Friday 27 April 2012 by Kevin Haywood Crouch
Competition regulators across Europe often rely on whistleblowers to uncover anti-competitive cartels. Often the whistleblowers are the cartelists themselves. But what happens when the self-incriminating statements are then required to be disclosed to the victims of the cartel to support claims for compensation? Since a decision of Europe's highest court last year this is now a very real prospect.
Leniency and confidentiality
Currently, regulatory cartel enforcement across Europe is based primarily on leniency programmes. These offer immunity from fines for the first cartelist coming forward with details and evidence of a cartel. Subsequent whistleblowing cartelists may also be eligible for reduced penalties in return for further admissions of potentially unlawful activity. In each case, the whistleblowers have come forward under the expectation of confidential treatment. However, such confidential treatment can no longer now be guaranteed.
Follow-on compensation claims
The essence of the issue is that once an investigation is concluded and an enforcement decision published, irrespective of whether the infringing parties requested leniency and cooperated with the competition authority, all members of the cartel are likely to become exposed to possible follow-on claims for compensation from the victims of the cartel. In such cases, although the victim can often rely on the enforcement decision as evidence of an infringement, they still also need to prove causation and loss, which is where the leniency documents would prove invaluable.
In the past, the competition authorities have always advocated that leniency documents should not be disclosed, arguing that anything that deters whistle-blowers would seriously undermine the enforcement of competition law, nationally and cross-border. However, in C-360/09 Pfeiderer AG v Bundeskartellamt last year, the Court of Justice of the European Union (ECJ) held that, in spite of this, the rights of a victim of a cartel should be regarded as being of equal importance in deterring anti-competitive behaviour. In addition, no prima facie distinction was to be made between the deterrent effect of regulatory action utilising leniency programmes and private enforcement or possible consequent damages claims.
In Pfeiderer, the ECJ held that damages' claimants may be able to obtain access to leniency materials submitted to a national competition authority, but such access was for the relevant national court to decide according to relevant national laws. The ECJ also noted that such decisions needed to ensure the effectiveness of both leniency programmes and damages claims as a means of detecting and deterring cartels. The consequences of this judgment are now being played out in various courts across Europe, with implications further afield, including in the US where punitive triple damages are available to cartel victims who succeed in follow-on claims.
In Germany, where Pfeiderer, as a victim of a decorating paper cartel, was seeking disclosure of leniency documents from the German Federal Cartel Office, the German courts subsequently ruled not to allow disclosure of the requested documents. However, in England, with its different disclosure rules, the High Court decided to ask the European Commission for guidance on the possible consequences of allowing disclosure of material obtained in confidence during a commission investigation. Though the commission is not a national competition authority and prima facie not bound by Pfeiderer, it must nonetheless comply with EU law, which means that it must now submit to the balancing exercise required of national courts in cases where access to its leniency case files is being sought.
European Commission's position
In December 2011, the commission responded and argued, not surprisingly, for non-disclosure of leniency documents so as not to compromise the effectiveness of its whistleblowing programme. However, it also recognised other considerations. These included the relevance of the documents sought, the availability of alternative sources of evidence, and whether or not disclosure would increase a leniency applicants' exposure to liability compared to that of co-cartelists not making leniency applications.
High Court decision
As a result of these observations the English High Court decided to perform a careful analysis of the relevant documents being requested in order to fulfil the Pfeiderer balancing exercise, and in a departure from previous practice on 4 April 2012 allowed the disclosure of the leniency documents.
Given this decision directly conflicts with the European Commission's position, it is now likely that the commission will be obliged to bring forward the publication of a legislative proposal to provide uniform rules across Europe for the disclosure of leniency documents. Such a proposal is also likely to form part of a package aimed at setting minimum standards for follow-on damages claims.
The likely areas to be addressed in such a draft commission directive include this question of access to evidence and the status of leniency documents, as well as the evidential status of competition authorities' findings of infringement, the defence that any loss suffered was 'passed on' to customers and the rights of those indirect purchasers to bring their own claim for loss.
Across all these areas, the commission will need to strike a balance between competing interests, which in turn will go a long way to determining the prospects for the future of private competition law enforcement in Europe.
Kevin Haywood Crouch, competition specialist BDO LLP