Author Archives: Tristan Jones

About Tristan Jones

Barrister at Blackstone Chambers.

Merricks v MasterCard: Collective Actions Reinvigorated

The Court of Appeal today gave its much-anticipated judgment in the application to bring collective proceedings against MasterCard: see Merricks v MasterCard Incorporated and others [2019] EWCA Civ 674.  It is a major victory for the Applicant and will reinvigorate the collective proceedings regime, which has seen disappointingly few cases brought since its introduction in 2015.

The background is well-known.  Between 1992 and 2008 MasterCard infringed competition law through the imposition of an unduly high fee which was effectively paid by retailers.  Many retailers have brought claims against MasterCard, in the course of which MasterCard has argued that the retailers largely or wholly passed on the overcharge to their own customers.  That must have seemed a sensible defensive strategy, at least until Mr Merricks arrived on the scene seeking to bring collective proceedings in respect of the loss suffered by some 46.2 million consumers – which (given what MasterCard has said about the high level of pass-on) his experts estimated at some £14 billion.

We have blogged before on the reasons why the Competition Appeal Tribunal rejected Mr Merricks’ application.  In very broad summary, it considered that (a) the Applicant had not done enough to show how it would go about assessing the overall damage suffered by consumers – a complex task given that it will involve considering pass-on in several market sectors over a long period, and (b) even if one could calculate the overall damage suffered, it would be impossible to calculate the loss suffered by each individual class member, even on an approximate basis.  The Court of Appeal rejected both of these arguments.

On the question of whether the Applicant had done enough to show how it would assess the aggregate damage, the key part of the Court of Appeal’s analysis is at [50], where it said (paraphrasing Canadian jurisprudence which the Court endorsed):

“the function of the Tribunal at the certification stage is to be satisfied that the proposed methodology is capable of or offers a realistic prospect of establishing loss to the class”

That is a fairly low threshold and the Court held that it was not necessary for the Applicant, at the certification stage, to specify in detail what data would ultimately be available.  The Court observed that if, as proceedings proceed, it becomes clear that it will not be possible to calculate the overall loss, the Tribunal can revisit whether it is appropriate to allow the proceedings to continue.

On the question of whether it is necessary to prove the loss suffered by each individual class member, the Court held that it is not.  This is the most important part of the judgment.  In short, the Court held that if an Applicant seeks an aggregate award of damages, reflecting the overall loss to the class, then it is not necessary to prove any individual’s loss – or for that matter, even to prove that any individual class member suffered loss at all.  All that matters is that the overall loss can be calculated.

When, at the end of the proceedings, the Tribunal comes to decide how to distribute the loss to each class member, it may be appropriate to try to give them each a sum reflecting their own loss; but if that is not necessary and other approaches may also be adopted.  In this case, Mr Merricks accepts that it will not be possible to give each consumer a sum reflecting their individual loss, and the proposal is that each one of the 46.2m consumers will get a fixed amount depending on the period of time when they were in the class.

It would obviously be an exaggeration to say that this judgment solves all of the problems with the collective proceedings regime.  For one thing, Mr Merricks still has a long road to travel, and none of us should make any plans just yet for the hundred pounds or so that might be coming our way.  For another thing, there are other difficulties with the regime, some of which are exemplified by the Pride case which we have blogged about previously.  But on any view today’s judgment is a very important one, and it can be expected to breathe new life into a regime which has not, as yet, lived up to early expectations.

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Retrospective interpretation: DSG v MasterCard

The latest battle over limitation in Competition damages claims was a victory for the claimants – see DSG Retail Ltd v MasterCard Inc [2019] CAT 5.  In some ways it is a surprising decision, because the Competition Appeal Tribunal has decided that when s.47A of the Competition Act was enacted in 2003, certain claims which were time-barred prior to its enactment were revived.  The Tribunal frankly acknowledged that it did not find the matter straightforward, and looking at the rules it is easy to see why.

It used to be the case that competition damages claims could only be brought in the civil courts, where they would be subject to the usual six-year limitation rule (subject to extensions in various circumstances which need not concern us here).  In 2003 a new route was introduced: claimants became entitled bring follow-on claims in the CAT under s.47A, which had its own bespoke limitation regime.  That regime included this provision, which was found in rule 31(4) of the 2003 CAT Rules:

“No claim for damages may be made if, were the claim to be made in proceedings brought before a court, the claimant would be prevented from bringing the proceedings by reason of a limitation period having expired before the commencement of section 47A.”

Rule 31(4) was dropped when the rules were revised in 2015.  The position now is that claimants can still bring s.47A follow-on claims, including for periods pre-2015, but such claims are no longer subject to rule 31(4). The Tribunal had to decide the related questions of what the consequence was of dropping rule 31(4), and what the rule meant in the first place.

The most obvious interpretation of rule 31(4) is that claimants could not bring follow-on claims under s.47A if the claims would have been time-barred in 2003 when s.47A was introduced.  Thus, if an infringement lasted from 1993 to 2003 (and assuming that it was not deliberately concealed), the claimants could have brought a s.47A claim for damages going back as far as 1997 but no earlier.  That would make good sense because it would mean that the introduction of the s.47A regime did not ‘revive’ claims that had otherwise expired.

The main problem with that ‘obvious’ interpretation is that it would lead to very strange consequences when, in 2015, rule 31(4) was dropped.  One possibility is that the effect of dropping rule 31(4) was that, all of a sudden and for no apparent reason, from 2015 claimants were allowed to bring claims for damages which were time-barred in 2003 and which had remained time-barred until 2015.  That would be very surprising.  The only way to avoid such a result would be to say – and this is essentially what MasterCard said – that the rules should continue to be applied as if rule 31(4) still applies.  But that is  an ambitious argument given that the rule was deliberately dropped.

The Tribunal resolved these problems by deciding that what I have called the ‘obvious’ reading of rule 31(4) is wrong.  In fact, the Tribunal held, rule 31(4) required one to ask whether the entire proceedings would have been time-barred in 2003 when s.47A was introduced.  If the answer is that the proceedings would not have been time-barred, because some of the damage was still within the limitation period, then the claimants could have started s.47A follow-on proceedings for the entire loss.  Thus, to take my example of an infringement lasting from 1993 to 2003, the fact that the 1997-2003 period was not limitation-barred in 2003 meant that claimants were entitled to start s.47A proceedings for the entire 1993-2003 period.  Section 47A therefore did, in this limited sense, revive claims that had otherwise expired.

This approach to rule 31(4) has the particular attraction of enabling one to explain why the rule was dropped in 2015.  The explanation, according to the Tribunal, is a practical one: it is extremely unlikely that there will be an infringement decision after 2015 which relates to damages which were entirely limitation-barred in 2003.  Thus, rule 31(4) is no longer practically necessary; the problem with which it was concerned will no longer arise.

The upshot of all of this is that the Tribunal has decided that rule 31(4) never prevented claimants from pursuing claims going back as far as 1993 (or earlier), provided that some part of the damage was suffered in or after 1997, and the fact that rule 31(4) has now been dropped is entirely understandable and makes no practical difference.  Claims can still be brought going back to 1993 (or earlier).  It is undoubtedly a neat solution.

On the other hand, consider this.  It seems pretty unlikely that any claimant who had brought a claim in, say, 2004, or 2014, would have been able to persuade the Tribunal that the 2003 rules had revived claims that were otherwise time-barred.  It is only because the rule was revoked in 2015, and because the Tribunal used the fact of revocation as being relevant to its meaning when originally enacted, that the Tribunal interpreted the rule in the way that it did.  Thus, claims which were time-barred in 2003, and which would probably have been treated as time-barred up until 2015, are now to be treated as having been revived in 2003.  That may well be the least bad interpretation of the regime, but one can well understand why the Tribunal did not find the matter at all easy.

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Jurisdiction after a no deal Brexit

Time for some more speculation about the future which awaits us after 29 March.  The topic this time is jurisdiction.

As the readers of this blog will know, the rules of civil jurisdiction across the EU are currently governed by the Brussels Recast regulation.  The basic framework is:

  1. A defendant domiciled in a Member State can be sued in the court of its domicile and also in various other EU courts under certain specified gateways (e.g. in competition claims, the place where the cartel was concluded – see CDC).
  2. There are strong lis pendens provisions. In general, if the same issue is litigated in more than one Member State, the later proceedings must be stayed.
  3. There is protection for choice of forum contracts in favour of a court of a Member State. The courts of the chosen Member State will accept jurisdiction even if the defendant is not domiciled in that (or indeed any) Member State; and all other courts must stay proceedings in deference to the courts of the chosen Member State.

The proposed Withdrawal Agreement provides that the provisions of Brussels Recast will continue to apply to proceedings instituted during the transitional period.  But, as with most things, if there is no Withdrawal Agreement then things will get more interesting.

No deal Brexit: The law in England

The government’s intention in the event of no deal is that Brussels Recast will continue to apply to cases begun in England before Brexit, but otherwise it will be repealed.  A draft statutory instrument to that broad effect was published in December.

It is worth briefly pausing on this point to note that it is not obvious that the proposed statutory instrument will be lawful.  Under the EU Withdrawal Act 2018, the SI can only be made if it is required to remedy or mitigate a ‘deficiency’ in retained EU law.  The government has proceeded on the basis that Brussels Recast in a necessarily reciprocal arrangement and that the UK could not retain it if the EU does not do so too.  That may be open to debate.

However, assuming that the proposed SI is not challenged, the practical consequence will be that the English common law rules will apply instead of Brussels Recast to all cases commenced in England after exit day.  Whether that is a good thing rather depends on your perspective.

The English rules are certainly more flexible than the Brussels Recast rules.  In theory, there will be some cases which could be litigated in England under the English jurisdictional gateways which you could not litigate here under Brussels Recast.  For example, an English court could allow proceedings to be litigated in England even if there is a jurisdiction clause in favour of an EU Member State.  Other examples were given in Naina Patel and Andrew Scott’s previous blog on this topic.

On the other hand most of the English gateways are discretionary.  This gives rise to much more uncertainty, and in practice it may be somewhat optimistic to think that there are going to be lots of opportunities to bring new claims in England that could not have been brought under Brussels Recast.

No deal Brexit: The law in the EU

It may turn out that the more difficult problems will arise in proceedings in the EU-27.

It is worth starting with the obvious point that Brussels Recast will continue to apply, within the EU, to cases where the Defendant is domiciled in an EU Member State.  So, to take a simple example, an English company could still sue a German company in Germany.  That will give rise to various tactical possibilities for claimants wanting to sue an EU defendant.

  1. They might be able to sue in England, under English rules.
  2. They could sue in the EU. If within one of the Brussels Recast gateways, the EU court would (probably) be obliged to accept jurisdiction.
  3. Note that they could sue in the EU even if there is a jurisdiction clause in favour of England. Brussels Recast gives particular weight to such agreements but only if they are in favour of the courts of a Member State.  We therefore face the prospect of EU Member States being obliged by the Brussels Recast regulation to take jurisdiction over disputes even if there is a contractual agreement in favour of English courts.

Brussels Recast will also still apply, within the EU, to cases where there is a jurisdiction agreement in favour of an EU Member State, regardless of the domicile of the parties.  So for example: a German claimant could still sue an English defendant in the chosen EU court.  This gives rise to similar tactical possibilities as are set out above.

But Brussels Recast will not apply within the EU to cases where the Defendant is domiciled in England and there is no EU jurisdiction agreement.  In this scenario, the national rules of the Member States will apply.  For example: if a German company sues an English company in Germany then, in the absence of any jurisdiction agreement, German jurisdiction rules will apply.

There are therefore various complex means by which jurisdiction may be established in the EU in cases with an English connection.  To make matters more complex, all of this must be understood in light of the fact that the Brussels Recast lis pendens rules do not apply in relation to pending proceedings in third states.  Article 33 of Brussels Recast provides only that Member States may, in certain circumstances, stay proceedings to await the resolution of pending proceedings in a third state.  What this means in practice is that we face the prospect of the same parties being tied up in litigating the same issues in the UK and in the EU.

As to how quickly these changes might happen, the European Commission has recently (18th January 2019) published a Notice to Stakeholders which states that, in the event of a no-deal Brexit, Brussels Recast will continue to apply to cases involving a UK-domiciled defendant which were pending before EU courts on the withdrawal date.  The legal basis for that assertion is not explained, but even if it is true it will affect only a small number of cases.  The Commission has not expressed a view on other scenarios which appear rather more likely, such as whether Brussels Recast would apply to proceedings commenced in the EU post-Brexit but where there were pending proceedings in England pre-Brexit; or whether it would apply to jurisdiction agreements in favour of England entered into pre-Brexit.  The broad expectation appears to be that the UK will immediately cease to be treated as part of the Brussels Recast regime.

 

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Subsidiarity liability: Biogaran

I wrote a blog a few months ago on the circumstances in which a subsidiary can be held liable for the infringing conduct of its parent.  That is a somewhat special interest subject which might be said to have received more than its fair share of attention among English judges and lawyers. However, I cannot resist a short update to point out that the issue has recently received attention from the EU General Court.

The context was a clutch of appeals relating to the Commission’s decision on ‘pay-for-delay’ settlements relating to patents owned by the French pharmaceutical company Servier. One of the addressees of the decision was Biogaran, a 100% Servier subsidiary.  One of Biogaran’s grounds of appeal – which was rejected – was that the Commission had wrongly held it liable for an infringement carried out by its parent.

The judgment is not as clear as one might have hoped, and it is also not yet available in English. However, two points are tolerably clear.

The first point is that the General Court considered that a subsidiary may be liable for an infringement even if does not itself have the knowledge that is ordinarily required to find an infringement: see [223]-[225].  That said, it appears that Biogaran did have at least some knowledge, so the precise limits of the court’s analysis are open to debate.

The second point relates to implementation.  Some parts of the Court’s judgment may be read as suggesting that a subsidiary may be liable even if it has played no role in the implementation of the infringement.  Other parts may be read as meaning that the subsidiary must play role in implementation but that it can be relatively minor: at [225] the Court refers to implementation “even in a subordinate, accessory or passive manner.”

So Biogaran is unlikely to be the final word on this issue.  It does, however, tilt the balance more firmly in favour of subsidiary liability than some English judges might be comfortable with.

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Anchoring claims to a UK subsidiary

The recent decision of the High Court in Vattenfall AB v Prysmian SpA [2018] EWHC 1694 (Ch) is another example of claimants being allowed to use non-addressee English subsidiaries as anchor defendants for their competition damages claims.  It is also another example of the court considering but not actually having to decide the interesting legal points around attribution of liability which potentially arise in such cases.

There have now been several cases with the same basic structure: the European Commission decides that a company is liable for a competition law infringement and some claimants then start proceedings against that company’s English subsidiary in order to establish jurisdiction in England.  The defendant objects to the claimants’ attempt to sue an entity which was not, after all, an addressee of the Commission’s decision simply to use it as a means of bringing proceedings in London.

The problem which defendants face in such a scenario, and the reason why they keep losing these cases, is that it is relatively easy for claimants to allege that the English subsidiary was knowingly involved in the infringement.  If the Commission has found that there was an EU-wide infringement then it will often be entirely proper for the claimants to infer, at least sufficiently to meet the low threshold for establishing jurisdiction, that the infringement was implemented in England through the English subsidiary.  In Vatenfall the claimants had the additional benefit of being able to point to concrete evidence in support of their knowing implementation plea.  Provided that such a plea is properly made, a standalone claim can be run against the English subsidiary which can then be used as the anchor defendant.

The more interesting legal question is what the position would be if a claimant cannot properly plead a standalone case of knowing implementation against the English subsidiary.  Could the parent’s liability be attributed to the subsidiary so that the subsidiary can be sued and used as an anchor defendant even though it was not involved in the cartel?  The English judges who have considered this question have expressed different views about it.

One view is that the answer is that liability can be attributed from an infringing subsidiary to its parent company but not the other way round.  Supporters of this view point to the fact that, when discussing attribution of liability in the line of cases starting with Akzo Nobel NV v European Commission [2009] 5 CMLR 23, the European Courts have been concerned only with imputing liability to a parent company, and that they only permit such attribution if the parent exercised a ‘decisive influence’ over the infringing subsidiary.

The problem, however, is that the reasoning in the Akzo Nobel line of cases is expressed in quite wide-reaching terms.  The basic logic is that if the parent and subsidiary are part of the same single economic unit then they form a single undertaking, and that if an undertaking infringes competition law then all of its legal entities are liable for the breach.  The ‘decisive influence’ test is really about determining whether the parent and subsidiary are part of the same economic unit, not an additional threshold for the attribution of liability between companies which are in the same economic unit.

Thus the alternative view is that the liability can be attributed between any and all companies in the same undertaking.  This has caused some consternation among English judges because of its apparently wide-reaching consequences.  Does it mean that liability could be attributed to a subsidiary with no knowledge of or involvement in a cartel?  Or even from one subsidiary to another?

In the Sainsbury’s case ([2016] CAT 11) at [363] the CAT suggested something of a compromise: liability could be attributed between companies in the same undertaking but only if they had “in some way” participated in the breach or otherwise exercised a decisive influence over a company which did.  That is a sensible solution, but it might be said that it still sits somewhat uncomfortably with the reasoning in Akzo Nobel.

A different way of formulating the point might be as follows.  In accordance with the reasoning in Akzo Nobel, liability can always be attributed between companies in the same undertaking.  However, when asking whether companies are in the same “undertaking” one needs to keep in mind that the identification of an undertaking depends on the circumstances.  In a competition infringement case, the question is whether the companies acted as a single economic unit for the purposes of the infringement.  If they did then they are all part of the same undertaking and they are all liable.  If they did not then they are not part of the relevant undertaking and liability cannot be attributed to them from any other company in the group.

If this approach is correct then a subsidiary which genuinely had nothing to do with an infringement will not be liable for it.  But a subsidiary which, whether knowingly or not, acted in concert with other group companies such that they operated as a single economic unit to implement an infringement will be liable for it.  That is essentially (with slightly different reasoning) the approach which appealed to the CAT in Sainsbury’s, and it is a solution which avoids some of the extremes of other proposed solutions.

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Can several wrongs make a right? Gallaher v CMA in the Court of Appeal

When a public body makes a mistake in its treatment of one person, can fairness require it to treat other people in the same way – even if that means amplifying the effects of the mistake?

According to the Court of Appeal in the latest instalment of the tobacco litigation, the answer is yes.  The history of the case is well-known.  The Office of Fair Trading’s decision, that various manufacturers and retailers had committed an infringement in the setting of tobacco prices, collapsed on appeal to the CAT in 2011.  Gallaher and Somerfield, who had entered into early resolution agreements (“ERAs”) with the OFT and therefore decided not to appeal the infringement decision, then sought to appeal out of time.  The Court of Appeal rejected their attempt in 2014, emphasising the importance of finality and legal certainty (see my blog here).

Undeterred, Gallaher and Somerfield pressed on with a different aspect of their case.  They had discovered that another company, TM Retail, had been assured by the OFT when it entered into its ERA in 2008 that, in the event that any other party succeeded on appeal, TM Retail would have the benefit of that appeal.  The OFT’s assurance to TM Retail was based on a mistaken view of the law, since a successful appeal by one addressee of a decision does not normally let non-appellants off the hook.  However, following the successful CAT appeal in 2011, the OFT decided to honour its assurance to TM Retail.  TM Retail’s penalty was repaid (although for reasons which need not detain us the OFT has refrained from calling it a ‘repayment’).  But the OFT also decided that, given that it had not given any similar assurance to Gallaher or Somerfield, it would not repay their penalties.

Gallaher and Somerfield challenged the OFT’s decision on fairness grounds.  The Court of Appeal has now held that the OFT, now the Competition and Markets Authority, is obliged by principles of fairness to treat Gallaher and Somerfield in the same way as it treated TM Retail.  That will mean repaying their penalties, at a cost of something north of £50 million.

The Court of Appeal’s decision recognises that the requirements of fairness will depend on all the circumstances of the case.  The decision is therefore based very heavily on the particular facts of this case.  Of particular importance was the fact that all ERA parties were told that they would be treated equally.  They therefore had a strong expectation of equal treatment.

Nonetheless, the case raises some important questions.

Firstly: what is the significance of detrimental reliance in an equal treatment case?  In cases concerning legitimate expectations, itself a branch of the law of fairness, it is generally the case that a party will not succeed unless he shows that he has suffered some detriment in reliance on the expectation in question.

In this case, Gallaher and Somerfield could not say that the OFT’s assurance to TM Retail was what made them decide not to appeal against the infringement decision.  They didn’t know about the assurance when they chose not to appeal.  The Court of Appeal answers this point by remarking at [44] that:

“the only reason why the appellants could not have claimed that they relied on assurances of the type given to TM Retail was because such assurances had not been given to them …”

But the question is surely not whether Gallaher and Somerfield could “claim” to have relied on assurances: it is whether or not they did in fact rely on such assurances.  They did not.  The absence of such a factor must be relevant to an assessment of what is fair in all the circumstances.

Secondly: what is the significance of the fact that assuring equal treatment will end up costing the public purse a huge amount of money?

The Court does not go into this question in any detail.  It rejects, as a statement of general principle, the contention endorsed by the High Court that a mistake should not be replicated where public funds are concerned.  Instead all depends on the circumstances.  But the Court’s discussion of the circumstances does not consider the significance of the impact on the public purse.

Of course, the point cuts both ways because the heavy impact on the public purse if the penalties are repaid is the mirror-image of the impact of the unequal treatment on Gallaher and Somerfield if the penalties are not repaid.  There is, however, an important question of principle as to how to balance the desirability of ensuring equal treatment, on the one hand, against the unattractiveness of requiring public bodies to magnify their errors at great expense, on the other.  The Court of Appeal explains in detail why the former consideration should weigh heavily in favour of repayment, but it remains unclear whether, or in what circumstances, such factors may be counter-balanced by public expense considerations.

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Economic complexity: CAT vs High Court

One of the advantages of the Competition Appeal Tribunal is said to be the fact that its three-member panel typically includes an economist. But is that really such a big advantage over the High Court?

The question is particularly topical in light of a couple of recent trends. On the one hand, recent legislative developments have increased the jurisdictional overlap between the CAT and the High Court, so that litigants more frequently face a choice between the two. In making that choice, the CAT’s economic expertise can exert a strong pull. Claimants might plead their case narrowly in order to come within its limited powers. Or, parties might seek to transfer their case across to the CAT from the High Court (not always successfully – see here).

On the other hand, there have been several indications that more could be done to make economic issues accessible to High Court Judges. A high-profile example is the recent Streetmap case, in which the experts gave evidence concurrently in a “hot tub” arrangement. Another example comes from the MasterCard litigation, in which Mr Justice Flaux recently asked whether it might help for the trial judge to be assisted by an expert economist appointed as an Assessor under CPR 35.15. I understand that the suggestion has not been taken any further in that particular case, but the general idea of using Assessors was also endorsed by another judge at a recent lecture on competition litigation.

Another tool which could be used much more widely in competition cases is the use of ‘teach-ins’ at which an independent expert spends time (perhaps a couple of days) educating the judge on the basic economic concepts relevant to the case. Care obviously needs to be taken to ensure that the teacher does not take a stance on controversial issues in the case. But if it is done well, as a recent patent case shows, it can be an invaluable way of helping a judge to prepare for a complex trial.

Of course, all of these techniques could be used in the CAT as well as in the High Court. It is perhaps too easy for parties in the CAT to assume that, just because there is an economist on the Panel, there is no need to do any more to make the economic issues accessible. The economist can only do so much, and the role does not include providing formal training to the other Panellists.

Against that background, it is worth revisiting the advantages of having an economist on the CAT Panel. The first is that he/she is fully involved in the hearing, and able to ask questions of the parties’ expert witnesses. Anyone who appears regularly in the CAT will have seen cases in which it is the economist Panellist who manages to cut through the arguments and identify the central point.

But there is no reason in principle why that advantage could not be replicated in the High Court. An Assessor could be appointed with the function of (among other things) asking question of the expert witnesses.  In practice this would be an unusual request, and of course the parties would need to foot the bill.  But there is no reason in principle why it could not be done.

The other main benefit of having an economist on the Panel is that he/she participates fully in the decision making. He works collaboratively, in private, with the other Panellists as they reach their decision. In contrast, if an Assessor were appointed in the High Court to help the judge reach a decision on the economic issues in the case, his advice would need to be given in public so that the parties could comment on it (see the Court of Appeal’s guidance at paragraphs 18-21 of this patent case). Such a process would be much more cumbersome than that in the CAT, but it would at least ensure that the parties could engage fully with the thinking of every economist involved in the case.

I do not mean to suggest that parties in economically complex cases should flock to the High Court rather than the CAT. But it is worth thinking hard before tailoring a case to fit within the CAT’s limited powers, or getting into a procedural fight over the forum. With a bit of imagination, and provided the parties are willing to pay for it, much can be done to assist the judge in the High Court to match many of the advantages available as a matter of course in the CAT.

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