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Cost mitigation defence in NTN Corporation & Ors v Stellantis NV & Ors

Posted on 6 April 2022

The recent judgment of the Court of Appeal in NTN Corporation & Ors v Stellantis NV & Ors [2022] EWCA Civ 16 ("NTN") addresses the defence of "cost mitigation".

Background 

In 2014, the Commission found that NTN (and others) had engaged in a collusive tendering cartel in relation to quotations for vehicle ball bearings over a seven-year period. Fiat Chrysler ("FC") commenced follow-on damages proceedings in the UK valued at an estimated £80 million. 

NTN introduced a mitigation defence which argued that FC would have 'off-set' any losses brought about by the alleged overcharge by securing increased discounts from its other suppliers. This defence was struck out by the Tribunal in the first instance, leading NTN to appeal to the Court of Appeal.

Cost mitigation/offsetting defence

NTN's primary defence was that there was no overcharge. In the alternative, it argued that, if there was an overcharge, then the claimants would have offset any increase in prices by reducing supply costs for other goods and services through its cost control systems. According to the judgment, NTN did not have any actual knowledge or evidence that the FC claimants had off-set their losses. Instead, NTN alleged that it could be reasonably inferred that the claimants would have done so if there had been an overcharge. In support of this argument, NTN submitted that the "broad axe" principle applied to pass-on in Sainsbury's Supermarkets Limited v Visa Europe Services LLC [2020] UKSC 24 ("Sainsbury's") should be applied to this defence. The Court of Appeal struck out this argument.

Two preliminary issues arose for the Court of Appeal to consider: 

  • First, the appropriate test to be applied. The basic test requires there to be a sufficient causal nexus or connection between the steps that a defendant says a claimant took by way of mitigation (the offsetting) and the overcharge (see paras 17 and 18). 
  • Second, the evidential standard that must be applied as part of the test. The test was held to be whether there is a "realistic prospect of the plea succeeding at trial" (see also: Royal Mail Group Limited v DAF Trucks Limited & Ors [2021] CAT 10) or whether there is a "plausible" prospect (see paras 22 and 23).  

The Court held: 

"Pulling the strands together, the burden of proof when pleading causation is on the defendant to demonstrate: (a) that there is a legal and proximate, causal, connection between the overcharge and the act of mitigation; and (b), that this connection is "realistic" or "plausible" (the two phrases being interchangeable) and carries some "degree of conviction"; and (c) that the evidence is more than merely "arguable". The assessment will be fact- and context-specific and, to foreshadow a point I refer to later, may depend upon the characteristics of the industry or sector in question. It may be easier to show a pleadable case of mitigation in some circumstances than in other" (para 33).  

The Court of Appeal considered whether the "broad axe" principle in Sainsbury’s should be applied to the issue of offsetting in this case, as well as the Tribunal's application of this principle. Ultimately, the Court of Appeal found that NTN’s argument that FCA offset the costs of the cartel by reducing their costs elsewhere lacked “realism”. The fact that FC had a target-based system to control costs which involved cost targets for suppliers did not “reasonably” either “logically or rationally” mean that the company would mitigate any overcharge by obtaining better prices from suppliers of other products.  

The Court of Appeal judgment held that NTN's pleaded case on offsetting did not meet the requisite standard to satisfy the test (see para 50): 

"The defence is theoretical. It is based upon successive “inferences” which, on analysis, are not inferences that properly can be drawn from primary facts. It makes assumptions about the existence of hard and certain facts which are very far from being hard or certain at all."  

In relation to the evidential burden, NTN had argued that the Tribunal's analysis of the Sainsbury's Judgment had put them in a "Catch 22" predicament because the Tribunal accepted that, in principle, an offsetting defence could be pleaded but, simultaneously, made it impossible for NTN to plead sufficient facts to get such a defence off the ground by denying NTN the chance to obtain and review disclosure from the Claimant.  

In relation to this, the Court of Appeal observed that "if a defendant does not have any realistic evidence of a possible defence, then it has no right to go fishing in disclosure to see if there is anything that might turn up which would help" (see para 81).   

The Court of Appeal further concluded that the Tribunal had applied the correct test to the pleadings. It did not misconstrue the Sainsbury's Judgment, nor did it misapply the relevant policy considerations. The Tribunal made no errors of law in its analysis of the pleadings and in its conclusion that NTN had failed to meet the appropriate test. The Court of Appeal agreed with the Tribunal that NTN's pleaded offsetting defence lacked particularisation or evidential underpinning, it was hypothetical and theoretical and, in some respects, counterintuitive. It lacked realism and there were no policy considerations which justified permitting this defence to continue to trial (see para 82).  

The judge would have granted permission to appeal given the arguments raised, the significance of the issue, and the fact that this was the first occasion upon which the implications of the Sainsbury's Judgment on mitigation by offsetting have been considered at the appellate level (see para 9), but would then dismiss the appeal (see para 83).  

Conclusions  

This judgment demonstrates that, whilst it is possible to plead cost mitigation, the defendant must have realistic evidence to support the defence in order to avoid it being struck out by the court. Defendants that raise the defence with a lack of such evidence should not rely on obtaining extensive disclosure from the Claimant in order to bolster their evidence, as it is unlikely that the Court will require the Claimant to provide disclosure in these circumstances.  

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