Damages for economic loss : Questions of procedure
1. It is important to differentiate between stand alone actions (liability (including interim relief) and damages) and follow on actions (damages).
2. It is also important to differentiate between
a) Where the European or national competition authority has not carried out any investigations
b) Where the European or national competition authority is carrying out investigations
c) Where the European or national competition authority has closed its investigation without making any decision.
d) Where the European or national competition authority has made a decision against one or more organisations.
3. In stand alone actions the costs of investigation and of the decision is shifted from the public to the private sector. The Claimant carries out the role of the public competition authority. The standard of investigation and decision making becomes dependent on
i) the Claimant’s purse
ii) the Claimant’s choice of investigator and decision maker
iii) the litigation tactics adopted by the Defendant
iv) the procedural rules of the decision maker
(1) as to pleadings
(2) as to disclosure
(3) as to adducing and presenting factual and expert evidence
(4) as to the burden of proof
(5) as to the standard of proof
(6) as to security for costs applications
(7) as to interim and final costs awards
(8) as to the possibility of protective costs orders
(9) as to the specialism and expertise of the decision maker in competition law matters.
4. Follow on actions do complement public enforcement of competition law, as they provide a means by which the injured parties can gain redress from unlawful conduct by those who infringe competition law. The victim may be a competitor and it may be a consumer in the supply chain or the ultimate consumer.
5. The effectiveness of follow on actions depends again upon the procedural rules of the decision maker as well as the availability of funding private actions for damages. However since the finding of an infringement is a precursor to a follow on action, funding should be less of a concern (subject to the difficulties of proof of loss).
6. In the UK stand alone actions can be brought in the High Court by the victim of behaviour which it alleges infringes Articles 81 and 82 or the domestic equivalents (Chapter 1 and 2 of the Competition Act 1998). Such actions are founded on the tort of breach of statutory duty under the EC Treaty and under section 2(1) of the European Communities Act 1972. Such actions are independent of any pending investigation of the competition authority (the OFT and the sectoral regulators).
7. In the UK follow on actions for damages can be brought both in the High Court and in the Competition Appeal Tribunal (CAT).
8. The competition authorities in the UK have no jurisdiction to provide civil remedies to victims and so cannot compensate victims for infringements of the Chapter I and II prohibitions or of Articles 81 and 82. The jurisdiction of the competition authority is to require that the abusive behaviour ceases and to impose fines.
Competition Appeal Tribunal
9. The CAT was created by Section 12 and Schedule 2 to the Enterprise Act 2002 (“the Enterprise Act”) which came into force on 1 April 2003. Section 47A of the Competition Act 1998 provides that one of the functions of CAT is to hear actions for damages and other monetary claims under the Competition Act 1998.
10. Cases proceeding in the CAT are heard before a panel consisting of three members : either the President or a member of the panel of chairmen and two ordinary members. The members of the panel of chairmen are judges of the Chancery Division of the High Court and other senior lawyers. The ordinary members have expertise in law, economics, business or related fields.
11. The CAT’s jurisdiction extends to the whole of the United Kingdom whereas the jurisdiction of the High Court is confined to England and Wales. Scotland has its own legal system.
12. The Competition Act prohibits :
- Certain agreements or concerted practices which may affect trade within the United Kingdom and have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom (‘the Chapter I prohibition’)
- The abuse of a dominant position in a market if it may affect trade within the United Kingdom (‘the Chapter II prohibition’).
13. These provisions may be enforced by the OFT who may give directions for bringing the infringement to an end and impose penalties of up to 10 per cent of the turnover of the undertaking concerned. Similar powers are exercisable by the regulators in the telecommunications, electricity, gas, water, railways and air traffic services sectors.
14. The Chapter I and Chapter II prohibitions are the United Kingdom domestic Law equivalent of Articles 81 and 82 of the Treaty establishing the European Community ("the EC Treaty").
15. Following the entry into force of Council Regulation 1/2003/EC and the amendment of the Competition Act (by the Competition Act and other enactments (Amendment) Regulations 2004), the OFT and the regulators that have concurrent jurisdiction to apply the Competition Act may use their powers of investigation and enforcement under the Competition Act in relation to Articles 81 and 82.
Follow on Actions in the CAT
16. Under section 47A of the Competition Act (inserted by section 18 of the Enterprise Act) any person who has suffered loss or damage as a result of an infringement of either UK or European Community competition law may bring a claim for damages or for a sum of money before the CAT in respect of that loss or damage.
17. Such claims may only be brought in relation to loss or damage suffered as a result of infringement of the following prohibitions :
- The Chapter I and Chapter II prohibitions ;
- Articles 81(1) and 82 of the EC Treaty ;
- Articles 65(1) and 66(7) of the ECSC Treaty.
18. In general, claims may only be brought before the Tribunal when :
(i) a decision has been made by the EC Commission, the OFT or the Tribunal establishing that one of the relevant prohibitions has been infringed ; and
(ii) any appeal from such decision has been finally determined or the time for an appeal has expired.
The procedural rules of the High Court and the CAT
19. The Civil Procedure Rules govern the procedure for conducting an action in the High Court. The CAT has its own procedural rules (the CAT Rules) which rules govern the procedure for conducting an action in the CAT.
20. The general philosophy of the CPR and the CAT Rules is that there is an overriding objective of enabling the Court/Tribunal to deal with cases justly, in particular by ensuring that the parties are on an equal footing, that expense is saved, and that appeals are dealt with expeditiously and fairly.
21. The rules of the CAT in the particular context of the 1998 Act, are modelled partly on the CPR and partly on the Rules of Procedure of the Court of First Instance of the European Communities (CFI), which deal with appeals in competition cases arising under Articles 81 and 82 of the Treaty. A central feature of both the CPR and the Rules of Procedure of the CFI is case management by the court.
22. However, the CAT rules are not identical to either the CPR or the Rules of Procedure of the CFI.
The CAT Rules
23. The five main principles of the CAT Rules are as follows.
(i) Early disclosure in writing
Each party’s case must be fully set out in writing as early as possible, with supporting documents produced at the outset.
ii) Active case management
The proceedings will be actively case managed by the Tribunal, the objective being to identify and concentrate on the main issues at as early a stage as possible, to avoid undue prolixity or delay, and to ensure that evidence is presented in an efficient manner.
(iii) Strict timetables
The Tribunal will indicate, as early as possible, a target date for the main hearing. The main stages of the case, and the internal planning of the Tribunal’s work, will be geared to meeting this timetable. In general the Tribunal will aim to complete straightforward cases in within nine months. This target continues to be reviewed in the light of experience. In urgent cases, and where appropriate, the Tribunal will pursue an expedited procedure. Where this happens, the Tribunal will give case management directions as appropriate.
(iv) Effective fact-finding procedures
The Tribunal will pay close attention to the probative value of documentary evidence. Where there are essential evidential issues that cannot be satisfactorily resolved without cross-examination, the Tribunal may permit the oral examination of witnesses. As regards expert evidence, the Tribunal will expect the parties to make every effort to narrow the points at issue, and to reach agreement where possible.
(v) Short and structured oral hearings
The structure of the main oral hearings of the Tribunal will be planned in advance, in consultation with the parties, with a view to avoiding lengthy oral argument. Since the written arguments of the parties will have already been fully set out, and since the main issues will have been identified prior to the main oral hearing, this hearing will normally be conducted within short defined time limits, in accordance with established practice in the CFI.
The Claim Form/Particulars of Claim
24. In both the High Court and the CAT the Claimant commences the proceedings by issuing a claim form. The claim form must be verified by a statement of truth and signed and dated by the claimant, or, on his behalf, by his duly authorised officer or by his legal representative.
25. The claim form/particulars of claim should contain a concise statement of the relevant facts. It should identify any relevant findings in any decision on which the claim for damages is founded. It should contain a concise statement of any contentions of law which are relied on. It should contain a statement of the amount claimed in damages normally supported by a calculation explaining how the amount claimed is established. Whilst there is no set structure for the presentation of the claim form, it is vital that the reader is able fully to understand the claim from the moment of its receipt.
26. In a follow on action for damages the claim form will normally introduce the background to the decision on which the claim is based and identify concisely the facts found in the decision that are alleged to have caused loss to the claimant. Having identified the facts on which the claim is based the claim form normally identifies in a concise manner the grounds which entitle the claimant to recover the sums claimed. The arguments supporting those grounds are often developed in a concise manner. Any calculations relied on as to the amounts claimed and any interest thereon should be clearly set out, either in the body of the claim form or, if lengthy in nature, contained in a document annexed to the claim form.
27. In the CAT annexed to the claim form should be a copy of the decision on the basis of which the claim for damages is being made and, as far as practicable, a copy of all essential documents on which the claimant relies including the documents establishing the amount of the claim and any experts report relied upon.. The claimant should in the CAT claim form identify the nature of the evidence that he proposes to adduce and, where possible, should include at the least the identity of the witness, or witnesses, concerned.
28. In the High Court there is a requirement for a pre-action protocol letter to be sent to the prospective defendant which must be set out clear details of the claim and identify all documents relied upon. Copies of the documents may be enclosed with the letter. If at that stage an expert has made a written report then that document may also be provided with the pre-action protocol letter.
29. However in contrast with the CAT Rules, in the High Court there is no requirement to provide copies of documents relied upon or the names of the witnesses or any experts report with the Claim Form or particulars of claim.
30. Neither in the High Court or in the CAT is the claimant required to annex the statements of any witnesses it proposes to rely on.
31. The formal requirements applicable to the contents of a defence are broadly similar to those applicable to a claim form/particulars of claim. In the CAT every document on which the Defendant relies is to be annexed to the defence.
32. The claimant has an opportunity to serve a reply responding to any points made in the Defence.
Case Management by the Court/Tribunal
33. Proceedings before the High Court and CAT are haracterized by active case management with a view to ensuring the just, expeditious and economical conduct of proceedings. The first case management conference is viewed as a particularly important part of this approach. The purpose of the CMC is to establish what are the relevant procedural and substantive issues arising in the case. This will include questions concerning the disclosure of documents, any issues regarding confidentiality, a preliminary identification of the main issues in the case and of the evidence and whether the court/tribunal should give permission for expert evidence.
34. In both the High Court and in CAT the parties are obliged to make disclosure and to produce to the other parties the documentary evidence in their possession,
35. After the close of pleadings (the exchange of the claim form/particulars of claim, the defence and any reply) the parties in actions before the court are required to disclose all documents on which the party relies and in addition the documents which adversely affect his own case, adversely affect another party’s case or support another party’s case. This is done automatically by a written list of documents. Disclosure must be of documents which the party now has, or has previously had in his control (ie in its physical possession or where there is a right to possession or a right to inspect or take copies). Each party has a duty to make a reasonable search for all documents which may be in its control. Where documents are no longer in its control the list must state when they were last in that party’s control and the circumstances in which control ceased. Where a party believes that the other party has documents which ought to but have not been disclosed in the list an application for specific disclosure of such documents can be made to the court.
36. In the CAT disclosure of documents is dealt with at the case management conference when express orders for disclosure will be made. The basis on which disclosure is ordered mirrors the ambit of disclosure in the High Court.
37. Both in the High Court and in CAT the parties must produce witness statements containing the evidence of any witnesses which they wish to adduce. Normally this takes place after disclosure of documents. The function of a witness statement is to set out in writing the evidence in chief of the maker of the statement. Accordingly witness statements should so far as possible, be expressed in the witnesses’ own words. Witness statements should be as concise as the circumstances of the case allow. They should be written in consecutively numbered paragraphs. They should present the evidence in an orderly and readily comprehensible manner. They must be signed by the witness and contain a statement that he or she believes that the facts set out in the statement are true. They must indicate which of the statements made are made from the witness’s own knowledge and which are made on knowledge and belief, giving the source of the information or basis for the belief. Witness statements must contain the truth, the whole truth and nothing but the truth on the issues covered. Great care must be taken in the preparation of witness statements. No pressure of any kind should be placed on a witness to give other than a true and complete account of his or her evidence. It is improper to serve a witness statement which is known to be false or which the maker does not in all respects actually believe to be true. In addition, a professional adviser may be under an obligation to check where practicable the truth of facts stated in a witness statement if he or she is put on enquiry as to their truth. If a party discovers that a witness statement which that has been served on its behalf is incorrect, that party must inform the court/ Tribunal and the other parties immediately. The ultimate sanction for making a false witness statement is imprisonment for contempt of court. Giving false evidence in court can result in a prosecution for perjury.
38. Both the High Court and the CAT restrict expert evidence to that which is reasonably required to resolve the proceedings. Accordingly expert evidence cannot be called without the permission of the court/CAT. Expert reports are usually ordered either to be exchanged or to be served consecutively. The claimants expert is given an opportunity to prepare a report in reply to the defendants expert. The Court/CAT normally makes an order for the experts to meet before the hearing of the case and to prepare a written statement of the issues on which they agree and the issues on which they disagree and the reasons for disagreement.
39. Experts owe a duty to the court which overrides any duty which they owe to those who have instructed them. It is the duty of the expert to help the Tribunal on matters within his expertise : that duty overrides any obligation to the person from whom he has received instructions or by whom he is paid. Expert evidence presented to the court/CAT should be, and should be seen to be the independent product of the expert uninfluenced by the pressures of the proceedings. An expert witness should never assume the role of an advocate and should not omit to consider material facts which could detract from the expert’s concluded opinion. Where necessary, the expert must make it clear if a particular question or issue falls outside his expertise. An expert’s report is addressed to the Tribunal and not to the party from whom the expert has received his instructions. An expert’s report should, in particular, set out the material facts, and the substance of all material instructions on the basis of which it was written. The expert should make it clear which, if any, of the facts stated are within his own direct knowledge. If a stated assumption is, in the opinion of the expert witness, unreasonable or unlikely that should be stated clearly. If an expert’s opinion is not properly researched because the expert considers that insufficient data is available this must be stated in the report with an indication that the opinion is no more than a provisional one. The report should contain, at the end a statement that the expert understands his duty to the Court/CAT and has complied with that duty ; and a statement that the expert believes that the facts stated in the report are true, and his belief that the opinions expressed are correct. An expert can if he wishes apply to the court/CAT directly for directions.
Search and Seizure Orders
40. Where there is good reason to suspect that a prospective defendant may destroy evidence once he becomes aware that proceedings may be brought against him the court, on the application of a party, normally a prospective claimant, may make an order which permits the prospective claimant to make a search of the prospective defendant’s premises and seize evidence found there. These orders are only made if the evidence of likely destruction is compelling. The order will require the appointment of a Supervising Solicitor who is independent of the applicant and who is experienced in the operation of search orders and who must personally serve the order and attend at the search. The supervising solicitor is under a duty to explain the terms and effect of the order to the respondent in every day language and advise him of his rights to legal advice and to apply for the discharge or variance of the order. The order must only be served between 9.30 am and 5.30 pm unless the court otherwise directs. The terms of the order must clearly identify the premises to be searched and the material which is the subject of the order and which can be removed from the premises.
Breaches of orders
41. Breaches of a procedural order of the court may be dealt with by the court striking out the action/defence or part of the claim or defence, or by an adverse costs order. In the most serious cases, such as a breach of a search and seizure order, the sanction may be contempt of court. The penalty for contempt of court may be imprisonment or a fine or both.
Group Litigation Orders
42. Group Litigation orders provide for the management of claims which give rise to common or related issues of fact or law. The court will make the order where there are likely to be a number of claims giving rise to the same issues. The order will give directions about the establishment of a register on which the claims managed under the order will be entered. The order will specify the issues which will identify the claim, the claims to be managed as a group under the order (“the common issues”)and will specify the management court which will manage the claims of the group register. The order may in relation to claims which raise one or more of the common issues direct their transfer to the management court, stay the actions, and direct their entry onto the group register. The court can direct that claims which raise the common issue are to be started in the management court and entered on the group register. The court may give directions for publishing the group litigation order.
43. Where a judgment or order is given or made in a claim on the group register in relation to one or more common issues that judgment or order is binding on the parties to all other claims that are on the group register at the time the judgment is given or the order is made unless the court orders otherwise. The court may give directions as to the extent to which that judgment or order is binding o the parties to any claim which is subsequently entered on the group register.
44. The Court can order one or more of the claims on the group register to proceed as test cases and for the other cases raising common issues to be stayed.
45. The court may direct that one of the solicitors is to be the lead solicitor for the claimants and/or for the defendants respectively.
46. The court may specify a date after which no claim may be added to the group register unless the court gives permission. Thus there is a possibility for victims to join the group at any time subject to the court’s permission. The court’s will consider whether it is just, fair and proportionate for a victim to be joined at the particular date of the request to do so. Thus there is a requirement to “opt-in”, but the date by which a victim must opt in depends on the particular facts of the case and is subject to an order of the court.
Claims on behalf of consumers
47. Under Section 47B of the 1998 Act (inserted by section 19 of the Enterprise Act) a claim under Section 47A (the follow on action) may be brought or continued by a “specified body” on behalf of individually named consumers.
48. Bodies may be specified in an Order made by the Secretary of State pursuant to section 47B(9) of the 1998 Act. The Consumers’ Association had been so specified : SI 2005/2365.
49. The Courts normally conduct their business in public. However the courts may protect the confidentiality of information where the disclosure of such information would be contrary to the public interest ; or where the disclosure of the information could significantly harm the legitimate business interest of the undertaking to which it relates ; or where the information relates to the private affairs of an individual the disclosure of which could significantly harm his interests. Whether particular information is to be regarded as confidential is a matter for the Court or CAT to decide in the circumstances of the individual case. Where the information is held to be confidential, then the court/CAT will give directions as to its disclosure. These directions normally provide for “confidentiality rings” naming the persons (normally the advisers) to whom disclosure is to be made and requiring such persons to enter into a confidentiality undertaking. A confidentiality undertaking may prohibit an adviser disclosing the information to his client.
50. Even if the information is confidential, the Court/CAT must, when drafting its judgment, take into account the extent to which disclosure is necessary for the purpose of explaining the reasons for its decision.
Standard of proof
51. The standard is always the civil standard – balance of probabilities. But where dishonesty is being alleged the nature and quality of the evidence relied on as proof of dishonesty should be convincing and compelling.
Loss and damage
52. Compensatory damages requires the Claimant to prove its loss. Disgorgement of illegal gain puts the onus on the Defendant as to the illegal gain. The claimant normally relies on expert evidence to prove its loss and experience shows that the defendant can bog down the litigation by disputing the evidence, requiring detailed disclosure and adducing contrary expert evidence. There may accordingly be advantages in damages being awarded by reference to illegal gain since it is then for the Claimant to consider whether or not to incur the costs of challenging the evidence put forward by the Defendant. It also means that the Claimant knows the minimum award which a court is likely to make and this may assist in funding a follow on action.
53. Whether compensatory or disgorgement damages are appropriate may depend on the particular case and the particular parties as well as the particular jurisdiction. This is an area of English law which is being developed through its jurisprudence.
54. Exemplary Damages : there is no jurisprudence yet on whether exemplary (punitive) damages can be awarded in actions where there has been an infringement of the Chapter I and II or Articles 81 and 82 prohibitions.
55. English law does not normally permit damages for loss of reputation or moral damage except in specific circumstances which are unlikely to arise in competition cases.
56. Loss of opportunity to enter a market or make profits however may be a normal part of a claim for damages in a competition case. In this regard it is normal for the claimant to rely on expert evidence which evaluates the market and the likelihood of what would have happened had the anti-competitive behaviour not taken place in order to prove its loss. Similarly the defendant will rely on expert evidence to the contrary to seek to establish that the defendant’s conduct has not caused or would not be the likely cause of such loss.
57. A Claimant is under a duty to mitigate its loss and the damages may be reduced where it is held that the claimant’s conduct contributed to the loss. However where a claimant entered into a contract or arrangement or conducted himself in a particular way by reason of the anti-competitive behaviour the claimant will not be held to have contributed to its loss by reason of so doing.
58. The English legal system provides a secure framework for both stand alone (private actions to establish liability) and follow on actions. If any harmonisation were to take place it would be important that the procedural rules which apply in England and Wales were not limited or restricted in any way as this would be to the detriment of victims who at present benefit from those rules, in particular the search and seizure orders, disclosure, witness statements and expert reports.
Marion Simmons QC
Competition Appeal Tribunal
12 March 2007