Implementing the EU Damages Directive – will the UK retain its competitive advantage?

The competition litigation landscape is changing across the EU as Member States act to implement the directive on antitrust damages actions¹ (the Directive) by 27 December 2016. The Directive is designed to make it easier for victims of anti-competitive conduct to obtain compensation for loss suffered across the EU. It introduces a minimum standard for antitrust damages actions which all EU Member States are required to meet.

Over the past two decades, the UK has developed into a jurisdiction of choice for claimants looking to launch competition law claims with a growing number of both follow-on and stand-alone claims being issued. The UK has a number of features that make it attractive to claimants, including:  (i) an experienced judiciary; (ii) a permissive attitude to jurisdiction; and (iii) a degree of certainty on many key issues following years of litigation.

In many respects, the substantive provisions of the Directive mirror the existing provisions of UK law such that the UK is already compliant with the terms of the Directive. While there are some limited but important exceptions which will require amendment to UK law, in the majority of cases, no amendments are required.

On its face, it therefore seems likely that the incentives for claimants to bring pan-EU claims in the UK should remain unchanged. However, the Government’s proposed method of implementation of the Directive could have material unintended negative effects for the development of competition litigation in England and Wales.

The Directive is designed to encourage claimants to bring private competition claims whilst ensuring that:  (i) companies are not incentivised to bring vexatious and abusive claims; and (ii) the risk of claims does not deter applicants under the Commission’s leniency programme.²

In summary, the main provisions of the Directive are as follows:³

• Passing on – the Directive confirms that “indirect” purchasers are entitled to issue proceedings to recover loss suffered as a result of a cartel.  This confirms the accepted position in the UK that anyone that suffered loss as a result of a cartel can bring a claim even if they did not directly contract with any of the cartelists.
• Presumption of pass-on – the Directive introduces a rebuttable presumption that an overcharge levied on a direct purchaser was passed on to an indirect purchaser.  However, the indirect purchaser will still need to prove the extent of the overcharge that was passed on.  Amendments to existing legislation will be required to formalise this presumption in UK law (although we do not expect it to have a significant impact on the parties’ positions).
• Presumption of harm – the Directive introduces a rebuttable presumption that cartels cause harm.  This concept does not currently exist in English law.  However, the Government has made it clear that – while courts will have the power to estimate loss – they are expected to apply existing principles to calculate the harm caused.
• Joint and several liability – it is well established in the UK that cartelists are jointly and severally liable for all of the loss caused by the cartel.  However, amendments to existing law will be necessary to exempt the leniency applicant from joint and several liability.
• Disclosure – the Directive requires Member States to introduce a disclosure regime.  Disclosure is an established feature of UK litigation and existing law goes significantly beyond the requirements of the Directive.  However, some limited amendments to the Civil Procedure Rules and the CAT Rules will be required to provide absolute protection to leniency submissions (in practice, this confirms the existing case law position established in National Grid⁴).
• Protection from contribution claims – the Directive introduces a requirement that a defendant that settles a claim should be protected from contribution claims by co-defendants.  This is intended to increase the incentives for defendants to settle early.  Amendments will be required to formalise this position in UK law (although there is currently an accepted mechanism to settle competition claims which makes it unattractive for contribution claims to be pursued against the settling defendant so, in practice, this is unlikely to have a significant impact).
• Limitation – the Directive introduces a requirement that limitation periods should be at least five years, commencing when the infringement has ceased and the claimant knows or can reasonably be expected to know of the infringement, harm and the identity of the infringer.  For follow-on claims this mirrors the current position under English law (although English law provides for a six year period). For stand-alone claims, the Directive is ambiguous and open to interpretation.⁵ The Directive also introduces a requirement that the limitation period be suspended for the duration of the investigation.  This is not currently addressed by English law (although the courts do have procedural powers to order a stay of proceedings for the duration of the investigation).

The Government launched a consultation on 28 January 2016 on how it would make what it described as the “relatively minor changes required to implement the Directive in the UK”.⁶ This consultation closed on 9 March 2016 and the Government is currently in the process of considering the responses that it received.

The consultation document is short, containing only:  (i) 36 paragraphs which set out proposed changes to the UK regime; and (ii) six questions for respondents. Given the Government’s acknowledgement that only limited changes to the UK regime are required to comply with the Directive, this summary approach is not unexpected.

However – notwithstanding the fact that only limited amendments are required – the Government made it clear in the consultation document that its intention is to “copy out” all of the substantive provisions of the Directive into UK law (i.e. to copy the wording from the Directive directly into UK law).⁷ It intends to adopt this “copy out” approach (amending/replacing existing law) in all cases regardless of whether UK law is already compliant with the terms of the Directive.

The Government’s rationale for adopting this approach is to provide “certainty” for claimants and businesses. Rather than create certainty, our view is that this approach will give rise to significant new uncertainty for both claimants and defendants about how the courts will interpret the new provisions in the Competition Act 1998 and the new procedural rules.

The primary issue with the Government’s proposed approach is that it risks overriding existing authority on a number of key issues. The competition litigation landscape in the UK is well-developed, with a number of longer running cases having established how a number of key concepts will be applied. It is this certainty that has contributed to the attractiveness of the UK courts in the eyes of litigants.

For example, the existing disclosure regime goes beyond the requirements of the Directive.  It has been the subject of significant judicial consideration.⁸ Although some amendments to the Civil Procedure Rules and CAT Rules are required to implement the Directive requirements on disclosure (as explained above), copying out the provisions of the Directive relating to disclosure into UK law would risk narrowing the existing rules on disclosure of evidence in competition claims.  This would give rise to particular confusion in claims that include both competition law and non-competition law causes of action.

In our view the Government’s proposal to “copy out” the Directive wording risks creating scope for disputes and satellite litigation on the copied out language.  We would favour a more considered approach which:  (i) only implements the Directive where change to UK law is necessary; and (ii) even where amendments are necessary, considers the impact of purely “copying out” the Directive wording.  As a minimum – if the Government elects to proceed with its “copy out” approach – we would support a provision for the new law to be interpreted in line with existing case law for issues already addressed in the UK system.

We expect the Government to publish its response to the consultation in June 2016 setting out the decisions that it has taken. It appears that at this stage the Government does not intend to carry out a further consultation on the wording of the draft legislation. However, its proposed approach may change following review of the consultation responses and the Government may share the draft text with a group of expert competition law practitioners prior to implementation.

Although the Directive should achieve the Commission’s aim of removing a number of the procedural barriers to bringing private damages actions in many EU Member States, the incentives for claimants to bring pan-EU claims in perceived “claimant friendly” jurisdictions – such as the UK, Germany and the Netherlands – are likely to remain unchanged.

Although the purpose of the Directive is to introduce a minimum standard across the EU, many of the factors that make these jurisdictions attractive – such as favourable procedural rules, experienced judiciaries and efficient case management will remain.

In fact, the UK is likely to become increasingly claimant-friendly with the introduction of an “opt-out” system for collective actions – a proposal rejected by the EU.⁹ In fact, the first such action was launched earlier this month by the National Pensioners’ Convention in respect of increased prices paid for mobility scooters.

We would encourage the Government to think again before electing to “copy out” all provisions of the Directive, to avoid introducing new uncertainty to issues that have been settled.  Nonetheless, we expect that the UK courts will remain the claimants’ forum of choice and that an increasing number of claims will be issued in the coming years as the Consumer Rights Act reforms – and in particular the “opt-out” regime – start to take effect.