UK: Standard & Poor's: Next Steps And The Right To Claim Damages

Last Updated: 7 September 2011
Article by Rachel Iley

Overview

On 16 May 2011, the European Commission confirmed that Standard & Poor's ("S&P") has offered concessions in order to settle its 2-year long investigation into the licensing of US ISINs. If accepted, the Commission will make these commitments binding on S&P for 5 years. No infringement decision would be adopted, however. This would have an impact on the ease with which third parties can claim damages (itself a motivation for agreeing to commitments) but does not affect their right to claim damages for any loss they have suffered as a result of S&P's licensing policy to date.

This note summarises the next steps and some procedural and practical pointers for those considering whether to launch a damages action against S&P.

The proposed commitments

To recap briefly, the Commission has concerns that the way in which S&P licences its US ISINs, and in particular the prices it charges, infringe EU rules that prohibit companies with a dominant market position from engaging in abusive conduct (Article 102 of the European Treaty1).2

S&P has offered to change its EU pricing policy by (i) charging direct users (information service providers and financial institutions) a maximum of US$15,000 p.a. (adjustable annually in line with inflation) and (ii) abolishing charges to indirect users that source ISINs via information service providers.3

What happens next?

The Commission is asking third parties to comment on the concessions it has negotiated before making them binding on S&P. The consultation period is open until 15 June 2011.4

The Commission will then take any comments into account in considering whether to accept or vary the commitments. The Commission can renegotiate the commitments or even abandon them altogether (although this is rare). However, if the Commission considers S&P's proposed concessions to be adequate, it will make the commitments binding for 5 years, by adopting a decision under Article 9 of the EU's antitrust Regulation 1/2003.

Commitment decisions do not conclude that there has been an infringement of EU antitrust rules, nor result in a fine. However, they do legally bind the companies concerned. If a company breaks its commitments, the Commission can fine it up to 10% of annual turnover, without having to find a competition law infringement.

The legal right to claim damages

Under European law, individuals who have suffered loss as a result of anti-competitive conduct have a right to claim damages from the infringing party.5 However, it is for national systems to establish effective procedural rules.

Section 47A of the Competition Act 1998 provides a right to any person who has suffered loss or damage as a result of an infringement of UK or EU competition law to bring civil proceedings in the UK to claim damages for losses caused by anti-competitive behaviour.

Damages are intended to provide financial compensation for the loss suffered. It may even be possible to claim for lost sales, e.g. where these result from the higher prices charged. A claimant can also seek interest on any grant of damages from the date the infringement occurred to the date of the court's judgment. Generally, the losing party will be ordered to pay a significant portion of the costs incurred by the successful party to the litigation.

Type of action to bring

The advantage of having a prior infringement decision is that claimants can bring a "follow-on" action in the specialist Competition Appeal Tribunal, which is bound by the decision that competition law has been breached.

Where commitments are entered into there is no infringement decision. However, this does not prevent claimants from launching a "standalone" action for damages in the Chancery Division of the High Court. In addition to proving that the breach caused them loss (i.e. their loss would not have happened 'but for' the competition breach) and the amount of loss suffered, a claimant in a standalone action will also have to obtain and submit evidence to prove the breach itself. That said, parties do bring damages claims in the High Court and, in any event, many cases settle before actually reaching court. The threat and/or commencement of actions are often used as an additional negotiating tool.

Timing

Claims for competition breaches in the High Court generally must be brought within 6 years of the date the claimant suffered loss (subject to some exceptions).

Procedural steps

Before issuing a claim, under the English court rules the claimant is expected to send pre-action correspondence in the form of a letter before action which details the nature of the intended claim. This must give the defendant sufficient detail and time (typically 21 days) in which to respond and is intended to give the parties the chance of settling their differences without recourse to the courts.

If the claimant then decides to issue proceedings, the procedure relating to claims in the High Court is governed by the standard English court rules (CPR 1998). Proceedings are started by issuing a claim form, which must contain a concise statement of the nature of the claim and the remedy sought. This is issued by the court at the request of the claimant and must be served on the defendant within 4 months of issue.

Particulars of claim – a more detailed statement of the facts on which the claimant relies, the relief sought including any claim for exemplary damages, and a claim for interest where applicable – must also be served on the defendant. A claim alleging breach of the competition rules must be fully pleaded; otherwise a claim can be struck out.

The defendant then has 14 days (or up to 28 days if it files an acknowledgement of service) to file its defence. This period can be extended if agreed by the parties or ordered by the court. A defence must respond comprehensively to the allegations made in the particulars of claim. The defendant may also wish to make a counterclaim. A defendant will often request further information from the claimant, although the court also has wide powers to order the parties to give additional information and clarify any matter.

After the parties have set out their cases and, typically, a few months after the commencement of proceedings, it is usual for the disclosure of documents to take place. This entails the preparation of a list of documents and the subsequent inspection and provision of copies of them to the other side. Usually a party has to disclose documents (i) on which he relies; (ii) which adversely affect his or any other party's case; and/or (iii) which support another party's case. Documents include emails, minutes, diary entries, photographs, invoices, and audiotapes etc. – in fact, it will cover almost anything. It is therefore important not to create documents which could be unhelpful if they have to be shown to an opponent. The court will sometimes order disclosure prior to the commencement of proceedings, if the potential claimant can show such disclosure will assist in the resolution of the matter. You may wish to consider using this strategy in these circumstances.

Prior to any trial, the parties will need to serve written witness statements of the oral evidence they intend to rely on in relation to any issues of fact at trial. A witness can subsequently be cross-examined on any statement.

In almost all competition cases, it will also be necessary to adduce expert economic evidence relating to matters such as market definition, market power and the amount of the claimed loss. The formal written report by an economist forms a key part of the evidence. It is usual for the parties' respective experts to discuss their reports after service, in order to attempt to identify areas of agreement and experts can also be examined on their evidence.

Practical points

Selecting and briefing the right legal team (both solicitors and barrister(s)) and establishing legal strategy before taking action can be extremely beneficial. It is often possible to gain a strategic advantage (and therefore negotiating leverage) through the early exchanges.

It is also important to appoint an economist up front who can evaluate and compile econometric evidence of causation and the loss suffered, which will inform the particulars of claim and the expert report.

Consider the merits of bringing a joint action with other parties affected by S&P's licensing. For example, where a number of parties have the same interest in a claim, one claimant can bring a representative action on behalf of an identifiable represented class. Alternatively, parties can merely agree to share resources and/or information in preparing their own separate claims.

Footnotes

1. European Treaty on the Functioning of the European Union

2. For details of the Commission's case against S&P, see "Standard & Poor's: Data Licensing in the Spotlight Again...." (January 2009) http://www.kemplittle.com/html/stay-posted/publications/short-lines/data-licensing-under-the-spotlight-jan-2009.html

3. Commission Notice Summarising the Commitments: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:144:0028:0030:EN:PDF http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:144:0028:0030:EN:PDF

4. For example, EFAMA has already responded to provide its views on the shortcomings of the proposed commitments: http://www.efama.org/images/stories/110516_efama_press_release_on_sandp_commitments__.pdf

5. ECJ in T-22/02 and T-23/02, Sumitomo Chemical Co Ltd: "Community law considers those remedies as vital in ensuring the full application of Articles 81 [now 101] and 82 [now 102]"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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