Emerald Supplies Ltd and Another v British Airways PLC [2010] EWCA Civ 1284

The Court of Appeal has refused to extend the boundaries of current representative action procedures, by upholding the High Court's 2009 decision to strike out an attempt by claimants to use Civil Procedure Rule (CPR) 19.6. as the basis for a US-style 'opt out' class action.

Background

Emerald Supplies Ltd and Southern Glass House Produce Ltd (the Claimants) used British Airways' (BA) air freight services to import flowers from Kenya and Colombia. Following the issuance of a Statement of Objections by the European Commission, in 2008 the Claimants brought a damages claim in the English High Court, in which they alleged that BA had colluded with competitors to fix fuel surcharges for air freight services, contrary to Article 101(1) of the Treaty on the Functioning of the European Union, and that they had suffered loss by paying the artificially inflated prices charged by BA. On 9 November 2010, the European Commission issued a decision confirming BA's infringement of Article 101(1).

Although the Claimants are identifiable victims of the anticompetitive arrangement, the strategy of their lawyers (a US claimant firm) depended on aggregating their claims with those of all other (direct and indirect) purchasers of airfreight services during the relevant period, constituting a class of potential victims far wider than the (identified) Claimants. In so doing, they were adopting an 'opt out' class action strategy familiar in the US, under which individual claims can be aggregated and brought by one or more persons on behalf of an entire class of claimants, without the consent or even knowledge of its members. Although a form of representative competition law damages action has been introduced into English law, by section 47B of the Competition Act 1998, this requires all claimants to 'opt in' to proceedings. As a result, such claims have not proved very popular, to say the least. Instead of using this route, the Claimants' lawyers sought to rely on CPR Rule 19.6, which enables claims to be brought on behalf of others with the "same interest in a claim".

The Court of Appeal's Judgment

The Chancellor of the High Court, Sir Andrew Morritt, struck out the representative aspects of the claim at first instance (Emerald Supplies Ltd & Anor v British Airways [2009] EWHC 741 Ch). He noted in his judgment that the majority of earlier cases on representative actions, which predated the CPR itself, usually concerned groups whose identity was ascertainable and defined entirely independently from the claim in question, for example members of the Labour party or a class of growers defined by statute. He concluded that the only linking factor between the members of the group proposed by Emerald was BA's liability to them, which remained to be proved. As a result, the identity of the class was not ascertainable. Furthermore, there was also a possibility that BA could have used the 'passing-on defence' to argue that direct purchasers of airfreight services had passed on any anti-competitive overcharge to their customers, by increasing the prices charged for their own products. Since the effect of this defence would not apply equally to all members of the class, they could not be said to have the same interest in the claim. Given the importance of determining the scope of Rule 19.6, the Claimants were granted leave to appeal to the Court of Appeal.

The Court of Appeal upheld the Chancellor's reasoning, describing the Claimants' case as "fatally flawed" and "a bold attempt at keeping a procedural novelty alive". In Lord Justice Mummery's judgment (with which the other two Lord Justices agreed), the class of claimants that Emerald and Southern Glass purportedly represented did not have the same interest in the claim. He noted that, since the class comprised entities at different levels of the supply chain, the proceedings would not and could not be equally beneficial to all those represented. He also agreed with the High Court that, for the purposes of Rule 19.6, it must be possible to determine whether or not a person is or is not a member of the represented class at the time the claim is brought, observing that it "cannot be right in principle that the case on liability has to be tried and decided before it can be known who is bound by the judgment" (judgment, paragraph 65). The appeal was therefore dismissed by the Court, due to the lack of certainty as to the members of the class and the Claimants' failure to demonstrate sufficient common interest between the class members.

It is noteworthy that Mummery LJ also agreed with Chancellor Morritt that, if BA did raise the 'passing-on defence', this would only further highlight the lack of common interest between the Claimants, given the obvious and inherent conflict between how direct and indirect purchasers would respond to the defence. (In essence, a direct purchaser will seek to maximise its claim for damages by arguing that it was forced to absorb all of a cartel overcharge, whereas an indirect purchaser must argue that the overcharge has been passed on to it, in order to demonstrate a loss on which to base its claim.)

Comment

The unanimous decision by the Appeal judges to dismiss the appeal, and the refusal to give permission to the Claimant to appeal to the Supreme Court, marks the end of this particular attempt to import US-style class action claims into England and Wales through the back door. The outcome also serves as a reminder of the simplicity benefits of the policy approach developed in the US, through the US Supreme Court's judgments in Hanover Shoe and Illinois Brick, which rules out both indirect purchaser claims and use of the passing on defence in antitrust damages claims (at least at Federal level). This case is unlikely to be the last word on the issue, however.

There remains much disagreement over how to facilitate collective redress for competition law infringements within the EU, and indeed whether such claims should be facilitated at all. Attempts by the European Commission to pass a directive setting out a minimum procedural framework for competition law damages action, including options for opt-in actions, foundered in the absence of consensus or political support in the European Parliament. Although further concrete progress had been promised, the Commission's announcement on 4 February of the launch of a public consultation "aimed at achieving a coherent approach towards collective redress in the European Union" carried with it the scent of long grass. Joaquin Almunia, the Vice President of the European Commission and Competition Commissioner nevertheless appears determined to push forward with a mechanism for competition-specific claims, with proposals for a pan-European measure promised for 2012. Although any moves towards introducing a mechanism for EU-wide collective redress for competition law infringements are unlikely to be swift, it is a safe bet that this case will not be the last word on this subject.