AAI Special Counsel Sandeep Vaheesan reviews David McFadden's The Private Enforcement of Competition Law in Ireland (Hart Publishing, 2013, 276 pages, $95.00)
In The Private Enforcement of Competition Law in Ireland, David McFadden presents an accessible and meticulous account of the state of private rights of action for competition law violations in the Emerald Isle. McFadden, Legal Adviser to the Irish Competition Authority, speaks with authority on the subject.
Historically synonymous with the United States, the private right of action is being embraced in other jurisdictions. While it presents Ireland as a case study, the book provides valuable insights on the ongoing project to create “private directors general” in the European Union (EU). Through a series of initiatives beginning in 2005, the European Commission (EC) has sought to promote private enforcement of competition law. At the same time, member states have been entrusted to develop private enforcement regimes. The only constraints are that national procedures must allow for effective vindication of European competition law and treat EU and national competition laws equally. If the principle of effectiveness, in practice, offers member states broad flexibility, this national discretion will be unfortunate for Irish consumers. Irish law has restrictive rules on collective actions and litigation funding – two features that are likely to impede the private right of action and, ultimately, effective enforcement of competition law.
Empirical studies in the U.S. have demonstrated that private enforcement of antitrust laws yields significant consumer benefits. Parties harmed by anticompetitive behavior receive compensation for their injuries. And, furthermore, private damages actions provide specific and general deterrence against future violations of the competition laws. Some research has, in fact, shown that private enforcement may create greater deterrence than public enforcement in the United States. In contrast, McFadden comments that the narrative of abusive and costly class actions is largely based on theoretical arguments and exaggerated anecdotes rather than systematic study.
In recent years, the EU has officially embraced private enforcement of competition law as an essential complement to public enforcement by the EC and member states. In two landmark decisions, the European Court of Justice (ECJ) held that parties harmed by violations of competition law have a right to seek damages in court. Based on these precedents, the EC issued a Green Paper and a White Paper that articulate its evolving policies on private enforcement. In June 2013, after the publication of McFadden’s book, the EC released two more documents on private enforcement. It published a proposed binding directive on the availability of evidence obtained through its leniency program, the preclusive effect of EC and national competition authority decisions, and damages. It also issued general recommendations on collective redress that reiterate a preference for opt-in, rather than opt-out, class actions and express doubts on the wisdom of third-party financing of litigation, including contingent fee arrangements. These documents stress private enforcement’s role in securing compensation for victims of anticompetitive behavior. The Green Paper also emphasized the deterrent value of private suits but the subsequent publications have downplayed this aspect.
To create effective private enforcement rights, the EC has recommended two types of actions to aggregate small claims. First, qualified organizations, like consumer associations, should be allowed to initiate representative actions on behalf of members. Second, individual plaintiffs should be permitted to bring opt-in class actions, in which every class member must affirmatively join by “opting-in.” Whether these collective litigation mechanisms can provide effective compensation and deterrence is highly questionable, according to McFadden. Qualified organizations may not have the ability or incentive to protect the rights of individuals adequately. And, in the United States, class actions became important only after the Federal Rules of Civil Procedure established opt-out classes in 1966, with funding generally through contingent fees, which are not commonly allowed in Europe.
The EC has delegated implementation of its recommendations to the member states. Even if the recent proposed directive and recommendations are adopted, member states will likely have substantial discretion over how to develop private rights of action. The EC has stated that this freedom of action has only two significant constraints derived from long-standing EU law. First, national rules must not discriminate between EU competition law and national competition law and offer inferior processes for enforcement of EU law – the principle of equivalency. Second, national rules must allow for effective vindication of private rights – the principle of effectiveness. It is clear that member states cannot establish one procedural track for enforcing national law and a more onerous, parallel track for enforcing EU law. As McFadden notes, however, the actual functioning of the principle of effectiveness is uncertain. Will it operate as a tight constraint on the procedural rules of member states? Or will it impose little, if any, restriction on what they can do?
Unless the EC or ECJ enforce the principle of effectiveness rigorously, McFadden believes that procedural rules in Ireland may make private enforcement a dead letter nationally. Even as private rights of action move closer to reality in some member states, two aspects of domestic civil procedure, in particular, are likely to frustrate the creation of effective private enforcement in Ireland. First, Irish law does not provide for an effective collective redress mechanism. Injured consumers can aggregate their claims through representative actions or joinder. Representative actions function like opt-in class actions. Under current Irish law, however, the representative may seek declaratory relief and injunctions but cannot sue for damages on behalf of members. In addition to the inherent limitations of opt-in class actions, this restriction on monetary relief eliminates a major incentive for filing a representative action. Without hope of compensation, what are the realistic chances that large-scale class litigation will be brought? Joinder allows for the consolidation of individual claims. But parties must first institute their own proceedings in court – an unlikely event when a competition law violation generates a large number of small value claims.
Second, Irish law retains the archaic doctrines of maintenance and champerty, which limit the ability to fund plaintiffs’ litigation. The EC has expressed skepticism about third-party litigation funding, such as contingent fee arrangements, but current Irish rules go well beyond this stance. Maintenance prohibits assistance to a litigant by a party without an interest in the dispute. Champerty is a subset of maintenance and bars a non-litigant from financing a suit in return for a share of any proceeds. (Interesting historical side note: maintenance and champerty originated in the Middle Ages supposedly to prevent powerful men from using the legal claims of others to attack their enemies.) These antiquated rules prevent the development of contingent fee agreements and other ways of funding the suits of non-wealthy plaintiffs. Most remarkably, maintenance and champerty remain criminal misdemeanors to this day under Irish law. Even if criminal enforcement does not occur today in practice, McFadden observes that the two doctrines have been used to invalidate attorney fee agreements following successful litigation. In contrast to Ireland, courts in the United Kingdom have recognized that maintenance and champerty are obstacles to the objectives of modern public policy and limited their application. Unless Ireland follows its neighbor in abolishing or curtailing these obsolete rules, injured parties with small claims will have difficulty obtaining redress.
As David McFadden explains with crisp detail, in Ireland, the lack of an effective aggregation device and outmoded rules on litigation funding prevent parties with small claims from getting legal relief. Either procedural inadequacy is sufficient to emasculate private collective actions. In the absence of further pressure on Ireland, the EC’s and ECJ’s rhetorical commitment to protecting their rights will likely provide cold comfort for Irish consumers, businesses, and others injured by anticompetitive conduct in the marketplace.