New approach to pursuing private claims for damages for infringement of competition law
An act seeking to strengthen the position of private claimants seeking damages for violation of competition law entered into force in Poland on 27 June 2017. A wave of articles have washed through the legal and business press with nearly identical titles stressing that it will be easier to win damages for losses caused by anticompetitive arrangements. But is that really the case? It will certainly be easier to try.
Poland’s Antitrust Damages Act (the Act on Claims for Redress of Injury Caused by Infringement of Competition Law of 21 April 2017) was published in the Journal of Laws of 12 June 2017, Dz.U. 2017 item 1132. By adoption of this law, the parliament performed its obligation (half a year late) to implement into the Polish legal system the Antitrust Damages Directive (Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union).
The aim of the European Commission in drafting the directive, and of the Polish parliament, is to ensure effective enforcement of claims for infringement of competition law throughout the EU. The Commission is seeking to carry over public enforcement of competition rules to private enforcement. For effective private enforcement, it was necessary to eliminate the barriers that previously faced injured parties connected with determination of the appropriate legal basis (substantive and procedural) for their claims, quantifying the harm, and access to evidence in the defendant’s possession, in the files of public enforcement cases, or held by third parties. The aim is thus to improve the procedural position of parties injured by any type of anti-competitive practice, and the act covers injuries caused by both prohibited arrangements and abuse of a dominant position. It is not necessary for the existence of such practices to be determined by the competition authority (although if the authority does issue a decision in this respect, it is binding on the court, as discussed below). The new rules apply not only to claims covered by decisions of Poland’s Office of Competition and Consumer Protection (UOKiK), but also antitrust authorities of the EU and other member states.
Pursuit of claims based on infringements of competition law had been difficult in Poland, as in other jurisdictions, although theoretically possible. Such claims could be framed primarily on the basis of Civil Code Art. 415 (damages for injury resulting from a prohibited act—i.e. tort), Civil Code Art. 405 (unjust enrichment, e.g. by a holder of a dominant position), Civil Code Art. 471 (damages for injury resulting from improper performance of an obligation—i.e. breach of contract), or, when the plaintiff was a business entity, Art. 18 of the Unfair Competition Act. A claim to cease and desist could also be considered, or, in the case of bilateral contracts, a claim for rescission, i.e. return of the consideration provided by the injured party (Civil Code Art. 497 in connection with Art. 495 and 496).
Regardless of the legal basis adopted, enforcing any civil claims connected with infringement of competition law entailed serious evidentiary problems, particularly due to the plaintiffs’ lack of access to relevant documents and other evidence. It was also difficult to estimate the range and amount of damages.
It should be stressed in this respect that contrary to what is suggested in some articles discussing the Antitrust Damages Act, most of the new rules will apply only to claims involving violations of competition law occurring on or after 27 June 2017. Plaintiffs pursuing claims with respect to earlier violations will be able to take advantage of the new evidentiary rules, but only in cases commenced after entry into force of the act.
Legal basis for claims
From 27 June 2017 the legal basis for pursuit of claims for damages connected with an infringement of competition law is Art. 3 of the Antitrust Damages Act, under which the perpetrator of an infringement of competition law is required to provide redress to anyone who suffers an injury as a result of the violation. This liability is based on the principle of fault.
Art. 10 of the act provides that insofar as not addressed in chapter 1 of the act, the rules for liability are governed by the provisions of the Civil Code governing tort. Thus it should be recognised that Art. 3 of the act constitutes a specific type of tort, and liability on this basis is in the nature of civil tort liability. The act only supplements the tort provisions of the Civil Code with respect to the specific claims arising out of infringement of competition law.
The cross-reference to the Civil Code should be understood to mean that this civil tort liability covers any degree of fault, including unintentional fault. Adopting this approach to fault, analogous to that adopted in the Competition and Consumer Protection Act, it should be recognised that the condition of fault includes both intentional fault and unintentional fault in the form of negligence at least (falling within the scope of unintentional culpability as defined in Art. 9 §2 of the Criminal Code). However, the perpetrator bears the burden of proving that it was not at fault in causing the injury by its violation of competition law constituting the basis of the claim.
The act expands the range of claimants entitled to seek damages beyond that available in the case of tort liability under the Civil Code. As pointed out in the justification for the act, “Under the general regulations on tort liability set forth in the Civil Code, the predominant view is that only a person directly affected by the injurious event is entitled to damages.” Thus the Antitrust Damages Act specifies that “anyone” is entitled to assert a claim for damages. Moreover, Art. 4 of the act states that a claim can also be asserted by an indirect purchaser, adding a presumption that the immediate purchaser injured by an infringement of competition law has passed on the overcharge to its own customer, i.e. an indirect purchaser.
Liability under Art. 3 of the Antitrust Claims Act is joint and several; that is, all of the liability can be imposed on any or all of the infringers. But Art. 5(1) of the act limits the joint and several nature of the liability in the case of small and medium-sized enterprises. An SME will be jointly and severally liable only to its immediate purchasers or indirect purchasers, or immediate or indirect suppliers, if its share in the relevant market is greater than 5% over the entire duration of the infringement of competition law. Another condition for the limitation is that the unlimited joint and several liability of the SME would irreparably threaten the economic viability of its business and render the enterprise worthless. But this limitation does not apply to an SME that played a leading role in the infringement of competition law or solicited other enterprises to participate in the infringement, or in the case of an antitrust recidivist.
A perpetrator whose punishment has been waived by the regulator through leniency will also be liable only to its immediate or indirect purchasers or suppliers. Only if full compensation cannot be obtained from other perpetrators is it possible for the beneficiary of complete leniency to bear joint and several liability also to other injured parties.
A major change is introduction of a special limitations period on claims (Art. 9 of the act). The limitations period is 5 years, and it begins to run only when the perpetrator ceases the infringement. Running of the limitations period is also tolled upon commencement of antitrust proceedings by the president of UOKiK, the European Commission or the competition authority of another EU member state, and begins to run again only a year after the ruling finding a violation of competition law, or otherwise concluding the antitrust proceeding, becomes legally final.
Note that in a case seeking damages for violation of competition law, the court is bound by a finding of an infringement of competition law (or in my own view, a finding that there was no infringement) in a legally final decision of the president of UOKiK, or a legally final judgment holding that a practice restricts competition (Art. 30 of the act). If the regulator, or in the case of an appeal, the Court of Competition and Consumer Protection, finds that the practice restricts competition, the court in the civil case will not be permitted to make its own finding as to the existence of a violation, the entities involved in the practice, or its scope or duration. However, the court must determine the existence and amount of injury and the causal connection between the violation and the injury.
Injury and damages
One of the two main factors for improving the procedural position of injured parties, alongside evidentiary measures, is set forth in Art. 7 of the act: a presumption of harm from a competition violation. This marks a departure from the rule in civil liability for tort that injury must be proved. The presumption included in the act means that the perpetrator must prove the lack of injury or the absence of a causal connection between the detriment suffered by the plaintiff and the violation of competition law by the perpetrator, in order to be released from liability.
The basis for determining the amount of injury is the prices in effect on the date that the damages are determined. However, Art. 8 of the act provides that if prices from another date are used, the plaintiff is entitled to statutory interest (at 5% per annum) from that date until the date when the claim for damages arose.
Otherwise, Art. 10 of the act incorporates the tort provisions of the Civil Code. This means among other things that injury should be understood, in line with the Civil Code, as covering out-of-pocket losses as well as lost benefits. Thus the purpose and amount of the damages will be to make up for the detriment covering both of these elements. It is up to the plaintiff to prove the extent of the injury.
It should be pointed out that Art. 31 of the Antitrust Damages Act provides the court with two instruments to assist in determining the amount of the injury. First, upon request of the court, it may obtain assistance from the president of UOKiK or the competition authority of another member state (Art. 31(2)). Second, which should be stressed as a phenomenon in Polish law, the act expressly permits the court to rely on (“make use of,” as stated in Art. 31(1) of the act) non-binding documents issued by the European Commission, in the form of the Communication from the Commission on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union (2013/C 167/07) and the guidelines for national courts to be issued by the Commission pursuant to Art. 16 of Directive 2014/104/EU on how to estimate the share of overcharges passed on to indirect purchasers. I can’t recall any regulation in Poland ever permitting courts to use EU documents that are not legal acts as an instrument for applying the law, particularly internal Polish law, not to mention making an express reference to such documents. Until now, according to the Supreme Court of Poland, even judgments of the Court of Justice and Commission decisions—acts of application of law—should be treated in competition cases at most as “a source of intellectual inspiration” when interpreting Polish law (Supreme Court judgment of 9 August 2006, Case III SK 6/06).
Access to evidence
The Antitrust Damages Act introduces major new opportunities for plaintiffs to obtain access to evidence in the possession of defendants, the competition authority, or third parties.
Under Art. 17 of the act, upon written application of the plaintiff who has substantiated its claim, or upon application of the defendant, the court may order designated persons or entities to disclose evidence in their possession as to facts relevant to the resolution of the case. An additional condition for issuance of such an order is to require the applicant to use the evidence obtained in this manner solely for the purpose of the pending proceeding. This means that the disclosed evidence cannot be used in any other proceeding.
As mentioned, access to evidence has until now posed a fundamental and serious difficulty in pursuing claims for infringement of competition law. Information and documents confirming the infringer’s involvement in a prohibited practice, and in particular enabling the harm to be quantified, have often been found exclusively in the infringer’s possession or in the files of the antitrust proceeding, which the injured party had no access to because it was not a party to the public enforcement proceeding.
The Antitrust Damages Act strictly regulates the contents of an application for disclosure of evidence (Art. 19) and the procedure for disclosure of evidence under Art. 17. Before issuing an order on disclosure of evidence, the court must hear or request a written statement from the party, third party or competition authority in possession of the evidence sought in the application (Art. 20(2)). It must determine not only whether the application meets the formal requirements under Art. 17 and 19(2) of the act, but must also consider the proportionality of the request (Art. 21(1)–(2)). In assessing the proportionality of the request, the court must consider the legitimate interests of the parties and third parties alleged in the application to be in possession of evidence. The assessment criteria include:
- The justification for the application based on already established facts and available evidence
- The scope and cost of disclosure, particularly for third parties
- Whether the application amounts to a “fishing expedition” unlikely to turn up evidence relevant to the proceeding
- Trade secrets or other legally protected information that may be contained in the evidence sought in the application.
Apart from trade secrets, there are also other significant restrictions on access to evidence pursuant to such an application. It cannot be used to obtain access to statements made within a leniency programme or settlement proposals made by the infringer, as this would greatly limit the infringer’s right to a defence. Moreover, information prepared by a natural or legal person for the purposes of an antitrust proceeding, information prepared by the competition authority and provided to the parties to the antitrust proceeding, and withdrawn settlement proposals, cannot be obtained until after the antitrust proceeding is completed (Art. 18).
When analysing an application for disclosure of evidence provided to a competition authority or found in the files of a case conducted by the authority, the court must also examine whether the application precisely defines the nature, subject and content of the evidence, whether the application is truly being filed for the purpose of the proceeding, and whether it will negatively impact the effectiveness of antitrust proceedings conducted by the competition authority (Art. 21(4)).
The criteria of the legitimate interests of the parties and the impact on the effectiveness of antitrust proceedings conducted by the authority are broad and vague enough that their true scope will have to be determined by the case law. In the latter instance particularly, resistance should be anticipated on the part of the competition authority, which will defend against any weakening of its effectiveness.
When considering an application for disclosure of evidence, at the request of the plaintiff the court may order the defendant, a third party or the competition authority to provide the court access to the evidence so that the court can determine whether it is subject to disclosure (Art. 22).
A person ordered to disclose evidence cannot refuse or otherwise prevent disclosure (e.g. by destroying the evidence). But if that occurs, the court may deem the facts that were to be proved by the evidence as established, and order the party to cover the costs of the proceeding regardless of the result in the case (Art. 27). Moreover, a legally final order requiring disclosure of evidence constitutes a writ of execution (Art. 26).
Under Art. 11 of the Antitrust Damages Act, the regional court always has jurisdiction in cases seeking damages for competition infringements, regardless of the amount in dispute.
It should also be pointed out that the act introduces a legal definition of “cartel” in Art. 2(3), meaning a form of anti-competitive arrangement (Competition and Consumer Protection Act Art. 6(1)) involving “an agreement or concerted practice between two or more competitors aimed at coordinating their competitive behaviour on the market or influencing the relevant parameters of competition through practices such as, but not limited to, the fixing or coordination of purchase or selling prices or other trading conditions, including in relation to intellectual property rights, the allocation of production or sales quotas, the sharing of markets and customers, including bid-rigging, restrictions of imports or exports or anti-competitive actions against other competitors.” This definition (borrowed verbatim from the Antitrust Damages Directive) should be treated more as a theoretical curiosity contributing to the understanding of cartels in Polish competition law, because for purposes of the act itself the definition is relevant only to another definition (of “leniency programme”), whereas the act itself applies to all types of infringements of competition law, not limited to cartels.
Moreover, despite entry into force of the Antitrust Damages Act, another serious barrier to pursuing damages for infringement of competition law remains. It is the lack of specialisation of the state courts, even the commercial courts (except for the Court of Competition and Consumer Protection), in applying competition law. Now the regional courts will have to acquire knowhow in this area. For the present time, this is the main reason—alongside the continuing difficulty in quantifying the harm—why pursuing damages in private antitrust enforcement actions may still not be all that easy.
Marcin Kulesza, Competition practice, Wardyński & Partners