The Council of the EU has just published the compromise text of the proposed Directive on national damages claims for infringements of competition law.
The text was agreed at a three-way meeting of the Council, the European Parliament and the European Commission on 18 March. The compromise text was formally approved by representatives of national governments on 26 March, and will be considered for adoption by the European Parliament in April. Although further amendment is possible, there is widespread acknowledgement that, as the Council's explanatory text notes, the result represents a "finely-tuned compromise that goes to the limits of the flexibility of the co-legislators. It has therefore to be considered as a package-deal that cannot be reopened at any part without jeopardizing the whole agreement". Consequently the Parliament may well decide not to risk jeopardising the entire package by insisting on further specific changes.
The draft Directive explains that it sets out rules to ensure that "anyone who has suffered harm caused by an infringement of competition law…can effectively exercise the right to claim full compensation". It is intended to remedy the relative lack of private competition enforcement around Europe (with notable exceptions in a small number of Member States), and the wide variation in procedural rules, by setting out common minimum requirements on issues such as time limits and access to evidence provided by whistleblowers. The draft Directive therefore addresses the following key issues:
- scope: the draft Directive covers claims for damages (but not for other remedies, such as injunctions) for infringements of EU and national competition law. It does not cover national laws that impose criminal penalties on individuals (except as a means of enforcing the rules against undertakings). So, for example, the Directive does not give rise to a right to claim damages against individuals convicted of the cartel offence in the UK;
- type of damages: the basic principle is "full compensation", meaning compensation for actual loss, loss of profit and interest, but not "overcompensation" in the form of punitive damages, multiple damages (for example treble damages along US lines) or other types of damages;
- disclosure of evidence: in a major change for many national legal systems, where a claimant presents a "reasoned justification" for a plausible claim for damages, national courts may order defendants and third parties to disclose relevant evidence. Claimants may also be ordered to make disclosure. Disclosure must be proportionate, balancing a number of factors, including the evidence to support the claim, the scope and cost of disclosure and arrangements for protecting confidential information. The Directive will not prohibit national rules (such as those in England and Wales) providing for wider disclosure, although subject to the rules on the protection of evidence from the file of a competition authority, outlined below;
- disclosure of evidence from the file of a competition authority: this has been one of the most hotly-contested issues during the legislative process. The draft Directive distinguishes three categories of evidence. During the negotiations, they became known as the "black" list (evidence which may never be disclosed), the "grey" list (evidence which may be disclosed after a competition authority has closed its proceedings) and the "white" list (evidence which may be disclosed at any time). Black list evidence includes leniency corporate statements – voluntary submissions made by an undertaking, describing its knowledge of and role in a cartel as part of a leniency application – and settlement submissions – submissions acknowledging an undertaking's participation in an infringement, with a view to a simplified or expedited procedure (and generally a reduction in fines). Grey list evidence includes information prepared by a natural or legal person specifically for the proceedings of a competition authority, such as the parties' responses to statements of objections and information requests. It also includes settlement submissions that have been withdrawn, and information that the competition authorities have sent to the parties in the course of proceedings, such as statements of objections. White list evidence includes all other types of evidence. A court can request information from the competition authority itself where a party or third party cannot reasonably provide it. The authority may make representations to the court. Black or grey list evidence obtained by a party through access to the file of a competition authority during the course of proceedings must not be used in private enforcement proceedings. The draft Directive therefore represents a step back from the Pfleiderer judgment of the ECJ, which held that leniency material could be disclosed in private enforcement proceedings before the national courts, subject to a balancing exercise by the judge;
- penalties for breach of the disclosure rules: national courts must be able to impose effective penalties for breach of the disclosure rules, and the courts must also be able to draw adverse inferences from breach of the rules;
- effect of national decisions: findings of infringement in a final decision by a national competition authority, or a court on appeal from an authority, will be binding on the national courts of the Member State concerned. There is currently a wide variety of rules on this issue throughout the EU. Findings of infringement by the UK and German competition authorities are already binding in the national courts. In contrast, in Spain, although decisions of the national competition authority are not binding, they may be used as evidence before the courts. In Italy, decisions of the competition authority are partially binding, in that parties may rely on new evidence before the courts, to challenge findings of the authority, but may not rely on evidence or arguments previously considered but rejected by the authority. The draft Directive also provides that national decisions must be treated as at least prima facie evidence of infringement before the courts of other Member States. This was a controversial point in negotiations, with opposition to the Commission's original proposal that decisions of the competition authority of Member State A should be binding on the courts of Member State B. Decisions of the European Commission are already binding in the courts of all Member States;
- limitation periods: Member States must provide for a limitation period of at least five years, which will not start to run until the infringement has ended and the claimant knows, or can reasonably be expected to know the behaviour and the fact that it constitutes an infringement, the fact that the infringement caused it harm, and the identity of the infringing undertaking. This is a significant level of detail, and means that in reality time limits are unlikely to start to run until after a competition authority has issued its decision. Limitation periods are suspended during an investigation, and continue to run for at least a year after the infringement decision has become final, ie. any appeal has been determined. This has the potential to give rise to very long periods of exposure to claims. Legislators dropped an earlier proposal to impose a long-stop date on claims;
- joint and several liability: the draft Directive provides that undertakings which have infringed the competition rules through joint behaviour are jointly and severally liable for loss suffered. In other words each undertaking is liable in full, and the victim may claim compensation in full from any of them. However, joint and several liability may in certain circumstances be relaxed for small and medium-sized enterprises. Cartel immunity recipients are jointly and severally liable to their own direct and indirect purchasers,, and to other victims only where those victims are unable to obtain full compensation from the other infringers. Infringing undertakings may recover contributions from each other, the amount of which is to be determined by reference to their relative responsibility for the harm caused by the infringement. A cartel immunity recipient will be liable in a contribution claim only for the loss that it has caused to its own direct and indirect purchasers. Joint and several liability, and contribution requirements, currently apply to claims in England and Wales, Germany and a number of other Member States, but will be modified by the special rules for SMEs and immunity recipients;
- passing-on and claims by purchasers at different levels of the supply chain: the draft Directive sets out a complex series of rules on passing-on (the argument that a purchaser has passed any loss on to its own customers). Passing-on is available both to base a claim (so that both direct and indirect purchasers may claim for loss suffered) and as a defence. Defendants will bear the burden of establishing that claimants have suffered no loss but have instead passed it on. In this respect, the rules will be very different from those applying to many claims in the US, which do not permit a passing-on defence, but also exclude claims by indirect purchasers. Member States must ensure that there is no double-counting of losses where there are claimants from more than one level of the supply chain;
- quantification of harm: the burden and standard of proof required to quantify losses must not make it practically impossible or excessively difficult to claim damages. National courts must be able to estimate the loss if it is difficult to quantify it precisely. There is a presumption that cartels cause harm, although the draft Directive does not (as is the case in some Member States) provide for a presumption of a specific level of overcharge;
- consensual dispute resolution: the draft Directive provides for suspension of limitation periods for up to two years pending consensual dispute resolution, including settlement negotiations, arbitration and mediation. Compensation paid as a result of such a process prior to an infringement decision by a national authority may be a mitigating factor in setting the level of any fine. The Directive also sets out rules for modifying the contribution rules in the case of voluntary settlements, to avoid overcompensation and limit clawback from settling defendants;
- entry into force: the proposal is that the Directive must be implemented within two years of its entry into force. If adopted by the Parliament in April 2014, the deadline for implementation is likely to be in May 2016.
As the Council points out in its accompanying notes, the text represents a significant compromise between the institutions. It goes some way towards creating a framework for more effective private enforcement, without jeopardising the Commission's and national authorities' cartel leniency programmes. In fact, it offers more protection to leniency material than is currently provided by the case-law of the European Courts. The solution that it mandates is necessarily a minimum standard – there are no treble damages, and disclosure is still narrower than in common law jurisdictions. It does not provide for collective actions, although a Commission recommendation encourages Member States to introduce opt-in collective claims. A number of Member States have already introduced or are introducing collective claims, however, and this is an area likely to see rapid expansion over the next few years. France, for example, introduced collective claims based on breaches of competition law in March this year. In Spain, similar collective claims exist, although only for consumers.
To summarise, the draft Directive represents a cautious step towards more effective private enforcement, which reflects concerns in many Member States about the perceived over-development of private enforcement in the US in particular, and also safeguards as a priority the public enforcement regime of EU and national competition authorities.