The UK Competition Appeal Tribunal has awarded compensatory and exemplary damages to the victim of an abuse of a dominant position. Companies on both sides of the Atlantic should pay heed to the developing private enforcement landscape in the European Union, as aggrieved parties seek not only to be compensated, but also to ensure that violators are duly punished.
The UK Competition Appeal Tribunal (CAT), on 5 July 2012, awarded both compensatory and exemplary damages to 2 Travel Group Plc (2 Travel), the victim of an abuse of a dominant position by Cardiff City Transport Services Limited (Cardiff Bus). The judgment is only the second competition follow-on damages claim to have reached trial in the United Kingdom, and is the first pertaining to the Chapter II prohibition that forbids certain anti-competitive unilateral conduct.
In light of the fact that the vast majority of private actions reach settlement, the CAT's judgment provides valuable guidance for practitioners seeking to bring damages claims in the future. Moreover, the value of the judgment should be seen in the wider context of the UK Government's current drive towards introducing new, more effective measures to complement public antitrust enforcement by the UK Office of Fair Trading (OFT) and the European Commission.
On 18 November 2008, the OFT adopted Decision No. CA98/01/2008, finding that, between 2004 and 2005, Cardiff Bus infringed Section 18(1) of the UK Competition Act 1998 (the Chapter II Prohibition) by engaging in predatory conduct amounting to an abuse of a dominant position on the relevant market. In particular, in response to 2 Travel's entry into the market with a new "no frills" bus service, Cardiff Bus introduced its own no frills service. Buses belonging to Cardiff Bus ran on the same routes and at times similar to 2 Travel's no frills services. They were run at a loss until shortly after 2 Travel's exit, whereupon Cardiff Bus withdrew them. Evidence showed that Cardiff Bus planned to launch its no frills services not as a true market-testing exercise, but in order to divert potential customers away from 2 Travel. Furthermore, the OFT found evidence that Cardiff Bus launched its own no frills services with exclusionary intent.
Because Cardiff Bus’ annual turnover did not exceed £50 million, it benefited from immunity from fines under Section 40 of the UK Competition Act. 2 Travel subsequently brought a follow-on damages action against Cardiff Bus before the CAT, pursuant to Section 47A of the UK Competition Act 1998.
The CAT Judgment
The general purpose of a damages award is to compensate a claimant's loss; the object of exemplary (or punitive) damages is to punish and deter. In line with these objectives, the CAT held that Cardiff Bus had to compensate 2 Travel and pay exemplary damages for its particularly egregious conduct.
As regards quantification of 2 Travel's loss, and in application of the "but for" causation test, the CAT awarded compensatory damages for loss of profits of approximately £34,000 plus interest. The CAT rejected claims for compensatory damages in relation to a number of other categories of loss, such as loss of a commercial opportunity and wasted staff and management time.
It is a well-established principle of UK law that exemplary damages may be appropriate in the following three categories:
- Oppressive, arbitrary or unconstitutional conduct by "servants of the government"
- Conduct calculated to make a profit that may well exceed any compensation payable to the claimant pursuant to a court award
- Cases provided for by statute.
2 Travel contended that it was entitled to exemplary damages under the first two of these categories. While the first was rejected summarily by the CAT, the second threw up some interesting points of principle. The CAT ruled that in any case where exemplary damages are sought for breach of competition law, the infringement must have been an intentional or reckless breach of the law so as to be regarded as sufficiently outrageous as to fall within the second category. Recklessness is equated with the taking of an unacceptable risk. The CAT considered that the risk can be classed as unacceptable only in those cases where an undertaking is aware that its proposed conduct is probably or clearly unlawful. Whether or not the risk is, in fact, unacceptable, depends upon all the facts of the case including
- Any expected pro-competitive effects of the conduct
- The degree and seriousness of any anti-competitive effects
- The undertaking's motive for acting
- The practicability of achieving the commercial or pro-competitive aims by following a different course of action with less serious anti-competitive effects.
Furthermore, in line with the objective of exemplary (or punitive) damages to punish and deter, the CAT considered the impact of the OFT's initial decision finding an infringement of the Chapter II prohibition. In this respect, the CAT found no policy reason not to award exemplary damages. On the facts of the case, the CAT found there were no pro-competitive effects, there were indeed serious anti-competitive effects and there was an exclusionary intent. The Court held Cardiff Bus' conduct had been outrageous and, absent an award of exemplary damages, a compensatory award would have been insufficient. As a result, the CAT exercised its discretion to award exemplary damages of £60,000 to 2 Travel.
The CAT also laid down the following instructive guiding principles that should be borne in mind:
- Whilst exemplary damages are intended to punish and deter, they have to bear some relation to the compensatory damages being awarded.
- In assessing the amount of exemplary damages, regard must be had to the economic size of the defendant.
- The economic and regulatory context must be taken into consideration. In this case Cardiff Bus was an entity with an association with a local authority, as a result of which it would no doubt adhere to the law in the future.
Private enforcement is still in its infancy in the European Union when compared with the United States where 90 per cent of all antitrust cases are based on private actions. It is, however, gaining traction, particularly in the United Kingdom. The United Kingdom as a forum for bringing damages claims has traditionally been popular owing to the expertise of the judges in such matters and the developed system of document discovery. The principles laid down in the CAT's Cardiff Bus judgment will serve to ensure that this remains so. Companies on both sides of the Atlantic should pay heed to the developing private enforcement landscape in the European Union, as aggrieved parties seek not only to be compensated, but also to ensure that violators are duly punished.© 2013 McDermott Will & Emery