UK: Competition Law Update

Last Updated: 14 April 2010
Article by Colin Miller

Safeway tries to recover fines from its directors

Safeway Stores Ltd v Twigger & ors [2010] EWHC 11 (Com) concerns a claim by Safeway against eight former executives for payment against liability incurred by Safeway for a fine to be imposed on Safeway for breaches of competition law relating to the pricing of milk.

The OFT has not yet made a decision as to the final penalty, but this is likely to be in the region of Ł16 million (although this amount may be discounted to reflect Safeway's cooperation with the investigation).

Safeway issued a claim against eight former directors claiming payment for liability for the breaches and for damages, including legal costs, incurred due to the OFT's investigation. The claim is based upon allegations that by participating in and facilitating the actions which led to the OFT investigation or by failing to report them, each of the directors was in breach of their employment contract and/or fiduciary duties owed to Safeway or were negligent.

The directors sought to have the claim struck out on the basis that: (i) it infringed the principle of public policy that a claimant cannot rely on its own unlawful act to found a claim; and/or (ii) it is fundamentally inconsistent with the UK competition regime which places liability on companies rather than looking through to the corporate structure to individuals.

The court came to the conclusion that for the company to be prevented from pursuing a claim because it was relying on its own unlawful act as the basis of the claim, the company must be under a 'personal' liability for the relevant wrongdoing. It was not enough that the company was liable only for the acts of its employees and agents. In certain cases, where a director or employee is the 'directing mind or will' of a claimant company, that company will be deemed to be 'personally' liable. However, in the current case there was not enough evidence for the court to come to that conclusion. As such, the court concluded that Safeway had a real prospect of successfully defeating this defence at trial or strikeout in favour of the directors should not be granted on this basis.

The court also rejected the argument that the claim was inconsistent with the UK competition regime in that the imposition of direct civil liability for breaches of the Competition Act 1998 on directors or employees was against Parliament's intention when the statute was drafted. However, the court concluded that Safeway's causes of action were not 'new or revolutionary' and that recent legislation in the field of competition law did not affect the directors basic common law duty to Safeway (as directors and employees) to ensure that Safeway complied with its statutory obligations.

If Safeway are successful it will be the first time that a company fined for breaches of competition law has successfully secured an indemnity from its executives who were considered to be complicit in those breaches.

The implications if Safeway are successful could be significant in shifting the potential liability for completion law breaches. The directors may not be wealthy men in the context of the size of fines imposed by the OFT but they are likely to benefit from Directors & Officers liability insurance to meet any liability imposed on them. There may be the potential for a decision to impact on the future cost of such insurance.

Another concern will be that competition authorities encourage whistle blowing by employees and their potential exposure to personal liability may affect this. In addition in the investigation of competition law breaches the cooperation of directors and employees may be compromised if they perceive they may become personally liable. This potential conflict of interest may mean that directors seek to be separately represented in any investigations.

Private Claims for anti- competitive behaviour

The Competition Appeal Tribunal has given its first ruling on private claims for breach of competition law under section 47A of the Competition Act 1998. Section 47A of the Act enables victims of anti-competitive behaviour to bring private actions following findings of infringement of the competition rules by the European Commission, the OFT or another UK regulator. The Office of Rail Regulation found that English Welsh and Scottish Railway Limited had abused its dominant position in the market for coal haulage by rail. Enron Coal Services issued a s47A claim for loss of opportunity resulting from this infringement.

The case was unsuccessful and the tribunal made some important comments on the extent to which findings of fact by competition authorities can be used as the basis for a claim under section 47A. It is made clear that a decision by the authorities that certain conduct had taken place which could amount to infringement was not of itself sufficient if the authorities did not conclude that the conduct itself was an infringement of competition rules. An express finding of infringing conduct was needed.

It is clear that to be successful claimants will need to tie their claims to an express finding of actual infringement. This threshold may prove be a significant restriction on the ability to succeed with an action under section 47A, although the tribunal stressed that every case must be judged on its own merits.

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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