UK: Prospects For Damages´ Actions Brought Sharply Into Focus Following House of Lords’ Decision In "Crehan"

Last Updated: 9 October 2006
Article by Guy Lougher

In July 2006, the House of Lords overturned the Court of Appeal's (CA) first ever decision to award damages for breach of competition law.

In this case, Crehan, a publican, had been awarded damages by the CA against Inntrepreneur, a pub company, on the grounds that a beer-tie clause in his lease infringed the prohibition on anti-competitive agreements, as it obliged him to buy most of his beer from Courage, rather than allow him to take advantage of lower beer prices elsewhere.

The key question was whether Crehan could rely on a previous European Commission beer-tie decision that related to a different pub company, in order to establish that competition law had been infringed in this present case. Although the CA had agreed to permit this reliance, the House of Lords disagreed, stating that previous decisions may only be relied upon if they relate to the same parties and the same subject matter: the fact that the present case related to the same market (i.e. beer) in the earlier decisions was not sufficient to found a claim.

Comments

This judgment will be welcomed by many large companies as it appears to narrow the scope for bringing damages' actions for breach of competition law. However, companies engaged in anti-competitive conduct remain at risk of damages' actions and the House of Lords’ decision does not undermine claimants' rights in this respect. (Under competition law, claimants seeking compensation can ‘piggy-back’ an Office of Fair Trading (OFT) or European Commission infringement decision and claim damages in either the High Court or the specialist Competition Appeal Tribunal (CAT)). This case provides a stark warning to would-be litigants and defendants of the costs and time (a total of 13 years here) involved in bringing or defending such a claim. Although this outcome means that an award of damages for breach of competition law has yet to be confirmed by a UK court, it is well known that several damages' actions have settled privately out of court. Moreover, with the European Commission busy finalising its Green Paper on the development of private law damages' actions in national courts, companies should be reexamining whether their competition compliance policies limit their potential exposure to the everincreasing prospect, despite the ruling in Crehan, of third party actions for damages.

In 2004 Sony and Bertelsmann Music Group (BMG) agreed to merge their recorded music businesses, including the discovery and development of artists and the recording and marketing of their music. Initially the Commission had been concerned that the reduction of major players in the market for recorded music from five to four might create or strengthen a collective dominant position between the remaining four major record companies. Following an in-depth investigation, however, the Commission eventually approved the merger unconditionally. Subsequently, Impala, a trade association representing independent music companies, lodged an action before the CFI, claiming that the Commission committed a number of manifest errors in its assessment. The CFI has now allowed Impala's appeal and annulled the Commission's decision, having concluded that the Commission's arguments did not meet ‘the requisite legal standard’ and were marred by ‘a manifest error of assessment’.

Sony and BMG have announced that they will jointly appeal the CFI’s judgment.

Court Of First Instance Annuls European Commission's Decision To Approve 50/50 Joint Venture Between Sony And Bertelsmann Music Group

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This is the first time that a Commission decision approving a merger has been annulled by the CFI. Although this transaction was considered under the old merger regime, the case will still be relevant when considering the application of the new rules. Following the annulment of three of its decisions in 2002, the Commission had implemented a number of measures to improve its economic analysis and procedures. Given the CFI's heavy criticism of the Commission's analysis and reasoning in this judgment, it is likely that the Commission's information requests will be even more demanding in the future, unless the ECJ eventually overturns completely the CFI’s ruling.

It is worth noting that Impala was ordered to pay a quarter of its own costs, despite winning the case, given its behaviour during the procedure.

Alleged price-fixing and market sharing between Scottish dairies

At the beginning of September, the Office of Fair Trading sent statements of objection to 6 Scottish dairies alleging that between 2000 and 2003 they engaged in price-fixing (by sharing pricing information and co-ordinating price increases) and that five of them colluded not to compete for each other's customers. These arrangements related to the supply of fresh processed milk to customers such as schools, shops, cafes and hotels.

The OFT had originally closed its investigation into pricefixing and market sharing in the Scottish milk market. It was forced, however, to reopen the investigation after the original complainants, Claymore Dairies and Express Dairies, lodged an appeal with the Competition Appeal Tribunal against the OFT's decision to close its investigation.

The dairy industry has featured prominently in OFT enforcement activity of late and was recently the subject of a major speech by John Fingleton, Chief Executive of the OFT.

OFT and FSA continue scrutiny of Payment Protection Insurance industry

The OFT's study of the Payment Protection Insurance (PPI) market, undertaken in response to a super-complaint by Citizens’ Advice, identifies a number of concerns, centring around the complex nature of PPI policies, the lack of switching by consumers, the allegedly high profit margins enjoyed by providers for modest risk and the poor transparency of information provided to consumers.

Meanwhile, in September, the FSA fined a PPI provider for the first time for rules breaches under the new insurance regulatory regime. The OFT and the FSA are cooperating on PPI where sensible to do so in order to avoid unnecessary duplication and the OFT's final report, following further consultation, is due by the end of 2006.

Classified Directory Advertising Services Market - Competition Commission Consults on Possible Remedies

Having previously found that the Classified Directory Advertising Services (CDAS) market is characterised not only by high concentration (Yell possesses a 75% share of the market) but also by a lack of price competition and by significant barriers to entry, the Competition Commission (CC) has proposed that a modified version of the existing price cap should be implemented to protect consumers against potential anti-competitive effects. The CC noted the high demand for CDAS and emphasised in particular that despite the downward pressure on prices for some forms of advertising, overall advertising revenues for CDAS had nevertheless increased, which suggested that the prices for advertising services might have been even higher were it not for the existing price cap. The CC's final report is expected in November 2006.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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