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BritNed v ABB: The UK High Court’s Approach to Information Asymmetry in Cartel Follow-On Claims

Related Lawyers: Anna Morfey, Amandine Gueret
Related Practice Areas: Competition Litigation
Authors: By Anna Morfey and Amandine Gueret*

On 9 October 2018, the High Court of England and Wales handed down a long-awaited judgment in BritNed v ABB,[1] the first cartel follow-on damages case to reach judgment and an award of damages in the UK courts. The judgment is important in shedding light on the court’s approach to economic evidence and quantification of damages in such cases. It also provides several insights – but perhaps not the expected answers – about one of the biggest challenges for claimants in private enforcement claims: how to address and overcome information asymmetry.

Background

The EU Commission decision

The Britned case arose from a decision of the European Commission (the “Commission”) dated 2 April 2014, which found that eleven European, Japanese and South Korean producers of submarine and underground power cables, including ABB, were involved in an almost worldwide cartel between 1999 and 2009 (the “Decision”).[2] The penalties imposed totaled €302 million, although ABB, as the immunity applicant, was not fined.

Most of the addressees of the Decision, including ABB, lodged appeals to the European Court of Justice challenging the Decision or part of it, following the dismissals of all first instance appeals on 12 July 2018.

One of the addressees, Nexans, brought parallel proceedings to block the publication of the non-confidential version of the 332-page Decision, arguing that large portions of it were confidential. That appeal, and a subsequent request for interim measures to halt the Decision’s publication, were rejected by European Courts,[3] and the Commission published a non-confidential version of the Decision in July 2018.

BritNed’s claim

The BritNed interconnector project, an electricity submarine cable system connecting the UK with mainland Europe, was identified in the Decision as one of the projects that was discussed as part of the cartel. The project had been awarded to ABB following a tender process in 2006, namely during the cartel period.

BritNed issued follow-on proceedings in 2015 against ABB in the High Court of England and Wales claiming €180 million in compensatory damages for breach of statutory duty under three heads of loss: the overcharge on the price of the cable; lost profits; and compound interest.

ABB contested all of this and produced factual and expert evidence seeking to demonstrate that the cartel had not caused harm to BritNed. As the immunity recipient, ABB did not (and could not) deny participating in the cartel, but argued that the cartel had no effect on pricing for the BritNed project or on BritNed’s choice of cabling, and as a result BritNed had suffered no loss or damage (or alternatively that any loss was negated because of the operation of a regulatory cap on profits).

The main question put before Mr Justice Smith was whether ABB’s cartel activities, insulating it from competition, caused BritNed to pay a higher price, on a given type of cable, than it would have done absent the cartel.

The forces in the equation

Placing strong weight on the factual evidence submitted to him, Mr Justice Marcus Smith rejected both the economic analysis built by BritNed and ABB’s findings, and held that there was no deliberate overcharge. Instead, he found that there were “pockets of overcharge”, or indirect effects of the cartel, which manifested itself in increased copper costs in the cable procured by BritNed (referred to as “baked-in inefficiencies”), as well as common costs (or “cartel savings”) which benefited ABB in the amount of €7.5 million and €5.5 million respectively. Accordingly, he ultimately awarded BritNed €13 million in damages.[4] BritNed’s claim for lost profits was dismissed as BritNed had failed to show that, in the absence of the cartel, it would have procured a 1,320 MW cable (which BritNed argued would have yielded higher profits) instead of the 1,000 MW cable that it in fact procured. BritNed’s claim for compound interest also was dismissed on the ground that it would have been BritNed’s shareholders, rather than the BritNed joint-venture itself, that suffered any increased cost of equity; but the shareholders were not claimants in the action. BritNed was nevertheless entitled to simple interest at a rate of EURIBOR + 1%.

The wild card: the court’s approach to evidence

The judge’s approach to the economic evidence and analysis has been the subject of much scrutiny in the months since the judgment was handed down. But another interesting aspect of the judgment is the approach to, and treatment of, the witness and documentary evidence, and the significant role that played in the court’s assessment of BritNed’s claim: ultimately, the factual evidence led the court to reject BritNed’s claim that the price it paid was subject to a general cartel overcharge, as price-decision makers were found not to be aware of the cartel. Notwithstanding that the Decision specifically identified the BritNed project as having been discussed as part of the cartel, the judge did not draw adverse inferences from either the absence of witnesses able to explain the operation of the cartel, or the lack of documentary evidence – both of which were the result of ABB’s strategic decisions in the litigation.

In cartel cases, the information asymmetry between claimants and defendants is obvious: the information that claimants need to understand how the cartel operated, in order to assess how and to what extent they have been harmed, lies in the hands of the defendant, who all too often has gone out of its way to conceal or destroy that evidence. How the courts will approach this information asymmetry – and their willingness (or not) to draw adverse inferences from gaps in the factual evidence – is of paramount importance.

Non-binding statements of the Decision

The starting point of any follow-on claims invariably involves getting a comprehensive understanding of the detailed workings of the cartel in question. Unlike many recent Commission decisions, issued following the EU Cartel Settlement Procedure,[5] and resulting in a short-form decision with a very limited description of the cartel operations, the High Voltage Power Cables Decision at issue in the BritNed claim was a full infringement decision (not adopted pursuant to the Settlement Procedure), and contains 1,078 recitals as well as an extensive Annex listing the cartel’s meetings and operations. The Decision therefore provides a relatively detailed insight into the modus operandi of the cartel.

However, Mr. Justice Smith adopted a cautious approach to the Decision when considering what weight he would place on its recitals. He noted that the extensive redactions applied to the version of the Decision that was available to him, coupled with the unavailability of a number of documents on which the Commission relied, preventing him from understanding the importance of certain passages or documents. As the “determiner of fact”, he was only prepared to be bound by findings in the Decision “where it [seemed] to [him] that it [was] a finding [he could] properly make on the evidence viewed as a whole”. As a result, he did not put weight on several aspects of the Decision that might have assisted BritNed, and did not draw adverse inferences from the fact of the extensive redactions and unavailability of documents.

Lack of documentary evidence

Mr. Justice Marcus Smith’s comment about unavailability of a number of documents on which the Commission relied highlights a second issue, relating to the lack of documentary evidence in cases such as these. The evidence had intentional gaps, due to the destruction, withholding or otherwise unavailability of potentially relevant/important documents; indeed, ABB’s witness who had participated in the cartel confirmed in cross-examination that he deliberately avoided taking notes of cartel meetings and decisions so as to not create documents in the first place. The judge acknowledged these documentary limitations, noting that “the documentation regarding the detailed operation of the Cartel was probably always quite sparse, and most of such documentation as did exist has either failed to survive or else is kept under wraps by the European Commission (and [was]not available to [him]).” Of these, he said “some appeared … to be quite important.” But he nevertheless refused to draw adverse inferences from these evidential gaps, many of which were of ABB’s making, to balance the information asymmetry between claimant and defendant.

The approach to witness evidence

Out of the five witnesses put forward by ABB, only one of them was aware of and involved in the cartel at the time it operated. When assessing his reliability, Mr. Justice Smith did consider that his evidence should be treated with a certain degree of caution as his involvement was likely to have affected his testimony,[6] but he did not dwell on or draw inferences from ABB’s failure to put forward any other witnesses who participated in (and could therefore have explained the operation of) the cartel. Ultimately, notwithstanding that the Decision found that the BritNed tender was discussed in cartel meetings, the opposite happened: the judge concluded that the tender was “honestly and competently compiled with a view to putting forward a competitive bid”.

The main factual evidence that led the judge to this conclusion appears to have been that ABB's key individuals involved in negotiating the BritNed contract were neither aware of, nor directly influenced by, the existence of the cartel or of the fact that the other cartelists had agreed not to compete on the project.

Overcharge assessment

The court undertook a very detailed examination of the documentary and factual evidence about how the bid was prepared and negotiated, placing a lot of weight on BritNed’s negotiation skills and decision-making process. The court concluded - perhaps surprisingly, given the extensive contemporaneous information asymmetry - that there were “pockets of overcharge” in the project price, but that BritNed (i) had been capable of offsetting any cartel direct cartel effect, and (ii) had not suffered any lost profits as it would have made the same investment decision absent the cartel.

The questions were about the counterfactual: what would have been a competitive tender, what would have been the competitive price? The court’s answer to these questions changed the prism through which a counterfactual price should be assessed – namely, not a comparison between prices during and after the cartel period, but how forces would have interacted absent the cartel, and what would have been the price difference - by disregarding certain key factors. For instance, the court did not consider ABB’s unsuccessful post-cartel tenders (which represent a legitimate assessment of the effects of a cartel once put to an end but with lack of evidence), focusing instead on BritNed’s negotiation tactics, where evidence was available.

Despite a clear acknowledgment that the cartel’s modus operandi had not been fully detailed, the court assessed the intensity of competition almost solely based on BritNed’s negotiating power, notwithstanding the fact that this negotiating power had inevitably been affected by the cartel itself.

How to overcome the apparent hurdles from BritNed?

This judgment highlights the complexities of cartel damages claims and how factual, documentary, and witness evidence are to be assessed to inform a damages assessment. Accordingly, claimants will need to be meticulous in building their case if the courts are not prepared to draw adverse inferences – or, indeed, will find in favour of defendants – where evidence which is lacking as a result of the defendant’s cartel conduct prevents claimants from obtaining redress, or places high hurdles in their way.

Despite these hurdles, the judgment confirms that the fact that it is not possible for a claimant to prove the exact sum of its loss is not a bar to recovery. Thus, the judge declared: “[t]he court will not allow an unreasonable insistence on precision to defeat the justice of compensating a claimant for infringement of its rights”. Ultimately, notwithstanding the information asymmetry between claimant and defendant in this case, BritNed recovered €13 million in damages.[7] But this judgment, being the first of its kind to be handed down by the UK courts, indicates an approach to factual evidence which will no doubt be scrutinised by claimants and defendants alike in ongoing and future cases.

Footnotes

[1] BritNed Development Limited v. ABB AB and ABB LTD, [2018] EWHC 2616 (Ch), supplemented by [2018] EWHC 2913 (Ch)

[2] Case AT.39610 – Power Cables

[3] Case C–65/18 P(R) - Nexans France and Nexans v Commission

[4] The damages award was reduced by 10% to €11.7 million in a subsequent judgment on 1 November 2018, for reasons related to the regulatory cap applicable to BritNed: see [2018] EWHC 2913 (Ch).

[5] Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases

[6] It is worth noting that the cartelist witness agreed with the description of the cartel made in the Decision, but this was insufficient to convince the Court to consider this description binding on it.

[7] Reduced by 10% in a subsequent judgment: see footnote 4 above

*Anna Morfey is a partner and Amandine Gueret is an associate in the London office.