The Cartel Damages Actions Directive

The future of follow-on litigation in the EU

Damages litigation is on the rise in Europe, notably in Germany, The Netherlands, Finland and the United Kingdom. Company leaders are increasingly aware of their fiduciary duty to claim compensation for losses caused by cartels.

The development has been more dynamic in some EU member states than others, as local rules in certain jurisdictions created a rocky road for cartel victims – and in the absence of a credible threat of effective litigation they found it difficult to obtain decent settlements. The European Commission’s White Paper on private enforcement analysed these deficiencies in 2008 and ultimately led European law makers to propose a minimum standard for cartel damages actions in the EU. The Commission’s proposal for a ‘Directive on rules governing actions for damages for infringements of competition law’ of 11 June 2013 was approved in the European Parliament on 17 April 2014. It will enter into force following its approval by the European Council and publication in the Official Journal.

The damages actions directive is designed to provide for a minimum standard that will allow cartel victims to seek compensation more effectively. As the European Court of Justice has observed, it follows from the direct effect of the prohibitions laid down in articles 101 and 102 of the EU Treaty that any individual can claim compensation for the harm suffered where there is a causal relationship between that harm and the infringement of the EU competition rules. Injured parties must be able to seek compensation not only for the actual loss suffered but also for the gain of which they have been deprived (loss of profit) plus interest. Such compensation normally needs to be sought before the national courts, as awarding damages is outside the field of competence of the Commission and the national competition authorities. 

To this end, the directive will require each EU member state to adopt a number of claimant-friendly measures that will render follow-on damages actions more effective, notably:

• a rebuttable presumption that cartels cause harm;
• access to key documents in the files of competition authorities;
• confirmation that indirect purchasers may initiate claims against cartelists;
• rules on the joint and several liability of cartelists, with additional rules that favour leniency applicants as well as small- and medium-sized enterprises; and
• minimum limitation periods.

Full compensation

As the European Court of Justice has established that cartel victims need effective ways of obtaining full compensation, the directive requires EU member states to ensure a right to compensation for actual loss and for loss of profit, plus interest. The directive also states that victims should not be overcompensated, thus limiting the ability of member states to provide for punitive, multiple, or similar types of damages.

As it is often difficult for cartel victims to substantiate the amount of loss, the directive provides for a rebuttable presumption that cartels cause harm. The national courts will have the power to estimate the amount of loss where it is established that a claimant suffered from an infringement. This leaves the possibility for cartelists to rebut the presumption by introducing evidence that their infringement had no impact on the market (or
the claimant).

The fact that a cartel existed does not need to be substantiated by a claimant where the EU Commission has taken an infringement decision. National courts of EU member states may not take decisions that would run counter to EU Commission decisions (article 16(1) of Regulation No.1/2003). Similarly, in their damages actions cartel victims are already able to rely on the findings of a national competition authority in a number of EU member states. In order to further align the standards across the EU, the directive provides that the finding of an infringement of competition law by a final decision of a national competition authority or review court is binding on national courts of the same member state in follow-on damages litigation. In courts of other EU member states, such findings will be recognised as prima facie evidence.

In its article 1 the directive clarifies that the infringer is an undertaking or an association of undertakings. By stating that claims may be brought against the undertaking or the association of undertakings, the directive makes reference to the EU competition rules on what constitutes an undertaking. This can be interpreted as obliging a member state to adopt these rules, or to provide for a joint liability of all corporate entities that form part of the same undertaking. This could render damages actions more attractive in those member states that have so far refused to recognise the principle of the economic entity (or group liability), not least in cases where the infringement decision was addressed to a poor subsidiary within an affluent group of companies.

Access to documents

The directive provides that national courts should have the right to order the disclosure of evidence from a defendant or a third party, including the respective competition authority. This aims to ensure that in all member states there is a minimum level of access to the evidence needed by claimants or defendants to prove their antitrust damages claim, or a related defence. The directive relies on the central function of the court seized with an action for damages, so disclosure of evidence held by the opposing party or a third party can only be ordered by judges. Access to documents is subject to strict and active judicial control as to its necessity, scope and proportionality. Business secrets and professional secrecy are to be respected.

The directive opens up a number of documents in the competition authorities’ files to disclosure, but also defines certain categories of documents that may not be disclosed. Most notably, national courts are not supposed to order the disclosure of leniency applications or settlement submissions. By these rules, the EU legislator hopes to assure potential leniency applicants that its secrets will be safe with the enforcers.

 However, the Commission may have shot itself in the foot by suggesting a per se rule: the European Court of Justice mandates that a balancing exercise be conducted, in which the legitimate interests of the cartelists and their victims are duly examined. As the European Court of Justice held on 6 June 2013 in Donau Chemie, it follows from the principle of effectiveness of the EU competition rules that national courts need to have the opportunity to balance the relevant interests involved. The Court’s decision concerned the compatibility of a national statute with EU law. However, its reasoning is based on the effectiveness of article 101 TFEU; in other words, on the primary law of the Union with which not only the laws of the member states but also the provisions of EU secondary law must be aligned. As the categoric language in the proposed directive preempts the balancing exercise mandated by the Court, it is all too likely that the EU’s highest judges will one day strike it down as incompatible with article 101 TFEU. Although the legislator’s intention to protect immunity recipients is laudable, one should not underestimate that the prospect of immunity from fines provides a strong motivation for whistle-blowers to come forward. As the Court of Justice has indicated (Case C-536/11 Donau
Chemie & Ors (2013) ECR I-0000, paragraphs 46 and 47), it should also
be taken into account that the undertakings concerned may have already
benefited from immunity.

The directive also provides for temporary protection of documents
that the parties have specifically prepared for the purpose of public
enforcement proceedings (eg, the replies to the authority’s request for
information) or that the competition authority has drawn up in the course
of its proceedings. Those documents can be disclosed only after the com-
petition authority has closed its proceedings.

Documents that fall outside the above categories can be disclosed by
court order, yet only the person having obtained direct access to the document will be able to use it as evidence.

Passing-on and indirect purchasers

In line with jurisprudence of the European Courts, the directive highlights
that any person that suffered loss as a result of anti-competitive conduct
should be able to claim compensation, regardless of where that victim is
positioned in the supply chain. Therefore, indirect purchasers are entitled
to initiate claims against the members of a cartel. In its Umbrella Pricing
decision of 5 June 2014, the European Court of Justice highlighted that it
is not even necessary for a claimant to have sourced goods from a member
of the cartel, but that it could even seek compensation from the cartelists
where the claimant paid inflated prices to third parties because the cartel
had caused an increase in the overall price levels on the market. 

The directive introduces a presumption that an overcharge levied on
a direct purchaser was passed on to an indirect purchaser. However, the
indirect purchaser will need to prove the extent of the overcharge and the
loss suffered. This will not only help indirect purchasers assert claims but
can also prove a useful defence for a cartelist where it is able to demon-
strate that a claimant did not absorb the overcharge but passed it on to its
own customers. 

Joint and several liability – with exceptions

The directive provides that the laws of the member states need to ensure
that undertakings which together infringed competition law are jointly and
severally liable. This principle of tort law is already widely recognised in
the legal orders of EU member states (and beyond). As cartel members
face joint and several liability for their infringement, each defendant to a
follow-on action is able to initiate a contribution claim against the other
participants in the cartel (see the Staff Working Paper accompanying the
Commission’s 2008 White Paper on damages actions for breach of the
EC antitrust rules, at paragraph 290). This can help to ensure that each
infringer, whether leniency recipient not, ultimately bears its share.

The directive provides for two exceptions to joint and several liability.
Firstly, an immunity recipient is liable only to its own direct and indirect
purchasers for the share of harm it caused them, provided that the claim-
ants can obtain full compensation from the other undertakings that were
involved in the infringement. Secondly, small and medium-sized enter-
prises will be liable only to their own direct or indirect purchasers, provided
that: 

• they did not lead or coerce others into the infringement;
• they are not repeat offenders;
• they had a market share below 5 per cent during the infringement; and
• an application of the normal liability provisions would ‘irretrievably
  jeopardise [the SME’s] economic viability and cause its assets to lose
  all their value’. 

These carve-outs resulted from a highly political debate based on good
intentions but little empirical evidence – and even less consideration for
the judges who will need to assess the share of harm caused by individual
cartelists, or anticipate the consequences of a damages award for an SME.
It will be for the member states to remedy the deficiencies when transposing the directive.

Each EU member state will need to clarify how the burden of proof can
be fairly distributed. The directive does not state whether the immunity
recipient will need to establish that the cartel victim is unable to receive
full compensation from other cartel members. The lack of a respective
provision in the directive should allow member states to oblige the immunity recipient to demonstrate that the claimant is indeed able to obtain
full compensation from other members of the cartel, as it is a general
principle that any party should prove circumstances favourable to it, and
also considering that the European Court of Justice has stated that procedural rules may not make it excessively difficult for cartel victims to seek
compensation.

As a result of joint and several liability, an infringing undertaking may
recover a contribution from any of its co-cartelists, which will be measured
in the light of their relative responsibility for the harm caused. Protection
from contribution claims is provided for infringers that reach settlements
with cartel victims. As a cartelist that refused to settle with a claimant
will have difficulty in going after a fellow cartelist that already settled, the
directive will eventually lead to an increase in early settlements.

Furthermore, each member state will need to evaluate whether the
privileged treatment of immunity recipients, as mandated by the directive,
can only be assured by amending the national leniency regimes. A directive is normally transposed by adopting a national law. Yet some member
states acknowledge the principle of leniency merely in the form of administrative notices. Even the EU leniency programme is so far codified in a
Commission Notice, in other words, a lower level of instrument in the legal
order of the European Union.

Limitation periods

Limitation periods for bringing a damages action have so far differed considerably among member states. Under the directive, each EU member
state will need to ensure that claims for follow-on damages can be brought
for no less than five years. This period only runs from the moment when the
claimant knows, or can reasonably be expected to know, that the particular
defendant infringed competition law and caused the claimant harm. The
limitation period is suspended or interrupted during a competition author-
ity’s investigation and until at least one year after the infringement deci-
sion has become final or proceedings are otherwise terminated.

Publication of more detailed Commission decisions

In order to enable claimants to provide the national court with the facts
required to quantify the harm and establish the causal link, the findings in
a fining decision, especially the details of the infringement (such as date,
subject matter and participants of individual cartel meetings) are essential. This information can be relevant for determining the courts in which
a damages claim can be filed, or to determine the scope of the cartel and
thus to assess the magnitude of the injury suffered. Given the secret nature
of cartels, the availability of such information from the public decision is
crucial for follow-on actions.

Against this background and an increase in requests for access to file,
the EU Commission has decided to publish more detailed non-confidential
versions of certain cartel decisions (Case T-345/12 Akzo Nobel and Others
v Commission (pending)). Concerning the publication of cartel decisions,
the EU’s General Court has emphasised (Case T-198/03 Bank Austria
Creditanstalt (2006) ECR II-1429, paragraph 78):

The interest of an undertaking which the Commission has fined for
breach of competition law in the details of the offending conduct of
which it is accused not being disclosed to the public does not warrant
any particular protection, given the public interest in knowing as fully
as possible the reasons behind any Commission action, the interest
of the economic operators in knowing the sort of behaviour for which
they are liable to be penalised and the interest of persons harmed by
the infringement in being informed of the details thereof so that they
may, where appropriate, assert their rights against the undertakings
punished, and in view of the fined undertaking’s ability to seek judicial
review of such a decision.

 While members of a cartel will invoke a right to professional secrecy under
article 339 TFEU, or a right of an undertaking to its ‘private life’ under article 8 of the European Convention for the Protection of Human Rights and
Fundamental Freedoms of 4 November 1950 (ECHR) and article 7 of the
Charter of Fundamental Rights of the European Union (2010) OJ C 83/389
(the Charter), cartel victims will rely on their fundamental rights to prop-
erty and effective redress as well as the public interest in the effectiveness
of the competition rules. They point to the Commission’s obligation, in line
with article 6 TFEU and recital 37 of Regulation 1/2003, to interpret and
apply article 30 Regulation 1/2003 with respect to the rights and principles
recognised by article 47 of the Charter and article 1 of Protocol No. 1 of the
ECHR (article 17 of the Charter).

Damage claims resulting from tortious behaviour are protected by
article 1 of Protocol No. 1 of the ECHR (article 17 of the Charter), as this provision guarantees the right to property to both natural and legal persons
(European Court for Human Rights, Pressos Compania Naviera SA & Ors
v Belgium of 20/11/1995, Series A No. 332, section 31, paragraphs 33 to 34).
Fundamental rights, which include the right to property, form an integral
part of the general principles of law (Case C-501/11 P Schindler Holding &
Ors, paragraph 124. Furthermore, see Explanations relating to the Charter
of Fundamental Rights (2007) OJ C 303/17, p. 23). The fundamental right of
cartel victims to the protection of property would be violated by any action
of the Commission impeding their ability to assess, and then to pursue,
damage claims. Article 30 Regulation 1/2003 needs to be applied in the
light of the fundamental rights of cartel victims to property and effective
redress.

Advocate General Jääskinen emphasised in the opinion delivered on
7 February 2013 in Case 536/11 Donau Chemie, in paragraphs 52 to 53, that:

the principle of effective judicial protection laid down in Article 47 of
the Charter comprises various elements; in particular, the rights of
the defence, the principle of equality of arms, the right of access to a
tribunal and the right to be advised, defended and represented. […]
Hence, limiting availability of critical evidential material undermines
the right of litigants to a judicial determination of their dispute. It also
impacts on their rights to bring cases effectively.

The publication of more comprehensive non-confidential versions of
Commission decisions should be an effective way for victims in the EU to
access information on the cartel. In the view of the EFTA Court, this would
not only respect the victims’ fundamental rights, but also serve the goals of
transparency and effectiveness of the competition rules:

Transparency may constitute an overriding public interest by enabling
the public to ensure that ESA is acting in an adequate and proper
manner in light of the principle of good administration […] It is also
settled case law that any individual has the right to claim damages for
a loss caused to him by conduct which is liable to restrict or distort
competition … The private enforcement of competition law may con-
stitute an overriding public interest and should be encouraged, since
it can make a significant contribution to the maintenance of effective
competition. (Judgment of 21/12/2012 in Case E-14/11 Schenker,
paragraphs 240 to 241.)

Against this backdrop, a further increase in damages actions across the EU
is to be expected.