“We do not wholly accept that. DAF’s expert evidence on the theory of harm is based on speculation as to how the Infringement would have worked within DAF and then draws conclusions on such speculation as to how the Infringement would not have had an effect on prices. We think that any such theory would be more soundly based on what actually happened factually within DAF in terms of how the information was used and how the Infringement managed to continue over such a long period, presumably for the mutual benefit of all the Cartelists.”
“We take no account of this speculation and it is an inappropriate way of approaching this issue by DAF. The burden remains on the Claimants to prove causation but where DAF has elected to call no evidence as to how the Cartel was operated by DAF and how it used the information to its advantage it is not open to its Counsel to speculate as to what actually happened. This was highly commercially sensitive information that was disclosed among the Cartelists over a long period of time. The Commission found that this information enabled the Cartelists to be better able to calculate their competitors’ approximate net prices. Further, the basis of a finding of an infringement by object is that it is very likely to have had negative effects on transaction prices. Therefore, in our view, this means that, if DAF wished to argue that, because of the way it used the confidential information obtained through the Cartel, there was no effect on prices, it would have had to adduce factual evidence to such effect. In other words, DAF’s admissions and the Settlement Decision establish a prima facie case that the Cartel had an adverse effect on transaction prices. 117. That is not to say that DAF is unable to rely on its expert evidence to argue that the data shows that there was no Overcharge paid by these Claimants. But even their expert was unable to explain or come up with a rational economic basis for DAF’s participation in the Cartel over such a long period. While Prest does not entitle the Claimants to say that they have therefore proved that DAF’s participation in the Cartel led to higher prices it does mean that it is not open to DAF to argue that, as a matter of fact, the information was not used by it to achieve prices that were higher than they would otherwise have been without that information exchange.”
“173. Once the cause of action has been established in this way, the quantification of damages has to be considered. There is no dispute that damages are to be assessed on a “broad axe” basis rather than on the balance of probabilities. As Marcus Smith J said in BritNed at [12(6)]: “During this quantification exercise, English law moves away from the balance of probabilities. An assessment or quantification of damages involves the taking into account of all manner of risks and possibilities…”
“Actionable loss has nothing to do with the quantification of damages. If the necessary elements of the tort are made out, the claimant or claimants have a right to damages, no matter how difficult or recondite the assessment process”. 174. The “broad axe” principle originated from Lord Shaw’s statement in Watson Laidlaw & Co Ltd v Pott, Cassels & Williamson [1914] SC (HL) (18) that quantification of damage is to be “accomplished to a large extent by the exercise of sound imagination and the practice of a broad axe”
“180. SPO only becomes relevant if the Claimants have proved the Overcharge… Damages for breach of statutory duty or tort are compensatory. The Claimants are entitled to damages that will put them in the position they would have been had the tort not been committed – see Sainsbury’s at [194]. The prima facie measure of the Claimants’ loss is the Overcharge – see Sainsbury’s at [198] – [199] – and it is not necessary for them to prove any consequential loss of profit.”
“(1) It is an aspect of the assessment of damages, rather than a defence strictly so-called; it is a form of mitigation of loss: “pass-on is an element in the calculation of damages and the normal rule of compensatory damages applies to claims for breach of statutory duty” – [196]; (2) In relation to national claims for damages for breach of competition law, Member States may lay down procedural rules governing actions which safeguard rights derived from EU law, but those national rules must comply with the principles of equivalence and effectiveness. The principle of effectiveness requires that the rules of domestic law “do not make it practically impossible or excessively difficult to exercise rights guaranteed by EU law” - [188]; (3) Claimants suffering from an overcharge are not required to prove that they have suffered an overall loss of profits as a result. If it were otherwise, claimants might face an insurmountable burden in establishing their claims and “such a domestic rule [… ] would very probably offend the principle of effectiveness. It is the duty of the court to give full effect to the provisions of Article 101 by enabling the claimant to obtain damages for the loss which has been caused by anti-competitive conduct”: [209]; (4) The legal burden is on the defendant to plead and prove that the claimants have mitigated their losses by passing-on the overcharge, although the Supreme Court went on to say that this should not be overstated and there is a “heavy evidential burden” on claimants once the defendant has raised the issue of mitigation: [211] and [216].”
“(4)… We consider that the legal definition of a passed on cost differs from that of the economist in two ways: (i) First, whereas an economist might well define pass-on more widely (i.e. to include cost savings and reduced expenditure), the pass-on defence is only concerned with identifiable increases in prices by a firm to its customers. (ii) Secondly, the increase in price must be causally connected with the overcharge, and demonstrably so. … [The] risk of under-compensation, we consider, to be as great as the risk of overcompensation, and it informs the legal (as opposed to the economic) approach. It would also run counter to the EU principle of effectiveness in cases with an EU law element… (5) Given these factors, we consider that the pass-on “defence” ought only to succeed where, on the balance of probabilities, the defendant has shown that there exists another class of claimant, downstream of the claimant(s) in the action, to whom the overcharge has been passed on. Unless the defendant (and we stress that the burden is on the defendant) demonstrates the existence of such a class, we consider that a claimant’s recovery of the overcharge incurred by it should not be reduced or defeated on this ground.”
“186. Importantly, the Court of Appeal did not interfere with (indeed it seemed to endorse it – see [340]) the test for causation set out in [484(4)] of CAT Sainsbury’s that there must be an identifiable increase in prices charged by the merchant and that such increases are “causally connected with the overcharge, and demonstrably so.”
“(i) a merchant can do nothing in response to the increased cost and thereby suffer a corresponding reduction of profits or an enhanced loss; or (ii) the merchant can respond by reducing discretionary expenditure on its business such as by reducing its marketing and advertising budget or restricting its capital expenditure; or (iii) the merchant can seek to reduce its costs by negotiation with its many suppliers; or (iv) the merchant can pass on the costs by increasing the prices which it charges its customers.”
“193. The focus therefore of the Supreme Court’s approach is the effect on profit margins of the overcharge. However, the loss itself is measured by reference to the overcharge, not the claimant’s loss of profits. There is a slight mismatch in that the loss is the overcharge whereas the mitigation is assessed by reference to whether decisions taken by the claimant in response to the overcharge have served to lessen the initial loss of profit. As noted above, the Supreme Court held that a claimant was not required to prove the effect of the overcharge on its profits, as this might offend the principle of effectiveness, and yet it seems that for pass-on it has to meet a case that it has not taken consequential steps that would have resulted in it suffering lower profits as a result of the overcharge. … 195. We are concerned in this case with category (iv), as they were in Sainsbury’s. There is no dispute that this is a species of pass-on but as the Supreme Court recognised, and is a live issue in this case, such a form of pass-on may result in reduced downstream sales volume and consequent further losses to the Claimants. That is why the decision to increase prices in response to a specific increased cost is not a straightforward one as it will necessarily involve the balancing of a number of considerations, in particular whether profit maximisation is best achieved by passing on the full increase in costs or whether it is better to pass on less or none of the increase to ensure no loss, or a reduced loss, of volume. Businesses have to make these multi-factorial decisions the whole time and the law needs to delineate how close the connection should be for causation to be established.”
“215. … The issue of mitigation which arises is whether in fact the merchants have avoided all or part of their losses. In the classic case of British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd[1912] AC 673 , at 689 Viscount Haldane described the principle that the claimant cannot recover for avoided loss in these terms: “[W]hen in the course of his business [the claimant] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account …”
“…for a defendant to be permitted to raise a plea of mitigation in this way in general terms, there must be something more than broad economic or business theory to support a reasonable inference that the claimant would in the particular case have sought to mitigate its loss and that the steps taken by it were triggered by, or at least causally connected to, the overcharge in the direct manner required by the British Westinghouse principle.”
“…some plausible factual foundation for the application of the broad economic theory in the way required to satisfy the British Westinghouse test that is relied upon, and for there being a causative connection between overcharge and cost cutting.”
“33. Pulling the strands together, the burden of proof when pleading causation is on the defendant to demonstrate: (a) that there is a legal and proximate, causal, connection between the overcharge and the act of mitigation; and (b), that this connection is "realistic" or "plausible" (the two phrases being interchangeable) and carries some "degree of conviction"; and (c) that the evidence is more than merely "arguable". The assessment will be fact and context specific and, to foreshadow a point I refer to later, may depend upon the characteristics of the industry or sector in question. It may be easier to show a pleadable case of mitigation in some circumstances than in others.”
“The Supreme Court in [215] relied on British Westinghouse, a contract case, and emphasised the words in that judgment “arising out of the transaction” to indicate that, for this form of mitigation, there had to be a causal link between the “transaction” in that case, or the breach of statutory duty in competition cases, and the action taken to diminish the loss. It is the next sentence that is a little surprising: “But the question of legal causation is straightforward in the context of a retail business in which the merchant seeks to recover its costs in its annual or other regular budgeting.”
“213… The Supreme Court limited its comment as to legal causation being straightforward to a retailer seeking “to recover its costs”
“223. Accordingly, we consider that DAF must prove that there was a direct and proximate causative link between the Overcharge and any increase in prices by the Claimants. That means that there must be something more than reliance on the usual planning and budgetary process, into which the Overcharge was input and at some point prices increased. We think that there is substance to the point made in CAT Sainsbury’s as to the identification of persons to whom the Overcharge has been passed as being a relevant factor in relation to the strength of the causal connection. The process is more properly one of identifying the persons who have suffered loss by paying the Overcharge and therefore who should be compensated by the defendant.”
“228. By way of summary on the legal test for causation in relation to a pass-on form of mitigation defence, we respectfully conclude that DAF must prove a direct and proximate causative link between the Overcharge and any increase in prices by the Claimants. It is not enough for DAF to say that all costs, including increases in costs, are fed into the Claimants’ or their regulators’ business planning and budgetary processes. There must be something more specific than that and there are a number of potentially relevant factors that it can rely on including: (1) Knowledge of the Overcharge or the specific increase in the cost in question; (2) The relative size of the Overcharge against the Claimants’ overall costs and revenue; (3) The relationship or association between what the Overcharge is incurred on and the product whose prices have been increased; and/or (4) Whether there are identifiable claims by identifiable purchasers from the Claimants in respect of losses caused by the Overcharge. 229. This is not an exhaustive list of factors but they do seem to us to be the most relevant ones to this case. In relation to the last point (4), we think that, even though there are no such claims before us, we need to be mindful of the effect of our decision in relation to pass-on defences on other claims. The danger that is inherent throughout this process if we decide against any such defences is that the Claimants are overcompensated and the potential other claimants are deprived of their claims. The converse is equally fraught, in that if we allowed some or all of the pass-on defences, DAF may escape paying compensation to all those who suffered loss as a result of the Overcharge. 230. We consider the above factors when dealing with this issue below and particularly in our analysis of the expert evidence… What the experts were seeking to show was whether the downstream prices charged by the Claimants were higher in the actual world with the Overcharge than they would have been in the counterfactual where there was no Overcharge. But even if that can be shown, it will have to be demonstrated whether there is the necessary proximate and direct causative link required by the legal test for causation, based on the above factors.”
“256. … This situation provided Professor Neven with insights and access that, as an independent expert, we could reasonably have expected him to use in order to assist us. We examine in detail the theory of harm that he puts forward in his evidence in this case and it is safe to say that his conclusion that it is implausible that there were any effects in the UK and on the Claimants from the Infringement is a surprising one. His theory provides a justification for the conclusion that he draws from the data that there was no Overcharge throughout the period of the Infringement. But we are left with the lingering suspicion that, as was disclosed very late on in these proceedings, he had come up with his theory of harm back in 2013 or 2014 (and certainly well before he had access to detailed empirical data), and that has shaped his approach to the expert evidence he has provided on the central issues in relation to the Overcharge.”
“365. In our view, while it is clear that there are problems around the AS/400 dataset and the consequent lack of granularity on truck level costs, it is necessary to attempt a B-D analysis because of the advantages of comparing prices unaffected by the Infringement. Some caution must therefore be exercised in relying on the results obtained in such an analysis but we are satisfied that with the sensitivities carried out by Mr Harvey, we can draw inferences from such evidence, despite its imperfections. 366. Mr Harvey’s B-D model does have the advantage of not being tainted by problems associated with the GFC (as to which see further below) and the use of separate B-D and D-A models might also capture the possibility that the Infringement effect was not symmetrical.”
“the treatment of currency factors in the regression models was a critical issue because of the ‘identification’ problem that arises when trying to disentangle exchange rate effects from cartel effects. This was notably the case at the start of the Cartel period, when coincidentally the Pound strengthened against the Euro over the period from 1996 to 1998.”
“381. How long it actually takes for Pound prices to adjust to exchange rate changes through the competitive process depends on a variety of institutional and competitive factors, but Mr Harvey’s effective assumption that the adjustment is instantaneous can be seen as an extreme one. Hence, his approach creates a risk that he has found a cartel effect in the early part of the Cartel period when such did not exist. 382. By contrast, Professor Neven’s approach of using DAF’s budget exchange rates in his regression model, means that the influence of the exchange rate change on incentives is suppressed for a year… … 385. DAF and Professor Neven criticised Mr Harvey’s modelling approach for imposing an extreme solution... But Professor Neven was not able to offer a definitive account of how quickly any such profit windfall should be dissipated under normal competitive conditions. This is indeed a complex question that does not generate an obvious or simple solution. 386. Viewed this way, the choice between Mr Harvey’s and Professor Neven’s approaches is one between two imperfect alternatives. Both are capable of reaching a misleading conclusion about cartel effects, but in opposite directions, and we note that the bias in each case happens to assist the experts’ respective clients’ positions. Importantly, neither approach fully solves the underlying identification problem that arises from the coincidence of the start of the Infringement and an appreciable shift in the exchange rate.”
“396. Mr Harvey did not, and could not, introduce a standalone control variable for the market exchange rate in order to address the identification problem. He said that his model cannot control for the exchange rate because of the correlation between the exchange rate and the Infringement. He therefore accepted that there are difficulties in distinguishing between the exchange rate and the Infringement. Professor Neven agreed that in the context of Mr Harvey's model it would be difficult to disentangle the exchange rate and the Infringement, because of the correlation between these variables. However, he said, correctly, that this is a problem of Mr Harvey's own making.”
“407. There was voluminous evidence adduced on this subject... But it really comes down to the best method of capturing what was actually going on, consistent with the way that DAF operated its business within a context where all of the significant suppliers to the UK market relied substantially or entirely on production costs that were incurred in currencies other than the Pound. The objective is to identify any effect on prices caused by the Infringement and in this context that means how best to remove the effect of exchange rate changes on prices. Whether the conversion is to Pounds or Euros has a highly significant effect on the outcome, which in itself perhaps indicates that either route is an extreme one and that the correct conclusion is somewhere between those extremes. As we said above there may not be a right way of doing this but we recognise that the experts, in order to perform their regression analyses, had to use one currency for all the variables in the model. In that sense they are both driven to an extreme position. 408. We consider that Mr Harvey’s approach has a superficial attraction... But in terms of the identification problem, Mr Harvey’s approach to exchange rate changes is probably more problematic than Professor Neven’s in this regard. Mr Harvey acknowledged that it is implausible that actual Pound price adjustment in the truck prices negotiated between UK customers and DAF would be instantaneous. Mr Harvey’s approach does “hardwire” the adjustment from Pounds to Euros prices... 409. Professor Neven’s modelling approach has greater flexibility... However, as we note above, there is no definitive solution to the challenge of how to solve the identification problem caused by simultaneous exchange rate and Infringement events, and it is arguable that Professor Neven’s reliance on DAF’s budget rates is also a restriction that could mask the way that price competition might work between truck suppliers in a competitive market. 410. Accordingly, we do not say that one approach is right and the other wrong. Instead, we are left with the feeling that the answer is more nuanced than that and that the Infringement effect lies somewhere between the two positions on the basis that neither is truly capable of addressing the problems and difficulties inherent in this situation of having to convert into one currency or another.”
“416. In relation to the GFC, Professor Neven relied simply on his existing standard demand controls. He considered they were sufficient to capture the effect of the GFC as it was essentially a demand shock. Mr Harvey adopted a radically different approach because of the “unprecedented” event of the GFC which he considered could not adequately be dealt with by way of standard demand controls. Instead, Mr Harvey used dummy variables for each of the years 2008, 2009 and 2010 which had the effect of taking those years out of account for the purpose of measuring the Overcharge.”
“420. Mr Harvey’s initial intuition was that the standard demand controls would be sufficient for the GFC effect. It is concerning that this only emerged at the hearing while he was giving evidence on this area. He disclosed for the first time that he originally ran his model with the standard demand controls in place and arrived at an Overcharge estimate of between 1 and 2%. This result was not referred to in his Reports. 421. He then decided that the demand shift during the GFC was so profound that his demand controls were not adequate in these years, so he made an ad hoc adjustment to his model to include additional dummy variables in the three GFC years: 2008 to 2010. In effect, this meant that his model gave up on any attempt to measure the effect of the Cartel in this period, since the dummy variables for these years would be equally effective in capturing the GFC and Infringement effects that arose in those years… 422. The adoption of GFC dummy variables in Mr Harvey’s model also crucially means that the options to assess a GFC effect separately from the end of the Infringement is eliminated, creating a clear identification problem. Similarly, Mr Harvey’s GFC dummy variables also compromise the ability of the model to measure the impact of the sharp fall in the value of the Pound against the Euro in 2008… 423. Having implemented this change to his model, Mr Harvey then found a higherInfringement effect of 6-14%, depending on the truck family... 424. Professor Neven criticised this ad hoc approach because it effectively absorbed all the variability in prices in trucks for these years... 425. There is obvious appeal to this criticism, and it is inescapable that Mr Harvey’s approach does appear to have had the effect of shifting the goalposts ex post after his original model using the standard demand controls reached an inconvenient result. …. 427. However, the fact that there are concerns with Mr Harvey’s GFC dummy variables does not rule out the possibility that the standard demand controls might be unreliable in capturing the abnormal effects of the GFC… This is an issue that can best be informed by reference to the factual evidence rather than the technical dispute between the experts’ views on the specification of their regression models.”
“436. Professor Neven did seek to address this by proposing various ways to define “abnormal” demand... This is in principle a reasonable and constructive approach to the GFC problem. 437. However, the specific alternative approaches employed by Professor Neven never really identified a satisfactory alternative measure… 438. The wider concern of [Professor Neven’s] approach is as to whether demand levels can really capture the dynamics that might drive changes in pricing policies, and the possible interactions of demand levels and order cancellations…”
“439. In summary, we have concerns about Mr Harvey’s approach to the GFC problem but understand why he has done that and do not wholly reject it, as DAF invites us to do. Whilst we are unhappy with the way in which Mr Harvey changed his modelling approach only after discovering that the standard approach yielded results that were unhelpful to his client, and with the lack of transparency in the way this was done, and whilst DAF makes valid criticisms of the rather blunt methodology adopted by Mr Harvey of using the dummy variables for the full three years, 2008 to 2010, of the GFC, we consider that the GFC plausibly did have effects on pricing dynamics that would not be well captured by demand controls that work across normal demand fluctuations. 440. Like with the exchange rate debate, there are legitimate arguments on both sides and we do not accept Mr Beard KC’s characterisation of Mr Harvey’s approach as “plainly misconceived”
“462. Overall, we find that the increase in price-cost margins that both experts agreed arose when new emissions standards were introduced, coupled with the admitted and plausible evidence that truck manufacturers did seek to coordinate on the truck price increases that should be associated with these standards, provide a compelling case for the emissions premia to be treated as part of the Overcharge.”
“473. However, we consider that DAF’s failure to provide any evidence as to how the Cartel operated, and particularly in this respect as to how it affected the pricing for the whole truck, including bodies and other options, leaves us in the dark on this question. The most natural approach to take here, given the absence of that evidence is to consider truck bodies equivalently to other extras that were purchased from DAF by Royal Mail. If the Infringement took effect through a mechanism linked to list price changes, there is no convincing evidence for us to reject the possibility of such an effect also applying to truck bodies. Had DAF chosen to share more information on the coordination infrastructure surrounding the Infringement, one might have been able to take an alternative view, but this is not the case. We do think that DAF should be held to what it signed up to in the Settlement Decision and this did not clearly exclude bodies from the scope of the Infringement.”
“There are sound a priori reasons for expecting that a concerted attempt by all the major European truck suppliers to restrict price competition that persisted over a 14-year period would to some extent have succeeded in materially affecting transaction prices. Further, whilst there are legitimate criticisms to be levelled at Mr Harvey’s estimates of the effect, particularly with regard to the way his analysis approached exchange rate issues, we also consider it is clear that these criticisms do not justify the extreme approach of dismissing all positive Overcharge results.”
“…As we made clear in the sections above on exchange rates and the GFC, the true value of the Overcharge we believe lies somewhere between the two experts’ diametrically opposed positions. In the circumstances, we have no choice but to make a judgment based both on the evidence that was presented in the experts’ models, and on a wider appreciation of the factual context and witness evidence.”
“484. In relation to the exchange rates issue we concluded that, whilst neither expert’s approach was right, Professor Neven’s position has more merit than that adopted by Mr Harvey; GFC was more evenly split. We therefore consider that a fair and reasonable broad axe view on Overcharge comes out at 5% for both Claimants (ie approximately half of what they are claiming). 485. We have no reason to adjust the profile of this Overcharge between the different years of the Infringement, and indeed to do so would imply a greater precision to the broad axe approach than we consider is justified, given the substantial imperfections in the data available and the complexity of the task.”
“neither of the Claimants knew anything about the Infringement or the Overcharge at the time”, nor of any “particular increase in their truck costs”
“The question of identifiable claims by identifiable purchasers is an important albeit not necessary factor. The factual question with which we are concerned is, as defined by the Supreme Court in Sainsbury’s, whether by passing-on the cost to their customers the Claimants “transferred all or part of [their] loss to others”
“…were agreed that they were engaged in an analysis of what would have happened in the counterfactual if there was no Overcharge. As there were regulatory price controls in place for much of the Infringement period, the question is largely whether there would have been a different outcome to the respective regulator’s price control in the counterfactual, as the Claimants tended to price up to the price cap.”
“572. As we have already said, in relation to the four factors identified in [550] above, none of them are present in this case. The absence of knowledge, together with the tiny size of the Overcharge, means that there was obviously no specific decision by the Claimants to increase prices in response to the increase in costs. Nor is there any direct association between truck costs and the products sold by the Claimants, even though an element is properly attributable to each product. And even if it can be shown that there was an increase in prices because of an increase in costs, it will be impossible to identify which prices in relation to which specific products actually increased because of the Overcharge. Therefore, we find it difficult to see how there can be sufficiently identifiable purchasers from the Claimants who could make a claim in respect of the Overcharge or to whom it could be said that the loss suffered by the Claimants had been transferred. 573. In the circumstances, we do not think that DAF can satisfy the legal test for causation which requires the Overcharge to be a direct and proximate cause of the increase in specific prices. Even if, as a matter of forensic accountancy, DAF is able to show that the miniscule Overcharge can be traced through the series of internal steps, judgments and regulatory intervention resulting in a higher price setting, the absence of the four factors means that the Overcharge is too remote from the downstream prices. While the four factors are not themselves decisive or necessary, we think that in a situation where none are present, the evidence of factual causation needs to be that much stronger so that the requisite proximity can be established. 574. We will still examine the evidence and the experts’ opinions to see if it is strong enough to overcome the absence of the relevant factors we have identified. Despite Mr Bezant’s careful, meticulous and professional approach to the material that he had, we are clear that his evidence does not sufficiently bridge the gap between the Overcharge and downstream prices so as to establish on the facts the requisite proximity to satisfy the legal test for causation.”
“There is a further problem for DAF’s case. The price control is an overall cap on Royal Mail’s revenue but it does not dictate what prices Royal Mail must set. It was accepted by Royal Mail that it generally sought to recover the maximum allowed revenue and therefore would price up to the cap. But this could be quite challenging as Royal Mail would have to predict sales volumes and the mix of products and assess the impact on demand of price changes. This requires a substantial degree of commercial judgment and imprecision is inherent in the process. Far from it being a mechanical exercise that an increase in a tiny amount of costs will inevitably feed through to the price cap, the price setting process for each product is much more complicated than that and involves judgment, both commercial and regulatory, as well as inherent uncertainty and imprecision. It will also be impossible to identify into which of Royal Mail’s products the Overcharge was passed on and therefore to whom the loss was transferred.”
“658. However, DAF bears the burden of proof of showing that the very small Overcharge actually did make a difference. The charge controls are not set down to the fullest possible level of cost granularity. They may be set in whole pounds or pence. An RPI–X may be set to a whole number or one decimal place, meaning that it cannot capture a tiny cost increase. That is why the probability analysis came to the fore of Mr Bezant’s argument. 659. The probability analysis is concerned with the rounding of the value of X in the glidepath control. Mr Bezant’s argument is that at some point the rounding would tip over into the next level, at which stage the Overcharge, however small, would likely be recovered. On the face of it, the fact that Mr Bezant is driven to having to make this sort of argument seems to demonstrate DAF’s inability to trace the Overcharge through into downstream prices and therefore to be a long way from the proximity required to satisfy the legal (or factual) test for causation. Nevertheless, we will explore it a little further.”
“667. In our view, this is wholly inadequate evidence upon which to prove that there has been SPO, let alone 100% SPO, in relation to the Overcharge attributed to Openreach. DAF cannot show this actually happened. Even if it is more likely than not that one (or more) charge control “tipped”, DAF cannot show which one did and when it happened. It is impossible to identify which downstream customers may have ended up paying the Overcharge or who may have a claim against DAF. It cannot be said that BT has recovered the Overcharge from others and so factual causation has not been established. Even if BT might have hit the jackpot at some point, that cannot represent the recovery of the Overcharge and we do not think that that could have been the intention of Ofcom as to the way it would work. 668. We also think that this cannot amount to sufficient proximity between the Overcharge and the prices charged to Openreach’s customers to satisfy the legal test for causation. Accordingly, we reject DAF’s case on SPO in relation to Openreach.”
“688. We have rejected DAF’s case on SPO in relation to both Royal Mail and BT for all periods and lines of business. We have found on the balance of probabilities that DAF has not established on the facts that the prices charged to the Claimants’ customers would have been lower in the counterfactual absent the Overcharge. We have also been clear that, as a matter of law, we do not consider there to be the necessary proximate and direct causative link between the Overcharge and the downstream prices so as to satisfy the legal test for causation. 689. In coming to those conclusions, we paused to consider the impact both on potential downstream customer claims and whether the Claimants might therefore be overcompensated for the losses they actually suffered... 690. But our conclusion on the evidence before us is that there was no SPO. We cannot rule out the possibility that the Claimants’ customers might try to claim in the future, whether by class or individually, and our findings will not be binding on them. We agree with Mr Ridyard that the monetary size of the Overcharge together with the number of downstream customers makes it virtually impossible for them to mount a viable claim even if they were able to prove SPO... But we cannot shrink from such conclusions because of their potential impact on unknown other claims. It necessarily follows from our findings that we do not think that, in the words of the Supreme Court in Sainsbury’s, the Claimants have “recovered from others” the Overcharge or “transferred all or part of [their] loss to others”
“…I believe, contrary to the majority view, that it is likely that both Claimants did pass on a substantial amount of the Overcharge to their downstream consumers, and that there is a sufficiently close causal connection between the Overcharge and a likely SPO. However, I am not persuaded that the SPO argument should be used to impose a reduction in the damages awarded to the Claimants because, given the specific facts associated with this case, to do so would jeopardise the principle of effectiveness.”
“I. Knowledge … 704. … in the current case the Claimants had no knowledge of the trucks Cartel or of DAF’s Overcharge... Hence, whilst I agree that the visibility of an overcharge would make it more straightforward to establish a causal link with any consequent change in claimant behaviour, it cannot be regarded as a necessary condition. I do not place significant weight on this factor in my assessment of the current case. II. Relative size 705. The second factor, the size of an overcharge relative to the value of the claimant’s downstream business, has an obvious influence on the ability to measure and identify a pass-on effect. In the current case there is no dispute that the Overcharge we have found, whilst substantial in its own right at somewhere in the region of£15 million in historic values, is extremely small relative to the value of the Claimants’ downstream businesses. This factor renders any attempt to measure pass-on empirically hopeless, and it plainly presents the biggest obstacle to proving the existence of pass-on. 706. The key question is whether this practical impossibility of measuring the specific downstream impact of a pass-on effect is sufficient to prove (on a balance of probabilities test) that such an effect does not exist. I believe this is the factor that has most influenced my colleagues to reach their conclusion on pass-on, and I fully understand and respect their rationale. However, I do not agree that the fact that an effect is too small to be measured or separately identified within the price of the downstream product means that it must be unlikely to exist. To make that assessment, it is necessary to look to other contextual evidence that might reveal the existence of a likely pass-on mechanism at work. III. Relationship between upstream costs and downstream prices …. 710. .... Trucks are purchased by the Claimants in order to enable them to provide their downstream postal and telecommunications services, so they are in both cases “components or costs” that are directly used in the downstream activities in which the SPO is alleged to occur. The proposition that trucks were an input used by both Claimants in providing their respective downstream services was accepted by the Claimants’ expert Mr Harvey. The fact that in both cases the impact of these components is dramatically diluted by the costs associated with all the other inputs that also go in to the provision of the Claimants’ downstream operations does not negate the fact that they are related. I consider that this applies equally to both Claimants… 711. … Truck costs formed a part of vehicle costs for both Claimants... it seems clear to me that the Overcharge must also have been included in them during the relevant time period, whereas in the counterfactual it would have to be deducted. 712. The next question is to address the causal connection between the Overcharge and downstream prices. As Mr Bezant’s evidence makes clear, that must be addressed primarily by examining the way the Claimants’ businesses were regulated… There are many facets to this assessment, but a central premise is that the regulated firms should be entitled to recover reasonably incurred (efficient) levels of cost from their monopoly activities… … 720. In my assessment… none of these complicating factors fundamentally undermines the conclusion that the revenues earned by the Claimants in their respective downstream markets were substantially dependent on a regulatory process that was designed to remunerate reasonably incurred (efficient) costs. Since the trucks Cartel was unlawful and covertly implemented, I do not see any basis on which the Overcharge paid by the Claimants could have been regarded as anything other than a reasonably incurred cost of providing their downstream services. 721. This is not to say that the Claimants would automatically have achieved 100% SPO, but in terms of the balance of probabilities I regard it as overwhelming likely – and certainly more likely than not - that a substantial part of any Overcharge would have found its way into the regulatory system and have been reimbursed through the price caps and constraints. … 724. By choosing the actual outcomes as the relevant benchmark, Mr Harvey’s approach places the burden on the counterfactual assessment to show how the absence of the Overcharge would be “fine-tuned” to deliver a different outcome. As Mr Bezant observed, one likely consequence of this approach is that, to the extent that there is any inertia in the setting of the Claimants’ downstream prices, Mr Harvey’s “what changes?” question requires the Overcharge itself to overcome that inertia in order to establish the likelihood of an SPO effect. Given the very small scale of the Overcharge relative to the downstream market value, it is unsurprising that the Overcharge is unable to overcome this inertia. However, I consider that Mr Harvey’s “what changes?” question is the wrong one to ask when addressing the legal question, and that this biases the assessment in a way that is likely to understate the degree of pass-on. … 727. Throughout all the above, I acknowledge that the small size of the Overcharge relative to downstream market values is problematic for DAF’s pass-on argument. My point is that small pass-on effects can exist even if they are not easily identifiable, and that pass-on arguments should be able to succeed if there is a sufficiently clear factual basis for establishing that such pass-on occurs. In my assessment, Mr Bezant’s evidence of a causal connection between the Claimants’ input costs and downstream prices is sufficient to meet that test. IV. Identifiability of downstream claims and implications for the principle of effectiveness 728. To the extent that the Claimants did pass on some or all of the Overcharge in their downstream markets, the passed-on cost (and hence damage) was in most cases likely to have been felt by customers of the Claimants’ businesses... 729. For reasons I describe further below, I do not think it is necessary to arrive at a specific value of the damage that is passed on to these downstream customers, but… it is evident that the passed on damage to any individual customer will be very small, and a matter of a few pence in the case of individual consumers or households. 731. However, simply identifying the downstream claimants for any pass-on in this case does not in itself establish that they would be able to make a viable claim against DAF. In this respect, it is important to note that the guidance issued by the Supreme Court in Sainsbury’s included the need to ensure that any approach on pass-on did not offend the principle of effectiveness. Specifically, it is necessary to consider whether the prospects of a successful claim from downstream customers against DAF would be “excessively difficult or impossible”. 732. I think it is obvious that there is a very high risk that downstream claims for any passed on damage in this case would indeed fail this test. Individual claims would be far too small in value to be viable, and even a collective action on behalf of Royal Mail and/or BT consumers would be likely to face extreme difficulty...”
“824. We prefer Mr Earwaker’s approach which is based on how a rational business such as Royal Mail would have used extra funds that it had at the relevant time. His two-period characterisation of Royal Mail’s financial position, as a net investor in the first period and a net borrower in the second, is credible on the evidence and it would therefore be more likely that Royal Mail would use the funds in one direction rather than two. That therefore is a reasonable way to assess Royal Mail’s actual cost of financing the Overcharge.”
“The claimant has the burden of proving both the fact and the amount of damage before they can recover substantial damages. This follows from the general rule that the burden of proving a fact is upon the person who alleges it and not upon the person who denies it, so that where a given allegation forms an essential part of a person’s case the proof of such allegation falls on them. Even if the defendant fails to deny the allegations of damage or suffers default, the claimant must still prove their loss.”
“37. The quantification of economic loss is often relatively straightforward. There are, however, cases in which its precise measurement is inherently impossible. As Toulson LJ observed in Parabola Investments Ltd v Browallia Cal Ltd (formerly Union Cal Ltd)[2010] EWCA Civ 486 ;[2011] QB 477 , para 22: “Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant’s wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.”
“…causation (which, as we have said, the second aspect of mitigation turns on) itself has two aspects, “legal” causation and “factual” causation: (i) Factual causation is the more obvious of the two: it involves consideration of whether the effect of the alleged mitigating conduct was, as a matter of fact, to reduce or eliminate B’s loss. (ii) Legal causation concerns the question of whether – even if the effect of the alleged mitigating conduct was, as a matter of fact, to reduce or eliminate B’s loss – as a matter of legal policy it should serve to reduce or eliminate the amount of damages that A should pay B. The question arises quite frequently and is an elusive one. Thus, the fact that a claimant receives an indemnity by virtue of a contract of insurance is regarded as “collateral” to the defendant’s liability and thus will not affect it. In personal injury cases, the fact that the claimant receives some benefits as a result of his or her injury is also generally regarded as “collateral”
“…But the question of legal causation is straightforward in the context of a retail business in which the merchant seeks to recover its costs in its annual or other regular budgeting.”
“The products concerned by the infringement are trucks weighing between 6 and 16 tonnes ("medium trucks") and trucks weighing more than 16 tonnes ("heavy trucks") both as rigid trucks as well as tractor trucks (hereinafter, medium and heavy trucks are referred to collectively as "Trucks"). The case does not concern aftersales, other services and warranties for trucks, the sale of used trucks or any other goods or services sold by the addressees of this Decision.”
“…Trucks are not commodity products but are specified according to individual customer requirements and are inherently complex. All of the Addressees offer a range of trucks and hundreds of different options and variants.”
“The EEA price lists contained the prices of all medium and heavy truck models as well as all factory-fitted options that the respective manufacturer offered.”
“In summary, interest, including compound interest, may be awarded as damages for breach of contract. A plaintiff seeking interest as damages where the defendant has withheld money in breach of contract must plead and prove its loss. If a plaintiff pleads that it has incurred loss by having to borrow replacement funds, what it must prove are facts and circumstances from which a court may properly infer on the balance of probability that it has borrowed funds to replace that which has been withheld from it.”
“As will now be apparent, we have found it necessary to review the parts of the main judgment dealing with the assessment of the overcharge at considerable length, but we make no apology for doing so. In order to ascertain the extent of the loss caused to BritNed by the cartel, as reflected in the price which it paid for the cable element of the Interconnector project, it was necessary for the judge to conduct a wide-ranging and multi-factorial evaluation of all the evidence deployed before him during a four week trial. It would be wrong in principle, and unfair to the judge, to pick out isolated features of his approach and reasoning, without placing them within the broader context of the full picture which he so painstakingly constructed. It is also essential for us to keep firmly in mind the well-known principles of appellate restraint in relation to questions of fact, including the evaluation of primary facts and the inferences to be drawn from them, which have been emphatically restated in a plethora of recent cases of the highest authority. Those principles apply just as much to cases in the field of competition law as they do in other areas of civil litigation. They also apply to the assessment of expert opinion evidence no less than they do to findings based on the evidence of witnesses of fact.”
“All the unlawful exchanges and agreements between the Cartelists were carried out for the same purpose, namely restricting price competition in the whole of the EEA. For this to have been sustained in such a concerted manner by all the Cartelists for 14 years without any of them leaving, and taking very considerable risks in the process, it would be most unlikely to think that they were not each receiving substantial benefits for continuing with it for so long.”
“…in relation to gross list price exchanges, it has never been part of our case that we just ignored them…we accept that in relation to gross list pricing information that these matters were taken into account. We are not saying we ignored the information we received in that regard.”
“…The fact that DAF admits that it took account of the information when determining its conduct on the market must be part of the relevant matrix of fact in considering whether that conduct influenced transaction prices.”
“…in our view, this means that, if DAF wished to argue that, because of the way it used the confidential information obtained through the Cartel, there was no effect on prices, it would have had to adduce factual evidence to such effect. In other words, DAF’s admissions and the Settlement Decision establish a prima facie case that the Cartel had an adverse effect on transaction prices. 117. That is not to say that DAF is unable to rely on its expert evidence to argue that the data shows that there was no Overcharge paid by these Claimants. But even their expert was unable to explain or come up with a rational economic basis for DAF’s participation in the Cartel over such a long period. While Prest does not entitle the Claimants to say that they have therefore proved that DAF’s participation in the Cartel led to higher prices it does mean that it is not open to DAF to argue that, as a matter of fact, the information was not used by it to achieve prices that were higher than they would otherwise have been without that information exchange.”
“26. The full effectiveness of Article 85 of the Treaty and, in particular, the practical effect of the prohibition laid down in Article 85(1) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition. 27. Indeed, the existence of such a right strengthens the working of the Community competition rules and discourages agreements or practices, which are frequently covert, which are liable to restrict or distort competition. From that point of view, actions for damages before the national courts can make a significant contribution to the maintenance of effective competition in the Community.”
“This approach ignores the fact that any regression analysis and determination will be highly sensitive to the assumptions made and data input. There is an inevitable element of subjectivity both in the selection of the data and these assumptions. Without in any way being critical of or doubting the integrity of Dr Davis, complete objectivity in expert economic evidence cannot really be achieved. This was a point made by the CAT in Royal Mail in relation to the expert evidence there on overcharge at [475] to [480]…there is no single, objectively ascertainable, "right" answer to the overcharge pass-on issue…”
“Once that hurdle [of showing a triable issue that more than nominal loss has been suffered] is passed, the claimant is entitled to have the court quantify their loss, almost ex debito justitiae. There are cases where the court has to do the best it can upon the basis of exiguous evidence.”
“A resort to informed guesswork rather than (or in aid of) scientific calculation is of particular importance when (as here) the court has to proceed by reference to a hypothetical or counterfactual state of affairs” continuing at [49]: “This principle of entitlement to quantification notwithstanding forensic difficulty has stood the test of time and outlasted the involvement of civil juries in the assessment of damages.”
“In none of these cases does the court throw up its hands and bring the proceedings to an end before trial because the necessary evidence is exiguous, difficult to interpret or of questionable reliability.”
“The ‘broad axe’ metaphor appears to originate in Scotland in the 19th century. The more creative painting metaphor of a ‘broad brush’ is sometimes used. In either event the sense is clear. The court will not allow an unreasonable insistence on precision to defeat the justice of compensating a claimant for infringement of his rights.”
“…It is not so much a substantive principle of law as a description of a well-established judicial practice whereby judges eschew artificial demands for precision and the production of comprehensive evidence on all issues and instead use their forensic skills to do the best they can with limited material to achieve practical justice.”
“the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.”
“We therefore consider that a fair and reasonable broad axe view on Overcharge comes out at 5% for both Claimants (ie approximately half of what they are claiming).”
“we consider that DAF must prove that there was a direct and proximate causative link between the Overcharge and any increase in prices by the Claimants. That means that there must be something more than reliance on the usual planning and budgetary process, into which the Overcharge was input and at some point prices increased.”
“the Claimants’ knowledge of the nature and amount of the Overcharge, such that they would seek to address it.”
“DAF then goes on to suggest that the majority asked the wrong question for the purpose of assessing causation. But this is a challenge to the majority’s evaluative judgment as to the expert and factual evidence, upon which an appeal court would exercise substantial “appellate restraint” in deciding whether the Judgment was wrong. Furthermore the majority was testing, as was the minority, whether the Claimants’ prices would have been lower in the counterfactual without the Overcharge.”
“…the exchange of gross list price information and in particular proposed list price increases formed a major part of the Infringement. Mr Ashworth frankly admitted that, in the case of direct customers, such as the Claimants, a “very good rule of thumb” was that DAF UK normally expected to achieve “about half” of a list price increase in the form of increased transaction prices.”
“As was said in CAT Sainsbury’s, the court or tribunal draws ‘broad axe’ inferences as to what the claimant would have done in the counterfactual with the money it had to use to pay the Overcharge.”
“Whatever form the loss takes the court will, here as elsewhere, draw from the proved or admitted facts such inferences as are appropriate. That is a matter for the trial judge. There are no special rules for the proof of facts in this area of the law.”
“Prior to 2008, Royal Mail held significant amounts of surplus cash and borrowed only to finance international acquisitions.”
“The first question we need to address was whether, based on a balance of probabilities test, the evidence points to the existence of a cartel Overcharge. We conclude that it does.”
“the basis of a finding of an infringement by object is that it is very likely to have had negative effects on transaction prices.”
“we consider that DAF must prove that there was a direct and proximate causative link between the Overcharge and any increase in prices by the Claimants. That means that there must be something more than reliance on the usual planning and budgetary process, into which the Overcharge was input and at some point prices increased.”
“we think that in a situation where none [of the four factors] are present, the evidence of factual causation needs to be that much stronger so that the requisite proximity can be established.”
“There is ample evidence before the court and considered by the experts as to what Royal Mail actually did at the time in terms of investment and debt finance. For example, Mr Jeavons referred to Royal Mail having borrowed from the Government at a rate of 12% compound interest. As was said in CAT Sainsbury’s, the court or tribunal draws “broad axe” inferences as to what the claimant would have done in the counterfactual with the money it had to use to pay the Overcharge.”
“We prefer Mr Earwaker’s approach which is based on how a rational business such as Royal Mail would have used extra funds that it had at the relevant time. His two-period characterisation of Royal Mail’s financial position, as a net investor in the first period and a net borrower in the second, is credible on the evidence and it would therefore be more likely that Royal Mail would use the funds in one direction rather than two. That therefore is a reasonable way to assess Royal Mail’s actual cost of financing the Overcharge.”
“108. … DAF’s expert evidence on the theory of harm is based on speculation as to how the Infringement would have worked within DAF and then draws conclusions on such speculation as to how the Infringement would not have had an effect on prices. We think that any such theory would be more soundly based on what actually happened factually within DAF in terms of how the information was used and how the Infringement managed to continue over such a long period, presumably for the mutual benefit of all the Cartelists.”
“235 ... We consider that there should have been more recognition, on certain issues, of the scope for a range of possible results and of the reasonableness of the other expert’s opinion. As they are aware, the experts’ primary duty is to assist us in understanding the factors behind their differing conclusions, rather than defending the conclusions which favoured their respective clients’ positions. When there are fine and difficult issues for us to decide, it is important that we are able to trust the independence of the experts”. “476 … However, as we have commented above, there were a number of instances where both experts might have been more transparent and realistic in identifying and accepting the existence of some of the limitations of their regression model results, and to have done so in their exchanges prior to the hearing. The tendency of both experts to defend their positions without acknowledging the inherent difficulties in their own approach was disappointing and inconsistent with their primary duty to assist the Tribunal”
“256. … This situation provided Professor Neven with insights and access that, as an independent expert, we could reasonably have expected him to use in order to assist us. We examine in detail the theory of harm that he puts forward in his evidence in this case and it is safe to say that his conclusion that it is implausible that there were any effects in the UK and on the Claimants from the Infringement is a surprising one. His theory provides a justification for the conclusion that he draws from the data that there was no Overcharge throughout the period of the Infringement. But we are left with the lingering suspicion that, as was disclosed very late on in these proceedings, he had come up with his theory of harm back in 2013 or 2014 (and certainly well before he had access to detailed empirical data), and that has shaped his approach to the expert evidence he has provided on the central issues in relation to the Overcharge.”
“116. We take no account of this speculation and it is an inappropriate way of approaching this issue by DAF. The burden remains on the Claimants to prove causation but where DAF has elected to call no evidence as to how the Cartel was operated by DAF and how it used the information to its advantage it is not open to its Counsel to speculate as to what actually happened. This was highly commercially sensitive information that was disclosed among the Cartelists over a long period of time. The Commission found that this information enabled the Cartelists to be better able to calculate their competitors’ approximate net prices. Further, the basis of a finding of an infringement by object is that it is very likely to have had negative effects on transaction prices. Therefore, in our view, this means that, if DAF wished to argue that, because of the way it used the confidential information obtained through the Cartel, there was no effect on prices, it would have had to adduce factual evidence to such effect. In other words, DAF’s admissions and the Settlement Decision establish a prima facie case that the Cartel had an adverse effect on transaction prices. 117. That is not to say that DAF is unable to rely on its expert evidence to argue that the data shows that there was no Overcharge paid by these Claimants. But even their expert was unable to explain or come up with a rational economic basis for DAF’s participation in the Cartel over such a long period. While Prest does not entitle the Claimants to say that they have therefore proved that DAF’s participation in the Cartel led to higher prices it does mean that it is not open to DAF to argue that, as a matter of fact, the information was not used by it to achieve prices that were higher than they would otherwise have been without that information exchange.”
“475. Despite the enormous amount of work that went into the expert process on this case, and the vast quantities of data analysed, there are numerous serious gaps and unresolved issues in the analyses which taken together makes it difficult to distil the experts’ work on Overcharge into a simple definitive figure. Nor is it feasible to specify an “ideal” regression equation, based on the various work of the experts, that could be relied upon to yield the correct answer to the Overcharge question which would navigate successfully between the rival claims and conflicting conclusions reached by the experts. There are too many imperfections in the evidence, and insoluble practical problems, to allow any such approach.”