With the trickle of follow-on damages claims after high-profile competition investigations threatening to become a flood, Dominic Carman examines how firms are preparing their clients for battle
‘We have talked about competition litigation emerging as a work stream in civil litigation for a long period of time, but we have seen a real boom in activity over the last few years,’ says Francesca Richmond, partner at Baker McKenzie. ‘Defendants to regulatory investigations should now expect civil claims to be filed against them and account for that in their overall strategy.’
There has been a significant increase, according to Sarah Lee, head of Slaughter and May’s dispute resolution group. ‘What may start as an investigation – an EU Commission investigation or a Competition and Markets Authority investigation – can then turn into high court litigation, or with the changed rules for class actions in the competition space, the ability to bring collective proceedings in the Competition Appeal Tribunal.’
Nick Heaton, head of Hogan Lovells’ competition litigation practice in Europe, says: ‘Competition litigation has really taken off. As things have developed, the US claimant law firms became involved, consolidating lots of claims, even before the existence of the formal class action regime which we now have, and that has driven the market to a further high.’
Underpinning their critique, there has been a good flow of litigation involving cartels, price-fixing and abuse of dominant position (Article 102 TFEU – Treaty on the Functioning of the European Union). In a landmark case last July, the Court of Appeal held that Mastercard and Visa’s interchange fees constituted a restriction of competition prohibited under Article 101.
‘Mastercard and the recent decision in the Mobility Scooters opt-out show us a direction of travel in [class action] certification,’ says Richmond. ‘Even though neither got to a landing point, there are some strong hints as to how certification and other matters might be treated with a steer toward the more generous Canadian approach. The CAT will be trying to encourage collective actions to take off and we will see that tested in the pending Trucks and London & South East Railway class action applications.’
‘Historically, claims under competition law have been too expensive and complex for individual consumers to consider.’
Elizabeth Morony, who leads the global antitrust litigation group at Clifford Chance, says: ‘In terms of cartel damages claims, the more interesting side of Article 101, follow-on claims after a decision are now pretty standard: most cartels that have been investigated and have a decision taken against them, whether by the Commission or the CMA, are likely to see follow-on damages cases.’
Last December, the CAT approved two applications to commence collective proceedings – comparable to US class actions – on behalf of UK truck owners: UK Trucks Claim Ltd v Fiat Chrysler Automobiles and Road Haulage Association Ltd. Their applications will be heard in June.
‘These claims tend to be massively overstated at the beginning,’ says Morony. ‘Outside the UK, cases are being consolidated in jurisdictions like the Netherlands and Germany – there are hundreds of individual claims, causing some issues. Ultimately, these massive claims are being settled for a small percentage of the value that they’re originally claiming and a huge amount, supposedly, is getting back to the funders on insurance, some funding going to the lawyers. Who is benefiting? I am deeply sceptical about any alleged advantage to the consumer in these cases.’
Linklaters disputes partner Tom Cassels is sanguine about litigation funders. ‘Many of the cases we’re dealing with are funded. Right now, the money is chasing after cases rather than the other way around. The funders are part of our lives in a way they were not before. They want to have a relationship with us even though we are not buying their services, because they see themselves as part of this world. The sophistication of the funding world and the investment that’s been made in claimant law firms – there’s a strong correlation between the two things in the UK – means that the pipeline for competition litigation in this jurisdiction is likely to remain strong.’
Morony adds that ‘in damages cases under Article 102 it’s very difficult to show that you are suffering loss caused by the abuse rather than caused by poor management, particularly if you are a start-up. In the context of tech companies, challenging dominance would be a very difficult case to bring. Litigation funding is hugely important in the context of whether or not Article 102 litigation is going to grow.’
Historically, claims under competition law have been too expensive and complex for individual consumers to consider. Collective proceedings were made possible by the Consumer Rights Act 2015, which aims to remove those barriers. Since then, five applications have been made, of which two have been heard: both failed for different reasons. Cassels notes: ‘We haven’t got a collective action that has got through our equivalent of class certification: the mobility scooters case didn’t work, and the interchange fees case has not yet worked. That said, some of the issues that were potentially difficult for claimant law firms have been resolved in their favour. In the cases that failed, the CAT was almost going out of its way in the judgments to explain how the right claim could work. There is clearly a fairly strong policy driver around trying to get class actions up and running and in this jurisdiction.’
Heaton concurs: ‘What the tribunal did in both of those cases and their judgments was very largely to decide the issues of principle in a way that is favourable to potential claimants and therefore paves the way for these claims to come in the future.’
Richmond is also optimistic about what collective proceedings will mean for competition litigation work. ‘We’re going to see continued growth. There is momentum: we will see the burst of activity that people have been predicting for several years. We’ve finally got through the difficult terrain of procedural uncertainties: are competition damages actually something people can recover and where it’s sensible to invest on a litigation funding front?’
‘We’re going to see continued growth. There is momentum: we will see the burst of activity that people have been predicting for several years.’
Francesca Richmond, Baker McKenzie
In terms of sectors, she suggests that ‘the industrial, manufacturing and construction cases tend to be more straightforward in terms of the analysis of damages when it comes to arguing these cases. It’s easier to peg a value of overcharge against tangible goods. The air cargo and trucks cases are going to be the bedrock of litigated cases, but we will also see more complex products – for example, financial instruments such as bonds – being subject to litigation as the market continues to grow.’
In January, antitrust and competition claims were filed by Quinn Emanuel Urquhart & Sullivan in London and New York on behalf of investors over the manipulation of the $5.3tr foreign exchange market. Together with Hausfeld, they are seen as ‘very much the leaders on the claimant side,’ says Morony. ‘They’re driving the development of collective actions in this context because they’re the ones bringing the claims.’ She points out that ‘the Commission rejected an Americanisation of the process – the directive on damages is based far more on English than American court processes. Specifically, it took elements of the English court process and introduced them to antitrust litigation across Europe – most obviously, disclosure.’
Richmond adds: ‘The US class action mode tends to be: “We’ll get this filed, then do our due diligence on the class and establish whether there’s potential for certification and a claim to be litigated”. That is not the case outside the US and so it may be more difficult for claimant firms to demonstrate value to funders or sign up a portfolio of claimants to drive the action. It’s also more difficult to negotiate a resolution if that is simply being used as a standard to attract other claimants, including those who otherwise would not have considered themselves harmed or chosen to litigate the matter.’
She points to the challenge in ‘coordinating a multi-jurisdictional litigation strategy in circumstances where you may well also be defending ongoing regulatory investigations. European investigations often can be slower paced than the US and follow-on litigation also tends to be initiated at a later stage – as compared to the US where litigation often is initiated before investigations are finished.’
The big question, she adds, ‘is where is the right place to litigate, and whether you can recoup all of your damage in one place. You may well get a bubble up of claims in the US that then ripple out with the potential for litigation in the UK, the Netherlands, Germany, and perhaps Italy. All have advantages and disadvantages in litigation – with the Netherlands’ introduction of collective litigation later this year likely to be pretty generous in approach and another draw for potential claimants’.
See ‘The future of competition and consumer litigation – a brave new world?’ by Baker McKenzie