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EU directive will fail to help consumers claim compensation

Measures aimed at encouraging victims of anti-competitive behaviour to seek compensation in the courts will fail in their current form, according to an academic from the University of East Anglia.

Every year European citizens and firms suffer financial harm amounting to several billion Euros from cartels and other anti-competitive conduct, yet few victims seek compensation for these losses in the courts due to the disproportionate costs involved.

The European Union’s Damages Directive came into force in December 2014 and member states must implement it in national law by the end of 2016. One of its objectives is to ensure the effective private enforcement of competition law by enabling access to damages claims.

However research by Dr Sebastian Peyer, published today as a working paper by UEA’s Centre for Competition Policy (CCP), finds that the Damages Directive fails in its compensation objective and does not provide enough incentives to encourage more claims.

“The rules create additional costs that will have a chilling effect on the incentives to sue, especially for consumers and corporate claimants with limited financial resources,” said Dr Peyer, a lecturer in law at the UEA Law School and member of the CCP. “Defendants tend to be large companies with deep pockets whereas victims are often, but not always, small companies or individual consumers.”

Dr Peyer argues that the directive fails to address the real issues that could potentially motivate people to sue, such as changes to rules allocating costs in litigation, and that EU countries should implement measures that go beyond the remit of the directive, for example by allowing opt-out class actions - where a large number of people affected can sue as a group - to combine small individual losses.

“If private enforcement is to become a strong second pillar of competition law enforcement and more compensation claims are desired, member states should consider introducing legal rules that go beyond the narrow scope of the Damages Directive,” said Dr Peyer, who used law and economics theory to analyse the incentives to sue created by the directive. 

Courts and legislators in some EU countries are ahead of the directive, either introducing class actions already or planning to do so in the near future. In the UK the Consumer Rights Act came into force this month, which introduces easier routes for consumers and small and medium sized enterprises to challenge anti-competitive behaviour through the Competition Appeal Tribunal, as well as a limited opt-out collective actions regime for breaches of competition law.

Dr Peyer said: “Redress schemes, such as those also proposed in the UK Consumer Rights Act, could be a more cost-efficient solution to promote the compensation of victims. Currently the directive is unlikely to encourage claims because it fails to create incentives for individuals to start legal action, so it is for the member states to put individuals in a better position. This means addressing the cost issues and the problem of claim aggregation, provided they agree with the contentious assumption that more private actions mean more effective enforcement.”

The paper ‘Compensation and the Damages Directive’ is published by the Centre for Competition Policy.



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