Court of Appeal grounds conspiracy claims in Air Cargo cartel litigation

On 16 October 2015 the Court of Appeal in England & Wales handed down its judgment in Emerald Supplies Limited v British Airways PLC [2015] EWCA Civ. 1024 - a multibillion pound claim brought by a number of companies seeking to recover the loss that they claim they suffered as a result of a worldwide cartel in the air cargo industry. The claim is based on the European Commission decision dated 9 November 2010 which found that a number of airlines co-ordinated their pricing over a six year period from 1999 to 2006. The claimants claim that this resulted in them paying higher prices for air cargo services than they would have paid absent the cartel.

The recent judgment strikes out the conspiracy element of the claimants’ claims. The claimants had included the conspiracy claims in a bid to recover loss caused by cartel conduct which took place outside of (and had no impact on) the European Union (EU)/European Economic Area (EEA). This conduct is not covered by the European Commission decision and so does not fall within the claimants’ breach of statutory duty claim. The Court of Appeal judgment has significantly reduced the size of the claimants’ claims. It is estimated that more than half of the value of the claimants’ claims has been struck out. Consequently the exposure of the airline groups implicated in the air cargo cartel has been significantly reduced.

This is the latest development in proceedings that were issued in 2008 and are still some way from trial. Over the seven years since proceedings were issued, the claimants have faced a series of challenges which have taken considerable time to resolve including attempts to bring a representative action and more recently attempts to obtain a copy of the Commission decision establishing the infringement (two points which were also taken to the Court of Appeal). The length of these proceedings is not unusual - delay has been a feature of the cartel litigation landscape in the UK as defendants have tested the limits of the procedural framework.

The cause of action that is commonly deployed in cartel damages cases is the tort of breach of statutory duty to comply with EU competition law. The defendant’s liability is established by the decision of the European Commission. This means that claimants only need to demonstrate that the breach caused them loss. However, in the Air Cargo case, the claimants also claimed two economic torts in a bid to extend the claims to include conduct not covered by the EU infringement decision and therefore not captured by the breach of statutory duty claim: (i) the tort of interfering with business by unlawful means; and (ii) conspiracy to use unlawful means.

A critical element of these economic torts is an intention on the part of the defendants to injure the claimant. The issue in this case was that the claimant was only one part of the supply chain potentially affected by the cartel. Any price increases resulting from the cartel would have been charged to the direct purchasers of the air cargo services, freight forwarders, but may then have been passed on in whole or in part to each subsequent level of the supply chain.

At first instance, the court refused to strike out the two additional economic tort claims on the basis of a lack of intention. It considered that the question of intention could only be determined once the full facts of the case were disclosed. The Court of Appeal rejected this approach. It accepted the defendants’ argument that as a matter of law there could be no intention to injure where there are multiple layers of a supply chain such that the defendant was “not even sure that the claimant will suffer any loss at all”. We expect the claimants to challenge the Court of Appeal’s ruling and that an appeal to the Supreme Court on this point will shortly be issued.

Although the Court of Appeal’s judgment is a setback for claimants seeking to broaden the scope of conduct covered by their claims, it does not impose an absolute bar on claiming economic torts in cartel damages claims. The problem for the claimants in Air Cargo was the fact that there was scope for purchasers to pass on any overcharge down the supply chain. In markets where the claimant can show: (i) that it is unable to pass on any overcharge; or (ii) that it is both an end consumer and direct purchaser of the cartelised product, there remains scope to deploy the economic torts.

Assuming the Court of Appeal’s judgment is not overturned, it will have significant implications not just for the claimants in this litigation but also more generally for victims of cartels seeking to recover their loss. By restricting claims for conspiracy in a cartel context, the Court of Appeal has limited the scope to claim in the English courts for loss caused by the conduct of a global cartel which took place outside of the EU/EEA.

This setback for claimants comes at a time of change in the cartel litigation landscape in the UK, with legislators at both UK and EU level seeking to encourage victims of cartel conduct to issue proceedings to recover any loss suffered.

On 1 October 2015, the Consumer Rights Act entered into force bringing with it a number of new rules governing competition law claims and – significantly – the scope to bring opt-out collective (class) actions in certain circumstances. In addition, EU legislators have introduced a damages directive which is intended to facilitate compensation of victims of cartels across the EU.

The introduction of the new rules present opportunities for claimants. The most notable feature is the new procedure for representative litigants to apply to the specialist competition court - the Competition Appeal Tribunal - to bring claims on an “opt-out” basis on behalf of a “class” of claimants. This will - for the first time - allow a form of class action to be issued in the UK but only in respect of competition law infringement. For more detail on this regime, please see our article on the subject.

To date, cartel damages claims have been characterised by procedural delays resulting in claims taking several years to reach trial. Defendants have brought a plethora of procedural challenges seeking to dent the claimants’ resolve. This activity has, however, served to clarify the law in a number of areas including jurisdiction, stays of proceedings, disclosure of the Commission decision and the application of the French blocking statute and, in so doing, has cleared the way for more claimants to make cartel damages claims.

Although the new rules appear attractive to claimants and could signal an increase in competition law litigation, there remain uncertainties as to how the new rules will be applied including in particular, for collective actions, how the limitation rules will be applied and how the certification process will be interpreted. We expect defendants to continue to pursue technical procedural points in a bid to clarify the law and delay claims. However, as the law is clarified, we expect the English courts to see a significant and sustained increase in victims of cartels seeking to recover losses.

These recent developments cement the position of the UK as the forum of choice for cartel claims in the EU. Over the next few years it will be interesting to see how the Competition Appeal Tribunal will interpret the new rules. We expect parties to present authority from the US and Canada, two jurisdictions which have developed class action regimes, in order to influence how the rules should be interpreted in the UK.