Trucks: UK damages claims, economic effects, and passing-on

Kyle Le Croy: Richard, thank you for joining me. Today, we are discussing the UK Competition Appeal Tribunal’s judgments in the matters of Royal Mail v DAF and BT v DAF. The two sets of proceedings were case managed together and a single judgment was handed down in February 2023. Before we get into the details of the judgment, how did the dispute arise between DAF and each of Royal Mail and BT?

Richard Whish KC: Well, it’s a very interesting case, it will go down in history when we write future books on damages actions and competition law in the EU. So, the European Commission, in 2016, adopted a decision in which it found a cartel between five producers of trucks that had lasted for 14 years. DAF, the defendant here, being one of those five. Subsequently, there was also a decision against Scania. And, in this particular case, DAF was fined, I think it was €750 million, so a very significant fine was imposed upon it. And then, of course, that attracted damages claims. Very interestingly, I was told the other day that, apparently, there are actions in at least 20 Member States in the EU – because, of course, there are fleets of trucks wherever one goes, trucks cost a lot of money, people that run fleets of vehicles have a lot of vehicles, they get replaced over a period of time. So, it’s self evident that the damages claims in this case are potentially absolutely enormous. What’s interesting about this judgment is it’s the first time in the UK that we’ve had a judgment actually on the award of damages. Elsewhere in the EU there have been lots of awards. I read the other day that, in Spain, where a lot of these cases are taken individually to a local court in Valencia or Malaga, or whatever, apparently, there have been over 2,000 awards of damages so far.

Kyle Le Croy: So, it’s the first substantive assessment by the English courts in the Trucks litigation…

Richard Whish KC: Yes.

Kyle Le Croy: It was also the first substantive assessment in relation to some of the pass-on arguments that the defendants had raised. I wonder, before we get into some of the details of the judgment itself, can you remind our viewers, what is the pass-on defence?

Richard Whish KC: Yes, the pass-on defence. So, actually, it’s really a very simple idea, which is if there’s a cartel between widget producers and I buy widgets, I may have been overcharged by, let’s say, 10 per cent of what the price otherwise would have been. Well, I’m entitled to be compensated for that harm, so I can claim for that 10 per cent. That’s the basic action. However, it may be that I incorporate these widgets into another product, blodgets. I then sell blodgets and I incorporate that 10 per cent overcharge into my own price when I come to sell downstream. Well, if I’ve done that, I have passed all the harm on to my own customer. So, I shouldn’t be compensated, because the principle of compensation is I should not be undercompensated, but equally, of course, I should not be overcompensated either. Interesting point, though, if I have been overcharged and passed the overcharge on, query, should my purchaser, the indirect purchaser, as against the cartelist, should the indirect purchaser be able to sue, because it has been harmed?

Kyle Le Croy: So, how did the Tribunal address those arguments in this case?

Richard Whish KC: Well, it’s interesting that if you look at this judgment, it is very useful. And, specifically, paragraph 228 sums up the position in relation to pass-on, and it may even be worthwhile reading the first few sentences. Paragraph 228, by way of summary on the legal test for causation in relation to a pass-on form of mitigation defence – because this is the defendant saying that the claimant didn’t suffer harm because it passed it on to a sub purchaser – so this is a defence, a plea of mitigation that there was no harm: We respectfully conclude that DAF must prove a direct and proximate causative link between the overcharge and any increase in prices by the claimants. It is not enough for DAF to say that all costs, including increases in costs, are fed into the claimants or their regulator’s business planning and budgetary processes. There must be something more specific than that, and there are a number of potentially relevant factors that it can rely on. And then the Tribunal suggests at least four different factors. But what it is saying here is that DAF, the defendant, can’t just say, oh, they absorbed the losses, they got lost somewhere. If they’re saying there’s a pass-on, you’ve really got to establish what that pass-on is, and you’ve got to be able to demonstrate it.

Kyle Le Croy: You mention four factors that the Tribunal read out. What were the factors that it discussed, which defendants should be alive to?

Richard Whish KC: Well, I won’t go through all of them but, for example, it says you should look at the relative size of the overcharge against the claimant’s overall costs and revenue. So, how significant was this overcharge compared to everything that the claimant does? Now, I think one can see, quite easily, that if I have purchased a fleet of trucks to run my logistics business, well, those trucks are a pretty significant input into my overall business. We should also consider, are there identifiable claims by identifiable purchasers from the claimants in respect of losses caused by the overcharge? I mean, that’s a nice point, isn’t it? Suppose I have been overcharged by 10 per cent and suppose I have passed that 10 per cent on to my own purchasers, query, is it easy to identify those purchasers? If so, one can imagine that those purchasers are themselves in a position to bring an action for the harm that they have suffered. On the other hand, you could imagine a different market where I have suffered the input overcharge, but then that is dispersed across an infinitely large customer base of my own where you can’t really trace through to them, on an individual basis, what overcharge there has been. So, those are just two of these four factors. Actually, in the next paragraph 229, the Tribunal says, and, of course, there are other factors as well – because these cases are all profoundly different from one another. There’s never going to be one-size-fits-all to this question.

Kyle Le Croy: So, looking at this from the 30,000 foot view, what takeaways, what lessons should we draw from the judgment of the Tribunal?

Richard Whish KC: Well, one thing I would say is that, on the facts of this case, the Tribunal ended up deciding that the pass-on defence should not be allowed. Because they said, really, if you’ve got Royal Mail providing postal services to a range of millions of customers, it’s really all but impossible to identify per customer what harm has been suffered. So, this was not an appropriate case for a pass-on defence. Interestingly, one of the members of the panel, Derek Ridyard, a very distinguished economist, said, look, actually, there will have been a pass-on to customers, but it is very difficult to quantify and it is almost inconceivable that the downstream indirect purchasers would bring an action, whether collectively or individually, and, furthermore, it’s very important that the competition rules are effectively enforced, and actually having to pay damages, as it were, is just as important as paying a fine and the effet utile requires that there should be adequate enforcement in damages terms against DAF. And, for that reason, this pass-on defence should be not allowed. So, I think that’s a very interesting way of looking at it. More broadly, you ask, where are we and what are the takeaways here? I think it’s very interesting that, by now, we’ve had five or six judgments in the UK in which damages have been awarded in competition cases. Noticeably, of course, Sainsbury’s v Mastercard and Visa in the Supreme Court, but there have been others as well. So, even a few years ago, there was very little judicial precedent on the award of damages. We’re a lot further on now. I suppose my concluding thought would be, now that we’ve had those judgments, now that we’ve had real live cases, now that we understand better the way that the courts think about this, maybe that will produce an environment in which it becomes easier to settle these cases out of court.

Kyle Le Croy: Thank you for your time, Richard.

Richard Whish KC: OK.