Francesca Gelmini
LERU Brexit Seminar
EU antitrust rules, laid down in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), are directly applicable and produce direct effect – namely, they create obligations and rights which national courts have the duty to safeguard. Indeed, the practices forbidden by Articles 101-102 TFEU harm not only competition/consumer welfare, but individuals’ subjective positions. The competition system is therefore based on two ‘complementary’ tools: public enforcement and private enforcement. The former consists of the enforcement of antitrust law by public authorities (the European Commission and the National Competition Authorities) which investigate infringement of competition law and impose certain measures and sanctions on transgressors. Conversely, private application consists of legal actions brought by victims of anticompetitive behaviours before the courts.
Royal Courts of Justice, James Stringer, CC-BY-NC-2.0
The landscape for private enforcement has undergone significant development. The discipline in and of itself did not exist at the EU level until 2014, and was largely developed by case law. In the absence of EU legislation, claims for damages were governed by the national rules and procedures of Member States, in accordance with the principles of effectiveness and equivalence. The Directive on Antitrust Damages Actions (2014/104/EU) has introduced minimum common legislation governing antitrust actions, in order to harmonise national rules and to remove practical obstacles to compensation for all victims of infringements of EU antitrust law.
There are two different types of competition claims: (1) stand-alone actions, in which claimants have the burden of proving the infringement without the benefit of a prior decision of a public authority, and (2) follow-on actions, in which there is already a finding of infringement by the public authority and claimants consequently only need to prove that the infringement caused them quantifiable and recoverable damages. A Commission decision in favour of infringement establishes a non-rebuttable presumption of the latter in civil actions brought, as does the final infringement decision of the National Competition Authority (the authority of the same state in which the civil action is brought). By contrast, final infringement decisions of authorities of other Member States finding infringement are considered prima facie evidence in civil actions. It is relevant to highlight that, in the EU context, most cases are follow-on because a competition authority’s decision ascertaining infringement greatly facilitates the process for victims.
Private Enforcement in the UK
The fragmentation of national rules had increased the practice of forum shopping – the tendency to choose the more favourable jurisdiction – exploiting the transnational nature of such disputes. In this background, the UK has traditionally been the privileged jurisdiction for private competition claim, due to its favourable rules that make it easier for claimants to bring actions, especially before the Antitrust Damages Actions Directive. In spite of harmonisation, significant divergences between national rules remain which are likely to continue to affect where claimants choose to bring their actions.
UK courts have a long-standing culture of private antitrust litigation, establishing nearly thirty years ago the right to compensation of victims of anticompetitive practices (see Garden Cottage Foods v Milk Marketing Board). Beyond its refined legal system and legal specialists, certain UK legal mechanisms and features have also contributed to make the UK a favourite jurisdiction for antitrust damages claims. First, the Consumer Rights Act 2015 introduced a new opt-out regime for collective proceedings, class actions, which facilitates obtaining redress for victims. The new regime allows representative to bring proceedings for damages on behalf of a class of claimants, except those that expressly opt-out Second, English law rules on disclosure are more favourable to claimants compared to the disclosure regimes in many Member States. However, this regime was circumscribed by the new rules of Antitrust Damages Actions Directive, which introduced certain limitations to disclosure (eg leniency materials submitted in the course of an antitrust investigation), reducing the scope of discovery in the UK.
Third, the limitation period for bringing a claim in the UK is six years from the date at which plaintiffs have suffered the loss (when they could reasonably be expected to know of the infringement). In most of Member States, the limitation period is 5 years. Fourth, funding competition claims represent one of the major obstacles and deterrents to bringing an action. In the UK, a wider array of funding methods is available to a party who is a civil professional (third party funding, conditional fee agreements, damages-based agreements, fixed fees and legal expenses insurance). Many professional litigation funders, namely professional investors (without connection to the litigation), finance the legal costs of the litigation in return for a fee payable from the dispute proceeds recovered.
Brussels Regulation and UK Jurisdictions
The practice of forum shopping is enabled by the transnational nature of these disputes and the Brussels Regulation, which provides that jurisdiction is based on the defendant’s domicile (Article 4). In addition to this general rule, there are alternative grounds of jurisdiction based on a close connection between the court and the action, or to facilitate the administration of justice. In particular, a person domiciled in a Member State may be sued in another Member State under several circumstances.
If the action is ‘contract-based,’ it may be pursued in the courts of the place of performance of the contract at issue. In tort-related matters, delict or quasi-delict, the claim can be brought in the court of the place where the ‘harmful event occurred’, namely where the ‘damage occurred’ or the location of the event ‘giving rise to it’ (Article 7). If there are more defendants and the claims are so closely connected and there is the risk of irreconcilable judgements resulting from separate proceedings, the claim can be brought in the courts where any one of them is domiciled. In competition litigation, especially in claims alleging a violation of Article 101 TFEU (eg cartels), the claims are generally considered ‘sufficiently’ connected.
English courts have interpreted these rules broadly, demonstrating a willingness to allow claims with relatively tenuous connections to be brought in the jurisdiction. In practice, UK courts have found they have jurisdiction over all connected damages proceedings if the claimants find a so-called ‘anchor defendant’ who is domiciled in the UK (for example, a company domiciled in the UK belongs to a corporate group of any one of the cartel participants). In Cooper Tire and Toshiba Carrier the anchor defendant had been considered a subsidiary (not named in the European Commission’s decision and did not know about the cartel), in reason of its use by the parent to implement the cartel in the UK. This extensive interpretation of the Brussels Regulation is an additional element that has made the UK the jurisdiction of choice.
Substantive versus Procedural Rules
In cross-border legal action for damages for anticompetitive conduct affecting trade between Member States, the applicable law is Articles 101 and 102 TFEU. In accordance to the principle of supremacy of EU law and the provisions of Regulation 1/2003, national judges must apply EU competition law. However, the anticompetitive conduct may be cumulatively subject to national competition law. The conflict of law rules of the EU were harmonised with the Rome II Regulation, but only those relating to matters of substance, explicitly excluding matters of procedure and evidence (Article 1). Indeed, matters of procedure are governed by the lex fori (the laws of the jurisdiction in which the action is brought). It is therefore relevant to distinguish between substantial and procedural rules as they are governed by different bodies of law.
In private actions based on competition law (subject cumulatively to national competition law and EU competition law), the law applicable to a non-contractual obligation arising out of an act of unfair competition can be determined by the special rules provided by Article 6 of the Rome II Regulation, under a ‘flexible’ interpretation. Article 6(3)(a) provides that the law applicable might be the law of the state ‘where the market is, or is likely to be, affected’. Under Article 6(3)(b), where the markets are, or are likely to be, affected in more than one state, a claimant who sues in the court of the domicile of the defendant can choose to base the claim on the law of the court seized, if the market in that state is directly affected by the anticompetitive conduct.
Where that the claimant sues more defendants in that court, he/she can choose to base the claim on the law of that court, if the restriction of competition on which the claim against each of these defendants relies directly affects also the market of the forum state. The UK faces the challenge of maintaining that position following its withdrawal from the EU. The impact of Brexit on antitrust litigation will depend on the agreement that the UK will negotiate with the EU. There are three different hypothetical scenarios.
Soft Brexit
Should the UK join the European Economic Area (EEA), there would not be substantive difference. The EEA Agreement creates a single market bringing together EU Member States and EEA/EFTA States (Iceland, Liechtenstein and Norway) in order to ensure equal competition conditions and uniform procedural and substantive competition rules. For this propose, Articles 53-54 of the EEA Agreement mirror Articles 101-102 TFEU and substantive equivalents to Regulations 1/2003 and 773/2004 have been incorporated into Protocols to the EEA Agreement. Public enforcement of the EEA Agreement splits two-ways: the Commission has the power to enforce competition law within the EU-pillar and the EFTA Surveillance Authority within the EFTA-pillar (referred to as the ‘two-pillar’ structure of the EEA). The EFTA Surveillance Authority enforces the prohibitions in Iceland, Liechtenstein and Norway and undertakings active in those EFTA States must comply with EEA competition rules.
However, despite the similarity of legislation, the UK’s competition law regime could start to diverge from EU competition law as national courts will not be bound by rulings of the Court of Justice of the European Union (CJEU). Specifically, English courts could refer matters to the EFTA Court (whose decisions are merely advisory), but not the CJEU. Moreover, the UK’s Competition and Markets Authority would share responsibility for competition law enforcement with the EFTA Surveillance Authority, instead of the European Commission. This change would be mitigated by the fact that there is close contact and cooperation between the European Commission and the EFTA Surveillance Authority, the two institutions overseeing the application of the ‘same’ laws in different parts of the EEA (Protocol 23 concerning the cooperation between the surveillance authorities).
With regard to private enforcement, similarly to Articles 101-102 TFEU, Articles 53-54 EEA confer rights upon private parties. The EFTA Court, following the CJEU, has encouraged private enforcement in order to ensure the effectiveness of competition law. The Antitrust Damages Actions Directive is ‘EEA relevant’ and the new legislation could therefore continue to be applicable in private litigation. However, for effective enforcement, a cross-pillar application of the directive is necessary, as only then would final decisions by the EFTA National Competition Authorities (NCAs) under Articles 53-54 EEA serve as prima facie evidence in an action for damages before national courts of an EU Member State. Similarly, final decisions of the EU NCAs under Articles 101-102 and Articles 53-54 would serve as prima facie evidence before courts of the EFTA/EEA States.
To ensure the recognition and the enforcement of judgements, the UK could ratify the Lugano Convention, which is identical to the Brussels Regulation and extends to the EFTA Member States. This would provide certainty and allow the United Kingdom to continue to use the domicile of an anchor defendant to recognise its jurisdiction. The option of remaining part of the EEA is unrealistic and difficult, as the UK would no longer participate in the development EU competition policy, leaving it subject to EU legislation without participating in its creation.
Swiss Model
The second option is for the UK to adopt a Swiss-style approach to EU relations. Switzerland is not a member of EEA, but employs bilateral treaties in order to regulate its relationship with the EU. In 2014, Switzerland signed a cooperation agreement with the EU on competition matters, providing a framework for a close cooperation between competition authorities. With regard to claims in a ‘European’ context, the Lugano Convention (Article 5) provides for jurisdiction at the place where the harmful event occurred. Moreover, the Swiss Federal Act on Private International Law (Article 137), provides the application of Swiss competition law before a Swiss court even if the infringers are domiciled in another state. The UK might request an agreement with the EU parallel to Brussels Regulation, along the lines of that reached with Denmark. If a more favourable agreement is not reached, the UK could become an individual party to the 2005 Hague Convention on choice of court agreements.
Hard Brexit
Should the UK not remain in the Single Market or join EEA/EFTA, directly effective EU legislation would cease to apply to it. Without any specific agreements, the 1998 Competition Act (perhaps minus its references to EU legislation) would be the only legislation regulating competition matters. However, European antitrust law is based on the theory of effects, so these rules will continue to apply where the restrictive effects of business conduct are produced on EU territory, even when that conduct happens outside EU borders. As a result, the UK’s withdrawal from the EU would not create any immunity for British businesses from European antitrust bans, and UK companies that undertake activities capable of affecting trade between EU members will still need to comply with EU provisions. Moreover, there will be a new risk of parallel investigations between the European Commission and the Competition and Markets Authority into infringements with a UK component.
In private enforcement, claimants could no longer directly invoke Articles 101-102 TFEU for damages, but would only be able to rely on Chapters I-II of the 1998 Competition Act. The new legislation introduced with the Antitrust Damages Actions Directive has become part of domestic law, and will continue to be applied to competition law infringements, unless amended. The UK government could develop that legislation, taking advantage of the fact that it will no longer be subjected to the EU guidelines. It would be free to return to the previous regime of disclosure, providing a lower degree of protection for the disclosure of confidential information and leniency statements, further facilitating the process for victims wanting to bring actions for damages.
Regarding the binding effect of Commission decisions, such effect implies that national courts cannot take decisions in conflict with a Commission decision. To the extent that Regulation 1/2003 will not apply to the UK, the Commission’s decisions will no longer be binding. It would be in the interests of UK’s antitrust victims to be able to rely on the Commission’s findings on infringement as binding. However, if the UK decides to maintain the binding effect of Commission decisions, it would be necessary to also preserve the rights of the UK courts to make references to the CJEU. By contrast, decisions of NCAs of other Member States that only have the value of prima facie evidence may still be referred to by English judges, as with decisions of competition authorities of non-EU Member States.
If the Brussels Regulation will no longer be applicable in the UK, the enforceability of judgements in the UK will be negatively impacted. Returning to the old Brussels Convention would probably not address the legal vacuum, since some Member States are not party to it. If the UK is not subject to the EU’s private international law rules, it would need to return to the unilateral option of UK common law rules on jurisdiction. English courts might recognise their jurisdiction based on a far broader range of connections under the Civil Procedure Rules and Practice Direction under the Brussels Regulation. They could discretionarily refuse to hear any case brought before them when they are convinced that there would be a more appropriate forum available to the parties (the doctrine of forum non conveniens), in particular if claims under Articles 101-102 TFEU are considered claims under foreign law.
The future inability of a claimant to apply the Brussels Regulation rules on parallel proceedings and the consolidation of actions in one forum could significantly increase the likelihood of parallel proceedings and conflicting decisions, which would be inefficient both for claimants and defendants. Decision in UK courts would be limited to the UK-specific aspects of a case, resulting in a diminution of activity in UK courts. Consequently, they would become a less attractive forum. Moreover, the Rome II Regulation would no longer be binding in the UK and the applicable law for the civil consequences of an antitrust infringement would instead be determined by Sections 11 and 12 of the Private International Law (Miscellaneous Provisions) Act 1995. However, these provisions do not prevent actions of damage on the basis of the foreign laws.
Competition Litigation after Brexit
In the current context, it is not yet possible to outline the future of private claims in the UK, as this depends on the applicable rules. If the UK remains part of the EEA, it will maintain the status quo, in particular because it will continue to have greater advantages compared to EU Member States. However, if the rules that currently enable and facilitate these actions change, victims might have less incentive to go before UK courts and might seek alternative jurisdictions, such as in the Netherlands or Germany, two other favourite jurisdictions for such claims. In a less pessimistic scenario, competition litigation could increase in the UK, with certain procedural reforms and the introduction of more favourable rules. Divergence could therefore represent an advantage for the UK. Everything depends on how it will exploit this opportunity – and in particular how Article 60 of the Competition Act will be replaced and what approach will be adopted by judges. Nevertheless, a soft Brexit is highly desirable, since the decisions of UK courts could continue to be influential in EU courts and UK courts could continue to consider (and benefit from) the decisions of EU courts. This approach could help the UK to remain an attractive venue for competition litigation.
Francesca Gelmini
University of Milan
Francesca Gelmini is is PhD Candidate in European Union Law at the University of Milan. Her research focuses on the principle of cooperation in good faith in EU competition law.
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