OFT proposals risk disturbing the balance in damages claims
21 May 2007
On 18 April the Office of Fair Trading (OFT) published a discussion paper on the ways in which damages claims for breach of competition law could be encouraged. This follows a green paper on the subject published by the European Commission at the end of 2005.
It is now the accepted orthodoxy that claims for damages should be encouraged. This is not only so that those who suffer loss should be able to obtain compensation, but also so injured parties shoulder some of the enforcement burden. Given the historically low level of claims made, it is clear that some encouragement is required if this is to happen.
Following the Commission's initiative, the broad issues raised by the OFT's discussion paper are not new. It does, nevertheless, demand careful attention. Whereas the Commission's initiative may yet founder on the difficulties of making any proposals work in the different legal systems of 27 member states, the OFT's initiative only has to address the position in the UK, which is already more developed as far as competition damages claims are concerned. The OFT's initiative is, therefore, much more likely to come to something. It may also be a good indication of the direction in which the Commission is moving.
Although the discussion paper addresses familiar themes, such as facilitating collective claims and the interaction of claims with public enforcement, some of the proposals are likely to have far-reaching consequences. One proposal is to allow appointed bodies to bring claims on behalf of all relevant consumers except those who expressly opt out. This has echoes of US class actions, although the OFT says the involvement of a representative body that does not have a financial interest in the outcome is an important difference.
The paper also looks at ways to prevent claimants from being discouraged by the cost of bringing claims and the risk of adverse costs should they lose. It explores the possibility of allowing conditional fee arrangements with a much larger uplift for success than the 100 per cent currently permitted, and suggests that some of the uplift might be payable from the damages won.
In relation to adverse costs, it advocates capping the costs that a successful defendant can recover from a claimant at the outset of the case and moves away from the principle that the loser pays the costs.
Perhaps most controversial of all are the suggestions relating to 'passing on'. In competition damages claims it is often not enough for a claimant to simply show that the defendant's anticompetitive behaviour increased the price that the claimant paid for goods or services, as the claimant may in turn have 'passed on' some or all of the price increase to its own customers. The OFT proposes that it should be for the defendant to prove that the claimant has passed on the price rise and so suffered no loss. This would make it significantly easier for a claimant to prove it had suffered a loss, as it would only be required to show that it had paid an increased price.
The OFT's dilemma is that it wants to encourage competition damages claims, but wants to avoid the excesses of the US litigation culture, which in the antitrust area is fuelled by class actions, contingency fees and treble damages.
Even at their most extreme, the proposals in the discussion paper would not come close to replicating the circumstances in the US, but in some key areas they would alter radically the current balance between claimant and defendant. They could allow potentially enormous claims to be brought on behalf of large classes of consumers without their active consent.
A claimant's exposure to costs if their claim failed could also be significantly reduced. The risk of having to pay the defendant's costs has always been seen as an important factor in deterring bad claims in the English system, which is absent in the US. In some cases the claimant could even be relieved of having to prove some aspects of its loss. A defendant facing claims in these circumstances might be well advised to settle, whatever the merits of the claim.
There are already signs of more damages claims being made, including the first representative consumer claim under the current rules being made to the Competition Appeal Tribunal. Some encouragement may still be needed, but there is a risk that implementing all of the OFT's proposals would have unintended consequences. It would disturb the delicate balance between claimant and defendant in damages claims, where the object is to provide fair compensation and, in part, implement a policy of private enforcement - something for which civil damages claims are not designed.