It is becoming a practice that companies involved in cartels are being sued by market players who have suffered losses as a consequence of a cartel and now want to recover the extra costs they have incurred. The new provisions based on an EU directive and adopted in Hungarian legislation early this year to help the effectiveness of claims for damages are slowly achieving their objective.
While cartel agreements distort the market and, as a result, may entail severe fines from the competition authority, they also cause damage to other market players and even consumers, who may have to pay higher prices for certain goods and services. Several companies participating in cartels were sued for damages on these grounds in the past, but enforcing claims proved rather cumbersome and complicated. In the last few years it was mainly the victims of public procurement cartels who tried to be compensated for the losses they sustained, but in most cases these proceedings were not a complete success.
The new provisions added to the Hungarian Competition Act at the start of the year make, however, it easier to enforce claims for damages. No wonder that as a result, several companies – mainly in the transport sector – have filed, or are planning to file, lawsuits for damages. And the stakes are high: the claims can amount to several billion forints.
Proof of losses sustained no longer required
The extent of the losses sustained by the victims of a cartel agreement has always been difficult to prove. It was hard to give an exact answer as to how much the purchase price would have been without a cartel. The parties were often lost in the details of expert opinions, without any actual result.
On the basis of the new rules, until the contrary is proved, the infringement of competition law is deemed to have a 10% impact on the price applied by the company involved in the cartel, i.e. it is assumed that the victim bought the given goods at a price 10% higher than if there had been no cartel agreement. Either party may present evidence that the amount of the loss was less or more than the 10% lump sum, but if no counterevidence is presented, the aggrieved party is entitled to the 10% lump sum award. This will prove to be an extremely powerful weapon in the hands of the victims in cartel cases.
Easier access to cartel case documents
Before the current regulations were introduced, the aggrieved players had been significantly hindered by the fact that their access to direct evidence had been limited, which in turn had made it difficult for them to prove the loss they had sustained and the amount thereof. The reason is that in such cases most of the documents are in the possession of the cartel participants, and are not available to the aggrieved party.
Proving a loss is made easier by the new provisions which provide that, in a lawsuit, the court may order anyone to present or disclose any specified document, other evidence or any specified data under their control. Consequently, aggrieved parties have the opportunity to ask for the presentation of a wide range of documents based on which the amount of the loss can be proved – which may be of particular importance when the parties intend to enforce a claim for damages in excess of the 10% lump sum.
No need to prove the infringement again
The fact that a cartel agreement was entered into is normally established by the respective competition authority in the course of its investigation. This also forms the basis for the fine imposed on the companies participating in the cartel. So far, however, the court deciding the lawsuit for damages has not been bound by the decision of the competition authority – the court may actually have come to a different conclusion. This means that in the lawsuit for damages the companies involved in the cartel could again use every means to defend themselves against the charges of cartel activity.
The new rules make the situation clear, and state that the civil courts deciding the case for damages must accept the decision taken by the competition authority in the cartel case. This means another huge improvement in the position of the aggrieved parties, as now they no longer have to prove that the cartel infringement has actually occurred – the competition authority’s decision provides a clear legal basis for that.
So what can we expect?
The outcome of the cases being launched now will probably have a substantial impact on how enthusiastically the victims of cartels will want to claim damages in the future. If in these lawsuits the courts rule that cartel participants have a liability to pay damages, this might open Pandora’s box. Last but not least, all that may also have a beneficial effect on market behaviour, as participating in cartels will become an increasingly expensive game to play.