2 Travel Group plc v Cardiff City Transport Services Ltd

Transcription

1 competition LAW 2 Travel Group plc v Cardiff City Transport Services Ltd [2012] CAT19 LIGIA OSEPCIU July 2012 In this rare decision on the appropriate quantum of follow-on damages, the Competition Appeal Tribunal has also made the first award of exemplary damages in a UK competition law case. However, given that the Tribunal has accepted (and distinguished) the High Court judgment in Devenish (that the award of exemplary damages is excluded where a regulatory fine has been imposed), the Cardiff Bus judgment is by no means opening the floodgates of massive punitive damages awards in this area. The OFT decision On 18 November 2008, the OFT issued a decision that Cardiff City Transport Services, trading as Cardiff Bus ( Cardiff Bus ), had abused its dominant position on the market for local no frills and normal bus services into and out of Cardiff City Centre 1 between April 2004 and February 2005 by operating its unbranded White Service buses with the intent to exclude the 2 Travel Group plc (a new entrant) from the relevant market ( the Decision ). Briefly, the facts underlying the Decision were as follows: 1. Before, during and after the Infringement Period (i.e. April 2004 to February 2005), Cardiff Bus operated bus services on a number of routes in and around Cardiff City Centre. These services were branded with the Cardiff Bus livery ( liveried service ). 2. In early 2004, 2 Travel had a number of contracts with Cardiff schools to provide before and after school bus services for pupils. The buses and drivers used to 1. The full market definition adopted by the OFT is as follows: the provision of no- frills and normal bus services as part of the Cardiff Bus network, together with urban bus services, and also interurban bus services and urban rail services (to the extent that these served the same flows) into and out of Cardiff city centre), see paragraph 6(1).

2 provide these school bus services were largely unutilized during school hours. 3. Between April and December 2004, 2 Travel operated a no frills bus service on certain routes within Cardiff; the service was operated on an in-fill basis, that is to say it was operated during school hours and using the same buses that 2 Travel used to provide school bus services ( the in-fill service ). The in-fill service routes overlapped with some of the routes used by Cardiff Bus liveried service, but offered lower fares on those routes than the liveried service. 4. Between April 2004 and February 2005, Cardiff Bus operated an unbranded bus along the same routes as the in-fill service this was known as the White Service as the buses used were white and otherwise unmarked. The White Service operated in addition to Cardiff Bus existing liveried services on those routes; it charged fares that were the same as or slightly lower than those charged by the 2 Travel in-fill service and it timed its buses to depart just before the scheduled departure time of corresponding in-fill service buses. 5. The Cardiff Bus White Service ceased to operate in February 2005, shortly after the 2 Travel in-fill service had ceased to operate in December Travel went into liquidation on 20 May The OFT found that Cardiff Bus sole purpose in running the White Service was not to market test the demand for and profitability of a no-frills service, as Cardiff Bus head earlier claimed, but to exclude 2 Travel from the relevant market by depriving its in-fill service of passengers and, therefore, of revenues. Accordingly, the OFT decided that running the White Service at all as opposed to running it in a particular way amounted to abuse of a dominant position and infringed the Chapter II prohibition ( the Infringement ). The OFT did not impose a fine on Cardiff Bus. The follow-on damages claim 2 Travel brought a follow-on claim against Cardiff Bus in the Competition Appeal Tribunal ( the Tribunal ) under section 47A of the Competition Act 1998, seeking both compensatory and exemplary damages. 2 Travel sought compensatory damages under the following five heads: 1. Loss of profits from the operation of the in-fill service;

3 2 Travel Group plc v Cardiff City Transport Services Ltd 2. Loss of a Capital Asset (i.e. the business of 2 Travel as a going concern) based on the contention that 2 Travel would not have remained in business absent the infringement; 3. Loss of a Commercial Opportunity, namely the opportunity to benefit from the increase in value and development of 2 Travel s Swansea depot; 4. Wasted staff and management costs in dealing with Cardiff Bus abuse; and 5. Costs of 2 Travel s liquidation. The Tribunal upheld the first of these claims, finding that, but for the Infringement, 2 Travel would have made a further 33, profit from the operation of the in-fill service (paragraphs ). The Tribunal rejected the remaining claims for compensatory damages. In particular, the Tribunal held that 2 Travel would have gone into liquidation as and when it did even absent the Infringement owing to its pre-existing and continuing financial and management difficulties. Thus, the Tribunal found that the losses identified in claims 2, 3 and 5 would have been incurred in any event and were not recoverable from Cardiff Bus (see paragraphs & 447). In relation to claim 4, the Tribunal held that the Infringement did not cause any abnormal waste of 2 Travel s staff or management time (paragraph 446). The exemplary damages claim 2 Travel sought exemplary damages against Cardiff Bus on the first two bases identified by Lord Devlin in Rookes v Barnard [1964] 1 AC 1129, namely: (1) Oppressive, arbitrary or unconstitutional conduct by servants of the government ; and (2) Conduct calculated to make a profit that may well exceed the compensation payable to the Claimant or, according to the Tribunal s reformulation, knowing disregard of an unacceptable risk of causing injury. The Tribunal rejected the exemplary damages claim under ground (1), finding that, as a company owned by a local authority but operated at arm s length and for profit, Cardiff Bus did not exercise government functions of any sort (paragraphs ). The Tribunal did, however, award damages under ground (2).

4 Knowing disregard of an unacceptable risk of causing injury The Tribunal noted that exemplary damages could be awarded under the second ground in respect of either an intentional or a reckless breach of competition law. Drawing on criminal case law, the Tribunal defined recklessness in this context as knowing disregard of an appreciated and unacceptable risk of causing an injurious result or a deliberate closing of the mind to such risk (emphasis original): see paragraph 486, referring to R v G [2004] 1 AC The Tribunal observed that the legality of conduct is not always black and white at the outset, particularly where the Chapter II prohibition is concerned: there are finely balanced judgment calls to be taken as to whether actions of dominant firms will operate anti- or pro-competitively. In light of that acknowledgement, the Tribunal held that only in those cases where an undertaking is aware that its proposed conduct is either probably unlawful or clearly unlawful can a risk potentially be classified as unacceptable (paragraph 490) to expand he categories of unacceptable risk further would create an undesirable chilling effect on potentially pro-competitive conduct. Whether a given risk is unacceptable depends on the facts of the particular case, including (i) any expected pro-competitive effects of the conduct, (ii) the degree and seriousness of any anti-competitive effects and (iii) the motive of the undertaking for acting. Having carefully considered the evidence of Cardiff Bus preparations and motivation for operating the White Service, the Tribunal found that: a) Prior to commencing the White Service, Cardiff Bus had had limited legal advice that it was likely to be dominant in the relevant market and that targeting the response to the new entrant in such a way as to appear retaliatory, or to exclude it from the market was an area of particular concern under the Chapter II prohibition (paragraph 591(1)); b) Cardiff Bus intention in operating the White Service was explicitly to exclude 2 Travel from the Cardiff market - any assertion that Cardiff Bus intended to test the market for no frills services was a deliberate smokescreen, designed to make palatable to the outside world extremely unpalatable conduct (paragraph 584 & 585); c) Cardiff Bus senior management failed to take any more detailed advice on the legality of operating the White Service because they knew that they were likely to be advised of its illegality and they were minded to commence the service no matter what and also to avoid a paper trail (paragraphs 591 and 592).

5 2 Travel Group plc v Cardiff City Transport Services Ltd In light of the above, the Tribunal found that Cardiff Bus acted in knowing disregard of an appreciated and unacceptable risk that the Chapter II prohibition was either probably or clearly being breached or it deliberately closed its mind to that risk (paragraph 594), giving the Tribunal jurisdiction to award exemplary damages. Exemplary damages and regulatory fines In Devenish Nutrition Ltd v Sanofi-Aventis SA [2003] EWHC 2394, the High Court declined to award exemplary damages in a price-fixing cartel follow-on case where the Commission had imposed a substantial fine on the Defendant in principle, but had reduced said fine to zero under its leniency process. Lewison J held in that case that the imposition of fines and an award of exemplary damages serve the same aim: namely to punish and deter anti-competitive behavior, accordingly, the doctrine of ne bis in idem prevents, in principle, the award of exemplary damages where the Commission has already imposed a fine. The principled position remains the same even where no fines have actually been paid owing to the application of a leniency regime as exposing leniency recipients to exemplary damages risks undermining the leniency regime. In this case, Cardiff Bus benefited from the immunity from fines for conduct of minor significance established in section 40(3) of the Competition Act The OFT had a statutory discretion to withdraw this immunity, but declined to do so in this case without giving any detailed reasons. The Tribunal considered that the application of the section 40(3) immunity in this case did not create a principled barrier to the award of exemplary damages, unlike the reduction of a fine to zero under a leniency regime (paragraph 496). The measure of exemplary damages Cardiff Bus argued that, in making an award of exemplary damages, the Tribunal ought to have regard to the sort of penalty that the OFT has jurisdiction to impose. The Tribunal rejected this proposed approach and made an award of exemplary damages of 60,000, taking into account the following factors (paragraph 596): 2. I.e. conduct of undertakings with an applicable turnover of 50 million or less for the business year ending in the calendar year preceding the one during which the infringement occurred: see regulation 4 of the Competition Act 1998 (Small Agreements and Conduct of Minor Significance) Regulations 2000.

6 That the exemplary damages should bear some relation to compensatory damages in this case, which were relatively low; The economic size of the Cardiff Bus, which is a small company; and The fact that Cardiff Bus was likely to take very full account of the Tribunal s decision even if exemplary damages were low given its ties to a local authority which will be concerned to ensure the propriety of its conduct. Comment Near the end of its judgment (paragraph 598), the Tribunal notes that this decision is likely to incentivise the bringing of claims for exemplary damages in competition cases. The Tribunal does not explicitly comment on whether it intends to create such an incentive, but emphasises the need to plead, and to plead with specificity that the relevant competition law infringement was executed intentionally or outrageously so as to fall within the second Rookes v Barnard category above which sounds rather like an attempt to discourage future exemplary damages claims. So, how much encouragement of exemplary damages claims in the competition law context can we take from the Tribunal s first decision on the point? The Cardiff Bus judgment offers no criticism of Devenish on its own facts thus, exemplary damages still look to be unavailable in the majority of follow-on cases, where the relevant regulator will most likely have imposed a fine on any person found to be infringing. As regards stand-alone damages cases and the minority of follow-on cases, the requirement of intentional infringement or knowing disregard of appreciated and unacceptable risk of infringement will likely be difficult to satisfy. The need to plead intention or knowing disregard may exacerbate these difficulties and it remains to be seen how the Tribunal approaches future applications for disclosure on this point. Nevertheless, the increased clarity afforded by the judgment on the availability of exemplary damages is clearly very helpful and welcome to those contemplating such claims. An important point, left unexplored in Cardiff Bus and in Devenish (because its did not arise on the facts of either case), is the availability of exemplary damages to multiple claimants. Does the principle of ne bis in idem also prevent the award of exemplary damages to subsequent claimants after the first successful claimant has recovered these? If so, does this not give rise to a concern about the fairness of discriminating in favour of the person who manages to have his claim disposed of quickest? If not, how can the courts ensure the proportionality of the overall

7 punishment received by the infringer? These and related questions on the interaction between regulatory and private competition law enforcement will have to await the right set of facts. Michael Bowsher QC and Anneliese Blackwood appeared for 2 Travel Group Plc. Monckton Chambers 1 & 2 Raymond Buildings Grays Inn London, WC1R 5NR Tel: +44 (0) Fax: +44 (0) chambers@monckton.com