Landmark judgment by the EU Court of Justice on the interpretation of the place of harmful event under Regulation Brussels I bis for the determination of alternative grounds of jurisdiction in pan-European cartel damages cases
With its judgment of 29 July 2019 in Case C-451/18, Tibor-Trans (‘Judgment’), the EU Court of Justice (‘CJEU’) clarified the competence of national courts to hear damage actions relating to pan-European infringements of Art. 101 TFEU under Regulation 1215/2012 Brussels I bis (in short ‘Brussels I bis’). The CJEU specified that victims of illegal cartels can lodge an action for damages against each and any cartel member before the courts of the Member State where the market has been affected by the infringement, provided the damage occurred in the respective Member State. This also holds true for actions directed against cartelists with whom the victims had not established contractual relations. In the reasoning leading to the above conclusion, the CJEU (i) stated that the action for non-contractual damages falls within the scope of civil and commercial matters under the meaning of Brussels I bis, (ii) recalled the joint and several liability of the undertaking for the single and continuous infringement of competition law as whole, (iii) pointed out that solely the place of the damage resulting directly from the event giving rise to it can serve as ground for an alternative jurisdiction, and (iv) confirmed the right of a legal successor of the initial victim to claim for damages. Factual context The case concerns a request for a preliminary ruling from Gyor Regional Court of Appeal, Hungary (‘Referring court’) in the context of an action for damages by the Hungarian company Tibor-Trans (‘Claimant’) against the Dutch company DAF Trucks NV (‘Defendant’) following the Decision of the European Commission (AT.39824 – Trucks) of 19 July 2016 in the European Trucks Cartel Case (‘Decision’). In its Decision the European Commission found that several truck manufacturers infringed Art. 101 TFEU between at least 1997 and 2011 (‘Trucks Cartel’). The Trucks Cartel, in the form of a single and continuous infringement, consisted of collusive agreements on the coordination of prices throughout the EEA for medium and heavy-duty trucks as well as the timing and passing on of costs for the introduction of new emission technologies. On 20 July 2017, the Claimant brought an action for damages against the Defendant, an addressee of the Decision, before the Gyor Regional Court of First Instance (‘Court’), that is the court of the place where the Claimant has its registered office. Tibor-Trans claimed damages for the artificially higher prices of the trucks paid to dealers and finance leasing companies in Hungary as a result of the distortion of the market caused by the Cartel in which DAF Trucks participated. The Defendant contested the Court’s international jurisdiction by arguing that none of the collusive meetings took place in Hungary and that it had never entered a direct contractual relationship with the Claimant. The Court found that it did not have jurisdiction to hear the case as no event giving rise to the damage occurred in Hungary. On appeal, the Referring court was uncertain whether it could base its international jurisdiction on the place where the damage occurred, that is the domicile or principal place of economic activity or financial interest of the Claimant, given that Tibor-Trans and DAF Trucks had not established contractual relations. It was specified that the Claimant only purchased trucks manufactured by other undertakings involved in the Cartel. The national proceedings were stayed and a reference for a preliminary ruling was sent to the CJEU regarding the interpretation of Article 7(2) Brussels I bis in the context of Article 101 TFEU damages cases. Legal assessment The CJEU started its legal assessment by recalling that actions for antitrust damages come within the definition of “civil and commercial matters” for the purpose of applying Brussels I bis (para 24). The CJEU then referred to its well-established case law concerning the interpretation of the EU rules on special jurisdiction according to which “the place where the harmful event occurred is intended to cover both the place where the damage occurred and the place of the event giving rise to it, so that the defendant may be sued, at the option of the applicant, in the courts for either of two places” (para 25). It should be stressed that the outcome of the Judgement relates exclusively to the determination of the place where the alleged damage occurred, not the place of the event giving rise to it. Furthermore, the CJEU specified that solely the place where the initial damage resulting directly from the event giving rise to it provides a basis for a special jurisdiction under Article 7(2) Brussels I bis (para 28). Importantly, the CJEU considered that the artificially high prices, including overcharge, paid by Tibor-Trans to its truck dealers and leasing companies in Hungary resulted directly from the distortion of the market price caused by the Trucks Cartel (para 31). Furthermore, the CJEU recalled the joint and several liability of each and any undertaking – in the case at hand DAF Trucks – for the single and continuous infringement of the EU cartel prohibition, independent of whether or not they had direct contractual relations with the Claimant (para 36). Finally, the Court concluded, that the place where “the harmful event occurred” covers cumulatively the territory of the Member State where the market is affected and where the Claimant has suffered damage due to distortion of market prices (paras 33 and 37). The CJEU found that such an approach was not only consistent with the objectives of proximity and predictability of the rules governing jurisdiction but also in line with recital 7 and Article 6(3)(a) of Rome II Regulation according to which “the law applicable to actions for damages based on an act restricting competition is that of the country where the market is, or is likely, to be affected” (para 35). Thus, the CJEU considered, that the courts of the Member State in which the affected market is located and where the harm occurred are best placed to assess the actions for damages, and that the cartelist can reasonably expect to be sued in the Member State where its anticompetitive conduct has distorted the competitive market conditions (para 34).
Factors to consider when taking a cartel damages action
As private enforcement of competition law continues its upward trend potential claimants must consider many factors before deciding to pursue a claim for compensation against their suppliers. EU Directive 2014/104 has contributed to the increased awareness of the right to compensation across Europe and there has been a sharp surge in the number of actions being brought in key jurisdictions such as Germany, the Netherlands and the UK. Many of the recent damage actions are related to the European Trucks Cartel (AT.39824 – Trucks). To claim or not to claim? In the past, companies affected by infringements of competition law and more specifically cartels were reluctant to claim damages for a variety of reasons. This situation is now changing. Case law achieved by first movers in the field of private enforcement, such as CDC, provides increasing legal certainty for claimants. The growing awareness among companies of potentially receiving considerable compensation for antitrust violations has enhanced the pressure on directors of companies to fulfil their obligations vis-à-vis shareholders and seriously consider taking actions for damages (business judgment rule). Questions to consider when bringing a claim As the legal landscape changes, and antitrust damage actions become more and more the norm it will be important for potential claimants to keep in mind several aspects, inter alia the following: Is the necessary funding in place to bring a case to completion (involving lawyers, economists, IT experts, court fees etc.) and to cover adverse costs should they arise? Does your company have the required in-house legal and economic expertise to manage a damage action? Does your company have access to the market-wide data which are often necessary to robustly quantify a cartel-related damage? Where to file a potential claim? Who to claim against? Is it in the best interest of your company to allocate the significant time and resources to take the claim to court? What are the chances of achieving a settlement? Risk vs reward ratio Bringing a competition law damage action can be an extremely complex and costly process. Companies considering taking such actions on their own should carefully contemplate whether the reward is worth the overall risk associated with a damage action. The costs relating to lawyers, economists, data analysts, court fees, and funding can be substantial with no guarantee of success. The solution Many damaged companies choose to outsource the overall quantification and enforcement process to specialists, such as CDC, who usually purchase the claims and enforce them in their own name and at their own costs and risk. That way damaged companies do not incur the expense and time of pursuing the legal action while still obtaining considerable returns upon successful completion of the case. by Pádraic Burke
EU Directive strengthens competition authorities of the Member States to be more effective enforcers of EU competition law
On 11 December 2018, Directive (EU) 2019/1 of the European Parliament and of the Council to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market was adopted. The Directive aims to enable national competition authorities (NCAs) to be more effective enforcers of EU competition law. Specifically, its objective is to ensure the independence and resources of NCAs as well as to improve their respective enforcement and fining powers allowing them to more effectively apply Articles 101 and 102 of the Treaty on the Functioning on the European Union (TFEU). The European Commission’s impact assessment (SWD(2017) 114) accompanying the proposal for the Directive estimates that losses of between € 181- 320 billion are incurred each year due to the existence of undiscovered cartels. While NCAs have notably increased their enforcement activities in recent years, the Commission considers that much more needs to be done to improve cartel detection rates particularly at a national level. The Commission had previously identified through public consultation four main issues which reduced the effectiveness of NCAs: Lack of effective competition tools Lack of effective powers to impose deterrent fines Divergences in leniency programmes of Member States which discouraged infringers from coming forward Lack of safeguards ensuring that NCAs can act independently and have the necessary resources to enforce EU competition law Due to the imbalanced enforcement activities of NCAs both businesses and customers based in Member States where there has been insufficient public enforcement have been disadvantaged. This imbalance has effectively created “safe havens” within the EU where anticompetitive practices often go unpunished because, for example, evidence cannot be collected. The Directive intends to alleviate these problems and improve the current situation of uneven enforcement of Articles 101 and 102 TFEU across the EU. Effective competition tools The Directive empowers NCAs to conduct all relevant unannounced inspections concerning possible breaches of Articles 101 and 102 TFEU including the powers to: (i) enter property, (ii) examine the books and records relating to the undertaking in question, (iii) to take or make copies of any records deemed appropriate, (iv) to seal the premises or records while the search is taking place, and (v) to request explanations from any member of staff of the undertaking being searched. The Directive enables NCAs to conduct unannounced inspections at the homes of directors and staff members of undertakings if reasonable suspicion exists that relevant records are being kept there. Member States must ensure that NCAs have the power to require all necessary information from undertakings within a reasonable amount of time when requested as well as the power to summon for interview any representative of an undertaking. In addition, Members States must enable NCAs to impose interim measures on undertakings when there is a risk of irreparable harm to competition as well ensuring that NCAs have the power to force and monitor commitments from undertakings. Effective powers to impose deterrent fines The Directive places an onus on Member States to either empower NCAs to impose by decision dissuasive fines on undertakings who infringe Article 101 or 102 TFEU, or in the alternative request for fines in non-criminal judicial proceedings. This is particularly interesting in relation to Member States who have fully criminalised competition law offences such as Denmark and Ireland, but where public enforcement activities have been very limited due to the burden of proof required. These Member States will now be required to change their system to ensure that the criminal system “does not affect the effective and uniform enforcement of Articles 101 and 102 TFEU”. To prevent the possibility of any undertaking evading liability for fines, the Directive states that the “notion of undertaking” applies for the purpose of imposing fines on parent companies and legal and economic successors of undertakings. NCAs will have the power to identify the legal or economic successors and if necessary impose fines on them. Currently there exists considerable variances among Member States regarding the maximum fines which can be imposed. As a result, the deterrent effect of fines differs across the EU. Under the Directive, Member States must ensure, when calculating fines, the maximum amount that may be imposed upon each undertaking is not less than 10% of the total worldwide turnover of the undertaking in a given year, while leaving it at the discretion of Member States to impose a higher maximum if they so wish. Congruency of leniency programmes across Member States The Directive states that Members States must ensure that leniency programmes are put in place enabling NCAs to grant immunity from fines to all companies that are first to submit evidence revealing the existence of secret cartels (except for those found to have coerced others to join the cartel in question or to remain in it). Additionally, leniency programmes of Member States must allow companies not qualifying for immunity from fines the possibility of receiving a reduction in fines if they provide significant value-added evidence about cartel to prove the infringement. Furthermore, the Directive sets the general conditions for leniency which must be observed including the cessation of cartel activities, genuine cooperation, providing detailed descriptions of the cartel’s operations and participants, and any past and potential future leniency applications to other competition authorities. Leniency applicants must commit to answering any requests by the NCA and not to destroy or falsify evidence of the cartel or make public its leniency application until the NCA has issued its statement of objections in enforcement proceedings. Leniency programmes of all Members States must also allow for the possibility of cartelists to apply for markers which would initially grant them a place in the queue conditional on them providing certain minimum information such as the affected product and geographical market(s), duration and nature of illegal activities, and information on past and possible future leniency applications to other competition authorities. Independence and access to adequate resources In some Member States, national law has prevented NCAs from operating under the guarantee of independence. The directive codifies the
The Elevators & Escalators cartel revisited in light of the Skanska case: on the impact of the effectiveness principle on the private enforcement of EU competition law
On 14 March 2019, the CJEU handed down a landmark judgment in the Skanska case. Following the opinion of AG Wahl, the CJEU found that the competition law concept of ‘undertaking’ is applicable as well in actions for damages for breaches of EU competition law. Consequently, each company that is part of the infringing economic unit can be held liable. Furthermore, the CJEU stressed the important deterrent (and possibly punitive) function of private enforcement in order to achieve the effective enforcement of the EU competition rules. Considering this, the question arises whether other fundamental principles of private law should also be reconsidered in order not to impede the effective enforcement of competition law. The Skanska case A previous blog post elaborated on the opinion by Advocate General Wahl in the case. That post dealt with, among others matters, the competition law concept of ‘undertaking’ and the ‘principle of economic continuity’. The main facts of the case are the following. Facts in the Skanska case On 29 September 2009, the Finnish Supreme Administrative Court imposed fines on several undertakings that had participated in a cartel in the asphalt market. They had agreed on sharing customers, prices and tendering for contracts. Due to acquisitions, dissolutions and liquidations, some companies (hereinafter: the economic successors) received a fine on the basis of the economic continuity test. They had not participated in the Asphalt Cartel themselves but had continued the economic activity of a no-longer existing entity that participated in the infringement. Some of those economic successors faced a damage claim by the Finnish City of Vantaa, which had concluded agreements on asphalt works within the Cartel period. The District Court ruled that, in order to ensure the effectiveness of Article 101 TFEU, the economic continuity test needed to be applied as well when determining which companies could be held liable for damages. The Court of Appeal, however, held that this was not the case, as this would run counter to some fundamental characteristics of the Finnish rules on civil liability. As in most national legal systems, those rules are based on the principle that only the legal entity that caused the damage can be held liable (notwithstanding exceptions). The Supreme Court decided to refer the case to the CJEU and request a preliminary ruling. Key takeaways of AG Wahl’s opinion As mentioned in the previous blog post, AG Wahl stresses that the private enforcement of EU competition law has an important deterrent function. He finds that the determination of the persons liable for anticompetitive conduct is a constitutive condition of the right to compensation. Hence, this must be determined directly on the basis of EU law (full effectiveness of Article 101 TFEU). AG Wahl therefore concludes that the competition law principle of economic continuity is to be applied when determining which companies can be held liable for damages. Key takeaways of CJEU judgement The CJEU judgement (14 March 2019) confirms the central reasoning of AG Wahl. It starts by referring to the full effectiveness of Article 101 TFEU, which would be put at risk if it were not open to any individual to claim damages for loss caused by competition law infringements (Kone C‑557/12, no. 21). According to the CJEU, the determination of the entity that is required to provide compensation for damage caused by an infringement of Article 101 TFEU is indeed governed directly by EU law. Those entities are the ones that are part of an economic unit, even if in law that unit consists of several (natural or legal) persons. If, from an economic point of view, the economic successor is identical to the predecessor that infringed the competition rules, he can thus be held liable for the damages caused. By extension, this is also true in the case of a parent company exercising control over a subsidiary that infringed the EU competition rules (e.g. Akzo Nobel case, C-516/15). It appears that this reasoning holds true mutatis mutandis for Article 102 TFEU. Interestingly, one of the economic successors raised the argument that those concepts have been developed in a context of public enforcement, which cannot as such be applicable to a private enforcement setting. The CJEU, however, firmly rejected this argument, as the actions for damages are an integral part of the system for enforcement of the competition rules, which are intended to deter undertakings from engaging in anticompetitive conduct. This deterrent function would be jeopardised if undertakings could escape liability claims by simply changing their identity. The CJEU even seems to endorse a certain punitive function of the private enforcement of EU competition law. Impact of the Skanska case on the Elevators and Escalators cartel in Belgium and the Netherlands The importance of the far-reaching conclusions in the Skanska case becomes clear if we revise previous national case law in the Elevators and Escalators cartel in Belgium and the Netherlands. As this was a clear example of a competition law infringement where the fine was imposed during the genesis of Directive 2014/104/EU, it was considered that this case would provide the perfect opportunity to fully show the complementary role of private enforcement. Today’s case law, however, shows how the effective enforcement of EU competition law seems to collide with principles of national damages law. Facts in the Elevators & Escalators cartel Between at least 1995 and 2004, the companies Otis, Kone, Schindler and ThyssenKrupp operated a cartel for the installation and maintenance of elevators and escalators in Belgium, Germany, Luxembourg and the Netherlands. The EC highlighted that the effects of this cartel could continue for years. Even though the EC only needed to prove the anticompetitive object of the cartel to apply article 101 TFEU, it stressed the high likelihood that the parties’ unlawful behaviour had indeed resulted in anticompetitive effects (EC COMP/E-1/38.823, no. 589). Unfortunately, the EC did not attempt to demonstrate those effects, as it deemed it impossible to determine the relevant competitive parameters in the absence of this cartel with sufficient certainty (EC COMP/E-1/38.823, no. 660). This already highlights the difficult task of private parties when claiming for damages. Indeed, national
AG Wahl advises the CJEU following preliminary questions in a Finnish cartel damage case on the relationship between European law and domestic law in the private enforcement of competition law
In a recently published opinion in a Finnish cartel damage case, Advocate General (AG) Wahl discussed the important issue of the relationship between European competition law and private liability law (opinion delivered on 6 February 2019 in the case C-724/17). According to AG Wahl, liability for a breach of European competition law follows directly from European competition law (Articles 101 and 102 TFEU) for both public and private enforcement. The function of both types of enforcement is to secure the full effectiveness of European competition law, albeit through different mechanisms. According to AG Wahl, the concept of ‘undertaking’ in Article 101 TFEU and the related principle of economic continuity must therefore also be consistently applied in private cartel damage proceedings (i.e. the same as in public enforcement). This means that if a party is ordered to pay a penalty payment by the Commission, its private liability is a given. Following the AG in this reasoning has significant implications for private enforcement of European law, including for follow-on cartel damage claims. It means that private law liability for an infringement of competition law can (ipso facto) be attributed to all those ordered to pay a penalty payment and/or all persons (or legal persons) that constitute the economic unit (the undertaking) that has committed the infringement. The competition law concept of ‘undertaking’ and the principle of economic continuity For a proper understanding of the discussion, it is important to note that European competition law focuses on undertakings. The concept of ‘undertaking’ in Article 101 TFEU is broader than the person (or legal person) that directly performs the activity itself. The concept does not (necessarily) coincide with a particular person (or legal person), but can encompass different persons and entities that form a unit in economic terms in the performance of economic activity, e.g. in the case of a parent company that exercises control over a subsidiary that actually performs the activity. The principle of economic continuity is an expression of this broader concept of ‘undertaking’. It determines that in certain circumstances a party that acquires the assets and continues the activities of a party that has infringed competition rules can be held liable for that infringement. That is possible if the continuing party is identical in economic terms. The ratio of this principle is that undertakings should not be able to escape penalties simply through restructurings, sales or other legal or organisational changes (CJEU 18 December 2014, C-434/13). Facts in the Finnish case The Finnish cartel damages case related to the following. Between 1994 and 2002, a cartel operated in Finland in the asphalt market. By decision of 29 September 2009, the highest administrative court of Finland imposed penalty payments on the cartel members for a breach of the (European) cartel prohibition. Several entities that were involved in the breach at the time had by then been dissolved or liquidated, while other entities had continued their activities. The Finnish administrative court held those succeeding entities liable for the conduct of the dissolved entities on the principle of economic continuity. Further to the ruling of the Finnish administrative court, the municipality of Vantaa brought a private follow-on action seeking compensation from the cartel members addressed in the decision (i.e. including the succeeding entities) jointly and severally for the harm caused by the cartel. In the private proceedings, the succeeding entities contended, put briefly, that they could not be held liable under private law for the conduct of the (dissolved and liquidated) entities whose activities they had continued. In the first and second instance, the courts reached different findings. The Finnish Supreme Court found that this question of liability formed reason to refer questions to the CJEU for a preliminary ruling on the relationship between Article 101 TFEU and domestic law. AG Wahl’s analysis AG Wahl finds first and foremost that the questions referred for a preliminary ruling relate to the interplay between European and domestic law, and raise the question to what extent European law dictates how liability ought to be attributed in private law actions for antitrust damages. According to settled case law of the CJEU, anyone may claim damages for harm caused by anticompetitive conduct. AG Wahl stresses that from this case law it follows that private enforcement of competition law not only has a compensatory function, but also has an important function as a deterrent. However, in the absence of European private rules, the rules on exercising this right to claim compensation are laid down by domestic laws, whereby the domestic rules must comply with the principles of equivalence and effectiveness. AG Wahl finds that the answer to the question of which issues in cartel damage cases are governed by European law and which ones by domestic law can be found in more recent CJEU case law. He cites the Kone judgment, in which the CJEU held that Article 101 TFEU precludes any domestic rule that excludes from the outset the possibility of claiming damages for umbrella damages (a form of harm indirectly caused by a cartel) (CJEU 5 June 2014, C-557/12). According to AG Wahl, the CJEU’s finding in Kone is not based so much on applying a test of the principles of equivalence and effectiveness to the litigious national rule, but rather arrives at this finding by reference to the full effectiveness of Article 101 TFEU. AG Wahl views this as an important distinction: it aids in determining the demarcation line between questions governed by EU law and domestic laws respectively. AG Wahl’s analysis is that the test of the principles of equivalence and effectiveness is only applied with regard to domestic rules that relate to the application of the right to claim compensation. By contrast, where the constitutive conditions of the right to compensation are at stake, such as causation in Kone, the situation is examined by reference to the full effectiveness of Article 101 TFEU. AG Wahl then concludes that the determination of the person liable to pay compensation for anticompetitive conduct is a constitutive condition for the right to compensation that must be determined on the basis of EU law, including
Not outsourcing your antitrust damage claim – an efficient use of resources?
Is it an efficient use of resources for a company damaged by a cartel to pursue a claim on its own rather than outsourcing the enforcement to a third party with the special experience and expertise necessary to successfully pursue antitrust damage claims? Particularly for small to medium sized enterprises outsourcing is often the only viable option. Large multinationals on the other hand have a realistic choice of whether or not to pursue an action on their own. Damage actions relating to infringements of competition law require essential in-house legal, economic and IT expertise in addition to sufficient funding and market-wide data. Even with all these prerequisites fulfilled it can be advantageous for a large multinational to outsource its damage claim, as the process further increases chances of realising fair compensation. Outsourcing frees up key resources to concentrate on core business Claiming antitrust damages can be a very complex, expensive and lengthy process frequently requiring the investment of significant time and resources over several years to bring a case to a fruitful resolution. A damaged company deciding against outsourcing its claims enforcement must allocate considerable human resources and funds to take the claim to court, often also the only way to obtain a fair settlement. However, from a damaged company’s perspective it would likely be more efficient to use those resources to innovate, develop new products or services, expand its business, and concentrate on being one step ahead of the competition. After all, claiming antitrust damages is not its core competence. Companies investing resources, whether they are human or financial, into non-core business activities frequently find the quality of their core activities suffer as the business grows. Outsourcing claims for antitrust damages frees up key resources to focus on primary business activities. Incur no costs in running the case In addition to freeing up resources, outsourcing antitrust damage claims incurs zero costs in relation to the legal proceedings. With other types of outsourcing a company would usually pay for a product or service to be provided by an external partner but with the outsourcing of antitrust damage claims there are generally no costs. In fact, all costs such as fees relating to lawyers, economists, funders, adverse cost orders etc. are all normally covered by the external provider. In the event of success, the external provider receives a pre-determined fee and in the event the case would be unsuccessful the external provider bears all the costs relating to the litigation. Decreases risk exposure By outsourcing antitrust damage claims to a specialised claims enforcer instead of taking an action by itself, a damaged company will reduce its risk exposure meaning the company is, for example, not exposed to potential procedural cost orders. Also by outsourcing to an experienced and skilled partner, a damaged company reduces the risk of having tasks done in-house by people who may perhaps be less competent in their field than those working with the expert service provider. Summary Outsourcing antitrust damage claims makes a lot of sense even for large multinational companies with a plethora of internal expertise and considerable access to funding and data. By outsourcing the damage claims to a specialised external provider, a damaged company will free up internal resources enabling it to concentrate on its core business and competing with its competitors. Outsourcing also reduces its exposure to, for example, adverse cost orders and other unforeseen risks. The damaged company does not incur any of the costs associated with running the case and at the same time keeps most of the awarded compensation except for a pre-determined fee which is only paid upon a successful outcome. by Pádraic Burke and Martin Seegers
Scope of parental liability in the Finnish asphalt cartel case
The competition law community is awaiting the preliminary ruling by the European Court of Justice (ECJ) in relation to questions posed by the Finnish Supreme Court in the follow-on damages proceedings brought in the Finnish asphalt cartel case by the City of Vantaa against Skanska Industrial Solutions Oy, NCC Industry Oy and Asfaltmix Oy (Case C-724/17). The case concerns the interesting question of which legal entities in a company group are responsible for the damages resulting from an infringement of Article 101 TFEU when corporate restructuring of the cartelists has taken place. Finland’s highest administrative court ruled that a cartel existed on the asphalt market which also had the potential effect on trade between Member States. The City of Vantaa and the Finnish State claim damages sustained by paying excessive prices in relation to asphalt and initiated follow-on proceedings against the several members of the cartel after fines were imposed by the Finnish Competition authority. Claimants argue that the cartel caused damages notably in the construction and maintenance of roads. Among the companies found to have participated in the cartel are Sata-Asfaltti Oy, Interasfaltti Oy and Asfalttineliö Oy. These companies were later liquidated and their sole shareholders, Skanska Industrial Solutions Oy, NCC Industry Oy and Asphalt Mix Oy, took over the capital of their subsidiaries and continued the business activities. The City of Vantaa claimed damages from these parent companies arguing, amongst others, that the latter are jointly and severally liable for the overcharges caused. The parent companies argue that they are not responsible for the damage caused by their formally independent subsidiary companies. The Finnish court has questioned whether this is correct and whether allowing this line of reasoning would conflict with the principle of effectiveness. On 22 December 2017 the Finnish Supreme Court requested the ECJ for a preliminary ruling. Essentially, the Supreme Court seeks to ascertain whether it is a requirement under EU law that a company which is acquiring the total share capital of a company, liquidating that company, and continuing the business of the liquidated company can be held liable for the cartel damages caused by it in a way which would be akin to the principle of successor liability as applied under EU competition law. More precisely, the questions referred to the ECJ are: In the proceedings an oral hearing took place before the ECJ on 16 January 2019, where in addition to the parties in the Finnish case, the European Commission also took a position. The Commission argued that companies that acquired the assets of a cartel participant also acquired the liability for both fines and damages. There would be no compelling reason to treat the imputation of cartel conduct differently for fines than for damages. Otherwise, dissolving or restructuring of companies could lead to effectively avoiding liability. Thus, the ECJ is faced with a preliminary reference by the Finnish Supreme Court and is expected to decide which companies can be held liable for damages resulting from the infringement of Art 101 TFEU, and whether and to what extent this interpretation could rely on Member State discretion, without impeding the effective application of EU law. Advocate General Wahl will issue his non-binding opinion to the ECJ on 6 February. Further developments will be the subject of another blog post. By Annalies Outhuijse, Dominika Lysien, and Martin Seegers
Review of economic publication ‘Cartel Dating’
The recent publication on the determination of the period of actual collusive effects by Boswijk, Bun, & Schinkel (“BBS”) is rather timely given the upsurge in private antitrust enforcement across Europe since the introduction of the EU Damages Directive (“Directive”) and its subsequent implementation into Member State law. Background – The Right to Full Compensation The Directive acknowledges the right to full compensation (Article 3) while stating in relation to passing-on the unjust enrichment from ‘over-compensation’ of a claimant (Article 12) and ‘the absence of liability of the infringer’ (Articles 12(1) and 15(1)) shall be avoided. Great emphasis has been placed by the Directive on the issue of passing-on but arguably an even more relevant factor in relation to the right to full compensation is in fact the determination of the actual period for which a cartel resulted in artificially inflated prices. There is consensus among economists that cartels can lead to damages after the official end date of an infringement and in these circumstances the use of official infringement dates to quantify damages may lead to estimations of harm that are not based on market reality. For example, the Oxera study prepared in 2009 for the European Commission in the context of offering non-binding guidance for courts on quantifying antitrust damages, states: “[I]t may take some time for the cartel behaviour to unwind fully and for the market to return to non-infringement-based pricing. Indeed, in the case of cartels, unwinding may take a substantial period, since knowledge of business secrets revealed during the cartel period may persist for a long time.” There are a variety of reasons why official infringement dates are often not the same as the beginning or end dates of the anticompetitive effect. These include: Prices agreed during a cartel take time to be implemented, or become ineffective before the cartel ends, or take time to return to competitive levels after the cessation of the cartel; Extended explicit collusion after the official infringement end date; The official infringement period was subject to settlement negotiations between the respective competition authority and the cartelists; Extended tacit collusion after the official end date of the infringement; Medium and long-term contracts concluded under the cartel regime remain in place after the cartel; Reduced capacity and number of incumbents takes time to rebuild. The use of economic analysis to determine whether the effects of a cartel last longer than the official cartel duration is highlighted by the European Commission in its Practical Guide: “[O]ften doubt exists regarding the exact beginning of an infringement and, in particular, the effects it produces. (…) Econometric analysis of observed data can be a way to identify when the infringement’s effects started or ceased.” Cartel Dating by BBS The results of BBS’s analysis show that if incorrect cartel dates are used in multivariate regression models to quantify overcharges an effective bias is introduced leading to an overestimation of counterfactual prices and an underestimation of overcharges. According to BBS, this bias can be mitigated by determining the effective dates in a more precise manner. To avoid such a bias BBS uses formal statistical tests for multiple structural change which were developed by Bai and Perron (1998, 2003). These tests determine the number and dates of the effective cartel periods in a price time series by estimating structural breaks in the specification, such as those caused by a switch from competition to collusion, and vice versa. The estimated breaks in the time series are interpreted as the dates when the cartel started to become effective or began to lose its effectiveness. An alternative cartel dummy regressor is constructed conditional on the estimated number of breaks and estimated break dates. This cartel dummy is then used in the regression analysis instead of the official cartel dates to estimate the cartel effects. The actual effects of the cartel are therefore established including whether these effects were continuous or instead consisted of multiple collusive episodes with intervening competitive periods. Application to Market-wide Data BBS apply their structural break approach to a monthly average sodium chlorate price series which was constructed by standard methods from invoice data of over 34,000 individual transactions between customers and suppliers of sodium chlorate representing about 45% of total European demand during the relevant period. The use of such market-wide data serves as a reliable basis for a robust analysis. The model also includes the primary factors known to determine price in the sodium chlorate industry such as demand, production capacity, and the cost of electricity and labour. The empirical findings corroborate the theoretical results. When using the official cartel dates the model returns coefficients of these explanatory variables that are all insignificant whereas when applying the effective cartel dates instead, all coefficients have the expected sign with capacity and electricity costs the most important determinants of price as expected. The graph below is a reproduction of Figure 3 in BBS’s publication. It shows the actual sodium chlorate price (solid line, p), together with the counterfactual price using the effective cartel dates (short-dashed line, bfp) and using the official cartel dates (long-dashed line, bfpo). The results from using market-wide data demonstrate that the cartel resulted in a single and continuous period of cartel effects. While the cartel became effective not long after the official start date (left vertical dashed line), overcharges extended for a long period after the end date of the cartel referenced in the Commission Decision (right vertical dashed line). In this example, the impact of using the incorrect official dates is an underestimation of overcharges by more than 25%. This considerable difference clearly shows the problematic effect of mis-specifying the cartel start and end dates. The largest part of this difference is due to the official end date falling before the effective end date. Conclusion Given the valid reasons to suspect official cartel dates are more legal formality rather than economic reality, the publication by BBS on cartel dating is a very valuable addition to economic literature on the quantification of overcharges and the effectiveness of cartels. The publication demonstrates that
A new specialised court in town: the Netherlands commercial courts
The Netherlands is an established jurisdiction for bringing European follow-on damages procedures. Examples include the Sodium Chlorate, Paraffin Wax and Truck cartel cases. Cartel-damages cases are perfect examples of international disputes in which either the claimant or defendant, or both parties, are foreign companies coming from several European Member States. To illustrate by an example, the Sodium Chlorate case started as an action for damages against the three members of the European wide cartel by CDC Cartel Damage Claims. The action consisted of damages of ten pulp and paper companies with 27 production sites located in nine European countries representing almost half of the overall European demand for sodium chlorate. The popularity of the Dutch jurisdiction for bringing follow-on procedures is due to its many positive features, such as efficiency, high quality and low costs. The jurisdiction however also has disadvantages, such as the leading litigation language – Dutch – which is understandably not everybody’s first or second language and the fact that the procedures can take place in several general courts. The first disadvantage leads to unnecessary costs as a consequence of the many translations that must be completed and interpreters that need to be hired. The legislative bill, which was accepted by the Dutch House of representatives in March 2018 and approved by the Dutch Senate on 11 December 2018, will greatly improve this. The bill involves the introduction of two specialised chambers of the Amsterdam District Court and the Amsterdam Court of Appeal (Netherlands Commercial Court [NCC] and Netherlands Commercial Court of Appeal [NCCA]) focussing on international trade disputes with specialised judges, including in competition law, having the possibility to conduct the legal proceedings in English. The future judges and staff of these specialised chambers will be selected from all Dutch courts for their specialised expertise as well as their fluency in the English language. Not all disputes can be heard before these courts. The requirements to be fulfilled include the fact that the dispute needs to have an international component, both the claimant and defendant must agree with filing the case at the NCC and NCCA and the claims should exceed EUR 25,000. The court fees for these procedures are higher than regular proceedings before Dutch courts. The reason for this is that the Dutch Government wants to offer the procedure cost-neutral on the total budget for the judiciary thereby preventing that the costs will be paid by the Dutch taxpayer. The proposed court fee for the NCC will be EUR 15,000 and for the NCCA EUR 20,000. Although Dutch is no longer the litigation language, both parties will be represented by at least one attorney admitted to the Dutch Bar. In addition, if the procedure would continue to the Dutch Supreme Court which remains the court of highest instance, litigation before the Dutch Supreme Court will still take place in the Dutch language. Non-Dutch claimants and defendants will view this development in a very positive light further enhancing the attractiveness of taking cases the Netherlands. by Annalies Outhuijse
Jurisdiction of national courts in case of follow-on damages claims
The jurisdiction of the national civil court is often questioned in cases concerning EU-wide follow-on damages claims. In its judgment of May 2015, the European Court of Justice (ECJ) in Case C-352/13 – CDC HP confirmed that the national court under the Brussels I Regulation (Brussels I) is in particular competent to hear and adjudicate the case at the place where (1) one cartel member has its seat (anchor defendant in the case of multiple defendants), (2) the cartel or the behaviour which implied the existence of the cartel was concluded, or (3) the damage occurred, notably the seat of the victim. Case law from the Netherlands, for example in the Parrafin wax and Sodium Chlorate cartel rulings, show that the Dutch courts use a broad interpretation of these criteria and do not easily consider themselves incompetent to hear a case. The ruling of the Amsterdam District Court of 9 May 2018 in Heineken (ECLI:NL:RBAMS:2018:3203), concerning an abuse of dominance case, is an example of a Dutch court declaring itself incompetent regarding one of the defendants. Macedonian Thrace Brewery S.A. vs Heineken N.V. & Athenian Brewery S.A. The case concerns a claim for damages resulting from an abuse of a dominant position by Greek beer brewer Macedonian Thrace Brewery (MTB) against both rival Athenian Brewery (AB) and its Dutch parent Heineken. The claimant requests the establishment of the defendants’ obligation to pay damages of more than EUR 100 million for AB’s abuse of a dominant position on the Greek beer market. The case follows on from a fine imposed by the Hellenic Competition Commission (HCC) on AB of EUR 31.5 million for using anticompetitive exclusivity and loyalty rebates at wholesale and retail level between 1998 and 2014. Even though the fine was only imposed on AB, MTB argued that Heineken and AB form one undertaking within the meaning of Article 102 TFEU because of the decisive influence that Heineken exerts on AB. Therefore, Heineken should be considered involved in the abusive practices of its subsidiary and held jointly and severally liable with the latter for damages. The main question in this procedure was whether the Amsterdam District Court had jurisdiction to rule on the claims against both Heineken and AB. The District Court of Amsterdam ruled that, according to Article 4 Brussels I governing jurisdiction in civil claims in the European Union, the court has jurisdiction over the claims against Heineken since it is headquartered in the Netherlands. This is different for the Greek subsidiary over which the Dutch courts have no jurisdiction pursuant to Article 4 Brussels I. Further, the requirements to establish jurisdiction on the basis of Article 8 Brussels I, which MTB plead for, were according to the District Court not met. MTB argued that jurisdiction based on Article 8 could be established as there are multiple defendants, one of which is seated in the forum state and there is a sufficient close connection between the claims against all defendants. While referring to the judgment of the ECJ of 13 July 2006 in Case C-539/03 – Roche Nederland, the Court states that the requirements of Article 8 are fulfilled where combining cases would prevent the risk of irreconcilable judgments from separate proceedings, provided the claims arose in the context of the same facts and law. However, the Court held that these conditions were insufficiently substantiated by MTB, in particular regarding the involvement of Heineken in the infringement, and therefore declined to accept jurisdiction in relation to the claims against the Greek subsidiary. MTB mainly referred to HCC’s fining decision, while Heineken was not an addressee of the HCC decision, nor explicitly mentioned in the decision as being directly involved in the Greek infringement. As the District Court concluded differently for the claim against Heineken, the procedure against Heineken will continue on the merits in the subsequent procedure. The District Court will have to explore the liability of Heineken as a parent company for the conduct of its Greek subsidiary AB. The judgment shows that plaintiffs must sufficiently substantiate claims where they are also directed against defendants which have not yet been found by a competition authority to have infringed competition law. We will report about any further developments. by Annalies Outhuijse