Cardiff bust-up: abuse of dominance, follow-on claims and exemplary damages

In 2 Travel Group PLC (in liquidation) v Cardiff City Transport Services Limited [2012] CAT 19 the Tribunal has made the first ever domestic award of exemplary damages for breach of competition law.  The case is a significant landmark, but involves no radical development of the law; it is certainly not a declaration of “open season” for exemplary damages claims.

The Claimant, 2 Travel, was a struggling South Walian bus company.  The Defendant traded as “Cardiff Bus” and, true to its name, was the major player in the Cardiff bus market.

In 2004, war broke out on the city streets.  2 Travel launched a new, “no frills” bus service in Cardiff.  Cardiff Bus retaliated with force.  It laid on “battle buses” (a term used, rather infelicitously, in its own internal documents), which were carefully planned to arrive just before 2 Travel’s buses and snatch 2 Travel’s potential customers.  The militarism of Cardiff Bus’s response extended even to internal recruitment of drivers for the covert war against 2 Travel with a spoof of the famous First World War poster of Lord Kitchener: “Your Company Needs YOU”.  2 Travel’s Cardiff venture failed, and in 2005 the company entered liquidation.

2 Travel reported Cardiff Bus to the OFT.  By its Decision CA98/01/2008, the OFT found that Cardiff Bus had abused a position of dominance in the Cardiff bus market by seeking to force 2 Travel out of that market.  However, the OFT imposed no penalty, because Cardiff Bus enjoyed a limited immunity under section 40 of the Competition Act, its conduct being of ‘minor significance’ as defined by that section and by the Competition Act 1998 (Small Agreements and Conduct of Minor Significance) Regulations 2000 (that is to say, broadly, that Cardiff Bus’s turnover did not exceed £50 million).

The section 40 immunity enjoyed by Cardiff Bus was the most significant feature of the follow-on damages claim which 2 Travel proceeded to bring in the CAT.  Typically, a claim for exemplary damages will be impossible in a follow-on claim, for the reasons explained in Devenish Nutrition Ltd v Sanofi-Aventis SA [2007] EWHC 2394.  The subjects of a Commission or OFT infringement decision will either have been fined, in which case to award punitive exemplary damages would infringe the principle ne bis in idem, or have been granted leniency, in which case to award exemplary damages would frustrate the purpose of the leniency procedure.

Here however, there had been no fine and no leniency, thanks to Cardiff Bus’s section 40 immunity.   In the CAT’s judgment, that meant that an award of exemplary damages was not precluded.  Although 2 Travel only recovered compensatory damages of £33,818.79 (since on the evidence it would have gone bust anyway), the CAT held that Cardiff Bus had deliberately sought to force 2-Travel out of the market in cynical disregard of the law, justifying a £60,000 award of exemplary damages.

Was the CAT right that exemplary damages were available in principle?  Morten Hviid has argued in a Competition Policy blogpost that Cardiff Bus’s immunity under section 40 was not automatic, and that the CAT ought to have respected what was, in effect, a decision by the OFT not to impose a fine by not withdrawing Cardiff Bus’s immunity.

But the OFT only has power to withdraw an undertaking’s section 40 immunity with prospective effect: see s. 40(6) and (7).  It had no power to impose a fine for Cardiff Bus’s historical abuse of dominance, and made no decision on the appropriateness of any such fine.  As the CAT held at §496, the law of England and Wales allows for the recovery of exemplary damages, and if section 40 had been intended to preclude the recovery of such damages as well as limiting the OFT’s power to fine, section 40 would have said so.

In any event, the judgment (both in its exposition of the substantive law and in its procedural guidance) is required reading for any litigator contemplating an exemplary damages claim, whether in the CAT or on a free-standing basis in the High Court.  Of course, so far as CAT follow-on proceedings are concerned, such a claim is only likely to be possible in a section 40 case.   The Devenish principles still stand.