Courts Claimants Damages

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Commercial Law LLM Assignment

1.Importance of private enforcement

The importance of private enforcement of EC law in general has been embedded in case law, in the landmark case of Van Gend & Loos the court in their statement generally seems to indicate that the EC Treaty creates rights which protect every country, company and consumer; and anyone benefiting from those rights, can go to court to enforce them, when damage is caused as a result of an EC antitrust infringement, the damage should be repaired.

As early as the 1970's, The Court of Justice stated that Articles 81 (1) and 82 EC “tend by their very nature to produce direct effects in relations between individuals which the national courts must safeguard”.

Despite this statement, national courts have been rarely invited to apply the EC competition rules, partly to the fact that until the entry into force of Regulation 1/2003, national courts were not entitled to apply Article 81 (3) EC. This implied that a national proceeding could be blocked by making a notification to the commission, if this happened and it was not clear that Article 81 (3) EC was not applicable, the national court would have to suspend proceedings, and this inevitably meant that complainants would generally go directly to the commission.

Although claimants went direct to the commission, one of the main tools that was lacking was the power to award damages to compensate for loss suffered as a result of a competition law infringement. Indeed case law in Europe shows successful claims for damages for breach of Community law to date is limited.

In the English courts it appears that, prior to the judgment of the Court of Appeal in the Crehan case , there had been one action for breach of Community competition law in which infringement had been established this was the Article 82 action brought by Hendry and Williams against the snooker world governing body in that case no damages were awarded. UK Courts have to an extent lead the field in remedies for breach of EC law, in particular, they have generally accepted that damages should be available in principle as a remedy for breach of EC competition law since the case of Garden Cottage Foods Ltd v Milk Marketing Board.

There are other cases where damages have been sought in UK courts but infringement has not been established, in Arkin v Borchard Lines, the court rejected the claim it could not be proved that the activities had caused loss, see also Provimi Ltd v Roche Products Ltd and Others.

On 21 May 2004 the English Court of Appeal gave judgment in the Crehancase, the Court overturned the earlier judgment of the High Court and found that the claimant was entitled to damages to the amount of £130,000. This is the first case in the English courts in which damages have been awarded for breach of competition.

With this case, the objective of antitrust damages actions was recognised by the Court of Justice they held that the full effectiveness of Article 81 EC and, in particular, the practical effect of the prohibition laid down in Article 81 (1) EC would be put at risk if is were not open to any individual to claim damages for loss caused by a contract or conduct liable to restrict or distort competition.

The court also held that the existence of such a right strengthens the working of the EC competition rules and discourages agreements or practices, which are liable to restrict or distort competition, ECJ decided that everyone who suffers losses from a violation of articles 81 or 82 EC is entitled to compensation.

Although as identified England has few claims, in Italy there does not appear to have been any successful damages actions. In Germany the only such action which could be characterised as successful was a declaratory action and no damages were awarded France is more successful than in the other principal European jurisdictions.

2.Facilitating private enforcement

After the case of Courage v Crehan, the council made a step in facilitating private enforcement of the EC competition rules by adopting the Regulation 1/2003.

The aim of the changes was to make public enforcement of competition rules in Europe more effective by freeing up the European competition authorities' resources to concentrate on investigating and prosecuting hardcore cartels in Europe.

With the introduction of Regulation No 1/2003 the aim was to provide greater scope and cause for private enforcement alongside public enforcement., and indeed in handing down the Manfredi Judgment, ECJ appears to have reiterated the importance of civil actions as a deterrent against infringements of competition law.

As an instrument to increase the effectiveness of the enforcement of Articles 81 and 82 EC the Manfredi case opens the floodgates to a remedy which is still astonishingly underdeveloped.

Changes do not stop at enhancing public enforcement of competition rules; there is a hope that this new environment will encourage private enforcement of competition, with more competition damage claims coming before the national courts.

Despite the support provided by existing case law, and the introduction of Regulation no 1/2003 private enforcement in Europe is still very much in its infancy, especially compared to jurisdictions such as the United States where approximately 90% of all antitrust cases in the US involve private rather than public actions.

With private enforcement of competition law playing an important role in building the competition culture that is needed to stimulate in order to fulfil ambitions for economic growth in Europe, and the importance is reiterated that where damage is caused as a result of an EC antitrust infringement, damage should be repaired is vital to competition law, it is a concern that many victims do not enforce their rights in this regard, within the EU countries.

The main reasons for this are identified by Kroes victims are not enforcing their rights as they cannot afford the costs involved and they do not have access to existing evidence, so if a victim is unlikely to take action the wrongdoer is less likely to repair the damage that has been caused.

Although private enforcement is not new, indeed parties are currently able in most, if not all member states to bring actions for damages for breach of EC treaty antitrust law, it is evident that something needs to be done to improve the rights of victims.

With this, the aim of the Commission's Green paper was to look into why these kinds of actions are so infrequent in practice and to propose some means of facilitating such actions, other Authorities such as OFT paper are also aimed at identify ways in which the situation can be helped, the following pages will discuss both papers and E C Green Paper “Damages Actions for Breach of the EC Antitrust Rules” and the OFT discussion paper “Private Actions in Competition Law: Effective redress for consumers and business”

1.Issues

There are claims that that private enforcement of EC competition law has reached a new stage with the publication of the Green Paper, it has triggered lively debates. and the stakes of the Green Paper are high; there are a number of challenges to face

i)More economic approach

ii)Difficulties with the passing on problem, a problem argued as the central one.

The paper addresses key issues :

i)Obstacles to a more effective system of damages actions for breach of EC Treaty antitrust rules

ii)Identifies current problems in the system of private enforcement

iii)Deals with the question of damages for breach of EC Treaty competition rules bans on restrictive business practices, such as cartels, and abuse of a dominant market position as contained in Articles 81 and 82 respectively.

In response to the Green Paper, the focus of the OFT's paper is a call for reform to permit greater scope for representative actions in the UK, it questions the effectiveness of the options currently available and on the basis of the high cost risk faced by claimants and the need to identify and advance every member of the class effected.

Whilst there are a number of sensible proposals adopted in the OFT paper, there are areas where it can be seen to be questioned whether the approach is necessary or desirable.

2.Access to evidence

Actions for damages in antitrust cases may regularly require the presentation of evidence. Green Paper highlighted that this kind of litigation relevant evidence may often not be easily available to the injured party, The Commission states that access to evidence is key to making damages claims effective.

The Green paper presents options aimed at facilitating access to evidence or alternatively alleviating the claimant's burden of proving the infringement. Suggestions of creating a specific right for private itigants to obtain directly from the other parties a copy of the documents they supplied to the Commission in the initial course of the procedure/claim.

Although care must be taken to control costs, a requirement to disclose relevant documents should be seen as a pre-requisite to an effective private enforcement regime.

Clearly in line with the Green paper the OFT agree that disclosure of documents rather than the disclosure of a party's list or relevant documents is the key factor in facilitating claims.

The OFT states that English law already has wide disclosure provisions, however their aim is to place all relevant evidence before courts to enable justice between the parties, questionably though, is all evidence required to enable the claim? In the US plaintiffs enjoy broad discovery rights under the Federal Rules of Civil Procedure.

The US process follows that parties are from the outset obliged to make certain disclosures to one another, claims are pursued more easily even without all the evidence.

The US system gives the parties the opportunity to disclose the relevant information, to the claim and not disclosing irrelevant information about the company.

With this in mind the OFT in their proposal need to ensure that any rules requiring the disclosure of documentary evidence should at the least be combined with an obligation not to use any confidential information or evidence disclosed other than for the purposes of the relevant full proceedings. There may be a need for a specific confidentiality of business secrets and other confidential information contained in the disclosed documents.

Questionably will these changes add anything to the current position in England wide disclosure is already available?, and the question of information asymmetry, unless there is adequate disclosure there may always be an information asymmetry between claimant and defendant.

2.Stand alone - follow on actions

With follow on actions, the question to ask is whether its necessary for the claimant to prove the infringement, as it has already been proved, Article 16 of Regulation 1/2003 gives that a commission decision finding an infringement of Article 81 and 82 EC constitutes a binding for the national court,, see the case of Masterfoods Ltd v HB Ice Cream Ltd at paragraph 52 the Commission had already made a decision on the case and therefore the national court had to bind by that decision.

In contrast to follow on actions, stand alone actions the claimant usually faces an information asymmetry compared to the defendant. The Green Paper suggests rebalancing the relationship between claimant and defendant.

Many claimants wait until there has been an infringement decision before bringing a claim, rather than having to prove the infringement themselves, it might therefore be appropriate to widen the class of decisions that a claimant can rely on.

OFT proposes designated bodies be allowed to bring stand alone representative actions on behalf of consumers and both follow-on and stand alone representative actions on behalf of businesses, thereby expanding the existing representative actions currently available before the Competition Appeal Tribunal.

This raises concerns; the call for more stand-alone actions in national courts may inappropriately result in competition law developing more through the national courts rather than, in the first instance, through the regulators and the EU judicial system.

OFT states standalone claims are an additional and more immediate corrective mechanism than follow on claims, since they can be brought before the conclusion of a competition authority investigation or any absence of any such investigation.

Arguably this questions whether standalone claims in fact are more immediate, as they require a large amount of fact finding which will already have been carried out in the most part by the competition authority in a case of a follow-on claim.

3.Damages, costs for action

A potential claimant who is deciding whether or not to bring a damages case will usually balance the likely benefits of an action with the costs and the potential risk of having to bear that cost should they lose. This was identified as a main factor by Kroes, the cost/benefit balance tends to discourage potential claimants from bringing forward damages claims.

Green Paper identifies ways of alleviating this imbalance; trust could be restored by lowering costs of an action or lowering risk of having to bear those costs and/or by increasing benefits of an antitrust damages action and also raises the fundamental question of whether the measure of damages should be compensatory, or restitutionary , without entering into a litigation culture as in the US.

Within the OFT paper there is emphasis which coincides with the green paper, the emphasis on encouraging a competition and not litigation culture. It is recognised that a litigation culture may be harmful to legitimate business activity. It is widely discussed that there are concerns expressed by various parties that any proposed changes will earn the reputation of the US. The US has had success, however the number of civil cases filed dropped from 2004-05, however the number of antitrust civil filings, initiated by private plaintiffs rose by 8.8%.

It seems that the treble damages available to the plaintiffs in the US as well as pro-plaintiff discovery and procedural rules, does make private damages easy and more attractiive to pursue.

Percentages rising indicate the system is working, however it has been written that many practitioners and policy makers contend that the treble damages creates an incentive for the plaintiffs to sue.

The EC are trying to achieve the same principal with their suggestions of the double damages proposal, although this has been seen as perhaps the most controversial option contained in the green paper in contrast the OFT paper makes no reference to the EC's debate about double or triple damages, they only imply that exemplary damages might be available in certain circumstances.,

Case law indicates that exemplary damages are in principle available for competition law breach however agreeance is made with comments made by Monckton Chambers in their response that legislation would be welcome which expressly acknowledges and clarifies the courts' power to award exemplary damages in competition law, the exemplary damages as they stand at the moment don't seem to be the incentive needed to aid and encourage claims.

It seems the OFT as with the EC wish to encourage claims for infringement but are not holding out the incentive for claimants in the damages that can be gained. Indeed it seems the OFT need to decide if they are i) allowing the victims of anti-competitive conduction to obtain compensaion for loss or ii) using their policy as a deterent, it is not clear from the discussion paper where they stand on this policy.

Deterence in US has had a positive effect on claims, this is clear in the increase in percentages, this is something the OFT should consider.

4.Passing on defence

Green Paper questions whether the infringer should be allowed to raise such a passing on as a defence against a damages claim brought by a direct purchaser.

It is fairly unlikely final consumers will bring actions for damages, due to their claims being small; if a business is put off by costs, the likely hood that consumers are put off is very high, however notably; they are the ones who could inevitably be the ones to suffer the most from an antitrust infringement.

Green Paper gives options on how the consumer's interests could be protected by collective and representative actions.

OFT argues that all persons (including indirect purchasers) harmed by anti-competitive practices should have standing to bring an action, and that the evidential burden of proof in respect of "passing-on" should always lie with the defendant.

Item 6.22 highlights the importance of passing on not becoming a powerful shield for defendants to escape liability and gives models as a simplification of the response to the Green paper, it is commented by Morten Hviid that the models seem to relate only to cartels, and authorities critisised the model as being a simple format, hard to fault the principles, but seeks to make simple what in practice will inevitably be extremely complex disputes.

Although the OFT wishes to allow all persons affected by infringement a way to claim, the effectiveness and practical usefulness of the defence route could be questioned. The effect of its existence may simply serve to complicate and extend proceedings and to raise costs, given the costs of litigation in the UK, this solution needs to be avoided as that alone may mean that potential claimants will be reluctant to bring claims against defendants, especially if these are members of cartels and have more money, this is precisely what both the EC and OFT are trying to avoid

Of course, it could be argued that since the OFT in their proposals wish the primary burden of proving the defence to fall upon the defendant, the difficulty of the defence might reduce chances of success and, thereby, reduce the extent to which claims are made simply by the fear of incurring high costs, this is fair to say, however again not what they are trying to establish.

Apart from the difficulty of the so-called defence reducing the deterrent effect of private actions, there is also the practical problem that if the direct purchaser is not able to claim the entirety, it will have less of an incentive to bring a claim at all, again an issue the OFT is trying to avoid.

If the defendant were to face claims from indirect purchasers just as much as from direct purchasers, this might not weaken the overall deterrent effect of the possibility of claims being brought; the fact that different people would recover different components of the overcharge would not reduce the overall deterrent effect. However, it should be noted that in many circumstances, those who have suffered eventual loss may be many and their individual losses small.

It is not yet clear how the English courts will treat a defence of passing on. It is debatable as to whether such a defence should be allowed to succeed at the risk of relieving the defendant of any liability for the consequences of its infringing conduct.

Alternatives to consider are allowing claims against the defendant by the claimant's customers or allowing the claimant to recover but imposing some obligation on it to compensate its customers and whether the claimant seeks damages assessed not on the compensatory measure, but on an unjust basis.

Leniency

Neelie Kroes recognised the tension between leniency and private enforcement in a recent speech on the Commission Green Paper on damages actions. other papers suggest that cartels are hard to detect and damages actions for victims of a cartel will remain largely theoretical if a well devised leniency programme that destabilises and uncovers them is not put in place. The options in the Green Paper indicate how the leniency programmes of the EC Authorities could actually benefit from some well devised measures being put in place.

Green Paper for the first time attempts to address questions and moves in the US direction. The policy options considered include the non-discoverability of leniency applications and the possibility to lessen the civil liability of a leniency applicant.

OFT put forward a leniency programme aimed at businesses coming forward with information about a cartel in which they are involved, the leniency programme is aimed at the cartels having their financial penalty reduced, possibly substantially or they may be able to avoid a penalty for giving information.

Many authorities commenting on the paper consider the leniency programme to be an important aspect its evident how important it would be that leniency regimes be protected, and documents submitted to the OFT as part of a leniency application should be safeguarded from third party disclosure.

The leniency programme will inevitably bring positive actions and both the EU and OFT are discussing the elimination of joint and several liabilities in private actions so that a whistle-blower has incentives to come forward.

Conclusion

There are many areas not discussed in this paper which could highlight concerns and further discussions, one common question raised is whether the primary purpose of private damages claims should be compensation of victims or efficient enforcement of competition rules and deterrence. If it is wished to encourage enforcement of competition law and deter infringement, but avoid a litigation culture decisions will have to be made to obtain the fine balance needed to achieve these goals.

Facilitating actions for damages is a logical step after Regulation 1/2003, by effectively being able to bring a damages claim, any individual citizen in Europe whether that is a consumer or a company is brought closer to the competition rules and will be more involved in the enforcement of these rules.

There is clear recognition that the EU needs to move forward from the ‘state of total underdevelopment' of private claims for competition damages identified by the Commission's report in 2004 and to move forward they adopted the Green Paper complementing the public enforcement of competition rules by higher levels of private enforcement of community competition law in the form of private actions before national courts would widen the enforcement scope of Articles 81 and 82 EC and thus create “a powerful additional incentive for companies to comply with the EC competition rules”

Indeed, facilitating private enforcement of the EC competition rules through actions for damages would service a double purpose it would allow victims of antitrust infringements to get compensation and it would increase the incentive for company's to comply with the law in the first place.

There is also general agreement on the need to avoid ‘US excess'. But there is much less agreement on how best to achieve these goals.

At present, most of the procedural issues which are considered to be addressed to encourage more private competition damages actions lie within the competence of the member states. However, a high-level requirement to ensure that member states provide an effective means of collective redress for competition harm would be welcome, the seminal Van Gend judgment of 1963 allowed private litigants to bring claims in their national courts for breaches of (directly effective) EC law.

If consumers and others are unable to claim against cartelists because the redress process in their member state is too risky an option for them, there may be a requirement to change the system in that state.

The Commission and public authorities such as the OFT see greater private initiative by victims in enforcing competition law and claiming damages for competition infringement as a necessary complement to their own public enforcement efforts, indeed the UK have made a step towards this objective with The Enterprise Act.

Damages claims will now be actively encouraged by the UK Government to provide a greater scope of redress for the victims of anti competitive behaviour.

The position can also be expected to change rapidly and radically in the EU and the UK with the Commissions Green Paper and the UK Government seeing private actions as an important element in an effective competition regime.

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