The Calculation Of Interest On Antitrust Damages
Introduction
The fact that antitrust infringements, in particular hard-core cartels, cause significant harm is widely acknowledged. The Court of Justice of the European Union (CJ) confirmed the horizontal direct effect of EU antitrust provisions in damages actions before national courts with the seminal judgments in Courage and Manfredi. However, due to various technical, economic and legal difficulties experienced by claimants, private enforcement of competition law remains underdeveloped resulting in billions of euros of damages that are foregone annually.
Adopted with the aim to help victims of antitrust infringements to obtain full compensation, the Damages Directive provides a set of minimum requirements to be implemented into national law. According to EU law, interest constitutes an essential component in making good the damage sustained and should be due from the occurrence of the harm until full compensation is paid. Interest is calculated in accordance with national law provided that the EU principles of equivalence and effectiveness are complied with.
National provisions on interest are often drafted for the case of contractual debts, not for tort claims resulting from long-lasting clandestine infringements such as, for instance, cartels. The absence of specific guidance on the relevant scope of the EU acquis on interest brings additional difficulties in conforming interpretation of national law by judges or the amendment thereof by national legislators. This leads systematically to situations where the adequate amount of interest is not claimed or granted. As a result, victims are deprived, at least partially, from an essential component of their right to full compensation.
EUI Interest Study
Interest calculation in competition damage cases is complex and is subject to significant changes over time. The identification of the applicable legal standards in respect of interest to be accrued is typically left to national courts. However, particularly in cases with cross-border effects, no guidance is available. CDC Cartel Damage Claims has therefore commissioned an independent and genuine in-depth study to the European University Institute in Florence (EUI). The objective of the study is to serve as a benchmark and reference in cross border cases, especially in the field of interest calculation for damages caused by cartels.
The EUI Interest Study offers all parties involved in complex litigation a systematic and practical account of interest rules in a number of jurisdictions. For judges and lawmakers, the study provides analyses and recommendations for the proper application of interest rules and advice on principles that should inform the effective implementation of the Damages Directive. Concretely, the study elucidates the principles and requirements of EU Law and assesses the compliance therewith of national rules relevant to interest calculation on damages caused by antitrust infringements.
Ultimately, the determination of the applicable EU and national legal standards allows the development of a standardised IT tool. Such tool would enable a quick and precise calculation of interest on damages resulting from EU-wide competition law infringements across a multitude of jurisdictions. It would address the complex legal and economic issues and help to overcome existing hurdles which have slowed down private enforcement across the EU.
EU law
The CJ held that the right to full compensation of every person who has suffered harm because of an infringement of Article 101 or 102 of the Treaty on the Functioning of the European Union (TFEU) is guaranteed by primary EU law. Compensation means placing the injured party in the position it would have been in the absence of the infringement. It includes reparation for actual loss, loss of profit plus interest. National law must not make the exercise of such right virtually impossible or excessively difficult. The widely publicised Kone judgment reiterated that national rules, which would make recovery of (part of) the harm caused by a cartel impossible, must be set aside.
According to Marshall, compensation for the harm suffered must include the reparation of the adverse effects resulting from the lapse of time since the occurrence of the harm caused by the infringement. National law may account for this period in the form of statutory interest or other forms of interest, as long as they are in accordance with principles of effectiveness and equivalence. The judgments in cases Mulder and Irimie furthermore clarify that interest must start accruing as of the date of unlawful disbursement. This was codified under Recital 12 of the Damages Directive.
Aspects of interest calculation which were not explicitly dealt with by the Damages Directive might be less obvious. These include, inter alia, the calculation of interest on a compound basis or the applications of higher interest rates. In accordance with CJ’s case law, absolute bars under national law hinder the effective exercise of right granted by EU law. This is of particular importance for commercial claims where compounding and reliance on higher interest rates makes economic sense. Moreover, an independent (significant) interest for delay, foreseen in most national legal orders (e.g. Late Payments Directive), aims at ensuring prompt payments of unduly retained monetary amounts (damages).
National law
The reports drawn up by the national experts of the EUI study provide a detailed look at the law on interest in the respective jurisdictions. The calculations of the hypothetical case furthermore allow a quantitative comparison of outcomes. The divergence regarding rates, methods and ultimately results is noteworthy. However there are also themes that are common to most of the surveyed jurisdictions.
One is the tension between general rules of civil law that were often drafted in the case of contractual debt and hence require notification of the debtors by the claimant and the typical situation in cartel damages actions where the potential claimant is unaware of the damage. Unmodified application of such rules would lead to systematic under-compensation as there would be no compensation for the effluxion of time during the (often decade long) period in which the victims are unaware of the infringement.
Another theme common to several (albeit not all) jurisdictions is an incongruence between economic reality and statutory provisions regarding compound interest. Economic reality and practice militate for compound interest ultimately for the same reasons that militate for interest in the first place: Monetary devaluation and the lost opportunity for the injured party to have the capital at its disposal. In the case of compound interest, the capital that is not at the disposal of the entitled party is the interest that has already accrued. Despite this, many jurisdictions do not allow for compound interest, except when contractually agreed upon.
Practical considerations
Performing the interest calculations typically requires suitable IT-tools, especially in cartel cases. For the majority of surveyed jurisdictions, the pertinent interest rate changes over time. If, for example, the damage assessment yields monthly but-for prices and hence monthly damage amounts, this yields 12 different amounts per year. If the cartel was effective for ten years and compensation is paid ten years after the end of the cartel and the rate changes annually, this means 21 calculation steps for each of the twelve damage amounts of the first year of the cartel, 20 calculation steps for each of the twelve damage amounts of the second year of the cartel and so on. This already results in 1980 calculation steps. This number goes up if the rules of several jurisdictions have to be applied in parallel.
The complexity is manageable, however. If the starting and end dates for the calculation, the type of interest (compound or simple) and the table of applicable rates over time are known, the interest earned on any amount can be expressed as a factor by which that amount is multiplied by. Such tables of “interest factors” can thus be calculated without knowing the damage amount or other specifics of the case. They then allow calculation of the total interest amount in a relatively simple way.
Based on the findings of the EUI Interest Study, efficient standardized IT tool on interest calculation can be developed. The legitimate and legal ratio behind the idea of having such a tool is to allow victims to obtain full compensation and defendants to avoid lengthy procedures which may further damage business reputation. Moreover such a tool would facilitate the judicial work, especially in pan European cases where, in one proceeding before a court, multiple national interest regimes apply in parallel.
