Growing businesses lose out when big competitors club together to keep prices high. But how easy is it to take on the giants in court? Ingrid Gubbay, a consultant at law firm Hausfeld, examines the issue.

Growing businesses lose out when big competitors club together to keep prices high. But how easy is it to take on the giants in court? Ingrid Gubbay, a consultant at law firm Hausfeld, examines the issue.

Cartels are groups of companies which club together to arrange to fix the prices of products, bid-rig or market allocate – or all of these. Such activities are illegal and are regularly busted by regulatory authorities across Europe.  

Though regulators have been trying to encourage more civil court actions against cartels, a European Commission (EC) study in 2005 found that damages had been awarded for breach of EC or national competition laws in only eight of the 25 member states.

In the same year that the EU study published its findings the Office of Fair Trading (OFT) reported that nearly a quarter of small and medium-sized enterprises (SMEs) believed they were harmed by unfair practices such as cartel price fixing, at a cost to those businesses of billions of pounds. Yet the OFT added that SME owners prefer ro soldier on without turning to the authorities for assistance – after all, the costs of bringing actions against powerful cartels can be in the region of £1 million to £5 million depending on how far they are run.

In the US, the solution is that class actions are brought on behalf of an unidentified group of claimants. However, this approach will not be adopted in the EU.

One way to fight back is through a conditional fee agreement or CFA (colloquially referred to as “no win no fee”). Here, a solicitor agrees to charge legal fees only where they are successful in the claim. These costs are normally recoverable from the losing party in litigation, so at best the SME pays nothing and at worst, it only pays legal fees where it has recovered damages.

Another solution is to take on “after the event” or ATE insurance. The premium here is payable on a deferred, success-only basis, meaning that if you lose the case the insurer pays the costs and the premium is not payable, whereas if you win, the cost of the premium should be covered by a payment from the losing defendants.

The combination of CFAs and ATE insurance now allows SMEs to bring claims to recover losses suffered as a result of cartel action. You can check the EC’s website to discover in which sectors they have investigated and found cartels, and whether your business is likely to have been affected. If you think you have suffered a loss you should consult your solicitor, local business association or consumers group and they will be able to tell you more.