In Ryanair Ltd v Esso Italiana Srl [2013] EWCA Civ 1450 (19 November 2013), the Court of Appeal allowed a challenge to the jurisdiction of the English courts to hear a claim for “follow on” damages after a finding by the Italian Competition Authority (ICA) that Esso had engaged in anti-competitive behaviour.

BACKGROUND

Esso Italiana Srl supplied jet fuel to Ryanair Limited at various Italian airports. The contract for the supply between  the parties, entered into on behalf of Esso by one of its agents, contained a jurisdiction clause which stated that English law would apply to the contract and matters arising from it, and that the parties submitted to the non-exclusive jurisdiction of the English courts. The contract also contained a clause in relation to pricing, which allowed Ryanair to cancel the contract within a specified period if at any time the prices under the agreement did not “conform to the applicable laws, regulations or orders of a government or other competent authority”.

On 14 June 2006, a number of companies, including Esso, were found by the ICA to have participated in a cartel contrary to then Article 81 of the EC Treaty (now Article 101 of the Treaty on the Functioning of the European Union). The effect of the cartel was to increase prices in Italy for jet fuel by €10 to €20 per 1,000 litres of fuel. As well as being fined by the ICA, the decision meant that parties affected by the cartel have the right to bring claims against participants in the cartel for follow on damages for their loss. The claim is for breach of a statutory tort.

Ryanair sued Esso in the High Court for i) breach of contract on the basis of the pricing clause and ii) breach of a statutory tort arising from the ICA decision. Esso challenged the jurisdiction of the English  courts to hear the second claim, arguing that the claim fell outside the jurisdiction clause. At first instance, Esso did not address the merits of Ryanair’s contractual claim and the first instance judge Eder J rejected Esso’s challenge. Eder J found that the breach of contract claim required consideration of the same issues as the statutoryclaim, and thus the claims were “so closely knitted together” that they should both be heard before the English courts. Esso appealed.

DECISION

The first instance decision was  predicated on the parties submitting to the jurisdiction of the English courts in respect of the contractual claim. It was evident however, that Esso intended to argue that this claim was without merit if the claim proceeded to trial. Esso had not explored this argument further at first instance for fear of being seen to accept jurisdiction. The Court of Appeal did not consider Esso’s approach to the contractual claim at first instance was necessary; if the contractual claim had no prospect of success, the reasoning that both claims should be heard before the same court would fall away.

The Court of Appeal examined the scope of the pricing clause in the agreement between the parties. Rix LJ, giving the leading judgment, considered that the pricing clause was not designed for the function Ryanair sought to derive from it. It was designed to deal with applicable laws of which both parties were aware, rather than undisclosed cartel behavior contrary to competition law. Equally, Rix LJ reasoned that under the cartel it was not the prices that were unlawful, but rather the cartel behaviour itself. If this behaviour led to a claim for follow on damages through breach of a statutory duty, namely compliance with EU competition law, there was no price adjustment distinct from these damages that would have triggered the pricing clause.

On this reasoning, Rix LJ concluded that Ryanair had no prospect of succeeding in its contractual claim. This left the statutory claim, which he found fell outside the jurisdiction clause.The reasoning of the first instance decision, that the claims were so closely connected, therefore fell away and Esso’s appeal was allowed.

COMMENT

Claims for follow on damages often arise where a company has paid more for goods or services under an agreement than it would have done, if not for the other party’s anti-competitive behaviour. These have become particularly popular  in the English courts of late as the English courts are seen as a favourable forum for the claimant. This case provides an interesting analysis of the nexus required for the English courts to accept jurisdiction in such claims.To avoid dispute over the proper forum to hear such claims, it may therefore be appropriate in certain circumstances to address the possibility of such claims explicitly in the jurisdiction clause of the underlying agreement.