Competition Litigation Newsletter - September 2021
- On settlement with the Commission, follow-on damages and ‘binding recitals’: UK Court of Appeal holds fast
- On the determination of carriage disputes in collective proceedings…
- On pass-on…
- On liability in damages for non-addressee subsidiary/sister companies of addressees of Commission Decisions
On settlement with the Commission, follow-on damages and ‘binding recitals’: UK Court of Appeal holds fast
Upon settling European Commission (“EC”) investigations into anti-competitive conduct, parties are well aware of the risk of private follow-on damages actions in national courts, which rely on the settlement decision to establish the addressees’ liability. But to what extent can the background and reasoning to any EC decision – often embodied in explanatory recitals antecedent to the critical articles constituting the operative part of a decision – be said to be binding on English courts and defendant parties to private actions?
In an important judgment of interest to those in EC settlement proceedings and follow-on actions alike, the UK Court of Appeal re-affirmed on 11 November 2020 the first-instance findings of the specialist Competition Appeal Tribunal (the “Tribunal”), leaving defendants to follow-on claims with little scope to resile from facts they have previously accepted pursuant to their settlement with the EC.
For those settling with the Commission, the historical benefits of settlement, both in the near term and for future damages actions, remain. But even more vigilant scrutiny of the facts, as recorded in the recitals of the decision, will be required in order to prevent any improvident admissions ultimately shackling future pleadings before UK courts. It remains to be seen whether other jurisdictions will apply similar legal reasoning.
Grounds of Appeal
On 26 March 2020, the Tribunal granted permission to appeal its own preliminary issue judgment on the binding nature of EC decision recitals in the UK’s Trucks cartel follow-on litigation.
That judgment held:
- as a matter of EU law, recitals that constitute the essential basis or provide the necessary support for the operative part of a decision are binding (“essential recitals”) in light of Article 16 of Council Regulation (EC) 1/2003 (“Article 16”), which establishes that national courts “cannot take a decision running counter to [a] decision adopted by the Commission”; and
- with limited exceptions (see below), it would be an abuse of process for defendants to seek to contest facts, as set out in other recitals ( “non-essential recitals”), which they had previously accepted in settlement proceedings with the EC.
The exceptions to the second finding are enumerated at paragraph 141 of the judgment and may broadly be summarised as covering situations where: the facts in the non-essential recital(s) can be shown no longer to hold true1; the defendant seeks to contest facts or allegations that are additional, different or otherwise exceed the facts set out in a non-essential recital2; and the claimant does not object to the defendant putting forward a case or evidence inconsistent with a non-essential recital3. In all other situations it will be for the defendant to explain to the Tribunal why it should be able to assert facts contrary to those contained in non-essential recitals4.
The Defendants’ appeal concerned the second finding; they did not contest the first.
Tribunal’s EU-law findings upheld by the Court of Appeal
On appeal, the Defendants relied on the supremacy of EU law in arguing that, while Article 16 definitively determined the binding nature of essential recitals, it also precluded the application of national rules to determine the binding status of non-essential recitals. Put simply, the Defendants argued that contesting the truth of non-essential recitals is permitted by Article 16 and that the Defendants must be allowed to do so before national courts.
In dismissing this, the Court of Appeal found no conflict between Article 16 and the application of English law to non-essential recitals. The Court held that Article 16 has no bearing on how a national court should treat non-essential recitals. To hold the non-essential recitals to be binding as a matter of English law did not run counter to the Settlement Decision and was therefore not contrary to Article 16.
The Defendants’ other arguments invoking the proper operation of EU law equally failed to find favour with the Court of Appeal. The Court found no breach of the provisions of the EU Charter guaranteeing rights to a fair trial and the presumption of innocence5: the Defendants were given the opportunity to exercise those rights pursuant to the settlement procedure and ultimately admitted the conduct as described in the Settlement Decision.
The Defendants also submitted that those accused of infringements of EU competition rules would be deterred from taking advantage of the EC’s cartel settlement procedure if they run the risk of being fixed with admission of facts in non-essential recitals which they cannot appeal, thereby threatening the duty of sincere co-operation under Article 4(3) of the Treaty on European Union6 and undermining the EC’s goal of detecting secret cartels.
In setting out reasoning that is of no future application to emanations of the UK state (such as courts) following Brexit, the Court pointed to the “careful balance” struck by the EU legislature between detecting cartels by encouraging cartelists to come forward and facilitating private damages actions in national courts. The Court pointed to the many advantages of settlement: fine reduction, brevity of the settlement decision, non-disclosure of settlement submissions and leniency statements, and saving of legal costs.
The Court of Appeal also upheld the Tribunal’s application of the English law doctrine of abuse of process, with one judge finding that “the [Tribunal] was entirely justified in deciding that it would create great unfairness to the Respondents to have to prove facts that the Appellants have already admitted in the settlement proceedings regardless of the distinction between essential and non-essential facts.”7 It will therefore be an abuse of process for a Defendant not to admit facts set out in a recital to a settlement decision save in very narrow circumstances.
The upshot of the Court of Appeal’s judgment is therefore this: either by the operation of EU or English law, all of the recitals in a settlement decision will be binding, with very limited exceptions.
Looking at this conclusion from a European perspective, there will inevitably be a lack of uniformity across the courts of different Member States with respect to the contestability of non-essential recitals in settlement decisions. However, as the Court of Appeal recognises, the possibility for a patchwork of different approaches across Member State courts in this area is a natural consequence of EU jurisprudence maintaining that national courts are entitled to apply their own rules to private damages claims in the absence of any EU harmonising measures. And whilst other jurisdictions may look to the UK Court of Appeal judgment for inspiration, it is perhaps to be doubted, with Brexit behind us, that the EU institutions will do likewise in any bid for harmonisation.
In the meantime, the Court of Appeal judgment serves to emphatically restate the importance of the wording of settlement decisions for settling parties.
On the determination of carriage disputes in collective proceedings…
In an important development in the UK’s new US-style opt out class action regime, the Tribunal has ruled that, where multiple overlapping opt out claims are brought concurrently, it is not necessary to determine and eliminate the weaker claim(s) as a preliminary issue.
The Tribunal’s decision arose in the context of competing class certification applications brought respectively by Michael O’Higgins (former Chairman of the UK Pensions Regulator) and Phillip Evans (former Inquiry Chair at the CMA, the UK competition watchdog) against several large global banks for alleged manipulation of the foreign exchange market between 2007 and 2013. The claims are based on European Commission decisions issued in 2019.
Prior to the Evans application, the Tribunal had fixed a certification hearing at which to determine whether the O’Higgins claim (brought by Scott + Scott) was suitable to be certified as an opt-out collective action. When the competing Evans application (brought by Hausfeld) was issued, the Tribunal faced the question – for the first time since the opt-out regime’s introduction in 2015 – whether to eliminate the weaker of the two competing claims as a preliminary issue, or to allow both claims to run in parallel through to the main certification hearing and to determine the carriage dispute at that stage.
In ruling in favour of a rolled-up carriage dispute and certification hearing, the Tribunal has, interestingly, charted a different course to that set by the well-developed US and Canadian class action regimes. The Canadian jurisprudence in particular was considered in the course of the hearing, but the Tribunal ultimately decided that there was nothing in this which “was so persuasive as to compel us automatically in favour of the preliminary issue route”.
The Tribunal concluded that in order properly to assess the competing proceedings it would likely be necessary to undertake a detailed assessment of the merits of both actions. In doing so, there could be expected to be a significant degree of overlap between the considerations relevant to the determination of the carriage dispute and those relevant to the question of certification. In those circumstances, the Tribunal concluded that it could not be correct that the carriage dispute was a discrete matter capable of properly being determined as a preliminary issue.
Following this decision, the certification/carriage hearing took place in July 2021. Therefore, the Tribunal will shortly decide both whether a class action should be permitted to proceed at all and, if so, in favour of which representative.
Of course, this has not been the only development in relation to the collective proceedings this year. To view our report on the Supreme Court’s Merricks judgment and the subsequent remitted certification hearing in that claim, click here and here.
The UK’s highest appellate Court, the Supreme Court, handed down judgment on 17 June 2020 in a long-running dispute between various UK retailers, and the Visa and MasterCard card schemes, over the interchange fees which merchants have to pay on all consumer card transactions. The judgment upheld the finding that the interchange fees charged by the card schemes to merchants constituted a restriction of competition in the acquiring market contrary to EU and national law.
One of the issues in the case concerned the degree of precision required from Defendants in the quantification of pass-on. The Court ultimately concluded that no higher burden should be placed on Defendants in this context than on Claimants in proving their loss.
The course of the submissions at the hearing lead to speculation in some quarters that the judgment might effectively alter the burden of proof in relation to pass-on – requiring Claimants (who will typically have the documents and knowledge or evidence relating to pass-on) to prove that losses have not been passed on (instead of the existing status quo which puts on the onus on Defendants).
The judgment does not go that far, but does make clear that Claimants bear a “heavy evidential burden” where pass-on is raised as an issue, which will be relied upon by Defendants in seeking disclosure in relation to pass-on from Claimants. That said, a recent further decision in the UK’s Trucks cartel follow-on litigation suggests that a general plea of pass-on through business cost reduction processes will not be sufficient to ground such requests absent something identifiable that gives rise to a prima facie inference that there may well be a direct causative link between the overcharge alleged and the prices paid by the claimant for other supplies said to reduce the loss resulting from the overcharge.
On liability in damages for non-addressee subsidiary/sister companies of addressees of Commission Decisions
In a preliminary reference from a Barcelona Court arising from the Trucks litigation, the Court of Justice has been asked to consider the extent to which private damages can be sought from a subsidiary of an addressee of a Commission Decision, even if that subsidiary is not itself an addressee8.
Whilst competition lawyers are familiar with the concept of parental liability and anti-competitive conduct of a subsidiary being imputed upwards to the parent for the purposes of infringement decisions, this case raises the issue in reverse, namely whether liability from a parent can be attributed downwards to other subsidiaries in the group and if so in what circumstances.
Advocate General Pitruzzella issued his opinion in April 2021 and whilst it does not bind the Court, it continues the extension of public enforcement concepts into private damages actions. Following on from the Court of Justice’s judgment in Skanska approving the application of the economic continuity doctrine in private damages proceedings, AG Pitruzzella proposes that a subsidiary can also be ordered to pay compensation for harm caused by the anti-competitive conduct of its parent in certain circumstances.
In summary, in circumstances where: 1) the subsidiary and parent form part of the same economic unit (namely where the parent has decisive influence over the subsidiary) and 2) the subsidiary and parent act jointly in the market in the sense that the subsidiary operates in the same area as the parent and was able to give effect in the market to the anti-competitive conduct of its parent, the Advocate General recommends that the subsidiary and parent be regarded as having joint and several liability. Potential Claimants will therefore have greater flexibility to choose where they wish to sue, for example, not only the country of domicile of the parent but also against the subsidiary domiciled in the putative Claimant’s country.
The Court of Justice’s judgment is expected on 6 October 2021.
1 See paragraphs 141(3), (4).
2 See paragraph 141(5).
3 See paragraph 141(2).
4 See paragraph 141(6).
5 Articles 47 and 48.
6 This provision broadly holds that the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties and refrain from measures jeopardising the attainment of the Union’s objectives.
7 Lady Justice Rose at paragraph 106.
8 Case C-882/19 Sumal