In the latest step in the long-running Air Cargo cartel damages saga, the English Court of Appeal has issued a judgment with significant implications for the conduct of such damages claims in the UK. In Emerald Supplies Ltd and others v British Airways plc, the Court of Appeal struck out a large portion of the claimants' case brought on the basis of economic torts, finding that it was not possible to demonstrate any intent on the part of the cartelists to injure the claimants. This decision cuts down the scope for claimants to bring damages actions in the UK based on cartel behaviour not covered by EU competition law rules. The Court of Appeal also pronounced on the much-litigated issue of access to documents in competition cases, denying the claimants access to a confidential version of the EU Commission decision in the underlying cartel investigation.
Whilst this judgment is unlikely to deter claimants from bringing cartel damages cases in the UK courts, at a time of legislative efforts at UK and EU level to promote such claims and numerous decisions adopting a generous approach to jurisdiction and pleading, it does represent one step in the opposite direction.
More generally, this case, in which the claims were originally brought in 2008 and which is still far from trial, illustrates the lengthy and complex nature of cartel damages claims and the likelihood that these can become mired in multiple preliminary and procedural issues. Such satellite litigation is likely to continue under the new regime for the private enforcement of competition law in the UK which was introduced earlier in October (see our ebulletin here), as parties test the boundaries of the new procedural rules.
The Emerald Supplies case concerns an alleged global air cargo cartel. In relation to the EU/EEA aspects of the cartel, British Airways (BA) and numerous other airlines were investigated and ultimately fined by the EU Commission. The Commission infringement decision (which is currently under appeal in the EU courts) found that various airlines (the Addressee Airlines) had participated in a cartel to coordinate prices/surcharges in relation to intra-EU/EEA routes and routes between EU/EEA airports and third countries, in breach of the EU competition rules. Importantly, the Commission also mentioned a number of other airlines in its decision, but ultimately did not make any official findings that these airlines had participated in the cartel (the Non-Addressee Airlines).
The alleged cartel was also investigated and sanctioned by a number of other competition authorities globally (and related damages claims have been brought in various jurisdictions, including France, Germany, the Netherlands, Australia and the USA).
The damages claim in question was originally brought in the English High Court by a flower importer, Emerald Supplies, which had indirectly purchased airfreight services from BA and other airlines via freight forwarders. After lengthy preliminary litigation (including an appeal to the Court of Appeal) as to the question of whether Emerald Supplies could use the representative claim procedure under Rule 19.6 of the Civil Procedure Rules (CPR) to bring in effect an opt-out collective action (which was unsuccessful), the case now involves individual claims by some 565 companies (being heard together) that they have suffered loss as a result of paying inflated prices caused by the cartel.
These claims were brought on the basis of the tort of breach of statutory duty based on breach of EU competition law rules (the usual route for claiming damages in such cartel cases), but also on the basis of two common law economic torts. The claimants argued that BA had committed the torts of: (i) interference with the claimants' businesses by unlawful means; and (ii) conspiracy to injure the claimants by unlawful means. The reason for these additional causes of action is that some of the claims fall outside the jurisdictional scope of EU competition law, for example where they relate to flights between non-EU/EEA countries or to time periods when EU competition law did not apply to the relevant activities. These activities could, however, be potentially unlawful under the competition laws of other jurisdictions. The claimants were relying on these economic torts to pursue such breaches in the English High Court.
2. High Court case management decisions
The latest Court of Appeal judgment concerns an appeal of a number of case management decisions made by the High Court judge in the case, Peter Smith J (who has now recused himself, following a request by BA, who argued that he may appear biased due to a personal disagreement with BA over lost luggage), in the course of the litigation, namely:
- A refusal to strike out the aspects of the claims based on the economic torts; and
- An order to disclose a version of the Commission's infringement decision to members of a 'confidentiality ring' made up of the claimants' legal and economic advisors.
3. Court of Appeal judgment
The Court of Appeal handed down its judgment (see here) on 14 October 2015.
Strikeout of economic tort claims
An essential element of both the tort of interference with business by unlawful means and of unlawful means conspiracy is that the defendant had the intention to cause loss to the claimants.
BA had applied for these claims to be struck out on the basis that there had been no intention to injure the claimants. The High Court judge had declined to do so until disclosure had been completed, finding that the application was premature as the question of intention was fact-sensitive.
BA argued that, as a matter of law, there could be no such intention in the circumstances of this case. It argued that, even if the alleged cartel did result in an overcharge to direct purchasers (i.e. the freight forwarders), this overcharge may (or may not) be passed-on by the freight forwarders to indirect purchasers such as the claimants, in the form of higher prices, and may (or may not) be further passed-on down the commercial chain to subsequent purchasers. BA argued that it would have no idea where any loss will ultimately fall, and could not therefore be found to have the necessary deliberate intention to harm the claimants.
Having reviewed the relevant authorities (including the recent judgment of the Court of Appeal in another cartel damages case, Newson v IMI Holdings), the Court of Appeal considered whether it could be demonstrated that BA had intended to injure the claimants. The Court of Appeal agreed with BA that it could not; this prospect was "entirely fanciful", and therefore there was no need to await disclosure to assess the subjective intention of BA. It held that an intention to harm the claimant cannot be described as a cause of the defendant's conduct if the defendant is not even sure that the claimant will suffer loss at all, even if this is foreseeable (as foreseeability is not the same as intention).
The issue of passing-on is key to this reasoning: it was not inevitable that the claimants would suffer loss as they may be able to pass the higher prices on further down the chain. In this respect the Court of Appeal noted that the claimants had not provided any evidence that pass-on would not be possible, and there was no reason why BA would assume that this was not possible.
The Court of Appeal reiterated that it is not sufficient to say merely that the cartelists must have intended to injure anyone who might suffer loss as a result of their agreement (whether direct or indirect purchasers, or ultimately consumers, who could not pass-on any higher prices). This would open up "an unknown and unknowable" range of potential claimants and there could not be an intent to injure the particular claimant.
It is interesting to note that the Court of Appeal made it clear that it was "not unhappy" with this conclusion from a policy perspective, including because allowing the claims on the basis of the economic torts would seem to circumvent the limitations on the scope of the EU law claims. It also noted the advantage in focussing the case as soon as possible on those claims which may be sustainable, with the result that the focus going forward will be on the question of damage (which, in passing, the Court of Appeal noted would not necessarily arise from the actions of the cartel) not liability (as in relation to behaviour within the scope of the Commission infringement decision, liability cannot be disputed).
The Court of Appeal therefore struck out the parts of the claims based on the economic torts, amounting to around 60% of the claims.
The Court of Appeal's judgment will have a significant impact on claimants' ability to bring cartel damages claims on the basis of the economic torts. Given that passing-on is likely to be a real possibility in most cartel cases, it is unlikely that the requisite intention to injure can be demonstrated (at least absent very specific facts which mean passing-on is not possible, and the defendant is aware of this and therefore can identify those who will suffer a loss).
In practical terms, this will mean claimants cannot seek to take advantage of any wider recoverability under the economic torts when compared with breach of statutory duty, and, importantly, cannot utilise these torts to found a cause of action in relation to behaviour which is not caught by the UK or EU competition law rules (for example in relation to cartel activities taking place outside and having no impact on the EU market). Claimants may still seek to bring claims in the English courts based on such behaviour – for example, by seeking to rely directly on breaches of foreign competition laws. However, the Court of Appeal's judgment has prevented an attempt to bring a global claim on the basis of English law in the UK courts.
4. Disclosure of the Commission infringement decision
Although the Commission issued its Air Cargo infringement decision in 2010, due to disputes between the Commission and the Addressee and Non-Addressee Airlines as to the scope of confidentiality redactions, its decision was not published for many years.
Given the importance of the decision to the claimants' case, they sought disclosure of the decision. Disclosure of the unredacted decision was resisted by BA together with the other Addressee and Non-Addressee Airlines. After a lengthy period of dispute, the High Court ordered that the full decision be disclosed into a confidentiality ring (containing the claimants' professional advisers), subject to redactions of information covered by English legal professional privilege and information reflecting leniency applications made by the Airlines to the Commission. The judge refused, however, to redact so-called 'Pergan' material. His solution was to obtain undertakings preventing the claimants bringing any further proceedings based on the decision.
The Pergan materials essentially involved references in the decision to the involvement of the Non-Addressee Airlines in the cartel, and statements suggesting that the cartel had a wider geographic and temporal scope than the Commission's official binding infringement findings. BA and the other Airlines objected to disclosure of these materials on the grounds that this would breach their fundamental EU law right to the presumption of innocence.
In the Pergan v Commission case, the EU General Court had recognised the right of a non-addressee of a Commission decision to have the passages relating to its potential involvement in the infringement redacted. Publication would be contrary to the non-addressee's fundamental rights as it did not have any standing as a non-addressee to challenge the Commission's decision on appeal (and publication of such passages could provide third parties with evidence for the purposes of damages actions, and harm its reputation).
The Airlines argued that the disclosure order infringed their Pergan rights.
The Court of Appeal unanimously allowed the appeal against the order and set it aside. It noted the importance of the Pergan protections for the presumption of innocence, and found that these applied to national court proceedings as well as proceedings at EU level. The Court of Appeal concluded that as a matter of EU law, the judge was not entitled to relax the Pergan safeguards recognised by the Commission (which had by then published a provisional non-confidential version of its decision which maintained most of the relevant redactions sought by the Airlines).
The Court of Appeal found that the confidentiality ring was not an adequate solution, as it would not protect the Airlines from the harm that arises when – unchallengeable - adverse statements by the Commission are used to support private claims for damages by third parties. It also found that the undertakings not to bring any further proceedings on the basis of the decision were not a sufficient solution, as this did not prevent the claimants from using the information in the current case (and could influence the actions of the claimants' advisers in other cases in which they were acting).
In the alternative, the Court of Appeal concluded that even if the judge did have a discretion to balance the preservation of the Pergan protections with a requirement for disclosure of an unredacted copy of the decision, he had failed to determine where the correct balance lay.
The question of access to documents, including to the confidential version of the Commission decision, is one which is raised again and again in cartel damages cases. Previous cases have focussed on the issue of 'leniency materials', and the extent to which these can be accessed by claimants in damages cases (following the Court of Justice of the European Union's judgments in the Pfleiderer and Donau Chemie cases, and the subsequent regulation of this question in the EU Damages Directive (see here)). This judgment demonstrates that there are other grounds on which disclosure may be resisted.
Importantly, the Court of Appeal recognises that even addressees of a Commission decision can rely on Pergan rights to resist disclosure, in relation to those references in a decision which cannot be appealed (for example implications that a cartel extended for a longer period or to a wider geographic scope than the official infringement findings).
Overall, it now seems significantly less likely that courts in the UK will order disclosure of any part of a Commission cartel decision which is subject to an on-going confidentiality claim before the Commission (or before the EU courts), and that simply establishing a confidentiality ring will be found to remedy any concerns about disclosure. It is also likely to prompt defendants to claim Commission decisions contain Pergan materials wherever possible, both at Commission level (demonstrating the impact steps taken in public enforcement proceedings can have on private enforcement proceedings in national courts) and as part of litigation strategy when facing damages claims.
The Court of Appeal's decision to strike out the economic torts in this case (and thus cut down the scope of the claims and related disclosure exercise) sends a strong message regarding the value of robust case management in relation to cartel damages claims, particularly in light of the English courts' normal reluctance to interfere with case management decisions. While it seems unlikely that the courts will try to stem the number of cartel damages claims in this jurisdiction, this decision suggests that in future, they may be more willing to impose boundaries on the continued expansion of the scope of cartel damages claims, and to take preliminary decisions to that effect in the interests of efficient case management.
This is unlikely, however, to deter claimants from bringing such cases in the UK, with the High Court already a key venue of choice for cartel damages claims based on EU Commission decisions, and the specialist Competition Appeal Tribunal set to see an increase in such claims following expansion of its jurisdiction - and the introduction of a new competition law collective action - earlier this month (see here).
Further satellite litigation in relation to Air Cargo remains on-going (including whether a parallel claim against BA purportedly brought on behalf of over 64,000 members of China's Chamber of International Commerce can proceed). This case illustrates how lengthy, complex and costly such cartel claims can be for both claimants and defendants, and how even those companies who have escaped sanction by the EU Commission can be drawn into private cartel litigation.
It remains to be seen whether this particular aspect of the saga will continue with a further appeal to the Supreme Court.