Arbitration and ADR of Global Competition Disputes: Taking Stock

87 Pages·2008·0.69 MB·English

CONTENTS:[2008]G.C.L.R. i
Contents
Volume1Issue3/2008
Global Competition Litigation Review
ISSN1756-6002
Articles
SHIGEYOSHIEZAKI ShareholderactionsinantitrustcasesinJapan 117
ANDKOYAUEMURA
InJapan,antitrustcivilactionshaverecentlybecomemoreandmorefrequentthaneverbefore,and
someshareholderactivistshavewonsuccessfulsettlementsagainstcorporateexecutives.Thisarticle
describesthebasicframeworkofshareholderactionsinJapan,andanalyseshowcorporate
executivescanestablishasuccessfuldefenceagainstantitrustcivilactions.
ROBINNOBLEAND Is10percenttheanswer?Theroleoflegalpresumptionsinprivatecompetition
SIMONPILSBURY litigation 124
10percenthasoftenbeenusedbypolicymakersasabenchmarkofthetypicalcartelovercharge.A
recentexampleofthisisthedecisioninHungarytoallowclaimantsinfollow-oncarteldamages
claimstorelyonarebuttablepresumptionthattheoverchargewas10percent.Thisarticleexplores
theoriginsanduseofthe‘‘10percentrule’’bypolicymakers,andaskswhether10percentremains
agoodbenchmarkforan‘‘average’’cartelovercharge.ItconsiderstheincentivesonHungarian
claimantsandplaintiffscreatedbythisrule.Finally,conclusionsaboutthistypeofrulearedrawn,in
thecontextoftheEuropeanCommission’sstateddesiretoencourageprivatedamagesclaimsunder
Arts81and82.
GORDONBLANKE ArbitrationandADRofGlobalCompetitionDisputes:TakingStock
ANDRENATO (PartIII) 133
NAZZINI Thisarticleisthethirdpartofafour-partarticlereviewingthecurrentstateofplayinthearbitration
andADRofcompetitionlawdisputes.Thispartexaminesthestatusofpreviousdecisionsof
competitionauthoritiesinarbitration,theco-operationbetweenthearbitraltribunal,ontheone
hand,andcompetitionauthoritiesornationalcourts,ontheother;theremediesthatthearbitral
tribunalmayaward,proceduralissuesarisingduringthecourseofthearbitration—particularly,
issuesofdisclosure,evidence,andburdenofproof—and,finally,thereviewofcompetitionlaw
awardsbynationalcourtsinenforcementorsettingasideproceedings.Theauthorsarguethatwhile
competitionlawarbitrationsmaybecomplexitispossibletodevisesolutionsthatstrikeabalance
betweentheprivateandconfidentialcharacterofarbitrationandthepublicpolicynatureof
competitionlaw.Thearbitratorscanavailthemselvesofflexibleproceduralmechanismsbasedon
partyautonomyandwillbeguidedbytheirdutytorenderanenforceableaward.
ARIELEZRACHI TheinterplaybetweentheeconomicapproachtoArticle82ECandprivate
enforcement 148
ThisarticleexploresthelinksbetweendevelopmentsinArt.82ECjurisprudenceandthecurrent
stateofprivateenforcementinEurope.ItconsidershowaneconomicapproachtoArt.82ECcases
mightaffectprivatelitigationandviceversa.Inaddition,itquestionswhethernationalcourtsacross
Europehavesufficientcapacitytoengageincomplexeffects-basedassessment.
Comment
DRVOLKERSOYEZ WhattheinternationallegalcommunitythinksabouttheEuropean
Commission’sWhitePaper 153
ThiscommentcollectssomeofthemostdistinctivecommentsthattheCommissionreceivedabout
itsrecentWhitePaperondamagesactionsforbreachoftheECantitrustrules.
Book Review
GORDONBLANKE ECPrivateEnforcement:DecentralisedApplicationofECCompetitionLawby
NationalCourts 161
Regional Developments
R–47
Arbitration and Alternative Dispute Solution
R–67
ii EDITORIALBOARD:[2008]G.C.L.R.
GeneralEditor PAULLASOKQC PROFRICHARDWHISH
MoncktonChambers ProfessoratKing’sCollege,London
UK UK
DRVOLKERSOYEZ
Partner,Lorenz
Belgium
PROFLARS-HENDRIKRO¨LLER
PresidentESMT DRMARKWILLIAMS
EditorialBoard Germany AssociateProfessorofLawattheHongKong
PolytechnicUniversity
HongKong
MICHAELHAUSFELD
Partner,CohenMilsteinHausfeld&Toll PROFNILSWAHL
UnitedStates Judge,EuropeanCourtofFirstInstance BookReviewCo-ordinator
Luxembourg
KENTA.GARDINER
Chairman,Crowell&Moring ANNE-MARIEMURPHY
UnitedStates
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EZAKIANDUEMURA:SHAREHOLDERACTIONSINANTITRUSTCASESINJAPAN:[2008]G.C.L.R. 117
Shareholder actions members of a not-for-profit organisation known as the
‘‘ShareholdersOmbudsman’’.
in antitrust cases Newspapers also reported that on June 25, 2008,
the Shareholders Ombudsman filed another derivative
action against 15 directors of Obayashi Corp
in Japan
(‘‘Obayashi’’), a major general contractor in Japan,
seekingdamagesofJPY1,280million.Accordingtothe
plaintiff, Obayashi engaged in bid rigging in relation
Shigeyoshi Ezaki and Koya Uemura to: (i) the construction of tunnels ordered by a local
government; (ii) the construction of a waste disposal
Anderson Mori & Tomotsune
factory ordered by a local government; and (iii) the
construction of a subway ordered by a local govern-
ment.
In this article, the authors will explain the legal
frameworkforshareholders’derivativeactionsinJapan,
Competitionlaw;Damages;Derivativeactions;
the typical arguments put forward by shareholders as
Japan;Privateenforcement;Shareholders
well as the counter-arguments of directors, and some
issueswithrespecttoinsurancefordirectorsandofficers
inshareholdersactionsinantitrustcases.
Introduction
Legal framework forshareholders’ derivative
In Japan, there have been relatively few civil actions in
the past based on claims involving antitrust violations. actions
However,inrecenttimes,antitrustcivilactionsseemto
havebecomemoreandmorefrequent. Standing
In one of the leading cases of shareholders action
in antitrust cases, in 1998, two shareholders filed with Under the Companies Act of Japan, a shareholder
Tokyo District Court a derivative action against three or shareholders who have owned a share orshares1
directorsofHitachi,Ltd(‘‘Hitachi’’)todemandthatthe in a joint stock company (kabushiki kaisha) forsix
months or more2 may file, on behalf of the company,
directors compensate for damage that Hitachi suffered
a shareholders’ derivative action against directors (tor-
duetothechargeofviolationoftheAnti-MonopolyAct.
ishimariyaku), statutoryauditors (kansayaku),3 officers
TheviolationwasbidriggingbyHitachiemployeeswith
respect to the construction of electric facilities ordered
1 Under the Companies Act, companies may set forth in
bytheJapanSewageSystemOrganisation. Hitachihad
their articles of incorporation the minimum number of shares
paidanadministrativesurchargeofJPY172millionand
(a‘‘unit’’)that shareholdersmustown inorder to have voting
aJPY60millioncriminalfineaftertheinvestigationby rights (art.188 of the Companies Act). Most Japanese public
theJapanFairTradeCommission(JFTC).Inaccordance companiesdosetforthsuchaminimumnumberofshares.Inthe
caseofcompaniesthatsetforthsucha‘‘unit’’,thecompaniesmay
withtherecommendationbythecourt,theplaintiffsand
require,throughtheirarticlesofincorporation,thatshareholders
the defendants entered into a settlement whereby one owna‘‘unit’’inordertofileaderivativeaction(art.847,para.1
of the defendants agreed to pay JPY 100 million to oftheCompaniesAct).
2 If the articles of incorporation of the company set forth a
Hitachi.
periodofownershipoflessthansixmonths,shareholdersshould
As a recent development of shareholders actions haveownedthe‘‘unit’’foratleasttheperiodwhichisstipulated
in antitrust cases, newspapers reported that on (art.847, para.1 of the Companies Act). In relation to private
companies (i.e. companies in which the transfer of shares is
May 30, 2008, shareholders of a leading marine
subject to the approval of the companies), no such period of
constructor named Penta-Ocean Construction Co Ltd ownershipisrequiredandanyshareholdermayfileaderivative
(‘‘the company’’) won a settlement in a shareholder lawsuit(art.847,para.2oftheCompaniesAct).
3 Statutory auditors are responsible for auditing the manage-
derivative action that they filed against directors and
ment of joint stock companies by directors (art.381 of the
ex-directors of the company, which they claimed had Companies Act). If statutory auditors find that directors have
neglected their fiduciary duties by not having taken beenorareactingillegally,theyshallreportsuchafacttothe
boardofdirectorsorotherdirectors(art.382oftheCompanies
appropriate measures to prevent the company from
Act).Statutoryauditorsareappointedbyashareholders’meeting
engaging in bid rigging. The plaintiffs of the action are (art.329oftheCompaniesAct).
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118 EZAKIANDUEMURA:SHAREHOLDERACTIONSINANTITRUSTCASESINJAPAN:[2008]G.C.L.R.
(shikkoyaku)4andaccountingauditors(kaikeikansanin)5 should notify shareholders that it has received the
of the joint stock company to recover damages as a notification by plaintiff shareholders.11 The purpose
resultofharmthatthecompanyhassufferedduetothe of these notifications is to grant other shareholders
negligenceorwilfulmisconductofthedirectors,etc. an opportunity to join the derivative action and to
effectively prevent ‘‘collusive action’’, or an action in
Waitingperiod which plaintiff shareholders intentionally lose the case
incollusionwithdefendantdirectors.
Before shareholders file a derivative action, they are
required to request that the company files an action
Participationbycompaniesinshareholderactions
againstdirectorstorecoverthedamageonitsown,6and
theshareholdershavetowaitforareplyfromthecom-
pany for a period of 60 days.7 If the company decides Jointstockcompaniesmayjoinshareholders’derivative
againstfilinganactionagainstdirectors,ithasto—upon actionsinordertosupporteitherdefendantdirectorsor
therequestoftheshareholdersorthedirectors—provide plaintiffshareholders12;provided,however,thatifjoint
thereasonsforitsdecisioninnotfilinganysuchaction.8 stock companies join the action to support defendant
Inreality,itisquite rareforJapanesecompaniestosue directors,theyobtaintheconsentofstatutoryauditors.13
their directors on their own in response to a request
from shareholders, and it is common after the waiting
Consequencesofshareholderactions
periodof60daysforshareholderstofileashareholders’
derivativeactionagainstdirectors,etc.
Ifshareholdersprevailinaderivativeaction,defendants
shall be jointly and severally liable for the damage
Securitydeposit
causedtothe company.14 Inlightofthis statutoryjoint
and several liability, it will be logical for the court to
Thecourtmay,uponarequestofthedefendants,order
hold all directors and officers responsible for all of the
the plaintiffs to deposit cash as security, if defendants
damage that a company has suffered, but the court
show that the plaintiffs have filed the action with mali-
often limits their responsibility to a certain percentage
cious motives.9 Generally speaking, this court order
of the entire damage, based on the theory that the
for a deposit has a great deal of practical importance
responsibility of each director and officer should be
fromtheviewpointofdirectors,becausemanyplaintiffs
limitedtotheratiooftheircontribution.Thisisperhaps
choose to withdraw the action if they are ordered to
becauseofa‘‘political’’considerationwhichreflectsthat
pay a deposit. However, in the case of actions based
damage to companies could be enormous compared to
onaclaimofantitrustviolations,itseemsunlikelythat
the generally modest amount of remuneration received
the court would order the deposit, particularly in cases
byJapanesedirectorsandofficers.
where the JFTC issued a cease-and-desist order against
theviolation.
Settlementinshareholderactions
Notificationtocompaniesandothershareholders
Shareholders and directors may enter into a legally
When shareholders file a derivative action, they should
binding settlement in shareholder derivative actions,
notify the company of the filing10 and the company
and such a settlement legally binds shareholders who
did not participate in that action. If a company is not
4 Officers are appointed by the board of directors in what
a party to this settlement,15 the court should notify the
arecalledcommittee-typecompanies(art.402oftheCompanies
Act), which are a type of joint stock company. Committee- content of the settlement to the company, and also
type companies should have a nominating committee, an
audit committee and a compensation committee (art.2 of the
CompaniesAct)andallmembersofeachcommitteeshouldbe 11 Seeart.849,para.4oftheCompaniesAct.
directors. 12 In reality, companies will never join derivative actions in
5 Accounting auditors are accounting firms or certified public ordertosupportshareholders.
accountantsappointedbyjointstockcompanies. 13 Seeart.849oftheCompaniesAct.
6 Seeart.847,para.1oftheCompaniesAct. 14 Seeart.430oftheCompaniesAct.
7 Seeart.847,para.3oftheCompaniesAct. 15 The parties to shareholders’ derivative actions are, in
8 Seeart.847,para.4oftheCompaniesAct. principle,shareholdersanddirectors,notcompanies.However,
9 Seeart.847,paras7and8oftheCompaniesAct. apersonwhoisnotthepartytolitigationcanjoinasettlement
10 Seeart.849,para.3oftheCompaniesAct. inthecourtproceeding.
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EZAKIANDUEMURA:SHAREHOLDERACTIONSINANTITRUSTCASESINJAPAN:[2008]G.C.L.R. 119
demand that the company express an objection—if of the Anti-Monopoly Act, is Nomura Securities, Re
it has one—to the settlement within two weeks after (the ‘‘Nomura case’’).21 Thedefendant Nomura Securi-
the notification.16 If the company does not express an ties Co Ltd (‘‘Nomura’’), the largest securities firm on
objection in writing within this two-week period, the thebasisofsalesinJapan,wasentrustedwiththeman-
companyshallbedeemedtoconsenttothesettlement17 agementofaJPY1billionfundbyTokyoBroadcasting
and the settlement becomes legally binding against the Systems, Inc (‘‘TBS’’), a major national TV station.
company. Because of the burst of the bubble economy, TBS suf-
fered a loss of JPY 360 million by March 1990. The
board of Nomura decided that in order to maintain a
Compensationoffees
good business relationship with TBS, it was necessary
tocompensatethelossofTBS,whichthecompanydid.
If shareholders prevail, either entirely or partially,
A shareholder22 of Nomura filed a shareholders’
in a shareholder derivative action, they can claim a
derivativeactionagainst14directorsofNomurainthe
reasonable amount of expenses incurred with respect
Tokyo District Court, claiming that the compensation
to the action from the company, including expenses
by Nomura of the loss of TBS was against the
for gathering evidence, travel expenses and attorney
Anti-Monopoly Act (customer inducement by undue
fees.18 If directors prevail in a shareholders derivative
benefits23) and the Securities Exchange Act, and the
action,itisconstruedthatdirectorscanclaimreasonable
directors effectively caused Nomura damage equal to
expenses incurred in order to defend themselves from
theamountofthecompensationofJPY360million.
thecompany,includingattorneyfees.19
TheTokyoDistrictCourtheldthatthecompensation
was against the Anti-Monopoly Act, but, considering
Liabilityoffrivolousactions that Nomura gained substantial profit from business
with TBS after the compensation, Nomura effectively
Asamatterofgeneraltorttheory,itisconstruedthatif sufferedno‘‘damage’’anddeniedtheplaintiffs’claim.24
plaintiffs file a totally groundless lawsuit (i.e. frivolous TheplaintiffsappealedtotheTokyoHighCourt,which
lawsuits)andiftheyknew,orreasonablepersonswould held that because the purpose of the Anti-Monopoly
beabletoknow,thatthelawsuitwastotallygroundless, Actwas not to protect the company (i.e. Nomura), but
then filing such a lawsuit can be a tort against the to protect competitors,25 the plaintiffs acting on behalf
defendants and the plaintiffs should compensate the of Nomura (which, in accordance with the logic of the
defendants. However, the Companies Act sets forth an TokyoHighCourt,doesnothavealegitimateinterestto
exception—whereevenifshareholdersloseaderivative be protected under the Anti-Monopoly Act) could not
action, they shall not be held liable for any damage claimthatdamagewascausedbythedirectorsbasedon
that the company suffered due to the derivative action, theviolationoftheAnti-MonopolyAct.26
unlesstheshareholdershadmaliciousintent.20 TwoplaintiffsappealedtotheSupremeCourt,which
heldthatthefiduciarydutiesofdirectorsshouldinclude
a duty to not cause a company to engage in illegal
Leading case of antitrust and shareholders’
business activities, and therefore Nomura might claim
derivativeactions
21 Supreme Court judgment on July 7, 2000, Hanrei Times,
NomuraSecuritiescase
vol.1046,p.92.
22 At a later stage of the action, another three shareholders
joinedtheaction.
A leading case where directors of a stock company
23 Item9oftheDesignationofUnfairTradePractices(theJFTC
were sued for liability to the stock company in a PublicnoticeNo.15ofJune18,1982)setsforththatinducing
shareholders’ derivative action, based on a violation customersofacompetitortotradewithoneselfbyofferingunjust
benefitsinlightofnormalbusinesspracticesshallbeanunfair
tradepracticeandshallbeprohibited.
16 Seeart.850,para.2oftheCompaniesAct. 24 Tokyo District Court Judgment on September 16, 1993,
17 Seeart.850,para.2oftheCompaniesAct. HanreiTimes,vol.827,p.39.
18 Seeart.852,para.1oftheCompaniesAct. 25 Thisfindingisunusualandcriticisedbylegalscholarsbecause
19 Kenjiro Egashira, Law of Stock Corporations, 2nd edn the purpose of the Anti-Monopoly Act should be to protect
(Japan: Yuhikaku, 2008), p.455; Art.650, para.3 of the Civil competition,nottoprotectcompetitors.
Code. 26 TokyoHighCourtjudgmentonSeptember26,1995,Hanrei
20 Seeart.852,para.2oftheCompaniesAct. Times,vol.890,p.45.
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120 EZAKIANDUEMURA:SHAREHOLDERACTIONSINANTITRUSTCASESINJAPAN:[2008]G.C.L.R.
damage by directors if it suffered damage because detectingandpreventingthecartelactivities.According
of the directors’ misconduct that induced Nomura to the court, with respect to the alleged failure of the
to commit a violation of the Anti-Monopoly Act.27 dutytoestablishaninternalcontrolsystem,theplaintiffs
Thus, the Supreme Court made it clear that if a should have claimed: (i) specific defects in Mitsubishi’s
company violates the Anti-Monopoly Act, directors existing internal control system; (ii) specific contents
who are responsible for the violation could be subject of the internal control system that should have been
toshareholderderivativeactions. established; and (iii) the possibility for defendants to
prevent the cartel activities by establishing such an
internalcontrolsystem.Thecourtheldthattheplaintiffs
Mitsubishicase
failedtoclaimanyoftheseandthatthedefendantswere
notliable.28
Thereisanothernotablecaseinwhichthecourtheldthat
directorsdidnotbreachtheirdutyofcareinnothaving
been able to detect the cartel activities of employees of Possible arguments in antitrust derivative
theircompanyintheUnitedStatesorinnotestablishing
actions
a proper internal control system to prevent such
cartel activities in the company. In 2000, Mitsubishi Substanceofdirectors’negligence
Corporation(‘‘Mitsubishi’’),aleadingtradingcompany
in Japan, was charged by the grand jury in the United Shareholders often claim in antitrust derivative actions
States for aiding and abetting Ucar Carbon Co—a that directors negligently breached their duty to
manufacturer of graphite electrodes—in committing supervise other directors and management of the
cartel activities regarding graphite electrodes. While company and failed to prevent a violation of the Anti-
Mitsubishi denied the charge, the jury rendered a Monopoly Act by the company or by employees of
verdict of guilty as charged. Mitsubishi entered into the company. However, in typical antitrust derivative
a sentencing agreement with the Department of Justice actions such as cartel or bid rigging cases, defendant
oftheUnitedStatestopayUS$134million,whichitdid directorswillbeabletomakeastrongcounter-argument
pay. Mitsubishi also paid US$45 million as settlement that they were not aware of the violation without
moneytocustomerswhopurchasedgraphiteelectrodes displayingnegligence,becausecartelandbidriggingare
fromMitsubishiatcartelprices. generally made secretly, and even directors and other
Shareholders of Mitsubishi filed a shareholder seniormanagementcanrarelydetectthem.
derivative action in the Tokyo District Court against However, it must be pointed out that in Japan,
directors, statutory auditors, former directors, former companieschargedbytheJFTCforcartelactivitiesand
statutory auditors and the heirs of deceased former bidriggingtendtoengageinthesametypesofviolation
directors of Mitsubishi. The Tokyo District Court repeatedly, particularly in public procurement sectors.
rejected all claims by the plaintiffs and held that none The court may recognise that directors of companies
of the defendants breached their duty as directors or that have repeatedly committed such violations were
statutory auditors, since there was no circumstance negligentinthattheywereunabletodetectandprevent
which indicated that the defendants could detect the thesametypesofviolation.
cartel activities of an employee of Mitsubishi. The Another popular argument by shareholders for the
courtstressedthattheplaintiffsshouldhavespecifically liability of directors is that directors breached their
claimed regarding the possibility of the defendants fiduciary duty by failing to establish a proper internal
control system29 and caused damage to the company.
27 The Supreme Court, however, upheld the High Court’s
decision and declined the claim by the plaintiffs, based on 28 Tokyo District Court judgment on May 20, 2004, Hanrei
the finding that it was almost impossible for the defendants Jiho,vol.1871,p.125.
to recognise that compensation by security firms of their 29 Since the notable Daiwa Bank shareholders action case
clientswasaviolationoftheAnti-MonopolyActandtherefore (OsakaDistrictCourtjudgmentonSeptember20,2000,Hanrei
the defendants were not negligent in deciding to offer such Jiho, vol.1721, p.3), most courts have recognised the duty of
compensation.Theauthorsbelievethat,generallyspeaking,itis directorsoflarge-sizedcompaniestoestablishaproperinternal
extremelyunusualforthecourttodenynegligenceofadefendant control system. The Companies Act 2005 legislated such duty
whenthedefendantcommittedillegalconduct,andthisfinding and stipulates that the boards of directors of large companies
couldhardlybegeneralised.Infact,directorswhochosetosettle (definedascompanieswhosecapitalisJPY500millionormore,
derivativeactionsbasedoncartelsseemedtorecognisethatthe or whose debt is JPY 20 billion) shall establish an internal
courtwasunlikelytodenytheirnegligence. controlssystem(art.362,para.5oftheCompaniesAct).
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EZAKIANDUEMURA:SHAREHOLDERACTIONSINANTITRUSTCASESINJAPAN:[2008]G.C.L.R. 121
However,asthecourtintheMitsubishicaseheld,plain- received the excess payment from the customers in any
tiffswhoclaimthatdirectorshavebreachedtheirdutyto event, and even after the repayment of this amount,
establishaproperinternalcontrolsystemshouldprove: the company still effectively retains the profit that it
(i) specific defects in the company’s existing internal would have earned without the cartel. Thus, it may
controlsystem;(ii)specificcontentsoftheinternalcon- be argued that the company suffered no damage due
trol system that should have been established; and (iii) to the repayment. A similar counterargument would
the possibility for directors to prevent illegal activities be possible against the claim of compensation for
by establishing such an internal control system. It will liquidated damages, to the extent that even after the
notbeeasyforplaintiffstoprovetheseelements. payment by the company of the liquidated damages to
Furthermore, directors can make a strong counter- its customers, the company retains the profit that it
argument that there is no causal relationship between wouldhaveearnedwithoutthecartel.
the lack of a proper internal control system and the On the other hand, against a claim of repayment by
company’sactionsincommittingaviolationoftheAnti- directorsofcriminalfinesandadministrativesurcharges
MonopolyAct.Thatistosay,inorderforshareholders incurred by the company, there seems to be little or
to prevail, they have to show that if a proper internal no persuasive counterargument that such payments
controlsystemhasbeenestablished,thentheviolationof do not constitute damage to the company. Therefore,
the Anti-Monopoly Act would not have occurred—but defendantsshouldrebutotherelementsofsuchclaims.
it is generally quite difficult or almost impossible for
plaintiffstoprovesuch‘‘but–for’’causalrelationships.
Counter-argumentofcomparativenegligence
Damagetobeclaimed
Even if a court recognises the negligence of directors
in breach of their duty, directors can make a further
Plaintiffs may claim the following types of damage in counter-argument based on the theory of comparative
antitrust shareholder actions: (i) damages that a com- negligence (a theory that a plaintiff’s own negligence
pany repaid to its customers who paid cartel price should proportionally reduce the damage recoverable
(excess payment due to cartel); (ii) liquidated damages from a defendant). The following case would be worth
that a company paid to its customers as compensa- referringtohere.
tion based on a provision of liquidated damages in a A company filed a lawsuit against its representative
sales agreement with the customers (liquidated dam- director for compensation relating to damage (inadver-
ages); (iii) criminal fines and administrative surcharges tentpaymenttoitsretiredemployeebythecompanyof
that the company had to pay due to a violation of the excesssalaryandretirementbonus,whichwerecontrary
Anti-Monopoly Act; and (iv) damage stemming from to the company’s internal rules) that the company suf-
suspension from nomination to public bids (loss of feredduetothenegligenceoftherepresentativedirector.
businessopportunities).30 TheTokyoDistrictCourtheldthat,whilethedefendant
Inregardtoexcesspaymentsmadebycustomersdue was negligent in failing to prevent the inadvertent pay-
to a cartel being in place, it is true that such excess ment, such payment had been made partly because of
payment should be considered as causing damage to thenegligenceofotheremployeeswhoshouldhavesup-
customers, but it seems to be a different story whether ported the defendant, which effectively constitutes the
the repayment by the company of the excess payment defect of the entire organisation of the plaintiff (the
shouldbeconsideredasadamageofthecompany.That company).Thenthecourtreducedtheamountofdam-
is to say, it seems that defendant directors can make agetoberecoveredby40percent,basedontheconcept
a counterargument that the company should not have ofcomparativenegligence.31
Thus, in antitrust shareholder actions, defendant
30 Ifacompanyengagesinbidrigging,theJapaneseNational directorsmaybeabletoreducetheamountofdamages
Government and most local governments often suspend the to be paid by arguing that their company suffered the
company from participating in public bids for several months.
damage being claimed by the plaintiff at least partly
AccordingtotheModelGuidelinesofMeasuresofSuspension
ofParticipationinConstructionissuedbytheMinistryofLand, becauseofadefectinthecompany’sownorganisation,
Infrastructureand Transport, the periodofsuspensionis from
3–12 months when the company to be suspended commits an
offencerelatingtounreasonablerestraintoftradeinthepublic 31 Tokyo District Court judgment on September 28, 1990,
biddingofthesamegovernmentalagency. HanreiJiho,vol.1386,p.141.
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122 EZAKIANDUEMURA:SHAREHOLDERACTIONSINANTITRUSTCASESINJAPAN:[2008]G.C.L.R.
such as having a corporate culture inclined to, for exemptedfromthesurchargeifthedirectorshaddecided
example,regularlyengageinbidrigging. toreporttheviolationtotheJFTCsooner.
Counter-argumentofsetoffofdamagebybenefit Directorand officerinsurance and antitrust
derivativeactions
Defendant directors may argue that because their
companygainedbenefitsbasedonthedirectors’veryact
ofviolatingtheAnti-MonopolyAct,theamountofsuch Since 1990, director and officers insurance (‘‘D&O
benefit should be reduced from the amount of damage insurance’’) has been available in Japan, and since
thatthecompanysuffered.Forexample,intheNomura the 1993 amendment to the Commercial Code
case,thedefendantdirectorsarguedthatbecauseofthe resulted in a substantial reduction of filing fees for
compensation of the loss to TBS, Nomura successfully shareholderderivativeactions,D&Oinsurancehasbeen
maintained a good business relationship with TBS and attractingincreasingpublicattention.Inpracticalterms,
thusgainedsubstantialprofitsfromitstransactionwith it is extremely important whether D&O insurance
TBS.TheTokyoDistrictCourtacceptedthisargument, covers damages for directors. However, in shareholder
buttheTokyoHighCourtrejectedit. derivative actions based on a violation of the Anti-
Monopoly Act, D&O insurance may raise complicated
problemswithrespecttoitscoverage.
Consequenceofleniencyprogramme
Firstofall,accordingtothegeneralpolicyconditions
of D&O insurance (the ‘‘D&O general policy’’),
The leniency programme introduced in the Anti-
insurance companies shall be exempt from paying
Monopoly Act in 2006 may impose a difficult decision
amounts to compensate for damage ‘‘attributable to
ondirectorsofwhetherornottoreportaviolationofthe
criminalacts’’oftheinsured.34 Therefore,ifacompany
Anti-Monopoly Act to the JFTC, from the perspective
paid a criminal fine due to (for example) bid rigging,
of the possible risk of ensuing derivative actions. That
and the defendant director him- or herself directed the
is to say, under the leniency programme, companies
bidrigging,shareholderswillclaimthatsuchadirector
which voluntarily report to the JFTC the fact that they
should pay the compensation for the amount of the
engagedincartelactivityorbidriggingmaybeentirely
criminal fine. However, because D&O insurance does
orpartiallyexemptedfromthesurcharge.32
not cover damage attributable to criminal acts of the
Before the introduction of the leniency programme,
insured, insurance companies will not pay to cover the
directorswhowerenotawareofthecartelactivitiesofa
damagecausedbyadirectorforwhichtheshareholders
company without negligence were rarelyheld liable for
canclaimbasedonthecriminalfine.35
thecompany’spaymentofasurcharge.33However,after
Furthermore,itisconstruedthat‘‘damageattributable
the introduction of the leniency programme, plaintiff
to criminal acts’’(which is not coveredby D&Oinsur-
shareholders may claim that directors should be held
ance) includes not only direct damage such as fines or
liableforthecompany’spaymentofasurchargebecause
surchargespaidbyacompany,butalsoindirectdamage
oftheir failuretomakealeniencyfilingwiththe JFTC,
attributable to the same criminal acts.36 For example,
basedonthegroundthatthecompanymighthavebeen
if a company engages in bid rigging, the Japanese
NationalGovernmentandlocalgovernmentsoftensus-
32 The first company that reported its violation to the JFTC pend the company from participating in public bids
beforethedateofJFTC’sdawnraidshallbeentirelyexempted
for several months. Damage attributable to such a loss
from surcharge, the second shall be exempted 50%, and the
of business opportunities will be considered as ‘‘dam-
third shall be exempted 30% (art.7-2, Items 7 and 8 of the
Anti-MonopolyAct).Afterthedawnraid,uptothreecompanies age attributable to criminal acts’’ and, therefore, the
(includingcompaniesthatreportedtheviolationbeforethedawn
insurance company will not cover directors who either
raid)shallbeexemptedfrom30%ofsurcharge(art.7-2,Item9
engaged in bid rigging by themselves or directed other
oftheAnti-MonopolyAct).
33 Itistruethatplaintiffshareholdersmayclaimthatdirectors
whodidnotknowofthecartelactivities shouldbeheldliable
due to their negligence in failing to establish a properinternal 34 Seeart.5,Item2oftheD&Ogeneralpolicy.
controlsystem.However,itwasstillnotquiteeasyforplaintiffs 35 TomonobuYamashitaetal.,‘‘ArticlebyArticleCommentary
to prevail, mainly because it is often difficult for plaintiffs to D&OInsurancePolicy’’(2005)Shojihomu76.
prove the causal relationship between the lack of the internal 36 Yamashita et al., ‘‘Article by Article Commentary D&O
controlsystemandthecartelactivities. InsurancePolicy’’(2005)Shojihomu76.
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EZAKIANDUEMURA:SHAREHOLDERACTIONSINANTITRUSTCASESINJAPAN:[2008]G.C.L.R. 123
employees to engage in bid rigging, even if the court decided by July 25, 2008 that, when a case of bid
ordered the directors to pay damages to the company rigging is confirmed, the MLITT will claim damages,
duetothelossofbusinessopportunity. either actual or liquidated, from a company which
It should be noted, however, that whether or not rigged a bid, even if the company is the first company
insurance companies are exempt will be determined on that filed a leniency report with the JFTC and was
adirector-by-directorbasis.37Thatistosay,ifadirector exemptfromsurcharges.38 Becauseofincreasingpublic
committed a crime and was sued by shareholders, he criticism against bid rigging in public procurement,
or she would not be entitled to insurance money, but it is expected that national and local governments
other directors are still entitled to insurance money. will seek damages more aggressively from violators of
For example, even in cases where one director him- or the Anti-Monopoly Act. Meanwhile, the JFTC gained
herself directed bid rigging, other directors, who were much more power to detect bid riggings through
unable to preventthe bidrigging withmerenegligence, the introduction of the leniency programme in 2006.
shouldbeentitledtoinsurancemoneytocoverdamages Non-profit organisations such as the Shareholders
attributabletothebidrigging. Ombudsman and the Citizen’s Ombudsman have been
increasingly active in filing actions against companies
and directors, and shareholders’ actions will become
Outlook
more common. Therefore, directors or candidates for
such positions should be well prepared in dealing with
Newspapers have reported that the Ministry of Land, theriskofantitrustviolationsinJapan.
Infrastructure, Transport and Tourism (MLITT) had
38 NikkeiNewspaper,July26,2008,p.34.Thefirstcompany
37 Yamashita et al., ‘‘Article by Article Commentary D&O tohavefiledaleniencyreportwouldbeexemptfromsurcharge
InsurancePolicy’’(2005)Shojihomu76. andcriminalsanction.
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124 NOBLEANDPILSBURY:ROLEOFLEGALPRESUMPTIONSINPRIVATECOMPETITIONLITIGATION:[2008]G.C.L.R.
Is 10 per cent Tenisalsosomethingofaspecialvalueinthecontext
ofcartels:cartelshavelongbeenassumedtohaveover-
the answer? The role charged consumers by 10 per cent in the United States
(when calculating fines, but not in private litigation)4;
the European Commission’s fining guidelines limit the
of legal presumptions
total fine to 10 per cent of the turnover of each firm5;
andmorerecentlyinHungary,10percenthasbeenused
in private competition
asapresumptionoftheoverchargewhenclaimantsare
engaginginprivatelitigationfordamages.6
litigation This article explores the legal presumption that the
overchargefromacartelwill bein theregionof 10per
cent, as is assumed in the Hungarian Competition Act
asamendedearlierthisyear,and,inparticular,whether
Robin Noble and Simon Pilsbury∗
such an assumption is justified, and what effects it will
have.Itisstructuredasfollows:
•
section two describes the way in which eco-
nomic assumptions (particularly regarding cartel
Anti-competitivepractices;Cartels;Damages; overcharges) are built into various competition
Economictheory;Hungary;Presumptions;Pricefixing; regimesaroundtheworld;
Privateenforcement •sectionthreeprovidesevidenceonestimatesofthe
actual overcharges which cartels have been found
Introduction tohavecaused;
•
sectionfourconsiderswhethera10percentover-
chargeassumptionislikelytoincreaseorreducethe
For many people, particular numbers hold special
number of antitrust damages actions which take
importance: in Anglo-Saxon countries, seven is often
place, and how it impacts on incentives for firms
considered to be a lucky number, while the number
consideringenteringintoacartel;and,finally,
eight is considered in China to be so auspicious that •
sectionfiveconcludes.
the opening ceremony of the recent Beijing Olympic
Games began at 20:08 on 8/8/08. In competition law In what follows, it is assumed that the 10 per cent
andeconomicstherearealsoavarietyofnumberswith presumption has effects in practice—that is, although
special importance: 100, as in the 100 per cent pass- it is a rebuttable presumption, courts are reluctant to
through rate that the European Commission suggests deviate from it, and consequently, under the new law,
couldbeassumedunderantitrustdamagesactions1;50, the usual cartel damages claim in Hungary will be on
as in the 50 per cent market share which was used to thebasisofa10percentovercharge.Totheextentthat
demonstratethatAkzowasdominant2;andboth5and thepresumptionisrebuttedinpractice,theconclusions
10, as in the 5 to 10 per cent price rises typically used reachedbelowwillbediluted,althoughtheywillnotbe
for the Small but Significant Non-transitory Increasein reversed(thatis,ifthe10percentpresumptionreduces
Prices(SSNIP)test.3 the incentive to take a certain action, then even if the
presumptionisoftenrebuttedinpractice,theincentives
∗ Both authors are Managing Consultants at the economic to undertake that action will still be reduced, but
consultancyOxeraConsulting;RobinNobleisbasedinOxford, byless).
SimonPilsburyinBrussels.Theviewsexpressedarethoseofthe
authorsalone,anddonotnecessarilyreflectthoseofOxera.The
authors would like to thank Gunnar Niels, Alexis Walckiers, US Department of Justice (s.1.11 of the Horizontal Merger
LeonieBell,VickyCumingandDavidJevonsfortheirvaluable Guidelines, 1997) and the UK Competition Commission
comments. (para.2.7oftheMergerReferenceGuidelines,2003).
1 WhitePaperondamagesactionsforbreachoftheECantitrust 4 2007 Federal Sentencing Guidelines, 2R1.1. Bid-Rigging,
rulesEU:COM(2008)165,p.8. Price-Fixing or Market-Allocation Agreements Among Com-
2 See AKZO Chemie BV v Commission of the European petitors.
Communities (Akzo) (C-62/86) [1991] E.C.R. I-3359; [1993] 5 CommissionNoticeonImmunityfromfinesandreductionof
5C.M.L.R.215. finesincartelcases[2006]OJC298/17.
3 It should be noted that some competition authorities have 6 See report on the relevant amendment to the Hungarian
a preference for 5% rather than 10%: these include the CompetitionActat[2008]G.C.L.R.R–30.
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