The Competition Appeal Tribunal (“CAT”) has recently made its first ever award of damages in a UK follow-on competition case.  The award was made in respect of a claim brought before the CAT by 2 Travel Group plc (in liquidation) (“2 Travel”) against Cardiff City Transport Services Limited (“Cardiff Bus”) arising out of a finding by the Office of Fair Trading (“OFT”) that Cardiff Bus had abused its dominant position.

The OFT Case

The OFT found Cardiff Bus guilty of an abuse of dominance in November 2008, following a complaint made by 2 Travel that Cardiff Bus had, in response to 2 Travel’s entry into the market with a new no-frills bus service, introduced its own (loss making) no-frills bus service - known as the “White Service”.  The White Service ran on the same routes and at similar times of the day as 2 Travel’s services and undercut the prices that 2 Travel was charging.  Following the introduction of the White Service, 2 Travel exited the market and went into liquidation shortly after, at which point Cardiff Bus withdrew the operation of the White Service.

In its decision of 18 November 2008, the OFT said that:

  • Cardiff Bus held a dominant position in the market for the provision of no-frills and normal bus services as part of the Cardiff Bus network (along with other urban bus services and interurban bus services into and out of Cardiff city centre); and,
  • Cardiff Bus had abused its dominant position through the operation of the White Service and by pricing its services at a predatory level with the aim of forcing 2 Travel out of the market

In summary, the OFT found that the sole purpose of Cardiff Bus in operating the “White Services” was to exclude 2 Travel from the market by depriving it of passengers and, therefore, of revenue.  However, despite its finding of infringement, the OFT did not impose a fine on Cardiff Bus as its revenues were relatively low and therefore the OFT considered the conduct to be “of minor significance”.

2 Travel’s Claim before the CAT and its decision

2 Travel brought a “follow-on” claim for damages before the CAT under Section 47A of the Competition Act 1998, alleging that it had suffered loss and damage due to operation of the White Service set up by Cardiff Bus.  2 Travel requested that damages should be assessed on the basis of both standard tortuous “compensatory” damages and also punitive “exemplary” damages.  Its claims, broadly, fell under the following heads:

  • Loss of profits either up to the date of 2 Travel’s liquidation or up to 30 September 2011;
  • Loss of a capital asset, i.e. the business of 2 Travel as a going concern. It claimed that had there been no infringement by Cardiff Bus, it would have never entered liquidation and instead would have grown into a successful company;
  • Loss of a commercial opportunity, i.e. the ability to benefit from the increase in value and development potential of the Swansea Depot. It claimed that the infringement forced it to sell the land;
  • Wasted staff and management time prior to the liquidation;
  • Costs of liquidation; and
  • Exemplary damages.

(a) The Compensatory Damages Claims

The CAT upheld only the first of the five claims for compensatory damages, awarding 2 Travel £33,818.79 (plus interest) on the basis that this represented the additional revenue 2 Travel would have made from its own “no frills” services, but for the actions taken by Cardiff Bus.   

The CAT rejected the remaining four heads of compensatory damages, basing its decision on the fact that 2 Travel was already in enormous financial difficulties and would have gone into liquidation when it did even absent the infringement by Cardiff Bus.  The CAT held that the revenue lost as a result of Cardiff Bus’ conduct would not have been able to stave-off insolvency for 2 Travel and it did not have any effect on the company’s future as a going concern.  Moreover, the CAT took the view that the infringement did not result in any abnormal waste of staff or management time.

(b) The Exemplary Damages Claim

In relation to exemplary damages, the CAT considered 2 Travel’s claim under two potential heads:

  • that Cardiff Bus’s behaviour could be considered “oppressive, arbitrary or unconstitutional conduct by a servant of the government”; and,
  • that Cardiff Bus had acted to make a profit which may well exceed the compensation payable to the claimant or, according to the CAT’s formulation, had acted with “knowing disregard of an unacceptable risk of causing injury”.[1]

The CAT held that, in its view, Cardiff Bus, while operating the White Services, did not exercise any governmental function of any sort and therefore, exemplary damages could not be claimed under the first head.

Moving on to the second category, the CAT considered whether Cardiff Bus had acted with “an intentional or reckless disregard of an appreciated and unacceptable risk of causing an injurious result or whether it had deliberately closed its mind to such a risk”.

During its review the CAT heard that, prior to setting up the White Service, Cardiff Bus received limited legal advice that it was likely to be dominant in the relevant market and its retaliatory intention or conduct would be of particular concern.  The management of Cardiff Bus had also specifically operated the White Service with an exclusionary intent and the reason that its senior management failed to obtain detailed legal advice was that they knew that they were likely to be advised of the illegality of the White Service.

Therefore, the CAT held that Cardiff Bus had deliberately decided to recklessly disregard the law and 2 Travel’s rights. As a result, the CAT awarded £60,000 as exemplary damages. 

(c) Exemplary damages and Regulatory Fines

It had been established in an earlier case, Devenish Nutrition Ltd v Sanofi-Aventis SA[2] ,that the prior imposition of a fine by a competition regulator prevents the subsequent award of exemplary damages to a follow-on claimant, and this is even the case where such a fine has been reduced to zero under a leniency award. 

In 2 Travel / Cardiff Bus, despite the finding of abuse, Cardiff Bus was not fined by the OFT, due to operation of section 40(3) of the Competition Act 1998, as the behaviour of Cardiff Bus was considered to be “of minor significance”.  The CAT decided that the OFT’s decision not to impose a fine due to the conduct being of “minor significance” did not bar it from making an award of exemplary damages.

Comment

This is the first time that a claim for damages has been successful in a competition law follow-on claim, and the first time that the CAT has accepted that exemplary damages may be appropriate for such claims.  Even though the measure of exemplary damages awarded were not substantial, this case is significant in terms of the discussion and principles for award of exemplary damages in future competition follow-on actions.

The CAT acknowledged that its judgment may incentivise the claims for exemplary damages in competition cases.  However one should note that, following the CAT’s approval of the decision in Devenish Nutrition, exemplary damages still look to be unavailable in the majority of follow-on cases, where the relevant regulator has imposed a fine on the infringing party. 

The CAT also emphasised that a finding of infringement by itself will not be sufficient to bring a successful action for exemplary damages, and that in order to bring a successful claim for exemplary damages under competition law it would be necessary to plead with precision the facts that establish that the competition law infringement was executed in either an intentional or reckless manner.