Cross Border Private Enforcement Claim

11 September 2006

Orion Berg

Through publication of the Green Paper (GREEN PAPER, Damages actions for breach of the EC antitrust rules {SEC(2005) 1732}), the Commission intends to make it easier to claim damages for breach of Community competition law. Due to economic trends, violations of competition law, such as abuse of dominant position and the use of restrictive business practices, and therefore the resultant damages, frequently occur across more than one Member State. Aside from international cartels, which often give rise to cross-border follow-up actions for overcharges’ claims, multi-jurisdictional claims may also arise from abuses of dominant position inter alia when the victim is a new entrant who seeks to recover damages as a result of its exclusion from foreign markets. Such proceedings give rise to private international issues which should be considered prior to dealing with the merits of the action: What is the appropriate forum in which to sue the infringing company? Which law should be applicable to the damages claim?

Although the Green Paper deals with some of the matters related to these issues, it does not cover all the complex legal issues which are likely to arise in connection with cross-border private enforcement litigation. This note will briefly describe some of the additional issues which should be taken into consideration when contemplating such international litigation.

Jurisdiction and other procedural issues

The issue of international jurisdiction is not dealt with directly in the Green Paper. Indeed, the Green Paper refers to Regulation 44/2001 to resolve the question of jurisdiction in cross- border cases. The Commission stresses that private enforcement claims fall within the scope of the provisions for tort claims in Regulation 44/2001 which provides that defendants can either be sued in the state where they are domiciled or - at the choice of the claimant - in the state where the harmful event occurred. The place where the harmful event occurred can be either (a) the place where the event giving rise to the damage occurred, or (b) the place where the damage itself occurred (at the choice of the claimant).

It is worth mentioning that the Green Paper does not give any specific consideration to contractual claims. Although the Commission focuses its work on claims based on Article 81 (i.e. anticompetitive agreements), it is rather surprising that the Green Paper excludes from its scope of review situations in which a victim of anticompetitive practices could bring a cross-border claim against the infringing party on a contractual basis, i.e. to challenge the anticompetitive agreement and to ask for restitution. Such actions are likely to fall within the scope of Article 5(1) of Regulation 44/2001 which provides that defendants can be sued in the state where the obligations at stake have been performed. Accordingly, Article 5(1) may serve as a useful basis for victims who seek an appropriate forum to bring cross-border contractual claims. However, given the complexity and the uncertainty of the European and domestic case-law on the interpretation of this provision (what is the “place of performance”? What is “the obligation at stake”?), contractual cross-border claims are likely to give rise to specific issues requiring further analysis.

The Green Paper rightly states that Regulation 44/2001 also covers issues concerning coordination and consolidation of separate proceedings pending in different jurisdictions, however, it is silent on the issue of recognition and enforcement of foreign judgments. Regulation 44/2001 provides for a quasi-automatic recognition of judgments given in the EC. This means that any judgment rendered on private enforcement claims by an EC court enjoys a quasi-automatic recognition in other European jurisdictions. This provides another important means to facilitate the exercise of the right to claim damages for breach of Community competition law and, as such, should also be subject to further enquiry.

In addition, it should also be mentioned that the possibility of a victim obtaining an efficient recovery of damages would depend largely on the availability of conservatory and protective measures which could be ordered by state courts to put an end to the infringement and, therefore, to prevent irreparable harm pending a decision on the merits of the case (for example, to suspend the performance of anticompetitive agreements). The issue of whether the claimant may ask such measures of a foreign court, even if it does not have jurisdiction on the principal claim for damages, is also covered by Regulation 44/2001 and may also give rise to difficulties in the context of cross-border private enforcement claims.

Finally, it is important to note that the tumultuous debate over the availability of anti-suit injunctions in the context of EC law will also have some bearing on private enforcement litigation.

Applicable Law

The Green Paper also focuses on the applicable law in cross-border cases. Question K of the Green Paper is formulated as follows: “Which substantive law should be applicable to antitrust damages claims?”

Assuming that “damages claims are generally torts claims”, the Commission proposes four options in order to determine the applicable law:

  • Application of the general conflict of law rule in Article 5 of the Commission’s proposal for a Regulation on the law applicable to non-contractual obligations (the “Rome II Project”) which provides for application of the law of the place where the damage occurs;

  • Introduction of a special rule for civil claims based on an infringement of competition law, i.e. application of the laws of the states in whose market the victim is affected by the anti-competitive practices;

  • The application of the law of the forum where the claim is brought;

  • Determination of the applicable law according to the claimant’s choice, i.e. choice between the laws of the different states whose markets are affected by the anticompetitive practice.

Most of the comments on the Green Paper have either been in favour of application of the Rome II Project rule or in favour of the application of the law of the forum.

In favour of the Rome II Project, it has been noted that, as Article 5 provides a general rule, such an additional rule would give greater transparency and legal certainty. However, the introduction of any specific rule would also add legal complexity to the system. In addition, because one claim can simultaneously be based on competition law and on any other legal basis, it is preferable that determination of the applicable law be subject to only one conflict of laws rule.

Critics of this option argue that, in antitrust claims, difficulty arises in the determination of the place of damage and therefore it is likely that much argument will take place as to the location where the damage occurred.

The other option proposed by the Commission in the Green Paper which has had a great deal of support is the application of the lex fori. Under this option, the Court with jurisdiction over the claim as a result of the application of Regulation 44/2001 will apply its national laws. The implementation of such a conflict of laws rule would tend to favour forum shopping. Nonetheless, this option is seen as providing some simplicity to the resolution of conflict of laws in already complex cases. Moreover, the application of the law of the forum has only a limited impact in antitrust cases where the national laws of Member States are similar and lead to similar outcomes. In addition, application of the law of the forum is seen by some commentators as encouraging private enforcement.

The other two options - the introduction of a specific conflict of law rule for antitrust actions and allowing the claimant the choice between the laws of the different states whose markets are affected - have been considered by the commentators to be too complex to implement.

Aside from the four options set out by the Commission in the Green Paper, it is also proposed that the applicable law and jurisdiction be unified. The rule should refer to the domicile of the consumer who is affected by anticompetitive practices, as competition law is to be considered to enhance consumer welfare. In cases of class actions, consumers may choose the most convenient law from the different domiciles of the consumers involved in the class action.

It is worth making some brief observations on this matter, in particular in relation to issues which are not dealt with in the Green Paper.

  1. Although, in principle, the Green Paper expresses its intention to promote a balanced approach between the purported victims and the authors of competition infringements, the options put forward for the appropriate rule of conflict of laws for private enforcement claims all tend to favour forum shopping, to the benefit of the victims.

  2. The Green Paper assumes that “damages claims are generally torts claims”, however, the definition of tort claims varies between Member States. For example, actions for breach of negotiations are deemed to be contractual under German law, however, under French law they fall within the category of tort claims. The extent to which this issue should be clarified at the Community level by the ECJ is subject to discussion, however, it should be addressed in order to reduce the legal uncertainty which would prevail in case of conflicting solutions which could be adopted by state courts in the matter.

  3. It is interesting to note that the Green Paper does not consider the issue of punitive damages in the review of private international law issues. However, these issues are closely connected as the Rome II Project provides that exemplary or punitive damages would be deemed to be contrary to Community public policy. If adopted, this provision would conflict with the laws of some Member States which allow the award of punitive or exemplary damages (England and Ireland).

  4. Although it is possible to assume that most of the private enforcement claims would be brought on a tort basis, parties may also choose to bring contractual claims to challenge anticompetitive agreements and ask for restitution (see for example the case Inntrepreneur v. Crehan). The applicable law in contractual disputes is determined with reference to the 1980 Rome Convention on the law applicable to contractual disputes. The Rome Convention provides that contractual disputes should, in principle, be settled according to the law chosen by the parties, and, in the absence of such choice, “by the law of the country where the party who is to affect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence”.

It is worth mentioning that the governing law of the contract would not only apply to determine the validity of the contract (i.e. in private enforcement claims whether the contract at stake is anticompetitive or not), but also the consequences of the nullity of the contract (i.e. the restitution arising from a void anticompetitive agreement).

Attention should also be given, in the context of contractual claims, to the so-called “Lois de Police” mechanism in Article 7 of the Rome Convention. Competition law is traditionally considered to fall within the scope of the category of international mandatory rules (the so-called Lois de Police) which are applicable regardless of the law governing the contract as provided for in Article 7 of the Rome Convention. For example, under the specific conditions listed in Article 7, a distribution agreement entered into between a German and a French company can also be challenged under French competition law regardless of whether the parties have chosen German law as the governing law of their contract. The possibility for victims of anticompetitive practices to challenge anticompetitive agreements on grounds of the so-called Lois de Police mechanism provides for another important means to enhance private enforcement as it enlarges the legal basis available to the victims. It would certainly deserve to be subject to additional scrutiny in the current work undertaken by the Commission.