Mattress foam cartel claim not suitable for fast-track damages procedure, CAT rules

Out-Law News | 20 Jun 2016 | 12:05 pm | 4 min. read

The Competition Appeal Tribunal (CAT) has refused an application by six English mattress makers to use its new fast-track procedure (FTP) to claim damages for anti-competitive behaviour, given the complexity of the underlying issues.

The CAT said that the case against foam producer Vita raised “a wide range of factual issues”, meaning it was unlikely that it could be disposed of within the three-day timeframe required by the fast-track route. The application is only the second to proceed to a hearing since the new procedure was introduced in October 2015 as previous cases have been settled quickly, and is the first where allocation to the fast-track has been refused.

"This decision is not particularly surprising, given that it was always going to be difficult to try to fit a cartel damages action into the confines of the fast-track procedure," said competition law expert Ben Lasserson of Pinsent Masons, the law firm behind "It is, nevertheless, helpful in terms of guidance from the CAT as to the way in which it will seek to approach fast-track applications generally."

The judge in this case, Mr Justice Roth, found it helpful to provide some additional guidance about the use of the fast-track procedure given that the case was heard at an “early stage” in its development and to correct some misunderstandings evident from the applicants’ submissions. In particular, the mattress companies had been mistaken that the three-day limit applied per applicant and not to the case as a whole, and in their submission that all follow-on claims for cartel damages should be allocated to the fast-track, he said.

“The one case so far directed to be subject to the FTP … was an abuse of dominance claim where the question of quantification of damages has been split off to be heard later,” he said. “Hence the relief there sought within the context of the FTP is purely injunctive relief, and the economic expert evidence is limited to the question of market definition and dominance, which in that case is very confined. There are also only two parties. For all those reasons, that case could be heard within three to four days.”

“I do not wish to suggest that damages cases may not be subject to the FTP; indeed, the [tribunal guidance] expressly envisages that possibility. But when one is concerned with damages for a cartel, particularly where it is a cartel of several years’ duration, I think it is unlikely to come within the criteria for the FTP notwithstanding that it is a follow-on claim. There may be rare follow-on cases where such a claim could qualify … but those examples are clearly very far removed from the present case,” he said.

It was also relevant that there was “nothing urgent” about the case, which related to damages suffered between 2005 and 2011, the judge said.

The ability to allocate competition law proceedings to a ‘fast track’ procedure was one of several new powers given to the CAT under the 2015 Consumer Rights Act (CRA). Claims allocated to the fast track must be heard within six months, and costs recoverable by the winning party will be capped at a level set by the CAT.

The CAT can allocate a case to the fast track either on its own initiative, or on the application of one of the parties. The procedure was designed primarily to benefit small and medium-sized businesses (SMEs) complaining of competition law infringements, but the CAT must also consider whether the case can be heard in three days or less and the complexity of the issues involved before deciding whether to allocate the case to the fast track.

This case involved a claim for damages as a follow-on to a finding by the European Commission of illegal cartel behaviour relating to the supply of flexible polyurethane ‘comfort’ foam. The investigation had been opened as a result of a leniency application by Vita, which was granted immunity in the proceedings and so did not receive any fine despite a finding by the Commission that it had participated in the cartel between 26 October 2005 and 30 April 2010.

Subsequently, six English companies that purchased polyurethane comfort foam from Vita during the period of its participation in the cartel began their claim for damages in the CAT, relying on the Commission’s findings. Every one of these companies is an SME. However, Mr Justice Roth said that the size of the companies was “only one factor” that the CAT had to consider as part of an application for allocation to the fast-track, and it “by no means follows that a case brought by one or more SMEs comes within the FTP”.

Given the issues at stake as part of the damages claim, and the number of witnesses likely to be called by each affected business, the judge said that the trial was “likely” to take two weeks, rather than the three days provided for by the fast-track procedure. It was also incorrect for the six parties to argue that they should be allocated three days each, leading to an “effective overall threshold” of 18 days, the judge said.

“This approach is fundamentally misconceived,” he said.

“The guideline is for the trial of the case. Were it otherwise, by grouping together ten claimants who were victims of a cartel, which is by no means a far-fetched scenario given the size of the market a cartel can affect, it could be said that a trial lasting six weeks would qualify for the FTP. Although three days is not an absolute limit, it should be stated emphatically that a case of such longer duration is not the kind of case that is suitable for the FTP,” he said.

The judge said that it was important to bear in mind that “one of the distinctive features of the FTP is that it is designed to be, as its name indicates, much faster than ordinary litigation”.

“A substantive trial takes place within six months, and the case therefore effectively jumps the queue,” he said.

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