The changing landscape of UK cartel litigation

The UK is the forum of choice for some of the largest damages claims arising from cartel conduct in Europe.  This article describes how cartel litigation in the UK is currently in something of an interim phase, having moved past a first phase that was characterised by delays caused by procedural issues, but with a distinct new era around the corner with the implementation of the Consumer Rights Act which entered into force from 1 October 2015.¹

This article highlights the key strategic decisions in bringing and defending claims by reference to four interrelated arenas: the regulator’s investigation; the likely appeal of any infringement decision to the EU’s courts; the High Court procedure; and the settlement process.

The key defining feature that sets cartel litigation apart from other types of commercial litigation is the fact that in Europe to date, the vast majority of cartel litigation “follows on" from an infringement finding by the European Commission (or a national regulator such as the Competition and Markets Authority in the UK).  This is an unusual feature of commercial litigation – for a prospective claimant to start the case with liability effectively having been established, or at least in the process of being established, by a binding decision that sets out how the cartel operated and who participated in it.  Furthermore, the regulator has already gathered and reviewed all of the critical incriminating documents and has made public announcements about the status of its investigation, including encouraging victims to recover their loss when it reaches the final decision.

However, while the findings of the Commission are potentially a substantial asset for any claimant – and a factor that makes third party funding an attractive proposition for potential claimants – what follows is almost inevitably a very long appeal process by the addressees of the infringement decision to the EU’s General Court and on to the Court of Justice.

The appeal process typically takes five to seven years to be resolved from the adoption of the decision.  Although the EU’s General Court has recently reported a “dramatic drop” in new cases this year and a boost in productivity², which could reduce the backlog of appeals, the appeal process has been – and will continue to remain - a feature that influences all cartel litigation in the UK and elsewhere in Europe.  It has a very significant effect because the Masterfoods³ judgment means that a national court is under a duty to stay proceedings in circumstances where the outcome depends on the validity of a Commission decision which is the subject of an appeal on the merits to avoid the risk of irreconcilable judgments pursuant to Article 16(1) of Regulation 1/2003.

Therefore, in deciding whether or not to appeal the infringement decision, there is potentially a real incentive for addressees of a cartel decision to challenge not only the size of any fine, but also the infringement decision itself.  In practice, this means that by the time of any trial, a national court is likely to be examining events that probably took place at least a decade ago – and in many cases even longer.

As regards the key developments in High Court claims, it is possible to identify the end of a "first phase" of cartel claims and the beginning of a new “interim” phase.  Although the basic operating model is essentially unchanged - there are still some new eye-catching features that makes this current interim phase of cartel litigation rather like a technology upgrade:  “UK cartel litigation 2.0”.  Five of the key features of this interim phase are as follows:

• A move beyond the mainly procedural issues to reach the substance of the case more quickly, (which we explain in more detail below).
• Claimants have changed their tactics to attempt to avoid significant delays, such as only suing one or two of the cartelists on the basis that they are jointly and severally liable for all of the loss, rather than proceeding against all of them.  This in turn has led to contribution proceedings under Part 20 of the Civil Procedure Rules being a feature of current cases.
• The increase of claims now being brought by indirect as well as direct purchasers.
• That many so-called “follow on” claims are in fact hybrid claims, which include a stand-alone portion to the extent that the claim extends beyond the cartel period as found by the regulator or applies to alternative facts by association with the decision.
• The fact that claims are being brought at an ever earlier stage, and often before an infringement decision has been reached, which is a feature that is only likely to increase as the growing number of claimant law firms based in the UK seek to establish themselves as the lead in any given cartel. This will be even more acute for opt-out claims.

The procedural delays that characterised the first phase of cartel cases

After the test cases of Arkin⁴, Crehan⁵ and a few others, there is a distinct phase of claims that started with the Cooper Tire⁶ case that was issued in December 2007 and ended in the summer of 2014 with the final settlement in that case two weeks into trial in May 2014 (a six and a half year period) and also with the settlement in the National Grid⁷ case a few days before trial in June 2014 (a case that lasted 5 years).

The reason these cases took so long to get to trial can be explained by the EU appeal process. However, the defendants used this time to raise a number of challenges which took considerable time to resolve.  There were challenges to jurisdiction, applications to stay the claim pending the infringement decision appeal process and applications to resist disclosure of the infringement decision, of all of the related material passed to the Commission, and of any documents held in France pursuant to the French Blocking Statute.

What has essentially now changed - and why we are now in a new interim phase - is that a number of these procedural issues have largely been resolved, at least in principle, so that the opportunity for a defendant to delay has been substantially eroded. For example:

Jurisdiction

In determining jurisdiction, the basic rule is that defendants should be sued in their jurisdiction of domicile. Article 8(1) of the Judgments Regulation 1215/2012 EC is an exception to this rule. Article 8(1) provides that where the jurisdiction of the English courts has been established over one defendant, additional defendants domiciled in other Member States can also be sued in England in the same action, provided the claims are “so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separating proceedings.”  It has now been established by Provimi⁸ and Cooper Tire that jurisdiction can be established under Article 8.1 by pleading that an “anchor” defendant that is within the cartelist group but not an addressee of the decision nonetheless implemented the cartel in the relevant forum. In addition, the Court of Justice’s decision in Hydrogen Peroxide⁹ establishes that even if there is a settlement with the “anchor” defendant, that does not render Article 8(1) inapplicable.

Stay of proceedings

It is now clear from National Grid¹⁰ - a claim in respect of the gas insulated switchgear cartel - that while the Masterfoods stay will apply before any trial, the court will allow the case to progress in the interim.  Where a claim is brought before an infringement decision has been reached, as in the Secretary of State for Health’s claim against Servier relating to the cardio-vascular medicine perindopril,¹¹ it was held that the case should be stayed until 21 days after the oral hearing before the Commission (which is post-Statement of Objections but pre-Decision) to avoid the burden of the defendant fighting simultaneously on two fronts.

Disclosure of infringement decision

Although it will be important to preserve the confidentiality of the decision and to redact references to any leniency material, National Grid,¹² Servier¹³ and Emerald Supplies¹⁴ all confirm that claimants will be allowed access to the infringement decision, within the confines of a confidentiality ring that, in particular, protects third party rights.  When the litigation has started pending the outcome of the antitrust investigation, disclosure is likely to be restricted to material already disclosed by the parties to the Commission, at least in the first instance, as established by Infederation v Google¹⁵ and Servier.¹⁶

The French Blocking statute

In the cases of Servier and National Grid, the English Court of Appeal¹⁷ dealt with the effect of the French Blocking Statute on the disclosure of documents by French companies in the context of UK damages proceedings. The French defendants in those cases asked the English High Court to make a “court to court” request to obtain the relevant documents / information pursuant to EU Regulation 1206/2001 providing for the taking of evidence in legal proceedings because in the absence of such a request, the French companies would be put at risk of criminal prosecution. It is now clear from the Court of Appeal’s judgment that the Regulation is not mandatory but discretionary and the judges were allowed to use their discretion not to use it and to instead order compliance with English procedural rules.  As a result of these cases, the French Blocking Statute is unlikely to be used as a defence to non-compliance with disclosure orders.

Having resolved these more procedural issues in principle, the types of preliminary application that are now before the courts are addressing more substantive issues.  For example, where the defendant perceives the claimants to have potentially overreached by striving to claim the absolute maximum amount, this can set up issues to be challenged at a preliminary stage and which probably need to be determined by the court before any sensible settlement discussion can take place.  For example:

• The interchange claims by a variety of retailers against Visa and MasterCard¹⁸ claimed in respect of the whole period during which default interchange fees had been set by Visa, dating back to 1977.  Visa argued the limitation defence by way of a preliminary issue - that there were sufficient facts in the public domain to plead the claim at an earlier stage - and succeeded in knocking out the portion of the claim other than the six-year period preceding the claim.
• In Newson,¹⁹ the defendant, IMI plc, succeeded in dismissing the conspiracy aspect of the claim on the basis that the infringement findings did not support the required “intent to injure”.  Similarly, in Emerald Supplies the defendants have sought to dismiss the claims brought by the claimants to recover losses suffered outside the EU by alleging unlawful means conspiracy and unlawful interference.

An obvious but important point is that all cartel claims brought in the UK to date have at some point settled. It was left very late in the Cooper Tire and National Grid cases, but many more cases have been settled on a confidential basis in the meantime and we have not seen any cartel case end with a judgment.  In Cooper Tire there were a series of bilateral settlements over the course of the case whereas in the National Grid case there was a group settlement.

In terms of the timing of any settlement in future cases, the removal of the procedural obstacles and the move more quickly to substantive issues sets up an obvious dynamic, which is to explore settlement opportunities while the EU court appeal is pending – notwithstanding that some defendants will always be reluctant to settle while there is a chance that the infringement decision will be overturned.  This means a without prejudice track developing in parallel with the litigation to advance both sides’ understanding of the underlying merits of the case and the scope for settlement at a relatively early stage.

Balanced against the prospect of the litigation being stayed for years pending the outcome of the EU appeal process is the fact that interest and costs will continue to mount over that period.  The timing of any settlement has consequences for third party funding, after-the-event (ATE) insurance and for lawyers on conditional fee arrangements.  So while delaying the case might work to undermine the claimant’s resolve and ultimately lower the settlement payment in the without prejudice discussions, it also creates ever greater obstacles to settle.

On the defendant side, for those companies looking for a way to reach a final resolution to otherwise protracted and costly litigation, there may be appetite to explore the Competition and Markets Authority's voluntary redress scheme – or perhaps a less rigid version of it.²⁰

The Consumer Rights Act 2015 entered into force on 1 October 2015 together with new rules of procedure for the Competition Appeals Tribunal (CAT) (CAT Rules 2015).

While the most striking feature of the Act is the new procedure for representative litigants to apply to the CAT to bring claims on an “opt-out” basis on behalf of claimants,²¹ the Act has also removed a number of limitations on the jurisdiction of the CAT which will have significant implications.  For example, the CAT will be able to hear stand-alone claims and applications for injunctions for the first time, which may well result in the CAT becoming the forum of choice for damages claims in the UK rather than the High Court - particularly in circumstances where the CAT has been granted wide discretion and has the opportunity to apply procedural rules in a more liberal way than the High Court.

Some of the key changes to the CAT Rules 2015 are set out in summary below:

• A new “fast-track” procedure has been introduced which is intended to facilitate access to justice for consumers and small businesses by enabling them to obtain swift and cheap access to redress. Under the fast-track procedure, claims will be fixed for trial within six months of a case being subject to the fast track procedure and the trial length will be less than three months.
• The CAT now has the flexibility to grant an interim injunction within the “fast track” procedure without requiring the applicant to provide an undertaking as to damages, or to cap the amount of the undertaking as to damages where it determines that it is in the interests of justice. Over time, this is likely to result in many more injunction applications in private actions being made in the CAT as there is little risk to the applicant of making such applications.
• Appellants are able to raise new points on appeal, particularly if the appellant was not reasonably able to realise the importance of a piece of evidence earlier in the process.
• New rules have been adopted similar to Part 36 of the Civil Procedure Rules to provide a procedure for making an offer to settle (by either a claimant or a defendant). However, these will not apply to opt-out collective actions because of the concern that the claimant representative  will feel compelled to accept a settlement offer that they are uncomfortable with for fear of the cost consequences associated with Part 36 offers. Instead, the new rules allow parties to make “Calderbank offers” in collective actions in the CAT (i.e. offers without prejudice as to costs).

The effect of the combination of these procedural changes, together with the new UK class action regime, remains untested and there will be a large number of open points which need to be determined. For example, the types of cases deemed suitable for an opt-out class action²² and for the fast-track procedure.  It therefore seems likely that for the foreseeable future the new regime could bring us back to the "first phase" of cartel claims – characterised by substantial procedural issues and delays – until it beds down into a “steady state”.  Only then will we know the extent to which cartel litigation in the UK has more in common with north America than the rest of the EU.

This article is based on the presentation given by Peter Scott at the Mlex Competition Litigation conference held in London on 24 September 2015.