Safeway Stores Ltd and Others v Twigger and Others
| Jurisdiction | England & Wales |
| Judge | Lloyd L JJ,Pill,Longmore |
| Judgment Date | 21 December 2010 |
| Neutral Citation | [2010] EWCA Civ 1472 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2010/0675 |
| Date | 21 December 2010 |
[2010] EWCA Civ 1472
The Honourable Mr Justice Flaux
Before: The Right Honourable Lord Justice Pill
The Right Honourable Lord Justice Longmore
and
The Right Honourable Lord Justice Lloyd
Case No: A3/2010/0675
A3/2010/0671
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE COMMERCIAL COURT
Mr Jonathan Sumption QC, Mr Andrew Mitchell & Mr David Murray for the 1 st-7 th & 9 th-11 th Appellants (instructed by CMS Cameron McKenna LLP), Mr Conall Patton for the 8 th Appellant for the Issue on Costs (instructed by Clifford Chance LLP) for the Appellants
Mr Robert Anderson QC & Mr Tristan Jones (instructed by Wragge & Co LLP) for the Respondents
Hearing dates: 10 th & 11 th November 2010
Lord Justice Longmore:
Introduction and Background
This appeal from Flaux J raises a short but not easy question of law namely: if an undertaking such as Safeway infringes provisions of the Competition Act 1998 relating to anti-competitive activity and is duly penalised by the Office of Fair Trading, can that undertaking recover the amount of such penalties from its directors or employees who were themselves responsible for the infringement? The owners of Safeway in the form of their shareholders (different from those at the time of the relevant activity, by reason of a subsequent take-over) say that it is only right and just that they (who knew nothing of any such illegal activity) should be compensated by the wrongdoers; the defendant directors and employees (who on the facts which must be assumed for the purposes of the appeal are responsible) say that it would be inconsistent with principle for Safeway to be liable for penal sanctions but to be able to seek an indemnity for what is their own wrongful conduct. They rely on the maxim ex turpi causa non oritur actio and have sought summary judgment against Safeway on the basis that their claim has no realistic prospect of success. Flaux J declined to grant summary judgment in favour of the defendants and, awarding the claimants their costs, decided that the case must proceed to trial. All the defendants, with his leave, appeal, but since Flaux J's decision, the claimants have discontinued against the 8 th defendant. A point arises on that discontinuance since the 8 th defendant says he should be repaid the costs, which he has paid pursuant to the orders of Flaux J after his application for summary judgment failed, while the claimants say that the judge's order cannot be disturbed once they have discontinued.
The judge has set out the relevant facts and statutory provisions with such admirable economy that I can substantially repeat them for the purposes of this judgment.
The defendants are former employees and in some cases directors of the claimant companies, companies in the Safeway Group, which was sold to Morrisons in May 2004. The first claimant carried on business as a supermarket retailer prior to the sale. The first claimant was a wholly owned subsidiary of the third claimant which in turn was a wholly owned subsidiary of the second claimant.
The eighth defendant was at the times material to the claim the chairman of the second claimant. All the other defendants had contracts of employment with the first claimant. The third and fifth defendants were directors of the first claimant. The second and seventh defendants were directors of the second claimant.
From 2000 onwards concerted direct action was taken by British dairy farmers to put pressure on dairy processors and supermarkets to increase farm gate prices for dairy products. In 2002 and 2003, the claimants (acting by the defendants) engaged in repeated direct and indirect exchange of commercially sensitive retail pricing intentions with other large supermarkets and dairy processors. This resulted in initiatives which increased the price of milk and other dairy products for consumers. The price increases were passed back to the farmers.
In January 2005, the Office of Fair Trading (“OFT”) launched an inquiry into the various initiatives by the claimants and other supermarkets and the dairy processors. As a result of the inquiry the OFT alleged that the claimants and other supermarkets had breached the prohibition contained in section 2(1) in Chapter I of the Competition Act 1998 (“the 1998 Act”).
Section 2 of the 1998 Act provides:
“1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which –
a) may affect trade within the United Kingdom, and
b) have as their object of effect the prevention, restriction or distortion of competition within the United Kingdom,
are prohibited unless they are exempt in accordance with the provisions of this part.
2) Subsection (1) applies, in particular, to agreements, decisions or practices which –
a) directly or indirectly fix purchase or selling prices or any other trading conditions;
b) limit or control production, markets, technical development or investment;
c) share markets or sources of supply;
d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
3) Subsection (1) applies only if the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom.
4) Any agreement or decision which is prohibited by subsection (1) is void”.
On 20 th September 2007, the OFT gave the claimants written notice, a so-called statement of objections, informing the claimants that as a result of the investigation, the OFT intended to make a decision that the Chapter I prohibition had been infringed. We have not seen a copy of the statement of objections because of confidentiality obligations owed by the claimants to the OFT.
Upon the service of the statement of objections, under section 31 of the Act, the claimants would have had the opportunity to make representations to the OFT, which could include a formal oral hearing. However, they chose not to do so. Instead, on 6 th December 2007, the claimants and the OFT entered into an “early resolution” or “fast track” agreement as to the terms on which the OFT investigation into the claimants’ practices would be resolved. Similar agreements were reached with other supermarket owners, but the investigation into some supermarkets continues. As part of the terms agreed with the OFT, the claimants admitted that, by participating in the initiatives mentioned above, they had breached the Chapter I prohibition in the Competition Act through the repeated exchange of commercially sensitive retail pricing intentions. The precise terms of the fast track agreement are also subject to obligations of confidentiality and we have not seen them.
The claimants’ pleaded case is that by participating in and facilitating the initiatives, each of the defendants was in breach of his or her contract of employment and/or in breach of fiduciary duties owed to the claimants and/or negligent. It is also alleged that in breach of contract and/or of fiduciary duty the defendants failed to report the initiatives to his or her superiors or the Board of Directors of any of the claimants. Details of what each of the defendants is alleged to have done or failed to do are set out in paragraphs 34 to 39 of the Particulars of Claim, but it is not necessary to repeat those details here.
It is said by the claimants that, as a consequence of the defendants’ breach of contract and/or fiduciary duty and/or negligence, the claimants have suffered loss and damage. The principal element of this loss is the penalty from the OFT to which the claimants are exposed. The levying of penalties is dealt with by section 36 of the Competition Act which provides, so far as relevant:-
“1) On making a decision that an agreement has infringed the Chapter I prohibition, the OFT may require an undertaking which is a party to the agreement to pay the OFT a penalty in respect of the infringement.
2) On making a decision that conduct has infringed the Chapter II prohibition, the OFT may require the undertaking concerned to pay the OFT a penalty in respect of the infringement.
3) The OFT may impose a penalty on an undertaking under subsection ( 1) or (2) only if the OFT is satisfied that the infringement has been committed intentionally or negligently by the undertaking.
4) Subsection (1) is subject to section 39 and does not apply if the Director is satisfied that the undertaking acted on the reasonable assumption that that section gave it immunity in respect of the agreement”.
Despite having served the statement of objections in September 2007, the OFT has yet to make a “decision” under this section, but it has indicated to the claimants that when it does so the penalty that will be imposed may be as much as £16,449,893. This may be discounted by up to 35% in recognition of the co-operation of the claimants in the OFT investigation. If the full discount is achieved, the penalty could be £10,692,431. The maximum penalty which can be imposed is a sum equivalent to 10% of the worldwide turnover of the relevant undertaking. The proposed penalty has apparently been calculated by reference to the worldwide turnover of the Morrisons group. However, it represents a tiny fraction of that turnover, possibly...
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