Funding Anti-Cartel Cases
A draft European Directive on private competition actions has warned the funders of such claims to stay away. But they’re up for a fight. Edward Machin reports.
European competition law often gives prosaic names to instances of widespread corporate wrongdoing: the bathroom fittings cartel; the candle wax case; the gas cartel. Yet behind such nomenclature often lies huge penalties for anti-competitve behavior by the continent’s largest companies.
The European Commission, the EU’s executive arm, has issued EUR 8 billion in fines since 2008, in 39 successful prosecutions. For most European citizens, however, recouping competition damages from member states court has proven incredibly difficult, if not impossible.
The Commission is now looking to change that.
In June 2013, it proposed a Directive on damages actions for breaches of EU completion law, citing shortcoming in member state’s legal framework that has made it « excessively costly and difficult » to bring actions.
« Infringements of the antitrust rules cause serious harm to European consumers and businesses, » said the Commission’s vice-president, Joaquín Almunia, the man responsible for EU competition policy, when announcing the legislation.
« We must ensure that all victims of these infringements can obtain redress for the harm they suffered, especially once a competition authority has found and sanctioned such a breach, » Almunia added.
« It is true that the right to claim compensation before national courts exists in all EU member states, but businesses and citizens are not always able to exercise it practice. [This] proposal seeks to remove these obstacles. »
Great news for those who suffer at the hands of big business – if they’re paying attention, that is. “This development is certainly going to foster the awareness of victims of competition and cartel abuses,” says Frédéric Pelouze, who left Bredin Prat in April 2012 to found Alter Litigation Funding in Paris. « After all, most people don’t check whether the EU or a national competition authority has decided that a cartel acted unlawfully. With greater awareness comes a market for claims, » he adds.
There’s just one snag: the Commission says it doesn’t want third party funders bankrolling competition actions. That hasn’t stopped at least a dozen companies offering to fund mass claims in Europe – from Omni Bridgeway and East West Debt in The Netherlands, to Claims Funding International in Ireland and Calunius Capital in London. All are active in the competition space, whose principal player, Brussels-headquartered Cartel Damages Claims, is currently pursuing five damages actions across Europe worth EUR 500 million.
Such developments haven’t gone unnoticed by Antoine Winckler, a partner at Cleary Gottlieb in Brussels who specialises in European competition law. But while Winckler says consumer-focused organisations across the continent have also been buying up claims, with those in Germany and Belgium showing a particular appetite for cartel cases, commercial funders are still met with suspicion.
« The EU draft Directive frets about funding and the potential for abusive claims, but I don’t see why these types of actions should be treated differently, » says Susan Dunn, co-founder of Harbour Litigation Funding, a UK-based funder which has backed class action suits in Europe, Canada and New Zealand. Moreover, the businesses accused of cartel behaviour are generally larger and more sophisticated than the average defendant, meaning that « if the claim was being run improperly their lawyers would find that out immediately, » says Dunn.
Other funders say they are helping to combat widespread European cartel activity, thereby ensuring better corporate behaviour. Peter Koutsoukis, Claims Funding International’s managing director, explains that the attraction of funding cartel claims is twofold: a « decent return on investment, » but also « establishing a deterrent to cartel behaviour. » Koutsoukis, who has spent nearly three decades at leading Australian claimant firm Maurice Blackburn, which is « indirectly associated » with CFI, adds: « The level of cartel activity in Europe compared to other places is scandalous. We suspect that this is partly due to companies’ knowledge that victims have no means of redress.»
Show me the money
Funders are attracted to competition cases because they’re more likely to settle than individual commercial actions. To that end, Joaquin Almunia recently predicted that « around half » of the Commission’s cartel cases would ultimately be settled. Yet only 25% of competition infringements found by the Commission in the last seven years have been followed by civil actions. That means there’s no shortage of victims for the funders to befriend.
The defendants in such cases have strategies of their own, however. According to Winckler, lawyers for the cartel members will attempt to disqualify the claim by demonstrating that that the funder has not directly sustained damage, or that the acquisition of the claim is invalid. « Specific arguments that wouldn’t otherwise exist, but the substance doesn’t change, » he says.
Ombline Ancelin agrees. An EU competition and regulatory partner at Simmons & Simmons in Paris, Ancelin says « there would be a strategic point to be made » that the national representative organisations which can bring claims on behalf of consumers may not have the financial resources to run a lengthy litigation process to its end. She notes that of the six associations representing consumers in France, only two have deep enough pockets to bring a claim.
That’s not a problem for the private financing firms, many of which have hundreds of millions of euros to invest in a range of commercial claims, including the competition matters they see as particularly attractive. « The budget for every case we fund extends to the end of trial. We don’t make exceptions just because, statistically speaking, competition cases settle more often, » says Susan Dunn.
More of the same
Whatever the Commission’s feelings on litigation funders, they’re clearly in it for the long haul. As are private competition and class action claims. The Commission said in June that its latest Directive aims to remove « all practical obstacles to compensation for all victims of infringements of EU competition law, » whether the action is individual or collective.
Ancelin « definitely expects » to see more class actions, given the « tremendous push by competition authorities in Europe to encourage private enforcement » against blue chips and SMEs alike. « There is a clear view by most member states that class actions are a good thing, but they are being very cautious about how they implement the regime so it doesn’t end up like in the US, » she adds.
Although litigation finance is established to varying degrees in England, Germany, Ireland, Poland and Switzerland, it’s by no means a pan-European development. For example, the pending French class action Bill – which is expected to be introduced by the end of the year, and applies only to consumer claims – makes no mention of funding. Pelouze thinks that’s a mistake, given that his industry provides a « great tool » to enable consumers to receive access to justice. That premise has long been accepted in Australia, whose litigation funding and class action industries are arguably the world’s most advanced (see article on page 52).
« The Commission is implementing this class action regime as a deterrent to public enforcement. But there are still cartels, because the cartel members continue to make money from them, » Pelouze explains. « How do you make it more appealing? By making it easier for victims to receive damages. And how do you do that? By creating a market for justice to ensure those claims can be brought. Third-party funding is a very important tool in that landscape, because if you don’t have the money you can’t get the damages. »
« If this Directive is adopted there will likely be a development in funding, » says Cleary Gottlieb’s Winckler. « There have been a number of organisations launching in Europe to finance these claims, meaning this is bound to be an area of growth. »
Pelouze remains circumspect. He notes that many lawyers in continental Europe aren’t yet convinced about the merits of funding competition claims. But that’s hardly a surprise. « The top-notch law firms represent the cartel members; and even if they don’t, they’ll likely be conflicted because they represent the corporation in transactional matters, » Pelouze says. « I tell them that more victims will be coming forward, some of whom will be funded. They tell me that they’ll wait and see. »