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.
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".
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.
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.
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.
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.
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.
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 (firstname.lastname@example.org / 020 7418 7026)
See also: Justice review backs class actions in English courts, OUT-LAW News, 13/08/08