This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
On 28 January 2016 the Department for Business, Innovation & Skills published a consultation seeking stakeholders’ views on the implementation of the EU Damages Directive into law in the United Kingdom. The Directive harmonises certain private enforcement procedures across the European Union, facilitating claims for compensation brought by those which have suffered losses at the hands of those businesses which have been found to have infringed competition law (for a detailed overview of the provisions of the Damages Directive see Olswang article ‘The EU Damages Directive for competition law claims’).
The landscape for damages actions in the UK
The UK has one of the most developed systems for the private enforcement of competition law in the EU, a position which has recently been bolstered by reforms introduced by Consumer Rights Act 2015, which entered into force on 1 October 2015. The reforms are intended to facilitate the bringing of damages actions by improving procedures in the Competition Appeal Tribunal (“CAT”), the UK competition specialist court, and extending the scope of collective proceedings. The reforms also promote the use of out-of-court settlements. (For a detailed overview of the reforms introduced by the Consumer Rights Act 2015 see Olswang’s ‘Practical guide to competition damages claims in the UK’.)
The private enforcement system in the UK already broadly conforms with the provisions of the Damages Directive, however certain amendments are required in order to ensure full compliance. The government’s proposals for the implementation of the Directive are set out below.
A harmonised regime for matters of EU and domestic law
Typically, the current practice of the UK government is to implement Directives by way of full ‘copy out’, directly transposing the text of the Directive into an implementing statute, with very few amendments. However, the provisions of the Directive only apply to proceedings based on infringements of EU law and not to proceedings which concern only domestic competition rules. If the government were to ‘copy out’ the Directive it would create a two-tier system, with different rules applying to the litigation depending on whether a claim was based on an infringement of EU or domestic competition law. It is feared that this could lead to uncertainty and confusion for businesses, as well as satellite litigation in the event that parties challenged the applicable regime. For these reasons, the government is planning to implement the Directive so that it applies to all damages actions, not just those based on infringements of EU law.
Clarification of the point at which limitation periods will start running
The limitation periods for bringing a damages action currently in force in the various jurisdictions of the UK already comply with the limitation period ‘of at least five years’ required by the Directive. Therefore no amendments to legislation are required on this front. However, new legislation is proposed to clarify the point at which the limitation period will start running. It is specified in the Directive that the period may not start before the infringement has ceased and the claimant knows, or could be reasonably expected to know:
- of the behaviour and the fact that it constitutes an infringement of competition law;
- that the infringement has caused harm to the claimant; and
- the identity of the infringer.
The government is proposing amendments to specifically make provision for the suspension of the limitation period, as required by the Directive, where a competition authority launches an investigation or proceedings relating to the infringement which is the subject of the damages action and where parties engage in consensual dispute resolution. The rules on limitation will apply from the commencement of the statutory instrument implementing the Directive.
Protection from disclosure
Disclosure is a well-established process in proceedings which take place in the UK, and many of the provisions concerning disclosure introduced by the Directive already routinely take place in the national courts of the UK. However, in order to ensure the absolute protection of leniency documents (these are certain documents disclosed to a regulator by a business seeking a reduction in fines for competition infringements) as envisaged by the Directive, the government intends to copy-out the disclosure provisions of the Directive. It is also likely that some amendments to the Civil Procedural Rules will be required to reflect the changes.
Joint and several liability codified
The Directive codifies the principle that undertakings which have infringed competition law through joint behaviour (such as cartels) are to be held jointly and severally liable for the entire harm caused by the infringement, with a limited exception for small and medium sized enterprises and a total exception for immunity recipients – typically the first member of a cartel to "confess" to the infringement. Joint and several liability is a well-established principle of law in England and Wales which derives from case law. To ensure the proper implementation of the Directive, the government proposes to amend the Competition Act 1998 (“Competition Act”) to explicitly provide for joint and several liability with respect to infringements of competition law and to introduce the SME and immunity recipient exemptions required by the Directive.
Passing-on defence introduced
The passing-on defence provides a defendant in a cartel damages action the opportunity to argue that a claimant who is a direct purchaser has passed on to its customers the whole or part of the overcharge caused by the cartel and therefore that the claimant should not in fact be entitled to damages, or should be entitled only to a reduced amount of damages to reflect the level of harm actually suffered. Currently, this much-debated defence is not available uniformly across Member States, with some not recognising the defence at all. The legal position in the UK is far from clear. The Directive codifies the defendant's right to invoke the passing-on defence, and the government is proposing to copy out the requirements of the passing-on defence by way of amendment to the Competition Act.
Quantification of damages
To ensure that it is not practically impossible or excessively difficult for a claimant to quantify harm on the basis of the evidence available to it, the Directive provides that national courts should be empowered to quantify the harm suffered by a claimant. To accommodate this provision the government proposes to provide that national courts may estimate the amount of harm suffered by the claimant. This amendment will also require the publication of guidance for the national courts and the CAT.
The Directive must be implemented by 27 December 2016. However, the government considers that there are advantages (particularly for business) to the early implementation of the Directive, which could take place on the nearest Common Commencement Date to transposition – in October 2016. The government is seeking views on whether there is benefit to early implementation.
Responses to the consultation are to be submitted by 9 March 2016.