2 Putting flesh on the Damages Directive – Some Recent Developments in the UK - The Strategic View - Competition Litigation 2016

The Strategic View - Competition Litigation 2016

2 Putting flesh on the Damages Directive – Some Recent Developments in the UK

        

Sarah Smith and Sam Szlezinger offer an insight into the UK’s competition litigation sphere in light of recent legislative development

Contributing firm

1. Introduction

The last two years have seen dramatic reforms in the competition litigation sphere, both across the EU, with the adoption of the Damages Directive1 and in the UK, with the introduction of the Consumer Rights Act 2015 and related legislative changes.

The full impact of these developments still remains to be seen.  The expressed policy intention from both the European Union and UK Government is to facilitate private damages actions and, fundamentally, to provide better access to justice for those who find themselves the victims of anti-competitive conduct.  It is hoped, therefore, that these changes will result in an increase in private competition claims from consumers, but also ensure that claims are dealt with efficiently and in an appropriate forum.

In the UK, the majority of the requirements of the Damages Directive are already in place, but that is not to say that it is not highly relevant to competition litigation practice and procedure in the UK.  Moreover, it is not possible to assess the impact of the Damages Directive in the UK in isolation, as it was shortly followed by the Consumer Rights Act, which brought in a raft of very substantial changes to the UK competition litigation landscape. 

This article, therefore, considers some recent UK cases and developments in light of both sets of reforms, in relation to the key issues of:

(i)            Limitation.

(ii)           Contribution claims.

(iii)         Collective actions and voluntary redress.

(iv)         Jurisdictional changes in the UK.

2. Limitation

The Damages Directive, adopted on 26 November 2014, does not standardise limitation periods across the EU, but instead, Article 10 sets out certain core requirements which, as a minimum, must be incorporated into national law in each Member State.  In particular, a five-year minimum limitation period will apply which may not start to run until the infringement has ceased; and the victim knows or can reasonably be expected to have knowledge of:

(i)          the behaviour constituting the infringement;

(ii)         the fact that the behaviour is an infringement;

(iii)        the fact that the infringer caused harm to the victim; and

(iv)        the identity of the infringer who caused such harm.

In addition, the limitation period must be suspended during any investigation by the European Commission or a national competition authority, and must recommence no earlier than a year after any infringement decision has become final or proceedings are otherwise terminated.  Article 18(1) requires that the limitation period is also suspended during any consensual dispute resolution negotiations.

The leading UK case on limitation periods remains Deutsche Bahn v Morgan,2 in which the Supreme Court reversed the Court of Appeal’s judgment and upheld the ruling of the Competition Appeal Tribunal ("CAT") that limitation periods need to be determined separately for each defendant.  The case was a follow-on damages case which followed a decision of the European Commission in 2003, fining participants to the carbon and graphite products cartel.  Initially, the CAT held that a follow-on action brought by Deutsche Bahn AG against Morgan Crucible could not be brought because the two-year limitation period for bringing a claim against Morgan Crucible in the CAT had expired as Morgan Crucible had not appealed the Commission's decision and two years had elapsed from the date of the decision. 

The Court of Appeal overturned the CAT’s judgment, on the basis that the limitation period should only start to run when all the appeals had been finally determined.  However, the Supreme Court rejected the Court of Appeal's judgment and followed the CAT's original approach.  This meant that the fact that other addressees of the Commission's decision had appealed was regarded as irrelevant in the context of how limitation period applied to claims brought against Morgan Crucible and the limitation period was not extended. 

The issue of exactly when the limitation period starts (and therefore expires) was recently considered in the multilateral interchange fee litigation by the Court of Appeal.  It rejected an appeal by a number of retailers from a judgment of the High Court striking out claims relating to the period before 2007, and having a value of £500 million.3

For a claim brought in the High Court, the limitation period is six years from the date on which the cause of action arose and, with effect from 1 October 2015 when the Consumer Rights Act 2015 came into force, this also applies to claims in the CAT (although see further commentary on transitional issues below).  However, where relevant facts have been deliberately concealed, the six-year period only begins when the breach has been, or could with reasonable diligence have been, discovered.  The claims brought by the retailers commenced in 1977 but the High Court struck out the claim for the period prior to six years before the claims were brought (i.e. July or October 2007).  The Judge held that as the European Commission had been investigating multilateral interchange fee since the 1990s (culminating in the exemption granted by the European Commission to Visa in 2002, the infringement decision by the Office of Fair Trading against MasterCard in 2005, and explained in various press releases and other publications), it was impossible for the retailers to allege that before 2007 they did not have sufficient facts to allow them to formulate their claim and to establish a prima facie case.

The Court of Appeal upheld the High Court's conclusions, holding that the claims in respect of periods before 2007 were time-barred and that there had been no deliberate concealment of facts which would justify extending the limitation period.4

3. Contribution claims

Article 11(1) of the Directive requires that a person who has suffered harm as a result of a breach of competition law be able to claim "full compensation" from any of those who are responsible for the infringement.  This means that each of those who have infringed competition law are jointly and severally liable for the infringement in damages actions throughout the EU.  This is subject to exceptions for SMEs5 and immunity applicants.6

The corollary of joint and several liability is that those held liable for infringements must be able to bring a contribution claim against co-infringers if the defendant has paid more compensation than its appropriate share of liability.  Article 11(5) provides for such claims, that "the amount of which shall be determined in the light of their relative responsibility for the harm caused by the infringement of competition law".7

In IMI plc v Delta Limited,8 the judge considered how a contribution claim should work in the context of a settlement between the claimant and the (original) defendant.  The claim arose from the copper fittings cartel which was the subject of a European Commission infringement decision.  The claimants brought a follow-on action against IMI, one of the cartelists, seeking full damages on a joint and several basis.  IMI sued Delta for a contribution under the Civil Liability (Contribution) Act 1978 and then settled with the original claimant. 

In contribution proceedings, the party from whom a contribution is sought can argue that it was not liable to the original claimant.  It can also argue that the party seeking a contribution had a legal defence to a claimant's action, but under Section 1(4) of the Civil Liability (Contribution) Act 1978, it cannot challenge "the factual basis of the claim".  In IMI v Delta, Delta argued that the action against IMI had been time barred and the question was whether this was a legal claim (which may be brought) or a factual one (which may not).  The judge held that as the claimant had pleaded that the case was not time barred because the cartel had been concealed from the claimants, which would need to be proven, and that this was an issue of the factual basis, it could not be challenged in contribution proceedings.

The judgment is highly significant for cartel cases because claimants are likely to sue the strongest cartelist in its chosen jurisdiction and leave that cartelist to claim a contribution.  In the event of a settlement between a claimant and (original) defendant, this judgment reduces the ability of those from whom a contribution is sought to argue that the defendant was not liable to the claimant in the first place.

4. Collective actions

The most important recent development is the introduction of opt-in collective actions under the Consumer Rights Act 2015.  Until the Act came into force on 1 October 2015, collective actions required claimants to ‘opt-in’ to a collective action against an infringer, in other words, the explicit consent of a member of a class was required for that person to participate in the proceedings.  An opt-in case was only brought once, in 2007, in large part due to the difficulty in identifying claimants and persuading them to participate.

The Act gives the CAT the power to hear ‘opt-out’ claims under which a potential claimant (a member of a class sharing common characteristics) will have to choose explicitly not to participate in the proceedings.  The only actions eligible for collective proceedings are those ‘certified’ by the CAT under a ‘collective proceedings order’ (“CPO”).  The CAT has a wide discretion regarding the claims that it certifies as it may take into account “all matters it thinks fit”, including whether the claims raise “the same, similar or related issues of fact or law” and are suitable for collective proceedings.

Each collective action must also have a representative acting on behalf of the class who must be authorised by the CAT where it considers the appointment ‘just and reasonable’.  The new regime is designed to avoid creating a US type antitrust litigation culture and the Government has previously indicated that law firms and funders will be barred from acting as representatives for this reason.  Other safeguards which are designed to avoid a litigation culture are that exemplary damages are not available and damages-based agreements are not enforceable in so far as they relate to opt-in cases. 

5. Voluntary redress schemes

In addition to collective opt-in schemes, the Consumer Rights Act contains provisions, which came into force on 3 August 2015, concerning the introduction and approval of voluntary redress schemes.  These are voluntary measures introduced by a company to compensate those adversely affected by an infringement of competition law established by the authorities without the need to pursue litigation in the courts.  Businesses offering such a scheme may benefit from a reduction in fines imposed for their infringement of up to 20%.

6. Standalone claims

A further significant development under the Consumer Rights Act is the broadening of the jurisdiction of the CAT, which formerly could only hear follow-on damages actions but can now hear standalone competition claims for damages and injunctive relief.

The clear intention of policy makers is to provide parties to competition law disputes with a quick and efficient route to resolving their issues, before the UK's specialist competition law court, with specialist competition law judges.

Another key change, mentioned above, is the harmonising of limitation periods between the CAT and the High Court – until these reforms, the limitation period for bringing a claim in the CAT was two years, compared to six years in the High Court.

Also, on 1 October 2015, alongside the Consumer Rights Act, the Section 16 Enterprise Act 2002 Regulations 2015 came into force, which allows the High Court to transfer standalone and/or follow-on competition proceedings to the CAT.

7. Issues with Rule 119

Accompanying these changes, also on 1 October 2015, the CAT's new rules came into force ("2015 Rules"), which reflect the CAT's revised jurisdiction and the reforms of the Consumer Rights Act and replace the 'old' 2003 CAT Rules ("2003 Rules"). 

The 2015 Rules include a transitional provision, at Rule 119, which states that the old Tribunal Rules, including the old two-year limitation period, will continue to apply to causes of action which accrued before 1 October 2015.  Given the nature of cartels and cartel cases, this could continue to apply to cases yet to be brought for some time to come.

This issue has led to criticism from some commentators that, whilst the Consumer Rights Act is clearly intended to provide for standalone claims in the CAT, the transitional rules mean that, in practice, a party wishing to bring a standalone claim in the CAT would potentially face much less favourable limitations periods than in the High Court: this anomalous difference in limitation periods being one of the very defects which the Consumer Right Act was intended to remedy.

However, a recent judgment in Sainsbury v MasterCard9 presents a possible (partial) solution to this issue.

In that case, Sainsbury issued its claim against MasterCard in the High Court in December 2012.  The claim involves both standalone and follow-on elements (known as a 'hybrid' claim) and so, at the time it was issued, the claim could only be brought in the High Court as it fell outside of the CAT's (pre-Consumer Rights Act) jurisdiction.

In November 2015, following the legislative changes outlined above, the judge in this case, Barling J, wrote to the parties asking whether the case should be transferred to the CAT for trial.

In response, Sainsbury's sought confirmation that the Rule 119 of the 2015 Rules would not apply.  Barling J summarised the issue as being that "if Rule 119 were to be interpreted as applying to the proposed transfer, it could be suggested that the CAT would only have jurisdiction in respect of that portion of the present claim for which the cause of action arose less than two years prior to the commencement of the claim".

The judge held that Rule 119 would not apply to cases transferred to the High Court and that, therefore, the potential limitation issues described above would not arise.  So, irrespective of whether a claim could have been started in the CAT, due to the limitation rules, it can be transferred to the CAT from the High Court.

Therefore, potential claimants who might be precluded from bringing a standalone claim in the CAT by the application of the Rule 119 and the 'old' two-year limitation period appear to have the option of bringing a claim in the High Court and then transferring to the CAT. 

This is by no means a perfect solution and has costs and administrative implications, but it does present a partial workaround for Rule 119.

8. Conclusion

It is clear that as the changes brought in by the Damages Directive and the Consumer Rights Act bed in, there are a number of thorny issues to be worked through – and whilst numerous interlocutory hearings and judgments on points of procedure may not have been what the policy makers had in mind when they set out on their path to reform, it certainly makes interesting reading for practitioners.

Endnotes

1. Directive 2014/104/EU of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union. Official Journal L 349 2014 p1

2. Deutsche Bahn AG v Morgan Advanced Materials Plc [2014] UKSC 24.

3. Arcadia Group v Visa, judgment of 30 October 2014, [2014] 3561 (Comm). 

4. [2015] EWCA Civ 883

5. Article 11(2) provides that an SME will only be liable to its own direct and indirect purchasers and not to any other purchasers of the affected products provided that its relevant market share was less than 5% at all times during the infringement; if the normal rules were applied it would irretrievably jeopardise its economic viability and cause its assets to lose all their value; and the SME in question was neither a coercer nor a recidivist.

6.  Article 11(4) provides that immunity recipients will only be liable to compensate their own direct and indirect purchasers, unless the other co-infringers are unable to compensate the other claimants.

7. This is subject to Article 11(6), which requires that where the infringement has caused harm to parties other than the direct or indirect purchasers or providers of the infringers, the amount of any contribution payable by an immunity recipient shall be determined in light of its “relative responsibility” for that additional harm.

8. IMI Plc v Delta Ltd [2015] EWHC 1676 (Ch)

9. Sainsbury Supermarkets Ltd v MasterCard Incorporated [2015] EWHC 3472 (Ch)

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