|November 18, 2013|
Previously published on November 18, 2013
It should never be easy to get an injunction, given the impact this can have on the business against which the injunction is awarded. On the other hand, the ability of a business to seek rapid relief from commercial conduct by a rival or supplier that threatens to have an irreversible impact is an important feature of the competition law system. Two recent judgments by the English High Court and Court of Appeal demonstrate the crucial importance of the underlying facts in determining whether relief is awarded. They also suggest that recent Government statements concerning the difficulty of obtaining such relief, where the facts support it, may be overstated.
The test applied for the grant of an injunction before the courts in England is two-fold: (i) the claimant has to have a real prospect of success at the full trial (i.e. the claim must be ‘triable’); and (ii) the issuing of interim relief must carry with it the least risk of injustice as between the parties. In one of the cases considered in this note both limbs were satisfied; in the other, the claimant failed on the first limb.
Barclays v Dahabshiil (and Ors)  EWHC 3379 (Ch)
On 5 November 2013, Mr Justice Henderson handed down his judgment in the Chancery Division of the High Court on applications by Dahabshiil Transfer Services Limited (Dahabshiil) (a large international money remitter specialising in money transfers to individuals in Somalia), Harada Limited (Harada) and Berkeley Credit and Guarantee Limited (BCG) (providers of bureau de change services, primarily in London) for interim injunctions against Barclays Bank plc (Barclays). The claimants sought injunctions requiring Barclays to continue to provide them with banking services, pending trial or further order, on the grounds that cessation of these services amounted to the abuse of a dominant position as an unlawful refusal to supply.
All of the claimants in this case are Money Service Businesses (MSBs). MSBs include money remitters (typically used by immigrants working in one country, such as the UK, to send money to relatives in their home country, particularly where the home country lacks a banking network), as well as bureaux de change and foreign exchange brokers. The MSB sector is viewed as high risk, due to the potential use of money remitters in particular for money laundering or to finance terrorism.
Barclays undertook an internal review of its provision of banking facilities to MSBs in late 2012, with the objective of assessing the risk posed by the sector. The outcome of this review was a decision to cease supplying banking services to those MSBs that were viewed as posing the highest risk, as assessed by reference to a number of objective factors. This resulted in Barclays contacting all but 19 of its 165 money remitter clients to give them notice that it would cease providing them with banking facilities in two months. Barclays also decided to withdraw banking facilities from Harada and BCG, notwithstanding the fact that they did not provide money remittal services and had apparently been model customers of the bank.
Dahabshiil, Harada and BCG subsequently issued proceedings against Barclays, claiming that its conduct constituted an abuse of a dominant provision, namely an unlawful refusal to supply, contrary to the Chapter II prohibition of the Competition Act 1998 (CA98) and Article 102 of the Treaty on the Functioning of the European Union. The claimants sought interim injunctive relief to prevent Barclays from withdrawing banking services pending trial. It is notable that none of the claimants had been able to find a satisfactory replacement provider of banking services at the time of the hearing.
Following a two day hearing, Henderson J granted the interim injunctions. He held that there was a serious issue to be tried as to whether the relevant market was (as Dahabshiil contended) the supply of banking services to money remitters in the UK and as to whether Barclays was dominant in that market. In reaching this conclusion, the judge appears to have been heavily influenced by trade association and government figures indicating that 70% of UK money remitters banked with Barclays (with the remaining 30% being served by only two other banks), as well as by the fact that Barclays apparently declined to provide its own market share figures, which he viewed as a purely “tactical” measure.
Henderson J was also satisfied that the question of whether the cessation of banking facilities amounted to an abuse of dominance, as well as Barclays' defence of objective justification, were matters to be examined at trial, rather than at the interim relief stage, due to their complexity (citing Mummery LJ in Jobserve ( EWCA Civ 2021). This was despite the judge acknowledging that it felt “counter intuitive” for a dominant player in a market to be capable of abusing that dominant position by seeking to reduce its participation in the market. However, Henderson J noted the line of authority confirming that a dominant company may commit an abuse if, without objective justification, it cuts off supplies of goods or services to existing customers.
Henderson J reached the same conclusion on the applications by Harada and BCG, notwithstanding the fact that they relied on the argument that Barclays was dominant on a wider market of the provision of banking services to the MSB sector as a whole (rather than the provision of such services to money remitters), which he acknowledged was “distinctly more problematical”. In reaching his conclusion that the claimants had met the requisite standard on this point, the judge stressed that “the requirement of showing a triable issue is a relatively low threshold” and again chose to draw negative inferences from Barclays’ failure to present evidence to the effect that it was not dominant.
In perhaps the most revealing part of the judgment, Henderson J concluded that it was self-evident that damages would not be an adequate remedy for the claimants and that the balance of convenience favoured the grant of relief, on the basis that “There is a far greater danger of irremediable prejudice to the claimants in refusing the grant of injunctions until trial than there would be in granting the injunctions”. As a result, he granted the applications for interim relief.
Chemistree v AbbVie  EWCA Civ 1338
In a timely reminder that those seeking interim relief are not always as fortunate as Dahabshiil and its fellow claimants, just two days later on 7 November 2013 the Court of Appeal upheld a previous High Court judgment by Mr Justice Roth in which he had refused to grant an interim injunction mandating continued supply of medicines, following an application based on an allegedly abusive refusal to supply.
The claim in this case was brought by Chemistree Homecare Limited (Chemistree), a UK distributor of pharmaceutical products and provider of home care services for public sector hospitals. Home care services include the dispensing, delivery and administration of drugs to patients in their homes, typically following hospital treatment. The drugs administered by Chemistree included Kaletra, a patent-protected protease inhibitor used in combination with other antiretroviral drugs for the treatment of patients with HIV. Kaletra is distributed in the UK by AbbVie Limited (AbbVie) and manufactured in the Netherlands by its parent company.
Chemistree won a contract in 2005 for the provision of home-delivery services on behalf of London-based hospitals and opened an account with AbbVie for the supply of Kaletra in order to fulfil this contract. In 2012, AbbVie started to detect marked changes in the volume and nature of Chemistree’s orders. Over a relatively short space of time, Chemistree was ordering more than three times the volumes of its earlier orders. While AbbVie carried on delivering the orders, the consequence of doing so was that it faced a shortage of supplies of Kaletra in the UK. AbbVie repeatedly asked Chemistree to provide evidence of its need for the quantities of drugs ordered and eventually, after protracted and increasingly hostile correspondence, Chemistree admitted that it had been selling Kaletra on the wholesale market and exporting it elsewhere in the EU. Chemistree provided a breakdown to AbbVie showing that under 15% of its orders for Kaletra were to cover UK prescriptions under the pan-London homecare contract (i.e. the purpose for which AbbVie was ostensibly supplying Chemistree), whereas 38% were to cover demand for wholesale supply in the UK and the remaining 47% were to service prescriptions placed in Lithuania.
AbbVie responded that it was supplying Kaletra to Chemistree on a ‘hospital only’ basis, i.e. only for fulfilment of prescriptions initiated by a hospital. AbbVie emphasised its policy of not supplying the drug to any wholesalers in the UK or in any circumstances for the fulfilment of prescriptions elsewhere in the EU. AbbVie therefore agreed to supply Chemistree only 540 of the 1,368 packs ordered and declined to supply more, on the grounds that the additional orders were not for the fulfilment of its homecare services contract. Chemistree reacted by seeking an injunction requiring AbbVie to resume full supplies of Kaletra on the grounds that the reduced volumes amounted, effectively, to a refusal to supply, an act that, according to Chemistree, constituted an abuse of AbbVie’s dominant position and thereby an infringement of UK and EU competition law.
In February this year, following a hearing in the High Court, Roth J found that Chemistree did not have a real prospect of establishing that AbbVie was abusing its dominance in the market for the drug Kaletra by refusing to meet its orders and therefore dismissed its application. Specifically, he noted that Chemistree had failed to provide sufficient evidence to indicate there was a distinct market for the supply of Kaletra, as Chemistree had failed to show that a significant proportion of patients would not be able to switch from AbbVie’s product to an alternative medication, or to show that AbbVie was dominant on a wider market for protease inhibitors. Since establishing dominance is a prerequisite for a finding of abusive refusal to supply, the application failed. For good measure, Roth J also noted that the withdrawal of supplies from a customer that was not using a product for the purpose for which it had been supplied, but rather was acting in a way that was “disingenuous” and beyond the ordinary course of its business, was not inherently abusive.
On appeal, the Court of Appeal, led by Lord Justice Rimer, agreed with Roth J that there was no reasonable prospect of the claim succeeding at trial. In a particularly damning phrase, Rimer LJ concluded that Chemistree’s case was based upon an “evidentially unsupported theory” and that it had failed to make good its “assertion” that the relevant product market was Kaletra itself.
These cases shared a number of characteristics: both centred on the allegation that a dominant company had abusively refused to supply a customer and was under a legal obligation to maintain supply. In one case the injunction was allowed, whereas in the other it was denied. The most important factor that determined this divergent outcome appears to have been the fact that in one case there was prima facie evidence of market dominance (which the allegedly dominant company did not even try to rebut), whereas in the other case there was not. The reliance of the claimants on the banking service Barclays provided, combined with the evident difficulty of finding a replacement provider, also appears to have weighed heavily with the judge in Dahabshiil. Conversely, the courts were rightly unsympathetic to Chemistree, given that it was clearly acting in breach of its supply contract with AbbVie and had sought to hide this for an extended period.
It is interesting to note that the first instance judgment in Chemistree was delivered by a judge who was previously a leading competition QC and is now the President of the UK Competition Appeal Tribunal (CAT), and that the Court of Appeal’s judgment was delivered by a judge who was previously a Tribunal Chairman at the CAT. The Chancery Division judge in Dahabshiil is a current CAT Chairman. The wealth of competition law talent demonstrated by the judges in the case shows the benefits of the current arrangement that allows Chancery Division judges also to sit as CAT Chairman. This rather pragmatic solution ensures a healthy but often-ignored cross-fertilisation of expertise between the High Court and CAT. The Chemistree case also serves as further evidence of the competition expertise that has been developed by the Court of Appeal.
The Dahabshiil case is a reminder of the difficulties that a dominant company can face when terminating the supply of an important product or service to a customer that is not in breach of its supply contract, even where the company has objective reasons for doing so; its decision to terminate was apparently the outcome of a fair process; it is not competing with that customer on a downstream market; and it has given the customer reasonable notice of termination. It is also a timely reminder that interim relief is available in competition cases, even in cases where relatively small companies are taking on the might of one of the UK’s largest banks.
In its April 2012 Consultation Document ‘Private Actions in Competition Law’, the UK Government wrote (apparently with approval) of the large number of interim injunctions granted in German competition law actions. As advisers of companies that have been on the receiving end of such injunctions, we would not commend the German interim injunction regime as a model to follow.
Although the Government’s subsequent decision to grant the CAT the power to award injunctions, as implemented in the new section 47D CA98, is a sensible step, the ability to move cases between the High Court and the CAT and the free movement of judicial talent between the two bodies may reduce its significance in practice. On the other hand, depending on how it is implemented, the Government’s proposed introduction of a ‘fast track’ for competition claims before the CAT by small and medium businesses may shift the balance more decisively in favour of claimants. The Government’s decision to reduce the evidential burden for those seeking interim relief from the new Competition and Markets Authority in public enforcement actions, from “serious, irreparable damage” to “significant damage”, is an even more worrying sign that the playing field is being tilted in favour of claimants and complainants.
For now, it will be interesting to see what happens if and when these cases reach trial.