MMS Smartguide Guide to Private Antitrust Litigation
Contents Introduction 2 Questions & Answers 3 Summary: 13 route to court Get in touch 15 Notes 16
2 Introduction Until recently, civil court actions in competition, or antitrust, cases were no more than a remote risk. This risk would have had little or no deterrent effect and would pale into insignificance when compared to the likelihood of adverse publicity and fines for companies involved in anti-competitive behaviour. Lately, however, competition-based litigation has become markedly more frequent both in the UK and in Europe. The number of such cases is set to rise still further in coming months and years, as steps are taken at UK, EU and other Member State levels to facilitate private antitrust litigation. This Smartguide gives an overview, in Question & Answer format, of the issues which you may need to consider if you are the victim of anti-competitive conduct and are thinking of bringing the matter to court to recoup your loss or obtain another remedy. Actions can be taken against a whole variety of competition infringements, for example: - You have been buying from the same supplier for some time and have recently discovered it has been involved in a cartel. You realise you ve been overpaying for years! You sue to claim back the accumulated overcharge. - You are a regular commercial user of a facility operated by a powerful service-provider which also competes in your market. Out of the blue, access is withdrawn or restricted and you can no longer carry out your business. You know this has been done to drive you from the market. Informal attempts to solve the problem fail and you decide to take legal action to regain access and obtain damages for the loss to your business. Even if you choose not to take legal action, it can be useful from a commercial perspective to be aware of whether your customers, suppliers or competitors have been involved in anti-competitive behaviour. This kind of information can, at the very least, give you the edge in negotiating improved terms.
3 Questions & Answers Q. Why has this suddenly started to be a real option for businesses? I thought these sorts of cases were almost impossible to pursue successfully in Europe? A. So far, the number of successful private actions in the EU is relatively modest. However, claimants have been awarded damages, notably in Germany, Italy, France, Spain and the Netherlands. In the UK, there have been no cases where damages have been awarded after a full trial, but it is well known that many cases have settled for substantial sums. In the UK, legislation introduced a procedure for bringing a claim in the Competition Appeal Tribunal (CAT), a specialist court dealing exclusively with competition cases, where there is already a decision of the Office of Fair Trading (OFT) or European Commission (the Commission) finding that the competition rules were infringed. Alternatively, such claims can be brought in the ordinary civil courts. This process has already led to an increase in the number of private actions and, coupled with Government initiatives to push this growth, the trend will only increase. Where there is an infringement decision of the OFT or Commission, it is taken as read and the claimant need only establish the amount of loss and the link between the infringement and that loss (a so-called follow-on claim). Remember, however, that, decisions of other national competition authorities are not currently binding in UK courts and therefore cannot be relied upon in private antitrust litigation. Where there is no OFT or Commission decision, at present, claims must be brought in the civil courts and liability must be established by the claimant (a so-called stand-alone claim). Q. I think my suppliers/ customers are in a cartel. Can I sue them? A. In short, yes. There are two distinct situations follow-on claims and stand-alone claims. Follow-on: where there is an infringement decision from the Commission or OFT As noted previously, followon actions are a lot simpler than stand-alones. You can bring the proceedings in the CAT or in the ordinary courts, and you do not have to establish the existence of the infringement itself. If you can prove that the infringement caused your loss and the amount of that loss, you can bring a followon claim. Stand-alone: where there is no prior infringement decision At the moment, stand-alone actions must be brought in the ordinary civil courts.
4 As with any other civil damages case, you have to establish, on the balance of probabilities, the existence of an infringement, its link to the loss suffered and the amount of that loss. Given that it often takes many years for competition authorities armed with substantial resources and legal powers to obtain documents to adopt decisions finding the existence of an infringement, for a claimant a stand-alone action can be no mean feat. Standalone actions do, however, mean that action can be taken without waiting for the outcome of an OFT or Commission investigation. Q. So how on earth would I go about bringing a stand-alone action? A. This is not straightforward, but that s not to say it s impossible. First, you will need a basis on which to get your claim off the ground. The court can, on application by a defendant, give summary judgment dismissing a claim if the claimant fails to show that his case has a reasonable prospect of success. A damages claim brought in the civil courts should include at least an estimated quantification of damages supported by economic expert evidence. The main difficulty lies in proving the existence of an infringement. It may be possible to get pre-action disclosure of documents held by the prospective defendant(s) which helps to prove the claimant s case (by applying to the court). The courts have broad powers to order disclosure against prospective parties. However, they will not allow you simply to go on a fishing expedition. In England & Wales, in order to get pre-action disclosure, you will need to support your application with some evidence, and satisfy the court that the documents you are seeking would in any event have been accessible through standard disclosure (i.e. during the course of the action itself). Finally, to obtain pre-action disclosure you must show it is required in order either to dispose fairly of the anticipated proceedings, assist the dispute to be resolved without proceedings, or save costs. In Scotland, a party wishing to obtain documentation or other material in the hands of another party can do so by way of a specification of documents or specification of property. The courts will order disclosure whether pre-action or standard of documents if they will assist parties either in establishing or making their cases more specific. Once your claim has been lodged and defences served, you will proceed to the standard disclosure stage.
5 The English courts have the power to order a party to give access to all documents in its possession relevant to the litigation. In Scotland, although generally amenable to fairly extensive disclosure where relevant, the courts will only order disclosure of documents or classes of documents more closely identified by the applying party. Parties can also apply to the court to obtain documents held by third parties, i.e. who are not party to the litigation. In England, you can also obtain the pleadings and defences in relation to other similar claims that are already on the go. It s worth considering whether this could help you to formulate your own claim. Remember, however, that privileged documents (i.e. legal advice, and, where litigation is contemplated, documents relating to the litigation) will be protected from disclosure and it will not be possible to access and rely on them. However, many of the documents you will need will not be protected by privilege anyway. Privileged information In the context of competition litigation in the UK, normal English and Scottish privilege rules will apply (rather than those applicable in a European Commission investigation where in-house lawyers advice is not protected). It is worth noting that litigation privilege (which confers wider protection than legal advice privilege) arguably does not apply where regulatory proceedings are underway but court litigation is still some way off. From the claimant s perspective, this means that many documents held by defendants relating to the regulatory investigation may not be privileged and may be able to be obtained by the claimant. Q. What about where my supplier is dominant and, for instance, refuses to supply me with goods I need. Can I sue the supplier? A. In brief, yes. You would need to establish that the supplier occupied a dominant position and had abused this position. You could seek an injunction or interdict requiring the supplier to supply you with the goods you need and/or (for instance, if it s too late for an injunction or interdict to be any good to you) you could seek damages for the loss you have suffered. You would also need to show that the abuse caused your loss and the amount of that loss. One of the hardest elements to prove in an abuse case is that the defendant is dominant in its market. You normally need an economist to pull together an expert report on this point.
6 Again, you may well need to use disclosure processes to obtain supporting evidence for your claim. Of course, where there is a prior decision of the OFT or Commission, things are a lot more straightforward. For instance, in 2006, the CAT awarded interim damages of 2m to a company called Healthcare at Home. The defendant was a drugs company, Genzyme, which had changed the terms of supply to Healthcare at Home and set up in competition with its service in a way which the OFT held to be an unlawful abuse of dominance. Following the award of interim damages by the CAT, the case settled presumably for a sum in excess of 2m. Q. How do I know if a company with which I am contracting has engaged in cartel activity? A. If you are buying supplies from companies in an industry that is under investigation, it may well be worth taking a few preliminary steps. While some companies in an industry may already be exposed for engaging in cartel conduct, this does not mean that other companies in the same industry are not also involved but have avoided being caught out. Of course, if your supplier is not actually being investigated, that may simply be because it is not involved in the alleged cartel. However, it may still be worth trying to negotiate on future prices as they may well have been free riding on the inflated prices caused by a cartel amongst others in the same industry. Alternatively, it is possible that your supplier will come under scrutiny later. Either way, you should keep hold of invoices that may be relevant at a later stage if you do wish to claim damages through a court action. Competition issues may also arise in your downstream relationships. If one of your customers is a dominant purchaser of your product, you should be aware that it is prohibited to abuse this buying power, for instance by offering you discriminatory or uneconomically low prices. Or, if you buy from a manufacturer who seeks to fix resale prices or discourage parallel trading, you should be alive to the risk of stepping over the line yourself. Any agreement with distributors which may limit their competitive behaviour may be vulnerable to competition challenges. Introducing a robust competition compliance programme can help you to stay within the rules.
7 Q. I bought goods from one of the parties to a cartel, but I ve checked the invoice and it was actually the German parent company that sold them to me. Can I still sue them in the UK? A. Yes, you may be able to do so, for example if a UK subsidiary of one of the cartel members was involved in implementing the cartel. It s worth noting that the parties to a cartel are jointly liable for the overcharge resulting from a cartel, so it may be possible to sue any or all of them, even if you bought only from one of them. If you can establish jurisdiction in England (or Scotland) against one of the cartel members, by showing that it or one of its subsidiaries was involved in implementing the cartel there, (even if it is not the one from which you bought the goods) then you may be able to join other defendants to the same claim as long as it is for closely connected conduct. There may be a further possibility of suing a foreignbased cartel member in the UK courts if you, as a claimant, are based in the UK and, as a result of the cartel, you suffered your losses in the UK. This is likely to have been the case if the sale of the cartelised goods took place in the UK (or was governed by UK contract law), even if the seller is based in another country. If possible, it is a good idea to bring your claim as soon as possible to ensure that you get into the courts of your choice. A defendant may seek to torpedo your action by commencing pre-emptive proceedings in another jurisdiction. This may make life more difficult and expensive for potential claimants. Q. I ve heard that in the US, claimants can get treble damages when they ve paid an overcharge as a result of a cartel. Does this apply in the UK too? A. No, it doesn t. Antitrust damages in the UK aim to put you in the position you would have been in but for the infringement. The availability of treble damages is one of the reasons why this sort of litigation is rife in the US but there is little appetite to encourage a similar boom here. It is interesting to note, however, that interest accumulating on loss caused by a competition infringement can significantly increase the size of the claim. The English High Court has ruled that exemplary damages i.e. aimed at punishing the defendants, not merely compensating the claimants are not appropriate when the infringing parties have already been fined (in that case, by the Commission). The Court of Appeal later confirmed in the same case that restitutionary damages which reflect the level of the defendant s profit, rather than the claimant s loss are also unavailable
8 in competition actions. Therefore, compensatory damages look set to be the norm. The CAT and Scottish courts have so far not had an opportunity to rule on what damages are available in proceedings before them. Q. If I have suffered a loss from a cartel can I bring a court action in the US? A. In contrast to the EU, private antitrust litigation in the US has long been an important element of the enforcement process. There, private actions for damages account for some 90% of antitrust enforcement. Features of the US system such as the ability to bring class actions, the availability of treble damages and the system of contingency fees have encouraged high volumes of private litigation. Even businesses operating primarily outside the US can be at risk of being sued in US courts. However, to be able to bring a court action in the US against a non-us company, the anti-competitive conduct of that foreign company must have had some effect on the US market. The US Supreme Court in 2004 held that US courts do not have jurisdiction where the anti-competitive conduct is independent of any adverse domestic effect, i.e. where the claimant s case rests solely on harm suffered outside the US. So, in answer to the question, where the anti-competitive conduct does affect the US, a class action in the US is possible, and you can be part of that class. Real-life example: An example is the BA/ Virgin case concerning transatlantic flights: even if you reside in the UK and bought your ticket here, you can be party to a US class action. In the US, since you are normally automatically party to the case unless you opt out, you may be entitled to a compensatory payment after a settlement is reached in the class action. Normally, the applicable law will coincide with the jurisdiction so that the court can apply its own law. In any case, the court will apply its own procedural rules.
9 Q. If I brought an action, should I do so against all the cartel members, or just some of them? A. In principle one member of a cartel is expected to be liable for the loss caused by all its members. So, it should be enough to sue one cartelist, and not even necessarily the one from whom you bought. However, in practice, you will probably want to sue a number of the cartelists to ensure that at least one of them will have a deep enough pocket to pay you. There is talk among EU and UK competition authorities of the possibility of protecting infringers, who have been granted immunity, from liability for the overcharge caused by other parties. The aim of this is to avoid discouraging whistleblowers from coming forward. Q. I didn t buy the goods in question directly from the party involved in the cartel. However, I do believe I bought the goods at an inflated price, especially since prices have dropped since the cartel ended. Can I still sue for my loss? A. Although there is, to date, no conclusive authority in the UK confirming that indirect purchasers can sue for their loss, the CAT and ordinary courts have given encouraging signals. The European Court has also indicated that, as a matter of principle, those who have suffered loss should be entitled to reclaim it, irrespective of whether there are other links in the contractual chain between the cartelists and the claimant. As long as you can show that you have suffered loss caused by the cartel even if passed on by an innocent middle-man you are likely to have a valid claim for damages. Q. Might the cartelists allege that I just passed on the overcharge to my own customers? A. Yes, they might. Although there is little authority in the EU as to how this issue is to be resolved, the corollary of allowing indirect purchasers to sue is that you should only be able to claim for your actual loss, not that which you have passed on to your customers. Often you will need an economist to help you to show that the loss was suffered by you and that you were unable to pass on any or all of it. Typically, if your customers have greater bargaining power than you, you will have been unable to pass on your loss. Q. I ve heard about class actions in the US. Are these sorts of actions possible here? A. There are ways of bringing multi-party or representative actions in the English courts,
10 although there are widely recognised weaknesses in these procedures. In Scotland, it is possible to pursue a lead action but there is currently no formal process for multiparty actions (although this is under review). Collective actions by specified consumer bodies are, however, provided for in the CAT. Crucially, consumers have to opt into an action to become party to it. By contrast, in the US, actions are generally brought on behalf of whole classes of consumers, unless they specifically opt out. Real-life example: You may have heard about the case brought in 2007 against JJB Sports by UK consumer organisation Which?, following on from the OFT s earlier decision finding that JJB had fixed the retail prices for Manchester United and England team replica football kit. Whilst JJB did not admit causing any loss to consumers, the case was settled out of court. In this action, only those consumers who specifically opted into the case benefited from the settlement. New legislation has been proposed to extend availability of these sorts of actions to businesses and also provide for all consumers within the class to be included automatically as claimants unless they specifically opt out. Q. I m less bothered about obtaining damages than I am about actually getting supplies of the product I need. Is there anything I can do to get hold of these supplies? A. Indeed there is. You may be able to get an injunction or interdict, if this is a more appropriate remedy than damages. You may be able to do this at an early stage of proceedings (called an interim injunction or interdict), sometimes at short notice, if there is genuine urgency, and sometimes without the defendants being present (although they will subsequently be given an opportunity to be heard). Alternatively, this may be the appropriate remedy at the end of the proceedings. Q. If I m successful, could the other side appeal and embroil me in years of further litigation? And if I m not successful initially, would I be able to appeal? A. Yes, it s true that the defendant might appeal, although if it s the CAT or the English High Court that has awarded the damages, the defendant will need permission to do so. However, in practice, cases often settle on the basis that neither party can appeal, so this would not normally be an issue. An unsuccessful claimant has the same rights of appeal as a defendant.
11 Q. Another thing I m worried about is whether I ll have to pay the other side s costs if I don t manage to prove my case. What is the position? A. The losing party in civil cases will normally be ordered to pay the successful party s costs. You re right to consider this as one of the risks involved in bringing an action. It is possible to obtain what is known as after-the-event insurance to cover this risk, if you have a good claim. The premium can be paid out of any settlement monies or damages eventually won. If you lose the case altogether, the insurance covers the defendants costs. Q. I don t have any funds available to finance an action of this sort. What options are open to me? A. A number of options are available to claimants. For example: - In some cases (especially follow-on cases) it may be possible to agree with your solicitors a conditional fee agreement under which you pay either a capped fee or no fee at all in the first instance, and the lawyers get an uplift on their normal rates if you win. This can be coupled with after-the-event insurance to cover the costs risk if you lose the claim and have to pay the defendants costs the insurance will cover this; - Other forms of private funding may be available, if you could persuade investors of the likelihood of a successful outcome and, therefore, a healthy return; - If other businesses have suffered loss from the same infringement, you may be able to bring a joint action and pool costs. The downside is that you may to some extent lose control over the way the action is run, when to settle and how to divide up the proceeds; - Policy initiatives suggested in the UK could, in the future, make public funding available, for instance through a litigation fund administered by the OFT. At the moment, conditional or speculative fee agreements with solicitors are restricted to a maximum premium of 100 per cent of the normal fee, but it is possible that this limit will be raised in the future. Note, however, that when using a conditional fee arrangement, you are normally still liable for the other side s costs if you lose. Q. How long will it take for a damages action to get all the way through to final judgment and how much will it cost me?
12 A. It s true that court actions typically take a few years to reach a conclusion. However, follow-on cases that have been brought in the CAT can be resolved relatively quickly through settlements. Costs vary considerably from one case to the next, but can be managed at the outset through the use of various funding techniques or fee agreements. If successful, your costs are likely to be borne by the defendants. Real-life example: For instance, an action by two customers of members of the Vitamins cartel, BCL and Deans Foods, settled after about a year. Healthcare at Home s action against Genzyme settled after nine months. Q. Is there a time limit within which I need to bring my claim? A. Yes, you re right to have this in mind. In ordinary civil courts the time limit for commencing a claim is six years (England) or five years (Scotland) from the date on which the cause of action accrued. Where there has been deliberate concealment, in a price-fixing cartel for example, the period does not begin to run until the claimant discovers the concealment of the cartel or ought reasonably to, or could with reasonable diligence, discover it. However, this can still cause difficulties for instance, if the participants in the cartel appeal against the authority s decision, that appeal may not be resolved within five/six years. A damages claim before the CAT can be brought up to two years from the later of the date on which the infringement decision, upon which the claim relies, is no longer appealable, or the date on which the action accrued. As many infringement decisions are appealed and can take years to resolve this can mean that there is a delay between an infringement decision and the start of the two-year period within which a follow-on claim may be brought. The CAT can, however, give permission to sue while the decision is still subject to appeal. Such permission was given in one case on the grounds that, if the claim was delayed pending the outcome of the appeals, the defendant who was not itself appealing the infringement decision would have been able to destroy valuable evidence (something that company had a history of doing). When a cartelist appeals against only the level of fine imposed (but not against the infringement decision itself) the time for bringing a damages action will start running two months after the decision is adopted and expire two years after that. So, it is important to work out early on whether the appeal is against the fine only or also against the infringement as this can make a big difference to time limits.
13 Summary: routes available depending on your circumstances and preferred options Are you the victim of anti-competitive behaviour? If so, what remedy are you looking for? Damages Is there a previous infringement decision by a relevant competition authority that you can rely on? Yes Follow-on action No Stand alone action Prohibition against continued anti-competitive practice Civil courts Competition defence against another party s action Complaint to the relevant competition authority Civil court (already determined by other party)
14 Competition Appeal Tribunal Individual action (s.47a, CA98) Representative action (s.47b, CA98) must be brought by Consumers Association High Court (England & Wales) Sheriff court/court of Session (Scotland) OFT / Ofcom / Ofwat / Ofgem / ORR European Commission (only if practice affects cross-border trade)
15 Get in touch Catriona Munro Direct +44 (0)141 303 2385 Mobile +44 (0)7713 096 135 Email catriona.munro@mms.co.uk Michael Dean Direct +44 (0)141 303 2415 Mobile +44 (0)7785 577 425 Email michael.dean@mms.co.uk
Notes 16
17 Notes
18 Maclay Murray & Spens LLP is a limited liability partnership incorporated in Scotland with registered number SO300744 and having its registered office at 151 St Vincent Street, Glasgow G2 5NJ. Maclay Murray & Spens LLP is a firm of solicitors regulated by the Law Society of Scotland and the Solicitors Regulation Authority. A list of members is available for inspection at the registered office and other offices. IMPORTANT We hope you find the contents of this guide interesting and informative, although you will appreciate that the contents are for general information only. Whilst we believe that the contents are true and accurate at 1 September 2010 and that they reflect EU and UK law, we can give no assurances regarding the accuracy, currency or applicability of any of the contents in relation to specific situations or particular circumstances. As such, the contents should not be relied upon. Please contact us if you have any further queries. Maclay Murray & Spens LLP 2010
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