The Court of Appeal on Cartels and Conflicts

The Court of Appeal handed down two important decisions last week on the application of conflict of law principles to cartel follow-on damages claims: Deutsche Bahn AG & Ors v Morgan Advanced Materials plc & Ors [2013] EWCA Civ 1484 and Ryanair Limited v Esso Italiana Srl [2013] EWCA Civ 1450. The defendants in each case challenged the jurisdiction of the English courts to hear damages claims arising from their cartel activities.

The decision in Deutsche Bahn concerned follow-on damages proceedings before the CAT arising out of a cartel in relation to electrical and mechanical carbon and graphite products (see the decision of the European Commission here). The central issue before the Court of Appeal (on an application for permission to appeal) was whether the CAT could derive jurisdiction to hear the damages claims from Article 5.3 of the Brussels I Regulation. That Article provides that: “A person domiciled in a Member State may, in another Member State, be sued … in matters relating to tort, delict or quasi-delict in the courts for the place where the harmful event occurred or may occur” (emphasis added).

The CAT took the view that it did have jurisdiction by way of Article 5.3, in essence because the relevant harm was suffered in the United Kingdom. The defendants sought permission to appeal, submitting that Article 5.3 is only triggered where the type of damages is “direct harm” (i.e. damage suffered by a direct purchaser from a cartelist) and does not apply to “indirect harm” (i.e. a purchase from a subsidiary of a cartelist, or another intermediary or third party). The defendants argued that this case involved indirect harm, and that Article 5.3 was therefore not engaged.

The Court of Appeal firmly rejected the defendants’ attempt to put a “gloss” on the language of Article 5.3.   Lord Justice Tomlinson stated (at §20):

I can see no justification for imposing upon Article 5.3 a gloss to the effect that, in order to be a relevant connecting factor between a defendant and putative jurisdiction, a harmful event must be one of which the putative claimant is an immediate victim. That would seem to involve a search for a connecting factor between the claimant and the putative jurisdiction, rather than a connecting factor between the defendant and the putative jurisdiction, which is what the regulation is concerned with.

The Court held that the defendants’ principal argument regarding Article 5.3 had no real prospect of success, and permission to appeal was therefore refused. In refusing permission, the Court has made unequivocally clear that a cartelist cannot avoid the jurisdiction of a national court on the basis that the victim of the cartel had purchased the relevant product or service via a subsidiary or other third party. The relevant question is simply whether the damage caused by cartel occurred (or, indeed, may occur) in the putative jurisdiction.

The second decision, the case of Ryanair Ltd v Esso Italiana, similarly arose out of a challenge to jurisdiction in the English courts, and concerns the scope of a non-exclusive English jurisdiction clause. The defendant was a member of an Italian cartel selling jet fuel in Italian airports. The claimant advanced a claim for breach of contract (specifically, breach of an indemnity providing that the prices in the agreement would conform to applicable laws) and a breach of statutory duty in vindication of rights arising out of Article 101 of TFEU. The defendant argued that the jurisdiction clause did not cover the latter claim.

The critical point to take from this decision was the Court’s finding in relation to the validity of the claimant’s contractual claim. Notwithstanding the fact that the defendant had originally, for the purposes of the jurisdiction dispute, conceded that the claimant had a contractual claim falling with the scope of the jurisdiction clause, the Court allowed the defendant to withdraw that concession. The Court then accepted the defendant’s submission that the contractual claim was hopeless. The Court considered that the price indemnity clause was never intended to apply to provide customers a contractual remedy for losses arising out of a cartel (at §40). This was because “[a] cartel in breach of article 101 does not render any price or fee specified in a customer contract unlawful”, but rather “invalidat[es] the arrangements between the cartel parties, and … gives their customers a remedy not in the form of adjusted contractual prices but in the form of damages for losses created by the cartel parties’ breach of statutory duty” (at §29).

Absent the contractual claim, the Court considered that there was no basis for arguing that the statutory duty claim fell within the jurisdiction clause (at §§42-49).

As observed by Tom de la Mare QC in an earlier post, damages claims arising out of cartels, and particularly multi-jurisdictional cartels, continue to generate some of the most interesting and novel problems in conflicts of law. These two most recent decisions provide clear examples of this, illustrating some of the complexities involved in litigating claims involving multiple parties and multiple jurisdictions.

1 Comment

Filed under Agreements, Conflicts

One response to “The Court of Appeal on Cartels and Conflicts

  1. Pingback: Competition round-up: January 2014 | Competition Bulletin