Court of Appeal wields the broad axe afresh in LCD panels cartel damages assessment

In a notable judgment, the Court of Appeal in Granville Technology Group Limited (In Liquidation) & Ors v LG Display Co. Limited & Anor partially allowed an appeal by the claimants in respect of an award of damages, making modest adjustments to the High Court’s findings on the levels of overcharge and pass-on. In doing so, the Court of Appeal clarified the approaches to assessing damages in competition disputes and establishing the pass-on defence. 

Background

Proceedings before the High Court

In its February 2024 judgment, the High Court awarded damages to a group of English companies in liquidation, in a claim that followed on from a 2010 European Commission decision finding that the Defendants - manufacturers registered in Taiwan and South Korea - participated in a cartel to co-ordinate on prices, volumes, and production capacity in the worldwide LCD panel market between 2001 and 2006.

The High Court ruled that the Claimants (personal computer suppliers) were overcharged for LCD panels as a result of the cartel, but had passed on a proportion of these overcharges to purchasers of products incorporating those panels. The judgment addressed many facets of how claims for follow-on damages fall to be assessed at trial, including among others the assessment of overcharge, upstream pass-on, downstream pass-on, and consequential loss of profits. 

The High Court’s judgment represented only the third award of damages in a UK cartel damages claim. However, it was also notable as an example of the successful establishment of the pass-on defence, despite very little factual evidence. This contributed to a reduction of the damages award to £4.4m – only approximately 7% of the more than £60m claimed.

Appeal by the Claimants

Despite the award of damages in their favour, the Claimants appealed the High Court’s findings on quantum, contending that it had:

1. erroneously erred on the side of under-compensation when assessing the damages;
2. made clear and obvious errors when determining the overcharge; and
3. failed to apply the correct legal test when determining the level of downstream pass-on.

The Court of Appeal’s judgment

Legal framework for the assessment of damages

When summarising the principles to be applied when assessing damages in competition cases, the High Court had referred to a statement made by Popplewell J in 2017 in Asda Stores Ltd v Mastercard Inc that, when employing a “broad brush approach” in the absence of precise evidence of loss, courts should “err on the side of under-compensation so as … to reflect the uncertainty as to the loss actually suffered and … give the defendant the benefit of any doubts in the calculation”.

However, as pointed out by the Claimants when they initially received the judgment in draft, this principle had been rejected by the Court of Appeal in 2019 in Britned Developments Ltd v ABB AB, which ruled that “the aim of the court should always be to give the right amount of compensation, without erring in either direction”. In response, the High Court added a footnote to the final judgment, acknowledging the Court of Appeal authority but stating that, having reconsidered its conclusions, no adjustments to the quantum calculations were necessary.

The Claimants argued that, regardless of the footnote, the principle of under-compensation was clearly on the trial judge’s mind and therefore was, at least subconsciously, a relevant factor in his analysis. 

The Court of Appeal agreed with the Claimants. Having regard to the substantive text of the judgment, it found that the High Court had - on both the questions of overcharge and pass-on - sought to avoid over-compensation, to the point of erring on the side of under-compensation. Therefore, taking the trial judge at his word, his methodology wrongly took into account the (overturned) principle expressed in Asda v Mastercard. According to the Court of Appeal, “the correct legal principle is clear and is common ground. When the evidence will only take the court so far … [it] will assess the damages as best it can with the use of ‘sound imagination and a broad axe’ aiming to award the right figure without erring in either direction”. 

As explained below, this erroneous conclusion was found to have infected the High Court’s findings on the levels of both overcharge and pass-on.

Overcharge

Having concluded that the High Court had wrongly erred on the side of under-compensation when determining the appropriate levels of overcharge, the Court of Appeal determined that the most appropriate course of action was for it to decide what adjustments to the High Court’s figures were necessary. This was because the trial judge had already been asked to revisit the judgment and decided there should be no such adjustment, and a retrial before a new judge would be disproportionate. 

Therefore, applying the “broad axe” approach - in what it acknowledged was a “more or less arbitrary way” - the Court of Appeal slightly increased the overcharge findings from 8% to 10% for monitors, 4% to 6% for notebooks and 14% to 16% for TVs.

The Claimants’ other arguments on overcharge were unsuccessful. These largely focused on the High Court’s approach to the economic evidence, including that the High Court had erred by rejecting suggestions that “lagged” prices and variables should have been used in the econometric regression analysis that was proposed by the Defendants’ expert and ultimately preferred by the High Court. The Court of Appeal deferred to the High Court’s conclusions as to which expert’s opinion was preferable, finding that it had not misunderstood the expert evidence before it, and noting the high threshold for an appellate court to intervene and reverse the High Court’s findings.

The Claimants also argued that the level of overcharge found using the Defendants’ expert’s model was so low as to be implausible, given the risks inherent in engaging in the unlawful conduct over a sustained period. The Court of Appeal rejected this on two bases. First, even a seemingly modest overcharge could result in a “worthwhile return” for the participants, for instance if it applied over a long period of time or affected a large market. Secondly, a core purpose of the Defendants’ expert’s regression analysis was to identify if there was any overcharge in the first place (and, if there was, then the level of that overcharge). It would therefore be inappropriate to bake in an upfront assumption that the overcharge must have existed and been at a particular minimum level.

Pass-on

A striking aspect of the High Court’s judgment had been its willingness to find a significant degree of pass-on of the overcharge, despite the very limited availability of documentary or factual witness evidence on the issue. The High Court accepted the Defendants’ case, based primarily on expert economic evidence, that the Claimants had passed the higher prices of components on to their customers – albeit, again wielding the broad axe, it found a pass-on rate of 65%, rather than 100% as the Defendants had contended. 

The Claimants argued on appeal that the High Court had erred in this regard by failing to apply the correct legal standard for establishing pass-on - that of a “direct and proximate causative link” between the overcharge and claimants’ downstream prices - which the Claimants contended was not satisfied here.

The Court of Appeal rejected these arguments, finding that the High Court had indeed applied the correct legal test. Significantly, the Court of Appeal accepted that complex economic evidence might be involved in determining not only the extent to which any such mitigation had occurred, but also the prior question of factual causation (i.e. whether there was pass-on at all). It found that the High Court had been “entitled to… draw[ ] reasonable inferences from the available information and the expert evidence” and “consider[ ] the inherent probabilities in the situation”, in drawing a conclusion which “accord[ed] with common sense”. Nonetheless, it was considered important that the expert evidence was “not merely ‘broad economic theory’ at a high level of abstraction, but was concerned with the particular features of the market in which the claimants operated and the functioning of their specific business”.

On the same basis as the overcharge assessment, the Court of Appeal went on to apply its own broad axe in slightly reducing the pass-on finding from 65% to 60%, in order to account for the High Court having wrongly applied the principle of erring on the side of under-compensation.

Key takeaways

While the appeal was allowed to the limited extent of varying the High Court’s assessment of the levels of overcharge and pass-on, the adjustments made to the first-instance findings were modest. Nevertheless, at a more general level the judgment provides an indication that, when faced with a significant degree of uncertainty and a range of plausible figures for the loss suffered by a claimant, “unless there is a particular reason to do otherwise, an award of an amount somewhere approximately in the middle of the range could be expected”. This is on the basis that such an outcome will “reduce as far as possible the extent to which the claimant is either under- or over-compensated”. First-instance judges will take heed of the Court of Appeal’s comment that “[s]uch an award is unlikely to be open to challenge” on appeal.

The judgment is also notable for explicitly according a role to “common sense” and “consider[ation of] the inherent probabilities” of the situation. In this context, the Court of Appeal found that the High Court was quite entitled to characterise the parties’ respective contentions, that the pass-on rate was either 0% or 100%, as “unreal”.

Finally, the ruling is a reminder of the importance of approaching the prior question of the existence of loss (or pass-on) without any preconceptions as to the precise level at which it might have occurred. As to the nature of the evidence to be taken into account in this regard, the judgment notably accords more of a role to expert evidence than the recent Competition Appeal Tribunal ruling in the Merchant Interchange Fee Umbrella Proceedings. In a sense the Granville case is an unusual one, given the particular evidential issues created by the Claimants’ longstanding insolvency. However, it is notable that the Court of Appeal did not consider that this relieved the Claimants of their “heavy evidential burden” (as established by the Supreme Court in Sainsbury’s v Mastercard) to provide evidence on how they dealt with the recovery of costs in their business, once the pass-on defence had been raised.