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England and Wales

Author: Vincent Smith and Mahdis Moeiri-Farsi

XI. Directive 2014/104/EU 'Damages Directive'

1. What is the 'Damages Directive'?

The need for a more efficient way for businesses and individuals to claim damages for breaches of European Competition law has been addressed by the introduction of the 'Damages Directive' (2014/104). The Directive aims to deter competition law breaches in the future as well as tackling the current inefficiencies in cross-border disputes involving other Member States. This is a direct attempt to provide a more harmonised and standardised process across Member States to reduce uncertainty and provide better access to redress. The Department for Business Innovation and Skills has published both a consultation and impact assessment in order to evaluate the potential changes to UK competition law needed to implement the Directive.

For some Member States the implementation of the Damages Directive can have far-reaching consequences, as the Directive requires (in summary):

1. Increase of limitation periods- Article 10

2. Joint and several liability, with EU mandated exceptions- Article 11

3. Greater disclosure of evidence- Article 5

4. Right to full compensation- Article 3

5. Legal (rebuttable) presumption of harm in cartel cases- Article 17

6. National courts to be able to estimate harm- Article 17

7. Protection from disclosure of leniency statements of whistle-blowers (as part of the EU leniency programme)

8. Member States to allow the "passing on" defence- Article 13

9. 'Consensual Dispute Resolution' mechanisms to be available and court actions can be suspended during ADR- Article 18

The UK has recently enacted Schedule 8 to the Consumer Rights Act 2015 (extending the powers of the CAT to hear 'collective proceedings actions), which has made comprehensive changes that overlap with the Damages Directive. This would mean that the proposed changes by the Directive in the UK are very modest.

The most notable changes in the UK as identified by the Department for Business, Innovation and Skills (BIS) in its implementation consultation are as follows:

1. Passing-on defence will now become law. This is to say that if a cartel member overcharges a purchaser and that purchaser passes this on in full to another, the cartel member will have a defence tot eh purchaser's claim.

2. Limitation periods will now be calculated to run from when the claimant knows, or can reasonably be expected to know of the behaviour and that it constitutes an infringement, that it caused harm and the identity of the infringer. This corresponds to the current provisions in English law (s 32(1) Limitation Act 1980). Although the Directive specifies a minimum period of five years, currently in the UK the limitation period is six, therefore the impact may be limited.

3. Legal (rebuttable) presumption of harm in cartel cases - in practice this may not lead to a significant change, however the BIS report states it is possible that this will "marginally increase the likelihood of damages being awarded compared to under the current UK law, meaning that is possible that there will be an increase in the cases brought"

4. Protection from disclosure of leniency statements made by whistle-blowers to competition authorities. Currently leniency statements can be released if the interest in release outweighs the public interest in its remaining confidential: under the Directive they will be fully protected.

Member States have until 27th December 2016 to implement the Directive. In the UK the Common Commencement Date (CCD) is 1st October of any given year and it is likely that the Directive will be implemented form then. The BIS consultation has found it to be in the interest of businesses that the Directive be implemented earlier than is required i.e. October 2016.

2. BIS Consultation January 2016

As noted above, the Department for Business, Innovation and Skills has published a consultation along with an impact assessment. The consultation was ran until 9th March and a full report will be following.

The Impact Assessment has assessed five policy options, with the fifth being the preferred option.

The Consultation has a favoured 'option' of a "Single Regime" with several elements going beyond the requirements of the Directive. It has been proposed that the Directive be increased in scope to include cases that are not covered by EU competition law i.e. to cover all private competition action cases. This is to reduce the legal uncertainty that can be caused by a dual-system as to whether a case should be brought under the UK or EU regime (whether there is an appreciable effect on trade between Member States in the conduct in dispute). According to the Impact Assessment published by the BIS, their key assumption is that there will be a 3.75% increase in the number of cases taken to the ordinary courts and CAT.

In deciding to implement a single regime, the BIS have found it difficult to distinguish whether the anti-competitive behaviour affects trade within the UK alone or between Member States also. The consultation argues that to implement a single regime would reduce 'familiarisation costs' that come with having a dual regime and a risk of an increase in satellite litigation.

The consultation has also noted the following legislative changes required to implement the Directive: CPR, Competition Act 1998 and the rules of CAT and of court. Each individual amendment suggested in the consultation will be included under each sub-heading.

3. Changes proposed by the Directive

It is important to note that the Damages Directive includes nothing express regarding to Collective Redress. While the initial proposals for the Directive did refer to collective redress, it was not possible to reach a consensus within the Commission and the European Parliament; therefore collective redress was removed from the Directive. However, the Commission has published the Recommendation on Common Principles for Collective Redress Mechanisms (2013/396/EU).

a) Disclosure of evidence - Article 5

The Damages Directive seeks to harmonise the scope of documents that can be ordered for disclosure. The requirements should not imply change to the current practice in England. However, the Directive expressly states that courts must be mindful of proportionality when deciding what documents are to be disclosed. This is to ensure that there will be no 'fishing expeditions', while maintaining its overall requirement of claimants right to access to evidence that is relevant to their claim.

The Directive's disclosure requirements are careful not to be too broad in scope. Leniency statements will no longer be disclosable to ensure that the motivation driving the EU leniency programme remains intact by allowing whistle-blowers some protection and so incentivise them to continue taking part the in programme.

Penalties (Art 8) are also to be imposed on parties, third parties or their legal representative if they refuse to comply with disclosure, destroy evidence or breach the limits on the use of the evidence provided. Again this corresponds to the current English law position.

The BIS Consultation report states that a change is likely required to the CPR to ensure there is statutory protection for leniency documents.

b) Right to full compensation- Article 3

The Directive requires Member States to ensure that claimants are able to obtain full compensation including lost profits and interest. Punitive damages will however not be ordered.

c) Rebuttable Presumption of harm in cartel cases and Quantification of harm suffered- Article 17

The Directive has introduced a rebuttable presumption of harm in order to allow claimants to bring their claim without proving any loss has occurred. Moreover, national courts will now be empowered to estimate the amount of harm once the claimant has established it. The Directive also repeats the EU fundamental principle that Member States must ensure that the burden and standard of proof required in order to quantify the damage doesn't render the exercise of the right to damages 'practically impossible or excessively difficult'. With this in mind, the Commission has published non-binding guidance on quantifying damages in order to aid national courts. In the UK, it is suggested that a publication of guidance to the courts and CAT is necessary in order to explicitly provide that they may estimate the amount of harm suffered.

d) Limitation Periods- Article 10

The harmonisation and often extension of limitation periods is arguably one of the biggest overhauls by this Directive. Member States must ensure that the limitation periods for bringing actions are at least five years

According to Art 10(2)(a)-(c) The limitation period will not start to run before the infringement of competition law has ceased and the claimant knows, or can reasonably be expected to know of the behaviour and fact that is constitutes an infringement of competition law; the infringement caused harm; and the identity of the infringer. Member States must also ensure that the limitation period is suspended for as long as a competition authority is investigating the infringement

e) Joint and Several Liability - Article 11

Cartels are jointly and severally liable for any harm caused through joint behaviour. This entitles a claimant to full compensation from any of the undertakings which have participated in the cartel. There are however two exceptions under Art 11(3):

i) SMEs will only liable to their own (direct and indirect) purchasers if joint and several liability would jeopardise its economic viability or; market share was below 5% throughout the infringement and; didn't lead to the infringement. This particular provision caused great controversy among several Member States, which lead to Germany, Poland and Slovenia abstaining from voting on Directive.

ii) Leniency programmes—undertakings that have been granted immunity from fines shall not be liable to injured parties other than their own direct or indirect purchasers and suppliers. As noted by the BIS Consultation, joint and several liability is well accepted in the UK, however it based on case law. Therefore to ensure that the Directive is correctly implemented, the Competition Act 1998 will be amended to explicitly provide for this to reduce uncertainty.

f) The Passing-on Defence- Article 13

Following the introduction of the Directive, Member States must allow the passing-on defence i.e. the infringer must be allowed to argue that the claimant has passed on the whole or part of the overcharge to its own customers in order to reduce the quantum of the claimant's claim. The burden of proof passes to the defendant to show that there was pass on.

Art 14(1)-(2) deals with indirect purchasers. They are able to claim but must prove that the cartel's actions have resulted in an overcharge to the indirect purchaser: this appears to be presumed if the indirect purchaser purchased the goods or services that were the object of the infringement.

The UK government plans to provide for the passing-on defence by amending the Competition Act 1998 to put the issue beyond doubt and no longer based on the general principles of tort in this situation.

g) Consensual Dispute Resolution Mechanisms- Article 18

The Directive now allows national courts to suspend proceedings while parties pursue consensual dispute resolution. The suspension will not run for longer than two years. Mechanisms are described as "any mechanism enabling parties to reach the out-of-court resolution of a dispute concerning a claim for damages" (definition 21). Recital 48 lists the following as examples mediation, arbitration and conciliation. After a consensual settlement a competition authority may consider compensation paid as a result of the consensual settlement and prior to its decision imposing a fine to be a mitigating factor in calculating the fine (Art 18(3)). Furthermore, to encourage consensual dispute resolution, a settling infringer should not therefore contribute to its non-settling co-infringers' liabilities (Recital 51). The BIS Consultation recognises that a legislative change is required to provide for consensual dispute resolution suspension of limitation- this would require an amendment to the Competition Act 1998. However, the CRA 2015 introduced voluntary redress schemes therefore the amendment would be minimal.

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