Islands of jurisdiction for competition damages claims in a post-Brexit world

By Naina Patel and Andrew Scott

When the UK leaves the EU, the rules governing jurisdiction in cross-border competition damages claims will likely change. Most immediately, this will impact those who had acquired pre-Brexit causes of action for breach of statutory duty under section 2(1) of the European Communities Act 1972, based on Articles 101 and Articles 102 TFEU. The doctrine of acquired rights would preserve such causes of action;[1] but it is unlikely to preserve EU rules of jurisdiction in relation to them. Thereafter, the changes will impact those able to establish post-Brexit causes of action based on foreign laws, as Kieron Beal QC has explained. In either case, Claimants may wish to establish English jurisdiction, including as against EU domiciled defendants. This post considers some of the issues likely to be encountered.

Currently, jurisdiction in such cases is governed by the Recast Brussels Regulation (EU) No. 1215/2012 (the “Recast Regulation”). Despite the Prime Minister’s suggestion that the Great Repeal Bill will convert the entirety of the ‘acquis’ into British law, it seems unlikely that the Regulation will survive without more. It is a prime example of EU legislation predicated on reciprocity and the principle of mutual trust and recognition: see e.g. Recitals (3) and (26) of the Recast Regulation. In the absence of an arrangement between the UK and the rest of the EU to maintain post-Brexit common rules on jurisdiction and the recognition and enforcement of judgments, the premise for the Recast Regulation falls away.

At present, there are no such arrangements in place between the EU and third states.[2] It is true that Denmark entered into an agreement with the rest of the EC in relation to the predecessor of the Recast Regulation, the Brussels I Regulation. But Denmark was and remains a Member State. Whether a similar agreement is sought by or available to the UK as a non-Member State remains to be seen.

An alternative would be for the UK to seek to accede to the Lugano Convention 2007, which applies between the EU and Norway, Switzerland, Iceland and Denmark. However, Article 70 of the Convention restricts accession to members of EFTA, members of the EU acting on behalf of non-European territories which form part of them or for whose external relations they are responsible, and those states that can satisfy the conditions in Article 72, which include the unanimous consent of the Contracting States. It is reasonable to think that a condition of any such consent would include submission in some form by the UK to the jurisdiction of the CJEU in relation to interpretation of the Lugano Convention. Even if such consent were forthcoming, it is worthwhile noting that there are important differences between the Lugano Convention and the Recast Regulation. For example, Article 31(2) of the Recast Regulation has gone some way to disarming (in exclusive jurisdiction clause cases, at least) the “Italian torpedo” which still fires under the Lugano Convention owing to its rigid “first seised” lis pendens rule.  Further, the process of recognition and enforcement of judgments under the Recast Regulation is more streamlined than that which prevails under the Lugano Convention.

Failing either of these options, there is a serious question over whether the UK remains a party to the Brussels Convention, having acceded to it in its own right in 1978.  The Recast Regulation and its predecessor make clear that these instruments superseded the Convention as between Member States, except as regards the territories of the Member States which fell within the scope of the Convention but were excluded from the Regulations pursuant to Article 299 TEC and Article 355 TFEU respectively. The UK was a Member State when these Regulations were adopted and was not excluded from their provisions superseding the Brussels Convention. Brexit will not turn the UK into a territory of a Member State excluded from the Recast by virtue of Article 355 TFEU, only into a country to which TFEU does not apply at all.  It is therefore difficult to see how the application of the Brussels Convention to the UK can be revived. In any event, as Adrian Briggs QC has underscored, no country ratified the Convention after 2001 so it would not create a framework for jurisdiction with all EU Member States.

In the absence of an agreed bilateral framework, the UK will revert to applying its domestic rules on jurisdiction. These would permit the English Court to assume jurisdiction over EU domiciled defendants based on a far broader range of factors than are presently provided for by the Recast Regulation. Defendants with a mere (including fleeting) presence in the jurisdiction would be liable to be served here, even if domiciled elsewhere. Defendants with no such presence would also be liable to service outside the jurisdiction, with the Court’s permission, based on a far broader range of territorial and other connections under CPR r. 6.37 and PD 6B than are presently available under the Recast’s jurisdictional rules.

The purpose of the Recast Regulation and its predecessors is to protect EU domiciled defendants from such national rules of jurisdiction: see Article 5(2). A post-Brexit world in which the EU refuses to agree a new bilateral arrangement on cross-border jurisdiction with the UK will result in the application of English domestic law rules against EU citizens for the first time since accession to the Brussels Convention. Depending on how the English Court’s discretionary powers to stay proceedings or permit service out on forum conveniens grounds are exercised, there is real potential for the English Courts to enlarge their effective jurisdiction over competition law claims against EU domiciled defendants.

To take a few examples:

  • At present, an EU domiciled defendant can only be sued in England in “matters relating to tort etc.” where England is the place where the “harmful event” “occurs or may occurs”: see Article 7(2) of the Recast. That requires showing in a cartel case that England is where the cartel was “definitively concluded” or that England is where “the [victim’s] own registered office is located”: see CDC (C-352/13) [2015] Q.B. 906. The equivalent common law gateway for service out in CPR PD 6B, para 3.1(9) is broader in scope, e.g. it would require only that the damage sustained results from an act committed… within the jurisdiction” (emphasis added). It would likely suffice that some substantial and efficacious aspect of the cartel could be located in England.
  • At present, an EU domiciled defendant can only be joined as a co-defendant to English proceedings where an English-domiciled anchor defendant has been sued here: see Article 8(1) of the Recast. There is no such limitation under the common law necessary or proper party gateway in CPR PD 6B, para. 3.1(3). Thus, if English jurisdiction can be established by service on an anchor Defendant – whether within or outside the jurisdiction – that suffices to expose other Defendants to the risk of joinder to English proceedings. In a cartel case, for example, the requirements of the necessary and proper party gateway will ordinarily not be difficult to satisfy.
  • At present, an applicable jurisdiction clause for another Member State court has a “trump card” status under the Recast. Even if the party able to rely on that clause is one of many sued in England, and even if the sound administration of justice would favour not giving effect to it in the circumstances, the English Court is nonetheless bound to do so under Art. 25(1) of the Recast. Not so at common law, where the Court would retain a discretion – and in an appropriate case could decline to give effect to the clause so as to ensure that the entire dispute remain in the English Court: see e.g. Donohue v Armco [2001] UKHL 64; [2002] 1 All E.R. 749.
  • On account of the common jurisdictional rules in place under the Recast Regulation and the underlying principle of mutual trust, EU law prevents English Courts from granting anti-suit relief in respect of proceedings before courts elsewhere in the EU.[3] In the absence of a similar multilateral arrangement post-Brexit, English Courts are unlikely to feel inhibited from applying ordinary principles on anti-suit relief, e.g. to restrain a party from pursuing in the EU proceedings brought in breach of jurisdiction or arbitration clauses, or proceedings which are vexatious and oppressive or otherwise unconscionable.

Perhaps then, at least in the context of competition damages claims, if the effect of Brexit is that we return to common law rules, there will be some hidden treasure.

So in what direction should clients be advised to row their boats in the run up to Brexit?  English jurisdiction and arbitration clauses are likely to remain valuable tools in dispute resolution so it will continue to make sense to include them in new contracts; it may also be prudent to review old contracts to insert such clauses or to revise those drafted by reference to EU legislation. In doing so, it will be important to pay close attention to the remarks made by Rix LJ and the CJEU respectively in Ryanair Limited v Esso Italiana Srl [2013] EWCA Civ 1450 and the CDC case. The effect of each is that (at least some) tort claims founded on breaches of competition law will not ordinarily be caught by even broadly-worded jurisdiction clauses (e.g. those providing for jurisdiction over “all disputes arising from contractual relationships”): express words will be necessary. The scope of the principles stated in these decisions is likely to be a fertile area of dispute in competition law cases, not least because some claims (e.g. those in a bid-rigging context) have a more obvious connection to contracts containing such jurisdiction clauses than others (e.g. the price-fixing cartel contexts of Ryanair and CDC).

As for litigation strategy more generally, depending on which jurisdictional framework the UK ends up embracing, there may be significant value in re-considering the torpedoes and injunctions which we have seen submerged in EU competition litigation in recent years.

[1] Subject, of course, to any transitional arrangements to the contrary.

[2] While the EU and several third states are party to the Hague Convention on Choice of Court Agreements 2005, it deals only with exclusive jurisdiction agreements.

[3] See, for example, the decisions in Turner v Grovit (C-159/02 [2004] ECR I-3565) and West Tankers (C-185/07).

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Competition Law claims post-Brexit: the issue of applicable law

Once notification is given by the UK Government of its intention to withdraw from the European Union under Article 50 TFEU, EU law will cease to apply in the UK after the expiry of two years (absent an agreement between all 28 Member States extending the relevant period). What then happens to the UK’s competition law regime, which is closely intertwined with EU law, both substantively and procedurally?

The answer will depend to a large extent on the terms of the Great Repeal Bill. What is clear, however, is that the provisions of Article 101 and 102 TFEU will no longer apply within the territory of the United Kingdom. Those Articles presently have direct effect in the UK legal order. General principles of EU law, including the principle of direct effect, are binding in the UK under Article 6 TEU, read in conjunction with sections 2 and 3 of the European Communities Act 1972. But it seems inevitable that the Great Repeal Bill will remove the direct effect of substantive EU competition law. Moreover, Regulation 1/2003 (the Modernisation Regulation) will no longer be directly applicable in this jurisdiction. But the terms of the Competition Act 1998 (‘CA 1998’) will still apply. The Chapter I prohibition, for example, prohibits cartel conduct producing an actual or potential effect on trade within the United Kingdom. The provisions of the CA 1998 can no doubt continue in force largely unamended, save of course for section 60 CA 1998 with its focus on aligning as far as possible the position adopted by domestic and EU law on parallel issues.

It will be no secret to those reading this blog that competition law claims in the UK have increased in number in recent years. The ‘mystery of the reluctant plaintiff’ finally seemed to have been resolved.[1] Many of these claims have been brought on the basis of Articles 101 TFEU, Article 53 of the EEA Agreement and the Chapter I prohibition contained in section 2 CA 1998. Indeed, some of these claims have also incorporated claims based on the applicable laws of tort in other Member States of the EU. Does the departure of the UK from the EU mean that these claims will no longer be brought? The answer is very likely to be no. There are two principal reasons.

First, there has been no suggestion that claims seeking to enforce accrued rights to damages cannot be brought once the UK leaves the EU. Anyone who is the victim of cartel conduct, for example, will continue to have rights under EU law which confer a right to damages up until the UK’s departure from the EU. The Great Repeal Bill cannot lawfully deprive victims of the benefit of these accrued rights without seriously risking falling foul of Article 1 of Protocol 1 to the European Convention on Human Rights. The English legal system should accordingly continue to recognise the tortious liability of Defendants for damage that occurred while EU law was applicable in this jurisdiction.

Secondly, a distinction needs to be drawn between jurisdiction and applicable law. Once jurisdiction is established against one or more Defendants within this jurisdiction, the question of which claims may be pleaded and proved against them is a question of the applicable law of the tort. At the moment, the applicable law for competition claims for loss arising after 10 January 2009 is determined by the application of the Rome II Regulation[2] (and principally by Article 6(3)). That Regulation will no longer be binding on English courts once we leave the EU. But absent any legislative intervention in the Great Repeal Bill, the default position will then be that the pre-Rome II legislative framework will continue to apply. Section 15A of the Private International Law (Miscellaneous Provisions) Act 1995 (‘PILMPA 1995’) suspends the application of that Act when the Rome II Regulation applies. It follows that, when the Rome II Regulation is not applicable (either by virtue of its temporal or geographical scope), then the provisions of PILMPA 1995 remain fully effective.

The 1995 Act abolished the common law requirement of “double-actionability.” So free-standing claims for breach of the competition laws of other Member States – and of Articles 101 and 102 TFEU – can still be advanced in the courts of England and Wales, if the criteria for liability under those laws is met. Where, for example, a claimant sustains loss both in the EU markets and in the UK, there is no reason in principle why a claim for all of its loss cannot be brought in England. Expert evidence would be needed as to what the contents of those laws – including of EU law – are. See section 4(1) of the Civil Evidence Act 1972. But it is common for commercially significant cases to involve the pleading and proof by experts of causes of action based on foreign laws. Sections 11 and 12 of the PILMPA 1995 determine how the applicable law of the relevant tort or torts is to be selected.

One potential issue that arises is whether or not the enforcement of a foreign competition law would fall foul of the prohibition on English courts enforcing foreign, penal laws. Section 14(3)(a)(ii) of the 1995 Act provides that nothing in Part III of that Act “(a) authorises the application of the law of a country outside the forum as the applicable law for determining issues arising in any claim in so far as to do so— . . .(ii) would give effect to such a penal, revenue or other public law as would not otherwise be enforceable under the law of the forum.”

But this provision is highly unlikely to prevent a claim being brought for compensation on the basis of the foreign laws of one or more jurisdictions. A claim for compensation based on a breach of a foreign competition law (or foreign law of tort or delict) is not the enforcement of a penal law. Such claims do not amount to an attempt to enforce a competition law which gives the national competition authorities in those foreign jurisdictions powers to fine cartelists. In Huntington v. Attrill [1893] AC 150, PC, Lord Watson at p. 157-158 stated: “A proceeding, in order to come within the scope of the rule, must be in the nature of a suit in favour of the State whose law has been infringed.” That is not the case where a claimant (who is in any event not likely to be a public body in a foreign state) is claiming a compensatory remedy rather than enforcing a fine or penalty. See United States Securities and Exchange Commission v. Manterfield [2009] EWCA Civ 27; [2010] 1 W.L.R. 172, CA per Waller LJ at [19] to [23].

It follows that if jurisdiction of the English Courts can be established, then there is no insuperable impediment to claimants bringing claims for loss arising from cartels and other anti-competitive conduct in much the same way as they do at present.

[1] The “mystery of the reluctant plaintiff” was a reference by J. Maitland-Walker at a conference in London, 1982, cited in Enric Picañol, Remedies in national law for breach of Articles 85 and 86 of the EEC Treaty – a Review, Legal Issues of European Integration, Deventer No. 2 (1983) 1 at page 2. Comprehensive reasons why there were not more claims under the pre-Modernisation competition regime were provided by John Temple Lang in EEC Competition Actions in Member States’ Courts – Claims for damages, declarations and injunctions for breach of Community Antitrust Law (1983-4) vol. 7 Fordham Intl L.J. 389 at page 407.

[2] Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations.

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License fees, invalid patents and Article 101 TFEU: Genentech v Hoechst and Sanofi-Aventis

Consider an agreement under which a license fee is payable for use of a patented technology even if it transpires that the patent is invalid. Is such an agreement contrary to Article 101 TFEU? The answer is no, provided that the licensee is able freely to terminate the contract by giving reasonable notice. Some years ago the ECJ so held in relation to expired patents: C-320/87 Ottung [1989] ECR 1177 at §13. The recent decision in C-567/14 Genentech v Hoechst and Sanofi-Aventis clarifies that the same proposition applies to revoked patents (and indeed to patents which are valid but have not been infringed). The case also throws into sharp relief the tensions that may arise between European competition law and domestic procedural rules on the reviewability of arbitrations.

Facts

In 1992, Genentech (“G”) was granted a worldwide non-exclusive license for the use of technology which was subject of a European patent as well as two patents issued in the United States. G undertook to pay inter alia a ‘running royalty’ of 0.5% levied on the amount of sales of ‘finished products’ as defined in the license agreement (“the Agreement”).  G was entitled to terminate the Agreement on two months’ notice.

The European patent was revoked in 1999. G unsuccessfully sought revocation of the United States patents in 2008 but this action failed; these patents therefore remained validly in place. G was later held liable in an arbitration to pay the running royalty. Late in the day in the arbitration proceedings, G alleged that construing the Agreement to require payment even in the event of patent revocation would violate EU competition law. That argument was rejected by the arbitrator. G sought annulment of the relevant arbitration awards in an action before the Court of Appeal, Paris. From that court sprung the preliminary reference that is the subject of this blog.

Effective EU competition law vs domestic restrictions on review of arbitration awards

Hoechst and Sanofi Aventis (the parties to whom the running royalty was due and not paid) argued that the reference was inadmissible because of French rules of procedure preventing any review of international arbitral awards unless the infringement was ‘flagrant’ (AG Op §§48-67) and the arbitral tribunal had not considered the point (AG Op §§68-72). In essence, the CJEU rejected this argument on the narrow basis that it was required to abide by the national court’s decision requesting a preliminary ruling unless that decision had been overturned under the relevant national law (§§22-23). Interestingly, the Advocate General ranged much more broadly in reaching the same conclusion, stating that these limitations on the review of international arbitral awards were “contrary to the principle of effectiveness of EU law”, (n)o system can accept infringements of its most fundamental rules making up its public policy, irrespective of whether or not those infringements are flagrant or obvious” and “one or more parties to agreements which might be regarded as anticompetitive cannot put these agreements beyond the reach of review under Articles 101 TFEU and 102 TFEU by resorting to arbitration” (AG Op §§58, 67 and 72).

Ruling on Article 101 TFEU

As mentioned above, this aspect of the CJEU’s ruling builds on the earlier decision in C-320/87 Ottung [1989] ECR 1177.  A single, simple proposition emerges. An agreement to pay a license fee to use a patented technology does not contravene Article 101 just because the license fee remains payable in case of invalidity, revocation or non-infringement, provided that the licensee is free to terminate the agreement by giving reasonable notice (Ottung §13; Genentech §§40-43).

Digging deeper, two practical caveats must be added. First, it would be unsafe to assume that contractual restrictions on termination are the only restrictions on the licensee’s freedom that are relevant to the assessment. The Advocate General’s opinion in Genentech gives the further example of restrictions on the licensee’s ability to challenge the validity or infringement of the patents (AG Op §104). Indeed, any post-termination restriction which interferes with the licensee’s “freedom of action” might change the outcome if it places the licensee at a competitive disadvantage as against other users of the technology (AG Op §§91, 104; Ottung §13). Second, on the facts of Genentech, the commercial purpose of the Agreement was to enable the licensee to use the technology at issue while avoiding patent litigation (§32). Accordingly, it was clear that fees payable were connected to the subject matter of the agreement (AG Op §94). It is unlikely that a license agreement imposing supplementary obligations unconnected to its subject matter would be treated in the same fashion (AG Op §§95, 104; C-193//83 Windsurfing International v Commission [1986] E.C.R. 611).

 

 

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The passing-on “defence” after Sainsbury’s

The passing-on defence – ie. whether the damages suffered by a purchaser of a product which has been the subject of a cartel are reduced if he passes on the overcharge to his own customers – had, as Tristan Jones blogged a few years ago, been the subject of much policy discussion but relatively little legal analysis in the English case law.

That remained the position when the Competition Appeal Tribunal heard the claim in Sainsbury’s Supermarkets v Mastercard Incorporated and others [2016] CAT 11. The Judgment, handed down on 14 July, noted at §483 that there had been no case under English law substantively dealing with the pass-on defence. It represents the first English judgment which gives detailed consideration to the defence following full argument.

However, despite its length (running to some 300 pages), the Judgment leaves us with a number of big questions about the nature and scope of the defence.

The four key principles which emerge from the Judgment are as follows.

First, the Tribunal considered that the passing-on “defence” (their quotation marks) is no more than an aspect of the process of the assessment of damage. “The pass on “defence””, the Tribunal reasoned, “is in reality not a defence at all: it simply reflects the need to ensure that a claimant is sufficiently compensated and not overcompensated, by a defendant. The corollary is that the defendant is not forced to pay more than compensatory damages, when considering all of the potential claimants”(§484(3)). The “thrust of the defence” is to ensure that the claimant is not overcompensated and the defendant does not pay damages twice for the same wrong (§480(2)).

Second, the passing-on defence is only concerned with identifiable increases in prices by a firm to its customers and not with other responses by a purchaser such as cost savings or reduced expenditure. The Tribunal considered that although an economist might define pass-on more widely to include such responses (and there is a discussion of this in the Judgment at §§432-437), the legal definition of a passed-on cost differs because whilst “an economist is concerned with how an enterprise recovers its costs… a lawyer is concerned with whether or not a specific claim is well founded” (§484(4)).

Third, that the increase in price must be “causally connected with the overcharge, and demonstrably so” (§484(4)(ii)).

Fourth, that, given the danger in presuming pass-on of costs, “the pass-on “defence” ought only to succeed where, on the balance of probabilities, the defendant has shown that there exists another class of claimant, downstream of the claimant(s) in the action, to whom the overcharge has been passed on. Unless the defendant (and we stress that the burden is on the defendant) demonstrates the existence of such a class, we consider that a claimant’s recovery of the overcharge incurred by it should not be reduced or defeated on this ground” (emphasis original) (§484(5)).

But these principles leave a number of questions.

First, the Judgment firmly places the burden on defendant (and the importance of that is brought home when the Tribunal considered the issue of interest without this burden and, having found that Mastercard’s passing-on defence failed, nevertheless reduced the interest payable to Sainsbury’s by 50% because of passing-on). However, precisely what the Defendant has to demonstrate is less plain.

The Judgment refers to Mastercard’s passing-on defence failing because of a failure to show an increase in retail price (§485); language which reflects back to §484(4)(ii). But an increase in price is not the language used when the Tribunal states the test, and the Judgment leaves open whether demonstrating an increase in price would in itself be sufficient to satisfy the requirement to show the existence of “another class of claimant downstream of the claimant(s) in the action, to whom the overcharge has been passed on”.

Second, and similarly, there is no explanation of what the Tribunal means by the term “causally connected” (or, rather, “demonstrably” causally connected) when it refers to the need for the increase in price to be connected to the overcharge. It might be – as was suggested in our earlier blog – that, applying ordinary English principles of causation and mitigation, a party would need to show that the price increase or the benefit arises out of the breach. Given the Tribunal’s repeated statements that the defence is not really a defence at all but is simply an aspect of the process of the assessment of damages (§§480(2), 484(4)), such an approach would, at first blush, sit perfectly with the Judgment.

However, third, the Tribunal’s splitting of passing-on from other responses to an overcharge creates some confusion in this regard. Under the Tribunal’s approach cost savings are not to be considered under the passing-on defence (§484(4)) but must be considered under an analysis of mitigation (§§472-478). It is, however, difficult to separate out principles of mitigation and causation in this context.  Indeed, the Tribunal, when discussing mitigation, expressly recognised that the issue is “akin to one of causation” (§475). But the Tribunal took pains to emphasise that an assessment of passing-on and mitigation are separate exercises, without explaining whether and if so in what way the test in the context of mitigation – said to be that the benefit must “bear some relation to” the damage suffered as a result of the breach (§475) – differs from that of causation in the passing-on defence.

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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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The Freight-Forwarding Cartels in the General Court: Lessons on Leniency and Discretion

On 29 February 2016, the General Court handed down its judgments in Case T-265/12 Schenker Ltd v European Commission; Case T-267/12 Deutsche Bahn AG and ors v European Commission, upholding the Commission’s decision on the freight forwarding cartels. The judgments provide some useful guidance on the operation of the leniency scheme and highlight the Commission’s broad discretion in deciding to whom it should attribute liability.

The Cartels

The applicants were found by the Commission to be participants in cartels relating to four different surcharges levied in the freight-forwarding sector between 2002-07.

The operation of the cartels was no lesson in subtlety. In the new export system cartel, the participants had organised their contacts in a ‘Gardening Club’ and had re-named surcharges according to vegetables. One set of minutes of the cartel’s meeting distinguished ‘standard asparagus’ from ‘contractual asparagus’, while another email explained ‘new equipment is on its way to enable fresh marrows and baby courgettes to hit the shops this month. Up to my elbows in fertilizer’.

The Commission fined 14 groups of companies a total of €169 million. The applicants were fined approximately €35 million for infringements of Article 101 TFEU and Article 53 of the EEA Agreement.

Leniency

The Commission began its investigation after an application for immunity was submitted by Deutsche Post AG (‘DP’). DP and its subsidiaries received full immunity from fines, while some other undertakings (including the applicants) received a reduction in fines ranging from 5 to 50 per cent.

In order to qualify as an immunity applicant under the Commission’s 2006 Leniency Notice, the evidence provided to the Commission must enable it (inter alia) to ‘carry out a targeted inspection in connection with the alleged cartel’ (paragraph 8(a)) and must include a ‘detailed description of the alleged cartel arrangement’ (paragraph 9(a)). The applicants contrasted the information initially provided by DP with the Commission’s final findings to argue that these criteria had not been met – in particular, no information was provided about one of the specific cartels, the CAF cartel.

The General Court rejected the applicants’ comparative approach. It explained that the Leniency Notice did ‘not require that the material submitted by an undertaking should constitute information and evidence pertaining specifically to the infringements which are identified by the Commission at the end of the administrative procedure’ (at [338], paragraph references in this post are to T-267/12). It was sufficient that the information provided by DP ‘justified an initial suspicion on the part of the Commission concerning alleged anticompetitive conduct covering, inter alia, the CAF cartel’ (at [340]).

The applicants also argued that the Commission had breached the principle of equal treatment by treating DP’s immunity application differently from the leniency applications of other undertakings. When assessing DP’s immunity application, the Commission granted conditional immunity on the basis of the information it had at the time, and then granted final immunity by considering whether those conditions had been satisfied. In contrast, when considering the applications for reductions of fines made by other undertakings, the Commission considered at the end of its procedure whether the information provided had added value.

The General Court upheld this approach. It explained that the Leniency Notice is structured such that an ex ante assessment is to be carried out in respect of applications for immunity only (at [358]). This distinction is justified by the objectives of (i) encouraging undertakings to cooperate as early as possible with the Commission, and (ii) ensuring that undertakings which are not the first to cooperate do not receive ‘advantages which exceed the level that is necessary to ensure that the leniency programme and the administrative procedure are fully effective’ (at [359]).

Attribution of Liability

A further ground of challenge concerned the Commission’s decision to hold Schenker China solely liable as the economic successor for the conduct of Bax Global, rather than including Bax Global’s former parent company.

The General Court noted that the Commission had a discretion concerning the choice of legal entities on which it can impose a penalty for an infringement of competition law (at [142]), but that such a discretion must be exercised with due regard to the principle of equal treatment (at [144]).

In the present case, the Commission had decided to hold liable parent companies of subsidiaries, but not former parent companies of subsidiaries. The General Court was content that such an approach was within the discretion available to the Commission. It was perfectly legitimate for the Commission to ‘take into consideration the fact that an approach designed to impose penalties on all the legal entities which might be held to be liable for an infringement might add considerably to the work involved in its investigations’ (at [148]). This purely administrative reason was sufficient to entitle the Commission to decline to attribute liability to a party who would be jointly and severally liable for the same infringement, even if the necessary consequence were to increase the fine levied against the existing addressee.

Given the sums involved, it would be no great surprise if the General Court’s judgments were appealed to the Court of Justice. In the meantime, there is greater certainty regarding the Commission’s approach to the Leniency Notice, and it is clear that the Commission has broad discretion in identifying the relevant addressees of its infringement decisions.

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