On 19 October 2007, the High Court handed down a judgment on an award for damages against manufacturers of vitamins who were found by the European Commission to have breached Article 81 of the EC Treaty by entering into a cartel. The High Court concluded that on the facts of the case, compensatory damages were the appropriate remedy and that exemplary and restitutionary damages would not normally be available under English law in relation to cartel damages.
The EC Commission found in November 2001 that certain vitamin manufacturers had entered into worldwide cartels in respect of various vitamins in breach of Article 81 of the EC Treaty. The manufacturers which included F. Hoffmann-La Roche AG, Aventis SA and BASF AG were fined record fines which when combined totalled over €763 million.
The claimants who were purchasers of the vitamins and therefore victims of the cartel brought proceedings following this decision in the English High Court. They claimed compensation for damage suffered as a result of the unlawful cartels. The judge had to examine whether the claimants were entitled to the following heads of relief:
- compensatory damages
- exemplary damages
- restitution damages and an account of profits
In the judgment the judge cited Courage Ltd v Crehan which confirmed the right to claim damages for loss caused by contracts or conduct which restrict or distort competition. The judgment also set out the two general principles established in EC case law that the national courts must apply in awarding damages for breach of Article 81, which the ECJ described as follows: the rules must not be less favourable than those governing similar domestic actions (principle of equivalence) and that they cannot render practically impossible or excessively difficult the exercise of rights conferred by Community law (principle of effectiveness).
Compensatory damages are those which compensate a claimant for loss (whether financial or not) which has been suffered as a result of the unlawful activity of the defendant’s. It was not disputed that the claimants would be entitled to compensatory damages.
Under English law, the fact that a claim was brought under Article 81 did not prohibit the claimants from receiving an award of exemplary damages. However, any award of exemplary damages is discretionary, and that discretion must be exercised carefully. The Court concluded that the discretion to award exemplary damages could not be exercised in this case due to the principle of double jeopardy and the fact that there were multiple claimants.
According to the principles established in English case law, double jeopardy applies in relation to the application of financial remedies. The judge held that the fact that the defendants had already been convicted and fined meant that there would be a serious risk of injustice to the defendants if an award of exemplary damages were to be made against them. In contrast there would be no injustice to the plaintiffs in refusing to permit such an award as they would not be foregoing compensation to which they would be entitled, but an additional windfall based solely on the defendants' alleged improper conduct.
In the judgment the fact that the defendants had been fined for their conduct was a powerful factor against the award of exemplary damages, although it was not the only factor. There was also the problem that in this case there were multiple claimants. The defendants submitted that this, of itself, was a bar to an award of exemplary damages. The defendants relied on an earlier part of the judgment of Stuart-Smith LJin A.B. and others v South West Water Services Ltd.
In the present case the claimants were not the only people affected by the unlawful conduct. The cartels that the Commission found to exist affected the market in the whole of the European Union. The court considered that if exemplary damages were awarded to the claimants, it was not clear on what basis were they to be awarded. If the court attempted to fix a global amount by reference to the cartels as a whole, it would in effect be awarding a remedy that could not be awarded in most Member States. Even if the court were to attempt to limit the exemplary damages to the activities of the cartel within England and Wales, the claimants were not the only ones who were affected within England and Wales.
Furthermore once the court has fixed the amount of the exemplary damages, how was it to take into account the fines that have been imposed?
It was also noted that in a case where the discretionary remedy of exemplary damages is invoked in aid of rights arising under the EC Treaty, the court should be wary of granting a remedy which is potentially unavailable in most EU Member States
A restitutionary award for damages is one which is measured by reference to the defendants’ gain rather than by reference to the victims’ loss. The claimants sought restitutionary damages for the unfair enrichment of the defendants as a result of their participation in the cartel. The Court concluded that where a restitutionary award is available, this is usually only awarded where compensatory damages would be insufficient to compensate the claimant. The claimants’ expert had contended that restitutionary damages in this case would be estimated in a comparable way to compensatory damages. Therefore, compensatory damages would be sufficient.
Similarly an account of profits would not be appropriate. The purpose of this equitable remedy is to require one party to surrender the profits made. Such a remedy is only available in exceptional cases where other remedies are inadequate. Even if compensatory damages were inadequate in this case (which the Court considered not to be the case), then an account of profits would not be appropriate due to the fact that the claimants are part of an EU-wide class of people who were not affected by the same tortious conduct. Therefore, the claimants do not have the required "legitimate interest" in preventing the defendants from profiting from their tort. The fact that the wrongdoing was deliberately committed was not sufficient to justify this remedy.
The fact that the defendants had already been fined by the ECJ with a view to punishing and deterring them was also taken into account. The Court therefore concluded that the claimants would not be entitled to exemplary damages, restitution or an account of profits.
This nature of this judgment is significant because encouraging private damages actions has been a stated goal of both EC and UK competition authorities. However, the Court acknowledged that courts may award restitutionary damages in certain circumstances and that exemplary damages might also be available in certain circumstances in England and Wales. The judge noted that "it will be for the courts to determine how the general principles for determining loss or damage in various types of case apply to actions for infringement of competition law". It must also be judged on a case by case basis. Therefore the approach taken may be different in future cases. In this respect it will be interesting to see how the UK Competition Appeals Tribunal will decide on the issues of exemplary damages and restitution that are being claimed in two current cases in relation to the carbon and graphite products cartel and the replica football kits case.