He ability of private individuals to seek damages for breaches in the EU competition law - Essay Example

?Client’s 11 January A plethora of changes have taken place in the last decade, several changes have also been made to the European Union Law, this paper will shed more light upon the ability of private individuals to seek damages for breaches in the EU competition law. The obstacles in claiming to bring private actions for enforcing EU competition law would be discussed extensively in this paper. Focus will also be upon some major development in three of the Member States namely Germany, UK and Italy. Since last twenty years, the enforcement of European competition law has major changes. Particularly the enactment of Regulation 1/2003 that brought a remarkable shift towards the decentralized enforcement of the competition rules and the opportunity for the national courts to rule on private antitrust cases1.However, the position of private enforcement of European competition law is less clear than the status of the public enforcement within the European Competition Network that seems to become a significant achievement2. According to a study on the condition of claims for damages in case of infringements of EC competition rules in August 2004(which was prepared for the European Commission), it concluded “The picture that emerges from the present study on damages actions for breach of competition law in the enlarged EU is one of astonishing diversity and total underdevelopment"3.As a result of that comparative report, the European Commission was able to identify the obstacles to activate the private enforcement of competition law within the Member States and consider the means by which a more effective system of private antitrust enforcement could be facilitated and improved. The comparative analysis of the different legal systems in the EU has shown a huge disparity in the member states controlling of competition law claims. Procedural disparities between national legal systems in the EU are tending to encourage forum shopping in cross-border cases. Before bringing an action, claimants involved in cross-border activity can be expected to scrutinize the advantages and disadvantages of national jurisdictions before bringing an action for damages in one or several member states. Although the EU member states are obliged to give direct effect to EC law, the procedures they adopt for private enforcement cases are governed at a national level. Any changes to national law in one member state, such as those recently implemented in Germany, do not affect other member states. This tension between national procedural law and EC law needs to be reconciled if a uniform effective system can be adopted throughout the EU4. In this essay, it will firstly identify the obstacles that make it so difficult for the private individuals to seek damages for breaches of EU competition law. Then, it will examine the most important development of private enforcement field in the UK, Germany and Italy, as these States considered to have attractive jurisdictions for private actions against infringements of EU competition law. The essay will conclude by illustrating the European Commission attempts to ensure that private enforcements in EU competition law are very effective and sufficient. European Commission achieved this goal by publishing the Green Paper in 2005 and followed by the White Paper in 2008. The remarkable Courage5 decision by the European Court of Justice (ECJ), gained increasing attention in which the private individuals have the right to sue for damages as a consequence of infringements of EC competition rules, (particularly damages suffered from breaches of Art 101 and Art 102 TFEU). One of the most important reasons of the long absence of the private antirust from the competition policy is the unique system of Europe. This means that the European Commission and European Courts have a slight influence on private antitrust litigations since they are very present in public competition law enforcement. Moreover, the European Courts are not competent to hear claims on private enforcement of EC law violations. The European Court of justice only rules on preliminary references by national courts of the Member States like, for example, Courage and laterManfredi6 cases. Although the rare numbers of occasions in which ECJ rules on private cases, Courage and Manfredi cases have a wide impact on the competition law policy7. The dispute between Entrepreneur Estates (formerly Courage) and MrCrehan regarding a beer tie agreement led to the ECJ?s Courage decision in 2001. The Court said that “[...] the practical effect of the prohibition laid down in Article 85(1) [Art 101(1)] would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition”8. This right of individuals to seek compensation from the loss suffered by violations of competition rules was again confirmed in Manfredi case in Italy9. The ECJ held that- after a reference made by an Italian court- it follows from the principle of effectiveness that national courts of the Member States should provide remedies for claims made by private individuals for violations of competition law. Although the significant impact that Courage and Manfredi cases have made on the effectiveness of private enforcement in competition law, there are still a number of obstacles that make it difficult for claimants to bring private actions to be enforced by competition law. One of the serious private enforcement’s barriers is the lack of a specialist court in the EU that competent in such claims. Since EU fail to provide a well-established system for individuals seeking damages for competition infringements, that’s because there is no specialist courts dealing with their claims. However, the UK is the only EU jurisdiction that provides a specialist court to deal with competition matters. The CAT provides a number of specialist and well-trained judges, special procedural’s rules and expertise for competition law10. Secondly, claimants before national courts in most jurisdictions of the member states still bear the heavy burden of proving that the infringement has occurred. In the UK, the CAT and ordinary courts are bound by an infringement decision taken by the OFT or the European Commission. However, if a claimant cannot rely on an earlier decision, it often has to rely on disclosure to prove an infringement. Although parties must disclose all documents irrespective of whether they are beneficial or harmful to their case, the courts are reluctant to grant extensive requests for access to disclosed information, if it is evident that the claimant does not know what it is looking for11. In France the procedure even more restrictive than it is in the UK. The parties in France are only permitted to release information that is beneficial to their case, and the disclosure of third parties’ documents are limited to specially named documents12. In addition to this, one of the other obstacles of the private enforcement in competition law is that national courts of the member states faced some dilemmas in calculating the level of damages, because they have not yet formulated a coherent approach to quantify damages. For example in Bernard Crehancase13, the initial ruling of the High Court in this case calculated the damages at around GB?1.3 million. This was subsequently reduced by the Court of Appeal to around GB?130,000,the reason for this reduction was that, while both courts awarded damages for loss of profits, the High Court assessed the loss at the time of the judgment, whereas the Court of Appeal assessed them at the time of injury. By comparison, in the US, third parties affected by a breach of competition law can sue the infringing undertaking for three times the value of their loss. This potential award of treble damages acts as a strong deterrence to potential infringers and encourages private parties to initiate private enforcement14. Furthermore, a matter that has been debated in the EU is whether an absolute defense of passing on is should be available or not. An interlocutory decision on security for costs in the UK, the CAT referred to the passing-on defense as a novel and important issue and noted that the question of whether a defendant is entitled to raise it was unresolved as a matter of EC and domestic law. Therefore, if the ECJ were to allow a defendant to rely on the passing-on defense, the effectiveness of private enforcement actions across the member states would be significantly undermined15. The situation in the US is far clearer. Defendants can no longer rely on the passing-on defense in relation to sales to direct purchasers. The reasons for this is that tracing the over-charge would cause undue or continues complications and also, direct purchasers would prove more effective litigants than indirect purchasers, who may be reluctant to bring forward claims given the fact that they would have a smaller share of the loss16. Moreover, In Courage v Crehan17, the ECJ held that any individual could rely on a breach of Article 81 of the EC Treaty (now article 101 TFEU) before a national court. This suggests that denying standing to indirect purchasers would be incompatible with EC law, as it goes against the principle of direct effect. The ECJ did not rule in Crehanon the specific point of whether indirect purchasers have standing for private enforcement actions and it remains to be seen whether allowing indirect purchasers to sue would affect the approach to the passing-on defense18. While private enforcement of damages action sin EU competition law is still under-developed in many EU countries, recent development is some Member States has shown the ability and willingness of these countries to facilitate and effective the private damages actions against infringers of EC competition law. In this section, it will address the developments of private enforcements in Germany, the UK and Italy. Firstly, the seventh amendment to the German Act against Restraints of Competition came into force on 1st of July 2005. This amendment was aimed to implement the Modernization Regulation and introduced major changes to facilitate private damages actions19. Previous to that amendment, the claimant, to bring a claim, had to be included in the protective purpose of the norm (Schutzzweckder Norm) of the particular competition rule that had been infringed. However, according to the new amendment, the claimant no longer have to rely on any particular infringed competition rule, therefore, for instance, customers for cartel participants no longer necessary for them to show that cartel was specifically directed against them when requesting injunctive relief or damages from the cartel participant. Standing for private enforcement claims now much wider, since claims can be brought by anyone affected by infringement by any market participants.20 Nevertheless, it is still necessary for the claimant to prove negligence or intent on the part of infringer and demonstrate loss suffered. In addition to this, the new law permits collective actions to a limited extent. Certain organizations promoting trade have been given standing to claim for an infringement to be terminated and, if it is internationally conduct matter, for infringer’s profit to be handed over to the state. These organizations can ask for their costs compensated by the Federal Cartel Office (Bundeskartellamt) if the infringer does not directly reimburse them21. Moreover, under the new regulation, passing-on defense (that is, the argument that the claimant has already passed on an artificially high price to its customers and therefore has not suffered any loss) cannot longer be relied by the cartel participant. Therefore, infringer of the competition law now risks litigation from both direct and indirect purchasers that can demonstrate standing. This significant development was triggered by the decisions on the international vitamins cartel22. In 2003, claims were brought before the German courts by number of German companies that had purchased vitamins from Hoffman-La Roche subsidiaries. In the first place, the claims were dismissed by the first two courts (LG Mannheim and LG Mainz) on the grounds that Hoffman-La Roche did not directly target the claimants. However, a higher district court, (the OLG Karlsruhe), examined the matter of passing on defense in its obiter dictum. The court found that, it should be the end user who bears the cost of the distorted market not the intermediary user23. Accordingly, it would not be justifiable to award compensation to a claimant that is the direct contractual partner of the cartel member and which does not ultimately suffer the damage. Although the new law in Germany has a significant impact on the private enforcement in competition law, the new provisions does not tackle all issues regarding the passing-on defense and it remains to be seen how it will be applied by the German courts, particularly, in cases where an infringers faces claims from both direct and indirect purchasers in relation to the same damage24. The situation in the UK again much developed than other Member States. As it was mentioned above, in the UK, there are two authorities that competent in private enforcement claims (the CAT and the High Court) which the claimant could benefit from wide discovery rules and a specialist judges to hear damages claims based on national and EC competition law. There have been several key developments in case law making this possible. The Roche Products case broke a new ground by settling jurisdiction issues for the UK courts25. The case involved actions for damages in which the defendant and one of the claimants were domiciled outside the UK. However, the contract that the parties entered contained foreign jurisdiction clauses. The court held that, as long as it had jurisdiction over one of the claimant, related claims by non-UK companies should be allowed to be brought in the same action. In 2004 was a key turning point for private enforcement actions, as the Court of Appeal in the Crehan case granted the first award of damages for breach of competition law in English courts to a claimant26. In 2005, the first two claims for damages were brought before the CAT27. Although both cases settled before a full trial, the publicly available information on these claims suggests that the CAT dealt with these matters efficiently. In addition to this, if a claimant wishes to make a claim in the UK, it must disclose all key documents that it intends to rely on during the proceedings, including relevant witness statements and expert evidence, as far in advance as possible28. This considerably reduces the time between starting proceedings and a case being ready to go to trial. Furthermore, the claim proceeding in the CAT is relatively inexpensive and claims can be brought to trial in a quick and effective manner. The UK will continue to remain one of the most attractive jurisdictions in which to bring a claim for damages for losses arising from a breach of the competition laws29. A recent development in Italy has been the decision by the Italian Supreme Court (Corte di Cassazione) in CompagniaAssicuratriceUnipolSpA v Mario30. This has made it easier for consumers to bring claims for damages for infringements of Italian competition law. The court held that consumers suffering damage from a contract that relies on an upstream cartel could bring an action for annulment of the relevant cartel and claim damages deriving from the infringement. The Supreme Court ruled that Article 33(2) of the Italian Competition Act applies to consumers who, if they are successful in pleading for the annulment of the alleged anti-competitive activity, can then seek damages. The previous position of the Supreme Court had been that consumers had no legal standing under Italian competition law to annul an agreement, because competition law was meant to protect enterprises and not consumers31. The court reasoned that the law was not directly concerned with consumer interests, no matter how anti-competitive the infringement or how badly consumers were damaged. The court has overturned this previous view, as the court found that competition law protects anyone who is subject to the market (that is, anyone with a procedurally enforceable interest relating to maintaining the competitive character of the market. Although this may appear, on the face of it, to be a significant development in private enforcement in Italy, the actual impact of the decision remains limited. Accordingly, the Court of Appeal (Corte di Appello) retains sole jurisdiction to hear consumer claims, which means that claimants must pay higher costs and deal with the more complex administration typically associated with the Court of Appeal actions. Moreover, in the absence of any right to bring a class action in Italy, the remedies available to private parties for an infringement of Italian competition law remain limited32. In conclusion, there remains considerable disparity between the member states in private enforcement actions for competition law. Unless and until a greater degree of clarity is achieved at an EU level, member states such as the UK and Germany are likely to remain the first choice for bringing private actions and may even influence reform in other jurisdictions. The ability of private individuals to seek damages for breaches of EU competition law remains uncertain and do not impressive the private individuals in the EU States. After extensive public consultation and internal deliberations on the issue, the Commission published a Green Paper (December 2005)33. The Commission published the green paper and took initiative on damages actions for the breach of the EC antitrust rules. The Green Paper tried to identify the main obstacles for private actions and reflected on possible measures to improve the conditions for follow-on and stand-alone damages claims. Having received numerous comments on the Green Paper and taking into account the Manfredicase, the Commission released its White Paper on EC damages actions in 200834. In the White Paper, the Commission recommended a set of rules that should be introduced into the laws of the Member States to foster private damages actions for the infringement of Art 101 and 102. These proposals are claimed to be “[...] balanced measures that are rooted in European legal culture and traditions”35.To implement these measures it would require significant changes in the substantial and procedural laws of most Member States. The White Paper considers and puts forward proposals for policy choices and specific measures that would ensure, more than is the case today that all victims of infringements of EC competition law have access to effective redress mechanisms so that they can be fully compensated for the harm they suffered. The primary objective of the White Paper is to improve the legal conditions for victims to exercise their right under the Treaty to reparation of all damage suffered as a result of a breach of the EC antitrust rules. Full compensation is, therefore, the first and foremost guiding principle. More effective compensation mechanisms mean that the costs of antitrust infringements would be borne by the infringers, and not by the victims and law-abiding businesses. Effective remedies for private parties also increase the likelihood that a greater number of illegal restrictions of competition will be detected and that the infringers will be held liable36. Improving compensatory justice would therefore inherently also produce beneficial effects in terms of deterrence of future infringements and greater compliance with EC antitrust rules. Safeguarding undistorted competition is an integral part of the internal market and important for implementing the Lisbon strategy. A competition culture contributes to better allocation of resources, greater economic efficiency, increased innovation and lower prices. Furthermore, In view of the foregoing and in line with the requirement set out by the Court of Justice that any victim of antitrust infringements must be able to exercise his right to compensation effectively, the issues addressed in the White Paper concern, in principle, all categories of victim, all types of breach of Articles 101 and 102 and all sectors of the economy. The Commission also considers it appropriate that the policy should cover both actions for damages which do, and actions which do not, rely on a prior finding of an infringement by a competition authority37. Subsequently, the Commission drafted a directive that basically contained the proposals laid out in the White Paper. This draft directive was put on hold because some Member States resisted the Commission’s proposals. It remains to be seen whether the draft Directive can be adopted in its current form and despite the resistance of some Member States and the European Parliament. In 4th February 2001, the Commission organized a public consultation towards a coherent European approach to collective redress38. The consultations address some of important issues concerning the ability to provide a coherent collective redress for private individuals to seek damages actions against competition law infringements. They said that The impact of any possible European measure on the national legal systems would vary depending on whether the Member State concerned already has a system of collective redress in place and what the defining features of this system are. Given the diversity of existing national systems and their different levels of effectiveness, a lack of a consistent approach to collective redress at EU level may undermine the enjoyment of rights by citizens and businesses and gives rise to uneven enforcement of those rights. Therefore, the Consultation came up with some general principles to guide possible future EU initiatives on collective redress. They included that the EU needs an effectiveness and efficiency for redress and also, the importance of information and the role of representative bodies. Moreover, the need to take account of collective consensual resolution as a means of alternative dispute resolution with the need for strong safeguards to avoid abusive litigation39. To sum up, as it is clear from what has been mentioned above, that there are signs of an increase in the private enforcement of competition law damages claims in some EU Member States. At present, developments in both the UK and Germany suggest that these are the jurisdictions in which there is a higher level of such activity. It remains to be seen whether there will be similar developments in other jurisdictions, not least in the wake of the Commission's proposed Directive (if and when adopted) as well as in response to changes in national legislation. This paper discusses the ability of private individuals to seek damages actions against breaches of EU competition law. Firstly, it addressed the obstacles that make it so difficult for claimants to bring private actions for enforcing EU competition law. After that, it examined some development in three of the Member States, Germany, the UK and Italy. Then, the paper turned to illustrate the steps that the European Commission has taken to ensure a full effectiveness and efficiency of the private enforcement throughout all Member States. The European Commission firstly published a Green Paper in 2005 followed by the White Paper in 2008. All of these measures had one common principle, which is that all victims of infringements of EC competition law have access to effective redress mechanisms so that they can be fully compensated for the harm they suffered. Bibliography Bernard Crehan v Inntrepreneur Pub Company and Brewman Group Limited [2003] EWHC 1510 (Ch). BCL Old Co limited, DFL Old Co Limited and PPF Old Limited v Aventis SA, Rhodia Limited, F Hoffman-La-Roche AG and Roche Products Limited (Case No 1028/5/7/04) CAT 2 [2005] CompAR) Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. OJ 2003 L 1/1. Courage Limited v Bernard Crehan[2001] ECR I-06297. Crehanv Inntrepreneur [2004] EWCA 637 Courage Limited v Bernard Crehan(n 4). For facts underpinning the Courage litigation see Michael Waterson, Beer - The Ties that Bind (2010) Case: Courage v Crehan, C-453/99 [2001] ECR I-6297 CompagniaAssicuratriceUnipolSpA v Mario , Decision No. 2207/2005 of 7 February 2005) (Unipol). Commission Staff Working Document, 4 February 2011, Public Consultation: Towards a Coherent European Approach to Collective Redress. SEC(2011)173 final, Brussels. European Commission, Green Paper - Damages Actions for Breach of the EC Antitrust Rules (Brussels 2005) European Commission, White Paper on Damages Actions for Breach of the EC Antitrust Rules (Brussels 2008) European Commission, White Paper (n 34) 3 (emphasis in original) Hussein Kassim and Kathryn Wright, „Bringing Regulatory Processes Back In: The Reform of EU Antitrust and Merger Control? [2009] 32 West European Politics 738; FiratCengiz, „Regulation 1/2003 Revisited? [2009] SSRN eLibrary. Hanover Shoe & Co v United Shoe Machinery Corp (1968) 392 US 481 Liibbig, T & Bell, M, (2005).A New Area for Private Antitrust Litigation in Germany? A Critical Appraisal of the Modernized Law Against Restraints of Competition 6 German Law Journal 1173;,Kartellsachen:Recht und Praxis. Manfredi v Lloyd AdriaticoAssicurazioniSpA[2006] ECR I-6619. Montanariv Cassa di Risparmio di Genova e Imperia Decision No. 1811 of 1 March 4 1999. Provimi Ltd v Roche Products Ltd et al [2003] EWHC 961 Rodger. B. J, (2009), Competition Law Litigation in the UK Courts: A Study of all Cases 2005-2008, Part I, Global Competition Litigation Review 93. See Smith. M &Heinisch. O, (2005) Private Enforcement of EC competition law. Vol (1) p. 9. Vitamins cartel case, LG Mannheim, Az 7 O 326/02, GRUR 2004, 182; LG Mainz, Az 12 HK.O 55/02, NJWRR 2004, 478; OLG Karlsruhe, Az 6 U 183/03 WuW/E DE-R 4/2004, 1229). Waelbroeck. D, Slater. D &Shoshan. G, (2004), Study on the Conditions for the Claims of Damages in Case of Infringement of EC Competition Rules: National Report United Kingdom (Brussels). Read More