Toshiba Carrier UK Ltd and Others v. KME Yorkshire Ltd and Others [2012] EWCA Civ 1190 

On 13 September 2012, the English Court of Appeal dismissed an appeal against an October 2011 judgment of the Chancellor of the High Court, in which he dismissed an application for orders to strike out a competition law damages claim or summarily to dismiss it as having no real prospects of success. By finding that the claimants' pleaded claim against the only remaining UK-domiciled defendant could stand, the Court of Appeal has enabled the claimants to proceed before the High Court with their claim against the remaining defendants, all of which are domiciled outside the UK.

In reaching this conclusion, the Court of Appeal has reaffirmed its willingness to accept jurisdiction over competition law damages claims involving non-UK parties, provided that at least one defendant is domiciled in the UK, and to resist attempts by defendants to use jurisdictional arguments to defeat claims before reaching trial. The Court of Appeal has also taken this opportunity to provide some valuable guidance on the circumstances in which the illegal conduct of one company can be imputed to companies within the same corporate group. As such, it addresses the tension between the concept of the legal entity, which is the specific person to which an infringement decision is addressed and which can be sued for damages arising from that infringement, with the broader EU law concept of the undertaking, which is the viewed as the 'economic unit' that committed the infringement and may comprise a number of entities.

Background

On 16 December 2003, the European Commission issued a decision that, over a 23 year period, three manufacturers of industrial copper tubes had engaged in unlawful cartel activities, including price-fixing and market partitioning, contrary to what is now Article 101 of the Treaty on the Functioning of the European Union (TFEU). The three manufacturers, Wieland Werke of Germany, Outokumpu of Finland and KME of Germany were fined a total of €79 million.

On 15 December 2009, Toshiba Carrier UK and various associated companies brought a competition law damages claim in the English High Court against nine entities within the respective corporate groups of Wieland Werke, Outokumpu and KME. The claim relied on the infringement finding by the European Commission as the basis for liability. By the time of the Court of Appeal's judgment, the defendants had been reduced to five entities, four within the KME group plus Outokumpu OYj, presumably due to a settlement having been reached with Wieland Werke.

Under the Brussels Regulation1, the presumption is that companies should be sued in the EU Member State of the country in which they are domiciled. Of the five remaining defendants in this case, only one is domiciled in the UK, namely KME Yorkshire Limited (KME UK). Since KME UK was not an addressee of the Commission's infringement decision, the question arose as to how far it could be viewed, on the basis of that decision alone, as having infringed Article 101 TFEU and thereby caused harm to the claimants. Furthermore, to ensure that the English High Court had jurisdiction to hear the claim, it was essential that the claimants could show that they had a valid claim against KME UK, notwithstanding the fact that it was not an addressee of the original infringement decision.

The defendants challenged the claim against KME UK on the basis that there was no reasonable ground for bringing it (under CPR Rule 3.4(2)(a)) and alternatively that the claimant had no real prospect of succeeding (under CPR Rule 24.2(a)(i)). By the time of the appeal it was common ground that, as long as the claimants could demonstrate that they had a valid claim against KME UK, they could rely on Article 6(1) of the Brussels Regulation to bring proceedings in the High Court against the four non-UK defendants, all of which were addressees of the infringement decision, on the basis that the claims against all five defendants were "so closely connected that it is expedient to hear and determine them together". In other words, the case turned on whether KME UK could serve as an 'anchor defendant'.

The High Court Judgment

On 19 October 2011, the Chancellor of the High Court rejected the defendants' application for strike-out or dismissal of the claim, on the basis that the claimants had properly pleaded that KME UK formed part of the same undertaking as addressees of the Commission's decision in the same corporate group. In addition, the court found that, following the provision of further particulars of their claim through correspondence with defendants' solicitors, the claimants were not simply relying on the Commission decision for their infringement claim against KME UK but were also pleading, as a standalone claim, that KME UK had itself implemented the unlawful arrangements entered into by the other KME entities, with knowledge of their existence. On this basis, the claimants did not need to impute liability to KME UK solely because of its membership of the wider 'KME undertaking'.

The Appeal Judgment

The Court of Appeal dismissed the defendants' appeal in a judgment of only 40 paragraphs. The Court ruled that the claimants had met the required standard in their pleadings to ground a cause of action against KME UK for infringement of Article 101 TFEU, as a stand-alone claim. Specifically, they had clearly alleged that KME UK, with knowledge of the agreement and arrangements described in the Commission's decision, obtained and exchanged information with competitors with a view to promoting the cartel agreement and arrangements. Citing relevant European law precedent, Etherton LJ noted that it was clear that "acts of implementation alone are capable of amounting to concerted practice where they are carried out pursuant to an anti-competitive agreement made between others and with knowledge of that agreement". Given this finding, the issue of whether a follow-on claim alone would have been sufficient to anchor the case to the English Court's jurisdiction was not considered.

Although this ruling was sufficient to dispose of the appeal, Etherton LJ went on to provide some significant commentary on the circumstances in which the infringing actions of one corporate entity can lead to liability of another entity within the same corporate group. In so doing, he tackled the apparent tension between the judgment of Aikens J in Provimi2, which indicated that all entities that form part of a single undertaking may be held equally liable for damages caused by any other entity within that undertaking, and the judgment of the Court of Appeal in Cooper Tire3, which appeared to cast doubt on the earlier judgment. Citing the established European competition law principle of parent liability, Etherton LJ noted that, although "the unlawful conduct of [a] subsidiary will be imputed to [its] parent company", "the mere fact that the share capital of two commercial companies is held by the same person … is insufficient in itself to establish that those two companies are an economic unit with the result that … the actions of one company can be attributed to the other". In other words, while it may be presumed that a parent will be found liable, as a matter of European competition law, for the unlawful actions of its controlled subsidiary, and vice versa, it does not follow that the subsidiary is also liable for the actions of its sister companies, unless it can be shown that the subsidiary knowingly implemented the anticompetitive arrangement.

Commentary

This judgment is a reminder of the importance of being able to identify a UK-domiciled defendant to anchor a competition law damages action in the English courts. The need to plead specific infringing acts by the UK defendant, through a distinct stand-alone claim, also serves to underline the limitations of the Competition Appeal Tribunal (CAT) as a forum, compared with the High Court, given that the CAT's jurisdiction is currently limited to hearing follow-on claims only (though this is set to change).

Although this is an important victory for the claimants in this case, it should be remembered that they have simply survived a jurisdictional challenge. They will still need to prove at trial that the defendants, including KME UK, really did implement the cartel and that this had an impact on the prices charged to the claimants. This is unlikely to be straightforward, even once they have the benefit of access to documents produced as a result of pre-trial disclosure. Of course, it is quite possible that the parties will reach a settlement before then, as has so far been the case with every other cartel damages claim brought before the UK courts. As a result, while there is a growing body of case law on preliminary issues such as jurisdiction, significant uncertainties remain over the attribution of liability and quantification of losses in competition law damages actions.