Competition Law: Taking on Cartels - and Winning
Cartels are a serious business. Across the world, an enormous range of businesses and individuals are affected when one or more companies group together to fix the price of products or services, allocate markets or otherwise seek to control their commercial relationships illegitimately. Cartels have a highly detrimental effect on markets, affecting all downstream undertakings. Just as markets have become globalised, so too have cartels. The EU has estimated that cartels cause losses of up to €3 billion a year to businesses and consumers. In addition, they exclude competitors, harm product quality and stifle innovation. In short, they are bad for business.
Historically, the most rigorous anti-cartel regime has been in the United States where, in addition to government regulation, private actions play a central role in fighting cartels to recover losses for the victims. However, private enforcement actions are now taking off across the world. In particular, the UK has become an attractive place in which to litigate antitrust (competition) disputes, buoyed by recent developments in the law, and a large number of claims against international cartels are now being litigated there. This article provides an overview of the anti-cartel regime in the UK and argues that businesses should seriously consider choosing the UK as the forum for their anti-cartel claims.
The UK private enforcement regime
Competition law across the EU is derived from Articles 101 and 102 of the Treaty of the Functioning of the European Union. Article 101(1) prohibits all agreements between undertakings which may affect trade between member states, such as price fixing or sharing markets. In the UK this prohibition is mirrored in the Competition Act 1998, which applies to trade within England and Wales. Any individual (or business) suffering foreseeable loss caused by a breach of these statutory regimes has a cause of action against the cartelists for damages.
Many cartels are now global. In the EU, multi-jurisdictional claims may be consolidated and heard together where they are closely connected. In the UK, this means that claims may be brought against multiple cartelists even where some are domiciled overseas, so long as at least one is domiciled in the UK (or the claim is otherwise connected to the UK). If the other cartelists are domiciled outside the EU the court’s permission is required to join them to the claim.
It is possible for claimants to bring a ‘stand alone’ action, in which they are required to provide sufficient evidence to the court to establish a cause of action against cartelists. However it is far easier to bring a ‘follow-on’ claim after an infringement decision by a regulatory authority, such as the Office of Fair Trading (OFT) or the European Commission. National courts are bound by OFT and Commission decisions, so claimants may bring a claim without needing to establish the liability of the cartelists. In order to bring a ‘follow-on’ claim, businesses must therefore show that they purchased goods or services from a member of the cartel (either directly or indirectly), that they were overcharged for the purchase and, if they sold on the goods or services, they did not pass on the overcharge. Finally, claimants must bring their claim within a specified period after becoming aware of their losses (normally the date of the infringement decision); in the English High Court this is six years.
As recently as 2004 there were no decided cases (reported) in the UK awarding damages to private parties who had suffered losses as a result of cartels. Since then, a number of decisions have established the English courts as an attractive forum for adjudicating claims. In a recent decision, Cooper Tire & Rubber Co Europe Ltd & others v Dow Deutschland Inc & others , the Court of Appeal demonstrated the expansive approach of the English courts in asserting their jurisdiction to hear multi-jurisdictional disputes. Cooper also underlined the English judiciary‘s reputation for efficiency (the court handed down its decision with impressive speed) and for making commercially reasonable decisions. In addition, by comparison to most European jurisdictions, the UK requires more extensive disclosure, making it harder for defendants to frustrate proceedings by omitting to disclose key information. This is particularly important in anti-cartel damages claims as claimants generally have very little information about the operation of the cartel, a fact expressly recognised earlier this year by Mr Justice Roth in National Grid Electricity Transmission plc v ABB Ltd & Others , stating: “...it is commonplace that the victim of a cartel will not have all the information necessary for it to assess whether, and if so to what extent, the prices it has been charged were inflated as a result of the operation of the cartel”.
Some of the active claims being considered by the English High Court include a claim against British Airways for fixing the prices of air freight, a claim against a number of multinational oil companies for losses arising from a candle wax cartel, and a range of claims in relation to products as diverse as car glass, vitamins, LCD panels and marine hoses.
Taking the Sting out of Costs: Funding Claims
Historically, a major deterrent for businesses considering litigation has been the potentially high costs: these include legal fees and disbursements, together with the risk of adverse costs rulings (in which the court might order a party to pay another party’s costs). However, recent developments in UK funding models have allayed the financial risks of litigation.
Claimants may instruct their lawyers under conditional fee agreements (‘no win no fee’ agreements) under which the fee accrues only in the event of a successful claim and is recovered from the defendant. Following a report into costs by a senior judge (Jackson LJ) last year, the government plans to implement reforms to the costs regime which will, among other things, allow lawyers to charge contingency fees. As with no win no fee agreements these provide for lawyers to only recover their fees in the event that a claim is successful, in return for a share of the damages obtained.
Claimants may also take out after the event insurance to provide cover against the risk of paying another party’s costs; the premium is only payable in the event of a successful claim, and is recovered from the defendant.
Conclusion - the case for bringing Private Actions in the UK
Besides the costs risks, the primary concern for cartel victims seeking redress against cartelists is the fear of jeopardising vital relationships: many businesses cannot change suppliers easily. This commercial risk drives most private actions towards confidential settlement negotiations in which parties avoid going to trial and are able to settle their dispute privately and achieve a commercially reasonable outcome. Claimants can further mitigate the risk by joining their claims together to improve their bargaining strength: it is harder for a cartelist to threaten large groups of clients.
There are therefore several compelling reasons for businesses to bring anti-cartel claims in the UK. Private enforcement is now an attractive option for businesses and, from a corporate governance perspective, directors may owe a fiduciary duty to their shareholders to consider claims. Finally, there is a powerful public policy argument for private enforcement: as cartels have become increasingly sophisticated and global in scope, government regulation alone is not a fully effective deterrent; despite rising fines cartels are often still profitable. The role of private enforcement is therefore key towards discouraging collusion and protecting businesses against economic exploitation.
Anthony Maton is a Partner specialising in competition and financial services litigation in the European Office of Hausfeld & Co LLP in London. He has extensive experience of complex international dispute resolution including litigation, arbitration and mediation in a number of different jurisdictions. He has acted for Governments, in regulatory investigations, for multinationals and for private business, and has worked in the USA and extensively throughout Europe, the Middle East and the Gulf.
Mr. Maton is a Solicitor with over 15 years experience, having been a Partner in McGrigors and an Associate at Slaughter & May. He is a member of the Chartered Institute of Arbitrators (having arbitrated under many rules including the LCIA, ICC and LME), an accredited Mediator and former Secretary and present Committee Member of the London Solicitors Litigation Association.
His recent experience includes acting in the Air Passenger settlement against BA/ Virgin, acting against BA in the London arm of the global air cargo cartel litigation being run by Hausfeld, developing the Cartel Key funding methodology for cartel claims in the London Court and acting on the Parker Settlement in the Marine Hose cartel.
He has a first class Honours Degree in Modern History from the University of Oxford and has regularly spoken at conferences and seminars both in the UK and abroad.