BritNed Developments v. ABB : UK Court of Appeal Reduces Damages on Appeal
On 31 October 2019, the UK Court of Appeal dismissed BritNed Developments' appeal in which it sought to increase the award of damages that the High Court made last year.1 Not only is this the first claim of its kind to go to full trial, the judgment is significant because the Court of Appeal set out the correct approach to assessing follow-on competition damages claims.
In a claim concerning ABB's participation in the alleged power cables cartel, the High Court ordered ABB to pay to BritNed damages of just over €13 million. This was significantly less than the €200 million that BritNed had claimed. In a subsequent supplementary judgment, the High Court reduced BritNed's damages by 10% to € 11.7 million. For further detail on the background, please refer to our previous Advisories.2
BritNed appealed against the two judgments seeking a substantially higher damages award or a re-trial on all issues. ABB cross-appealed, challenging the award of damages to BritNed. The Court of Appeal dismissed BritNed's appeal on all grounds but allowed ABB's cross-appeal. It overturned the High Court's award of damages in respect of 'cartel savings' (that is, savings to ABB's common costs as a result of not having to compete because of the cartel). The Court ordered BritNed to repay those "surplus sums" to ABB, thereby reducing BritNed's damages by more than €5 million.
A landmark judgment
While the Court of Appeal disapproved of the High Court's novel theory of damages on the basis of 'cartel savings', this judgment confirms the High Court's approach to the overcharge assessment and its consideration of the competitive counterfactual. The Court of Appeal found that there were no grounds for the appellate court to interfere with the High Court's approach to these issues, as there were no errors in its findings of fact or in its evaluation of the factual and expert economic evidence.
The judgment is also significant because the Court of Appeal set out the correct approach to assessing a claimant's loss in a follow-on competition damages claim. The judgment provided a number of useful clarifications:
- Measure of damages: The correct measure of damage is the difference between the price actually paid and the counterfactual (the price which would have been paid, whether to ABB or another provider, absent the anti-competitive arrangement).
- Assessment of damages: English rules for the assessment of damages do not offend the principle of effectiveness, because the "broad axe" approach developed by English courts allows scope for dealing with the difficulties of proving actual loss in the particular circumstances of follow-on damages claims.
- Burden to establish loss: The Court of Appeal held that the principle of effectiveness does not require the Court to adopt a presumption of harm. The Court of Appeal confirmed that there could be no such presumption in cartel claims brought before the Damages Directive entered into force.3 It held that "the burden of proof lies on the claimant to establish that he has suffered loss and the quantum of that loss"4 and agreed with the High Court's finding that, on the facts, it was very clear that BritNed had a variety of reasons for choosing to purchase the product at issue. As such, the Court of Appeal held that the High Court was free to conclude that ABB did not deliberately overcharge BritNed on the price for the interconnector cable.
- Compensatory nature of cartel damages: On the question as to whether the High Court had undercompensated BritNed when awarding the damages, the Court of Appeal roundly dismissed BritNed's submission, relying on the CJEU's judgment in Skanska,5 that claims for cartel damages have a punitive as well as deterrent purpose.The Court of Appeal found no support in EU jurisprudence that suggested that damages in a follow-on case should be anything other than compensatory in nature and concluded that the CJEU's judgment in Skanska was not intended to alter this position.
- Damages on the basis of 'cartel savings' was an error of law:The Court of Appeal concluded that the High Court had made an error of law by approaching the award for damages from the perspective of the savings to the cartelist, rather than loss to the cartel victim (the 'cartel savings' approach). Even if, in principle it was possible to award damages on the basis of cartel savings, the High Court had in fact found that such savings had been "competed away" by ABB. The Court of Appeal held that there was no evidence regarding any effect a cartel savings might have had on price which would have enabled the Court to translate a benefit to ABB into a loss to BritNed for which is should be compensated. The Court of Appeal set aside the ruling on damages on the basis of cartel savings, stating that "there can be no basis for an award of damages in respect of a head which did not arise in the particular case at all, but as a general benefit to the cartelist in its business ventures as a whole."6
This is a landmark case, being the first follow-on damages claim in the jurisdiction based on a European Commission decision to go to full trial. It will be influential on future cases because of its clear exposition of the law setting out the right approach to assessing a claimant's loss in a follow-on competition damages claim. It also provides guidance on a number of issues that will be very useful for future actions in the High Court and the Competition Appeal Tribunal.
© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
See Arnold & Porter Advisories, BritNed Developments v. Abb Revisited: UK High Court Rules Further Reduction in Damages and No Order as to Costs in Follow-on Competition Litigation; BritNed Developments v. ABB: First UK Cartel Follow-On Judgment Finds No Deliberate Overcharge.