Category Archives: Procedure

When is an antitrust/competition claim caught by an arbitration clause? The Microsoft Mobile decision

The decision of the High Court in Microsoft Mobile Oy (Ltd) v Sony offers some helpful guidance as to when a competition law tort claim will be caught by an arbitration clause in a sale or supply agreement.

Competition law claims frequently complain about prices, on ground of collusion or abuse.  Those prices may already have been charged, or they may yet to be charged.  If the price in issue has already been charged then it will almost invariably be contained in a written sale or supply agreement.  It may be the product of a specific contractual mechanism to settle a price.  If the relevant agreement contains an arbitration clause, does it catch a competition law claim complaining about the price charged?

The starting point in this regard is that a detailed semantic analysis of the particular arbitration clause in question is unlikely to provide the answer.  As Lord Hoffmann observed in Fiona Trust v Privalov [2007] 4 All ER 951 at para 13:

“…the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to have entered to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”

This “one-stop shop” presumption has helped greatly in reducing disputes about the ambit of arbitration clauses.  But its application in the competition law context has been less straightforward, because of debates about precisely what the rational businessman would intend in respect of such claims.

The net effect of the law to date is that competition law claims will be regarded as coming within an arbitration clause only if they are closely related factually to a viable contractual claim which has already been, or could be, made.  Thus, for example, in ET Plus SA v Welter [2006] I.L.Pr. 18, the key consideration for Gross J in finding that competition law claims were within an arbitration clause was that they were “simply a variant on the familiar factual theme” which could be discerned from contractual claims already made (see para 51).

Conversely, in Ryanair Ltd v Esso Italiana Srl [2015] 1 All ER (Comm), the Court of Appeal held that the absence of any viable form of contractual complaint about an allegedly cartelised price rendered it impossible to claim that a competition law complaint about the same price was within an exclusive jurisdiction clause.  Having referred to the one-stop shop presumption in Fiona Trust, Rix LJ then held at para 53 that:

“Such reasoning, however, does not carry over into a situation where there is no contractual dispute (by which I intend to include disputes about contracts), but all that has happened is that a buyer has bought goods from a seller who has participated in a cartel. I think that rational businessmen would be surprised to be told that a non-exclusive jurisdiction clause bound or entitled the parties to that sale to litigate in a contractually agreed forum an entirely non-contractual claim for breach of statutory duty pursuant to article 101, the essence of which depended on proof of unlawful arrangements between the seller and third parties with whom the buyer had no relationship whatsoever, and the gravamen of which was a matter which probably affected many other potential claimants, with whom such a buyer might very well wish to link itself.”

The English Courts therefore treat competition law claims essentially as falling outside the one-stop shop presumption unless they are, factually, simply a variant on the theme of an arguable contractual claim.  This was, furthermore, the approach of the CJEU in Case C-352/13 CDC v Akzo [2015] QB 906, in which it was held that a clause “…which abstractly refers to all disputes arising from contractual relationships” would not cover tortious liability as a result of a cartel, because “…the undertaking which suffered the loss could not reasonably foresee such litigation at the time that it agreed to the jurisdiction clause” (paras 69-70).

The latest word on this topic is the Microsoft decision.  Microsoft brought a claim in the English Courts for damages for the allegedly anti-competitive tortious conduct of Sony, LG and Samsung in relation to the pricing of Li-Ion batteries.  All the allegedly cartelised supplies by Sony had been made pursuant to an agreement with an arbitration clause requiring “any disputes related to this Agreement or its enforcement” to be settled by ICC arbitration.  Sony applied to stay the proceedings under section 9 of the Arbitration Act 1996, arguing that the arbitration clause covered the tort claims made against it.

Mr Justice Marcus Smith held that, on an orthodox application of the principles identified in Ryanair, the question of whether the tortious claims were within the arbitration clause depended on whether the conduct giving rise to the tortious claims also gave rise to an arguable contractual claim.  As he observed, “…it is difficult to see how a tortious claim can arise out of a contractual relationship when the only claim in contract that can be said to be related is unarguable” (para 54).

The unusual incentives created by this (correct) understanding of Ryanair can be seen from the fact that Sony was accordingly required, in order to succeed in its application, to formulate a contractual claim against itself which Microsoft had not advanced.  Sony argued that because the relevant prices had been subject to an express obligation that they be negotiated in good faith, and because Sony was subject to a further obligation to disclose events that reasonably may affect its ability “to meet any of its obligations” under the agreement, the operation of a cartel would have been a clear breach of contract as well as tortious.

The Court accepted this submission, holding that it was “very difficult” to see how Sony could have engaged in the conduct complained of in the tort claims, without also breaching the contract.  On that basis, the competition law claims fell within the arbitration clause.  It did not matter in this regard that Microsoft had not advanced the contractual claim which Sony successfully contended it could have done, because otherwise “…it would be easy for a claimant to circumvent the scope of an arbitration or jurisdiction clause by selectively pleading or not pleading certain causes of action” (para 72(ii)).

The upshot for practitioners is that a decisive consideration when assessing whether a competition law claim falls within a jurisdiction clause is likely to be whether there are any viable contractual claims which “…would be sufficiently closely related to the tortious claims actually advanced by the Claimant so as to render rational businessmen likely to have intended such a dispute to be decided (like a contractual dispute) by arbitration” (Microsoft at para 72).  The existence and extent of any express or implied contractual obligations to observe competition law therefore looks set for detailed examination in competition law claims in the future.

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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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Standalone claims in the CAT: bypassing the transitional rules

We have written before about the problems inherent in the transitional provisions of the new Consumer Rights Act 2015 (see Tom de la Mare QC’s blog here). A recent decision from Mr Justice Barling in the Mastercard litigation places a (small) sticking plaster over some of the difficulties.

One problem is that the transitional provisions appear to severely limit claimants’ ability to bring stand-alone claims in the Competition Appeal Tribunal (“CAT”) – in theory you can bring such claims, but you may face much less favourable limitation rules than you would have faced had you started in the High Court.  It is difficult to see this as anything other than a drafting error, since part of the purpose of the new statutory regime was to do away with the oddity of having a specialist competition tribunal unable to hear such claims.

Barling J has found a partial solution to this problem. In Sainsbury Supermarkets Ltd v MasterCard Incorporated [2015] EWHC 3472 (Ch) (see here), he decided that Sainsbury’s standalone claim, issued in the High Court, could be transferred to the CAT – and that, importantly, such a transfer would preserve the limitation position in the High Court.

The Judge held that it did not matter whether or not the claim could have been started in the CAT (and he did not decide that particular issue). What mattered was that it could be transferred there.

The ability to transfer standalone claims to the CAT has obvious advantages for those cases which would benefit from the CAT’s economic and industry expertise. It is somewhat clunky for claimants to have to issue in the High Court (and incur fees there) only to then transfer to the CAT, but it is better than nothing.

It also means that claimants who wish to take advantage of the different limitation provisions in the High Court (in general, better for standalone claims) and in the CAT (in general, better for follow-on) now have the option of starting claims in both jurisdictions and then seeking to consolidate them in the CAT.

Of course, Barling J’s decision does nothing to fix the other problems highlighted in Tom’s blog. Most obviously, it does nothing for standalone class actions, which cannot be started in the High Court and still face the usual problems in the CAT. It is, however, a helpful ‘workaround’ which will go some way towards mitigating the problems caused by the transitional arrangements.

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Appealing energy price controls: guidance for beginners from the CMA

The CMA recently published its final determinations in two appeals brought by British Gas and Northern Powergrid against Ofgem’s electricity price controls for the next 8 years (decisions here and here). The appeals were the first under section 11C of the Electricity Act 1989 and the CMA’s decisions will therefore be the first port of call for any practitioners considering appeals against not only price controls but also any modifications made by Ofgem to electricity distributors’ licences.

British Gas, a supplier, broadly appealed on the basis that Ofgem’s price control allowances were too generous to distributors by around £1.4bn. British Gas won a partial victory on only one of the six grounds of appeal it advanced. On this ground, the CMA found that Ofgem’s recalibration of one of its incentive mechanisms (the information quality incentive) had been, on the facts, excessive, but agreed with Ofgem that it had in principle been right to recalibrate.

Northern Powergrid, a distributor, conversely appealed on the basis that the allowances were not generous enough. The CMA found for Northern Powergrid on only one of the three grounds it advanced, holding that the savings that Ofgem anticipated distributors would make through the advent of smart technology were probably too great and, in any event, premised on an unsafe methodology. Accordingly, the CMA upped Northern Powergrid’s allowances by around £11m.

Prospective appellants will find some crumbs of comfort in the CMA’s decisions, but perhaps more to discourage them.

On the plus side, the CMA stated that the standard of review to be applied to Ofgem in such appeals was more intense than the judicial review standard; the CMA was required to look at the merits of the decision under appeal and determine whether it was wrong on one of the grounds prescribed by section 11E of the Electricity Act 1989. The CMA saw its function as that of an expert appellate body. There is a clear analogy (which the CMA expressly recognised) with the role of the CAT when considering telecoms appeals brought under section 192 of the Communications Act 2003.

Moreover, the CMA was unpersuaded by arguments that it should be slow in principle to alter a price control decision because such a decision is taken “in the round” and it was impermissible for appellants to “cherry-pick” individual errors in an appeal. While the CMA recognised in principle that altering one part of the price control could have knock-on effects for other parts, it saw nothing in the appeals before it to prevent it from adjusting the price control, if necessary.

At least three aspects of the CMA’s decision will dishearten future appellants, however. First, the CMA placed clear limits on the extent to which it would interfere with Ofgem’s decision. It stressed that (like the CAT when considering telecoms appeals) it would not substitute its views for Ofgem’s simply because it would have taken a different approach; rather, Ofgem’s decision had to be wrong. Moreover, the CMA rejected the submissions of one of the intervenors, Scottish and Southern Energy, that it was required to conduct a re-hearing and, if necessary, decide matters afresh. Consistently with the Supreme Court’s judgment in BT v Telefonica O2 UK [2014] UKSC 42, it stated that it was not a “fully equipped duplicate regulatory body waiting in the wings” – rather, it should confine its inquiry to the grounds advanced.

Second, the CMA did not appear to set much store by procedural grounds of appeal. British Gas made much of its point that Ofgem’s decision-making process had not been transparent enough to enable effective consultation. Perhaps most conspicuously, Ofgem had at the hearing of the appeals advanced justifications for one element of the price control (concerning transitional arrangements for a change in asset life policy), which had never been put before the parties. To an extent, the CMA agreed, and wrapped Ofgem’s knuckles for not giving consultees enough information. However, it refused to allow the appeal on that basis, considering that any failures in process were not enough to undermine the decision in question. The lesson for practitioners is not to rely on allegations of procedural unfairness unless these are backed up by substantive criticisms.

Third, the success rate of the appellants was low. Overall, it was hard to persuade the CMA that Ofgem had got it wrong. In the British Gas appeal, Ofgem emerged as the clear winner. And even though Northern Powergrid had some measure of success, the CMA sweetened the pill for Ofgem by making no order as to inter partes costs, thereby shielding the regulator from paying any of Northern Powergrid’s substantially higher bill.

Costs notwithstanding, the financial implications of the price controls for both distributors and suppliers are, of course, enormous. It remains to be seen whether any will take the next step of attempting a judicial review of the CMA’s decision.

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PRIVATE ACTIONS: The CRA 2015 giveth; and the 2015 CAT Rules taketh away

Introduction

Today, on the 1st October 2015, when we are supposed to be celebrating the brave new world of the Competition Act 1998 (“CA”) as amended by the Consumer Rights Act 2015 (“CRA”), cartelists and other competition law infringers up and down the land[1] must be rubbing their hands in glee at the transitional provisions contained in Rule 119 of the Competition Appeal Tribunal Rules 2015 (“the 2015 CAT Rules” or the “New Rules”).[2]

The glee stems from the fact that these transitional provisions are very broad in temporal and material scope and yet very narrow in terms of gateway they provide into the new promised lands of flexible standalone claims,[3] and of collective redress leading to effective enforcement of private damages claims.   The problem, in essence is this: these transitional rules set in aspic for an unnecessarily long time the old CAT regime and all its manifest defects, defects which were the express cause for reform in the first place. Continue reading

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