BritNed Developments v. ABB : First UK Cartel Follow-On Judgment Finds No Deliberate Overcharge
Background and Relevance of High Court's Decision
On 9 October 2018, the High Court of England and Wales ordered Swiss engineering company ABB to pay BritNed Developments just over €13 million for damages suffered as a result of a cartel in the power cable sector, concluding that the factual and expert evidence did not support BritNed's claim that it had been overcharged by €180 million.
The case stems from a 2014 decision by the European Commission (EC) which found that, between 1999 and 2009, ABB and ten other companies were involved in a global cartel in the underground and submarine high-voltage-power cable sector by sharing markets, allocating and rigging bids, and exchanging competitively sensitive information. An EEA-wide cartel involving only the European suppliers was considered to be part of this global cartel. The fines imposed by the EC totalled €302 million, but ABB was not fined as it benefited from immunity under the EC's leniency programme.
BritNed, a joint venture between the UK's National Grid and Dutch electricity grid operator TenneT, was a customer of ABB during the cartel period, following the negotiation and award of a contract for the construction of the BritNed Interconnector, an electricity submarine cable system connecting the UK with mainland Europe. In 2015, BritNed issued proceedings against ABB in the High Court claiming damages of €180 million as compensation for the alleged cartel overcharge.
The High Court's judgment in BritNed is a landmark case as it is the first cartel follow-on damages claim to reach a judgment on the merits in the UK, and the 198-page judgment provides detailed guidance on the approach the English Court is likely to take to proof of loss resulting from a cartel. Although the High Court did find ABB liable to pay damages to BritNed, the court broadly accepted ABB's position that the cartel did not result in an overcharge, and the damages awarded were a fraction of BritNed's claim. The case turned on the factual evidence concerning the negotiations between BritNed and ABB.
It remains to be seen whether the judgment will be appealed and on what grounds, and what attitude the Court of Appeal will take to the High Court's approach to damages.
The Outcome of the Case
The court found no evidence that the existence of the cartel had resulted in an overcharge in relation to the BritNed Interconnector project. On the contrary, the court concluded that the price charged by ABB was in line with the prices for equivalent post-cartel projects and ABB's bid was considered to be an "honest and competent bid." The key factual evidence that led the court to this conclusion was that ABB's key individuals involved in negotiating the BritNed contract were not aware of the existence of the cartel or that the other cartelists had agreed not to compete on the project.
The High Court did, however, identify damages of approximately €13 million, attributable to two aspects of ABB's participation in the cartel. First, the court concluded that there were "baked-in inefficiencies" in ABB's cable design resulting from the lack of competition (in particular, the excessive width of the cabling used, which had required a larger than necessary amount of material). The High Court considered that, had there been a properly competitive environment, ABB would have faced more efficient and competitive technical solutions from others in the market, which would have involved less copper and insulation and resulted in ABB either cutting costs or losing the contract. These baked-in inefficiencies resulted in an inflated cost to BritNed of approximately €7.5 million. Second, the court identified cost savings to ABB due to the control of allocation and management of cables supply as a result of the cartel, which inflated the common costs included in the price charged to BritNed by a further amount of approximately €5.5 million.
The court dismissed ABB's argument that any overcharge suffered by BritNed should be reduced or eliminated in light of the regulatory cap imposed on BritNed's earnings and considered ABB liable for the damages assessed, as the court concluded that any collateral benefit such as that derived from the operation of the cap should be disregarded for the purpose of assessing a claimant's loss and awarding damages.
The judgment rejected BritNed's lost profit claim related to the capacity (1,000MW) of the power cable it chose to purchase from ABB. The factual evidence showed that, even in the absence of the cartel, BritNed would have made the same choice of power cable and, therefore, achieved the same profit.
Finally, BritNed's claim for compound interest on the basis of additional financing needed as a result of ABB's overcharge was rejected, also on the basis of the facts that were before the court. The High Court considered that because BritNed was funded entirely through shareholder equity, it had not incurred any additional costs from having to raise additional capital.
What Are the Key Takeaways?
In addition to being the first cartel follow-on damages action to reach a final judgment in the UK, the importance of the BritNed judgment lies in a number of principles that are established by the case and which (assuming they withstand any appeal) will be crucial for future cartel follow-on claims in the English Court.
- The Facts Are King. Every aspect of the BritNed judgment emphasises the factual evidence that was presented to the court. On this basis, the court rejected the claim that the price paid by BritNed was subject to a general cartel overcharge. It was the factual evidence that determined the court's assessment of the expert evidence, the lost profits claim and the compound interest claim.
- Notion of Actionable Damage. The High Court considered that the harm that gives rise to a cause of action for breach of competition law—to be determined on the basis of a balance of probabilities—need not necessarily be identified in some monetary harm. Rather, this harm may consist of the reduction of the claimant's benefit (either in the form of an increased price or of a reduction in the number of suppliers properly participating in a tender) suffered as a result of the restriction or distortion of competition.
- Definition of Overcharge and the Right Counterfactual. The High Court considered that the correct approach to defining overcharge should be the difference between the price actually agreed and the price that would have resulted absent the cartel, whoever the party contracting with BritNed would have been in the counterfactual world—the counterfactual should not be limited to the price ABB would have offered in the absence of the cartel.
- Presumption of Overcharges. The court rejected the suggestion that it should adopt a presumption of an overcharge in this case. This aspect of the European Union's Damages Directive of December 2014, which introduces a presumption of harm in cartel damages cases, does not apply to conduct that predated the implementation of the Damages Directive in the UK in March 2017. Further, contrary to BritNed's claim, the court concluded that the principle of effectiveness does not require a presumption of harm in antitrust damages cases; if that were the case, it would be difficult to see why the Damages Directive had required Member States to introduce such a presumption into their domestic laws. In any event, the court considered that a presumption of harm would fail to assist in the assessment and quantification of damages in this particular case where the presumption was rebutted by the expert and factual evidence.
- ABB's Prior Conduct. The High Court rejected the suggestion that ABB's prior participation in other cartels could be taken into account to assess BritNed's damages.
- The Weight Attributed to the EC's Decision. The High Court's ruling only in part relied on the EC's 2014 infringement decision. Only the operative part of the decision and those recitals constituting the essential basis for the decision were considered to be binding on the court. The fact that most of the decision did not deal specifically with the BritNed Interconnector project, and that large parts of it were redacted, prompted the High Court to attach limited weight to the nonbinding recitals, preferring instead to rely on the factual and expert evidence presented at trial.
- The Advantage Derived from Knowledge of the Cartel. The court recognised that among the advantages that ABB derived from the cartel was ABB's knowledge that it faced less competition because of the cartel. However, importantly, the court placed great weight on the fact that ABB's key individuals involved in negotiating the BritNed Interconnector contract and formulating the ABB bid had no knowledge of the cartel and the lack of competition. This prevented the knowledge of the cartel from translating into a direct influence on both direct and common costs.1 The court also recognised that "baked-in inefficiencies" could occur notwithstanding the honesty of those involved in formulating the bid.
- The Limits of Expert Evidence. In several parts of the judgment, and while recognising the value of expert evidence, the High Court was somewhat reluctant to rely entirely on expert evidence, unless it was properly grounded in the facts that were in evidence before the court. For example, when evaluating whether the direct costs of ABB's bid could have been affected by the cartel, the court explicitly rejected the submission that an expert economist with no expertise in the field would be able to "spot the illicit inflation of a direct cost for dubious and not well-founded technical reasons." Further, the BritNed economist's reluctance to use ABB's actual data, largely due to its complexity and alleged unreliability, and her reliance on a number of proxies were heavily criticised; some of the elements in her approach2 were also judged to be inappropriate.
The BritNed judgment clarifies that not every breach of competition law necessarily leads to customers being overcharged on all elements of a contract. In this case, the judge took a restrictive approach to the analysis of overcharge, relying heavily on the factual evidence before the court. This was possibly because of the unusual nature of this case involving as it did the negotiation of the price for a single project. Such an approach may be feasible in similar cases, where strong evidence of negotiations is available, but it remains to be seen if different principles may apply in cases involving large numbers of individually negotiated contracts.
On 18 October 2018 the High Court gave both BritNed and ABB permission to appeal.
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The court noted, in particular, that only two persons involved in the tender were aware of the cartel; since the compilation of the details of ABB's tender was in the hands of others, those with knowledge of the cartel would not have had the ability to influence the level of costs of ABB's bid.
In particular, the inclusion of underground projects in the cost analysis—disregarding how, differently from underground projects, submarine cable projects such as the BritNed Interconnector project are very much bespoke and unique in their specification and in the manner in which they are negotiated.