Where should I bring my follow-on claim in future?: The impact of Brexit and the Damages Directive on international cartel damages litigation

The UK, Germany and The Netherlands are currently popular jurisdictions for antitrust litigation, including “follow-on claims” arising from EU Commission cartel decisions, while some other jurisdictions are yet to see a successful competition damages claim. Will the combination of the Damages Directive, designed to harmonise Member States’ laws in this area, and Brexit, change the position? The answer is likely to be “yes”, although probably not for some time.

Do I have a choice of jurisdiction for my claim?

Of course, claimants do not have free rein to choose where to bring their claim simply because they consider that a particular regime is likely to be more favourable to them. Complex rules mean that they will only have the right to start proceedings in certain jurisdictions which are connected to the claim in some way, for example in relation to the location of the defendants’ businesses, or the place in which a contract was performed. But global businesses suing other multinational corporations – as many cartelists are – may well find that they have some choice – which can result in what is often known as “forum-shopping”.

Some of the factors which may make one jurisdiction more or less attractive will be influenced by rules introduced by the Damages Directive. Brexit may have a more fundamental impact – although much depends on the international agreements which could replace UK membership of the EU.

The impact of the Directive

The Directive is due to be in force across the EU by 27 December 2016, and for many jurisdictions will mean significant changes to the conduct of follow-on claims, particularly in the areas of:

• Limitation – where a minimum 5-year period willapply to all claims;
• Disclosure – where claimants will now enjoyexpanded rights of access to evidence held by the defendants (and vice versa);and
• The “passing-on defence” – wherepresumptions as to the effect of overcharging on the supply chain may make it more difficult for defendants to assert that their cartel activities did notcause loss.

More fundamentally, it is hoped that the provisions of the Directive will encourage cartel victims to bring claims which they would previously not have considered, and hence deter future cartelists who will face greater risks if they breach competition law. Some jurisdictions have never seen a successful competition damages claim, but the Directive should change that, particularly since the presumption that a cartel causes harm (albeit a rebuttable
one) is now to be enshrined in law.

In previous articles we have reported on the Damages Directive and its implementation in the UK (see here), Germany (see here) and Spain (see here). As we have explained in these updates, the Directive, and the additional steps which some countries are taking to expand their laws in this area, are likely to increase the attractiveness of bringing claims in some jurisdictions, whilst the position in England and Wales will be little changed.

Disclosure across Member States

The Directive’s provisions on disclosure (also known as “discovery”) are significant for many of the EU’s civil law jurisdictions, where disclosure of the breadth of that seen in England and Wales (much less the United States) would be unthinkable.EU jurisprudence (which binds national courts) has confirmed the principles of access to documents, where this is required to permit claimants to enforce their rights effectively, but in most Member States outside the UK there have historically been more limited opportunities for claimants to obtain defendants’ documents.

In the Netherlands, for example, wide-ranging requests (or ‘fishing expeditions’) are not permitted, but if the claimant is able to describe the documents precisely and to specify exactly which document he is requesting, the court could allow disclosure of these documents. In France, “preparatory inquiries” may be ordered by the court if these are necessary to establish the facts of a case. It is often necessary for the claimant to be able to describe the relevance of the documents to the case, before they can be obtained.Clearly this could be quite difficult in the case of secret cartels, even when a claimant has seen the Commission’s (redacted) decision, or that of a national competition authority, which may hint at the type of document which could exist.

In Germany (and a number of other Member States), claimants can access certain documents in the possession of the competition authority. Courts can also order the disclosure of specific documents, and access the files of the German competition authority, the Bundeskartellamt, or public prosecutors. With the implementation of the Directive, German litigation strategies will become less dependent on access to investigation files and more focused on expedited court proceedings. The German government has just unveiled the procedural framework for a novel form of discovery which will provide expedited access to documents.

The pre-Directive position is in stark contrast to England and Wales, where “standard disclosure” requires the defendant to hand over all relevant documents in their control, even if they are adverse to its case, and without any need for the claimant to know of their existence. Non-disclosure can be sanctioned as a contempt of court. This threat can be very powerful in encouraging defendants to settle, and is one of the reasons for the popularity of England for bringing claims. It does, however, represent a risk for the claimant, which is subject to the same obligation, and may therefore be forced to spend a significant amount of time and money undertaking a similar exercise.

Although the Directive stipulates that national judges will still have discretion to determine whether a disclosure request is specific, necessary and proportionate, in many Member States it nevertheless represents a shift away from the current position, and is likely to mean wider disclosure in those jurisdictions in future.

Limitation

Limitation periods currently vary between jurisdictions, and are not always wholly straightforward. For example, Germany’s default limitation period is three years, but it is stayed while cartel investigations are on-going and as long as appeals against the fining decision are pending – so the limitation period may in fact run for significantly longer than three years. Periods of three years are common in other Member States, although five years is the period for tort claims in the Netherlands, France and Italy.

The minimum period of five years the Directive prescribes is therefore a substantial extension for a number of jurisdictions. Moreover, post-Directive, limitation periods will be suspended in all Member States as long as the anti-competitive behaviour is under investigation. The position in the UK (six years) will be broadly unchanged by the provisions of the Directive.Although the “start date” for limitation to run will be harmonised in line with the Directive, the practical effect of this is likely to be minimal.

“Pass-on”

The Directive introduces two “presumptions” which claimants can rely on to assist in proving their damage. The first is the presumption that a direct purchaser claiming it has been overcharged by a cartelist was not able to pass this overcharge to its customer. The defendant will be able to rebut this with evidence, which it may demand from the claimant, but if it fails to do so, the overcharge will be deemed to have been a loss suffered by the claimant.

The second is that an indirect purchaser is also presumed to have suffered an overcharge if it can show that there was an overcharge to its supplier resulting from a breach of competition law, and the indirect purchaser bought the relevant goods. The defendant in this case will need to show that the overcharge was not passed to the claimant. As a result of these presumptions, the passing-on defence will often be of little use to a defendant.

The impact of the Directive on choice of forum

Where a claimant does have some flexibility as to where to bring the claim, it seems possible that jurisdictions such as the Netherlands and Germany, which are already familiar with follow-on claims, could become even more attractive once the additional “claimant-friendly” provisions of the Directive apply. The Netherlands also has the potential advantages of generally accepting documents in the English language (also a feature of some proceedings in Germany and France), and an established “class action” process, which may make claims more cost-effective (such a process now also exists in the UK Competition Appeal Tribunal).

Claimants wishing to avoid the full disclosure obligations, and possible high costs, of the English courts, may even look to other jurisdictions they would not currently consider, now that all Member States will be compelled to apply the provisions of the Directive. Other relevant factors – which the Directive may affect only marginally – include the amount of interest that can be claimed under national law, the availability of local precedent for relevant issues, opportunities to introduce economic evidence, or the ability to recover (at least in part) the cost of litigation.

It remains to be seen how quickly the national courts embrace the new regime, and particularly whether the ostensibly expanded disclosure obligations will significantly change the approach taken by judges. It seems likely that the criteria of necessity and proportionality will initially be applied in a similar manner to current laws, but that the boundaries may shift over time.

The impact of Brexit

For a fuller discussion of the impact of the “Leave” vote on competition law and litigation, see our articles here. The first important point to note is that, for the moment, nothing has changed. Until the UK formally leaves the EU, current laws – whether they come direct from the EU or simply reflect EU rules will continue to have full effect in the UK.This will include the Damages Directive, which all current Member States, including the UK, are obliged to implement by the end of 2016, as well as the EU-wide rules on suing other EU persons, and enforcing judgments against them.

The long-term picture will not be wholly clear until the British government has decided what form it wants the UK’s future relationship with the remainder of the EU countries to take, and has negotiated the necessary international agreements. Many of the current arrangements for cooperation within the EU may continue, or be replicated, going forward.

There are a number of ways in which Brexit could affect follow-on claims in future:

• In the long-term a Commission decision finding a cartel in the EU might not encompass the UK, and might not be capable of being relied on in a UK court without pleading an “umbrella” effect on the UK market, which is likely to be less powerful. However, this might not have any impact if the UK became a member of the European Economic Area, since many decisions find that an EEA-wide cartel existed and the Damages Directive will be implemented across the EEA.
• Claims relating to an EU/EEA-wide cartel during the period when the UK was still an EU member are likely to be largely unaffected. This is because a Commission decision on such cartels would still be evidence of harm to the claimants, even if the decision post-dated the date the UK left.Such decisions may continue to be issued for many years.
• Depending on any agreement on judicial cooperation, or membership of the EEA or other international agreements, the UK might not be able to rely on the Rome Conventions on choice of law or the Brussels Regulation on the forum for claims and enforcement of judgments. This might reduce the attractiveness of securing an English judgment.
• In contrast, claimants with a strategic interest in frustrating proceedings elsewhere in the EU might see a potential benefit in the re-designation of the UK as a “third state” under EU agreements. One of the important recent changes to the Brussels Regulation ensures that spurious claims cannot be brought in one EU Member State with the objective of blocking proceedings in another (the so-called “Italian torpedo”).If the UK was not party to a comparable agreement (which we anticipate would be the government’s intention) the English courts might theoretically become the home of a new “English torpedo” tactic (although the courts might resist this).
• Similarly, the European Enforcement Order Regulation and the European Service Regulation, which facilitate the enforcement of judgments and service of judicial documents, would cease to apply to the UK unless other agreements were signed.
• On the Damages Directive provisions themselves, the government might choose to repeal or amend any implementing legislation. However, since the impact of the directive is minimal, given the relevant laws in England and Wales, this may not be seen as a priority.

We will continue to monitor the international discussions and provide updates on their impact. Please get in touch with one of our experts if you would like to discuss any of these issues in more detail.