The European Commission has estimated that the total annual cost to consumers in the EU as a result of hardcore cartels ranges between €25 and €69bn (Commission Staff Working Document "Accompanying document to the White Paper on Damages actions for breach of the EC antitrust rules" (2 April 2008) SEC(2008) 405, pages 14-15). Even based on the most conservative estimate, it is therefore unsurprising that the commission has regularly sought to take positive action to improve access to justice for those that suffer at the hands of cartel activity.
To date, despite work on this issue over the last decade, the commission has failed in its attempts to bring to bear its desired changes in this area. However, the week commencing 10 June 2013 saw the publication of draft legislation at both EU-wide and UK level which will, if implemented, engender significant changes for how victims of competition law violations are able to seek redress in court.
On 11 June, the commission published a suite of documents which includes a draft directive, which intends to facilitate damages claims in EU member states for infringements of competition law; and a non-binding recommendation encouraging member states to set up systems of collective redress in order to improve access to justice for victims of EU law breaches more generally, including the rules on competition.
Separately, on 12 June, the UK's Department for Business, Innovation & Skills (BIS) published the draft Consumer Rights Bill. This also provides for amendments relating to the private enforcement of competition law, including collective redress.
There is overlap between the EU and UK proposals, including a number of marked points of contrast, which are highlighted in summary at the end of this feature.
DAMAGES CLAIMS
The commission's proposals for the reform of competition law related damages actions, particularly the draft directive, are far reaching. This feature highlights only a few of the key points arising out of the proposals, which will now be discussed by the European Parliament and Council.
Disclosure
When litigating competition law infringements, much of the evidence a claimant might need to prove its case will be in the possession of the defendant(s).
For example, any documents explaining the operation of a cartel will be held by the cartelists. This information asymmetry is perceived as a barrier to effective litigation of such infringements, particularly outside the UK where disclosure obligations are less extensive.
While the commission in the draft directive recognises the importance of access to evidence, it also seeks to protect from disclosure documents it considers essential to maintain the viability of public enforcement.
In particular, article 6 provides that there shall be no disclosure of defendants' corporate leniency statements or settlement submissions. Further, other documents prepared specifically for the purpose of public enforcement proceedings may only be disclosed after the relevant competition authority (such as the commission) has closed its proceedings.
The commission's leniency programme is seen as a vital tool in the detection of cartels, whereby a company can receive immunity or a reduction in any fine imposed in exchange for providing key evidence that leads to the finding of infringement. Protecting whistle-blowers' submissions from disclosure is perhaps the clearest example of the draft directive's attempts to resolve tensions between public and private enforcement of competition law.
In the UK, BIS considered reform to disclosure but decided not to propose action pending the draft Directive, which is perhaps unsurprising.
Joint and several liability
Article 11 of the draft directive provides for joint and several liabilities for those found to have infringed competition law through joint behaviour, so that a purchaser from a cartel may recover damages from any member of the cartel regardless of which cartel member it purchased from. However, a cartelist granted immunity from fines under a leniency programme shall as a general rule not be held liable for losses suffered by a victim of a cartel which did not purchase from it, but from another cartel member.
This provision further safeguards the value of leniency programmes throughout Europe while still allowing claimants access to compensation.
This is another area where the commission is taking the lead in policy-setting. As before, BIS declined to consider the issue of joint and several liability while awaiting the draft directive from the commission.
Passing-on
Article 12 of the draft directive states that member states shall ensure that a defendant in any damages action can invoke the "passing-on" defence. The result, where a defendant can prove that the claimant passed on the whole or part of the overcharge resulting from the infringement to its customers, is that the claimant will be precluded from claiming damages.
There has not been a judgment in the English courts on the passing-on defence so there is uncertainty as to its effectiveness. While the BIS consultation on options for reform of private actions (a precursor to the Consumer Rights Bill) considered the use of the passing-on defence in English law (Consultation document, pages 25-26), it was decided not to legislate for it in the draft Consumer Rights Bill. In fact, most respondents to the BIS Consultation were opposed to the idea of legislating on the passing-on defence (Response document, page 24).
The government shared the view of the majority that there was no reason why the passing-on defence could not be invoked under general principles of English tort law, and it considered that "the fine details of its application would be better addressed through judicial case law than via legislation" (Response document, page 25).
While the defence may indeed be best tested by judicial scrutiny, the UK is now going to be forced to reconsider its position on legislating for the passing-on defence should the draft directive come into force without amendment.
Presumption of harm
Article 16 of the draft directive provides that there shall be a rebuttable presumption that, in the case of a cartel infringement, the infringement caused harm.
In the UK, the government considered introducing a similar presumption of loss in the BIS consultation. BIS even considered going further than the EU by introducing a presumption that cartels cause an increase in price of 20 per cent, which would therefore be the starting point for any claim for damages.
With such a presumption, the burden of proof shifts to the defendant to show that no loss has been caused, the idea being that the defendant cartelist is the party likely to possess the data that can be used to calculate the effect of the cartel on prices.
However, in its response to stakeholder views, BIS stated that the majority of respondents were opposed to the proposal of introducing a rebuttal presumption of harm, in particular because the proposal would "shift the scales of justice too much in favour of the claimant" and would depart from the English law position that loss must be proven (Response document, page 23-24). The EU proposals in the draft directive therefore, as with passing-on, differ from the firm view taken by the UK government.
COLLECTIVE REDRESS
Collective redress allows individual claims relating to the same infringement to be heard together in a single court action. The perceived benefit of collective actions is that it reduces the burden on individual claimants and therefore facilitates access to justice.
The commission has previously consulted on collective redress, including quite recently in February 2011. The diverging responses to that consultation frustrated plans to adopt binding EU-wide rules on collective redress. The recommendation, a non-binding instrument, is a compromise step towards establishing common principles for collective redress throughout Europe.
It advocates that all member states should have collective redress systems at national level that follow the basic principles set out in the recommendation.
There is a marked contrast between the EU approach in the recommendation and the UK approach to collective redress set out in the draft Consumer Rights Bill, namely whether there should be an "opt-in" or "opt-out" approach to claimants to the action.
In the recommendation the commission, at paragraph 21, is clear that "the claimant party should be formed on the basis of express consent of the natural or legal persons claiming to have been harmed" (emphasis added) (Draft recommendation C(2013) 3539/3) and those exceptions to the opt-in principle should be justified by "reasons of sound administration of justice".
BIS however, in the draft Consumer Rights Bill proposes to insert a new section 47B into the Competition Act 1998, which would provide for the possibility of opt-out collective actions in addition to the existing opt-in regime. This is largely a reaction to the inadequacies of the current opt-in regime, which has seen only one case being brought with minimal success (Consumers' Association v JJB Sports (2007)).
Even within the UK this is a contentious issue, BIS noting stakeholder views offered that "strong and passionately held views on both sides of this debate" (Response document, page 30). In fact, approximately 40 per cent of respondents to the BIS Consultation supported an opt-in system of collective redress in line with the recommendation.
It remains to be seen whether the UK government will now reconsider its proposed 'opt-out' approach, given the 'opt-in' approach favoured at EU level. Opponents of the opt-out proposal insist that the UK government must now reconsider, while others say that the UK is perfectly in line with the EU because the failure of the current opt-in mechanism in the UK justifies an opt-out provision.
LEADING OR WAITING
In some respects, the UK has taken the lead in bringing forward reform of private enforcement of competition law infringements. However, it is at odds with the commission over the latter's preference for a presumption of harm in cartel cases and for opt-in collective actions.
Elsewhere, however, particularly in relation to disclosure, an issue which goes to the heart of the tension between public and private enforcement of competition law, the UK has taken a "wait and see" attitude. With such important policy objectives at stake, it is not surprising that the UK has chosen to let Europe lead the way.
In terms of timing, the draft directive is unlikely to make it before the European Parliament for a first reading until 2014, following which the Council may set out its own position as the basis of continued debate. There will no doubt be significant political haggling over contentious issues if so, as a result.
Also, given the changeover of the European Commissioner's in 2014, and the European Parliament elections in the same year, keeping momentum to see these changes through may prove difficult. Even if the draft directive is adopted at European level, member states will then have a further two years to implement the provisions into their national legal order. Some time may elapse before private litigants are able to rely on the changes enshrined in the draft directive (if adopted), but it may start sooner to have an influence on cases before the national courts.
Dave Anderson (pictured) is a partner and Ed Coulson and Stuart Stock solicitors at Berwin Leighton Paisner
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