Competition update

Oh! The joy of seeing others suffer. Of watching while a regulator embroils its management in a detailed investigation; chastises them publicly in an infringement decision; and then imposes a walloping great fine. Ah! The warm feeling of schadenfreude in the morning.

Yet, for all the pleasure that may come from seeing a company punished for its wrong-doing, as the victim of the wrong, you do not get any compensation for the wrong you have suffered. You can, of course, take the broad view, that since the Treasury has received the value of a fine from the infringer, the wrong has been righted in society's great scheme. You can also seek consolation from the fact that the infringer will be prohibited from engaging in nefarious practices and that his shaming has occurred publicly.

But, as Rod Tidwell said so emphatically to his agent, Jerry Maguire, executives will be demanding of their legal advisers: 'Show me the money!'

Damages for direct loss: Inntrepreneur v Crehan

It is clear that you can obtain damages where you have directly suffered loss because of an infringement of competition law. The great saga of publican Bernard Crehan against Courage and Inntrepreneur regarding so-called 'beer-tie' arrangements made that emphatically clear when it came before the European Court of Justice on a preliminary reference from the English Court of Appeal (Case C-453/99 [2001] ECR I-6297). But the ECJ's judgment left a number of questions unanswered as to when you can claim and what you can claim.

It was thought that when Crehan came back before the English courts with the ECJ's judgment acting as guidance, we would get some of the answers to at least some of those questions. Certainly the judgments of Park J, at first instance, and of the Court of Appeal seemed to shed some light on issues to do with quantification. However, in the most recent'“ and, it appears, final '“ instalment of the Crehan story, the House of Lords on 19 July 2006 allowed the appeal of Inntrepreneur against the Court of Appeal's award of damages to Crehan (Inntrepreneur Pub Co v Crehan [2006] UKHL 38).

Their Lordships considered that the appeal court had wrongly treated the Commission's decisions in other beer-tie cases as effectively determinative of the state of the market and whether there was foreclosure in this case. As a result, the decision of Park J that, notwithstanding the apparently relevant decisions of the Commission in other beer-tie cases, there was no infringement, should stand.

So after 13 years of litigation, Crehan has won the total sum of no pounds and no pence. And indeed, has had confirmed he was never, in fact, the victim of a relevant infringement.

The result of the Crehan saga hardly seems like encouragement for private enforcement of competition law by way of damages claims.

Well, perhaps. But it is not all doom and gloom for those wanting more private litigation.

Damages without infringement?

It is obvious that, if there is no infringement, there is no claim for damages. That's not rocket science. So a conclusion that there was no infringement hardly tells us a great deal about when damages claims can be brought if an infringement is proved.

Of course, sometimes infringements are difficult to prove. Indeed, sometimes what constitutes an infringement of competition law might itself be a matter of legal argument. It is for that reason that many people consider that we are most likely to see damages claims brought as 'follow-on' or 'piggy-back' claims, relying upon a regulator's decision of infringement.

Damages claims can be brought either in the High Court or in the Competition Appeal Tribunal (CAT). It is clear that regulatory decisions of either domestic regulators applying the Chapter I and Chapter II prohibitions under the Competition Act 1998 or, post-modernisation, Arts 81 and 82, are legally binding on the courts and the CAT just as EC Commission decisions on Arts 81 or 82 would be.

One such claim, relating to an EC Commission decision in relation to an unlawful vitamins cartel, was commenced before the CAT and then withdrawn. It is, perhaps, safe to assume some sort of settlement was reached.

Another, a follow-on claim by Healthcare at Home, which relies on the OFT's Competition Act infringement decision (upheld by the CAT: Genzyme Limited v OFT [2004] CAT 4) against Genzyme, is currently before the Tribunal.

What the House of Lords judgment in Crehan does remind us is that regulatory decisions are only binding in relation to the particular case they are deciding. Relying on such a decision in an argument by analogy is just that: argument. A decision in a similar case is merely part of the relevant evidence that may be considered.

Does that mean that if you are not the complainant for whose benefit an infringement decision is made, you cannot claim damages relying on that decision? No.

If you are a person who is affected by the infringement identified by the public authority in its decision, you can rely upon that decision even if you did not, initially, complain. You may have issues as to what quantum of loss you suffered or whether you are sufficiently proximate to the infringement to be one of those persons who should be entitled to damages (if, indeed, such a proximity restriction is to be developed in this area of law). But, anyone can rely on a public decision who is affected by the infringement in question.

So although Crehan's odyssey through the English and Community legal systems has been fruitless, competition damages claims have not gone with him. To the contrary, we now see such claims deployed more and more frequently as an incident of any competition argument in litigation or arbitration. And that makes sense.

Quantification issues

Even if there is a lack of clear authority on quantification or remoteness, whether or not a so-called 'passing-on' defence exists for infringers where the directly affected 'victim' passed its losses on to customers, damages can be claimed. Quantification is often complex in litigation, competition law is less special than is often thought in that regard. So the claims will keep coming and it will be ever more important for potential infringers to have in mind the risks, and for victims to be aware of the opportunities when competition disputes arise.

Indeed, the claims will not be limited to follow-on claims. There will be cases where a party goes straight to court, perhaps because it has not had success in encouraging a regulator to investigate its complaint or because it is confident that there has been an infringement and that liability will proved relatively easily. An example of proceedings being brought without there ever having been a regulatory finding of infringement is presently pending in the High Court in relation to an alleged generic drugs cartel. The English NHS has already announced a number of substantial settlements with certain defendants.

It should be noted that the allegations as to the existence of a generics drugs cartel has also recently resulted in the laying of criminal charges by the Serious Fraud Office against various of the civil defendants or their officers. Since the allegations relate to periods prior to the Enterprise Act 2002, the charges do not involve the criminal cartel offence introduced in that Act. Developments in these criminal proceedings will be awaited with interest.

Of course, no discussion of the state of competition damages claims would be complete without at least a mention of the EC Commission's Green Paper on Damages (COM (2005) 672 Final, 19.12.05). In that paper, a range of possibilities for encouraging private competition damages actions were canvassed including the possibility
of US style treble damages and changes to the burden of proof. The Commission has now received many responses and is considering them with a view to putting forward proposals.

The present view seems to be that radical new legal changes should not be expected from the Commission. Any particular change could raise various hackles in various member states, given the anticipated need to alter national civil procedure in order to accommodate them. The softer option of guidance therefore seems more likely.

And while we wait for the Commission's views, the cases will keep coming.

Costs in the Competition Appeal Tribunal

The CAT has emphasised since its inception that the standard costs rule in the courts that costs follow the event should not be assumed to apply in appeals coming before it. It has repeatedly stressed that Rule 55 of the Tribunal's Rules (Competition Appeal Tribunal Rules 2003) gives it a broad discretion on costs.

In Hutchison v OFCOM [2006] CAT 8, the CAT stated that it would decide costs issues on a case by case basis only 'relying on authorities for principles where appropriate'. Students of jurisprudence may ask whether that statement is merely a truism. For the practitioner, the question is, which principles and when?

The CAT has held that the principle of protecting the 'public interest' through the proper application of competition law is of prime importance. This has meant that the Tribunal has tended to adopt an approach that is designed to ensure that small undertakings are able to bring their claims to the CAT (see Aquavitae v DG Water Services [2003] CAT 17).

Another principle that the CAT has articulated is the importance of regulators performing their tasks properly.

Two very recent decisions have seen the CAT applying its case by case approach.

In the context of a s 120 appeal against the OFT's decision not to refer the merger of Boots and Unichem, Celesio (one of the largest pharmaceuticals distributors in Europe) was not required to pay its costs even though it lost the appeal (Celesio AG v OFT [2006] CAT 20). The Tribunal concluded that costs between the OFT and the appellant, Celesio, should lie where they fell because the appeal was reasonable and the OFT had only succeeded because it had relied upon a witness statement that had elucidated the decision.

It should be noted that in the previous case where Somerfield appealed the decision of the Competition Commission requiring it to divest a number of Morrisons stores which it had obtained in the backwash of the Morrisons/Safeway merger, the CAT expressed the provisional view that costs should follow the event (Somerfield PLC v Competition Commission [2006] CAT 4). The Tribunal was not troubled again with the matter.

In London Metal Exchange v OFT [2006] CAT 19, only costs were at issue. The case revolved around the first interim measures direction issued by the OFT since the coming into force of the Competition Act 1998 in 2000. The OFT had initially issued a direction against the London Metal Exchange (LME) and had then, a month later, decided that the direction should be lifted.

By the time the OFT had taken its decision to lift the direction, LME had appealed.

Although the substance of the appeal was not pursued, LME sought, and was awarded, the costs of its appeal. The CAT concluded that the OFT's investigation prior to the imposition of the interim measures direction was inadequate and that costs should be awarded.

Quite what this developing case by case jurisprudence means in terms of costs risk for appellants before the CAT is not entirely clear. Two things can be said: at present, the position that costs do not necessarily follow the event has been studiously maintained; and, secondly, that very fact indicates that the litigation risk assessment for CAT appeals must '“ at least in this regard '“ be different from High Court litigation.