European Competition Law Newsletter – November 2018

by McGuireWoods LLP
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* reporting on key EU and UK developments in September and October 2018

Table of Contents

  • First UK Award of Follow-On Cartel Damages
  • Absolute Ban on Selling Online Infringes Competition Law
  • Procedural Issues Matter: Potential Fine for Obstructing a Dawn Raid
  • Order Restored: UK Court Protects Privilege

First UK Award of Follow-On Cartel Damages

On 9 October 2018, a UK court awarded damages in a follow-on private cartel damages claim. This is the first such award by a UK court and a major development in private competition litigation in the country.

The case arose out of the European Commission’s 2014 fining decision in the high voltage power cables cartel. The Commission found that the cartelists, 11 producers of underground and submarine high-voltage power cables, had shared markets and allocated customers among themselves on an almost worldwide scale. Part of this plan was to allocate important projects in the European Economic Area (which encompasses the EU), including large infrastructure and renewable energy projects such as offshore wind farms.

BritNed was a customer of one of the cartelists during the cartel period, having procured a contract for the construction of the BritNed Interconnector, an electricity submarine cable system connecting the UK with mainland Europe. BritNed sued for damages for an alleged overcharge resulting from the cartel.

The court largely accepted the defendant cartelist’s position that the cartel had not resulted in an overcharge in relation to the BritNed Interconnector. The damages were awarded based on two specific issues resulting from the operation of the cartel. The defendant’s cable design included “baked-in inefficiencies” and it had benefited from cost savings, which inflated the common costs included in the price charged to BritNed.   

Apart from being the first UK damages award in a follow-on cartel case, the judgment is important since it shows how UK courts might approach future cases. The court relied heavily on the factual evidence as to what actually happened on the ground during negotiations. It criticised expert economic evidence relying on proxies and theories, preferring a simpler and fact-based alternative.

In the future, the presumption of harm in cartel damages cases, which is now part of UK law, may apply. (It did not in this case.) However, it is clear from the judgment that claimants will still need to prove their claims on the facts, since defendants will be able to rebut the presumption using expert and factual evidence.  

Absolute Ban on Selling Online Infringes Competition Law 

On 7 September 2018, the UK Competition Appeal Tribunal (CAT) upheld the UK Competition and Markets Authority’s (CMA) 2017 decision that Ping Europe Ltd broke EU and UK competition law by banning the online sale of its golf clubs. The case shows once again that suppliers’ restrictions on how their distributors or resellers may sell, including online, must be considered carefully.

The CAT judgment states, “The potential impact of the ban on consumers and retailers is real and material. It significantly restricts consumers from accessing Ping golf club retailers outside their local area and from comparing prices and it significantly reduces the ability of, and incentives for, retailers to compete for business using the internet.” The ban on internet selling within the agreements in question therefore constituted a restriction of competition “by object” (in effect, an automatic restriction of competition law which cannot benefit from an individual exemption).

The CAT dismissed Ping’s arguments that the CMA was wrong when it found that the ban on internet selling was disproportionate, was not objectively justified, did not constitute an ancillary restraint, and did not benefit from an individual exemption on the basis of efficiency gains. The CAT also dismissed Ping’s arguments that the CMA’s decision infringed its human rights.   

However, taking various factors into account, the CAT lowered the CMA’s original fine by £200,000, to £1.25 million.

The CMA commented, “This landmark case sends an important signal that attempts by manufacturers to impose absolute bans on selling their products online are not permitted by law.”

The CMA had accepted that Ping was pursuing a genuine commercial aim of promoting in-store custom fitting of its clubs, but found that it could have achieved this through less restrictive means. Following the judgment, Ping must allow retailers to sell online, though it may require them to meet certain conditions before doing so. Similar principles will apply in relation to any product sold online in the EU.  

Procedural Issues Matter: Potential Fine for Obstructing a Dawn Raid   

The European Commission and the national competition law regulators in the EU consider interference with “dawn raids” (or “inspections”) a serious matter.  Companies need to be aware of this and suitably train their personnel as part of a corporate competition law compliance programme.

In the latest example of this, on 25 September 2018, the Commission announced that it had sent a Statement of Objections (SO), a preliminary statement of its case, to Slovak rail company ZSSK alleging obstruction during a Commission inspection.

The Commission carried out inspections at the ZSSK premises in June 2016. The Commission suspected that ZSSK may have entered into anti-competitive agreements aimed at shutting out competing rail passenger transport operators from the market, in breach of EU competition law.

During an inspection, inspectors are empowered — among other things — to examine and take copies of documents related to the business, irrespective of the medium on which they are stored. Companies must provide full support to the Commission's inspectors. EU rules governing competition law investigations require companies under investigation to submit to the inspection. Failure to do so can lead to fines of up to 1 percent of total annual turnover.

The Commission indicates in the SO that ZSSK may have obstructed the inspection in the following ways:

  • Providing incorrect information on the location of the laptop of one of its employees
  • Failing to provide requested data from this laptop by allowing its re-installation, which led to an irrecoverable loss of the stored data

This is a preliminary position and ZSSK now has the opportunity to inspect the Commission’s evidence and put forward its view. Whatever the ultimate finding, the case provides another example of the Commission taking action as a way of publicising the need to submit to inspections and generally to comply with competition law procedural rules. As another example, earlier in 2018, the Commission imposed a €124.5 million fine on Altice, a Netherlands-based multinational cable and telecommunications company, for implementing its acquisition of the Portuguese telecommunications operator PT Portugal before notification or approval by the Commission under the EU merger control rules (i.e., “gun-jumping”).    

Order Restored: UK Court Protects Privilege   

On 5 September 2018, the England & Wales (UK) Court of Appeal handed down a significant judgment on the law of privilege. This overturned a High Court judgment that lawyers had viewed as highly concerning due to the restrictive position it took in relation to privilege protection of documents produced during internal investigations.

The Court of Appeal considered both litigation privilege and legal advice privilege.  These are subheads of legal professional privilege and have different characteristics.  Broadly, litigation privilege relates to communications between parties or their lawyers and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation. There are various requirements for this privilege to apply, including that litigation must be in progress or in contemplation, and the communications must have occurred for the sole or dominant purpose of conducting that litigation.

Legal advice privilege is more general and refers to communications between lawyer and client relating to a matter in which the lawyer has been instructed for the purpose of obtaining legal advice. All such communications will be privileged, notwithstanding that they do not contain advice on matters of law or construction, provided that they directly relate to the the solicitor’s performance of professional duty as legal adviser to a client.

The judgment makes many detailed points on litigation privilege but, most importantly, confirms that documents prepared for the purpose of settling or avoiding a claim are created for the dominant purpose of defending litigation and are therefore covered by this privilege. Further, the court found that companies are able to investigate allegations from whistleblowers or investigative journalists, prior to going to a prosecutor or regulator, without losing the benefit of legal professional privilege for the work product and consequences of the investigation.

In relation to legal advice privilege, the Court of Appeal considered its limitation (established in prior case law) to communications passing between the lawyer and the “client” (in the sense of the instructing individual or those employees of a company authorised to seek and receive legal advice on its behalf). The court would have been in favour of departing from this requirement (which only the UK Supreme Court could do) on the basis that it puts multinational corporations at a disadvantage. If such a company cannot ask its lawyers to obtain the information it needs to advise that corporation, from the corporation’s employees with relevant firsthand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice. In the court’s view, whatever the rule is, it should apply equally to all clients, regardless of size or reach.       

The England & Wales Law Society, which had intervened in the case, welcomed the findings, commenting, “Maintaining confidentiality and trust between a client and their legal adviser is fundamental to our legal system.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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