sins of the father visited on innocent sons: exposure of third
parties to competition law follow-on damages claims
In Toshiba (and others) v KME (and
others) [2011] EWCH 2665 (Ch) the High Court has refused to
dismiss damages claims against the UK subsidiaries of companies
found to have infringed EU competition law, even though those
defendants were not the subject of Commission findings. The
case deals with some interesting arguments about liability in
damages resulting from breach of competition laws against third
parties.
background
English law recognises claims for damages
against parties which have been found to breach competition law
(domestic or European), where by virtue of the relevant
authorities' decision, liability is established and does not have
to be re-proven in the civil courts (a so-called 'follow-on'
damages claim). The Courts of England and Wales (the
'Courts') will also hear claims for damages against a party whose
breach of competition law has not been established by a competition
authority but must be established in the civil courts (a so-called
'stand alone' claim). A similar power is given to the
Competition Appeal Tribunal ('CAT') by s.47A of the Competition Act
1998.
Recent cases have hinted that this
jurisdiction is widening. In Provimi v Roche Products
Ltd 2003 EWHC 961, the Court found that it was possible for
damages to be awarded against a party which was not named in a
European competition commission finding if it was part of the same
undertaking [1] as, and if it implemented an infringing
agreement entered into by, another entity. It was apparently
not necessary to establish that that defendant entity knew what was
going on. In other words, Provimi, suggests that
'innocent' (ie. unknowing) parties can be liable for the breaches
of their (in that case) parent company.
This point was considered by the Court of
Appeal in Cooper Tire and Rubber Co. v Shell Chemicals UK
Ltd [EWHC] 2009. Unfortunately, the Court of Appeal did
not need to decide the question definitively (and so did not), but
it did cast some doubt over it by saying that the point was
arguable either way. The Court noted that:
- the Commission does in fact issue fines against specific
entities (rather than collections of entities comprising an
undertaking)
- there is nothing obvious in the relevant regulations that makes
a subsidiary automatically liable
- the argument could have possibly iniquitous consequences if
widely treated: subsidiaries without any connection to the goods or
services in question being held liable.
Toshiba v KME
In Toshiba, the defendants included
UK and non-UK companies within a number of different groups.
The non-UK entities had been the subject of a European Commission
competition investigation which found a cartel in the supply
of copper tubes and issued fines totalling €79 million. The
respective UK subsidiaries were not mentioned in the Commission's
decision and were not the subject of the fines. In some cases
it appears that the UK subsidiaries contracted directly with
customers in the copper tubing market and others acted as agents in
introducing contracts to their parent company.
Arguments similar to those raised in the
Provimi and Cooper cases were raised when the
defendants made an interlocutory application to dismiss the claims
at an early stage (and before detailed evidence) on the basis that
they showed no reasonable grounds (under CPR Part 3) or had no real
prospect of success (under CPR Part 24).
The UK defendants argued that:
- the mere implementation of an unlawful agreement is not enough
to constitute a breach of the relevant law
- the commission of a breach requires some level of concerted,
knowing, participation by the relevant parties (a 'concurrence of
wills' paragraph 34 of the judgment)
- whilst it was generally recognised that parent companies are
liable for their subsidiaries (as in the Akzo Nobel case),
there was no such recognised principle for downward attribution of
culpability from parent to subsidiary
- for those UK defendants that acted as an agent, there could be
no liability without a direct contractual / direct supply
relationship
- the conclusion in Provimi referred to above, is
therefore wrong.
The claimants argued that:
- infringement can take place with mere implementation of an
offending arrangement by one, unknowing, member of the
undertaking
- in this case, the UK defendants were probably knowing
- the Commission's finding against one member of an undertaking
was at least permissible evidence of the wrongdoing of other
members.
The Court, in Toshiba, was (in our
view) uneasy with the direction being taken in Provimi and
Cooper but felt compelled to follow the line shown from
the superior Court of Appeal (paragraph 43 of the judgment).
In dismissing the defendant's applications, it found that:
- the claimants could pursue the non-UK entities (those names in
the Commission's findings), in the UK for damages;
- the claimants certainly had an arguable case for damages if the
UK defendants knew about the wrongful practices;
- they would probably have an arguable case for damages even if
the UK defendants did not have that knowledge;
- the Commission's findings against the non-UK defendants were
permissible evidence against the other parties;
- a party acting as an agent / without a direct supply
relationship to customers would not automatically exclude it from
liability.
conclusions
In Toshiba, as with Provimi
and Cooper, the Court was being asked to decide a
preliminary issue of whether the claims were at least arguable /
not doomed to fail, rather than what arguments the Court would
ultimately accept, based on full evidence and argument.
The finding that the Court will hear claims
against parties who it is alleged knew about the wrongdoing and
participated in it, is not surprising; this is tantamount to a
recognised stand-alone claim.
The more interesting and, as yet, unanswered
question is whether a claim will succeed against a subsidiary which
unknowingly executes the infringing arrangement of its parent, (in
a quasi follow-on claim model).
Whilst the Court in Toshiba indicated that an
adverse finding against one party is capable of being evidence
against another party, this was not fully tested as it would be at
trial or if a reference to the ECJ for a determination is made.
It is interesting to note the apparent
reticence of the Court over the argument that a party can be liable
in damages without knowledge of the infringing activity, despite
the Provimi decision. In the law of England and Wales, we are
used to a stricter compartmentalisation of actions, knowledge and
liabilities within the recognised legal vessels, as opposed to the
more flexible concept of an undertaking. The CAT, which can
hear follow-on damages claims (under s.47A Competition Act 1998),
has declined to hear those against parties not named in OFT
findings.
notes
- In this context, the concept of an
'undertaking' is wide and can embrace a number of different
entities (usually companies) which are acting (perhaps for a
particular purpose) as a single economic unit.
