Document Impact Assessment Report SWD (2013) 203 final.
3. See Communication” from the Commission on quantifying harm in private actions for damages at http://ec.europa.eu/competition/
antitrust/actionsdamages/quantification_communication_en.pdf
and Staff Working Paper: see http://ec.europa.eu/competition/anti
trust/actionsdamages/quantification_guide_en.pdf.
4. A copy of the consultation “Towards a Coherent European Approach to Collective Redress” is at here.
5. Com (2005) 672 final and accompanying Commission Staff Working Paper SEC (2005) 1732.
exist in the US system where defendants can be exposed to onerous legal costs and
vexatious litigation.
In the 2005 Green Paper, the Commission identified a number of problems for
competition law actions throughout the EU, mostly resulting from the lack of
harmonised rules as well as practical difficulties for victims who often suffer from
“information asymmetry”. In that situation, most of the necessary evidence to prove
their claim lies in the Defendant(s)’s possession or control and very few Member States
have effective disclosure regimes to compel its production.
The Commission has been disappointed by the relatively low level of damages actions
that have resulted in victims obtaining successful levels of compensation. It estimates
that only 25% of all the infringement decisions that it has taken since 2006 have
resulted in compensation. Moreover, damages actions appear to be concentrated in
three Member States (namely the UK, Germany and the Netherlands) whilst in over 21
Member States, there have been no damages actions at all. It is concerned that this
disparity between national procedural rules effectively allows defendants to select the
most convenient forum for their litigation and denies many victims throughout the EU
of effective access to justice. Legal wrangles over standing, requirements to establish
fault, proof and quantification of loss, the availability of the passing-on defence, as well
as causation and remoteness have meant that many victims who have brought cases,
have ended up with nothing at all or, worse still, a hefty legal bill for their efforts. 6
So what do the new draft proposals mean for victims? Will they achieve the
Commission’s aim of stimulating effective private enforcement and compensatory
justice? What do they entail for defendants? Will they undermine or reinforce the
leniency regime which is so critical to the public enforcement process? Will they
create achieve the Commission’s stated policy of creating a new “internal market” for
competition law litigation across the entire EU?
6. See the Courage v Crehan litigation, which led to a journey before the High Court, Court of Appeal, European Court
of Justice and the then House of Lords to resolve the legal uncertainties of the cause of action. After an initial setback before the High Court, Mr Crehan was awarded £131,336 by the Court of Appeal - only for it to be overturned by
the House of Lords on foreclosure and causation of loss. 2
Competition Law
public procurement &
defence contracts
What do the Initiatives entail for Victims?
Articles 1 and 2 of the proposed Directive simplify the eligibility criteria to bring a
damages action. Article 1 codifies the Manfredi case law so that anyone can bring
an action for competition law damages, even if they do not have a direct contractual
relationship with the infringer. So the potential range of claimants may include
upstream suppliers of the infringer or downstream purchasers, whether at the
intermediary wholesale, retail level or end-consumers. It is now clear that indirect
purchasers as well as direct purchasers have a cause of action. What is more, third
parties that have no involvement in the supply chain affected by the anti-competitive
practice, may also claim for damage to their competitive position or for higher prices
paid as a result of structural damage to effective competition in the marketplace.
Article 2 of the Directive clarifies that claimants are entitled to compensation to restore
them to the position they would have been in if the infringement had not occurred.
Compensation includes damages for actual loss (i.e. the difference between the higher
infringing price and the hypothetical competitive price), consequential economic loss
and interest. There are to be no additional eligibility criteria over and above proof of the
fact that the infringement has occurred and that the claimant has suffered quantifiable
harm as a result. Many legal systems have traditionally employed standing criteria
such as a “direct interest” or a requirement to prove fault to narrow the potential field
of claims . Such “floodgates” criteria will no longer be valid under the effectiveness
principle.7
Importantly, Article 1 of the Directive harmonises the substances and procedural rules
that governs damages actions, so it is irrelevant whether the claim is brought on Articles
101/102 TFEU or whether it is brought under the equivalent domestic prohibitions or
a combination of the two. This is a welcomed development which will simplify the
process and effectively create a “one-stop-shop”.
The Directive itself does not contain any obligations for Member States to introduce
collective forms of redress, such as group litigation orders or representative actions.
Instead, the Commission is consulting on forms of collective redress and is advocating
an “opt-in” horizontal framework that will apply to all breaches of EU law, not just
7. See, for example, the requirement of a “personal, existing real and legitimate interest” in France and an “acquired,
personal, direct, legal and immediate interest” in Belgium.
3
competition law. It also recommends the use of third party funding and insurance
arrangements, provided that they are regulated to prevent conflicts of interest.8 This
conservative approach is timely when the current UK consultation recommends the use
of US-style “opt-out” mechanisms as opt-in methods have not produced results!
The greatest progress will be made in “follow-on actions” which are brought after the
end of an investigation by the EU Commission or by a National Competition Authority
(“NCA”) which results in a finding of infringement and/or penalty. Article 9 of the
proposed Directive provides that all final infringement decisions, whether by the EU
Commission or by an NCA, will be binding on all national courts throughout the EU. It
will not be open for defendants to re-litigate the competition authority’s findings of fact
or its interpretation and application of the law, nor will it be open to the national court
to substitute its own opinion on the merits. Once the infringement decision is final (i.e.
the time limit for appeal has expired or any subsequent appeal has been unsuccessful),
the victims will be able to “piggy-back” on the findings of an infringement as the basis for
their claim.
Furthermore, in cartel cases, Article 16 (1) of the proposed Directive applies a rebuttable
presumption in of harm and causation favour of the claimants. The Commission
estimates that 95% of cartels lead to higher prices. The presumption will alleviate the
burden of proof for claimants so that they do not have to adduce evidence to show that
the cartel resulted in them paying a higher than the hypothetical competitive price.
Instead, the burden of proof will rest on the infringer(s) to show that, in actual fact, the
cartel did not result in an overcharge or did not prevent prices falling further.
The Directive also promotes claims from end-consumers by introducing another
evidential presumption which can only be taken advantage of by indirect purchasers.
The Defendant(s) may raise a passing-on defence to knock out a claim by the
intermediary wholesaler or retailer. The end-consumer can still bring a claim but still has
to prove that the overcharge was passed onto him and that he has paid an amount in
excess of the competitive price. Without the presumption, this would lead to a complex
economic and forensic accountancy exercise. The evidential presumption avoids these
complexities by providing that once the claimant has proved the infringement (by means
of piggy-backing on the infringement decision), there is a presumption of an overcharge
8. Paragraphs 21-24 of the Recommendation.
4
Competition Law
if he has purchased the relevant goods or services from the intermediary purchaser. It
is still open to the Defendant(s) to contest whether the overcharges have in actual fact
been passed on and the exact amount passed through, but the Defendant(s) will have
to incur the legal costs associated with obtaining evidence from the intermediary of the
extent of the pass-through. This will considerably alleviate the costs and burden of proof
for claimants but conversely, increase them for Defendants.
The Directive also makes clear that national procedural requirements of proof required
of indirect purchasers must not be too onerous so as to discourage them from bringing
claims and that it is open to national courts to estimate the amount of overcharge that
has been passed through. The national court is therefore charged with using its duty
of sincere cooperation to ensure the effectiveness of the EU competition law regime to
secure adequate, if not absolute compensation for the victims.
The Directive does not introduce similar advantages for stand-alone damages actions.
There, claimants will have to prove all the elements of the infringement from scratch
and then go on to substantiate their claim to damages for the loss allegedly suffered.
Without the benefit of the NCA’s or EU Commission’s fact finding powers (which extend
to compulsory information requests and dawn raids), the claimants have to fall back
on discovery. At present, the majority of EU Member States do not have a disclosure
process. There is no obligation to provide all evidence that is relevant to the claim, as in
the UK and Ireland. Parties only have very limited rights to request the court to order the
other party to provide individually identified documents. These limitations overlook the
fact that it is nigh impossible for claimants to be aware of the existence of a secret cartel,
let alone be able to pinpoint the exact date and form of communications or the identity
of the parties involved. Further, many national legal systems allow the defendants to
object to disclosure on a systematic basis.9 In France, it is even a statutory offence for
a party to disclose commercial information for the purpose of litigation proceedings
abroad.10 The proposed Directive improves the situation somewhat by introducing a
harmonised process for disclosure, which is subject to control by the national judge.
9. See Case C-536/11 Donau Chemie AG, [2013] ECR (not yet published) where the ECJ recently emphasised the right
of victims of a cartel to have access to documents in national litigation proceedings and condemned the Austrian
system which enabled one of the parties to the proceedings to object to access for the file and preclude the national
court from weighing up the competing interests involved. 10. See the French Blocking Statute Law 68 -678 of 26 July 1968 to prohibit requests for documents or information
relating to economic commercial matters with a view to establishing proof in foreign judicial proceedings.
5
The following table summarises the disclosure process for each of the parties involved:
Applicant
Respondent/
Third Party
NCA File
National Court
Plausible grounds
of harm caused by
the suspected
infringement
Object if not in
possession or
control
Pre-existing
Contemporaneous
evidence on file
disclosed at any time
Check relevance
and admissibility
of evidence
Relevant
document in
control of D or 3P
Object on grounds
of necessity or
proportionality
Document within
narow specified
category
Object on grounds
of legal privilege
Leniency or
Replies to info
settlement
requests or SO not
documents protected disclosed while
indefinitely
investigation ongoing
Check category
specified as narrowly
as possible
Check
proportionality
of scope and cost
Infromation
stored in any
medium
Confidential
information
disclosed but
measures in place
Documents produced
by NCA not disclosed
until investigation over
Sanctions for non
compliance
A refusal to comply with a disclosure request or destruction of relevant evidence in
breach of the court order must be sanctioned by national law. The Member States have
freedom to select the most appropriate form of sanctions which may range from a
financial penalty, adverse costs order or permitting the judge to draw adverse inferences
from the failure to provide the information.
However, even with this EU-wide disclosure process, it will still be difficult for claimants
to establish their claim. The right to evidence is still narrowly circumscribed. Claimants
will still have to identify narrow categories of documents which they believe to be in
the possession orl control of the defendant(s) or third party. Even if the information is
clearly relevant to the case, the national court still has the power to refuse disclosure on
the basis that the request is too wide or disproportionate to the defendant’s legitimate
interests. For legal systems that are not familiar with the US or UK style of discovery,
judges may still have a mind-set where they are reluctant to permit access to documents
if they feel that the costs of the disclosure exercise will be exorbitant.
As seasoned litigators well know, the bottomless pit of competition law damages (and
the costs that inevitably follow) lies in quantification. The proposed Directive does
not provide for any common rules on national rules such as causation, remoteness or
quantification of loss. In a suspiciously political compromise, the Commission has
simply issued non-binding advice in the form of a “Practical Guidance on quantification”.
The Practical Guide sets out various methods for establishing a hypothetical competition
6
Competition Law
price that would have applied in the absence of the infringement. Although the
principles and simulation models are helpful, they are likely to result in further
protracted and expensive litigation, which could perhaps have been avoided by a more
simple binding provisions.
What do the proposals mean for infringers?
There are some limited protections in the Directive for defendants, in the sense that
they are free to complete their administrative investigation and subsequent appeal
without fear of immediate litigation compromising their position. The disclosure
process will protect statements prepared for the purpose of the administrative
investigation, so that they cannot be disclosed until the end of that process. However
there is nothing to stop a defendant, should he wish to, from relying on his own
documents and documents that he has obtained through access to the file as part of his
defence to parallel private litigation proceedings.11 Similarly, the exposure to damages
risk is not open ended: there will be a limitation period of at least five years running
from the date of the victim’s reasonable knowledge of the infringement and the harm
caused. That limitation period is suspended during any ADR or during any competition
administrative investigation.
Article 11 makes it clear that infringers will be jointly and severally liable for damages.
That potential liability is far reaching. The claimants may decide to focus their
claims against one Defendant with deep pockets and that defendant will be liable
to compensate all direct and indirect purchasers that have been affected by the
anti-competitive practice in full. In the case of a EU-wide cartel, that liability could
potentially extend to claims in all 28 Member States from parties that were not even
the Defendant’s customers. Although the Defendant can seek a contribution from the
other infringers, there will be considerable uncertainty attached to that process. Firstly,
some of the co-infringers may have gone into liquidation. Secondly there will no doubt
be expensive satellite litigation to determine their “relative responsibility for the harm
caused”. 12
The additional downside of the Commission’s initiatives is that Defendant(s) will have to
11. Article 7(3).
12. Ref Article 11(3) of the proposed Directive.
7
bear the brunt of the measures that have been designed to facilitate damages actions.
So, where the Commission has tried to alleviate the burden of proof and reduce legal
uncertainty for claimants by introducing evidential presumptions, the burden lies on
the Defendant(s) to rebut them. It will fall on the Defendant(s) to bear the legal costs
and risks of gathering evidence, making disclosure requests, engaging expert economic
input and formulating their rebuttal case.
Article 12 codifies the passing-on defence into EU law. The Defendant(s) will be able
to invoke a defence that the immediate purchaser has not suffered any loss because
he has passed on the overcharge in whole or part downstream. However, the burden
of proof rests with the Defendant(s) so, again, the Defendant(s) will have to incur the
legal costs and economic expertise to prove the extent of pass-through. The passingon defence is not absolute: in a case where it is “legally impossible” for downstream
purchasers to bring a claim, the Defendant(s) will be precluded from invoking the
passing-on defence. 13
There is no concrete explanation in the Directive or the accompanying Staff Working
Paper as to what “legally impossible” means. The Staff Working Paper refers to situations
where national rules of remoteness and foreseeability mean that an indirect purchaser
is unable to claim effective compensation. It is not clear whether practical situations
which preclude indirect purchasers from bringing claims will also count. This also
means that the Defendant(s) faces the uncertainty of prospective litigation in 28
Member States, where the availability and merits of the passing-on defence will vary
according to the idiosyncrasies of each particular legal regime. If anything is likely to
prompt, forum shopping, consensual contracting out and/or ADR, this is certainly it.
The passing-on defence will only apply to actual loss (i.e. the amount of overcharge
that has been imposed on the direct purchaser and then passed on through the
various levels of supply in the supply chain). It will not, of course, apply to a claim for
consequential economic loss. In some cases, claims for consequential loss resulting
from damage to a competitive market position will be far more extensive then amount
of any overcharge. In those types of cases, the Defendant(s) will have to rely on
national rules of remoteness and foreseeability and causation to contest the amount
13. Article 12(2).
8
Competition Law
of the claim. Again, as they are governed by procedural autonomy, the merits of those
defences will vary from legal regime to legal regime.
The Directive imposes a clear preference for leniency applicants over infringers who
do not settle their claims before the Commission or the NCAs. As explained above,
leniency statements and settlement statements will be protected from disclosure
in absolute terms. The leniency applicant faces the disadvantage that, in accepting
liability as part of the leniency or settlement process, the final infringement decision
would become binding against that undertaking as soon as it is published. There will
be no option available to the leniency applicant to appeal the decision (for fear of
compromising its discount) and it is not clear whether the fact that another infringer
has appealed the same decision will suspend the limitation period for the leniency
applicant as well. 14 In practical terms, the leniency applicant is at risk of becoming a
“sitting duck” for any damages claims and could, in theory, bear liability for the whole
amount of any loss suffered by the whole range of purchasers that have been affected
by the practice.
Article 11 contains provisions to limit the liability of leniency applicants. Rather than
being liable for full compensation from any affected purchaser, the leniency applicant
is only liable to its own direct or indirect purchasers or providers.15 In turn, should
another infringer try to seek a contribution from a leniency applicant, the latter’s
liability again is limited to the amount of harm that has been caused to its own direct
or indirect purchasers or providers.16 However there is a sting in the tail. Article 11(2)
provides that where injured parties are unable to obtain full compensation from other
co-infringers, they are entitled to claim from the leniency applicant. The national court
is left to determine the leniency applicant’s relative responsibility for the harm. So in
determining the balance between protection of the immunity regime and effective
access to justice, the Commission has decided that the immunity recipient’s interests
are outweighed by the need to ensure effective judicial protection.
14. The Directive is silent on the application of the assiDoman principle.
15. Article 11(2).
16. Article 11(3).
9
Conclusion
The Directive introduces a number of procedural steps which are designed to facilitate
damages actions and make it easier for claimants to bring and establish their claims.
The reforms are by no means exhaustive. In many ways, the Commission is tinkering
around the edges and selecting the easiest reforms in a form that is likely to be
palatable to most Member States. There is still ample recognition of national procedural
autonomy in important areas. This means that there will be a considerable degree
of legal uncertainty for claimants and defendants alike, which is likely to result in
protracted litigation. Defendants face the prospect of multiple litigation claims across
28 Member States, with different national procedural rules governing important issues
such as strike out, injunctive relief, causation and quantification.
The proposals, if adopted, are likely to coincide with the reform of the Brussels I
Regulation which is due to come into force in January 2015 . Interestingly, those
provisions allow not just for contractual choice of jurisdiction clauses but also postclaim consensual agreements to remove claims from the courts of the consumer’s
domicile. We can therefore expect the Defendants will make full use of pre-and post
claim measures to concentrate claims in courts of their favoured jurisdictions. More
likely, given the extent of legal uncertainty and adverse cost implications resulting from
the burden of proof, we can expect increased use of ADR mechanisms to remove these
claims from the courts’ jurisdiction altogether. That outcome is not consistent with the
Commission’s desired aims of achieving a level playing field across the EU and an open
internal market for competition litigation, but it is likely to be the practical reality for
speedy resolution of competition damages claims in the near future. So more to do
with damage limitation than damages litigation.
10
ANNELI HOWARD
MA, BCL Barrister
GETTING IN TOUCH
For more information contact our Senior Clerk David Hockney on
+44 (0)207 405 7211 or consult our website at www.monckton.com.
More information on Anneli Howard please visit her CV page on our website:
http://www.monckton.com/barrister/28/anneli-howard
Monckton Chambers
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