4 Damages in competition law
| (35084)
11381/13
+ ADDs 1-3
COM(13) 404
| Draft Directive 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
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| Legal base | Article 103 TFEU; QMV; consultation
Article 114 TFEU; QMV; co-decision
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| Document originated | 11 June 2013
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| Deposited in Parliament | 25 June 2013
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| Department | Business, Innovation and Skills
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| Basis of consideration | EM of 9 July 2013
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| Previous Committee Report | None
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| Discussion in Council | No date set
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| Committee's assessment | Legally important
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| Committee's decision | Not cleared; further information requested
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The document
4.1 The aim of the proposed Directive is to help
consumers and businesses claim damages in national courts for
breaches of competition law and to ensure equivalent protection
throughout Member States. The breaches of competition law concerned
are agreements or practices intended to abuse a dominant position.
4.2 In particular the proposed Directive provides
that Member States must ensure that in actions for damages:
· those who have suffered loss should be
entitled to full compensation for all of the loss suffered;
· national courts are provided with the
power to order disclosure of documents from parties which are
relevant to a claim and are not subject to legal professional
privilege;
· there is no disclosure of either leniency
statements or settlement submissions. These documents relate to
regimes which enable whistleblowers to receive leniency in exchange
for the evidence about a cartel (an agreement involving two or
more businesses which affects competition, for example through
price-fixing). However, material that was prepared for a competition
authority as part of their investigation can be disclosed after
it has concluded the investigation. In addition, protection is
granted for businesses which are granted leniency so that they
are not normally liable to pay damages for those who are not direct
or indirect purchasers;
· final decisions that are made by national
competition authorities, or by a review of a court, cannot be
overturned by the courts during any claim for damages;
· a limitation period (the time limit for
which actions may be brought) shall be at least five years and
can be suspended in certain circumstances, for example when a
competition authority is investigating the matter;
· joint and several liability shall be permitted
so that where a number of businesses have caused harm, one can
be held liable for all of the harm but then can claim a contribution
from the other businesses;
· a defendant may invoke the passing on
defence. This allows defendants to claim that claimants did not
suffer any loss as they passed relevant costs on to other parties.
Indirect purchasers can also bring an action if they can show
they suffered a loss as a result of a direct purchaser being over
charged; and
· there is a presumption of loss in cartel
cases. Member States have discretion as to the amount of
the presumed loss and defendants may prove that there was no loss
or it was smaller.
4.3 There has been previous EU work in this area,
particularly the 2005 Green Paper, the 2008 White Paper and the
2011 draft Guidance Paper on the quantification of antitrust harm.
4.4 If the Directive is adopted, Member States shall
have a period of two years to implement it and will have to notify
the Commission as to which parts have been implemented into national
law. The Commission will review the Directive no more than five
years after implementation.
Legal and procedural issues
Legal basis
4.5 The current proposal is based on both Articles
103 and 114 of TFEU, because it pursues two goals, namely (a)
to give effect to the principles set out in Articles 101 and 102
TFEU and (b) to ensure a more level playing field for undertakings
operating in the internal market, and to make it easier for citizens
and businesses to make use of the rights they derive from the
internal market.
4.6 Regarding the first objective, the Commission
says that the Court of Justice has clarified that the full effectiveness
of EU competition rules and, in particular, the practical effect
of the prohibitions they contain, would be put at risk if it were
not open to any person to claim damages for loss caused to him/her
by a contract or conduct liable to restrict or distort competition.
It considered that damages actions strengthen the working of the
EU competition rules and can thus make a significant contribution
to maintaining effective competition in the EU.[5]
In seeking to improve the conditions under which injured parties
can claim damages and to optimise the interaction between the
public and private enforcement of Articles 101 and 102 TFEU, the
present proposal is intended to give effect to these provisions.
This means that the proposed Directive must be based on Article
103 TFEU, according to the Commission.
4.7 However, the aim of the proposed Directive goes
wider than giving effect to Articles 101 and 102 TFEU. The current
divergence of national rules governing damages actions for infringements
of the EU competition rules, including the interaction of such
actions with the public enforcement of those rules, has created
a markedly uneven playing field in the internal market, the Commission
says. These marked differences were already described in the 2008
White Paper and its accompanying Impact Assessment. Since then,
they have increased.
4.8 One example of divergence is the different national
rules applying to access to evidence. With the exception of a
few Member States, the lack of adequate rules on the disclosure
of documents in proceedings before a national court means that
victims of a competition law infringement, who are seeking compensation
for the harm suffered, have no effective access to evidence. Other
examples concern national rules on passing-on (where existing
differences have major implications for the ability of direct/indirect
purchasers to effectively claim damages and, in turn, for the
defendant's chances of avoiding compensation for harm caused),
the probative value of the decisions of national competition authorities
in subsequent damages actions, and national rules that are relevant
to the quantification of antitrust harm (e.g. the existence of
a presumption of harm).
4.9 Because of this diversity of national legislation,
the rules applicable in some Member States are considered by claimants
to be much more suitable for bringing an antitrust damages action
in those Member States rather than in others. These differences
lead to inequalities and uncertainty concerning the conditions
under which injured parties, both citizens and businesses, can
exercise the right to compensation they derive from the Treaty,
and affect the effectiveness of such right. Where the jurisdictional
rules allow a claimant to bring its action in one of those favourable
Member States and where that claimant has the necessary resources
and incentives to do so, it is thus far more likely to effectively
exercise its EU right to compensation than when it cannot do so.
As injured parties with smaller claims and/or fewer resources
tend to choose the forum of their Member State of establishment
to claim damages (one reason being that consumers and smaller
businesses in particular cannot afford to choose a more favourable
jurisdiction), the result of the discrepancies between national
rules may be an uneven playing field as regards actions for damages
and may affect competition on the markets in which these injured
parties operate.
4.10 Similarly, these marked differences mean that
undertakings established and operating in different Member States
are exposed to significantly different levels of risk of being
held liable for infringements of competition law. This uneven
enforcement of the EU right of compensation may result in a competitive
advantage for undertakings that have breached Articles 101 or
102 of the Treaty, but which do not have their headquarters or
are not active in one of the 'favourable' Member States. Conversely,
uneven enforcement is a disincentive to the exercise of the rights
of establishment and provision of goods or services in those Member
States where the right to compensation is more effectively enforced.
The differences in the liability regimes may thus negatively affect
competition and run a risk of appreciably distorting the proper
functioning of the internal market.
4.11 For these reasons the Commission argues that
a second, internal market legal base is required, namely Article
114 TFEU.
The Government's view
4.12 The Minister for Employment Relations and Consumer
Affairs at the Department for Business, Innovation and Skills
(Jo Swinson) deposited an Explanatory Memorandum on the proposal,
dated 9 July. In it she sets out the Government's views under
the following headings.
IMPACT ON UNITED KINGDOM LAW
4.13 Existing national law is largely compatible
with the proposed Directive. National law may also be amended
as a result of the draft Consumer Rights Bill, which contains
provisions in respect of actions for damages. The Government
proposals within the draft Consumer Rights Bill are compatible
with the proposed Directive. There will, however, be a need for
amending legislation to give effect to Article 6 (disclosure of
leniency documents), Article 16 (presumption of loss in cartel
cases) and Article 17 (suspension of limitation periods where
parties are trying to settle a dispute).
SUBSIDIARITY
4.14 Competition rules necessary for the functioning
of the internal market constitute an area of EU exclusive competence.
However, the harmonization of laws under Article 114 TFEU is an
area of shared competence.
4.15 The Commission believes that EU action through
the proposed Directive is the most appropriate mechanism because:
· an effective public enforcement regime
could be jeopardised by a lack of action at EU level if Member
States decide on an ad-hoc basis whether or not to disclose leniency
documents;
· there is still a lack of an effective
redress regime for breaches of EU competition law; and
· there is a marked difference between the
actual levels of actual redress that consumers are able to obtain
in Member States.
4.16 The Government is content with these conclusions
and considers the objective is best achieved at a European level
to ensure consistency amongst Member States. In particular, the
Government considers that it is appropriate for the Directive
to apply in the limited circumstances to national competition
law. It would be impractical for a court to separate aspects of
the same claim into national and EU competition law so as to apply
different rules on damages to each aspect. This would also result
in uncertainty.
POLICY IMPLICATIONS
4.17 The Government broadly agrees with the Commission's
proposed Directive, and much of the work is similar in nature
to the recently published draft Consumer Rights Bill. The Commission's
overall aim of ensuring that consumers have the ability to obtain
effective redress for infringement of competition law is identical
to Government policy.
Full Compensation
4.18 The Government supports the principle that consumers
should be able to claim full redress where a defendant has caused
them harm, but that the proposed Directive does not allow for
the claiming of exemplary damages. The Government already allows
for consumers to claim full redress under Section 47A of the Competition
Act 1998.
Disclosure of documents
4.19 The proposed Directive requires that Member
States allow national courts to order the disclosure of evidence
if the claimants present reasonable evidence that the defendant
has caused them harm. The Competition Appeals Tribunal already
has this power.
Disclosure of leniency statements or settlement
submissions
4.20 The proposed Directive prohibits Member States
from allowing courts to order the disclosure of leniency corporate
statements and settlement submissions. In antitrust cases, businesses
applying for leniency (the whistleblower regime) are a key part
of competition authorities being able to investigate the alleged
infringement.
4.21 In 2011 the Court of the Justice of the European
Union (ECJ) ruled[6] that
the provisions in EU law which allow for the sharing of information
between Member States in relation to competition cases should
not automatically mean that those affected by the breach of competition
could not view the documents. Until that decision, any business
that had informed authorities of a cartel had been able to protect
its documents under the leniency regime. This ruling threw that
protection into doubt: any files that were shared across the EU
could be ordered to be disclosed by a national court to those
who had been affected by the cartel. Since the Pfleiderer
case, it has been within the discretion of Member States to decide
on a case by case basis whether leniency documents should be disclosed,
which has invariably led to Member States requesting guidance
from the Commission.
4.22 However, the Government thinks the Commission
should also consider whether or not the withholding of documents
harms the case of the claimants. In damages claims where an infringement
decision has already been made, no proof of liability is required.
In some instances, there is enough evidence in the final ruling
of the competition authorities for the level of redress to be
calculated. However, there are instances when leniency documents
assist claimants in calculating the level of redress. In the
Government's view the Commission should consider whether withholding
the disclosure of leniency documents harms the ability of consumers
and businesses to claim redress. This has been the subject of
a recent ruling by the ECJ in June 2013,[7]
where it ruled that the public interest had to be taken into account
when considering whether or not to disclose leniency documents.
4.23 Conversely, if leniency documents are disclosed
it may discourage businesses from using the leniency regime and
therefore weaken a key part of how infringements are uncovered.
Final decisions on a breach of law cannot be overturned
during a claim for damages
4.24 The Government agrees with this principle. A
claim for damages should not lead to a review of the final decision,
and this has been a provision in UK law since the Enterprise Act
2002.
Limitation period shall be at least five years
4.25 The limitation period in the UK at present is
two years in claims for damages in competition cases. However,
this is an anomaly as the normal limitation period for comparable
actions is six years for England, Wales and Northern Ireland and
a prescription period of five years for Scotland. There is a
provision within the draft Consumer Rights Bill to harmonise the
limitation or prescription periods within the respective legal
jurisdictions: a five year prescription period in Scotland or
six year limitation period in England, Wales and Northern Ireland.
However, the Government recognises the need for consistency between
the proposals on limitation in the draft Consumer Rights Bill
and the proposed Directive.
4.26 The proposed Directive requires Member States
to create rules clarifying when the limitation period will start
and when it can be suspended, within the following parameters:
· the limitation period cannot start unless
the claimant knows, or can reasonably be expected to know of the
actual infringement; and
· the limitation period will be suspended
if a competition authority investigates an alleged infringement
or parties seek to settle the proceedings.
4.27 Parties in the UK would normally be expected
to agree to the suspension of the limitation period where they
were seeking to settle proceedings.
Joint and Several liability
4.28 The proposed Directive permits Joint and Several
liability, which allows for a defendant to be liable to compensate
for the harm in full. That defendant may then claim contributions
from other infringing parties, and that amount shall be determined
by "light of their relative responsibility." The proposed
Directive also provides that defendants who have been granted
immunity as a result of a leniency application should normally
only be liable for the harm caused to its direct or indirect purchasers.
4.29 The Government believes that action at EU level
is appropriate as leniency documents can be disclosed across Member
States; therefore it is neither consistent nor effective to have
different regimes across Member States. The Government considers
that any legislation in this area should be tightly focused, and
that those who apply for leniency should be no worse off than
those who do not apply for leniency. Secondly, this regime should
not necessarily offer those who have been granted leniency extra
protection from making redress to those who have suffered loss.
The exception is that the Government believes that those who
apply under the leniency regime should have protection from having
to pay all the damages relating to the cartel. The proposed Directive
meets these criteria.
Passing-on defence
4.30 The proposed Directive permits the passing-on
defence, which allows defendants to argue that claimants "passed
on" some of the alleged loss down the supply chain. The
Government is not convinced there is a strong case for new legislation
addressing the passing-on defence. Whilst it accepts that there
might be some small benefit from legislating in terms of certainty,
it thinks this issue would be better addressed through case law.
Indirect purchasers
4.31 The proposed Directive allows for indirect purchasers
to claim damages against a defendant as long as they can prove:
· the defendant has committed an infringement
of competition law;
· the infringement resulted in a direct
overcharge for the direct purchaser; and
· the indirect purchaser purchases goods
or services that were the subject of the infringement.
4.32 The UK does not prohibit indirect claims and
there is no policy objection to this.
Quantification of harm
4.33 The proposed Directive requires that for cartel
infringements it shall be "presumed that the infringement
caused harm." The proposed Directive also requires Member
States to grant the power to courts so they can "estimate
the amount of harm."
4.34 The Government does not believe that it should
be presumed that a cartel infringement caused harm, nor that courts
should have the power to estimate the level of harm. By contrast,
it believes, and it is a long standing principle in domestic law,
that it is the responsibility of claimants to prove the level
of loss. The defendant would need substantial economic evidence
to rebut such a presumption and it would lead to an unnatural
bias in the regime. The Government also believes that there would
be significant difficulties in introducing such a presumption
in cases where there may be more than one layer of purchaser,
for example a supplier, a business selling the good and a consumer.
CONSULTATION
4.35 The proposed Directive follows a 2005 Green
Paper and a 2008 White Paper. Both papers were responded to by
the Office of Fair Trading and by stakeholders.
4.36 The UK Government ran a consultation on UK's
private actions regime between April and July 2012. The Government
issued its response in January 2013, and the proposals are bought
forward in the draft Consumer Rights Bill which was published
in June 2013.
FINANCIAL IMPLICATIONS
4.37 There are no financial implications.
Conclusion
4.38 We thank the Minister for her helpful Explanatory
Memorandum.
4.39 We note the Government's broad support for
the proposal, which is largely consistent with existing and draft
national competition law, but also its concerns about:
· the disclosure of whistleblower (leniency)
documents;
· enshrining a passing-on defence in
EU legislation;
· the presumption of harm as a consequence
of cartel infringements; and
· giving the courts power to estimate
the level of harm.
4.40 The Minister's officials have informally
indicated that this proposal may be subject to political agreement
in the Council next Monday, but that there remains a difference
of opinion on whether there should be one or two legal bases.
When reviewing the draft proposal we concluded that Article 114
TFEU was a pre-requisite legal base for some of the objectives
of the proposal, and we found the Commission's justification for
the additional base to be well founded. Were Article 103 TFEU
to be the sole legal base, we would wish to review the draft proposal
again. In these circumstances we are unable to clear the proposal
from scrutiny.
4.41 We also suggest that a difference of opinion
on an aspect of the negotiations as fundamental as the legal base
should indicate to the Government that it is too early for political
agreement, and we trust that this will be the outcome of Monday's
meeting.
4.42 We ask the Minister to write to us with
an update on the progress achieved to date in the negotiations
as soon as possible after the Council meeting next Monday.
4.43 In the meantime the proposal remains under
scrutiny.
5 See Case C-453/99, Courage and Crehan, [2001]
ECR I-6297; Joined Cases C-295/04 to C-298/04, Manfredi,
[2006] ECR I-6619; Case C-360/09, Pfleiderer AG v Bundeskartellamt,
[2011] ECR I-5161; and Case C-199/11 European Community v.
Otis NV and others, [2012] ECR I-0000. Back
6
Case C-360/09 Pfleiderer AG v Bundeskartellamt, judgment
of 14 June 2011. Back
7
Case C-536/11, Bundeswettbewerbsbehörde v Donau Chemie
AG et al, judgement of 6 June 2013. Back
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