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Commercial Question

Carrots and sticks

updated on 14 February 2006

Question

Can we expect to see more private law claims in the UK courts seeking damages for breach of competition law?

Answer

EU sponsored studies have shown that very few successful private law claims are brought in national courts to enforce competition law. The recent case of Attheraces Ltd v British Horse Racing Board (2005 EWHC 3015 CH 21 December 2005) was one of the first successful Article 82 claims in the English civil courts under the new competition regime. In reality, most competition law enforcement at national level in the United Kingdom is still undertaken by the Office of Fair Trading (OFT) together with other sectoral regulators such as OFGEM.

In an attempt to lessen the burden on national competition authorities, the European Commission has started a consultation on how to increase the use of private law claims for damages for breach of competition law without creating a competition litigation culture.

There are a number of factors that limit the use of the private law enforcement route in the United Kingdom. First, it is something of 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.

Second, 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. In addition, private law claimants do not have available to them an arsenal of public sector enforcement and disclosure powers (eg, electronic surveillance, entry warrants or financial penalties for delayed disclosure of information). Thus, complaints to regulators can be a much cheaper solution for claimants. Litigation is an expensive route for claimants and there is uncertainty over whether successful claimants will always be able to recover full costs.

Finally, victims of anti-competitive behaviour may depend for a large part of their business on sales to competition law infringers. Small businesses often feel it would be suicidal to alienate their main customers. Further, direct victims of cartels often pass on to their customers the cost to their business of the anti-competitive behaviour, so the direct consequences of the behaviour are camouflaged and victims are not incentivised to bring claims.

In addition to the issues above, there are a variety of inter-related conceptual and legal issues that require answers. These include the following:

  • Should infringers be allowed to escape sanction by pointing to the fact that those who purchased from them passed on the additional cost of the anti-competitive behaviour to indirect third-party purchasers?

  • If third-party claimants are to be encouraged to sue competition law infringers, how do claimants easily obtain evidence in support of their case in the absence of a prior finding of infringement by a national competition body?

  • Should there be a "reward" for bringing successful infringement actions in the courts? In the United States, 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.

  • 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 whistleblowers 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?

The OFT's stick has been found to be wanting by the UK's National Audit Office. Although the claimants in Attheraces were seeking declarations and an injunction rather than damages, the case is expected to revive interest in using the ordinary courts as a vehicle for competition law enforcement. 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 expressed his view 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 claims already exists in the United Kingdom, but confidence in the procedural and evidential mechanisms is lacking. A balanced mix of sticks and incentives (eg, speedy access to courts, effective disclosure rules and use of class actions) 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 solution.

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 where over-regulation has produced detrimental consequences for consumers. Hopefully the European Commission has learned its lesson.

Adrian Wood is a senior associate in the EU Competition and Procurement team at Pinsent Masons.