• English Court Of Appeal Confirms That Follow-On Competition Damages Actions Can Include Conspiracy Elements in the Claim but Only ‘In Rare Cases’
  • December 11, 2013 | Authors: Emma Kingston; Becket McGrath
  • Law Firm: Edwards Wildman Palmer LLP - London Office
  • A key question for anybody who is thinking about commencing a competition law damages action in the courts is the extent to which it is able to rely on a prior infringement decision by an enforcement authority1 as the basis for its claim. Specifically, is it able to rely on a decision as a binding determination of the cause of action (i.e. the set of facts giving rise to the proposed defendant’s liability to compensate all those harmed by its actions)? To the extent that it can do so, it need only prove that it suffered loss at the hands of the defendant and quantify that loss. If the claimant is unable to rely on a prior decision as the basis for such a ‘follow-on’ action, it must prove the infringement (and hence cause of action) itself, by reference to the available facts (known as a ‘standalone action’).

    Since proving a competition law infringement can be very difficult in practice, follow-on actions tend to be more common than standalone actions in the English courts. Unsurprisingly, defendants commonly seek to narrow the extent to which a claimant may rely on a prior decision as the basis for a claim against a specific defendant and there has been extensive litigation around this issue. This question is particularly important for claims brought under section 47A of the Competition Act 1998 (CA98), which enables injured parties to bring claims based on an infringement decision before the specialist Competition Appeal Tribunal (CAT), since the CAT’s jurisdiction is currently limited to hear follow-on claims only. The courts have made it clear that any aspect of a s.47A claim that goes beyond the specific findings of the infringement decision on which the claim is based must fail.

    In the latest case to address the scope of s.47A CA98, W H Newson Holding Limited and others v IMI PLC and others2 , the question at issue was whether a follow-on damages action under s.47A can be based on causes of action other than a breach of statutory duty, including in particular the tort of conspiracy. In its judgment of 12 November, the English Court of Appeal confirmed that it could, provided however that all the ingredients of the underlying claim are expressly contained within the decision of the relevant authority on which the claim is based. Since the necessary intent to injure the claimant was not explicitly identified in the European Commission’s infringement decision in this case, the claimant’s ‘unlawful means conspiracy’ claim failed and the appeal was allowed, overturning the first instance judgment of Mr Justice Roth in the Chancery Division of the English High Court3.

    The appellants, various members of the IMI Group (IMI), were at the relevant time suppliers of copper plumbing pipes. In a decision of 3 September 2004, the European Commission found that IMI were parties to an international copper plumbing pipe cartel that infringed Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), for which it imposed fines of almost €45 million. The respondents are members of the Newson Group (Newson) who, as builders’ merchants, had bought copper plumbing pipes from IMI during the period in which it was participating in the cartel.

    Newson subsequently brought a follow-on damages claim against IMI under s.47A CA98, by which they sought to recover the losses they say they suffered as a result of the cartel. It was common ground between the parties that the primary ground for the claim was the tort of breach of statutory duty, based on the infringement of Article 101 TFEU and/or s.2(1) European Communities Act 1972. In addition to claiming under this head, for tactical reasons Newson also claimed under two counts of conspiracy to use unlawful means. According to Clerk & Lindsell on Torts, the tort of unlawful means conspiracy “is committed where two or more persons combine and take action which is unlawful in itself with the intention of causing damage to a third party who does incur the intended damage” [emphasis added].4

    At first instance, Roth J accepted that, although the scope of a follow-on action under s.47A was limited to that of the original infringement decision, it was not limited to claims based on the tort of breach of statutory duty. He also accepted Newson’s argument that an intention to injure Newson was implicit in the European Commission’s finding of infringement by IMI, stating that “Although the defendants’ purpose in entering the cartel was to promote their own economic interests, it is wholly unrealistic to regard this as divorced from the causation of loss to purchasers of copper plumbing tubes [i.e. including Newson]”.5

    On appeal, the Court of Appeal agreed that claims under s.47A are not limited to breach of statutory duty. This was on the basis that the statutory wording does not specify the type of claim to which the section may be applied but states only that it covers “any claim for damages... or any other claim for a sum of money”6 . In Lady Justice Arden’s leading judgment, she stated that there were “some good reasons why Parliament would not have wanted to confine s.47A to actions for breach of statutory duty”,7 including the desire to avoid limiting its applicability to civil wrongs developed in future case-law or to claims governed by foreign law. Therefore, the Court concluded that conspiracy claims could, in principle, be made under s.47A.

    However, the Court emphasised that all of the “ingredients” of the underlying claim must be present within the decision setting out the relevant finding of infringement. In this the Court followed its own previous judgments8, which concluded that “the CAT could not draw inferences [from the decision] or make further findings of infringement”.9 As was the case at first instance, Arden LJ expressly rejected Newson’s submission that it could rely on “material facts not within the Commission’s findings but consistent with it”.10 Overturning the first instance judgment, however, the Court of Appeal held that a necessary component of an unlawful means conspiracy, namely proof of an intent to injure the claimant, was absent from the Commission’s decision.

    Unlike the judge at first instance, the Court of Appeal felt it was not possible to infer from the original infringement decision that IMI had such an intent, since the decision merely commented on IMI’s desire when participating in the cartel to promote its own interests and contained “no suggestion of any intention to injure [Newson] or indeed any other person in its position”.11 When considering the authorities, Arden LJ clarified that, although “in some circumstances the court will infer an intent to injure from acts which a conspirator does to promote his own objectives”,12 it must be the case that “The defendant’s gain and the claimant’s loss are - inseparably linked” (per Lord Nicholls in OBG Ltd. v. Allan13 ). In the case of cartel activity, Arden LJ reasoned, the court cannot “infer intent to injure flowing from the fact that the cartelists intended to benefit their own businesses - since it does not necessarily follow”.14 To infer such an intent, the proved facts must “exclude every other inference”. In this case, in contrast, there were other possibilities. For example, Newson could have passed on any higher prices charged by IMI to its own customers and indeed could even have made a profit from doing so.

    The Court also rejected the claimant’s attempt to address this issue by inferring an intent to injure the claimant from IMI’s indifference as to whether harm was caused by its conduct. To accept such an approach would, in Arden LJ’s words, “[deprive] the requirement of intent to injure of any substantial content” and would be “reminiscent of the circularity of the words in The Gondoliers that ‘when everyone is somebody, then no-one’s anybody’.”15

    The Court therefore overruled Roth J’s judgment and allowed IMI’s appeal.

    This judgment helps clarify a number of points. First, the Court of Appeal has confirmed that s.47A can apply to actions based on claims other than for breach of statutory duty. Although already possible in theory, this was the first time the Court had addressed this point directly. The Court has also expressly confirmed that a conspiracy claim can be brought under s.47A, with the proviso that the “intent to injure” necessary for a finding of unlawful means conspiracy cannot be inferred solely from a finding of cartel activity but must be explicitly identified within the relevant decision. As a result, the Court pointed out that a prior infringement finding is likely to support a follow-on conspiracy claim “only in rare cases”.

    The importance of this judgment for the future is admittedly somewhat reduced by the fact that s.47A is due to be amended by the proposed Consumer Rights Act to enable the CAT to hear standalone claims, as well as follow-on actions. It will remain relevant to the extent that it confirms the ability, albeit in rare cases, to include a conspiracy claim alongside the more usual breach of statutory duty claim in any follow-on action, thereby extending the range of available remedies and potentially reducing the claimant’s burden of proof in subsequent proceedings.

    1 In the UK, this includes the Office of Fair Trading (from 1 April 2014, the Competition and Markets Authority), a sectoral regulator or the European Commission.
    2 [2013] EWCA Civ 1377.
    3 To avoid confusion it should be noted that, although this claim was originally brought before the CAT (as all s.47A claims must be), the case was subsequently transferred to the High Court with the consent of the parties. Perhaps surprisingly, a s.47A claim that has been transferred in this way continues to be subject to the same constraints regarding its scope as a claim before the CAT. In contrast, a competition damages action that is initiated in the High Court has no such constraints and may therefore include both follow-on and standalone claims.
    4 Clerk & Lindsell on Torts, 20th ed. (2010) at paragraph 24-95, as quoted in both the High Court and Court of Appeal judgments.
    5 W H Newson Holding Ltd and others v IMI plc and others [2012] EWHC 3680 (Ch), paragraph 36.
    6 Section 47A(1), CA98.
    7 W H Newson Holding Ltd and others v IMI plc and others [2013] EWCA Civ 1377, paragraph 23.
    8 In particular, Enron Coal Services Ltd (in liquidation) v English Welsh & Scottish Railway Ltd [2009] EWCA Civ 647 (also known as Enron 1) and later actions between the same parties.
    9 W H Newson Holding Ltd and others v IMI plc and others [2013] EWCA Civ 1377, paragraph 21.
    10 Ibid., paragraph 30.
    11 Ibid., paragraph 11.
    12 Ibid., paragraph 35.
    13 [2008] AC 1 at 57, applying Sorrell v Smith [1925] AC 700.
    14 W H Newson Holding Ltd and others v IMI plc and others, paragraphs 38 and 39.
    15 Ibid., paragraph 41. The Gondoliers is a class-laden comic opera by Gilbert and Sullivan, which was first performed in 1889.