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Article: January 2020: Antitrust & Competition Update

Business Litigation Reports

Cartel Damages Claims:  England’s Court of Appeal Hands Down First (Very Small) Damages Award Judgment

On October 31, 2019, the Court of Appeal handed down judgment in BritNed v ABB, the appeal against the first English cartel damages award.  It reduced the damages awarded from €15 million / $16.6 million (plus simple interest) to just under €10 million / $11.5 million (plus simple interest)—a fraction of the approximately €200 million originally claimed.  In doing so, the Court of Appeal clarified the key principles applicable to cartel damages claims under English law, namely that:  (i) it is for claimants to prove damage and its amount; (ii) pre-Damages Directive, there is no presumption of harm and that presumption is unlikely in any event to assist; and (iii) claimants must give credit in the calculation of damages for any benefits they received by reason of the cartel (“netting-off”).

 

Background Facts

            In 2014, the European Commission found that ABB and other European, Japanese, and South Korean power cable manufacturers had participated in a global, market-sharing cartel for high-voltage submarine and underground cable projects between 1999 and 2009 (the “Cartel”) in breach of EU competition law (Article 101 of the Treaty of the Functioning of the EU (“TFEU”)).

            BritNed owns and operates the BritNed “Interconnector,” a 1000 MW submarine electricity cable system connecting the UK and Dutch electricity grids, which was supplied by ABB in 2009.  It, accordingly, brought a follow-on cartel damages claim seeking over €200 million / $220 million in damages against ABB in the English High Court. The claim was not only for damages for an overcharge on the price paid plus compound interest, but for loss of profits (alleging that absent cartel-inflated prices, it would have opted for a higher capacity cable thereby generating additional profit).

First Instance Ruling

            After detailed consideration of the evidence, the trial judge rejected the pleaded overcharge claim because the ABB employee negotiating the BritNed contract had no knowledge of the cartel and “acted competitively.”  However, he awarded BritNed €7.5 million / $8.3 million in respect of “baked-in inefficiencies” resulting from the cartel, in casu the excess use of copper in ABB cables compared to other suppliers, which, in a competitive market, would have led ABB either to lose the project or absorb the cost of its less efficient cables.  These damages were then reduced by 10% to take account of a regulatory cap on BritNed’s profits.  The trial judge also awarded €5.5 million ($6 million) in damages to reflect a portion of the “cartel savings” ABB enjoyed as a result of not having to compete during the cartel.  BritNed’s loss of profits claim was dismissed in its entirety. 

The Appeal: Grounds and Outcome

            BritNed appealed with respect to the findings on overcharge, the reduction of damage with respect to the regulatory cap on profits, and the dismissal of its lost profit claim (this was rejected on the evidence, so is not addressed further here). ABB cross-appealed against the damages award relating to “cartel savings,” essentially on the basis that BritNed had sought compensatory damages and had not sought, and was not entitled to seek, an account of profits or restitution.

Compensatory Nature of Cartel Damages

            The Court of Appeal’s judgment confirmed that cartel damages are compensatory, rejecting arguments that EU law principles of effectiveness and equivalence require restitutionary damages, or the relaxation of rules on causation and remoteness of damage.  The English rules on quantifying damages do not, as the claimants had sought to argue, make their recovery impossible in practice because the “broad axe” wielded by the court in assessing loss reflects a recognition that quantification exercises are invariably estimation exercises.  The “broad axe” does not require a court to err on the side of either under- or over-compensation but its quantification of loss must be based on the evidence before it. 

            The upshot of the Court of Appeal’s analysis for BritNed was that while it found that the trial judge had properly applied the compensatory approach in relation to the overcharge claim, the award of damages on the basis of ABB’s “cartel savings” was held to have been based on an error of law.  In the absence of evidence before the judge on how cartel savings might correlate with the price paid by BritNed, it was not open to the judge to assume such correlation and to make a compensatory award on that basis.

No Presumption of Harm

            The claimants also failed to persuade the Court of Appeal that the presumption that cartels cause harm, which was introduced by the 2014 Damages Directive, was part of the pre-existing EU law applicable in relation to these proceedings.  Significantly, as far as future claims are concerned, it also agreed with the trial judge that it was hard to see how a presumption of harm could assist in claims in England at least, given the need to quantify losses.  This conclusion was hardly surprising but it provides a useful warning to future claimants that the Directive will not be a game-changer in England (in this respect at least).

Netting of Losses

            Consistent with the compensatory principle, the Court of Appeal confirmed that a claimant is only entitled to recover net losses and so must give credit for any benefits it enjoyed by reason of the cartel.  Only where the benefit is collateral, in the sense that it arises independently of the circumstances giving rise to the loss, should it be disregarded.  The benefit, in this case, concerned the level of profits the claimants could enjoy before the regulatory cap bit.  As the effect of the regulatory cap was an immediate result of the overcharge, the Court of Appeal held that it was not a collateral benefit.  Consequently, the 10% reduction in the award of damages for “baked in inefficiencies” was upheld.

Conclusion

            The Court of Appeal’s judgment in BritNed will be claimed by claimants and defendants alike.  For claimants, the emphasis on the “broad axe” approach and the recognition of the difficulties in proving and estimating loss will provide comfort.  For defendants, the recognition that damages are based on the compensatory principle, and the reminder that it is for claimants to prove their loss, will give reassurance.  The parts of the judgment addressing netting-off will have significance for most claims brought in the future.

            It is not yet clear whether BritNed will seek permission to appeal to the Supreme Court, although one of BritNed’s joint owners, National Grid, has a claim pending in relation to the power cables cartel so an application for permission would not be surprising.  What is clear is that the judgment in BritNed will shape the English courts’ consideration of cartel damages awards for many years to come.