UK: Carrots and/or Sticks - Can Businesses Expect to be Involved in More Private Law Damages Claims for Breach of Competition Law?

Last Updated: 1 March 2006
Article by Adrian Wood

Originally published February 2006

Are we about to witness an increase in competition law enforcement activity in the UK courts at the hands of ordinary consumers, representative consumer bodies or competing businesses? Have businesses given any thought to how they could use competition law as a sword and not just as a shield? February 2006

EU sponsored research has shown that very few successful private law claims are brought in national courts to enforce competition law. In the case of the UK, in reality, most competition law enforcement is still undertaken by the public sector, through the medium of the Office of Fair Trading (OFT) and other sectoral regulators such as OFGEM. There are, however, signs that the balance between public and private sector competition law enforcement is changing, albeit slowly. So, for example, the recent case of Attheraces Ltd & Anor v British Horse Racing Board [2005] EWHC 3015 (CH) 21 December 2005 was one of the first successful Art 82 claims in the English civil courts under the new competition regime. The open door policy of the English courts is also becoming a factor.

Back in 2003, the High Court held in Provimi Ltd v Aventis Animal Nutrition SA and others [2003] EWHC 961 that a foreign claimant could bring an action for damages in the English courts against an English subsidiary of a foreign parent, even where the loss suffered outside the UK was caused solely by the anti-competitive behaviour of the foreign parent. The English courts were said to have jurisdiction to award the foreign claimant damages for its entire loss, as long as the subsidiary forms part of the same undertaking as the foreign parent for competition law purposes. Against this backdrop, the EU has tried to stimulate a debate about the appropriate balance between public and private competition law enforcement. To lessen the burden on national competition authorities, the European Commission started a consultation in December 2005 on how to increase the use of private law claims for damages for breach of competition law without creating a competition litigation culture.

This article outlines factors that need to be borne in mind by those considering bringing competition claims for damages in the UK and points to a number of questions that require resolution before we can expect to see a greater volume of competition litigation in the UK courts.

Some factors that might hinder private law enforcement in the UK

At first blush, it might be thought surprising that few UK businesses have used the High Court to claim damages for breach of competition law, especially as we now have, following implementation of the Enterprise Act 2002, theoretically one of the most accessible court-based dispute resolution systems in a first world economy. A number of factors are no doubt responsible:

  • We have a Catch-22 situation. The paucity of cases in the UK courts has not enabled Chancery judges to demonstrate their confidence in handling complex econometric analysis. This in turn prevents judges gaining necessary experience. Although there is also a specialist Competition Appeal Tribunal (CAT) capable of handling monetary based competition law claims, knowledge of its jurisdiction is still not widespread;
  • Competition law claims can be very costly, as there will often be a need to establish the underlying economic market on which the alleged infringement occurred, unless an infringement finding has already been made by the OFT, CAT or European Commission;
  • Private law claimants do not have available to them an arsenal of public sector enforcement and disclosure powers (electronic surveillance, entry warrants, financial penalties for delayed disclosure of information etc);
  • Complaints to regulators can be a much cheaper solution for claimants. Litigation can be an expensive route for claimants and there may be significant uncertainty over whether successful claimants will always be able to recover full costs;
  • Victims of anti-competitive behaviour may depend for a large part of their business on dealings with competition law infringers. Small businesses often feel it would be suicidal to alienate their main customers; and
  • Direct victims of cartels may be able to pass on to their customers the cost to their business of the anticompetitive behaviour, so the direct consequences of the behaviour are camouflaged and victims are not incentivised to bring claims.

Interrelated conceptual and legal questions that require answers

Even if none of the above factors is relevant, some putative claimants point to a number of unresolved broader policy and legal questions that impact on the decision whether or not to take court action. For example:

  • Should infringers be allowed to escape sanction by pointing to the fact that those who purchased from them passed on the additional costs of the anticompetitive behaviour to indirect third party purchasers?
  • Should infringers normally receive a ‘reward’ for bringing successful infringement actions in the courts? In the USA, where 90% of competition law enforcement actions are brought by individuals or businesses, courts can in certain situations award the claimant treble damages to mark the gravity of the infringement. This remedy may serve to incentivise claimants as well as act as a deterrent to infringers, but many commentators criticise the idea of courts awarding windfall payments to claimants.
  • But if claimants are incentivised by the availability of large damages awards, will that result in fewer findings of infringement being made by national regulators because whistle blowers will be more reluctant to come forward and ‘shop’ fellow cartel members for fear that they might expose themselves to the risk of expensive third party claims?
  • If punitive damages awards are not deemed acceptable per se in national law and a claimant's loss is smaller than the infringer's gain, in what circumstances would it be possible to develop the law on restitution or account of profits to embrace claims with a competition element?
  • In order to limit the risk of a competition law based claim culture emerging, how should the courts apply concepts of causation and remoteness to competition law based claims?

Discussion and Summary

Clearly in volume terms, there has been very little competition litigation to date in the UK courts. But the backcloth is changing and a number of factors may be contributing to a head of steam favouring the private law enforcement route. First, the OFT's public sector stick has been found to be wanting by the UK's National Audit Office. Second, a number of pronouncements from the EU and UK competition regulatory bodies suggest that enforcement agencies will not be concentrating in the future on complaints made by businesses against their competitors. Third, although the claimants in Attheraces were seeking declarations and an injunction rather than damages, we can expect the case will revive interest in using the ordinary courts as a vehicle for competition law enforcement. Fourthly, further impetus to the private law route was given recently by the Opinion in cases C-295 to 298/04 Manfredi, where the Advocate-General stated that third parties should be able to claim damages for breach of competition law in their national courts in circumstances where there is a causal link between the infringing agreement or concerted practice and the harm suffered.

The institutional framework and locus standi for bringing such private law claims already exists in the UK but confidence in the procedural and evidential mechanisms has traditionally been lacking. A number of developments over the last 9 months suggest however that we may be on the cusp of witnessing a surge in interest in the use of the courts as a recovery vehicle for competition law claims. For example:

  • There is a growing realisation that reforms introduced by the Enterprise Act 2002 reduce the evidentiary burden of proof on claimants. In particular, litigants can now rely upon infringement decisions of the OFT and European Commission as determinations of fact. This provision saves claimants the cost of proving the underlying unlawfulness of the defendant's behaviour;
  • Many of the infringement decisions of the Competition authorities relate to cartels involving raw materials. Businesses operating across a wide number of sectors are coming under pressure from their shareholders to consider how to recover wasted expenditure caused by those cartels;
  • The Commission's December 2005 consultation on damages is itself a response to pressure from businesses to explore ways in which access to the courts can be made easier for third party claimants that have suffered loss;
  • There is a growing interest in the use of class actions, particularly as a result of successful claims made in the USA. Inevitably, claims in the USA against international cartels will sometimes involve EU based businesses. As a natural spill-over effect, we can expect to see damages claims being made in the EU against such international cartelists. Moreover the designation by the Government in October 2005 of the Consumers Association as the representative body for bringing monetary based claims under the Competition Act 1998 on behalf of consumers will mean it is only a question of time before the first claim is brought; and
  • There is strong anecdotal evidence that a number of competition and EU law based damages actions have been settled out of court in the UK. Moreover, there is evidence to suggest that national courts across the EU are beginning to see an upturn in competition related claims. The Advocate-General's recent Opinion in Case 295/04 Manfredi will fuel that discussion.

A balanced mix of sticks and incentives (speedy access to courts, effective disclosure rules, use of class actions etc) should ensure that only genuine cases come to court. Offering juicy carrots in the form of damages awards based on a multiplier is unlikely to provide a satisfactory outcome for all stakeholders. Moreover too many carrots may produce too many rampant rabbits, resulting in additional costs to consumers arising from the purchase by businesses of extended insurance cover. Competition Law is littered with examples of where over-regulation has produced detrimental consequences for consumers. Hopefully such mistakes will not be repeated when the European Commission comes to consider the possibility of a White Paper on damages actions.

Despite the considerations noted earlier, it is only a question of time before we begin to see both UK national courts and alternative dispute resolution systems being used regularly for competition law claims. Businesses should be considering now both how they can take advantage of these mechanisms to secure competitive advantages as well as how to develop appropriate competition compliance responses to limit the threat that such claims against them could bring.

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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