BritNed Development Limited ("BritNed") brought a claim against ABB arising from the European Commission's 2014 power cables cartel decision. In October 2018, the High Court found that there had been no overcharge but awarded damages for "baked-in inefficiencies" and "cartel savings" plus simple interest, which were reduced in a subsequent judgment by 10% to account for the relevant regulatory cap on profits. BritNed appealed, seeking an increase in damages, and ABB brought a cross-appeal in relation to the "cartel savings". BritNed's appeal was dismissed in full, while ABB's was allowed.
| what you need to know - key takeaways |
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- Only compensatory damages are available in the English courts; restitutionary awards will not be permitted. A saving by a cartelist cannot form the basis for a loss to the victim of the cartel, and so cannot give rise to a remedy of damages.
- The burden of proof lies with the claimant to establish that it has suffered loss and the quantum of that loss, although it may benefit from the application of the "broad axe" principle if there are difficulties in proving quantum.
- In assessing and quantifying the overcharge, the court must examine in detail all the specific facts. The mere existence of the cartel is only the starting point; the actual circumstances of the transactions must be considered.
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The Court of Appeal judgment set out some clear approaches in relation to the correct approach to assessing "cartel damages" generally, and the assessment of overcharge.
Assessment of "cartel damages"
The Court of Appeal confirmed that the correct measure of damages in respect of losses caused by a cartel is in principle the difference between the price actually paid and the price which would have been agreed had the cartel not operated. It also emphasised that only a compensatory award of damages is available in the English courts, and a restitutionary remedy is not required to give effect to the EU principle of effectiveness.
The Court of Appeal also rejected BritNed's argument that the European Court of Justice's recent judgment in Skanska meant that cartel damages should have a punitive as well as a compensatory/deterrent purpose.
Recognising the difficulties of proving loss, the Court of Appeal reaffirmed that the "broad axe" principle developed by the English courts was the correct approach to follow when assessing damages in cartel cases. The Court of Appeal also emphasised that there is no general principle that courts should err on the side of under-compensation, but noted that caution should generally be had when using estimates.
Cartel savings
ABB cross-appealed the High Court's award of damages to BritNed for cartel savings made by ABB. It argued that such savings did not translate into a loss to BritNed and, accordingly, that the High Court's award of damages was based on an error of law that, if upheld, would upset the principles of compensatory damages. The Court of Appeal accepted this argument and overturned the award of cartel savings damages.
Assessment of overcharge
Although the operation of the cartel was a serious breach of competition law, the Court of Appeal endorsed the High Court's conclusion that it represented the starting and not the end point of the quantification process in this case, which concerned a single transaction. Citing Marcus Smith J, the Court of Appeal confirmed that the narrower issue of loss to BritNed in the one transaction in issue was more relevant.
The Court of Appeal found the High Court had been correct to construct a counterfactual based on the price that would have been agreed with ABB had the cartel not operated; a lack of third party evidence would have rendered it impossible to construct a counterfactual using another bidder. It further recognised that, in this case the High Court could not have reliably made any factual findings enabling it to assess the impact of ABB's pricing on its appetite to win projects during and after the cartel period.
BritNed is subject to a regulatory cap on its profits. Initially, BritNed argued that the reduction of damages awarded based on this cap allowed ABB to be "refunded" the overcharge. The Court of Appeal expressed some reservation as to the High Court's exact approach on this point, noting it was strange that the High Court (and not the regulator) to deal with it. Ultimately, however, the Court of Appeal upheld the reduction, on the basis that it would not remit the case back on this point alone, and, in any event, it would be generally inconsistent with the regulatory regime to allow BritNed to retain excess profits.
Lost profits
The High Court had rejected BritNed's claim for loss of profit arising from the fact that it used a lower capacity interconnector as a result of the cartelised bid price. This was also rejected by the Court of Appeal. The Court of Appeal held that the High Court's dismissal of this claim stemmed from an assessment of the counterfactual which it had been entitled to adopt.
Comment
The BritNed case was the first cartel follow-on damages action in England & Wales to go to full trial and produce a judgment (see our previous article). The appeal was also the first of its kind in the jurisdiction. The case was closely watched as it unfolded and the approach of the Court of Appeal will be instructive.
On the one hand, both judgments serve as a reminder to claimants of the difficulties they could face in proving loss, particularly in the context of an object infringement. On the other, the High Court's willingness to engage with lengthy and detailed economic evidence is likely to encourage parties on both sides to focus their efforts on producing a cogent economic case supporting their respective positions.
However, the outcome should not be overstated. The facts were very specific – the case involved just a single transaction. It remains to be seen whether or not English Courts will adopt a similar approach to follow-on damages claims engaging a considerable number of affected transactions.
With thanks to Helen Chamberlain of Ashurst for her contribution.
