Safeway Stores Ltd and Others v Twigger and Others

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeThe Honourable Mr Justice Flaux
Judgment Date15 January 2010
Neutral Citation[2010] EWHC 11 (Comm)
Docket NumberCase No: 2009 FOLIO 881
Date15 January 2010

[2010] EWHC 11 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Before: The Honourable Mr Justice Flaux

Case No: 2009 FOLIO 881

Between
(1) Safeway Stores Limited
(2) Safeway Limited
(3) Stores Group Limited
Claimants
and
Simon John Twigger and Others
Defendants

Mr Robert Anderson QC and Mr Tristan Jones (instructed by Wragge & Co LLP) for the Claimants

Mr Andrew Mitchell and Mr David Murray (instructed by CMS Cameron McKenna LLP) for the First to Seventh and Ninth to Eleventh Defendants

Mr Thomas Sharpe QC (instructed by Clifford Chance LLP) for the Eighth Defendant

Hearing dates: 14–16 December 2009

The Honourable Mr Justice Flaux

The Honourable Mr Justice Flaux:

Introduction and background

1

By Application Notices dated 17 July 2009, in the case of all the defendants except the eighth defendant, and 20 July 2009 in the case of the eighth defendant, the defendants seek summary judgment against the claimants pursuant to Part 24 of the CPR, alternatively an Order pursuant to Part 3.4(2) of the CPR striking out the claim. For the purposes of their applications, the defendants accept that the court should proceed on the assumption that the allegations made against them in the particulars of claim are true.

2

In these proceedings the claimants bring a claim for damages and/or equitable compensation against the defendants in the following circumstances. 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.

3

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.

4

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 the repeated direct and indirect exchange of commercially sensitive retail pricing intentions with other large supermarkets and dairy processors. This resulted in four initiatives which increased the price of milk and other dairy products for consumers. The price increases were passed back to the farmers.

5

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 in section 2(1) in Chapter 1 of the Competition Act 1998.

6

Section 2 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 or 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.

7

On 20 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. A copy of the statement of objections was not before the court on the present applications, because of confidentiality obligations owed by the claimants to the OFT. Even the lawyers representing the claimants in the present proceedings have not seen the statement of objections.

8

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 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 supermarkets, but the investigation into some supermarkets continues. As part of the terms agreed with the OFT, the claimants admitted that they had breached the Chapter 1 prohibition in the Competition Act through the repeated exchange and disclosure of commercially sensitive retail pricing intentions by participating in the initiatives. The precise terms of the fast track agreement are also subject to obligations of confidentiality and are not before the court.

9

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.

10

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:

(1) On making a decision that an agreement has infringed the Chapter I prohibition, the Director may require an undertaking which is a party to the agreement to pay him a penalty in respect of the infringement.

(2) On making a decision that conduct has infringed the Chapter II prohibition, the Director may require the undertaking concerned to pay him a penalty in respect of the infringement.

(3) The Director may impose a penalty on an undertaking under subsection ( 1) or (2) only if he 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.

11

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 will be £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 will be £10,692,431. I deal later in this judgment with how the OFT calculates its penalties. For the present it is only necessary to record that 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 as little as 0.1%.

12

Apart from claiming an indemnity against the liability for a penalty, the claimants also claim as damages their costs, including legal costs, of the OFT investigation, some £200,000.

13

In addition to the claim for breach of contract, breach of fiduciary duty and negligence, the claimants allege that the defendants conspired to procure the claimants' participation in the initiatives and, in furtherance of the conspiracy carried out the anti-competitive measures which were unlawful acts. It is alleged that since those unlawful acts were intended to increase the claimants' retail prices, they were aimed at the claimants.

14

The claimants also pleaded a claim against the defendants for contribution under the Civil Liability (Contribution) Act 1978. During the hearing, Mr Robert Anderson QC for the claimants accepted that this claim was not sustainable.

15

Although it is irrelevant to the issues I have to determine, it is apparent that the real target of the present claim is not the assets of the individual defendants, many of whom are of modest means, but the directors' and officers' liability insurance available to the defendants, which would, presumably, respond in the event that the defendants were held liable to the claimants.

The basis for the defendants' application

16

The defendants contend that the claimants' claim is barred as a matter of public policy for two related...

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