BritNed: the English Court delivers judgment in follow-on cartel damages action

The English Court has delivered judgment in the BritNed v ABB litigation, the first occassion on which it has awarded damages in a follow-on cartel damages claim.

On 09 October 2018, the English Court handed down its first judgment in a cartel follow-on damages claim, ordering a Swiss engineering company, ABB, to pay over €13m in damages to BritNed as a result of ABB’s involvement in a cartel for submarine power cables1.

Follow-on damages claims may be brought in the UK by parties who have suffered loss due to an infringement of competition law identified in a decision by either the European Commission (Commission) or a National Competition Authority (such as the CMA). This judgment, delivered by Mr Justice Marcus Smith, is currently the only instance in which the merits of such a claim have been fully analysed by the English Courts. It therefore provides a new insight into the approach which English judges may take towards the assessment of damage arising from competition law breaches in the future. This is of particular interest given the attractiveness of England as a forum in which to bring follow on damages actions.

Background

In April 2014, the Commission issued a decision in which it found that a global cartel had existed in the market for underground and submarine (extra) high voltage power cables between 1999 and 2009 (Decision AT.39610) (the Cartel). The Defendants, ABB AB and ABB Ltd (together, ABB) were two of the undertakings found to have participated in this Cartel. Amongst other things, the cartelists agreed to allocate cable project bids in their home territory for which their peers would not meaningfully compete (either by submitting uncompetitive bids or refraining from bidding at all).

The Claimant, BritNed Development Limited (BritNed), owns and operates the Britned Interconnector - a submarine cable system connecting electricity systems in the UK and the Netherlands. After a tender process, BritNed awarded the contract for the construction of the Interconnector cable to ABB, such award taking place during the cartel period.

BritNed claimed three heads of loss, the main one being that it had paid more for the cable used in the Interconnector than it would have done absent the Cartel (ie that it was overcharged). Whilst ABB could not deny the existence of the Cartel and its participation in it, nor the fact that the Interconnector project had been allocated to it by the agreement of the Cartel members, it did dispute that this had ultimately caused any damage to BritNed.

The Court’s Decision

Notwithstanding the Cartel, the Court did not consider that ABB’s involvement had resulted in a direct overcharge to BritNed in relation to the Interconnector because, in simple terms, the individuals at ABB with the most direct responsibility for negotiating with ABB were unaware of the Cartel and the fact that the Interconnector project had been allocated to ABB. They therefore made an “honest and competent” bid. The fact that the Cartel’s anti-competitive actions may have caused damage in the market in general terms did not preclude BritNed from having to prove that the Cartel led to an overcharge in relation to this specific project. The main element of the claim was, therefore, rejected.

However, BritNed did not leave completely empty-handed. Marcus Smith J. made a limited damages award relating to increased costs paid by BritNed which would not have been paid in the absence of the Cartel. These related to: (i) the “baked-in inefficiencies” of the Cartel which occurred notwithstanding the honesty of the ABB bid team in this instance, and (ii) the “cartel savings”, or costs savings, enjoyed by ABB as a result of not having to compete.

Key themes from the judgment

There was no presumption of overcharge:

The presumption that a cartel has caused loss or damage, which was introduced by the Damages Directive (Directive 2014/104/EU) and implemented in the UK by an amendment to the Competition Act 1998, did not apply to this claim (it applies only to conduct arising after March 2017). BritNed argued, however, that the Court was nevertheless required to apply the presumption under the principle of effectiveness (which prevents national rules from making it excessively difficult to enforce EU law). The Court disagreed, its logic being that if BritNed’s argument was correct there would have been no need for the position to be enshrined in legislation. The Court preferred to assess whether an overcharge had actually occurred, by reference to the facts of the case.

Knowledge of the Cartel was attributed to individuals:

A deciding factor in the Court’s finding that there was no overcharge was its conclusion that the key individuals responsible for bidding for and negotiating ABB’s deal with BritNed had no knowledge of the Cartel. The Court did not consider that ABB’s employees who did have knowledge of the bid-rigging, one of whom was described as a “self-confessed cartelist”, were in a position to influence the bid which ABB made. It remained competitive and the existence of the Cartel did not, therefore, have a direct influence on this particular project.

The Court’s approach is understandable in circumstances where it was possible to isolate a single transaction and definitively identify the individuals involved and their roles. How far this will translate to a more typical claim, perhaps involving an allegation of damage arising from a series of hundreds or thousands of small, unmemorable transactions over a long period of time is hard to tell. In such cases it may well be more difficult to trace the knowledge and direct influence of individuals within an undertaking back to individual transactions, although it may equally be easier to convince the Court of the impact of the general influence of such individuals when it is not limited to consideration of a single project.

The Commission’s Decision bore limited weight:

Whilst the status of the operative part of the Commission’s Decision was not capable of being challenged, the Court attached limited evidential weight to the non-binding recitals. The Decision did not deal in any detail with the BritNed Interconnector project. As the Court was concerned with damage caused in relation to this project and not in general terms, it placed more weight on the factual and expert evidence before the Court relating to the Interconnector project.

Analysing the economic evidence: fact-based analysis was preferred to complex economic theories:

The Court considered at length the expert evidence put forward by both parties. The two experts took very different approaches with the result that whilst BritNed identified a 20 - 25% overcharge, ABB concluded that there had been no overcharge at all. It is worth noting that the Court was very willing to engage in detailed economic analysis. It rigorously analysed the merits of each expert’s methodology, and ultimately preferred the approach taken by ABB’s economists because it relied upon actual data. BritNed’s economists, on the other hand, were found to have made excessive use of proxies in place of available data (despite their arguments that the data was unreliable) which resulted in a model that was “significantly more complicated” than that used by ABB.

It is not surprising that, when given the choice, the Court preferred to rely upon expert evidence that was more clearly grounded in fact. By leaning more heavily on factual than purely economic analysis, this arguably places cartelist defendants in a stronger starting position going into claims. There is because generally there is an information imbalance between parties to follow on damages actions, with defendants holding significantly more relevant factual data (at least prior to disclosure). However, the availability of the factual evidence to build the economic model was always going to be easier in a claim that related to a single transaction.

Conclusion

This decision represents a limited victory for BritNed, who were awarded only a fraction of the €180m sought. Britned have subsequently appealed. This is perhaps not surprising - it is an interesting feature that even in a follow on claim, a Claimant who is awarded damages may nevertheless feel that the award is insufficient.

On balance, the judgement is defendant friendly. However, its wider impact is likely to be tempered because of the unusual facts - a claim relating to a single project. This is in contrast to a typical follow on cartel claim, which usually relates to sales of significant volumes of cartelised product over a lengthy time period.

Stop Press

At a hearing on 01 November 2018, Mr Justice Marcus Smith further reduced damages payable to BritNet to €11.7m to ensure that the award took account of potential losses BritNed made from a regulatory cap on returns, which he considered ABB should not have to pay.


1 Britned Development Limited v (1) ABB AB and (2) ABB Ltd [2018] EWHC 2616 (Ch)

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