Will your cartel immunity documents be disclosed to private parties seeking follow-on damages?

Articles Written by Dr. Wolfgang Hellmann (Special Counsel)

The position in Australia and the EU

The ACCC's Immunity Policy is a crucial tool for detecting illegal cartel conduct by providing incentives for cartel participants to 'blow the whistle' and cooperate with the ACCC. One of the potential threats to the effectiveness of the Immunity Policy is the risk that documents provided to the ACCC as part of an immunity application (or documents created by the ACCC on the basis of information provided to it by the immunity applicant) may end up in the hands of cartel victims seeking follow-on damages. It is important for prospective immunity applicants to carefully consider the ramifications of the possibility of a disclosure of immunity documents to third parties.

Disclosure of immunity documents in Australia

In Australia, there are special provisions in the Competition and Consumer Act 2010(Cth) (CCA) dealing with "protected cartel information", which is defined as information that was given to the ACCC in confidence and relates to a breach or possible breach of the cartel conduct prohibitions. Information provided to the ACCC in confidence as part of an immunity application is likely to constitute "protected cartel information".

Disclosure of protected cartel information to a party to court proceedings

Pursuant to section 157C(1), (2) of the CCA, the ACCC "is not to be required" to produce, or make discovery of, a document containing protected cartel information to a party to proceedings, or a person considering instituting proceedings, before a court. However, section 157C(3), (4) of the CCA grants the ACCC the power to give, on application, a copy of a document containing protected cartel information to a party to proceedings, or a person considering instituting proceedings, before a court.

In exercising its discretion whether or not to disclose protected cartel information, the ACCC must have regard to a number of matters, including:

  • the fact that the disclosure may discourage informants from giving protected cartel information in the future; and
  • the interests of the administration of justice.

In its Immunity Policy Interpretation Guidelines, the ACCC states that it "will use its best endeavours to protect any confidential information provided by applicants for immunity".

Disclosure of protected cartel information to a court or tribunal

Pursuant to section 157B(4) of the CCA, the ACCC "may produce to the court or tribunal a document containing protected cartel information or disclose protected cartel information to the court or tribunal", having regard to the same matters as above.

The ACCC's Immunity Policy Interpretation Guidelines state that the information provided by immunity applicants "may be used in civil proceedings and/or criminal prosecutions" and "may be shared with the Commonwealth Director of Public Prosecution" (who may be subject to disclosure obligations requiring it to disclose such information).

Even if the ACCC decides not to disclose protected cartel information, it may still be required to do so with leave of the court or tribunal, and in determining whether or not to grant leave, the court or tribunal must have regard to the same matters as the ACCC when exercising its discretion (see above).

Conclusion

At the time of seeking immunity, there will be no certainty for the applicant as to whether or not the information and documents provided to the ACCC as part of the immunity application will be protected from disclosure to third parties seeking follow-on damages, as the ACCC may decide to provide certain documents to cartel victims and/or immunity information may become public in the context of the court proceedings against the other cartel participants.

The state of play regarding access to leniency documents in the EU

In the last three years, there have been several important decisions of European and national courts on access to leniency documents– The European Court of Justice held that:

  • it is for the national courts on the basis of their national law to determine the conditions under which access to leniency documents must be permitted or refused by weighing up the interests of the requesting party in obtaining access to prepare its damages action with the actual harm that may result from such access having regard to public interests, including protecting the effectiveness of a leniency program (PfleidererJune 2011); and
  • a national law that places a de-facto blanket restriction on access to files of a national competition authority is incompatible with EU law. Non-disclosure may be justified only if there is a risk that a particular document may actually undermine the public interest relating to the effectiveness of a national leniency program (Donau Chemie June 2013).

Following Pfleiderer, national courts have adopted different approaches in conducting the balancing exercise to determine whether or not to order disclosure of leniency documents to cartel victims. This has resulted in inconsistent legal positions across jurisdictions, creating an uneven playing field and encouraging (unwelcome) forum shopping - for example:

  • the English High Court in the National Grid case (April 2012) ordered disclosure of materials created for an EU leniency application in relation to the Switchgear Cartel; and
  • in Germany, the Higher Regional Court of Düsseldorf in the Coffee Roasters case (August 2012) denied third party access to leniency applications made to the German Federal Cartel Office (FCO). The Court held that the interests of the leniency applicants in maintaining the confidentiality of their leniency applications must prevail, pointing out that the claimants can rely on the penalty decision of the German FCO in any follow-on damages proceedings in relation to the existence of the cartel law violation.

Disclosure of evidence under the EC Directive

In June 2013, the European Commission (EC) published a proposal for a Directive on damages actions for breaches of the competition laws of the EU and its member states. A Directive requires member states to implement appropriate measures into their national laws to achieve the Directive's objectives. The Directive still needs to go through the EU legislative process and, if adopted, the member states will have two years to implement it.

The proposed Directive is aimed at creating a level playing field for victims of competition law breaches when claiming damages in national courts by diminishing the practical difficulties they face in pursuing their claims. At the same time, the Directive seeks to ensure that the incentives for perpetrators to cooperate with competition authorities under their immunity programs are not weakened.

The heart of the Directive is the requirement that national courts must be allowed to order disclosure of evidence from defendants, claimants and third parties - including competition authorities.

Member states are to ensure that national courts order "proportionate" disclosure of evidence where a claimant:

  • shows that the evidence is relevant for substantiating its case; and
  • has specified either pieces or categories of this evidence as precisely and narrowly as possible.

If a claimant's request for disclosure meets these requirements, the national court must order disclosure - unless the court finds that the request is not "proportionate". While the EU disclosure requirement may only have little impact (if any) on common law jurisdictions such as the UK, it will be a game changer for civil law systems without discovery rules such as Germany.

Carve out for leniency statements and settlement submissions

The Directive provides absolute protection from disclosure for corporate statements made under leniency programs and submissions made by cartel participants in the context of settlement negotiations. The rationale of this is to remove a potential disadvantage for firms cooperating with the authorities vis-à-vis firms which do not. Pre-existing information, i.e. information that already existed when the competition authority commenced its investigation (such as emails between cartel participants), is not protected even if it forms part of a leniency statement or settlement submission.

Temporary protection for certain other documents

The Directive introduces a temporary protection for documents prepared specifically by a competition authority (e.g. statement of objections) and respondents (e.g. responses to information requests) in the context of a competition law investigation. Member states shall ensure that national courts cannot order disclosure of such documents prior to the relevant authority having concluded its investigation. After conclusion of the investigation, however, courts are free to order disclosure of documents falling under this category. The temporary protection of these types of documents seeks to prevent civil damages actions from compromising ongoing investigations by competition authorities.

Conclusion

The EC Directive seeks to strike a balance between facilitating civil damages actions and not deterring prospective whistleblowers from approaching the competition authorities. If the Directive is adopted, it should become easier for cartel victims to claim compensation from cartel participants in national courts. As leniency applicants are typically the primary target of claimants seeking damages, the enhanced risk of successful damages action is likely to act as a potential deterrence for prospective whistleblowers to come forward, thereby weakening the effectiveness of the EC's leniency program as well as those of the national competition authorities. This could ultimately harm potential claimants as fewer cartels will be uncovered.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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