Class actions: How court action can make you (or lose you) money

Joaquin Almunia, Vice-President of the European Commission responsible for Competition Policy recently outlined the next steps in the Commission’s intention to launch a public debate on the possibility of collective action at an EU level for competition infringements. The amount of unrecovered damages of infringements of EU antitrust law is currently estimated to exceed €20 billion per year, which means that law-breakers are “creaming-off” the extra profits, while society and the economy absorb this loss. It is also clear that, while the right to seek compensation has been firmly established, access to this right is not.

Moreover, businesses, and in particular SMEs, the backbone of our economy and job market, often suffer significant harm as a result of anti-competitive practices. As they often operate in highly competitive or difficult markets, they may well be the ones who have to absorb any extra cost resulting from upstream cartel infringements.

The European Court of Justice had already, in 2001 in the Courage ruling, highlighted the importance of having a legal regime whereby individuals could claim damages for loss caused to them by a contract or by conduct liable to restrict or distort competition.

Steps towards a legal framework granting the right to collective redress for competition infringements have long been in progress. They first saw the light of day in a Green Paper published by the Commission in 2005, followed by a White Paper which put forward suggestions to remove any obstacles that existed in national law. Subsequently, the Commission included collective redress in its new work programme for 2010 until finally last month the College of Commissioners discussed a joint information note signed by Vice President Viviane Reding, Health and Consumer Policy Commissioner John Dalli and Mr Almunia.

The aim is to have a general legal framework applicable throughout the EU, drawing, as much as possible, on the different national legal traditions, which will allow parties that have suffered damage to take private action for redress on a collective basis. The first step will consist of the launching of a public consultation commencing this month, which will gather views on collective redress rules across the EU. Following this, a stakeholder forum will be held in February 2011.

With this framework in place, the Commission intends to compile a specific legislative proposal for the different policy areas on antitrust damages actions in the second half of 2011.This may take the form of an EU-wide directive that specifies common standards and minimum requirements for national systems of antitrust damages actions.

The principles this initiative is intended to sustain include support for effective compensation for anyone who has suffered damages based on the idea that class actions are generally cheaper and more effective; opportunities to enhance an out-of-court settlement; the ability to enforce collective judgments throughout the EU; and adequate financing in order to give both citizens and businesses fair access to justice.

It is further proposed that there should be an “opt-in” or “opt-out” system according to which a decision only binds those who have expressly consented to the proceedings. While consumer groups are strongly in favour of this initiative, problems in the public debate may nonetheless arise due to the lack of appetite for the drawbacks of the US-style class-action model. Class action is an absolute must for individuals and SMEs that are not, given the current unfavourable balance between risk and award, making it to court unless their losses justify the costs of litigation and certainty of outcome. Businesses and citizens will therefore get the compensation they are entitled to on an equal footing across the EU.

As a corollary to this however, any fines, penalties and damages imposed on a business in breach of competition law – which are already quite substantial – could suddenly treble. This further strengthens the case for businesses to take the necessary legal safeguards and obtain proper legal advice to avoid any breach of competition law in their agreements and practices.

www.fenechlaw.com

The author is an associate at Fenech & Fenech Advocates.