Business opportunity

The European Commission (EC) and Office of Fair Trading (OFT) investigate cartels operating in Europe and sometimes fine the cartelists millions of pounds. However, this money does not go to recompensing the victims of the cartels, who must seek recovery through private enforcement before European courts.

In the last five years there has been much debate about the form that a distinctively EU private enforcement procedure should take. In this process, the interests of consumers and of business have often been viewed as separate. Whereas the EC and the OFT have primarily focused on mechanisms by which final consumers can recover their losses, groups such as the CBI (in its response to the OFT's consultation on private actions in competition law) have described proposed reforms as the 'importation of US-style class actions', leading to 'speculative claims and additional costs to businesses'.

Much has been said about the abuses of the US model into Europe. We are seemingly agreed on its excesses. This debate has ignored the harsh reality that cartels cause losses at all levels of the supply chain, so that large competitors, small and medium enterprises (SMEs) and consumers all suffer as a result of the cartel. The majority of business interests are not opposed to, but rather aligned with, consumers in the fight against cartels. Therefore, effective collective mechanisms for redress improve access to justice for consumers and businesses alike.

The real cost to business

Despite growing institutional support for private enforcement actions, a document leaked in early 2009 (the EC's draft Directive on Damages Actions for Infringements of Articles 81 and 82 of the Treaty) reported that the EC estimated that victims were not taking action to recover several billions of Euros each year in compensation. For many businesses, the unrecovered losses arising from overcharges levied by cartels has meant a loss of investment in capital, innovation and improvements in products and services.

The inertia in private enforcement activity has been attributed to a lack of awareness of legal avenues to recover losses, a lack of robustness from public regulators to prosecute anti-competitive behaviour (which is clearly now an issue of the past) and the technical difficulties and perceived risks in litigating claims (such as obtaining proof of secret cartel activity), some of which will persist in the absence of more proactive reforms.

Nonetheless a number of recent cases in England and Wales demonstrate that businesses can take action to recover losses in a cost-effective way.

A chance for recovery

A private action commenced in the US against BA and Virgin for fixing the price of fuel surcharges levied between April 2004 and September 2006 resulted in a groundbreaking settlement in 2008 to the tune of £73.5m, which allows those in the UK who purchased long-haul flights in the United States or United Kingdom to recover their losses. While many individual consumers and businesses have taken up the settlement, hundreds of businesses who are also eligible are yet to take action. This includes law firms, banks, accountants and other businesses that flew staff to and from the US during the cartel period. This is a perfect example of how private enforcement is erroneously perceived as being for the benefit of consumers only.

An action commenced in the High Court in London in July 2009 against Dunlop Oil & Marine Ltd for losses arising out of the Marine Hose cartel places the focus on recovery for business purchasers of the flexible rubber hose used to transfer oil between tankers and storage facilities and/or buoys between 1986 and 2007. Six months earlier, the EC uncovered the existence of the long-running cartel, finding that several suppliers had, among other things, fixed prices for a product that already represents a significant input cost for their customers' operations.

In July 2009, the day after the EC published its findings in respect of the cartel, a case against 17 companies in the Royal Dutch Shell and ExxonMobil groups was brought in the High Court by several European purchasers of wax seeking to recover their losses from the Paraffin Wax cartel that operated between 1992 and 2005.

Proceedings have been issued in the High Court against BA in the Air Cargo cartel, in which it conspired with over 20 leading airlines to fix the price of air freight. Any business that used air freight in the period of the cartel (2000 to 2006) will have been over-charged for that freight and is very likely to have a claim that can be brought in the action.

These cases demonstrate the opportunities for businesses to recover losses caused by cartels. A review of the EC website reveals a further 33 cartels that have operated throughout the EEA (see 'Memo: Updated statistics on cartels', 7 July 2009 at https://ec.europa.eu/competition/cartels/what_is_new/news.html). Businesses are encouraged to explore those decisions and form a view as to whether they are likely to have suffered losses at the hands of these cartels.

Funding cartel claims

One of the major disincentives for individuals and businesses which may consider pursuing claims through the courts has been the perceived legal expense, and the added risks associated with adverse costs. However, innovative funding solutions have been developed to minimise these risks. Some solicitors now offer conditional fee agreements (CFA) in private cartel damages claims, which are tightly regulated agreements whereby legal fees are only payable in the event of success and are recovered from the unsuccessful party. Together with after the event insurance (ATE) that indemnifies claimants against an adverse costs order, CFAs provide an affordable way to litigate by alleviating cash flow requirements and shifting the risk to the defendant.

Private enforcement claims represent a very real opportunity for businesses to recoup overcharges paid to cartelists.