Special pleading? Toshiba Carrier and the industrial tubes cartel

The Court of Appeal’s judgment last Friday in KME Yorkshire Ltd & ors v Toshiba Carrier UK Ltd & ors [2012] EWCA Civ 1990 will gladden the hearts of Article 101 damages claimants.  It confirms that the Court will be generous in assessing the adequacy of a claimant’s pleaded case – at least where a Commission decision has already established the existence of a cartel.

By a Decision dated 16 December 2003, the Commission found that three manufacturers of industrial copper tubes had between 1988 and 2001 operated a price-fixing and market-sharing cartel under cover of a trade association.

Toshiba Carrier was a great user of industrial copper tubes.  It issued a High Court claim for damages, including as a defendant KME Yorkshire Ltd (or “KME UK” as it is described in the judgment), a subsidiary of one of the cartelists.  KME UK had the advantage of being a UK company and anchoring the claim in the jurisdiction.  KME UK was not, however, an addressee of the Decision.  Toshiba Carrier thus faced that common problem: how to plead a claim against the subsidiary in such circumstances?

Toshiba Carrier’s solution, as Etherton LJ described the pleaded case against KME UK at §22, was ‘far from a model of clear and comprehensive drafting’.  As for the claim form, that fired a ‘blunderbuss of alternative allegations’, without distinguishing between the defendants (§23).

Nonetheless, KME UK’s strike-out and summary judgment application failed at first instance before the Chancellor ([2011] EWHC 2665 (Ch)), whose judgment the Court of Appeal upheld.

Etherton LJ was swayed by the fact that ‘it is in the nature of anti-competitive arrangements that they are shrouded in secrecy’.  That justified a ‘generous approach’ to the claimant on an application by defendants to strike out or for summary judgment (§32), just as Sales J had adopted in the Nokia case [2012] EWHC 731.

Etherton LJ’s approach to the adequacy of the claimants’ pleading is notable.   Toshiba Carrier had distinctly (albeit very briefly) pleaded that KME UK had refrained from selling tubes to customers and had exchanged confidential information with competitors (§24).  That amounted, in Etherton LJ’s judgment, to an allegation of implementation of the cartel agreement which was (it was implicit in the pleading) knowing and intentional; this sufficed to found a claim of breach of Article 101 (§25).  The intention to make  an allegation of knowledge had been clarified in a response to a Part 18 request; but notwithstanding the requirement in paragraph 8.2(5) of CPR PD16 to plead ‘notice or knowledge of a fact’, Etherton LJ was satisfied that even the implicit allegation was sufficient (§§25, 30).

There is a real tension here.  Roth J remarked in Sel-Imperial Ltd v The British Standards Institution [2010] EWHC 854 (Ch) upon the importance of competition claims being pleaded properly, given the severity of the allegations involved.  Cf. also the CAT’s emphasis, at §598 of its Cardiff Bus decision (the subject of a previous blogpost of mine), on the importance of specificity of pleading in alleging intentional breach of the law for the purposes of an exemplary damages claim.  In this case, Toshiba Carrier’s claim against KME UK was, properly analysed, a stand-alone claim of knowing implementation of the cartel agreement (§37).  It was thus alleging serious and deliberate wrongdoing by the UK company, but without articulating any particular basis for its allegations.  If a claimant took such an approach in, say, a fraud case, it could expect to receive heavy judicial criticism.

Surely the real driver for the Court’s generosity in a case like Toshiba Carrier is that although strictly speaking the claim may not be a follow-on claim, existence of a cartel has been incontrovertibly established by a Commission decision.  In those circumstances, a claimant may properly state a case of knowledge of the cartel against a subsidiary of one of the cartelists on the basis, effectively, of mere inference.  Had there been no prior infringement decision by the Commission, the Court would no doubt have required a clearer and more precise pleading from the claimant as to KME UK’s state of mind.