Category Archives: Procedure

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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When should a decision be remitted to a different decision-maker?

The Court of Appeal’s answer to this question in HCA International Limited v CMA [2015] EWCA Civ 492  was, in effect: rarely. The judgment, which contains some serious criticism of the CMA even though it won the case, illustrates just how high the threshold is before a court will insist that a remitted decision should go to a new decision-maker. It is not enough for the original decision-maker to have made a mistake, however conspicuous. Rather, there needs to be a reasonable perception of unfairness or damage to public confidence in the regulatory process.

The background was the CMA’s private healthcare market investigation, which determined that HCA should divest itself of two hospitals in central London. That decision was premised in part on the CMA’s insured price analysis (“IPA”), which HCA argued (on an appeal to the Competition Appeal Tribunal) contained serious flaws. The CMA eventually accepted that its divestment decision should be quashed, and the CAT held that the matter should be remitted to the original CMA inquiry group for re-determination. Continue reading

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Arcadia v Visa revisited: the Court of Appeal takes a strict approach to limitation

Competition damages claims can be notoriously complex. According to the Court of Appeal, however, that is no reason to free them from the ordinary English rules of limitation – however strict those rules might be.

Unlike the large majority of European limitation rules, where time starts running from the date of the victim’s knowledge, the English rule under the Limitation Act 1980 (“LA 1980”) is that time starts running from the moment the wrong is done, unless the victim can show that the wrong was concealed from him. The claimants in Arcadia Group Brands Ltd & Ors v Visa Inc & Ors [2015] EWCA Civ 883 argued that various relevant facts had been concealed. Ultimately, their difficulty was that they did have sufficient facts available to them to plead their case. Continue reading

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Fresh grounds and evidence before the CAT

On the face of it, BT was the main winner in this week’s ruling from the Competition Appeal Tribunal: see British Telecommunications plc v Office of Communications [2015] CAT 6. However, the decision, which makes interesting comments on the rights of parties to adduce new grounds and evidence on an appeal, raises important notes of caution to all parties which may wish to appeal or intervene in future cases. Continue reading

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