The private enforcement of competition law within the EU continues its inexorable rise and plaintiff opportunities abound. Small and medium size businesses throughout Europe are joining larger companies in initiating proceedings relating to all manner of products and services. The European Commission, as well as national competition authorities, are showing an ever greater appetite for investigating and prosecuting breaches of European competition law, and the resulting regular flow of infringement decisions provides powerful ammunition for private parties injured by such infringements to assert their rights and often claim substantial damages in the national courts. The national courts themselves are becoming increasingly sophisticated in processing these claims, and the Commission’s very recently adopted Directive on competition damages actions will further strengthen plaintiffs’ rights, improve national systems for private enforcement across the EU, and make it even easier to prosecute and succeed in such claims.
The Directive reflects a policy desire to strengthen the link between public enforcement of competition law by the European Commission and national competition authorities and private enforcement by individuals and companies. The latter includes “follow-on” damages actions – which allow victims of EU competition law infringements to obtain redress for harm suffered. Private, follow-on civil litigation is steadily growing across the EU. In particular, courts in England, Germany and the Netherlands now frequently play host to multi-million Euro lawsuits, triggering court battles into relatively unchartered legal territory. All indicators – legal, economic, and political – suggest that the momentum behind private enforcement will continue to gather pace. According to the competition policy brief issued by the Commission on 13 January 2014, cartels cause up to €23 billion in losses annually that should be recovered through private enforcement. All businesses engaged in commerce within the EU should have on their radar the issues and opportunities that are arising.
Under EU competition law, the Commission and national competition authorities can investigate and sanction infringements of Articles 101 and 102 of the Treaty on the Functioning of the European Union, which prohibit, respectively, cartels and other agreements that could inhibit free competition, and abuse of a dominant position. Enforcement by the relevant competition authorities remains the primary mechanism by which competition laws are enforced in the EU. The sanctions implemented (including requirements to change behavior and fines) can be, and increasingly are, significant. For instance, in December 2013, the Commission fined 8 international financial institutions a total of €1.7 billion for participating in cartels in the interest rate derivatives industry; and, in March 2014, it fined producers of bearings for cars and trucks €953 million for cartel conduct.
In the well know line of cases including Courage and Manfredi, the Court of Justice of the European Union has recognized the right to compensation of individuals and companies that have suffered harm from infringements of competition laws. Any person or undertaking that has suffered loss as a result of an infringement of national and/or EU competition law may bring a claim for damages or other relief (e.g. injunctive relief/declarations) before the competent national courts in accordance with national substantive and procedural laws – including laws on discovery, statute of limitations, burden of proof, causation and quantum of damages. A claim may be brought on a “stand-alone” basis or on a “follow-on” basis.
In a stand-alone action, there is no prior competition authority decision finding a breach of competition law; hence, the plaintiff has to prove to the court both that the breach of competition law occurred and that it suffered loss as a result of that breach. In a follow-on action, however, private enforcement occurs after a competition authority has already concluded its investigation and reached a decision that competition law has been infringed. Follow-on actions are unique in that the plaintiff can then rely on that decision as proof of infringement to establish liability in the civil claim. In most follow-on actions, the plaintiff need only prove that it has suffered loss as a result of the infringement and the amount of loss. Damages obtained through follow-on claims can be as large as any fine imposed by a competition authority.
EU Directive on Competition Damages Actions
Private enforcement of competition law has become an increasingly prominent feature in the European legal landscape and is intended to act as a complementary – and additional – deterrent against anti-competitive conduct. In particular, follow-on damages claims are an important aspect of private enforcement, as they provide a strong and relatively low risk route for plaintiffs to recover losses suffered as a result of anti-competitive conduct. Whilst a significant number of such claims have been brought in various national courts across the EU, and the volume of cases continues to rise, a lack of familiarity with the available process, together with the still-developing jurisprudence in this area, results in relatively few companies seeking the compensation to which they are entitled. Differences in rules between EU Member States also have an impact.
To address such issues, on 10 November 2014, the EU Council of Ministers adopted a European Commission proposal for a Directive on competition damages actions. This Directive is designed to achieve a more effective enforcement of EU competition rules overall, and specifically to help individuals and companies claim damages if they have suffered loss as a result of infringements of EU competition rules, primarily by alleviating certain practical obstacles faced by plaintiffs. In particular, the Directive is intended to give plaintiffs easier access to the evidence they need to prove damage, provides a presumption of harm, and more time to bring their claims. EU Member States will have two years to implement the Directive into their domestic laws.
The Directive provides that any person who has suffered loss due to infringement of a competition law is entitled to full compensation; meaning that the injured party shall be placed in the position in which it would have been had the infringement of competition law not been committed – an entitlement to compensation for actual loss and for loss of profit, plus interest. Although the legal principle of full compensation is on its face a reasonable and straightforward concept, the calculation of damages that result from a competition violation is a complicated subject, and is highly controversial in any damages claim.
The Directive also imposes a presumption that cartel infringements cause harm, consistent with economic evidence that more than 90% of cartels result in price increases. This reverses the usual position, putting the burden squarely on the defendant to rebut the presumption that harm has been suffered as a result of its competition law infringement. This presumption of harm also applies to indirect purchasers with the Directiver providing for a rebuttable presumption of “passing-on” of losses from direct to indirect purchasers. The Directive, in addition, empowers national courts, in accordance with national procedures, to estimate the amount of harm (i.e. quantum of damages) if it is established that a plaintiff has suffered harm but it is practically impossible or excessively difficult precisely to quantify the harm suffered on the basis of the available evidence. Assistance in this respect can also be sought from the national competition authorities.
Furthermore, the Directive provides that an infringement of competition law found by a final decision of a national competition authority, a review court, or by the European Commission itself is deemed to be irrefutably established for the purposes of a private action for damages brought before national courts under Article 101 or 102 TFEU or under national competition law. This critical concept, already reflective of the position in a number of Member States (including England and Germany), enshrines an injured party’s right to sue before EU national courts on the basis that the final decision of the competition authority is binding on that same Member State’s court for the purpose of establishing the liability of the defendant. In the courts of other Member States, the decision will be prima facie evidence of the infringement. This should give plaintiffs a greater selection of jurisdictions in which to bring their claims.
The Directive also paves the way for documentary discovery to be obtained more easily and to a greater extent, from the defendants, third parties and also from the relevant competition authorities, within the conduct of private claims; although limitations are imposed, such as a requirement of proportionality, and to protect aspects of the regulatory enforcement process either until the competition authority has closed its proceedings (or in perpetuity, where the evidence in question concerns leniency statements or settlement submissions).
The Directive also provides that the limitation period for damages claims shall be at least five years and shall not begin to run before the infringement has ceased and the plaintiff has knowledge or can reasonably be expected to have knowledge of the infringement, of the harm caused to it, and of the identity of the infringers. In addition, there is a requirement that a limitation period is suspended if a competition authority takes action for the purpose of the investigation or its proceedings in respect of an infringement of competition law to which the private action for damages relates, and that the suspension shall end at the earliest one year after the infringement decision of the competition authority has become final, or after the proceedings are otherwise terminated.
Taken together, these enhanced rights will materially strengthen the ability of plaintiffs to prosecute private claims against infringers of European competition law before national courts across the EU efficiently and with greater success; particularly where such claims follow on from a final infringement decision of a relevant competition authority such as the Commission.
Concurrent National Law Developments
Until Member States each adopt the Directive domestically, their existing national laws and judicial precedents continue to determine the rights of individuals in private damages actions. Legislators in a number of EU jurisdictions already have established laws to provide a robust framework for civil claims for competition law violations (and particularly for follow-on damages claims).
With the recent campaign by the Commission to facilitate competition damages claims, there has been a significant rise in the volume of follow-on civil litigation cases. A few key recent highlights from Germany, England and the Netherlands demonstrate how national tribunals continue to develop the law related to private actions. In Germany, for example, the revised German Law on the Restraints of Competition (the GWB) strengthened private enforcement in Germany by facilitating claims for lawyers and investigators. Similarly, the UK’s Enterprise Act 2002 facilitates competition law claims by expressly recognizing a right to damages for breach of competition law and enabling a specialist tribunal to hear and decide on private competition law claims. Other developments continue across Europe.
German competition law already substantially complies with the mandatory provisions in the Directive: the victim of a competition violation has a right to full compensation pursuant to Sec. 33 GWB. A violation of national or EU competition law is a key prerequisite for a damages claim; as such, final decisions by the Commission, the German Federal Cartel Office or the competition authority of any other EU Member State are legally binding on the German national courts. Furthermore, the infringer must have violated competition law intentionally or negligently (mens rea) and the claimed losses must be caused by the infringer’s (intentional or negligent) anti-competitive conduct (causation).
Sec. 33 GWB is only applicable to undertakings; personal liability of board members or managers remains a highly controversial issue. In Dornbracht v. reuter.de, however, the German Federal Supreme Court held that – at a minimum ‑ chief executive officers can be personally liable pursuant to Sec. 830 para. 2 German Civil Code as an instigator or participant in the anti-competitive conduct. As a recent example, the cargo unit of Deutsche Bahn filed follow-on proceedings in the regional court of Cologne claiming damages of potentially more than €1.2 billion from 13 airlines, including Air Canada, Air France-KLM, British Airways, Cathay Pacific, Lufthansa and Qantas. The claims arise from the Commission’s investigation and 2010 decision to fine air cargo carriers a total of circa €800 million for operating a cartel which affected cargo services in the EU. The Commission found that the airlines had colluded to inflate airfreight fees for a period of over six years.
England is well known as a forum for follow-on competition litigation as it offers plaintiffs favorable procedural means to seek redress – means even exceeding the mandatory rights set forth in the Directive. In addition, the English courts have a wide discretion to accept jurisdiction over such claims. In particular, S. 47A of the Competition Act, 1998, allows injured parties to bring damages actions before the Competition Appeal Tribunal (CAT), a specialized judicial body. Many follow-on claims have also been pursued before the English High Court, as an action upon a tort of breach of statutory duty; the duty defined with reference to the relevant provision of UK or EU Competition law. A number of decisions have affirmed the appetite of the English Courts to deal with such cases and the relative ease of establishing jurisdiction in England for claims in this area. The Government has also introduced the Consumer Rights Bill, 2014, containing provisions to amend the Competition Act 1998 and the Enterprise Act 2002, to establish the CAT as the primary venue for private enforcement actions in the UK, and to make it easier for claimants to bring claims. This Bill will also significantly introduce an opt-out collective action regime (along the lines of US class actions) that should enable claims to be brought on behalf of all UK purchasers of cartelized goods and services.
One thorny issue has been the limitation period applicable to bringing private actions. The Limitation Act, 1980, requires that proceedings be brought in the High Court within six years of the date on which the cause of action accrued, while a limitation period of two years from the date when the infringement decision is final applies to claims brought before the CAT under S. 47A. Earlier this year, the Supreme Court, in Deutsche Bahn v Morgan Crucible, confirmed that the limitation period for claims in the CAT starts to run, as against a party to an illegal cartel which does not appeal an EC decision, at the date of that decision and not once any appeals by other parties are finally determined by the EU General Court and Court of Justice Soon after, the English High Court, in Arcadia v Visa, struck out a substantial part of the claimant’s claim, which dated back to 1977, for having been brought too late under the Limitation Act, 1980. The case concerned the so called “multi-lateral interchange fees” charged on debit and credit card transactions, which the plaintiffs (a group of major UK retailers) argued, unlawfully restricted competition and led to higher prices. Relevantly, unlike most cartels, these agreements were not secretive. The Court reasoned that the retailers possessed adequate information to have sufficiently pleaded a claim, since before 2006 at the latest, available in decisions, notices and press releases issued by the Commission and the English competition authority relating to their respective investigations into these fees. This reduced the claimed damages by around £500 million.
The effect of these decisions is diluted by the Consumer Rights Bill which will align the limitation period for the CAT, with the six year limitation period for the High Court. It will be arguably further diluted by the Directive, which provides that the limitation period (of at least five years) is suspended from the moment a competition authority starts investigating an infringement until at least one year after the infringement decision has become final. Interestingly, although the Court in Arcadia, considered the incoming Directive, it refused to take a view consistent with it, as the Directive itself provided that claims brought prior to national legislation bringing the Directive into force would be unaffected.
Until the Directive comes into force in the UK, the Arcadia decision stands as good law. Its effect on other pending litigations remains to be seen given that most cartels are secretive and it is not until a competition authority investigation is concluded that most plaintiffs have the requisite knowledge to trigger the running of limitation periods. Arcadia may, however, have most impact on the numerous related litigations between UK retailers MasterCard and Visa, brought as follow-on claims from the 2007 Commission decision establishing that the interchange fees charged on MasterCard’s debit and credit card transactions unlawfully restricted competition and led to higher prices. The Commission’s decision was confirmed by the Court of Justice on 11 September 2014.
In another controversial case, involving a large number of shippers, many of which are well known global companies, are claiming damages from an air cargo cartel that involved British Airways (Emerald Supplies v British Airways). The litigation is in part a follow-on claim from the decision of the Commission in 2007, which fined 11 airlines a total of €799 million for infringing competition law. The Commission found that the carriers had entered into illegal agreements regarding cargo pricing. In addition to their follow-on claim, the plaintiffs have raised a novel claim that the airlines illegally conspired to injure them by “unlawful means” and sought disclosure of the Commission’s decision. The “unlawful means” include “foreign unlawful means”, which refers to the infringement of foreign competition law and deceit under foreign law. By raising this unlawful means tort claim, the plaintiffs are looking to expand the jurisdiction of the English Courts to consider claims of foreign companies based on breaches of foreign competition law. British Airways requested the Court to strike out these broader “conspiracy charges” and to limit the litigation to English law. In October, in two separate orders, the Court ruled that British Airways’ strike out request was premature, finding it was not appropriate to deal with this question on a summary judgment application. In the other decision, delivered on the same day, the Court made an order for disclosure by British Airways of the Commission’s decision, in its entirety and without redactions, to a strict “confidentiality ring” comprising a limited number of lawyers. This order was made in circumstances where nearly seven years after the Commission issued its decision, no public version has been available. This is the first time a Court has ordered disclosure of a Commission Decision before a public version has been made available and also the first time a Court has ordered disclosure of a completely unredacted version of the decision. The airlines have filed an appeal against the latter order, and a decision from the Court of Appeal as to the entitlement of Claimants to such confidential material, including leniency material, is eagerly anticipated.
In a highly controversial case, the Court of Appeal of Arnhem-Leeuwarden handed down a judgment on 2 September 2014 confirming the availability of the passing-on defence under Dutch law (TenneT v. ABB); this is where the defendant argues that the plaintiff itself has not suffered loss as that loss has been passed on, e.g. through price adjustments, to the plaintiff’s customers. While case law on this topic already existed in, amongst other jurisdictions, France and Germany, the judgment is the first authoritative decision on this issue in the Netherlands.
What Does the Future Hold?
Private enforcement of competition law arrived in Europe some time ago and is now flourishing, with opportunities readily available for companies to recover very substantial damages. The Directive will further strengthen and enhance European competition law, providing victims of competition infringements with an ever more powerful platform from which to prosecute civil damages actions against infringers. Yet, the ultimate weapon in private enforcement in this area ‑ class actions ‑ are still to be decided on across the EU, although the English are leading the way here with the introduction of an opt-out collective action regime that is due to be in effect by late 2015.
Class actions in the field of competition law are clearly on the Commission’s agenda. It has been conferring on collective redress schemes since 2005. On 2 February 2012, the European Parliament adopted the resolution ‘Towards a Coherent European Approach to Collective Redress’. In the Commission’s Recommendation 2013, the Commission called for the implementation of its collective redress principles by 26 July 2015 at the latest. Although the recommendation is not legally binding, the Commission noted that it would evaluate the status of collective redress laws in the Member States and if appropriate propose further measures by July 2017. This tight agenda leads observers to believe that the current recommendation is merely an intermediate step. In all probability, a more far-reaching legal act will follow.