Market actors often include clauses in contracts which determine the jurisdiction, and/or forum in which any claim arising from the contract may be heard; or clauses which prohibit reassigning a claim or joining a class action. In some situations, these clauses may make it more difficult to obtain full compensation for a competition law infringement. Antitrust victims can be forced to bring damages actions in jurisdictions or before arbitrational tribunals that have less favourable cost and evidential rules; they may also encounter language-related problems. Similarly, preventing forms of collective redress has obvious benefits for defendants whenever a large number of victims only suffered very small individual harm.
This paper, available here, explores the extent to which the aims of the Damages Directive and development of a strong EU private enforcement system in Member States’ courts might be undercut by such contractual arrangements. It argues that EU law protects consumers against clauses that could hinder the full effectiveness of the right to compensation for competition loss. In contrast, arbitration clauses and clauses relating to collective redress can pose significant challenges to the effectiveness of the right to compensation in non-consumer situations.
Section 2 describes both the Damages Directive and how EU law treats consumers and businesses differently.
The Damages Directive seeks to ensure that victims of infringements of competition law can effectively exercise their right to compensation. To promote this goal, the Directive contains provisions on disclosure of evidence when victims claim compensation, clarifies the value of decisions of national competition authorities as proof of an infringement, sets limits on limitation periods, addresses liability rules in cases where damages have been passed on, and adopts rules to facilitate consensual settlements.
In parallel, the EU has numerous rules that protect consumers or establish different legal regimes for consumer contracts. In particular, the Directive on Unfair Terms in Consumer Contracts sets out that a number of unfair clauses are presumed to be invalid if contained in a consumer contract – including clauses limiting the ability of consumers to bring claims before the courts. Thus, distinguishing between consumers and non-consumers is vital when examining whether clauses on jurisdiction, arbitration, and preventing collective redress may hinder the effectiveness of the Damages Directive.
Section 3 provides an overview of jurisdictional clauses in commercial situations.
The main EU rules on jurisdiction over damages actions can be found in the (Recast) Brussels Regulation. The starting point of the Regulation is that a defendant should be sued on their place of residence. However, the Regulation provides several other places where lawsuits can be brought. For example, in matters relating to tort, a person may be sued in the Member State where the harmful event occurred; thus, antitrust damage claims can be brought before a court in a Member State where the competition law infringement took place. Furthermore, in cases with numerous defendants, all of the defendants may be sued in the same court where any one of them is domiciled, provided that the claims are so closely connected that a joint proceeding is necessary; thus, where a cartel has spread across several Member States, all parties can be sued in any of the Member States where the cartel took place. More importantly for our purposes here, the Regulation gives precedence to jurisdiction clauses whereby the parties agree on the jurisdiction where any disputes arising from the contract will be heard.
As regards competition damages cases, the ECJ restricted the applicability of jurisdiction clauses in CDC Hydrogen Peroxide. The court concluded that a general jurisdictional clause which refers to all disputes arising “from” a contract does not extend to tortious liability that a party has incurred because of its participation in an unlawful cartel – as long as the claimant was not aware of the competition law infringement at the time of the contract/agreement of the jurisdiction clause. This is because, since the loss caused by the infringement was not foreseeable, litigation relating to damages from the cartel cannot be seen as stemming from the legal relationship created by the contract. On the other hand, in Apple v MJA the ECJ held that the situation in abuse of dominance damages actions is different. In the latter case, the harm can materialise in contractual relations that an undertaking in a dominant position establishes and by means of contractual terms – i.e. the harm results foreseeably from the legal relationship created by the contract containing the jurisdiction clause. As a result, and in short, pre-agreed jurisdictional clauses are generally binding: a) where they specifically address competition law violations; or b) the antitrust dispute was foreseeable because it materialises and is implemented in a contractual relationship – subject to the imposition of the jurisdictional clause itself not having been abusive (in which case it will be null and void).
Section 3 also provides an overview of arbitration clauses in commercial situations.
Broadly speaking, the principles governing the application of jurisdiction clauses are likely to extend to arbitration clauses as well, particularly if the clause was adopted after the infringement was discovered. If a clause is adopted prior to the infringement being uncovered, however, the rules governing its validity are unclear. EU courts have not yet taken a position on arbitration clauses, which fall outside the scope of the (Recast) Brussels Regulation.
In any event, the principle of effectiveness should limit the full application of arbitration clauses, as it does with jurisdiction clauses. The authors develop a distinction between the risks introduced by arbitration clauses to the full effectiveness of EU competition law, and to the principle of effectiveness of EU law more narrowly construed as restricting national procedural rules in competition damages claims. The former principle might argue against the arbitrability of certain private competition claims on a number of (policy) grounds, while the latter may merely require national courts to set aside national procedural rules upholding an arbitration clause when arbitrating the case would prevent compensation or make it excessively difficult. The authors review EU and national case law on whether arbitration clauses may infringe upon the effectiveness of the right to compensation enshrined in EU law, and conclude that a broad variety of approaches to the validity of arbitration clauses in antitrust damages claims has been adopted by national courts. In short, the validity of arbitration clauses depends on the courts’ assessment of the impact of arbitration clauses on the effectiveness of the EU right to competition damages – and these assessments vary widely.
The authors then move on to discuss situations in which arbitration clauses may run afoul of the principle of effectiveness of the right to compensation for competition harm. In particular, the mandatory recognition of arbitration clauses in national procedural laws could create obstacles to compensation by depriving claimants of the safeguards made available by the Damages Directive for victims of a competition law infringement. This would be particularly the case in the context of follow-on proceedings, where the infringement decision is binding and a presumption of harm is established. Furthermore, it is difficult to see how arbitral tribunals can order the disclosure of the evidence necessary to establish harm in the same way as a national court; or how they will be bound by the substantive rules concerning the assignment of liability and quantification of loss.
This does not mean that arbitration has to be rejected a priori for competition disputes or disputes concerning competition damages. Notwithstanding, there is a need for firm legal safeguards so that EU antitrust damages claims are not made substantially less effective and more burdensome by defendants or third parties invoking arbitration clauses. To address this, one could try to borrow some guidance from existing case law. Where parties have agreed to arbitrate after the discovery of a cartel, the parties have deliberately chosen to forgo the protections offered by the Damages Directive. Thus, in such cases EU law should not prevent reliance on an arbitration clause before national courts in commercial disputes. However, arbitration clauses which were agreed before the competition infringement is discovered should not automatically be treated in this way; in these cases, the national court will need to decide on a case-by-case basis whether an arbitration clause complies with EU law.
Section 4 briefly addresses how the situation is different when victims are consumers.
EU consumer law addresses questions of whether arbitration, jurisdiction or collective action clauses can prevent consumers from bringing competition damages claims. The result is that consumers are well protected compared to B2B situations. To begin, consumers are only bound by jurisdiction clauses in a limited number of situations. As a rule, consumers can bring claims when they are domiciled or in the Member State in which the contracting party is domiciled, except if: (i) a jurisdiction clause was entered into after the dispute arose; (ii) if the clause allows only the consumer to bring proceedings in another jurisdiction; (iii) if both the consumer and the other party were domiciled in the State of jurisdiction when they concluded the agreement.
Additional protections are made available by the Unfair Contract Terms Directive, which requires national courts, of their own motion, to consider whether a jurisdiction clause is unfair, and whether it prevents a consumer from obtaining an effective remedy for a competition law infringement. Further, this Directive establishes a presumption of invalidity for arbitration clauses in consumer contracts. In Sebestyén, the Court held that a national court must examine the arbitration clause in a consumer contract in order to determine whether it has as its object or effect to hinder a consumer’s right to take legal action or exercise any other legal remedy. This means that the national court is required to review the fairness of the arbitration clause and not to refuse jurisdiction a priori. A different outcome only seems possible where it can be shown that the arbitration clause has been negotiated on an individual basis. However, it would be for the defendant in such a case to prove that the term was individually negotiated, and that the consumer understood the implications of the clause when entering into the agreement.
Consumer contracts may also contain clauses that aim to prevent consumers from participating in class actions. In addition, contracts may prevent consumers from assigning their right to damages to third parties. This latter type of clause will likely be unlawful under the Unfair Contract Terms Directive, which sets out that that any clause that excludes or hinders a consumer’s right to take legal action shall be regarded as unfair, particularly when the damage is rather small since it is spread out across a large class.
- Section 5 explores alternatives to deal with these clauses.
Clauses limiting where to bring private enforcement proceedings can have the effect of either limiting the right to compensation or the deterrent effect of private enforcement. When this is the case, the current system may need to be realigned in a more claimant-friendly way. The authors identify two routes for this: to limit the use of such clauses in business-to-business scenarios, and to promote the role of consumers in enforcement. However, private autonomy speaks in favour of allowing such clauses in dealings between commercially sophisticated entities. The authors thus favour promoting consumer claims, but consider that, more than additional protections regarding where to bring competition claims, what is needed to promote consumer engagement is for consumers to be able to bring collective actions.
I cannot really comment on this paper – because one of the authors is a good friend of mine and, as you will see from the thank you note, I provided feedback on earlier drafts. Suffice to say I think it is an interesting and insightful paper which comprehensively discusses the issues surrounding contractual clauses governing where and how to bring competition claims. I found the distinction between disputes involving consumers and non-consumers particularly interesting.
In any event, I think one substantive comment is in order. The authors adopt a position eminently critical of arbitration in the context of EU law (and elsewhere, actually) – as a matter of policy (i.e. as creating obstacles to the full effectiveness of EU competition law) and law (i.e. as creating obstacles to the effectiveness of the right to compensation). This is a valid position, of course. However, I am not sure that some of the authors’ concerns are fully justified. For example, and unlike what one would think reading the paper, arbitral tribunals can not only order disclosure of evidence (through orders implemented by national courts) but may also draw adverse inferences from failures to provide evidence in a way that may not be available to national courts. Also, arbitral tribunals will have to apply some law, which will typically contain the substantive provisions the authors are concerned defendants might evade; and if the tribunal fails to apply such rules, the arbitral award can virtually everywhere be quashed for failing to apply mandatory provisions (as in Eco Swiss).
Of course, in some situations recourse to arbitration clauses can be used to detract from the effectiveness of the right to compensation – but that is a matter, as the authors put it very well, of creating legal safeguards to ensure that damages claims are not made substantially less effective and more burdensome by defendants or third parties. The authors’ proposals in this regard strike me as eminently sensible and even-handed, to the point where they seem to conclude that no particular reform is required regarding the type of clauses the article discusses at length – instead, what we need is more collective enforcement, something I agree with. However, to my eyes this makes the length and critical tone of the section devoted to arbitration feel out of place – almost as if it belongs in a different paper.