Draft damages directive: off the agenda for now

Practical Law UK Articles 8-500-5687 (Approx. 3 pages)

Draft damages directive: off the agenda for now

by Patrick Boylan, Simmons & Simmons

Proposals

The Directive’s aim was to improve redress for consumers, perceived by the Commission to be the ultimate victims of cartels, while at the same time avoiding introducing a US-style litigation culture. (For background on the position on private enforcement in the UK and EU, see feature article “Competition litigation reform: what next for private enforcement?”, www.practicallaw.com/9-381-1974.)

The Directive, which would have obliged EU member states to amend, where necessary, their laws to come into line with its provisions, included proposals on the following key areas:

Representative actions. Perhaps most controversially, the Directive provided that consumer associations or other officially approved not-for-profit organisations should be able to bring claims on behalf of groups of consumers which did not need to be individually identified, raising fears of US-style opt-out class actions and enormous claims being brought on behalf of consumers at large.

Disclosure. The Directive provided that claimants should be able to obtain disclosure of relevant documents from the defendants. Although controversial in certain continental jurisdictions, this appears to reflect the current position in English proceedings, although the Directive demanded that corporate leniency applications or settlement submissions made to the Commission should be protected.

Pass through defence. One of the difficulties when assessing the damage caused by cartels is establishing who suffered a loss as a result of any increase in price in the cartel product; that is, whether it was the original buyer who bought the cartel product to manufacture another product, the end consumer or someone in between.

Recognising the difficulty of indirect buyers bringing claims, the US system has, generally speaking, restricted claims to those brought by direct buyers; also, cartelists are not allowed to argue that the loss was passed through and suffered by someone else (the pass through defence).

As the Directive’s key objective was to compensate victims of cartels (mainly consumers), the Commission proposed that any direct or indirect buyer should be entitled to be compensated for the cartel overcharge unless the defendant (on whom the burden of proof was to be placed) could show that the claimant had passed on the cartel overcharge.

This introduced the possibility of a defendant not being able to discharge the burden of proof at various levels of the purchasing chain and, in effect, paying repeated damages for the same loss.

In addition, although the Directive required member states to enable national courts to take into account judgments in other member states relating to claims at different levels of the supply chain, concerns had been expressed about how this would work in practice.

NCA decisions. The Directive stipulated that any national competition authority (NCA) decision should be binding in the courts of all member states. While the Commission’s decisions already have this effect (as do the Office of Fair Trading’s in the UK), this was regarded by many with concern, given the differing procedures and levels of sophistication of NCAs across the EU.

Limitation periods. The Directive stipulated that limitation periods should not begin to run until the end of the cartel’s operation or until such time as a claimant could reasonably have become aware that the cartel was operating and that a claimant should, in any event, be able to bring a claim up to two years after an infringement decision has become final.

Parliamentary opposition

Aside from the above concerns, the very idea of the Commission interfering with member states’ internal legal systems was itself controversial, and many questioned whether Article 83 of the EC Treaty, under which the Commission purported to have the power to introduce the Directive, in fact enabled it to do so.

This concern was shared by the European Parliament (the Parliament), which also had reservations about the proposed opt-out representative actions. In addition, the Parliament noted that initiatives were being considered for consumer redress in other fields (such as product liability) and suggested that legislative proposals should not just be limited to competition law issues.

In March 2009, the Parliament adopted a resolution in which it insisted that it must be involved in “the co-decision procedure” in any legislative initiative in the area of collective redress. The Commission chose to ignore the Parliament’s wishes and struck out alone.

One wonders to what extent the Parliament’s reaction, coupled with the criticism from legal practitioners and business commentators across the EU, assisted in building the pressure which led to the rumoured personal intervention of President Barroso and the ultimate withdrawal of the Directive.

What next?

Elements in the Commission will doubtless be exerting considerable pressure to push the Directive through, with Competition Commissioner Neelie Kroes’ term about to come to an end.

However, given the serious concerns that have been raised about the substance of the proposals, their legal basis and the desirability of measures being drawn up in relation to competition claims alone, the outlook is rather uncertain for the Directive, particularly in its current form.

Patrick Boylan is a managing associate in the antitrust litigation group at Simmons & Simmons.

End of Document

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Resource ID 8-500-5687

Law stated as at 28-Oct-2009

Resource Type Articles

Jurisdictions

European Union
United Kingdom