Regulations implementing the EU Damages Directive in the UK are set to introduce important changes to the law on limitation, burden of proof, and liability in competition damages claims
Draft Regulations1 implementing the EU Damages Directive2 in the UK3 were recently laid before Parliament and are expected to be adopted and come into force shortly. In a number of respects the provisions will codify the way the English courts (including the Competition Appeal Tribunal) have until now dealt with many aspects of competition damages claims in England & Wales. However, there are important provisions relating to the burden of proof – specifically a rebuttable presumption of harm from cartels – and the extent to which successful immunity applicants can be held liable for damages. There are also changes which clarify and extend the limitation periods for competition damages claims, as well as changes in the law in respect of contribution. The cumulative effect of these changes appears to be to increase the exposure of companies to claims for damages relating to infringements of competition law.
Changes to the substantive law
The substantive provisions4 of the Draft Regulations will only apply to claims where the relevant infringement commenced on or after the date they come into force. In practice, therefore, the effects of these new provisions are unlikely to be felt for several years as there is typically a long delay between the start of an infringement and an eventual finding that an infringement has occurred.
Brief details of the most significant changes are set out below.
The Draft Regulations provide for suspension of the limitation period during an investigation by a competition authority or during consensual dispute resolution, which will significantly extend the limitation period for most claims. They also set out the elements of knowledge required before the limitation period will begin.
In the future, the limitation period will be suspended from the point at which a competition authority begins a formal investigation5until:
- one year from the date on which a decision finding an infringement becomes final (i.e. any subsequent avenues of appeal have been exhausted); or
- if the authority does not take a decision, one year from the date the investigation is otherwise closed.6
For follow-on claims, these provisions will in most cases bring an end to debates about whether a claimant should have brought a claim before the date of a formal decision if there was a risk that any claim might otherwise be time-barred. Such issues should no longer be relevant in most cases because the limitation period will be suspended and not recommence until at least one year after an infringement decision is taken.
The Draft Regulations also stipulate that the limitation period is suspended when the parties to proceedings engage in a consensual dispute resolution process. This includes the parties agreeing to engage in settlement discussions,7 as well as agreeing to engage in arbitration or mediation. The suspension can end in various ways including one party notifying the other that it is withdrawing from the process, or one party asking the other to confirm it wishes to continue with the process and not receiving a response within 14 days.
Mirroring the wording of the Directive, the Draft Regulations state that the limitation period starts on the later of the date on which: (i) the infringement ceases; or (ii) the claimant has knowledge of certain matters including when the claimant "knows or could reasonably be expected to know … that the claimant has suffered loss or damage arising from [the] infringement".
The Draft Regulations therefore codify the elements of knowledge required by a claimant. Although these basically follow provisions under existing law, the issue of whether loss or damage has been suffered is a complex question and the drafting suggests that a claimant could argue that until it had undertaken a detailed economic analysis it could not know or reasonably be expected to know that it had suffered loss or damage. The result could be arguments as to whether the limitation period had started.
Burden of proof
The Draft Regulations contain several novel provisions regarding the burden of proof in competition claims. These include:
- a rebuttable presumption that cartels cause harm;
- where a claim is made by an indirect purchaser (i.e. a party that acquired the cartelised goods or services further down the supply chain), a rebuttable presumption that the claimant (i.e. indirect purchaser) suffered loss if they prove that an overcharge was suffered by a direct purchaser from whom the claimant then purchased the goods or services in question; and
- an express provision that a defendant carries the burden of proving that a claimant passed on any overcharge and, if so, how much (a passing-on defence).
Although the introduction of a rebuttable presumption of harm arising out of cartel infringements is a major change to the law, the amount of any alleged overcharge will still be a central issue in any damages claim. Therefore, in practice, the presumption may not fundamentally change the way such issues have been litigated to date.
Limitations on liability
The Draft Regulations provide for important limitations on liability for defendants in certain circumstances. In particular, a defendant that has received immunity from fines pursuant to a cartel leniency programme
("Immunity Recipient") will generally8 not be jointly and severally liable for the harm caused by the cartel as a whole, but only liable to compensate claimants that are direct or indirect purchasers of its goods or services.
This provision marks an important change to the existing position that infringers are jointly and severally liable for losses caused by a cartel, i.e. a supplier involved in a cartel may be liable to all customers of the cartelised product, even those to whom a supplier did not actually sell. This change is likely to provide an additional incentive for companies to disclose cartel activity to competition authorities in return for immunity.
So far as contribution claims are concerned, a key change is that where one of several defendants settles a claim, the remaining defendants will not be able to seek a contribution from the settling defendant, removing a potential obstacle to the settlement of claims, and indeed likely to encourage this type of resolution (even if the claim is not particularly strong).
In terms of attributing liability between defendants, the Draft Regulations state that the amount of contribution for which each defendant is liable must be assessed in light of their relative responsibility for the whole of the loss or damage caused by the infringement. This is a more specific test than the current assessment of what is 'just and equitable' when determining contribution, and it remains to be seen whether it will lead to a material difference in approach by the courts.
However, in a case with an Immunity Recipient, the Immunity Recipient shall only be liable for a contribution up to an amount equal to the loss or damage caused by sales (direct and indirect) of its own goods or services, including sales of products containing or derived from those goods or services.9
Once adopted, the Regulations will introduce substantial changes to important aspects of claims for damages arising from breaches of competition law. In particular, the provisions will extend, in some cases significantly, the limitation period for claimants to bring a claim against companies that have participated in an antitrust infringement. However, as the substantive provisions will only apply to claims in respect of infringements commencing after the Regulations enter into force, it is likely to be several years before their application is tested. The provisions could have a more immediate impact, however, in increasing the likelihood of immunity applications (for infringements starting after the Regulations enter into force), as Immunity Recipients will enjoy more limited liability in future damages claims.
1 The Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017.
2 Directive 2014/104/EU.
3 This article only discusses the provisions as they impact the law of England & Wales.
4 The Draft Regulations also codify provisions of procedural law relating to disclosure and use of evidence which apply to proceedings commenced after the implementation date (and are not discussed in this article).
5 Any time an authority spends informally investigating (e.g. by asking questions and scoping any possible case) would not begin the suspension period).
6 The closure of an investigation does not necessarily imply that no infringement has taken place. For example, an investigation may not be pursued on the grounds of administrative priorities, without the authority taking a position on whether there has been any infringement of competition law.
7 Though there is scope for argument as to how any period of settlement discussions is to be delineated.
8 An exception to the general rules applies where the claimant cannot obtain full compensation from the other infringers (for example because they are insolvent).
9 The same principle applies to suppliers to the extent the infringement resulted in underpayments for products/services supplied to the cartelists.
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