European Union: Fines and Cartel Damages

In summary

The first part of this article highlights the recent case law of the European Court of Justice confirming the parameters the European Commission must adhere to in calculating fines and the ECJ Printeos judgment on the interest owed by the Commission when repaying a fine following annulment of a decision by the Court. The second part of this article focuses on cartel damages actions, including the recent Opinions of Advocate General Pitruzzella in Sumal and AG Richard de la Tour in AB Volvo. The latest developments on collective damages actions in the United Kingdom are also briefly discussed.

Discussion points

• Latest judgments ratifying the Commission’s parameters to calculate fines
• Obligation regarding interest payments when repaying fines annulled by the Court
• AG Pitruzzella’s Opinion in Sumal on subsidiary liability
• AG Richard de la Tour’s Opinion in AB Volvo on the competent court for damages actions
• Recent developments on collective damages actions in the United Kingdom

Referenced in this article

• Articles 101 and 102 of the Treaty on the Functioning of the European Union
• Article 7(2) of the Regulation (EU) No 1215/2012
• NKT judgment of 14 May 2020
• Pometon judgment of 18 March 2021
• Printeos judgment of 20 January 2021
• Silver Plastics judgment of 22 October 2020
• Skanska judgment of 13 March 2018
• Merricks judgment of 11 December 2020

Introduction

In the past year, the European Court of Justice (ECJ) has shed light on the parameters the European Commission (the Commission) must adhere to in calculating fines, including in respect of duration and gravity, as well as aggravating factors (NKT, Silver Plastics and Pometon). Those judgments include criteria for the Commission to follow when calculating fines for competition law infringements if it wants to avoid having its decisions annulled by the EU courts. In respect of the annulment of fines, the Commission may subsequently be obliged to follow the recent ECJ judgment in Printeos and reimburse both principal fine amounts and significant amounts of default interest.

Since the adoption of the Damages Directive^[1] and its subsequent transposition by the EU member states, private enforcement of competition law has picked up in Europe. In exercising their vital task of interpreting the rules of EU law, advocate generals have issued important opinions on key points of concern for national courts in private damages actions, most recently in the cases of Sumal, concerning the liability of a subsidiary to pay for damages caused by its parent’s competition infringements, and AB Volvo, concerning the jurisdictional issue of which national court is competent to resolve damages claims.

Finally, the article discusses recent developments in collective actions for damages in the United Kingdom.

Parameters for the Commission’s fine calculations

Recent ECJ judgments clarify the parameters of the Commission’s cartel fine calculations and serve to preserve the rights of defence of sanctioned parties.

In NKT,^[2] the ECJ partially annulled the judgment of the General Court (GC), including part of the single and continuous infringement (SCI) found against NKT, and exercised its unlimited jurisdiction to reduce the fine imposed (by €200,000) on the basis that the GC failed to verify whether the Commission had discharged its burden of proof in respect of NKT’s awareness of certain aspects of the infringement. In particular, the Commission did not adequately prove that NKT had been aware of the collective refusal to supply accessories and technical assistance to competitors not participating in the cartel, or that NKT could reasonably have foreseen such conduct, as part of the Commission’s SCI construct in accordance with Infineon Technologies v Commission.^[3]

Nevertheless, the ECJ clarified that the impact on the fine calculation of such partial annulment of the SCI, on the basis of NKT’s lack of awareness, did not undermine the other aspects of the Commission’s fine calculation (namely, the 19 per cent gravity percentage and the 10 per cent reduction on account of NKT’s limited participation as a ‘fringe player’ in the cartel). In the ECJ’s view, the reduction of the fine was related to a partial annulment concerning only limited aspects of the SCI and, therefore, did not call into question other elements of the Commission’s fine calculation.

In Silver Plastics,^[4] the ECJ dismissed Silver Plastics’ appeal against the Commission’s decision imposing fines for its participation during certain periods of the infringement in the retail food packaging cartel. In particular, it held that the GC had correctly demonstrated an ‘overall plan’ to validly establish an infringement for the period from June 2002 to August 2004, to the extent that the two products subject to the infringement were both included within it and, therefore, formed part of one SCI, which commenced in June 2002, and the duration multiplier applied to calculate the fine was, therefore, correct.

Despite the fact that the first meeting that specifically concerned the second product took place later (in August 2004), the Commission was nonetheless correct in taking the earlier June 2002 date as the infringement start date in light of: (1) evidence illustrating Silver Plastics’ participation in an anticompetitive meeting on this date; and (2) the established ‘overall plan’ in respect of both the products, and, therefore, the one SCI.

The ECJ held that the GC had correctly included in the fine calculation the turnover generated by its parent entity, despite the turnover being related to a business activity that was subsequently transferred to a third party a few days before the adoption of the Commission’s decision. From a practical perspective, the ECJ considered that to maintain the effectiveness of the Commission’s penalties, it could not be accepted that an infringing undertaking could significantly reduce the fine amount imposed simply by transferring the sector of its business subject to a fine to a third party, therefore benefiting from the 10 per cent cap.

In its Pometon judgment,^[5] the ECJ annulled the GC judgment insofar as it had accepted the Commission's application of a 75 per cent fine reduction to Pometon. Although the GC had exercised its unlimited jurisdiction to reduce the amount of the fine imposed on Pometon from €6.2 million to almost €3.9 million on account of the Commission’s failure to provide an adequate statement of reasons when departing from its fining methodology in accordance with paragraph 37 of the Fine Guidelines, in the ECJ’s view, Pometon’s conduct warranted a further €1.2 million fine reduction (bringing the total fine down to €2.6 million). In particular, the fine reduction granted by the GC was identical to that granted to another participant, Winoa; however, the ECJ held that Pometon had a more limited role overall in the cartel.

The ECJ also noted that the GC should have set out the reasons why, despite the differences between Pometon and Winoa, it was consistent with the principle of equal treatment to grant Pometon a rate of reduction identical to that granted to Winoa. The ECJ pointed out that while it is permissible, for the purpose of setting the fine, to take into account both the total turnover of the undertaking (which gives an indication of its size and economic power), and the proportion of that turnover that the products subject to the infringement represent (which gives an indication of the scale of the infringement), the GC should not place disproportionate importance on those factors compared to other factors, such as the company’s limited role in the infringement.

In summary, while NKT illustrates that the Commission must validly establish a party’s awareness for the purposes of adequately calculating its fine, Silver Plastics highlights that the Commission still retains some leeway in continuing to capture wider infringements under its SCI construct, leading to the possibility of continuing to impose high fine amounts in cartel cases. Pometon, as was the case in other ECJ judgments such as HSBC^[6] and Icap,^[7] serves as an important reminder of the Commission’s obligation to provide a sufficient statement of reasons when explaining its fine calculation and sets out the parameters of the courts’ consideration of such reasons when reviewing the fine.

Printeos: right to reimbursement of fines and interest rates originating from annulled decisions

Printeos has established the Commission’s obligations in repaying annulled fines. In this case, the ECJ confirmed that the applicant was entitled to repayment of the annulled fine amount together with the interest generated for the period between the payment of the fine by Printeos and the EC’s repayment of the fine post-annulment, as well as additional compound interest on the interest amount.

In particular, the ECJ explained that interest amounts are generated in line with the Commission’s obligations to adhere to court judgments annulling fines under article 266 of the Treaty on the Functioning of the European Union (TFEU).

Specifically, in Printeos, the ECJ held that the Commission was obliged to pay to the applicant:

• interest generated at the European Central Bank refinancing rate in the month of the adoption of the Commission’s decision (the ECB rate) plus 2 per cent per annum, for the period between the payment of the fine by Printeos and the Commission’s repayment thereof (default interest); and
• additional compound interest on the default interest, at a rate of the ECB rate plus 3.5 per cent per annum, for the period from the date of Printeos’s action before the GC until the date of payment of the default interest.

By simply reimbursing the €4.7 million fine amount Printeos had paid without the payment of any additional interest, the ECJ held that the Commission had breached its duty under article 266 of the TFEU, clarifying that the payment of interest was an absolute and non-discretionary part of the Commission’s obligation under this provision.

While the exact practical impact of the Printeos judgment is yet to be seen, the ruling has the potential to render the Commission liable for significant amounts of either new, previously unpaid interest payments or additional interest payments where it previously repaid some minor guaranteed investment returns, when cartel fines imposed by it are successfully annulled.

Private damages claims

Sumal and the right to ask for downward liability

The European Union uses the concept of single ‘undertaking’ in its enforcement against cartel activity under article 101 of the TFEU, a construct defined by reference to an entity’s economic activity rather than its legal or corporate status. As a result, multiple entities may be legally separate, but considered to form one and the same ‘undertaking’ under EU competition law if they form an economic unit within which a subsidiary has no real freedom to determine its course of action on the market.

The European Union has consistently taken an expansive approach to parental liability for antitrust infringements, using the notions of ‘single economic entity’ and ‘single undertaking’ to presumptively establish such liability – a presumption that has become increasingly difficult to rebut.^[8]

In its Skanska judgment, the ECJ ruled that determining who is liable for an infringement of article 101 of the TFEU as well as the assignment of liability to the relevant undertaking^[9] ‘is directly governed by EU Law’,^[10] including in the context of private actions or actions for damages following a decision by the Commission. Importantly, it held that the concept of a single economic entity and infringement liability arising out of the concept has the same meaning in both the public and private enforcement context; in other words, it held that all the case-law clarifications in public enforcement cases in respect of the single undertaking principle must also be applied to private enforcement cases.^[11]

However, one question that has recently arisen in respect of parental liability is whether a subsidiary has liability for an infringement carried out by the parent company. This question has been raised in the pending preliminary ruling in Sumal, which originates from a national damages action brought by Sumal before a Spanish national court against Mercedes in the context of the Commission's decision on the trucks cartel.

On April 15, Advocate General (AG) Pitruzzella proposed, in his opinion in Sumal, that EU law does not prevent the attribution of liability on a subsidiary, despite the fact that only its parent company has been sanctioned by the Commission. He notes that joint liability is based on a unity of action in the market (ie, that all companies acting within the ‘union’ may, under certain conditions, be liable for the same anticompetitive behaviour. In the AG’s opinion, the Commission does not need to probe the specific involvement of the parent company in the infringement to determine whether the company can direct the conduct of its subsidiary to such an extent that the two must be regarded as one economic unit, and both liable for the relevant infringing conduct.

The AG, therefore, confirms that a subsidiary can be held liable for a parent company’s infringing conduct, including specifically within the context of national damages claims, provided that two conditions are satisfied:

1. the parent company and its subsidiary form a single economic unit, with the economic, organisational and legal links having been established between them at the time of the infringement; and
2. the conduct of the subsidiary contributed in a substantial manner to the infringing behaviour of the parent and to the effects of the infringement.

AG Pitruzzella recognises that in practice, this finding means that claimants could theoretically bring claims against, and national courts could impose liability on, subsidiaries of infringing parent companies in follow-on cases, even if the subsidiaries are not specifically identified in the relevant Commission decision. This may, in turn, encourage claimants to sue subsidiaries active in their countries of domicile and thus avoid, for instance, the difficulties often associated with pursuing damages claims in third-party jurisdictions (eg, translation costs, higher procedural costs or corporate restructurings).

One practical issue, however, is whether the claimant will be able to probe the participation of the relevant subsidiary in the conduct to satisfy point (2) above (ie, establish that the subsidiary has contributed in a substantial manner to the infringement and its effects) – particularly if the Commission was not able to do so.

In any case, companies should be aware of the continually expanding scope of parental liability for cartel infringements in the European Union, which may well include the potential for a subsidiary to be held liable for its parent’s conduct (rather than purely vice versa) if the ECJ judgment currently pending follows AG Pitruzzella’s opinion in Sumal.

Competent court: (re)-interpretation of Brussels Regulation in AB Volvo?

One week after the AG Opinion in Sumal, AG Richard de la Tour presented his opinion in the AB Volvo case^[12] in respect of another important jurisdictional issue in the context of damages claims, namely whether article 7(2) of the Brussels Regulation^[13] designates the appropriate forum in which national damages actions must be brought.

The case concerns RH, who brought a claim for damages against AB Volvo and its Spanish subsidiary from which it purchased five trucks between 2004 and 2009. Volvo, as well as MBTE, was one of the 15 trucks manufacturers fined by the Commission in its trucks cartel decision for having participated in collusive arrangements on the pricing of trucks between 1997 and 2011.

Volvo challenged the jurisdiction of the referring court on the basis of its competence to hear RH’s claim under article 7(2) of the Brussels Regulation. Under this provision, jurisdiction in respect of tortious claims is deemed to arise in the ‘place where the harmful event occurred or may occur’. Volvo argued that this is a European concept that comprises the place of the event causing harm – in other words, the place where the truck cartel was formed (outside Spain), rather than the location of the plaintiff’s domicile.

On this basis, the AG proposed that specifically in the context of an action for damages caused by an infringement of article 101 of the TFEU comprising, in particular, collusive agreements on fixing and increasing prices of goods, the place where the damage materialises is the member state of the market affected by the infringement (ie, the market in which the overcharges have been suffered). The competent court is, therefore, located in the place where the trucks were purchased, if the claimant is active in the same member state.

If the place where the damage occurred and the place where the claimant carries on his or her business are different, the claim may be brought before a court in the jurisdiction of the claimant’s headquarters rather than in the location where the damage occurred – otherwise, in the AG’s view, the objective of proximity under the Brussels Regulation would not be met (ie, a claimant would otherwise need to bring an action before the national court of each member state where trucks were purchased, despite not having any activity in those member states).

The AG also noted that member states are entitled to establish specialised national courts for the purposes of dealing with specific types of damages claims, subject to compliance with both the principles of equivalence and effectiveness (ie, not to undermine the effective application of articles 101 and 102 of the TFEU).

Like AG Pitruzzella, AG de la Tour seems to be promoting private enforcement by introducing criteria that should make it easier in practice for claimants to bring claims in their local courts and to access evidence. However, equally, if the ECJ were to rule in accordance with AG de la Tour’s findings, this could have an unfair outcome for claimants who are active and suffered loss at various locations, as they may be required to file separate claims in those different jurisdictions rather than aggregating their damages claim in a single action.

Collective actions in the United Kingdom

In collective actions, multiple claimants with the same or similar claims seek a remedy against the same defendants. The Damages Directive, in respect of collective damages, is incorporated into UK law by the Consumer Rights Act 2015. Under the Act, claims for breaching competition rules can be brought on either an opt-in basis^[14] or an opt-out basis^[15] in the Competition Appeal Tribunal (CAT).

The CAT must grant a collective proceedings order (CPO) before a collective action can proceed. To do so, it must be satisfied on two main criteria:

• the collective proceedings must be just and reasonable for the person seeking to act as representative to be authorised to do so, to the extent that it has a genuine interest in the claim; and
• the claims must be eligible for inclusion in collective proceedings.

Collective proceedings can be either stand-alone (ie, without being based on an underlying infringement decision) or follow-on (ie, based on an underlying infringement decision) and can be brought on behalf of both individuals and businesses.

UK collective actions: landmark judgment in Mastercard v Merricks

In December 2020, the UK Supreme Court issued its first judgment in relation to collective proceedings under the Consumer Rights Act 2015, in Mastercard v Merricks.^[16] The Court raised important questions about the legal framework of this procedure and ruled that the case was suitable for hearing under the collective proceedings regime.

The case concerned Merricks, a former financial ombudsman, who brought an action in the CAT claiming roughly 46.2 million UK consumers suffered losses as a result of ‘interchange fees’ imposed by Mastercard on the use of debit and credit cards between 22 May 1992 and 21 June 2008.

In assessing whether the requirements for a CPO were met, the CAT held that although the first criterion was satisfied (ie, Merricks could act as a representative), the second criterion was not. Specifically, the CAT ruled that the claims were not eligible for inclusion in collective proceedings to the extent that:

• they were not suitable for an aggregate award of damages;
• the impact of the overcharge on consumers, if any, would differ between traders and was, therefore, not a ‘common issue’; and
• there was no way to apportion any damages award in such a way as to properly compensate affected consumers.

In its judgment, the Supreme Court held that the CAT erred in finding that the second criterion was not met, holding the following.

• The CAT gave too much weight to the fact that the case was not suitable for aggregate damages and should have applied a relative suitability test, taking into account whether individual proceedings were a relevant alternative.
• While it is true that the present case may involve difficulties in quantifying losses (eg, some data may be incomplete and difficult to quantify, and collection of the data may be burdensome and costly), those are difficulties that the CAT should be able to overcome. Further, such practical difficulties cannot justify denying a trial to an individual or large class with a reasonable prospect of a successful legal challenge.

As stated by Lord Briggs in Merricks: ‘A central purpose of the power to award aggregate damages in collective proceedings is to avoid the need for individual assessment of loss.’ The Supreme Court’s judgment in Merricks, therefore, paves the way for future UK collective actions in the CAT and comes at a time when there has been an increase in collective claims in the UK more generally, particularly in the areas of consumer protection, data protection and environmental law.

Notes