The White Paper on damages actions for breach of the
EC anti-trust rules
This guide was last updated on 13th August 2008.
The European Commission wants to make it easier for victims of
anti-competitive behaviour to claim compensation for losses arising
from breaches of EC competition law.
Articles 81 and 82 of the EC Treaty prohibit anti-competitive
agreements between businesses and the abuse of dominant market
positions.
Penalties imposed by EU and national competition authorities
(which can amount to up to 10% of global turnover) do not go to the
victims of anti-competitive behaviour. But any individual or
business that suffers harm as a result of a breach can sue in their
national courts for damages.
Disincentives
It appears, however, that relatively few are doing so. Consumers
and small businesses, in particular, are deterred from bringing
individual claims because of the costs, delays and uncertainties
involved.
Barriers to an effective compensation system include legal and
procedural hurdles imposed by member states' national courts, the
need for complex factual and economic analysis to prove that an
infringement took place and the difficulties faced by claimants in
gaining access to evidence in the hands of defendants or third
parties.
In a White Paper published on 3rd April 2008, the European
Commission proposes to address these problems by a combination of
measures at community and national level.
Competition Commissioner Neelie Kroes commented: "The
suggestions in this White Paper are about justice for consumers and
businesses, who lose billions of Euros each and every year as a
result of companies breaking EU antitrust rules.
"These people have a right to compensation through an effective
system that complements public enforcement, whilst avoiding the
potential excesses of the US system".
Collective redress
The White Paper states "there is a clear need for
mechanisms allowing aggregation of the individual claims of victims
of anti-trust infringements" - in other words, group actions
primarily designed for consumers and small businesses.
The Commission suggests two complementary mechanisms: (1)
representative actions brought by qualified bodies (such as
consumer associations, state bodies and trade associations) on
behalf of identified or identifiable victims; and (2) an "opt-in"
class action regime under which claimants could combine their
individual claims for damages into a single action.
Neither of these would deprive claimants of their right to bring
individual actions if they wished, although there would need to be
some safeguards against victims being compensated more than
once.
Access to evidence
The Commission would like to see an EU-wide minimum level of
disclosure. National courts would be able to order parties or third
parties to disclose categories of evidence, provided the claimant
could show a plausible claim and was able to specify in a
sufficiently precise way the categories of evidence to be
disclosed. He would also have to show the disclosure was relevant,
necessary and proportionate.
Binding decisions
The White Paper proposes that final decisions of national
competition authorities establishing an infringement of EU
competition law should be binding in all other member states.
At present, claimants can rely on findings of the European
Commission as binding proof of an infringement in civil claims for
damages brought in national courts. But not all member states treat
the decisions of national competition authorities as
binding.
The Commission sees no reason why final decisions should not be
accepted in every member state as irrefutable proof of the
infringement in actions that relate to the same practices and the
same undertakings. "Final" decisions are those where the defendant
has exhausted every avenue of appeal.
Damages
The Commission has watered down its original proposal that
damages awarded in infringement cases should automatically be
doubled, as well as attracting interest from the date of the
infringement.
It now suggests that damages should compensate successful
claimants for the real value of the loss. This would extend to
actual losses due to anti-competitive price increases, any loss of
profit as a result of a reduction in sales and a right to
interest.
The White Paper proposes codifying the scope of damages
available in a new legislative instrument and issuing practical,
non-binding guidance on the calculation of the amount.
Indirect purchasers
In many cases of infringement, the direct customer of the
infringer has not actually suffered a loss because he has passed on
the illegal overcharge to his own customer. But the customer at the
end of the chain who actually suffers the harm (typically in the
form of higher prices) will find it much more difficult to claim
damages because of his distance from the original infringer.
The Commission proposes that indirect purchasers should be able
to rely on the rebuttable presumption that the illegal overcharge
was passed on to them in its entirety. The infringer would
generally still be able to rely on the "passing on" defence against
any claims by the direct customer.
Other measures
In the case of continuing or repeated infringement, the
Commission proposes that limitation periods should not start to run
before the infringement ceases or before the victim of the
infringement can reasonably be expected to know about the
infringement and the harm it caused him.
The Commission also proposes a new 2-year limitation period
starting once an infringement decision has become final.
Where a member state requires fault to be proved before damages
can be claimed, the infringer would be liable unless he
demonstrates that the infringement was the result of a genuinely
excusable error – i.e. a reasonable person applying a high standard
of care could not have been aware that the conduct restricted
competition.
The Commission would also like to see national courts able to
derogate from the "loser pays" costs principle in certain
circumstances, such as when the defendant's costs were unreasonably
or vexatiously incurred or are otherwise excessive.
The deadline for submitting comments on the Commission's
proposals is 15th July 2008.
UK proposals
Under the Enterprise Act 2002, victims of anti-competitive
practices and consumer representative bodies in the UK can bring
fast-track damages actions before the Competition Appeal Tribunal
when the Office of Fair Trading (OFT) or the European Commission
has made a decision establishing an infringement of competition
law.
Like the European Commission, however, the OFT is concerned that
the number of actions brought in the UK by consumers and small
businesses has remained low, although a number of cases have been
settled outside court.
In November 2007, it recommended the Government consider various
ways in which barriers to private actions in competition law might
be reduced.
These included allowing proceedings to be brought by
representative bodies on behalf of consumers and businesses who
have suffered loss, whether or not a competition authority has made
an infringement decision.
The OFT also sees a need for a more effective class action
mechanism, but (unlike the proposal put forward by the European
Commission) its suggested model is for an "opt-out"
system.
This would mean that actions would be pursued by representative
bodies on behalf of consumers and businesses at large, not just on
behalf of those who had actively consented to be involved. Anyone
not wishing to be bound by the outcome of the litigation would have
to say so expressly (the "opt-out").
Other recommendations include encouraging the use of conditional
fee arrangements in competition cases, a cap on claimant’s costs
liabilities - in some cases, full cost protection for the claimant
- and modifying restrictions on third party funding.
Class actions generally
It is not yet known which of the OFT's proposals the UK
Government will put forward for consultation. But the likelihood is
growing that class actions in some form will become more common for
a wider range of civil actions, not just competition claims.
In July 2008, the Civil Justice Council (the advisory body
responsible for overseeing the modernisation of the civil justice
system in England and Wales) published a report formally
recommending that an opt-out class action procedure be added to the
various types of collective action already allowed by the English
court.
In Europe, the Commission is also considering broadening class
action systems to cover breaches of consumer protection rules.
Contact: Alan Davis (alan.davis@pinsentmasons.com
/ 020 7418 7026)
See:
See also: Justice review backs class
actions in English courts, OUT-LAW News, 13/08/08
