Skip to content

UK’s first cartel follow-on damages award reduced by Court of Appeal

17 December 2019

The Court of Appeal ordered BritNed to repay EUR4.94 million it had received in damages from ABB as a result of ABB’s participation in a power cable cartel.   This case is the first follow-on damages claim arising from cartel conduct to proceed to final judgment in a UK Court.  The Court of Appeal endorsed the approach taken by the first instance judge in assessing the overcharge and provided detailed guidance on how to assess damages in light of recent EU jurisprudence on cartel damages: BritNed Development Ltd v ABB AB and ABB Ltd: ABB AB and ABB LTD v BritNed Development Ltd [2019] EWCA Civ 1840

The case stems from a 2014 European Commission decision which found that, between 1999 and 2009, ABB and ten other companies were involved in a global cartel in the underground and submarine high-voltage power cable sector by bid-rigging, market sharing and exchanging competitively sensitive information.

BritNed was a customer of ABB during the cartel period.  ABB supplied cable to BritNed for the construction of the BritNed Interconnector, an electricity submarine cable system connecting the UK to mainland Europe.

BritNed claims for loss and damage

BritNed issued proceedings against ABB in 2015, claiming it had suffered loss and damage in excess of EUR180m as a result of the cartel and its operation, under three heads of loss:

  • Overcharge claim: as a result of the cartel, it had paid more for the cable than it otherwise would have done;
  • Loss of Profits Claim: absent the cartel, it would have bought a cable with higher capacity which would have generated higher profits than the cable actually purchased; and
  • Compound Interest Claim: as a result of the overcharge, it had incurred higher capital costs in commissioning the Interconnector than would otherwise have been the case under competitive conditions.

The trial judge, Smith J, found that there was no “deliberate” overcharge as ABB’s costings had been compiled honestly and competently with a view to putting forward a competitive bid. However, there had been an overcharge arising out of “baked-in inefficiencies” in ABB’s cable design. The effect of the cartel had been to insulate ABB from inefficiencies in its own product and the cost of these inefficiencies had been passed on to BritNed.  Smith J also considered that ABB had been able to achieve certain internal “cartel savings” as a result of not having to compete with its co-cartelists to win projects.

Smith J dismissed the Loss of Profit Claim, as the evidence showed that, even without the cartel, BritNed would have chosen the same power cable at the same price, and also dismissed the Compound Interest Claim, as BritNed had been funded entirely through shareholder equity provided by its parent companies and had not itself incurred any additional costs from having to raise more capital.  Smith J ordered damages of EUR13m in respect of the Overcharge Claim (later reduced to EUR11m, to address a risk of over-compensation) – a fraction of the amount claimed by BritNed.  Both parties appealed.

Principles for assessing cartel damages

The Court of Appeal set out the approach to be taken when assessing cartel damages, including in light of recent EU jurisprudence:

  • Cartel damages in the UK must be compensatory, not punitive: the Court of Appeal rejected BritNed’s submissions that the CJEU’s recent judgment in Skanska[1] had recognised “the punitive rationale behind compensation” for cartel damages claims.
  • Presumption of harm in cartel cases: the Court of Appeal disagreed with BritNed that the burden would fall upon ABB, as the cartelist, to prove that the price would have been no different absent the cartel, ie that harm should be presumed. The burden of proof was on BritNed to establish that it had suffered loss, and the quantum of that loss.  BritNed might benefit from the application of the “broad axe” principle if there were difficulties in proving quantum.     
  • In assessing cartel damages it is not sufficient to look at the general effects of the cartel: the Court of Appeal confirmed that Smith J had been right to focus on the specific issue of the overcharge (if any) caused to BritNed arising out of the contract in issue, as opposed to considering the alleged general effects of the cartel on the market.  It is for the claimant to prove that, on the balance of probabilities, the price it actually paid was higher than it would have been absent the cartel.

ABB successfully appeals “cartel savings”

ABB successfully appealed against the “cartel savings” aspect of the judgment.  The Court of Appeal found that the award reflecting the savings ABB was said to have made, rather than the loss suffered by BritNed as a result of having overpaid due to the infringement, was based on an error of law.  There was no evidence before Smith J about the way in which the so-called “cartel savings” correlated with prices so as to turn a benefit to ABB into a loss to BritNed for which BritNed was entitled to compensation.  The compensation was accordingly reduced by EUR4.94m.

Ruling on overcharge and loss of profits upheld

BritNed sought to appeal the entirety of Smith J’s findings on the overcharge and the dismissal of its Loss of Profits claim.  The Court of Appeal upheld Smith J’s approach to the overcharge assessment and his consideration of the “competitive counterfactual”.  As to the Loss of Profits Claim, the Court of Appeal agreed with Smith J’s finding that, even if the infringement had not occurred, BritNed would have made the same decision concerning the capacity of the cable which it bought.

Comment

In this judgment, the Court of Appeal has provided useful guidance as to the correct approach for assessing damages. It requires a detailed examination of the specific facts of the case.  The court was willing to award damages for loss arising out of anticompetitive behaviour, even where the overcharge was unintentional.  However, a claimant must still first prove, on the balance of probabilities, that it has suffered loss and the quantum of that loss.  A rebuttable “presumption of harm” applies to competition claims for loss or harm suffered on or after 9 March 2017, when the Damages Directive was implemented in the UK.  Paragraph 13 of schedule 8A to the Competition Act 1998 provides that: “For the purposes of competition proceedings, it is to be presumed, unless the contrary is proved, that a cartel causes loss or damage”.  The conduct in this case preceded the Damages Directive which did not therefore apply.  However, remarks made by the judge at first instance and Court of Appeal (“…on the facts of the present case, it is hard to see how such a presumption could have assisted BritNed, given the need for its loss to be quantified…”) suggest that the English courts’ rigorous approach to assessing loss and damage will not necessarily be much affected by the presumption of harm in cases where it applies.

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com.

[1]               Vantaan Kaupunki v Skanska Industrial Solutions Oy (C-724/17) EU:C:2019:204.