Business, Innovation and SkillsWritten evidence submitted by Hausfeld & Co. LLP

Hausfeld & Co. LLP is a claimant litigation practice, based in the City of London, specialising in actions by claimants to recover damage for breaches of competition law:

In the last four years, we have acted for over 300 claimants in relation to 15 cartel damages actions in Europe, the majority of those in London. Our clients range from SMEs to multi-national corporations across a wide range of industries.

In the absence to date of an effective collective mechanism to pursue claims on an opt-in or opt-out basis, we have typically pursued claims on behalf of groups of claimants in order to provide a viable mechanism for clients to share the costs and risks of litigation. These range from smaller groups of up to 10 clients, to larger claim groups of 30–40 clients, whilst in the air-cargo cartel we now represent over 200 businesses.

We have also been involved in negotiating collective settlements including the BA/Virgin air passenger refund settlement which provided a mechanism for consumers and business to claim compensation under a global settlement fund and the Parker settlement fund for businesses affected by the marine hose cartel. Claims commenced in London have been pursued both in the High Court and the Competition Appeal Tribunal and additionally in a number of confidential settlement dialogues.

Our response below focuses on Schedule 7 to the Draft Consumer Rights Bill (the “Bill”) relating to Private Actions in Competition Law with proposed amendments to the Competition Act 1998 and the Enterprise Act 2002 and draws on our practical experience in the last four years in pursuing redress on behalf of claimants.

Executive Summary

1. Effective access to justice: As claimant lawyers practising in this area we welcome the proposals as a constructive step in improving access to justice for competition infringements for SMEs and consumers which has to date been lacking under the current regime and which are necessary to meet the stated intention under Article 2(3) of the draft EU Directive on competition law claims1 (“the draft EC Directive”) that Member States ensure that injured parties can effectively exercise their entitlement to damages. We consider that the following points set out in this response are key to ensuring that the proposals meet their objective.

2. Costs of collective proceedings under Section 47B and Section 47C: In order for Section 47B to provide a viable collective claims mechanism, a claimant representative will need to have an effective means of: (a) funding the claim; (b) recovering the costs of pursuing the claim; and (c) being safeguarded from the adverse costs risk, without significant individual risk. The costs rules as currently drafted, combined with the recent Jackson costs reforms do not provide a realistic means of bringing a collective claim. The Competition Appeals Tribunal (“the Tribunal”) needs to have the discretion at the time of making a collective proceedings order to approve:

recovery of the costs of ATE insurance premium from the defendant and/or damages recovered;

recovery of the uplift under a Conditional Fee Agreement from the defendant and/or damages recovered;

one way cost shifting; and/or

approval of third party funding.

Without appropriate costs provisions, the revised Section 47B is likely to suffer a similar fate to the current provision which has sat unused and defeats the intended purpose of the reforms.

3. Extension of Section 47A and amendment of limitation provisions under Section 47E: The proposed extension of the Tribunal’s jurisdiction to standalone claims and the harmonisation of limitation periods with the High Court will assist in the Tribunal’s development as a specialist tribunal for competition law damages actions which has to date been hampered by the restrictions on its jurisdiction. The detail of the rules will, however, be critical and adequate consultation should take place to ensure that practical experience of users is taken into account. Clarity will be important to minimise the repeat of present experience in which the interpretation of the Tribunal’s rules and extent of its jurisdiction has been subjected to a large number of lengthy appeals, which presently deters claimants from using the Tribunal where the High Court is available. This relates, in particular, to:

(a)how the revised limitation period will interplay with any Tribunal rules on deferral of follow-on actions;

(b)how the proposed fast track procedure will operate; and

(c)the process for approval of collective proceedings.

4. Approval of redress schemes by the Competition and Markets Authority (“the CMA”)—Section 49C: As drafted, Section 49C provides a mechanism under which an offer will appear to have been made with CMA approval, but makes no provision for consultation with/input from those harmed by the infringement and specifically provides that the CMA shall not have any regard to the amount or value of compensation offered. Appropriate steps should be built into this process to provide for consultation of the proposed beneficiaries of the scheme to redress this imbalance and provide increased credibility to the mechanism. Consideration should also be given to transferring the role of approving the redress scheme to the Tribunal rather than the CMA, given the parallels with the role the Tribunal will have to approve settlements in collective proceedings.

1. Section 47A—Jurisdiction of the Tribunal

1.1 We welcome the extension of the Tribunal’s jurisdiction to stand-alone infringements.

1.2 In view of challenges which have been made on this point to date, it would be helpful to clarify that section 47(A)(3) is not limited to actions for breach of statutory duty, but any appropriate cause of action relating to an infringement decision or alleged infringement—ie whether in contract, tort or breach of statutory duty. Without this, claims may otherwise need to be pursued in the High Court where alternative causes of action exist.

1.3 We note that under the revised section 47A(5), the Tribunal’s jurisdiction in “follow on” damages actions would remain restricted to Decisions of the European Commission or the CMA. In light of the intention under Article 9 of the draft EC Directive to make final Decisions of all EU national competition authorities binding, we believe it sensible to consider this extension now, to save need for later amendment. In our experience, this can be of practical importance where there are often a number of parallel decisions by national competition authorities relating to the same or similar products and on which claimants may rely on bringing their actions for damages, rather than need to bring these in two (or more) different jurisdictions.

2. Section 47B and Section 47C—Collective Proceedings and Costs

2.1 We support the amendments to Section 47B in order to provide an effective mechanism for collective actions.

2.2 Critical to its future use however is the need for suitable costs and funding arrangements. Given the proposed use by SMEs, consumers or appropriate representatives, it will only be used in practice if a claimant representative has a viable means to:

(a)fund the claim (both its own solicitors and experts and other third party disbursement costs);

(b)recover the costs where the claim succeeds so it is in no worse position than any other class member benefitting from the proceedings; and

(c)ensure they are protected against adverse and own costs if the claim fails.

2.3 This is all the more so in the context of competition infringements where experience shows, in particular, that:

(a)the costs of expert economists required to assist in valuing damages claims are very high; and

(b)claims may need to be pursued against a number of cartelists, all of whom will typically instruct top tier law firms, which presents a significant adverse costs risk.

2.4 As a firm, we have in the last 4 years developed innovative funding mechanisms to assist claimants in bringing claims making use of third party funding, conditional fee agreements and ATE insurance. The change in the costs rules in April 20132 now prevent the recovery of an ATE insurance premium or Conditional Fee Agreement (“CFA”) uplift from the defendant. This was counter-balanced by the availability of damage based agreements (“DBAs”), but which under section 47C(7) would not be available for collective actions on an opt-out basis under section 47B. It is also unclear at present how the use of DBAs would apply in opt-in claims where the representative claimant may agree a DBA and have to sacrifice a share of their damages, but other claimants opting in and taking the benefit of the proceedings would not. The position regarding third party funding of costs is also not clear and needs to be clarified. We note that in other jurisdictions where the legal representatives are not permitted to bring cases under contingency arrangements; such as Australia and Canada, third party funding arrangements have been permitted which permit funders to take the funding and adverse costs risk in exchange for a contingency of the damages. These arrangements have resulted in effective collective action systems without the perceived excesses of US class culture, which we understand to be a concern.

2.6 Whilst appreciating the wish to protect class members and settlement recoveries against costs, this needs to be balanced against ensuring claims are brought, particularly in the early stages where there will inevitably be increased uncertainty in testing the scope of the new provisions. Appropriate safeguards can be built in by ensuring that the Tribunal has the discretion to sanction costs and funding arrangements and to cap any costs which are permitted to be recovered from the damages. To ensure claims are viable, the Tribunal should have the discretion at the time of making a collective proceedings order to provide for:

(a)recovery either from the defendant and/or the damages awarded of:

an uplift under a CFA and/or an award of costs made on an indemnity basis;

the costs of ATE insurance and any other unrecovered disbursement costs reasonably incurred; and

(b)as an alternative to recovery of ATE insurance premium—one way cost shifting3 so that the defendants would be liable for the claimants’ costs but the claimants would not be liable for the defendants’ costs in the event the claim was lost; and/or

(c)approval of a third party funding arrangement.

2.7 It is important that the issue of costs is dealt with at an early stage and with claimants/funders understanding what costs arrangements the Tribunal will have the discretion to sanction on the making of a collective proceedings order and which can be approved retrospectively. Sufficient protection would remain for defendants in that the costs arrangements would only be approved at the stage where the collective proceedings order had been made and the claim judged to have met the necessary threshold to proceed, weeding out any unmeritorious claims; and by having the option to elect for ATE insurance to be taken out or to opt for one way costs shifting. The quantum of recoverable costs would also remain within the Tribunal’s discretion in the normal way.

2.8 The detail of the procedure to be followed to apply for a collective proceedings order under paragraph 15B of the Tribunal Rules should be structured in a way which puts the issue before the Tribunal in as streamlined a manner as possible, in conjunction with the proposed fast track reforms and to avoid this becoming a lengthy and costly step for proposed representatives. Clear guidance on this process and the factors to be taken into account by the Tribunal will be key to minimising actions being subject to lengthy appeals which will create a deterrent to them being filed. The development of the rules should be subject to consultation and take into account practical experience in other jurisdictions such as Australia and Canada.

2.9 Given the potential impact on costs arrangements, careful consideration would be needed of the circumstances under section 47(B)(9) in which the Tribunal has full discretion to “vary or revoke a collective proceedings order at any time”, reserving this to exceptional circumstances. The certification process needs to be sufficiently robust to filter any cases which are inappropriate for collective proceedings so that the claimant representative and any funders/ATE insurers have the certainty of knowing how the claim will proceed post certification.

3. Section 47E—Limitation Periods

3.1 We support the proposed adoption of the limitation rules under the Limitation Act 1980 in proceedings in England and Wales (and equivalent provisions in Scotland and Northern Ireland).

3.2 Due to uncertainty on this point to date the Bill should make clear that this time limit will be applied as a matter of procedure to all competition damages actions commenced before the Tribunal regardless of applicable law.

3.3 Critical in practice will be the interplay between: (i) the limitation period and (ii) the Tribunal Rules which might defer the date on which the limitation or prescriptive period begins (see section 47E(7)).

3.4 The draft EC Directive proposes that limitation periods should not start to run until the discovery of the infringement and should be suspended during the investigation of any competition authority of a member-state until the point at which an infringement decision has become final. This suspension should also apply in respect of competition damages claims brought in the Tribunal, which will remove current disputes as to whether an investigation could be said to trigger knowledge for limitation purposes.

3.5 Given the potential for appeals to take up to 8 years in respect of Commission Decisions under Article 101 and 102 of the Treaty, we do not believe claimants should be prohibited from commencing actions on a follow on basis until appeals are concluded but rather that the Tribunal should adopt the current approach which operates in the High Court. Under its case management powers the High Court has discretion to determine whether to stay the proceedings pending the conclusion of appeals and at what stage (see the recent decisions in National Grid Electricity Transmission plc v ABB Ltd and ors [2009] EWHC 1326 (Ch); and WM Morrison Supermarkets plc -v- MasterCard Incorporate and Others [2013] EWHC 1071 (Comm). The proposed suspension will however mean that a claimant has the option to wait for a final decision if it wishes to do so where a defendant has chosen to pursue appeals.

3.6 If a distinction is drawn under the rules between a substantive and financial appeal (as it is under the present rules), there should be a process in place by which a claimant can obtain clarification from a defendant on the nature of the appeal where that is not sufficiently clear information available in the public domain.

3.7 Finally, it is essential to avoid future litigation on the point that there is sufficient clarity as to the commencement of the revised limitation positions under section 47E. As drafted it applies, under section 47A(7) to claims arising on or after its commencement. We propose that this reference to “claims arising” is clarified to mean the date on which a claimant has sufficient knowledge of a claim.

4. Section 49—Further Appeals

4.1 Given the potential importance of decisions on costs in relation to representative actions under Section 47B, we believe decisions as to the entitlement to costs should be subject to appeal, in the same way as they are in the High Court.

4.2 We appreciate the sense in restricting the right of appeal in collective proceedings to the representative and the defendant (as proposed to be introduced by section 2A of section 49), but propose that the Tribunal should have discretion in limited circumstances to permit another claimant whose claim is covered by the collective proceeding order where the representative is not for some reason in a position to pursue the appeal.

5. Section 49C—Approval of Redress Schemes by the CMA

5.1 We see merit in this proposal but as drafted there is insufficient scrutiny in a redress scheme which will appear to have been sanctioned by the CMA but done so without any input from victims of the infringement and no requirement on the CMA to have any regard to the amount or value of compensation offered. Appropriate counter-balances should be built into this process which we believe should include the following:

(a)There should be a requirement of consultation with representatives of the proposed beneficiaries of a redress scheme and the results of that consultation published alongside any resulting offer. This would give improved credibility to the process;

(b)Consideration should be given as to whether the Tribunal may be the more appropriate body to approve redress schemes rather than the CMA. This would be consistent with the Tribunal’s role in approving settlements in collective proceedings and allow it to make use of developed expertise in deciding whether to approve a proposed redress scheme and whether that scheme sufficiently captures the persons harmed by the infringement; and

(c)If the Tribunal were to exercise a similar role in approving the settlement as it would under collective proceedings, including having regard to the amount or value of compensation offered under the scheme to ensure that it is reasonable, the scheme would have increased legitimacy. Given the proposed ability to recover costs of the approval process from the defendant, this could include an independent economist opinion.

5.2 Failing this, any redress scheme which is put forward without the above counter-balances, should make explicitly clear at the outset of the document that it has not in any way been subjected to proper enquiry by the CMA (or Tribunal) or otherwise as to the reasonableness of its terms.

6. Tribunal Procedure

6.1 In a number of areas the detail of the proposals is left to be developed under statutory instrument and/or revised Tribunal Rules. Clarity will be key to minimising future lengthy appeals on the interpretation of the rules, which have to date acted as a deterrent to claimants commencing proceedings in the Tribunal where an alternative forum is available. Consultation will be key to draw on experience of both claimant and defendant practitioners to date.

6.2 The development of a fast track procedure is welcomed. Future development of the rules of the Tribunal under the new Section 15A should be subject to consultation and should take into account:

(a)the appropriate procedure to most effectively reduce time and costs;

(b)information asymmetries which are common in competition damages actions—eg avoiding asking claimants to quantify their claims where relevant information is in the hands of the defendant rather than the claimant; and

(c)making appropriate use of early disclosure of information held by defendants from investigations once claimants have presented prima facie grounds for a claim (consistent with the provisions of Article 5 of the draft EC Directive).

We are willing to provide any additional input or clarification on any of the above issues, as required.

10 September 2013

1 COM(2013) 404 final: Proposal for a Directive of the European Parliament and of the Council 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 dated 11 June 2013

2 Legal Aid, Sentencing and Punishment of Offenders Act 2012

3 Precedent exists under current rules for personal injury claims

Prepared 20th December 2013