The Court of Appeal has allowed ABB’s appeal in respect of part of the judgment of Mr Justice Marcus Smith in BritNed Development Limited v ABB AB and ABB Ltd [2018] EWHC 2616 (Ch). Following a three-day hearing in July this year, Lady Justice Asplin, Lord Justice Henderson and Lord Justice Patten and unanimously ordered that BritNed, the operator of the UK-Dutch electricity interconnector, which had sued ABB for damages alleged to have arisen from ABB’s participation in a power cable cartel, must repay €4.94 million (plus interest) of the damages ABB paid to BritNed, finding that the High Court made an error of law in awarding these damages. BritNed’s appeal, seeking a substantially higher damages award or a re-trial on all issues, was dismissed on all seven grounds.
The initial judgment followed a five-week trial in the High Court in February 2018 in which BritNed sought damages from ABB in excess of €200 million. BritNed alleged that it suffered an overcharge in the price it paid for the UK-Netherlands electricity interconnector cable, which ABB contracted to supply to BritNed in 2007 during ABB’s participation in the power cables cartel. ABB was ordered to pay €11.7 million (plus interest), only a small part of the more than €200 million in damages sought by BritNed. The trial judge, Mr Justice Marcus Smith, found that ABB did not deliberately overcharge BritNed for the cable and that ABB’s price for the project had been compiled honestly and competently, but that some damages should nonetheless be awarded on two grounds: (i) an inefficiency in ABB’s cable design for this particular type of submarine cable, which ABB would not have been able to justify in a fully competitive environment; and (ii) on the basis of certain costs “cartel savings” found to have been made by ABB during the infringement period. See here for further detail.
ABB appealed against that part of the damages awarded to BritNed relating to cartel savings. It successfully overturned that finding, with the Court of Appeal holding that the award of damages on the basis of savings made by ABB rather than a loss suffered by BritNed was based on an error of law and must be set aside.
BritNed sought to appeal the entirety of the High Court’s findings on overcharge, the dismissal of its claim for loss of profits and the judge’s finding that the damages should be reduced on the basis of the operation of the relevant regulatory regime. In its appeal BritNed argued that the judge erred fundamentally in his approach to assessing the competitive counterfactual and the competitive price. In dismissing all of BritNed’s grounds of appeal in their entirety, the Court of Appeal held that the judge’s conclusions in relation to the (absence of) overcharge were open to him on the evidence and that his conclusions were therefore “unassailable”. The Court of Appeal also refused BritNed’s request for permission to appeal the judgment.
The initial High Court ruling was the first time that a follow-on damages claim has proceeded to final judgment in the English courts. As such, it provided the clearest guidance so far for claimants and defendants, as well as economic experts, on the courts’ approach to the assessment and quantification of damages in cartel claims. The Court of Appeal’s judgment, while overturning the finding in respect of cartel savings, which had been widely criticised, upholds the approach taken by Mr Justice Marcus Smith to the overcharge assessment and his consideration of the competitive counterfactual. The Court of Appeal’s judgment finds that there were no grounds for an appellate court to interfere with the judge’s approach to these issues, as there were no errors in his findings of fact or in his evaluation of the evidence before him, including the expert economic evidence.
The Court of Appeal judgment is significant, not only in confirming the approach taken by Mr Justice Marcus Smith at first instance, but also for its setting out in detail the correct approach to the assessment of cartel damages including in light of recent EU jurisprudence. The most significant guidance provided by the judgment on the assessment of cartel damages is as follows:
- Cartel damages must be compensatory in nature: The Court of Appeal rejected BritNed’s attempt to broaden the basis upon which the court can award damages in cartel cases. BritNed argued that European case law endorsed the proposition that claims for cartel damages have a punitive as well as deterrent purpose.[1] The Court of Appeal emphatically rejected this submission, finding that there is nothing in EU jurisprudence which suggests damages in a follow-on case should be other than compensatory. In the court’s assessment, the recent CJEU judgment in Skanska was not intended to alter this position.
- It is appropriate to use a “broad axe” to estimate damages in cartel cases: The Court of Appeal rejected BritNed’s submissions that the Court of Appeal should reconsider the requirements of English domestic law relating to the recovery of cartel damages. The Court of Appeal found that the judge’s approach to assessing damages using the “broad axe” or “broad brush” was sound and, contrary to BritNed’s submissions, was not contrary to the principle of full compensation – indeed, the use of the “broad axe” to estimate BritNed’s damages in circumstances where there had been little evidence of any overcharge, had in fact benefitted BritNed by allowing it to recover at least some damages.
- Savings made by a cartel member are not recoverable by claimants in a damages action: ABB argued that the award of damages to BritNed on the basis of cartel savings made by ABB during the infringement period was based on an error of law as such savings did not represent a loss to BritNed. The Court of Appeal, in overturning the judge’s finding in respect of cartel savings, agreed that it could not be assumed that any savings made by a cartelist would be reflected in unlawful price increases. The Court of Appeal accepted ABB’s argument that allowing damages absent evidence of an unlawful overcharge having been suffered would require a “dramatic change to the principles of compensatory damages”.
- In assessing damages in cartel cases it is not sufficient to look at the general effects of the cartel: In dismissing BritNed’s arguments that the judge’s approach to the overcharge assessment was flawed, the Court of Appeal confirmed that the judge at first instance was right to focus on the specific issue of the overcharge (if any) caused to BritNed arising out of the transaction in issue, rather than looking at alleged general effects of the cartel in the market. The Court of Appeal stressed that it is for a claimant to demonstrate, on the balance of probabilities, that the price it actually paid was too high. The Court of Appeal also affirmed the judge’s statement that allocation-based cartel conduct – the dividing of sales or projects between cartel members - need not necessarily result in an uncompetitive price; this would have to be proven.
- Presumption of harm in cartel cases: The Court of Appeal confirmed that there can be no presumption of damage in cartel cases brought before the EU’s Antitrust Damages Directive entered into force. The Court questioned how such a presumption of harm could have assisted BritNed in any event, in circumstances where its loss still had to be quantified. The Court of Appeal rejected BritNed’s arguments that ABB bore the burden of showing that its price would not have been different absent the cartel. The Court also rejected BritNed’s argument that the approach to the assessment of damages in cartel cases should be considered as akin to that in actions for fraud and deceit where presumptions are made against wrongdoers. The Court of Appeal emphasised that the burden of proof lies on the claimant “to establish that he has suffered loss and the quantum of that loss, albeit that he may benefit from the application of the “broad axe” principle if there are difficulties in proving quantum.”
The Court of Appeal’s judgment is hugely significant. It is notable for its thoroughness and, given the unusually fact-intensive nature of BritNed’s grounds of appeal, the extent to which the Court of Appeal has engaged in detailed consideration of the evidence and expert economic evidence in the matter. The heart of the Court of Appeal’s judgment is a clear statement that the principles that apply to the assessment of cartel follow-on damages claims are the same as for other types of civil damages claims, and that no lower standard of proof, or reversed burden of proof, applies. The judgment contains an excellent summary of the (lengthy) EU and UK case law that underpins the guiding principles of competition damages claims, and the analysis it sets out is impressive in its clarity. It will therefore be an authoritative reference point for all such future claims in the English courts.
Freshfields acted for ABB in its defence of the BritNed claim in the High Court and the proceedings before the Court of Appeal. Freshfields was instructed by Dominique Speekenbrink, Senior Vice President, Head Antitrust Practice Group, ABB. The team was led by partners Mark Sansom and Nick Frey, assisted by senior associate Lara Hall and associates Natalie Puddicombe, Ramya Arnold, George Lumbers and Sophie Tang. Freshfields acted alongside a counsel team from Brick Court Chambers, of Mark Hoskins QC, Sarah Ford QC, Jennifer MacLeod and Jon Lawrence.
[1] Relying on the CJEU judgment in Case C-724/17, Case C-724/17, Vantaan kaupunki v Skanska Industrial Solutions Oy, and Others (Skanska) to argue that the CJEU recognised a “punitive rationale behind compensation.
