Collective class actions: is it easier for claimants to establish harm in follow on actions?
28 June 2017
The Consumer Rights Act 2015’s (the Consumer Rights Act) introduction of a regime in the United Kingdom (UK) for opt-in and opt-out collective proceedings has been well publicised. The availability of a procedural mechanism through which private competition law claims can be pooled and pursued by an authorised representative may well heighten the litigation risk that accompanies an infringement of EU or UK competition law. Potential claimants in follow on actions may also be buoyed by the fact that decisions of EU member state competition authorities and courts (outside the UK) are now prima facie evidence of an infringement (European Commission and UK decisions are already binding on issues of liability).
However, the success of the collective action regime will depend, in large part, on the ease with which potential claimants can establish and quantify the harm they have suffered from a competition law infringement (which can prove to be a substantial barrier in practice). Although EU Directive 2014/104/EU 9 (the EU Damages Directive) and the UK regulation implementing it (otherwise known as the Claims in Respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations or the “UK Regulations”) seeks to address this issue, it is unclear whether claimants in the UK will find it any easier to overcome the practical hurdles presented by questions of quantum. Much will depend on the rigour with which the UK Courts imbue the new regime. The very early indications are not entirely promising for claimants.
In order to establish harm from a proven competition law infringement a claimant must compare its actual position with the position it would have been in without the infringement. Construction of this latter scenario is necessarily hypothetical. Not only must a claimant explain how it would have behaved absent the infringement, it must also explain how the relevant market in which the infringement took place (and over which the claimant likely had no visibility or control) would have behaved in the same circumstances.
As the European Commission has acknowledged, it is impossible to know with certainty how market conditions and the interactions between market participants would have evolved in the absence of an infringement. Prices, sales volumes, and profit margins depend on a range of factors and complex, often strategic interactions that are not easily estimated. In these circumstances, all that is possible is an estimate of the scenario likely to have existed without the infringement. Often, the unavailability or inaccessibility of data can prevent a potential claimant and its experts from constructing an estimate (comprehensively or at all).
In apparent recognition of the above difficulties, the EU Damages Directive and the UK Regulation has sought to relieve potential claimants of the burden of proving harm in claims concerning a cartel infringement. Regulation 13 of the Claims in Respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment) Regulations provides:
'For the purposes of competition proceedings, it is to be presumed, unless the contrary is proved, that a cartel causes loss or damage'.
This presumption does not apply to claims based on non-cartel infringements (for which claimants will need to establish and quantify loss in the usual way). Even in a cartel context, the presumption offers no assistance to potential claimants in overcoming two practical quantum hurdles:
- First, it does not address the question of who suffers the loss or damage that a cartel is now presumed to cause. A potential claimant still bears the burden of establishing that it fell within the class of persons that were harmed by the cartel (via some connection to the activity, product and/or market that was the subject of the cartel infringement).
- Second, it does not address the concrete amount of harm that a person has suffered as a result of the cartel. On the one hand, the recitals to the EU Damages Directive indicate that courts can now presume that a cartel brings about prices in the relevant market that are higher than they otherwise would be. Yet, the same recital makes clear that the presumption does not cover the actual amount by which a price has been affected.
Potential claimants (whether individually or as part of a collective action) will be operating within a legal framework which assumes that a cartel has led to artificially high prices (an assumption which many courts may have adopted in any event) but still demands that the claimant establish that it was harmed by those higher prices and quantify the amount of that harm. On that view, the EU Damages Directive and UK Regulations may not materially improve the position of potential claimants.
It is possible that the policy underlying the EU Damages Directive and UK Regulations (specifically its recognition of the difficulties claimants face in establishing harm) prompts courts to resolve questions of quantum in a more claimant friendly manner. A court might, for example, be more willing to accept a claimant’s loss calculations despite apparent shortcomings in the underlying model or apply a lighter than usual discount to address potential uncertainties. The Competition Act 1998 and Competition Appeal Tribunal Rules 2015 permit the CAT to make an aggregate award of damages in collective proceedings without undertaking an assessment of the amount of damages recoverable in respect of each represented person.
The very early indications from the Competition Appeal Tribunal (the CAT) offer little support for a softening attitude towards claimants. In the only class certification decision to be issued under the collective active regime to date (Gibson v Pride Mobility Products), the CAT subjected the claimant’s case on quantum to considerable scrutiny. The CAT held that its approach to class certification should be rigorous and it cannot simply take what the claimant says at face value. The CAT examined the claimant’s definition of the relevant claimant classes by reference to the harm that each class claimed to have suffered. In so doing, the CAT directed that the claimant’s quantum expert give evidence (and be questioned). The CAT concluded that the claimant’s loss methodology was flawed as it took an overly expansive view of the infringement from which harm was alleged to have flowed. However, it permitted the claimant to reformulate its position on quantum (and definition of the relevant claimant classes). It remains to be seen whether the claimant accepts this invitation.
As Gibson did not concern a cartel infringement, the CAT was not required to deal with the presumption of harm in regulation 13 of the UK Regulations. It remains to be seen whether a claim based on a cartel infringement leads to any relaxation in the court’s approach to quantum. However sympathetic the UK courts may (or may not) become to their plight, it is doubtful that claimants will be absolved entirely of the responsibility to demonstrate a credible case for an award of damages. That, in itself, might prevent the class action regime from becoming the litigation bonanza that some may desire and others fear.