Cards on the table: Practical considerations for proportionate disclosure.

Prior to the implementation of the Damages Directive[1], access to evidence held by other parties was severely restricted in many civil law jurisdictions in the EU. In some jurisdictions, document requests were in practice limited to asking for specific documents which presupposed knowledge of their existence. This acted as a deterrent to claiming for competition damages.

The passing of the Damages Directive's Article 5 obliged member states to give courts the power to order disclosure of relevant evidence held by parties to the proceedings, competition authorities, and third parties, subject to certain conditions.[2] These conditions include that evidence or categories of evidence must be restricted as precisely and as narrowly as possible, relate to a plausible claim for damage and that the request must be proportionate.[3] By latest December 2020, Article 5 of the Damages Directive was implemented in national law in all member states.[4] Yet, disclosure as routinely practiced in, for example, the UK, remains a rarity across civil law jurisdictions in the EU.

On 10 November 2022, the Court of Justice of the European Union (“CJEU”) issued a judgment (“CJEU judgment”) stating that “…disclosure of relevant evidence in the control of the defendant or a third party also covers those documents which the party to whom the request to disclose evidence is addressed must create ex novo by compiling or classifying information, knowledge or data in its possession…”.[5] The CJEU judgment thereby extends the scope of Article 5 by clarifying that ‘relevant evidence’ goes beyond the mere exchange of unprocessed, pre-existing ‘on the shelve’ evidence as we typically observe being ordered in jurisdictions such as the UK.

This insights article aims to provide, from an economic perspective, some guidance and a practical perspective on (ex novo) disclosure requests. We expect the CJEU judgment to lower the bar for courts in civil law jurisdictions in the EU to issue disclosure orders, having implications on, among other things, economic analyses. While we are yet to see whether national courts will move closer to the UK by routinely ordering disclosure, there are relevant transferable lessons from experiences in the UK.

The role of economic experts boils down to helping courts answering a legal “exam” question. Economic experts can provide written submissions and testimonies that provide valuable insights on economic and financial issues that arise in legal cases such as issues relating to causality or quantum.

For that, economic experts need to fully understand not only the legal question but also the legal context within which their analysis is used: a certain piece of economic analysis may be sensible from an economics perspective, but is unsuitable to assist in answering a particular legal question. It is therefore imperative for economic experts to develop an analytical approach that is tailored to the case at hand.

In civil law jurisdictions, a substantial amount of work is typically carried out early on at the pre-disclosure stage without access to evidence from the non-represented parties. At this time, economists often have to rely on publicly available data in lieu of non-public and, at times, confidential data from parties relevant to the case at hand. Disclosure becomes relevant at a later stage of the proceedings and serves to confirm, disprove or replace assumptions and findings. That is, the “real battle” takes place once the cards are on the table.

Increased access to non-public industry or firm-specific evidence through disclosure gives the expert a better understanding of industry dynamics (e.g., competitive parameters), firms’ decision making in the context of these dynamics (e.g., responses to changes in competitive parameters), and insights on customer behaviour (e.g., substitution patterns). Disclosure therefore allows experts to pinpoint key considerations grounded in the wider context of commercial reality, and within the relevant legal framework. However, disclosure may be a costly endeavour and should therefore be limited to what is ‘proportionate’. It is the role of the courts to carefully consider the anticipated benefits and costs of disclosure requests, and balance the interest of all parties.

The Damages Directive indicates that particular considerations should be given to the following three points when assessing proportionality: (i) how justified is the request given the available facts and evidence, (ii) what is the scope and cost of fulfilling the request, including the relevance of requested information, and (iii) whether the sought evidence is considered confidential and the measures in place to protect it.[6]

In light of ex novo disclosure, the CJEU further emphasises that national courts must “…carry out a rigorous examination of the request before them, as regards the relevance of the evidence requested, the link between that evidence and the claim for damages submitted, the sufficiency of the degree of precision of that evidence and the proportionality of that evidence”.[7]

To ensure adherence to the principle of proportionality, experts can assist courts by making targeted disclosure requests. We consider that ex novo disclosure – if used correctly – represents a form of “targeted disclosure”. Targeted disclosure may lead to a reduction in costs by having fewer back and forth communications between counsels and experts, can avoid duplication of efforts, and may assist in avoiding phishing expeditions as requests need to be more precise.

For courts to be able to correctly order targeted disclosure, judges need to have a sound understanding of what economic experts intend to include in their analyses, and how this evidence can assist the court in answering a legal question. This can be achieved through the experts setting out a clear, concise and understandable theory of harm based on the available information. This should include clear hypotheses and the data or other evidence required to test them, as well as alternative sources of information in case the requested data or other evidence would not be available. Not only does this limit the scope, and thus the cost, of disclosure, it also sheds light on the extent to which the request is justified and relevant, thereby avoiding phishing expeditions.

As document reviews and disclosure benefit from few scale advantages, reducing the scope of disclosure to what is (expected to be) necessary is key. This can be addressed through sampling or concise use of sequential disclosure. For example, in the case multiple parties are claiming damages simultaneously, sampling may take the form of test claimants. This means that a representative sample of claimants are selected to represent the entire claimant group. While an in-depth assessment of the test claimants is necessary, it limits the scope across all claimants: it provides a pragmatic trade-off between accuracy and cost.

In some cases, the expert’s view of what information is required for a thorough analysis may change in light of reviewing disclosed evidence and lead to further (justified) disclosure requests. To speed up the identification of relevant sources of information, experts may, in a first stage, limit initial disclosure requests to identified key categories. For example, communications on price setting by the relevant people within a firm are likely beneficial to create a first impression of how the firm sets its prices. Subsequent disclosure requests can then be justified or narrowed down based on the set of initial findings.

Furthermore, the expert can provide a “ranking” of different sources of information, allowing the court to compare alternatives. The expert may have a preferred source of information that he considers will provide the best accuracy of estimation, but that this source may not be available or is associated with substantially higher costs for the disclosing party. By providing examples of alternative sources of information and explaining the implications for accuracy and reliability of usage, the court will be in a better position to evaluate the proportionality of different levels of disclosure and understand the motivation for why certain evidence is requested. The court can thereby assess the relevance of the requested information to the case at hand, and balance the interest of all parties when evaluating disclosure requests.

While economists (almost) always prefer more data to less, it is key for judges to thoroughly consider the costs and benefits of disclosure requests to be able strike a balance between the spirit of the Damages Directive (through granting access to evidence to either party to a litigation) and the interests of all parties. In our view, targeted, and specifically ex novo disclosure, can assist with striking this balance and is likely to be achieved at a lower cost than transmitting potentially hundreds (or even thousands) of individual documents. That is, if requests are formulated with – but not limited to – the considerations outlined in this article.