The mitigation defence meets reality
The English Court of Appeal recently dismissed the appeal brought by NTN Corporation (NTN) in a cartel damages case, which centred around NTN’s defence of cost mitigation. The Court ruled that to successfully plead a cost mitigation defence, defendants need to show a sufficient causal nexus or connection between the alleged mitigation and the overcharge.
In 2013, the European Commission (‘Commission’) issued a settlement decision in which it found that NTN and others had engaged in a collusive tendering cartel related to bearings produced for the automotive sector. Each cartelist admitted participation and the Commission imposed fines.
Competition Appeal Tribunal case
Following on from the Commission settlement decision, Stellantis N.V. (formerly Fiat Chrysler Automobiles N.V.) (FCA) commenced proceedings before the Competition Appeal Tribunal (CAT) claiming damages in the approximate sum of EUR 100 million (including interest).
As has become a customary starting point for many defendants in follow-on damages claims, NTN argued in its defence primarily that the cartel caused no loss at all. NTN also argued that, even if there was an overcharge, the claimant had allegedly off-set any increase in prices by reducing prices charged by suppliers other than NTN.
In response, FCA applied to the CAT to have the off-setting defence struck out on the basis that the pleaded defence was theoretical and implausible and that to permit such a speculative defence would add disproportionately to the burden of the trial. The CAT agreed and the defence was struck out. NTN appealed this decision to the Court of Appeal.
Court of Appeal decision
The issue arising on this appeal was whether an over-charging supplier can defend the claim by pleading off-setting. This involves an attempt by the supplier to assert that the purchaser has mitigated the overcharge by getting reduced prices on supplies from other suppliers. The Court also needed to decide whether it was permissible to plead a defence of this kind without any actual evidence that the claimant did mitigate its loss in this way.
The test to be applied
The Court decided that there has to be a sufficient causal nexus or connection between the steps that a defendant says a claimant took by way of mitigation (the off-setting) and the overcharge. In relation to the evidential standard that the CAT (or any court) must apply to determine whether a pleading is to be allowed to proceed to trial, the Court noted that the standard test was whether there was “a realistic prospect of the plea succeeding at trial”.
Keeping this in mind, the Court confirmed that when pleading causation the defendant must demonstrate that:
- there is a legal and proximate causal connection between the overcharge and the act of mitigation
- this connection is “realistic” or “plausible” (the two phrases being interchangeable) and carries some “degree of conviction”
- the evidence is more than merely “arguable”.
The assessment of this burden of proof is fact and context-specific and may depend upon the characteristics of the industry or sector in question.
Application of the test
The Court then applied the test and concluded that NTN’s pleaded case on off-setting did not meet the requisite standard.
NTN had argued that its pleading met the test of the Supreme Court in Sainsbury’s Supermarkets Limited v Visa Europe Services LLC  UKSC 24 (‘Sainsbury’s’). This case expressly contemplated that a mitigation by off-setting defence based upon ordinary cost control system can be “raised”, without more. The Court of Appeal emphasised that the Supreme Court in Sainsbury’s was not addressing the standard that a pleading had to reach before being allowed to proceed. It did not follow from Sainsbury’s that a mere bare assertion that there had been mitigation by off-setting sufficed.
NTN’s pleaded case did not establish a realistic (or “plausible”) case of mitigation by off-setting. The pleading was theoretical, as the CAT had also concluded after having reviewed both the pleading as well as the evidence NTN relied upon. The pleading made assumptions about the existence of particular hard facts which were very far from being certain at all.
The judgment notes that “the most striking of the averred inferences” by NTN and “probably the most critical” is that FCA would be “effective” in off-setting overcharges by reduction in costs from other suppliers because it has a system for controlling costs. The Court concluded that the existence of such a system is no guarantee of its success and an inference in this respect could not therefore be inferred from the pleaded facts.
NTN had advanced that it would be unfair if more needed to be pleaded. This was on the basis that such cases are characterised by evidential and informational asymmetry, making it very hard indeed for any defendant in a price fixing cartel involving secrecy ever to mount a defence of mitigation. The Court accepted that raising a viable case of this nature might be difficult, but suggested that it would not be impossible in all cases. The Court referred to the CAT’s judgment in Royal Mail Group Limited v DAF Trucks Limited & Ors  CAT 10 (‘Royal Mail’), where the CAT had endeavoured to identify some examples of matters that might in an appropriate case justify the pleading of a viable defence. However, where such circumstances do exist, they do not necessarily suffice for a viable pleading of mitigation by off-setting.
The Court emphasised that if a defendant does not have any realistic evidence of a possible defence, then it has “no right to go fishing in disclosure to see if there is anything that might turn up which would help”. As the CAT in this case and in Royal Mail observed, there has to be a properly pleadable starting point before the claimant is put through the heavy burden that disclosure involves.
In the same vein, the Court pointed out that NTN had not pleaded a positive evidential case, as NTN would have generated relevant internal documents over the course of the seven year-cartel. For example, NTN might have produced internal reviews of the extent to which the cartel was effective in enabling NTN to impose an overcharge. The Court noted that a defendant might not advance a positive case because, if pleaded, this risked running counter to the pleaded defence that there was no loss.
The Court of Appeal dismissed NTN’s appeal, concluding that the CAT applied the correct test to the pleadings. The CAT had not misconstrued the judgment in Sainsbury’s, nor did it misapply the relevant policy considerations and it made no errors of law in its analysis of the pleadings, or in its conclusion that NTN failed to meet the appropriate test. This decision is a welcome confirmation that the courts will not tolerate attempts by defendants to advance bare assertions of a mitigation defence.
Full case name is NTN Corporation and Ors v Stellantis N.V. and Ors,  EWCA Civ 16.