UK Competition Appeal Tribunal adds a hurdle to reliance on the pass-on defence

The UK Competition Appeal Tribunal (“CAT”) has made it more difficult for defendants in follow-on competition damages claims to plead that a claimant has mitigated any overcharge by reducing the costs paid to other suppliers in a recent judgment (“Royal Mail/BT v DAF”).

The potential for pass-on to other suppliers as a defence received judicial approval in June 2020, in the Supreme Court judgment in Sainsbury’s v MasterCard.  Relying on that decision, a defendant in the Trucks litigation, DAF, sought leave to amend its Defence to plead that the claimants had, in response to increased prices resulting from the competition infringement, sought to mitigate any overcharge by negotiating with other suppliers for lower input costs and/or otherwise reducing its costs of supply. The CAT refused, finding that a defendant should raise this defence only where there is some plausible and known basis in fact for making the argument.

The case therefore clarifies (and restricts) the position following Sainsbury’s v MasterCard: a defendant cannot merely rely on “broad economic or business theory to support a reasonable inference that the claimant would in the particular case have sought to mitigate its loss”. The CAT concluded that this would put a significant and costly evidential burden on a claimant, in effect automatically requiring it to give burdensome disclosure and evidence about its business operations and procedures (potentially over many years) to prove that there was no such pass-on, and this cannot have been what the Supreme Court intended. Instead, a defendant must be able to point to identifiable facts or circumstances “on the basis of which an assertion that costs mitigation was causally linked to the overcharge carries a degree of conviction.” A general plea will be liable to be struck out.

In practice, this will be difficult for a defendant at the pleadings stage, as it will not normally have sufficient information about a claimant’s business operations. A defendant may know of specific circumstances from its own commercial dealings with the claimant, or have knowledge of the claimant’s interactions with other suppliers, but this will be quite rare. Alternatively, documents provided during disclosure may suggest there has been such mitigation. Defendants may be able to rely on these documents to amend their pleading (if the court does not consider it too late to do so), or they may support specific disclosure requests.

While the factors that will make such a plea more plausible will vary from case to case, the CAT suggested the defence might more likely arise: (i) where the overcharge can be shown to represent a significant proportion of the claimant’s overall costs, thereby triggering an internal response, (ii) the nature and/or amount of the overcharge is known to the claimant, (iii) it could be expected to have been relatively easy for the claimant’s business to reduce certain or general input costs in response to the overcharge, and/or (iv) other supplies made to the claimant by the defendant (or its associates) were renegotiated in the period following the overcharge alleged to have been caused by the anti-competitive conduct.