17 April 2018 by Robert Bell
The recent judgment considered the effects of complex international supply chains
A ruling in iiyama (UK) Ltd and others v Samsung Electronic Co Ltd and others from the Court of Appeal in the UK is likely to greatly expand the value of damages claimants can recover in future cartel cases.
The case involved two joined appeals in damages actions relating to the liquid crystal display (LCD) and cathode ray tube (CRT) cartels. Both cartels were previously condemned by the European Commission.
The central question before the Court of Appeal was whether the claimants could claim damages in England for losses suffered from buying products at inflated prices outside the EU. They then later imported them into the EU for onward sale and distribution.
The Court of Appeal held that where it is reasonably foreseeable that a foreign cartel will have effects in the EU that are both immediate and substantial, then damages could be claimed under the ‘qualified effects’ doctrine under EU competition law.
Whether that test was satisfied will depend upon a detailed examination of the facts of the case – in particular how the cartel was meant to operate, and how it did.
It was impossible to come to any firm conclusion on the application of this test at an interlocutory, or provisional, stage. The court therefore concluded that the cases should proceed to full trial, where the full facts could be examined.
On 16 February 2018, the Court of Appeal handed down a judgment on appeals against High Court rulings for two separate actions for damages arising from European Commission decisions on the LCD and CRT cartels.
The cases concerned actions for damages allegedly incurred because of breaches of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), a pillar of EU competition law. The breaches were established in two separate European Commission cartel decisions.
“In one action, the relevant purchases made by the claimants were too remotely connected to the cartel in the EEA”
The first was the LCD cartel decision from 8 December 2010. In that decision the commission decided that six manufacturers of LCD panels operated an illegal cartel. This concerned certain LCD panels used in laptops, PC monitors and televisions.
The commission decided that price-fixing and other anti-competitive practices agreed and followed by members of the cartel worldwide and in the European Economic Area (EEA), which includes the EU members and other associated countries, affected direct sales of products into the EEA.
The practices also affected the use of LCD panels in end products manufactured outside the EU but later sold on the EEA market.
The other case involved the CRT cartel, which was condemned by the commission in its decision on 5 December 2012. In that case, the commission decided that eight producers of CRTs had also breached Article 101(1) TFEU by agreeing prices for the supply of colour display tubes incorporated into computer monitors and televisions.
Aggrieved companies that suffered loss and damage because of competition law breaches can bring an action for damages before the national courts of EU member states.
They can rely on the decision of the European Commission as proof of liability, and the only issues before the courts are causation and the amount of damages. These are called ‘follow on actions’.
The European subsidiaries of the iiyama companies, some incorporated in England and Wales, and Mouse Computers Co. Limited, who supplied products bought from the cartels to iiyama, brought two follow on actions in the High Court based on the LCD and CRT Commission decisions.
These claimants are involved in the manufacture, distribution and sale of electronic goods that include LCDs and CRTs.
The defendants in each action were either addressees of the CRT or the LCD decisions, or affiliates, both alleged to have participated in the relevant cartel. Some were UK-based, but most were foreign.
These defendants in the LCD and CRT actions applied before the High Court to have the actions struck out or for summary judgment, on the basis that the English courts had no jurisdiction to hear the actions as the claims related to damages incurred outside the EEA.
“Aggrieved companies can rely on the decision of the European Commission as proof of liability”
In the CRT action the High Court found the defendants were entitled to summary judgment or to have the claims against them struck out. The claimants had not purchased the relevant CRT products within the EU or EEA, and the incorporated products only arrived in Europe, if at all, much later in the supply chain.
The commission’s infringement decision related only to the implementation of the cartel in the EU and EEA, so the relevant purchases made by the claimants were too remotely connected to the cartel in the EEA.
In the LCD action the High Court took a different approach. It dismissed the defendants’ application to strike out the action or order summary judgment, because of the claimants’ argument that the cartel was implemented in the EEA.
However, the court held that insofar as the claimants contended that the implementation of the LCD cartel in Asia – distinct from its implementation in the EEA – had caused them loss, this was not recoverable under Article 101 TFEU.
The claimants in the CRT action and the claimants and some of defendants in the LCD action brought appeals to challenge the orders made at first instance in the High Court. Both appeals were joined and considered together by the Court of Appeal, as they concerned similar issues.
There were two main questions the Court of Appeal had to answer in the appeals. The court first had to decide whether the claimants had a real chance of success in claiming that EU and EEA competition law had been infringed when products had been purchased at inflated prices.
The court then had to judge if the alleged losses can be recovered in the proceedings in England and Wales.
As these appeals were against provisional orders concerning strike out or summary judgment, the court held that it could only strike out the claimants’ case if it appeared that it gave no reasonable grounds for bringing the claim.
It could only grant summary judgment in favour of the defendants if it considered there was no real prospect of the claimants succeeding.
The court said it first needed to consider whether the claims were at least arguably governed by the law of a member state or territory within the EU that itself incorporates EU law. If the claims were exclusively governed by a foreign, non-EU law they would fail, as they were expressed as claims for damages for breach of Article 101 TFEU.
The court concluded that that it would be wrong to determine this issue adversely to the claimants on a summary application, whether by strike out or summary judgment. The court believed it could not safely make the value judgment without fully examining the facts at trial.
The findings in the European Commission decisions were still only in a redacted and incomplete form, and claimants had incomplete disclosure from defendants.
“If the claims were exclusively governed by a foreign, non-EU law they would fail”
In the circumstances, the Court of Appeal was satisfied that the claims were at least arguable and should be determined at trial, on the basis that the applicable law is either English law or the law of some other EU member state.
The court then had to address of the question of jurisdiction. Could the territorial scope of Article 101(1) TFEU be applied to damage suffered by the claimants outside the EEA because they bought products from cartel members later supplied to their subsidiaries in the EEA?
The court held that this damage was recoverable in these proceedings if it was reasonably foreseeable that a foreign cartel would have effects in the EU, which are both immediate and substantial, under the ‘qualified effects’ doctrine.
In these cases it was impossible to decide whether this test was made out at a provisional stage, and their determination is not a suitable case for summary judgment.
Whether the test is satisfied will depend on a full examination of the facts, in particular the intended and actual operation of the cartel. This examination can only take place at a full trial.
The Court of Appeal therefore allowed the claimants’ appeals in both cases and dismissed the defendants’ appeal in the LCD action. Both cases will now proceed to full trial.
If the claimants could prove that the damage suffered by them inside the EEA was both immediate and substantial, they could still recover these losses in the English proceedings, notwithstanding the fact that the claimants initially bought the goods outside the EEA, but then supplied them to their subsidiaries in the EEA for sale and onward distribution.
The approval from the courts for expanding this type of potential loss is a realistic approach to dealing with the way worldwide cartels operate and how global companies procure components and other goods. Ultimately it should boost the size of damages awarded in major cartel cases in the EEA significantly.