Competition cases take off

Private litigation as a means of enforcing competition law has started to become a reality. Last year, over 20 years after acknowledging the possibility of damages for loss suffered as a result of breach of competition law in Garden Cottage Foods Ltd v Milk Marketing Board [1984] AC 130, the English courts actually awarded damages in Crehan v Inntrepreneur Pub Co [2004] EWCA Civ 637.

The European Commission has been an outspoken supporter of private enforcement, taking the view that litigation will serve to deter infringement of the rules and help to develop a “compliance culture” among consumers. Litigation may also deal with infringements which the Commission and national competition authorities lack the resources to address. Reality in the courtroom is different. A recent report funded by the Commission on the conditions throughout the EU for bringing damages claims concluded, not surprisingly, that the conditions for bringing such claims are diverse and underdeveloped. Since the institution of the EEC only some 60 actions for damages have been decided by national courts. The report made recommendations for facilitating competition damages claims, but focused on the need to create a clear legal basis for such actions and to harmonise procedural rules. The Commission is now seeking views from interested parties with a view to publishing a green paper on encouraging private enforcement of competition law.

USA: regulator of the world?

By contrast, in the US private litigation has long been an important element of the anti-trust enforcement process. There, private actions for damages are said to account for 90% of competition enforcement. Features of the US system such as the ability to bring “class” actions, the availability of treble damages and the system of contingency fees have encouraged private litigation. Even businesses operating primarily outside the US can be at risk of being sued in the US. In Hoffman La Roche Ltd v Empagran SA 315 F 3d 338, 350 (DC Cir 2003), a private action arising from the international vitamins cartel, the DC Circuit Court of Appeals held that non-US customers could sue non-US companies in the US for injuries sustained exclusively abroad, provided that the anti-competitive conduct of the foreign company also affected the US market. The concern felt by businesses and courts around the globe was voiced by the International Chamber of Commerce, which intervened in the appeal, arguing that “if the ruling of the Court of Appeals is allowed to stand, the United States will indeed become the regulator of the competitive conditions of markets throughout the world”. In June 2004 the Supreme Court and overturned the previous decision (524 US 1), holding that US courts do not have jurisdiction where the anti-competitive conduct “is independent of any adverse domestic effect”, i.e. where the claimant’s case rests solely on the foreign harm. Although this marks something of a retreat from the Court of Appeals’ position, it remains the case that, no matter where the harm was suffered, if a foreign defendant has even minimum contacts with the US, then it may be sued in the US courts.

Extended rights in the UK

The law in the UK now provides that if a regulator has made a decision finding breach of competition law, the civil courts and the UK’s specialist tribunal, the Competition Appeal Tribunal (CAT), are bound by that decision (see Competition Act 1998, sections 47A and 58A, inserted by Enterprise Act 2002, sections 18 and 20). In other words, armed with an OFT or European Commission decision against the defendant, a claimant does not have to prove there was an infringement: the decision is proof of that. In addition, section 47A introduces the possibility of claiming damages before the CAT where there is an infringement decision. Actions in the ordinary courts remain an alternative, whether or not the claimant has the benefit of an infringement decision. The case of Provimi v Aventis [2003] EWHC 961 (Comm) (an English High Court case where a customer who had bought vitamins, claimed damages against the participants in the vitamins cartel) means that an English or foreign claimant seeking damages for loss suffered as a result of a breach of EU competition law can sue for its entire loss in the English courts, regardless of where the loss was suffered, provided that there is an English subsidiary which implemented the anti-competitive conduct. This is irrespective of whether the claimant had any dealings with the English subsidiary. This may well make bringing a claim in England attractive to a potential claimant.

The infringer as claimant

Perhaps surprisingly, the only UK case to date in which a claimant has actually succeeded in recovering damages is one where the claimant was himself a party to the infringing agreement. As a result his claim faced difficulties from the outset. Although Mr Crehan was awarded only some £131,336 in damages after over 10 years of litigation, there are believed to be some 600 similar potential claims.

Mr Crehan had entered into a lease with Inntrepreneur Estates Ltd (IEL) (a company which owned and let pubs and was owned in equal shares by IEL and Grand Metropolitan, as it then was), which required him to buy his beer exclusively (the beer tie) from Courage. Mr Crehan’s business did not prosper and in 1993, Courage commenced proceedings against him for unpaid deliveries of beer. Mr Crehan argued that the requirement to buy beer exclusively from Courage infringed article 81 of the EC Treaty. He counterclaimed for damages. In short, he argued that Courage sold its beer to pubs which were not subject to the beer tie at substantially lower prices than those in the price list imposed on IEL tenants subject to a beer tie. A number of points of interest emerge from the case:

Was Mr Crehan entitled to sue for damages on a contract to which he was party? At first instance, it was decided that he was not entitled to do so. On appeal, the Court of Appeal made a preliminary reference to the European Court to clarify this question. The European Court acknowledged that national courts were entitled to deny damages to a party to an agreement who bears significant responsibility for the breach of competition law. But if the national court finds that the claimant was in a markedly weaker position than the other party, he would be entitled to damages.

Must a national court adopt the Commission’s view of the affected market? The High Court judge held that he should decide the question for himself rather than being bound by the Commission’s findings contained in previous similar cases and in the Commission’s own comments on the present case. The Court of Appeal held that, by failing to give due deference to the Commission’s earlier decisions in relation to the beer market (although not addressed to this litigation) and the Commission’s clearly expressed views on this case, the High Court had failed to comply with the principle of sincere co-operation outlined in article 10 of the Treaty. The fact that the Commission had not considered it necessary in this case to make a formal decision as to whether article 81(1) applied to IEL did not leave a national judge free to consider the Commission’s earlier conclusions afresh. By doing so, it had created an “irreconcilable inconsistency” in the application of the EU’s competition policy.

In English (and Scots) law, an individual who sues for a 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. It was argued that, as a result of this requirement, Mr Crehan could only claim damages for loss caused by distortion of competition at the level of distribution of beer to the on-trade (i.e. at IEL’s level of trade). The duty conferred under article 81 in respect of beer ties was designed to protect aspiring entrants into the market who wished to gain access to trade outlets but could not due to market foreclosure. Mr Crehan’s damages arose at a different level of market distortion which was further downstream: the tie which prevented him from buying beer at cheaper prices from third parties, and so IEL argued that article 81(1) did not confer a duty to protect him at his level of the market. The Court of Appeal concluded that, because of this requirement of English law, Mr Crehan’s claim could not succeed in English law alone. However, the Court of Appeal dealt with this problem using the European Court’s principle of “effectiveness”. The European Court had specifically ruled that Mr Crehan had a right to damages. English (and Scots) law would render this practically impossible, so the Court of Appeal resorted to the European Court’s case law on the need to provide an effective non-discriminatory remedy. This case appears on the face of it to extend the law on damages for breach of statutory duty in relation to a breach of EU competition law, although the status of the statutory duty argument in cases where the European Court has not previously ruled is somewhat unclear.

Pointers from Europe

Like the UK, the courts of other jurisdictions are slowly but surely developing their case law on competition law litigation. In another private action resulting from the vitamins cartel, Vitaminkartell III [2004] GRUR 182, the German courts have ruled that customers of cartel members who suffered loss as a result of the inflated prices charged were entitled to damages, since they belonged to the group of persons whose protection was intended by the infringed prohibition; it was not necessary that the infringement was specifically directed against the plaintiff.

Sweden has recently seen the award of damages against construction companies involved in a bid-rigging cartel (Linköpings Commun v NCC AB och Skanska Sverige AB, Joint cases T6580-03, T14898-03, T8371-03). The claimants were two city councils who claimed they had overpaid the construction companies because the latter had rigged the bid for the contracts. One of the defendants, NCC, had won the contract, but the other, Skanska, had not. NCC could be sued because it was party to a contract with the city councils. Skanska argued that since the councils were neither parties to a contract with them nor were they undertakings, the councils were not entitled by Sweden’s Competition Act to sue them. The court did not address the issue of whether or not the city councils were “undertakings”, but decided that they were entitled to sue Skanska on the basis that the rule in the Competition Act had to be interpreted in line with Sweden’s general principles on damages which would allow damages in this sort of situation. The the purpose of the rule in the Competition Act was to allow actions for damages for breaches of competition law, not to preclude them.

Although on its face this case appears to relate to the specific provisions of Swedish law, the principle would seem to apply equally to damages actions in other jurisdictions. Swedish law seemed to offer Skanska a technical escape route, but even that was rejected by the court. It would therefore appear to suggest that unsuccessful bidders in a bid-rigging cartel are vulnerable to damages actions, even though they have not necessarily gained from the immediate contract. In France, proposals to allow “class actions” will, if enacted, no doubt encourage competition litigation.

Scotland the unready

The UK, like most other European jurisdictions, still has a long way to go before pursuers and the courts are comfortable with such private damages actions. Further cases arising from the vitamins cartel which were being considered in the UK’s Competition Appeal Tribunal, which is likely to become an important forum for damages litigation, are understood to have been settled out of court. Scottish courts have seen just two private enforcement actions to date, with no damages yet awarded on this basis. The conditions for competition litigation in Scotland are not particularly favourable: unlike England and Wales, and Ireland, where competition matters are directed to specialised divisions of the court, in Scotland competition cases are dealt with by the usual civil courts. Group or class actions are not available.

The next few years will undoubtedly see an increase in the private enforcement of competition law. The political will to introduce procedural change to facilitate private actions is present. Businesses involved in anticompetitive practices will no longer be able to dismiss this as a theoretical risk.

Catriona Munro, Partner, EU,Competition & Regulatory Department, Maclay Murray & Spens

e: catriona.munro@mms.co.uk