The Damages Directive came into force in the UK on 9 March 2017.1 This change is important, as the risk of competition claims is likely to increase steadily across the EU. What may be less obvious, but is equally significant, is that the Directive provides tools for potential defendants to manage and limit their risk when infringements arise, and claims follow.
The impact on risk of competition claims
The Directive harmonizes rules for competition claims across the EU. This is part of a policy to promote private enforcement of competition infringements. It imposes a more claimant-friendly regime across the EU. The Directive tilts the playing field in claimants’ favour in several ways:
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There is now a rebuttable presumption that cartels cause harm. This means that the burden of proof, to establish that the cartel has not caused loss and damage, shifts onto the defendant.
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Decisions of member state competition authorities or courts are now prima facie evidence of an infringement. Findings of the European Commission and courts, as well as the regulator and courts of the ‘home’ jurisdiction, are already binding on issues of liability in follow on actions. Now, decisions of authorities or courts in other member states are prima facie evidence of infringements, shifting the burden of proof again onto the defendant to provide evidence to the contrary.
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The burden of proof is imposed on the defendant in establishing a defence that any claimant “passed on” an overcharge. This shift is important, as experience shows that “pass on” of an overcharge is hard for a defendant to prove. For example, in the interchange fee litigation in the UK, Mastercard argued that Sainsbury’s had passed on any alleged overcharge in respect of credit and debit card transactions to consumers. The defence failed, as Mastercard could not meet the high legal threshold for proving the alleged overcharges were passed on.
Indirect claimants have also been given an advantage. To establish a claim, an indirect purchaser of goods or services from a cartel now only needs establish (i) an infringement of competition law; (ii) that infringement resulted in an overcharge or underpayment to the direct purchaser; and (iii) the indirect purchaser purchased goods or services that were the object of the infringement. These changes again make it easier for claimants, and shift the burden onto defendants.
As the rules apply Europe-wide, the position for claimants has inevitably improved Europe-wide. The regime applies in the UK post-Brexit, and the risk of claims will only increase in the UK and across the EU. However, the extent of the increase in risk in any particular jurisdiction remains to be seen. It will only be known once the new regime has had time to bed in, and claims governed by the new rules start coming through the courts.
Where is the risk going to fall?
Broadly, the Directive brings the procedural and substantive rules across the EU closer to the more claimant-friendly regime in jurisdictions such as the UK. This should assist claimants and increase the risk of claims across the EU. In particular, disclosure will now be a feature of competition claims EU-wide.
However, this change is not likely to reduce the number of claims in jurisdictions with deep experience of these claims, such as the UK. The Directive does not change the rules on jurisdiction, and potential claimants will not have any wider choice about where they bring their claim than they currently enjoy. And where the claimant has a choice, there are still strong reasons to choose a forum where the courts and practitioners are used to handling competition claims. For this reason, the more developed jurisdictions, with strong claimant bars, and, in the case of the UK, established experience of disclosure, are likely to remain popular for the foreseeable future.
What does the Directive do to assist potential defendants in managing risk?
The Directive encourages whistleblowing and self-reporting by increasing the protection available to immunity and leniency applicants. Under the new regime, the immunity or leniency process should offer defendants a more reliable path to managing their exposure, as limitations are now placed on the evidence available to claimants, and the scope of potential liability in follow on claims.
First, there are protections regarding disclosure and evidence. Leniency statements and settlement submissions are specifically protected from disclosure, and from admissibility as evidence in follow on claims. In addition, a competition authority’s investigation materials may not be ordered to be disclosed until the investigation is closed.
Importantly, there are also limitations imposed on the principle of joint and several liability. Previously, an immunity applicant was potentially exposed to joint and several liability for all the loss caused by a cartel. There was therefore a disincentive to self-report, especially where other significant potential defendants disputed liability. Now, an immunity recipient’s exposure will generally be limited - to liability for products and services that are the object of the infringement, and directly or indirectly purchased from, or provided to, that immunity recipient (or products or services derived from those products or services). This is subject to the claimant being able to recover losses caused by other cartel participants from those entities.
The rules also provide a structure to encourage alleged infringers to settle claims. This is again by imposing tighter limits on the principle of joint and several liability. The settling complainant’s claim is reduced by the settling infringer’s share of the loss and damage, a settlement ends the complainant’s right of action against that defendant, and there is protection against contribution claims for the settling infringer (the settling infringer’s share of loss and damage is irrecoverable via a contribution claim).
These pragmatic limitations are designed to promote recovery of competition losses through the courts. There are benefits to potential claimants - in that the rules shift the burden of proof in their favour, and encourage infringers to self-report and settle claims. But there are also corresponding benefits to defendants – as the limitations on evidence and joint and several liability allow them to manage their risk with greater certainty, via immunity or leniency applications, and settlement.
1 This is via the Claims in respect of Loss or Damage arising from Competition Infringements (Competition act 1998 and other Enactments (Amendment)) Regulations 2017) (the Regulations).The Regulations are principally effected via a new section 47F of the Competition Act 1998, which refers to a new Schedule 8A There are corresponding changes to the CPR (new Rule 31C) and the Competition Appeal Tribunal Rules.
