UK Private Antitrust Litigation

"An extract from The 2007 European Antitrust Review, a Global Competition Review special report - www.globalcompetitionreview.com"

In recent times, there have been a number of changes to the UK competition law regime that were designed to facilitate the private enforcement of competition law in the UK. Despite these changes, reflecting a desire on the part of competition authorities at both the UK and EU levels to encourage the development of a private enforcement culture,² there have as yet been few instances of private antitrust litigation in the UK.³

Most notably, in July 2006, the House of Lords overturned the Court of Appeal’s decision in Inntrepreneur Pub Company and Others v Crehan, the first and only case in which an English court had awarded damages for harm suffered as a result of a competition law infringement. This means that there is now no longer any English precedent in which damages for loss suffered as a result of an infringement of competition law have been awarded. This case is considered further below.

The changes made by the Modernisation Regulation have been well documented. In terms of their relevance to antitrust litigation in the UK, the Regulation has abolished the system of prior notification of agreements for exemption under article 81(3) of the EC Treaty and given power to national competition authorities and courts to apply articles 81 and 82 directly and in full. Prior to the Modernisation Regulation, a number of cases before the UK courts had to be stayed pending the decision of the Commission relating to an agreement that had been notified for exemption under article 81(3). Equally, UK courts were not permitted to apply article 81(3) to agreements. The removal of the risk that a case may be stayed for a number of years pending a determination by the Commission has removed at least one obstacle to antitrust litigation in the UK.

The Enterprise Act 2002 amended the Competition Act 1998 substantially. The Competition Act 1998 had introduced two new competition prohibitions into the UK regime, which mirror articles 81 and 82 of the EC Treaty, namely a prohibition against anti-competitive behaviour (the chapter I prohibition) and a prohibition against an abuse of a dominant position (the chapter II prohibition).

Key changes effected by the Enterprise Act that are relevant to private antitrust actions in the UK are as follows:

• The creation of the Competition Appeal Tribunal (CAT), a specialist judicial body, the function of which is to hear appeals and other claims involving competition or regulatory issues. The CAT is particularly well suited to deal with such disputes since it has as its chairman an expert competition lawyer and its lay members are drawn from a panel of economists, accountants and other competition policy experts.

• Third parties may now bring an action for damages or other claim for a sum of money before the CAT where they have suffered loss or damage as a result of the infringement of the chapter I or chapter II prohibition or of articles 81 or 82 of the EC Treaty and where a decision of the OFT or the European Commission has established an infringement.⁴,⁵

• Specified bodies may now bring an action for damages or other claim for a sum of money before the CAT on behalf of consumers.⁶

• CAT decisions may be enforced by the High Court as if the damages, costs or expenses were an amount due in pursuance of a judgment or order of the High Court, or as if the direction were an order of the High Court.⁷

• There now exists a right of appeal to the Court of Appeal from a CAT decision as to the award of damages or other sum made by the CAT in proceedings under section 47A of the Competition Act 1998.⁸

• In damages claims or claims for any other sum of money, courts are bound by findings of infringement by the OFT and the CAT provided that the time for an appeal against a decision has elapsed, or an appeal has been determined.⁹

In summary, where a Commission or OFT decision establishes an infringement of competition law, a claim for damages may be brought before a specialist tribunal, the CAT.¹⁰ In determining the claim for damages, the CAT is bound by the decision that established the infringement and thus in theory at least, the issue of liability should be settled and the sole issues that will remain for the CAT will be causation and quantum.¹¹

The CAT’s jurisdiction to award damages arises only following a decision of the Commission or the OFT. Where there is no OFT or Commission decision, claims must be brought in the civil courts and liability, causation and quantum must be established by the claimant. In court proceedings, however, in cases where there has been an OFT or Commission decision, the court will be bound by a decision of the OFT in which an infringement¹² has been found and will also be bound by any finding of fact made by the OFT during an investigation of an infringement.¹³ In this regard, therefore, claimants before the CAT and the courts are in a similar position in cases where there have been decisions by either the OFT or the Commission.¹⁴

The right to bring a claim for damages before the CAT does not affect the right to bring other proceedings in relation to that claim.¹⁵ Thus, the choice of whether or not to pursue a claim for damages in the CAT or the civil courts rests with the claimant. However, proceedings for damages may be transferred between the CAT and the High Court¹⁶ on the initiative of the High Court or on an application by the parties.¹⁷ In considering whether to make an order for transfer, the High Court shall take into account whether the CAT is dealing with, or has previously ruled on, a similar claim, or whether it has developed considerable expertise by dealing with a significant number of cases arising from the same or similar infringements.¹⁸

Lastly, all 17 Chancery Division judges have been appointed to the panel of chairmen of the CAT. It therefore seems likely that the Chancery Division will build up significant expertise and experience of competition-related litigation within the CAT and the civil courts.

In 2004, the first claims for damages were brought before the CAT¹⁹ against Hoffman-La Roche and Aventis. The claims arose out of the Commission’s infamous vitamins cartel decision of November 2001. Shortly before the substantive hearings, both claims were settled. Nevertheless, some points of interest emerged as the cases progressed through the CAT.

First, it is noteworthy that the defendants relied upon the passing- on defence and were seeking to argue that the claimants had suffered no loss as a consequence of the cartel because either any higher prices charged as a result of the cartel were absorbed by first-line purchasers, or that the claimants had passed on any higher prices, charged by the first-line purchasers, to their customers. Since the claims were settled, the CAT did not rule on this issue.

Secondly, the defendants made an application for security for costs during the course of the proceedings. The purpose of these applications is to protect a defendant in relation to any costs order it is awarded (generally when it successfully defends a claim), in specific circumstances, for example, where there is reason to believe that a claimant will be unable to pay the defendant’s costs if ordered to do so. Although the CAT accepted that there was reason to believe that the claimants would be unable to pay any costs order made, it noted that a pre-requisite for an order for security for costs was that it had to be just in all the circumstances of the case. The CAT concluded that it would not be just to make such an order where the claimants had a good claim, primarily because liability had been prima facie established as a result of the Commission’s Decision, the only issue being whether the passing-on defence raised by the defendants would be accepted by the CAT.

Finally, the procedure before the CAT was relatively speedy; the claims were filed in January 2004 and were settled in February 2005, shortly before they were due to go for trial.

One recent significant development before the CAT is that a notice of a claim for damages under section 47A of the Competition Act 1998 has been lodged by Healthcare at Home Ltd against Genzyme Ltd arising from a March 2003 decision of the directorgeneral of fair trading that Genzyme had infringed the chapter II prohibition. This is the first claim for damages before the CAT on the basis of an OFT decision. Damages are claimed for, inter alia, loss of margin on actual and lost sales, legal fees and management time, and loss and damage to the value of the claimant’s business generally. In addition, a claim for exemplary damages is made.

Competition issues have been litigated in a number of cases heard by the UK courts, the most important of these are summarised below. In the main, the significance of these cases relates to issues of damages and jurisdiction.

Mr Arkin claimed damages suffered as a result of the collapse of BCL Shipping Line Limited, a company of which Mr Arkin was a director. He alleged that of BCL’s collapse was caused by the conduct of other liner operators active on the same routes, which involved predatory pricing, the use of ‘fighting ships’²¹ and rumour mongering about BCL’s insolvency. The court found against the claimant on liability in that although the defendants held a dominant position in the relevant period, there had been no abuse of that position, nor had there been a breach of the prohibition against anti-competitive agreements. One interesting element of the judgment, however, is the guidance given on the assessment of damages in competition cases. The judge indicated that the correct approach would be to assess the relevant market as it existed at the time the infringement was alleged and to enquire into what loss, if any, had been directly caused ‘as a matter of common sense’ to the claimant. To assess such loss, it would be necessary to reconstruct the market conditions that could be expected to exist, absent the infringing conduct.

The ‘Crehan case’ provides a vivid illustration of the complexities involved in bringing private antitrust actions. Mr Crehan’s claim was commenced in 1993 and some 13 years later, the House of Lords upheld a first-instance decision in which his claim was rejected. In the interim, the case was referred to the European Court of Justice and considered by the Court of Appeal.

The facts of the case are as follows. Bernard Crehan took leases of two pubs from Inntrepreneur. Inntrepreneur’s leases were subject to a beer tie, requiring tenants to purchase their supplies of beer from Courage, which had an arrangement with Inntrepreneur. The ‘list price’ of Courage’s beers was higher than the price at which free tenants could buy beer. Crehan sustained losses throughout his period of trading and ultimately gave up trading in September 1993. He owed arrears of rent to Inntrepreneur and unpaid debts for beer supplies to Courage.

Courage brought a claim for those debts in June 1993 against Crehan. Crehan counterclaimed (joining Inntrepreneur to the proceedings), alleging that the terms of the Inntrepreneur leases, and in particular the beer tie, were in breach of article 81 of the EC Treaty. He claimed damages and a set-off of the damages against any sums owed to him by Courage.

A preliminary issue arising from the litigation was whether Crehan was entitled to sue for damages in circumstances where he claimed that the damages were suffered as a result of an unlawful contract (being contrary to article 81) to which he himself was party, since a previous Court of Appeal decision had held that a claimant participating in an illegal contract is precluded from claiming damages where the claim is based on that illegality.²³ The Court of Appeal referred the issue to the European Court of Justice (ECJ).

In essence, the ECJ ruled that a national law which provides an absolute bar to a claim for damages by a co-contractor was contrary to the rule of effective protection, which requires that national rules should not render the exercise of rights conferred by Community law practically impossible or excessively difficult. The ECJ went on to note that Community law would not preclude a rule that prevented recovery of damages in circumstances where the co-contributor bore ‘significant responsibility’ for the distortion of competition arising from the contract.

The matter was then remitted to the Chancery Division of the High Court for trial.²⁴

At first instance, Crehan’s claim for damages was dismissed on the basis that although the court accepted that Crehan had had no real opportunity to negotiate the terms of the beer tie, it found that the first condition set out in Delimitis v Henninger Bräu AG²⁵ (the Delimitis I condition) was not fulfilled in that the structure of the beer distribution industry in the UK was not such that a number of similar agreements (that is, beer tie agreements) had the cumulative effect of foreclosing the market. This was despite the Commission having reached a number of decisions in relation to similar tying arrangements²⁶ in which it had found that, during the relevant period, the beer distribution market in the UK was foreclosed so that article 81 would apply to individual arrangements which made a significant contribution to the cumulative effect of foreclosing competition in the relevant market (the Delimitis II condition).

The Court of Appeal overruled the first-instance decision, noting that article 10 of the EC Treaty imposed an obligation of sincere cooperation on the courts, requiring the national court to follow the Commission’s decisions.²⁷

The Court of Appeal went on to consider the issue of damages. Under English law, a claim for damages for breach of competition law is framed as a claim for the tort of breach of statutory duty (that is, failure to comply with article 81 or 82 of the EC Treaty). It is a settled principle of English law that an individual suing for breach of statutory duty must show not only that a duty was owed to him, but also that it was a duty in respect of the kind of loss he has suffered. Inntrepreneur argued that, if the beer ties infringed article 81, Crehan would only be able to claim damages for the type of loss against which he would be protected by article 81(1), namely for loss caused by distortion at the distribution level of the market. Crehan’s case had centred on the fact that the beer tie distorted competition between him and other public houses free of ties.

Though the Court of Appeal acknowledged that this argument was correct as a matter of pure English law, Crehan’s claim could not succeed as a matter of English law alone. It could only succeed by an application of the principle of effectiveness; in other words, on the basis that the rule of English law could not ‘render practically impossible’ the exercise of the right to damages conferred on Crehan by Community law.

The Court of Appeal found that damages to Mr Crehan should be assessed up to 1993 when Mr Crehan gave up his two businesses. On this measure, the Court of Appeal found that Mr Crehan was entitled to damages of £131,336 (plus 10 years’ worth of interest). The first-instance court had indicated that if liability had been established, damages would also have been awarded for the period between 1993 and 2003 in respect of the profits that would have been made if the public houses leased by Mr Crehan had been free of the tie. The Court of Appeal rejected this approach as being unduly speculative and unfair to the defendant in that they were "the hypothetical profits of a hypothetical business".

The case was then considered by the House of Lords. The House of Lords overruled the Court of Appeal and concluded that the trial judge was right to reach his own view on Delimitis I.

The House of Lords addressed a relatively narrow question of law, namely the status to be accorded to the Commission’s findings of fact that are contained in a decision where:

• that decision is not addressed to one of the parties in the dispute before the national court; and

• the issues in the dispute are not identical to those considered in the previous decision.

The House of Lords decided unanimously that there is no obligation to treat the factual or economic analysis in ‘parallel’ decisions concerning the same economic market as established facts for the purposes of litigation brought before them. Conversely, this means that third parties that are considering bringing an action for damages caused by anyone but the party to whom an existing Commission decision is addressed, may not rely on the economic and factual conclusions in such decisions to bind the English courts. Therefore, the already limited assistance provided to potential claimants by such parallel decisions has been severely curtailed, at least as regards the English courts.

The judgment highlights the difficulties faced by private parties seeking to enforce EC and UK competition law claims through litigation before national courts; a difficulty which becomes even more challenging in the absence of a Commission infringement decision addressed to the intended defendant in the action for damages.

This case is one of many arising from the Commission’s vitamins cartel decision of November 2001. Essentially, it establishes that where there is a nexus between a European cartel and England, proceedings may be brought in the English courts in respect of all losses sustained as a result of that cartel. As a result, there is no necessity to pursue separate claims in a number of European jurisdictions since all losses can form part of the claim in the English court.

In May 2002, the English and German claimants, all of which were purchasers of vitamins from the defendants, brought separate proceedings in the English courts against certain English, Swiss, German and French companies in the Roche and Aventis groups of companies, seeking damages for losses caused by having to pay inflated prices for vitamins. The defendants applied to strike out or set aside part of the proceedings on the grounds that the claimants did not have an arguable case or that the English courts did not have jurisdiction to hear the claims against most of the defendants. These matters were heard as preliminary issues.

The Commercial Court concluded as follows.

• Where two corporate entities are part of one undertaking (that is, one economic unit) and one of those entities enters into an anti-competitive agreement with an independent undertaking, implementation of that anti-competitive agreement by the other corporate entity in the undertaking would arguably infringe article 81 of the EC Treaty. On that basis, the claimants would only need to establish that the UK corporation in each of the groups implemented and gave effect to the cartel agreements entered into by the undertaking that had been the subject of the Commission decision.

• Jurisdictional hurdles under the EC Regulation on jurisdiction and the enforcement of judgments in civil and commercial matters²⁹ (the Brussels Regulation) and the Lugano Convention were overcome to allow a claim to proceed in England where the defendants were domiciled outside the UK, and where a claimant was not only domiciled outside the UK, but also purchased the vitamins outside the UK. Thus, a purchaser based in Germany who had purchased vitamins in Germany was able to bring a claim in England against the English subsidiary of the cartelist.

• In some cases, the vitamins were purchased under contracts containing jurisdiction clauses, which provided that disputes should be dealt with before the courts of Switzerland, Germany or France. Under the Brussels Regulation and the Lugano Convention, an agreement between the parties choosing the jurisdiction of a particular member state gives exclusive jurisdiction to the courts of that member state in the event of a dispute arising under the contract. Having considered expert evidence from each of these jurisdictions, Mr Justice Aikens found that the jurisdictional clauses in the purchase agreements were insufficiently wide to include the claims based on tort. The English courts were therefore able to assert jurisdiction over these claims.³⁰

Although Empagran is a US case, it has profound implications for UK antitrust litigation.

This case also arose out of the US and EU authorities’ investigation of the vitamins cartel, and is a damages claim brought by five non-US vitamins distributors located in Australia, Ecuador, Panama and Ukraine, who had bought vitamins from the cartel companies for delivery outside the US. None of the claimants had purchased any vitamins in the US or in relation to transactions concerning US commerce.

The issue arose as to whether the claimants could bring actions for damages in the US for losses suffered as a result of the cartel. Clearly, the possibility of obtaining treble damages for losses sustained as a result of antitrust infringements, combined with the greater familiarity of US courts with antitrust suits makes the US an attractive forum in which to litigate such disputes. If the US courts were able to claim jurisdiction in these circumstances, it seemed likely that the US courts would become the central forum for antitrust suits throughout the world.

The Court of Appeal for the Washington DC circuit allowed the claims. However, on appeal, the US Supreme Court held unanimously that a case brought by foreign claimants in which the foreign anti-competitive conduct and injury were entirely independent of the US anti-competitive effects fell outside the scope of the US antitrust legislation. The Supreme Court held that generally there should be no US jurisdiction in these circumstances unless there is a direct and substantial effect on domestic commerce arising from the foreign conduct.

The case was remanded to the Court of Appeal for the DC circuit to assess the claimants’ alternative theory of antitrust liability. The claimants sought to rely on the ‘domestic effects’ exception to the general exclusion under US antitrust legislation for damages claims arising from anti-competitive conduct that causes only foreign injury. This exception allows a damages claim to be pursued by a foreign purchaser or claimant that can show that the foreign injury at issue is not independent of any domestic US injury or conduct. The claimants’ argued that there was a causal connection between their injury and the maintenance of high prices charged by the defendants in the US, that ‘but for’ the maintenance of such prices, their injury would not have occurred. This argument was rejected by the Court of Appeal on the basis of their interpretation of the domestic-effects exception. The court found that it would be necessary to establish a more direct causal link between the high prices charged and the claimants’ injury and indicated that a more flexible approach to causation would potentially undermine the prerogative of other nations to enforce competition law within their own territories. It is interesting that the UK government, among others, filed an amicus curiae brief, arguing that the US courts should decline jurisdiction in this case since otherwise, international competition law enforcement might be undermined and the potential for forum shopping increased.

The effect of the changes to the legislative environment and the recent judgments of the English courts would appear to make the UK an attractive place in which to litigate antitrust disputes. Other factors that have been identified as making the UK a forum of choice in which to litigate competitive issues are the rules of disclosure (which are more extensive than in other European jurisdictions), the approach and breadth of experience of the English courts in assessing and awarding damages³² and the time in which a case can be brought to trial.³³

One of the often identified disadvantages of litigating in the English courts is a lack of confidence in the ability of the courts to deal with the complex and wide-ranging economic issues and evidence often raised in such cases. Even if such a concern is valid, and there are many who suggest that antitrust litigation is in fact no different from other types of heavy commercial litigation in raising complex and difficult issues, the creation of a specialist competition law tribunal and court (the CAT and the Chancery Division) should address this concern.

Issues that still remain to be considered by the courts, include:

• the way in which the English courts will rule on the passing-on defence (the US approach is that the damage suffered by the purchaser will be the full amount of overpayment, regardless of whether the higher price has been passed on to customers, it remains to be seen whether this approach will be followed in the UK);

• the availability of exemplary damages for antitrust infringements; and

• the extent to which jurisdiction clauses can be drafted to assist or resist the jurisdiction of the English courts in relation to claims arising from antitrust violations.

Predictions of an expansion in private antitrust litigation in the UK following the coming into force of the Enterprise Act 2002 have not yet been borne out. It remains to be seen whether litigants will take full advantage of the favourable conditions for litigating antitrust claims in the UK in the coming years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.