Damages for Breach of Competition Law - New Impetus Given by Advocate General´s Opinion in Case 295/04 Manfredi

The suitability of specific forms of remedy arose in proceedings brought in Italy by several customers against their insurance companies. Those companies had been found by the Italian Competition Authority to be parties to an unlawful price fixing agreement. The customers sought to recover damages from the companies for the overpayment of premiums they had paid as a result of the unlawful information sharing between the insurance companies. Amongst the questions referred by the Italian court to the ECJ were:

1. Whether third parties can claim damages against competition law infringers where there is a causal link between an unlawful agreement or concerted practice and the harm suffered. It is worth noting at this stage that such claims were already possible in UK law but the question is mentioned here to provide further context to the discussion.
2. Whether EC law requires national courts to impose punitive damages against the infringer for reasons of deterrence in circumstances where the loss occasioned to the claimant is less than the gain achieved by the infringer.

In relation to the first question, Advocate General Geelhoed drew on case law stretching back over 25 years to justify his view that third parties with a relevant legal interest should be able to claim damages both against parties to unlawful anti-competitive agreements and against persons involved in concerted practices, in circumstances where there is a causal link between the agreement or concerted practice and the harm suffered. The Advocate General argued that on the basis of the ECJ's ruling in Case C-453-99 Crehan v Courage national law should provide appropriate solutions to enable third parties to enforce their Community law based rights. Although noting that EC Competition law does not object in principle to the award of punitive damages, AG Geelhoed was of the view that such a remedy is not necessary in order to achieve Community competition law objectives. He considered, however, that if national law provides specific remedies for breach of national competition law, then such remedies should also be available for breach of EC competition law. In practice, if punitive damages are available for breach of national competition law then he states they should also be available in national courts for breach of EC competition law.

If the same factual matrix is transposed to the English context, third parties would have either an action in contract against the insurance company or a claim in tort normally for breach of statutory duty. Punitive damages are not available in English Law for breach of contract claims but they are available for certain common law claims in tort and by extension for certain breaches of statutory duty. Breach of competition law is pleaded in the English courts as a breach of a statutory duty, although that form of pleading has been questioned by the President of the Competition Appeal Tribunal in BCL Old Co Ltd v Aventis. In R v Secretary of State for Transport, Ex parte Factortame Ltd and Others (No 4 [1996] QB 404) the House of Lords stated that English Law provides that only compensatory damages can be awarded for breaches of statutory duty unless the statute expressly states that penal damages might be awarded.

There is no provision for penal damages in any of the competition law statutes but it is considered possible (relying on Kiddus v Chief Constable of Leicestershire [2002] 2 A.C. 122) that punitive damages might be awarded where damage has been caused by an action calculated to make a profit - in other words where an infringer calculates that it would be more profitable to behave unlawfully and incur the risk of an ordinary damages claim. Anti-competitive behaviour might often involve such a calculation and so it is not inconceivable that an English court could make a punitive damages award for breach of competition law. Such claims have been made previously but have failed because no competition infringement was found (Arkin v Borchard Lines [2003] EWHC 687).

That said, although the question addressed by the Advocate-General was specifically referred to as one relating to punitive damages, the English courts could easily interpret the question as one properly falling within the realm of restitutionary remedies. In other words, should a third party claimant be able to recover from the infringer a sum of money representing the amount of profit made by the infringer from its unlawful conduct?

In English Law, the concept of a restitutionary type remedy has begun to spread outside the field of IP disputes (where an account of profits is sometimes available) into the straight commercial field. So, for example, in Esso Petroleum v Niad [2001] All ER (D) 324 (Nov) an English court approved in principle the use of a restitutionary remedy in circumstances where the precise amount of damages could not be quantified but where the defendant had deliberately breached the agreement in order to maximise its profits. On the facts of the case, the court determined that it was for Esso to decide whether to elect for the remedy of restitution or an account of profits. Although Esso Petroleum v Niad is a case in which a restitutionary remedy was considered in the context of an underlying contractual arrangement, it is not inconceivable that the law of restitution could provide a remedy for some types of competition infringements where there is no contractual relationship between the third party claimant and the defendant.

The AG comments about the scope of third party claims appear to have been intended to be sweeping and not to be limited to situations where a prior finding of infringement had been made by a national competition authority. English law already provides that third parties can make damages' claims against infringers under Chapter I or II or Articles 81 or 82. Even before the Manfredi case, the following third parties in principle were able in English law to make a claim for damages for breach of competition law where they had suffered loss:

• those in a contractual relationship with the infringers (e.g direct purchasers);

• indirect purchasers, namely those who bought from direct purchasers;

• competitors who may have suffered exclusionary behaviour as a result of the infringers' unlawful conduct;

• suppliers to the infringers who may have lost business due to say market partitioning or unlawful capacity restrictions;

• innocent purchasers buying goods from non-infringing suppliers who see their suppliers raising prices in response to the cartel members' price-fixing behaviour.

Other types of indirect claimants could be envisaged but their claims would depend heavily on an individual court's approach to foreseeability, causation and remoteness. The AG's sweeping comments do not add any new categories of claimant in English law but his views do serve to focus attention on the breadth of possible claims for breach of competition law.

Furthermore, if the Advocate General's Opinion is followed by the ECJ it will be interesting to see whether the Court passes comment on what is meant by a relevant legal interest.

As an accident of timing, the Commission recently released a Green Paper seeking views on options for increasing the use of the civil law courts for private law competition enforcement claims. The recent English High Court judgment in Attheraces Ltd v British Horseracing Board & Anor (2005) in which the claimant made a successful Chapter 2 & Article 82 based claim, will revive interest in using the Chancery Division for competition damages claims, even though the claimants were only seeking a declaration and an injunction in that case. Against this developing backcloth at EC and national levels, the AG's comments in Manfredi could be seen as an attempt to create a coherent uniform base line of provision for claimants across all the Member States. Since the Enterprise Act 2002 in particular, English law now provides a modern framework within which damages claims for breach of competition law can be pursued, but claimants have been slow to come forward. The AG's comments on their own may not serve to increase dramatically the number of overall claimants in the English courts, but his Opinion will throw light on underutilised remedies such as restitution that could over time have an important role to play in national competition enforcement. Restitution could also offer claimants a remedy in circumstances where the defendant alleges that the claimant has passed-on the additional costs of the unlawful competitive activity to its customers. Although it is still unclear whether a passing on defence exists in English Law, it may be the case that a restitutionary based remedy offers a way around that uncertainty.

Businesses in the UK are already apprehensive about the prospect of consumer bodies making representative claims on behalf of aggrieved consumers. They will also now wish to monitor carefully the statements of the ECJ when the final judgment in Manfredi is handed down in a few months time.