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In conversation with David Wingfield: The economics of competition litigation and the role of legal finance

  • Antitrust & competition
October 25, 2023
Charlie Rooke


Burford Vice President Charlie Rooke spoke with David Wingfield, a barrister at Fountain Court Chambers to discuss the economics of competition litigation and the role of legal finance. Below is a transcript of their conversation.

Charlie Rooke: Just picking up the damages calculation point, it's something that we're really seeing the court struggle to work out how to deal with in UK, but also in other European jurisdictions. Trying to get to the nub, ultimately, of what is the overcharge? You inevitably have totally polarizing views from both claimants and defendants, and I think we've seen seen judges in a number of jurisdictions find it difficult to see the wood from the trees and work out the right overcharge number. I wonder what your thoughts are on that.

David Wingfield: Well, the problem that arises in the UK is that competition law damages are vindicated as statutory torts. And because of that reason, the defendant's obligation to pay damages is treated identically with damage claims in other torts.

The difficulty is that when you apply that framework to competition law damages, you find that the framework breaks down quite rapidly. For example, a defendant faced with a normal tort infringement is under a duty to mitigate his losses. But mitigation is impossible when dealing with price fixing. You either, as a direct purchaser, don't know that you've paid the overcharge, but even if you did, there's nothing you can do about it, because economically, you're still going to buy a product that achieves the value that you seek relative to alternatives. So mitigation, it really isn't possible. Yet mitigation is still seen as an element of tort damages under a UK competition law damages framework.

The other problem is that fundamentally, a price fixer, again, with price fixing claims or other types of anti-competitive conduct, it's a form of theft, right? The price fixer has stolen some of the consumer surplus. That is the amount that a consumer would have saved if they were able to buy a product at a competitive price level, and instead they're paying a higher price for that product. That surplus has been taken from them, the surplus being the difference between what they would have paid and are forced to pay for the product.

The correct framework to provide compensation for that type of loss, in most areas of the law, is a restitutionary framework, because you're dealing, effectively, with restoring a value that's been taken by somebody pursuant to a crime. And that concept is the basis for which the US federally limited pass-on defense, so only direct purchasers of the claim, pass-on is not viable as a defense under federal law.

It's also why Canadian courts have refused to allow pass-on to be used as a defense as well. Because by permitting that defense to be used, it means the wrongdoer may be able to receive and enjoy the benefit of their misconduct. They don't have to compensate anyone for that.

So a restitutionary framework is the correct way of thinking about compensation in competition law disputes. But under UK law, you can't use restitution, because it's a statutory tort. Got to use damages. And so the struggle is that the courts are trying to find a way to use a damages-based model for what is essentially a restitutionary problem.

And because of that challenge, the complexity in the pass-on of an overcharge through a chain of commerce is magnified, because you have to find where the loss ended up in order to ensure that the wrongdoer ends up paying the full amount of their liability, and not more and not less. So to ensure that the restitutionary idea is met in a damages framework, you've got to find where the loss ended up in a chain of commerce. That's a very difficult thing to do, especially when overcharges are small and the product markets in which the overcharge is found can be large and very numerous.

CR: Courts and legislators are also recognizing the importance of legal finance in the context of antitrust cases, particularly in the UK. How have you seen the courts responding to the growing role of legal finance, and how do you see it sitting now, and how do you see it developing in the future?

DW: So competition law cases are a different animal entirely from typical litigation. They are very complicated cases to run, especially when overcharges flow through a long chain of commerce and into different product markets or geographical markets. They require vast amounts of capital to run, and when you bring those cases in the UK, you need to finance the cost of adverse cost liability, or potential adverse cost liability.

These make these cases more akin to an investment bank's management of a deal than conventional litigation. These cases are therefore not viable without litigation finance. The finance, though, is expensive to obtain, and the market for that finance is actually fairly thin. And the market for the insurance for large value cases is even more skinny. To attract the financer's attention, you need a really good case.

So the need to obtain large amounts of capital to run these cases, and the need to convince funders about the viability of the case, limits the types of cases that can be brought.

One of the objectives of collective proceedings, or class actions as they're known in North America, is behavior modification and deterrence. The behavior modification function and the deterrence function is now largely in the hands of the funders, or the insurance providers, because without their support, the case can't be brought. That is possibly a good thing, because it means that only those cases that have objective merit see the light of day. Funders aren't putting their money into cases that are bad. But it also means that the cases that can be brought are going to be limited by the appetite of funders and insurance providers.

For that reason, I think it would be desirable for the UK to follow the guidance of the United States courts and many jurisdictions in Canada and eliminate cost-shifting in competition law disputes that are brought as class actions. I think that would enhance the goal of behavior modification, enhance the goal of deterrence, would make it more viable to bring cases that right now don't pass the funders' muster, and it would therefore generate far more positive outcomes than the negative outcomes.

This video was recorded in June 2023.

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