ON APPEAL FROM HIGH COURT
CHANCERY DIVISION
MR JUSTICE LLOYD
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
LORD JUSTICE PETER GIBSON
LORD JUSTICE JONATHAN PARKER
and
MR JUSTICE LADDIE
Between :
Unipart Group Ltd | Appellant |
- and - | |
O2 (UK) Ltd (formerly BT Cellnet Ltd) and Anor | Respondents |
Mark Brealey QC (instructed by Messrs Nabarro Nathanson) for the Appellant
Nicholas Green QC and Sarah Stevens (instructed by Messrs Lovells) for the Respondents
Hearing dates: 8 July 2004
Judgment
CONTENTS
Introduction | paragraphs 1 – 16 |
The contractual relationship between the parties | paragraphs 17 – 22 |
The pleadings | paragraphs 23 – 36 |
The judge’s judgment | paragraphs 37 – 45 |
The grounds of appeal | paragraph 46 |
Cellnet’s Respondent’s Notice | paragraph 47 |
The authorities: | |
XXThe European authorities | paragraphs 48 – 72 |
XXThe domestic authorities | paragraphs 73 – 78 |
The arguments on this appeal | paragraphs 79 – 89 |
Conclusions | paragraphs 90 – 108 |
Result | paragraph 109 |
Lord Justice Jonathan Parker :
INTRODUCTION
This appeal concerns the applicability of Article 81 in Chapter 1 of Part III of the EC Treaty to allegedly anti-competitive conduct in the market for the wholesale supply of airtime for mobile telephones.
Article 81(1) is in the following terms (so far as material):
“The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market …..”
A number of examples are then given.
Article 81(2) provides that any agreements or decisions prohibited under Article 81(1) shall be automatically void. Article 81(3) lists various exemptions from the prohibition in Article 81(1), none of which applies in the instant case.
Article 82 is also of indirect relevance to the present appeal, in that the relationship between the Articles 81 and 82 forms an important part of the context in which Article 81 is to be interpreted. Article 82 provides (so far as material):
“Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: ….”
As in the case of Article 81(1), a number of examples are then given.
The particular issue raised by the appeal is whether the anti-competitive conduct of which complaint is made was the subject of an agreement between undertakings, within the meaning of Article 81(1); or whether, by contrast, it was ‘unilateral’ conduct, as that concept has been explained and developed in the authorities. If the former, Article 81 is engaged; if the latter, it is not.
The claimant in the action is Unipart Group Limited, as assignee of the cause of action (if any) of its former subsidiary UniqueAir Limited. The first defendant in the action is O2 (UK) Limited, formerly called BT Cellnet Limited. The second defendant is Call Connections Limited, a subsidiary of the first defendant. Since no distinction falls to be made on this appeal between Unipart and UniqueAir, or between the first and second defendants, I shall refer to them as “Unipart” and “Cellnet” respectively.
Unipart’s claim in the action relates to the period 1996-1999. During that period, it carried on business as an independent service provider (‘ISP’), purchasing airtime wholesale from network operators (i.e. operators of mobile telecommunications systems under licence) and retailing the airtime as part of a package to end-users. Cellnet has at all material times carried on business as a network operator. It also owns or controls a number of service providers (referred to as ‘tied service providers’ or ‘TSPs’).
During the relevant period Unipart purchased airtime from Cellnet under the terms of various written agreements in Cellnet’s standard form for the supply of airtime to service providers (including its TSPs). Only two of those agreements have been referred to on this appeal: an agreement dated 21 October 1986 (“the 1986 Agreement”) relating to Cellnet’s analogue system, and an agreement dated 21 September 1994 (“the 1994 Agreement”) relating to Cellnet’s digital system. However, it is common ground that these two agreements were typical of the agreements which governed the contractual relationship between Unipart and Cellnet during the relevant period.
By the agreements in question, Unipart agreed to pay for airtime on Cellnet’s telecommunications system in accordance with Cellnet’s charges as specified from time to time in its published price list.
In the action Unipart claims damages against Cellnet, alleging that the terms and conditions on which Cellnet supplied airtime to ISPs (including Unipart) during the relevant period breached Article 81. In particular, it is alleged that Cellnet adopted a policy of ‘margin squeeze’; that is to say a policy of charging service providers excessive prices for airtime and thereby, due to its market power, compelling ISPs to reduce or even to eliminate their retail margins in order to remain competitive, whilst at the same time cross-subsidising its TSPs from the resulting profits and thereby placing them at a competitive advantage over ISPs. Unipart seeks to found its claim for damages under Article 81(1) on its agreement to pay the prices set by Cellnet from time to time.
Whilst denying that it adopted a policy of ‘margin squeeze’, Cellnet contends that in any event Article 81 is not engaged since such a policy (if adopted) was not the subject of any agreement between undertakings, within the meaning of the Article; rather, it contends that the adoption of such a policy can only have been a ‘unilateral’ act on its part, and as such outside the terms of the Article. In particular, Cellnet denies that Unipart’s agreement to pay the prices set by Cellnet from time to time can found a claim under Article 81 for damages allegedly suffered by Unipart as a result of ‘margin squeeze’.
Cellnet accordingly applied for summary judgment, alternatively for the claim to be struck out. The application was heard by Lloyd J.
In his judgment delivered on 22 November 2002 the judge held in favour of Cellnet that there was no relevant agreement between undertakings within the meaning of Article 81(1). He held that “the conduct complained of was indeed truly unilateral on the part of Cellnet”. Accordingly, by his order of that date he entered summary judgment in favour of Cellnet.
With the permission of the judge, Unipart appeals against that order.
THE CONTRACTUAL RELATIONSHIP BETWEEN UNIPART AND CELLNET
I turn next to the contractual relationship between Unipart and Cellnet during the relevant period, as exemplified by the 1986 Agreement and the 1994 Agreement.
Both agreements were, to use the judge’s word, ‘facultative’, in the sense that Unipart remained free to decide how much (if any) airtime to purchase, and generally how much (if any) business to transact with Cellnet thereunder.
Clause 5(1) of the 1986 Agreement provided as follows (so far as material):
“[Unipart] shall pay in respect of its Subscribers the charges of [Cellnet] …. set out in the Tariff of Charges published from time to time by Cellnet (the current Tariff of Charges being attached hereto). Such Tariff of Charges may be altered by [Cellnet] at any time subject to the giving of such prior notice as may be practicable (and in any event one month’s prior notice) to [Unipart].”
Clause 4.1 of the 1994 Agreement provided as follows (so far as material):
“[Unipart] shall pay Cellnet for all access to the System [i.e. Cellnet’s cellular telecommunication system] and use of the System …. and all other services provided to [Unipart] by Cellnet, in accordance with Cellnet’s charges published from time to time in the Price List.”
The ‘Price List’ was defined in clause 1.1 as meaning Cellnet’s price list as amended by Cellnet from time to time.
Clause 29 of the 1994 Agreement provided as follows (so far as material):
“This Agreement and the Price List constitutes the entire agreement between the parties hereto in connection with access to the System …. pursuant to this Agreement and there are no other agreements, written or oral. ….”
THE PLEADINGS
I turn next to the pleadings.
Paragraph 1 of Unipart’s Particulars of Claim, under the heading ‘Nature of the Claim’, pleads as follows:
“By this Claim [Unipart] claims relief against [Cellnet] as a result of the way in which Cellnet sold airtime on its mobile telecommunications network. The terms and conditions pursuant to which Cellnet sold airtime distorted competition contrary to Article 81 ….”
In paragraph 6 it is alleged that during the relevant period (1996-1999) Cellnet enjoyed substantial market power in the mobile telecommunications market. It is, however, important for present purposes to note that it is not alleged that Cellnet occupied a dominant position in that market, such as might found a claim under Article 82.
Paragraphs 14 and 15 of the Particulars of Claim are in the following terms (so far as material):
“ ANTI-COMPETITIVE MARGIN SQUEEZE
14. A mobile network operator (i) that possesses a high degree of market power in the wholesale supply of airtime and makes high returns on its mobile telecommunications network (due to limited competition in that market) and (ii) that substantially influences the retail prices for its airtime has the potential to squeeze the margins of service providers but cross-subsidise its TSPs so distorting competition between the ISPs and TSPs. The margin squeeze works as follows:
(a) If wholesale prices are set at a high level relative to retail prices…. such that TSPs are unable to make an adequate return on capital, the margin available to ISPs is also reduced to a level which prevents an adequate return on capital being made (since they face the same or similar wholesale prices …. and must set competitive retail prices ….).
(b) From the network operator’s point of view the effect is simply to transfer losses from the service provision level to the network level. The TSPs are able to survive in the service provision market, despite their inadequate margin, because their losses are financed from the high rates of return made by the mobile network operator.
(c) ISPs, on the other hand, do not have this possibility to take profits at the network level and are therefore unable to make an adequate return on capital.
15. The margin squeeze is anti-competitive since it has as its object (in the sense of being reasonably foreseeable) or effect the competitive weakening of ISPs and their eventual elimination from the mobile service provision market. This reduces competition in the mobile service provision market and customer choice.”
Paragraph 16 of the Particulars of Claim pleads that “[i]n order to prevent Cellnet’s wholesale terms and conditions distorting competition” the Department of Trade and Industry attached conditions to Cellnet’s licence which were enforced by the Office of Telecommunications (‘OFTEL’); and that those conditions included a condition prohibiting Cellnet from granting unfair cross-subsidies to its TSPs. Paragraphs 17 to 21, under the heading ‘The OFTEL Formula’, plead that in 1994 OFTEL introduced a formula “to ensure that a margin squeeze would not distort competition between Cellnet TSPs and ISPs selling Cellnet airtime”. Paragraph 22 alleges that Cellnet circumvented the OFTEL formula by making incentive payments direct to its TSPs. Paragraph 25 pleads that in 1997 OFTEL amended its formula, so as to treat such incentive payments as a cost to the TSP. Paragraphs 26 to 30 plead that in February 1999 OFTEL published its finding (which it confirmed in July 1999) that “Cellnet was squeezing the margins of service providers and providing cross-subsidies to its TSPs”.
In paragraph 32 of the Particulars of Claim is alleged that Cellnet set its prices for airtime at anti-competitive levels. The paragraph reads as follows:
“During 1996-1999 the terms and conditions pursuant to which Cellnet supplied airtime to service providers, including [Unipart], breached Article 81. These terms and conditions breached Article 81 when considered in the legal context (i.e. the conditions set out in Cellnet’s licence) and the economic context of the Cellnet TSPs failing to meet the OFTEL formula and/or failing to obtain a reasonable return on capital.”
Paragraph 33 of the Particulars of Claim alleges that service providers were granted access to Cellnet’s mobile telecommunications network by agreements in Cellnet’s standard form. Paragraph 34 alleges that Unipart and Cellnet were ‘undertakings’ for the purposes of Article 81. Paragraph 35, under the heading ‘Relevant agreements between undertakings’, pleads as follows:
“Therefore, the agreements between undertakings relevant to this Claim are:
(a) The individual agreements for the supply of airtime between Cellnet and [Unipart].
(b) The bundle of agreements for the supply of airtime concluded between Cellnet and those service providers that constituted undertakings.”
Paragraph 36 of the Particulars of Claim, which appears under the general heading ‘Prevention, restriction or distortion of competition’ and the sub-heading ‘Margin squeeze’, is central to the issue which arises on this appeal. It reads as follows:
“36. For the period 1996-1999 Cellnet’s terms and conditions upon which it provided airtime to service providers resulted in an unlawful margin squeeze on [Unipart] and other ISPs selling Cellnet airtime. This put the ISPs including [Unipart] at a competitive disadvantage vis-à-vis the Cellnet TSPs.” (Emphasis supplied)
In paragraph 39 of the Particulars of Claim it is alleged that the object or effect of the agreements governing the contractual relationship between Cellnet and Unipart during the relevant period was the distortion of competition in the UK mobile service provision market. In paragraphs 40 and 41 similar allegations are made in relation to Cellnet’s agreements with other service providers.
Paragraph 42 of the Particulars of Claim alleges that:
“…. [t]he margin squeeze was achieved by virtue of Cellnet’s substantial market power in the wholesale supply of mobile telecommunications airtime in the United Kingdom”.
Paragraph 44 of the Particulars of Claim pleads that the terms and conditions on which Cellnet supplied airtime to Unipart and to other service providers during the relevant period had an effect on the pattern of trade between member states. Paragraphs 45 to 48 plead that Cellnet’s breach of Article 81 caused loss and damage to Unipart.
By its prayer for relief Unipart seeks, firstly, declarations that the terms and conditions on which Cellnet supplied airtime during the relevant period to Unipart and to other service providers breached Article 81; and, secondly, damages.
By its draft Defence, Cellnet denies the allegations of ‘margin squeeze’, contending that Unipart’s references to OFTEL are selective and misleading. Paragraphs 30 and 31 of the Defence, under the heading “Agreements between undertakings”, are in the following terms (so far as material):
“30. Regarding paragraphs 33 to 35 [of the Particulars of Claim], for the purpose of establishing “agreements between undertakings” within the meaning of Article 81(1) it is necessary to prove:
(a) that there is an agreement in the sense of a subjective concurrence of wills. A unilateral act is not an agreement; ….
[(b)]
31. ….it is averred that the level of prices set out in the Price List were [sic] not agreed between Cellnet and its service providers, but in all material respects were set unilaterally by Cellnet.”
In paragraph 34 of its draft Defence Cellnet denies that the agreements relied on by Unipart had as their object or effect the prevention, restriction or distortion of competition within the common market, as required by Article 81(1). In paragraphs 42 to 45 of its draft Defence, Cellnet denies Unipart’s allegations of loss and damage.
THE JUDGE’S JUDGMENT
The issue of law before the judge as formulated by Mr Nicholas Green QC (for Cellnet) – a formulation from which Mr Mark Brealey QC (for Unipart) did not dissent – was as follows:
“In a case where a supplier agrees a price with a dealer, but where power to set a price is entirely in the hands of the supplier, can there be a breach of Article 81 where the level of price set by the supplier is alleged to be restrictive of competition?”
In addressing that issue, the judge proceeded on the assumption that the allegations of fact in the Particulars of Claim, including the allegation of distortion of competition, were true.
After summarising the factual allegations and the arguments which had been addressed to him, the judge turned to the decision of the European Court of First Instance (“the CFI”) in Case T-41/96 Bayer AG v. European Commission [2000] ECR II-3383. Mr Green had relied strongly on Bayer in support of the submission that the setting of the level of price was ‘unilateral’ conduct by Cellnet, to which Article 81 could have no application.
In Bayer, which I shall have to consider in more detail later in this judgment, the CFI held that, contrary to the decision of the European Commission, allegedly anti-competitive conduct by a manufacturer in relation to the supply of its product to wholesalers was unilateral conduct on its part, and hence that Article 81 was not engaged. The Commission’s appeal to the European Court of Justice (“the ECJ”) was pending when the judge delivered judgment in the instant case. (The Commission’s appeal has since been dismissed by the ECJ, and I shall refer in due course to the ECJ’s judgment.)
After citing two passages from the judgment of the CFI in Bayer (viz. paragraphs 64-72, quoted in paragraph 51 below, and paragraphs 172-176, quoted in paragraph 61 below), the judge continued (in paragraphs 17 and 18 of his judgment):
“17. Thus a distinction has to be drawn between something which is genuinely unilateral conduct on the part of an undertaking, on the one hand, and on the other the concurrence of wills of two separate undertakings by which, in whatever manner, they express their joint intention as regards the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market. While practices apparently unilateral on the part of a supplier may be regarded as the subject of an agreement between undertakings, they cannot properly be so regarded unless they receive the express or tacit acquiescence of the customers. A manufacturer who does not have a dominant position may adopt a supply policy which suits him, even if designed to hinder parallel imports, and even though the implementation of that policy may entail restrictions on competition and affect trade between member states, so long as there is no concurrence of wills between him and his wholesale customers on the point.
18. Mr Green submits that this is exactly such a case if, as I have to assume for present purposes, Cellnet’s policy did distort competition. ISPs such as UniqueAir did not acquiesce tacitly or otherwise in Cellnet’s policy. Indeed they complained vociferously to OFTEL about it and, it is said, persuaded OFTEL to force Cellnet to reduce its wholesale charges. They were no more acquiescent than were Bayer’s French and Spanish customers. That shows, he says, if demonstration were needed, that Cellnet’s conduct was truly unilateral, and was opposed and objected to by the other parties to the relevant agreement, so that there was certainly no concurrence of wills, indeed quite the contrary.”
The judge then turned to two decisions of this court, on which Mr Green had also relied, namely Richard Cound Ltd v. BMW (GB) Ltd [1997] EuLR 277 and Clover Leaf Cars v. BMW (GB) Ltd [1997] EuLR 535. In those cases (which I shall call ‘the BMW Cases’), this court held that the giving of a notice of termination under a contract was unilateral conduct, and not the subject of an agreement between undertakings within the meaning of Article 81.
The judge continued (in paragraph 20 of his judgment):
“20. To give notice of termination of an agreement, whereby the entire agreement is brought to an end, may seem to be fairly obviously unilateral action, at any rate as between the parties to the agreement. Mr Green submits, however, that the reasoning applies equally to the exercise by the manufacturer of a unilateral right reserved by the agreement to alter the prices payable. It is accepted, and indeed alleged as the basis of the Claimant’s case, that Cellnet set the level of prices itself. It is not alleged, and to do so would be inconsistent with the whole way the case has been presented to me, that UniqueAir acquiesced tacitly or otherwise in Cellnet’s alleged policy of setting prices so as to produce a margin squeeze. Thus, he submits, I can see that this action by Cellnet was truly unilateral, albeit that it had effect, as regards UniqueAir, under a contract, either by setting the prices originally in force to which UniqueAir bound itself when entering into the contract for the first time, or by altering the prices for the future during the subsistence of the contract.”
The judge then returned to the CFI decision in Bayer, saying this (in paragraphs 21 and 22 of his judgment):
“21. The propositions which Mr Green derives from Bayer include in particular, in response to the way Mr Brealey puts his case, the point that it is not sufficient merely to allege that (a) there is an agreement between undertakings and that (b) the effect of that agreement, as regards the prices charged, is to distort competition. He says that would be inconsistent with paragraph 176 of the judgment. Mr Brealey counters by submitting that in Philips Electronics NV v. Ingman Ltd [1998] 2 CMLR 839 it was held by Laddie J that a price provision could by itself infringe article 81. That case arose from the patent pooling agreement between Philips and Sony as regards CD technology. Under that agreement the patents had been assigned to Philips and terms were agreed as to the basis on which licences would be granted to third parties to use the patents. Clearly it was possible that this agreement infringed article 81, and it was so alleged. It was also alleged that the terms of the standard licence infringed the article separately. The major objection to the standard licence was to the royalty rate, which was said to be too high, or discriminatory, or both. Laddie J, considering a striking out application, said that it seemed to be arguable that an excessive royalty might constitute an abuse under article 81. He referred to one case under this article, Coditel No 2 [1982] ECR 3381, which arose from an exclusive licence as regards copyright, and quoted a passage from the judgment which shows that the court saw it as possible that the exercise of the exclusive right to exhibit a film might create barriers which are artificial and unjustifiable in terms of the needs of the cinematographic industry or the possibility of charging fees which exceed a fair return on investment. As it seems to me both the case before Laddie J and Coditel are clearly distinguishable from the present case. The Philips case arose from an agreement between undertakings, namely that between Philips and Sony, so that Philips could not have argued that their conduct in respect of the standard licence was purely unilateral. In Coditel any distortion of competition also arose from an agreement between undertakings, namely the provision for exclusivity in the licence. That too was the subject of the necessary concurrence of wills.
22. So it seems to me that neither Philips nor Coditel provides guidance as to the answer on the facts of the present case, whereas Bayer lays down principles, with which the Court of Appeal decisions in 1995 are entirely consistent, and which are binding on me in seeking to determine whether the conduct alleged by the Claimant is capable of constituting an agreement between undertakings within the meaning of article 81.”
The judge then referred to the authorities on which Mr Brealey had relied (including the decision of the European Commission in A. Bulloch & Co v. Distillers Co Ltd [1978] 1 CMLR 400 (“Distillers”)) as examples of cases in which conduct which at first appears to have been unilateral proves, on further investigation, to have been the subject of an agreement between undertakings within the meaning of Article 81. The judge continued (in paragraph 24 of his judgment):
“24. In the light of the reasoning in Bayer , however, it seems to me that the question I have to ask is whether the conduct complained of, which on the face of it is unilateral, could be shown to be the subject of express or tacit acquiescence on the part of UniqueAir, so that UniqueAir agreed to the conduct objected to. Mr Brealey says that it is obviously so, because UniqueAir agreed to pay the prices charged, and therefore agreed to the prices. That seems to me too simple an approach. Of course UniqueAir agreed to the terms of clause 4.1, and was contractually bound, on principles of English contract law, to pay the prices, subject only to proper notice of any new price list. But clause 4.1 is not what is objected to. It seems to me that Mr Green is right to say that the acquiescence has to be in relation to that to which objection is taken, namely the level of prices, not just the fact of having to pay a given price. The Claimant, however, does not allege that it did acquiesce in that and indeed shows that to the contrary it objected to them and, as regards OFTEL, it says successfully. It seems to me that I must draw the conclusion that the conduct complained of was indeed truly unilateral on the part of Cellnet, and that on the facts alleged it cannot be shown to have been the subject of an agreement between undertakings, and it does not infringe article 81. It follows that the claim could not succeed at trial and I will give judgment for the Defendants under CPR Part 24.”
THE GROUNDS OF APPEAL
By its grounds of appeal Unipart contends that the judge fell into error in holding that for Unipart’s claim to succeed it had to prove that it acquiesced in Cellnet’s alleged policy of margin squeeze. It is contended that it is sufficient for Unipart to establish that it agreed to pay the prices set by Cellnet; that the imposition of an additional requirement of acquiescence in the alleged policy of margin squeeze is contrary to the plain words of Article 81 and is not supported by authority; and that the judge incorrectly interpreted the CFI’s judgment in Bayer. In the alternative, it is contended that Unipart’s conduct in continuing to pay the prices set by Cellnet constituted sufficient acquiescence to engage Article 81.
CELLNET’S RESPONDENT’S NOTICE
By a Respondent’s Notice, Cellnet invites us to uphold the judge’s decision on the additional ground that Unipart’s pleaded case does not disclose any restriction or distortion of competition. In support of this additional ground Cellnet contends that the agreements on which Unipart seeks to found its claim “did not change the competitive relationship between Cellnet and [Unipart]”; and that “the setting of a price for a product or service, as between seller and buyer, does not fall within the concept of a restriction or distortion of competition within Article 81 ….”.
THE AUTHORITIES
The European authorities
As the judge rightly recognised, the judgments of the CFI and the ECJ in Bayer are of central importance for present purposes. The facts in Bayer were, briefly, as follows. The Bayer Group, headed by Bayer AG (the applicant), had for many years supplied a pharmaceutical product called Adalat to wholesalers in all member states. In most member states, the price of Adalat was fixed directly or indirectly by the national health authorities. Between 1989 and 1993 the prices fixed by the health authorities in France and Spain were substantially lower than those which applied in the United Kingdom. This price differential led wholesalers in France and Spain to re-export Adalat to the United Kingdom. These ‘parallel imports’ caused Bayer to suffer substantial trading losses. Faced with that situation, Bayer changed its delivery policy by ceasing to fulfil in their entirety the increasingly large orders for Adalat placed by its wholesalers in France and Spain, and by limiting its deliveries to such wholesalers to the quantities required to meet domestic demand in those member states. Following complaints by the wholesalers, the European Commission investigated the matter. The Commission decided (Decision 96/478/EC) that Bayer’s practice in restricting deliveries of Adalat to France and Spain infringed Article 81, on the basis that such practice had been agreed between Bayer and the wholesalers ‘as part of their ongoing business relations’ (see paragraph 1 of the Commission’s Decision).
Bayer applied to the CFI to annul the Decision on the primary ground that the allegedly infringing conduct was unilateral conduct on its part and hence did not fall within the scope of Article 81 in the absence of any agreement between it and its wholesalers relating to the export of Adalat to the United Kingdom. It contended that it had adopted a unilateral policy of limited delivery in order to make parallel exports more difficult; and that, far from agreeing to such a policy, the wholesalers in question had opposed it. It contended that the requisite ‘concurrence of wills’, which was the central element in the concept of agreement, was plainly lacking; and that without a ‘concurrence of wills’ Article 81 could not apply.
The Commission, on the other hand, contended that there was agreement between Bayer and the French and Spanish wholesalers in relation to the export of Adalat to other member states. Its case was that Bayer’s delivery policy amounted to an export ban, to which the wholesalers had consented, in the knowledge that otherwise their orders would be further restricted: in other words, that the wholesalers agreed to the policy so as to obtain sufficient supplies in return.
In paragraphs 64 to 72 of its judgment (quoted by the judge in paragraph 16 of his judgment in the instant case), the CFI said this, under the heading ‘Preliminary Observations’:
“64. It is clear from the wording of [Article 81(1)] that the prohibition thus proclaimed concerns exclusively conduct that is coordinated bilaterally or multilaterally, in the form of agreements between undertakings, decisions by associations of undertakings and concerted practices.
65. In this case, it is found in the Decision that there is an ‘agreement between undertakings’ within the meaning of that article. The applicant maintains, however, that the Decision penalises unilateral conduct on its part that falls outside the scope of the article. It claims that the Commission has given the concept of an agreement within the meaning of Article [81(1)] of the Treaty an interpretation which goes beyond the precedents in the case-law and that its application to the present case infringes that provision of the Treaty. The Commission contends that it has fully followed the case-law in its evaluation of that concept and has applied it in a wholly appropriate manner to the facts of this case. It therefore needs to be determined whether, having regard to the definition of that concept in the case-law, the Commission was entitled to perceive in the conduct established in the Decision the factors constituting an agreement between undertakings within the meaning of Article [81(1)] of the Treaty.
66. The case-law shows that, where a decision on the part of a manufacturer constitutes unilateral conduct of the undertaking, that decision escapes the prohibition in Article [81(1)] of the Treaty (Case 107/82 AEG v Commission [1983] ECR 3151, paragraph 38; Joined Cases 25/84 and 261/84 Ford and Ford Europe v Commission [1985] ECR 2725, paragraph 21; Case T-43/92 Dunlop Slazenger v Commission [1994] ECR II-441, paragraph 56).
67. It is also clear from the case-law in that in order for there to be an agreement within the meaning of Article [81(1)] of the Treaty it is sufficient that the undertakings in question should have expressed their joint intention to conduct themselves on the market in a specific way (Case 41/69 ACF Chemiefarma v Commission [1970] ECR 661, paragraph 112; Joined Cases 209/78 to 215/78 and 218/78 Van Landewyck and Others v Commission [1980] ECR 3125, paragraph 86; Case T-7/89 Hercules Chemicals v Commission [1991] ECR II-1711, paragraph 256).
68. As regards the form in which that common intention is expressed, it is sufficient for a stipulation to be the expression of the parties’ intention to behave on the market in accordance with its terms (see, in particular, ACF Chemiefarma , paragraph 112, and Van Landewyck , paragraph 86), without its having to constitute a valid and binding contract under national law ( Sandoz , paragraph 13).
69. It follows that the concept of an agreement within the meaning of Article [81(1)] of the Treaty, as interpreted by the case-law, centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention.
70. In certain circumstances, measures adopted or imposed in an apparently unilateral manner by a manufacturer in the context of his continuing relations with his distributors have been regarded as constituting an agreement within the meaning of Article 85(1) of the Treaty (Joined Cases 32/78, 36/78 to 82/78 BMW Belgium and Others v Commission [1979] ECR 2435, paragraphs 28 to 30; AEG , paragraph 38; Ford and Ford Europe , paragraph 21; Case 75/84 Metro v Commission (‘Metro II’) [1986] ECR 3021, paragraphs 72 and 73; Sandoz , paragraphs 7 to 12; Case C-70/93 BMW v ALD [1995] ECR I- 3439, paragraphs 16 and 17).
71. That case-law shows that a distinction should be drawn between cases in which an undertaking has adopted a genuinely unilateral measure, and thus without the express or implied participation of another undertaking, and those in which the unilateral character of the measure is merely apparent. Whilst the former do not fall within Article [81(1)] of the Treaty, the latter must be regarded as revealing an agreement between undertakings and may therefore fall within the scope of that article. That is the case, in particular, with practices and measures in restraint of competition which, though apparently adopted unilaterally by the manufacturer in the context of its contractual relations with its dealers, nevertheless receive at least the tacit acquiescence of those dealers.
72. It is also clear from that case-law that the Commission cannot hold that apparently unilateral conduct on the part of a manufacturer, adopted in the context of the contractual relations which he maintains with his dealers, in reality forms the basis of an agreement between undertakings within the meaning of Article [81(1)] of the Treaty if it does not establish the existence of an acquiescence by the other partners, express or implied, in the attitude adopted by the manufacturer ( BMW Belgium , paragraphs 28 to 30; AEG , paragraph 38; Ford and Ford Europe , paragraph 21; Metro II , paragraphs 72 and 73; Sandoz , paragraphs 7 to 12; BMW v ALD , paragraphs 16 and 17).”
The CFI then turned (in paragraphs 73 to 77 of its judgment) to the application of the concept of ‘agreement’, saying this:
“73. In this case, in the absence of direct documentary evidence of the conclusion of an agreement between the parties concerning the limitation or reduction of exports, the Commission has held that the concurrence of wills underlying that agreement is clear from the conduct of the applicant and the wholesalers referred to in the Decision respectively.
74. Thus, in the Decision, the Commission states (recital 155) that ‘Bayer France and Bayer Spain have committed an infringement of Article [81(1)]’ of the Treaty and that the conditions for applying that article were met because those subsidiaries imposed ‘an export ban as part of their continous commercial relations with their customers’. It then states (recital 156) that ‘analysis of the conduct engaged in by Bayer France and Bayer Spain vis-à-vis their wholesalers shows that Bayer France and Bayer Spain have imposed an export ban in their commercial relations with their wholesalers’ and presents it as an established fact (recital 176) that the wholesalers adopted ‘an implicit acquiescence in the export ban’.
75. Where, therefore, the Commission refers in the Decision to the ‘export ban’, it views it as a unilateral demand which has formed the subject-matter of an agreement between the applicant and the wholesalers. If the Commission concluded that an agreement existed contrary to Article [81(1)] of the Treaty, it did so because it considered it established that the applicant sought and obtained an agreement with its wholesalers in Spain and France, the purpose of which was to prevent or limit parallel imports.
76. The applicant acknowledges having introduced a unilateral policy designed to reduce parallel imports. However, it denies having planned and imposed an export ban. In that regard, it denies ever having had discussions with the wholesalers, let alone making an agreement with them, in order to prevent them from exporting or to limit them in the export of the quantities delivered. Moreover, it states that the wholesalers did not adhere in any way to its unilateral policy and had no wish to do so.
77. In those circumstances, in order to determine whether the Commission has established to the requisite legal standard the existence of a concurrence of wills between the parties concerning the limitation of parallel exports, it is necessary to consider whether, as the applicant maintains, the Commission wrongly assessed the respective intentions of Bayer and the wholesalers.”
The CFI turned first to Bayer’s intention. In paragraph 109 of its judgment it concluded:
“…. that the Commission has not proved to the requisite legal standard either that Bayer France and Bayer Spain imposed an export ban on their respective wholesalers, or that Bayer established a systematic monitoring of the actual final destination of the packets of Adalat supplied after the adoption of its new supply policy, or that the applicant applied a policy of threats and sanctions against exporting wholesalers, or that it made supplies of this product conditional on compliance with the alleged export ban.”
The CFI continued:
“Nor, finally, do the documents reproduced in the Decision show that the applicant sought to obtain any form of agreement from the wholesalers concerning the implementation of its policy designed to reduce parallel imports.”
The CFI then turned to the intention of the wholesalers. In paragraphs 123 and 124 of its judgment, the CFI said this:
“123. Since, in this case, the Commission does not have any document referring expressly to an agreement between Bayer and its wholesalers concerning exports for the purpose of establishing a concurrence of wills, it claims to have followed the case-law approach consisting of examining the actual conduct of the wholesalers in order to determine the existence of their acquiescence. ….
124. In the circumstances of this case, it therefore needs to be determined whether, having regard to the actual conduct of the wholesalers following the adoption by the applicant of its new policy of restricting supplies, the Commission could legitimately conclude that they acquiesced in that policy.”
The CFI concluded (in paragraph 157 of its judgment) that:
“…. the Commission was therefore wrong in holding that the actual conduct of the wholesalers constitutes sufficient proof in law of their acquiescence in the applicant’s policy designed to prevent parallel imports.”
The CFI then turned to the case-law relied on by the Commission, referring (among others) to the decisions of the ECJ in Case C-277/87 Sandoz v. Commission [1990] I-45, Case 102/82 AEG v. Commission [1983] ECR 3151, and Cases 228 and 229/2 Ford v. Commission [1984] ECR 1129.
In paragraphs 161 and 162 of its judgment, the CFI said this about the ECJ decision in Sandoz:
“161. That case concerned the penalty imposed by the Commission on a subsidiary of a multinational pharmaceutical company, Sandoz, which was guilty of inserting into invoices which it sent to customers (wholesalers, pharmacies and hospitals) the express words ‘export prohibited’. Sandoz had not denied the presence of these words in its invoices, but had disputed that there was an agreement within the meaning of Article [81(1)] of the Treaty. The Court of Justice dismissed the action after replying to each of the applicant’s arguments. It considered that the sending of invoices with those words did not constitute unilateral conduct, but, on the contrary, formed part of the general framework of commercial relations which the undertaking maintained with its customers. It reached that conclusion after examining the way in which the undertaking proceeded before authorising a new customer to market its products and taking into account the practices repeated and applied uniformly and systematically at each sales operation (paragraph 10 of the judgment). It was at that stage in its reasoning that the Court of Justice dealt with the question of the acquiescence of the commercial partners in the export ban, mentioned in the invoice, in the following terms:
‘It should also be noted that the customers of Sandoz PF were sent the same standard invoice after each individual order or, as the case may be, after the delivery of the products. The repeated orders of the products and the successive payments without protest by the customer of the prices indicated on the invoices, bearing the words ‘export prohibited’, constituted a tacit acquiescence on the part of the latter in the clauses stipulated in the invoice and the type of commercial relations underlying the business relations between Sandoz PF and its clientele. The approval initially given by Sandoz PF was thus based on the tacit acceptance on the part of the customers of the line of conduct adopted by Sandoz PF towards them.’
162. It was only after those findings that the Court of Justice concluded that the Commission was entitled to take the view that ‘the whole of the continuous commercial relations, of which the ‘export prohibited’ clause formed an integral part, established between Sandoz PF and its customers, were governed by a pre-established general agreement applicable to the innumerable individual orders for Sandoz products. Such an agreement is covered by the provisions of Article [81(1)] of the Treaty’.
163. Although the two cases [i.e. Sandoz and Bayer ] resemble each other in that they concern attitudes of pharmaceutical groups designed to prevent parallel imports of medicinal products, the concrete circumstances characterising them are very different. In the first place, unlike the situation in the present case, the manufacturer in Sandoz had expressly introduced into all its invoices a clause restraining competition, which, by appearing repeatedly in documents concerning all transactions, formed an integral part of the contractual relations between Sandoz and its wholesalers. Second, the actual conduct of the wholesalers in relation to the clause, which they complied with de facto and without discussion, demonstrated their tacit acquiescence in that clause and the type of commercial relations underlying it. On the facts of the present case, however, neither of the two principal features of Sandoz is to be found; there is no formal clause prohibiting export and no conduct of non-contention or acquiescence, either in form or in reality.”
In paragraph 167 of its judgment, the CFI concluded that the ECJ’s judgment in Sandoz:
“…. merely confirms the case-law to the effect that, although apparently unilateral conduct by a manufacturer may lie at the root of an agreement between undertakings within the meaning of Article [81(1)] of the Treaty, this is on the condition that the subsequent conduct of the wholesalers or customers may be interpreted as de facto acquiescence.”
In paragraph 168 of its judgment the CFI concluded that for the same reasons the Commission could not validly rely on the ECJ decisions in AEG and in the Ford cases in support of the argument that the wholesalers acquiesced in Bayer’s policy of restricting deliveries in order to reduce parallel imports.
In paragraphs 172 to 176 of its judgment (quoted by the judge in his judgment in the instant case) the CFI said this:
“172. The Commission’s reasoning shows that it maintains, albeit ambiguously (see the structure of the Decision summarised in recitals 155 and 156 and developed in recitals 171 to 188), that the mere finding of fact that the wholesalers did not interrupt their commercial relations with Bayer after the latter established its new policy designed to restrain exports is a sufficient ground for it to hold that the existence of an agreement between undertakings within the meaning of Article [81(1)] of the Treaty is established.
173. Such an argument cannot be accepted. The proof of an agreement between undertakings within the meaning of Article [81(1)] of the Treaty must be founded upon the direct or indirect finding of the existence of the subjective element that characterises the very concept of an agreement, that is to say a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market, irrespective of the manner in which the parties’ intention to behave on the market in accordance with the terms of that agreement is expressed (see, in particular, ACF Chemiefarma , paragraph 112; Van Landewyck and Others , paragraph 86). The Commission misjudges that concept of the concurrence of wills in holding that the continuation of commercial relations with the manufacturer when it adopts a new policy, which it implements unilaterally, amounts to acquiescence by the wholesalers in that policy, although their de facto conduct is clearly contrary to that policy.
174. Moreover in accordance with the general scheme of the Treaty, an undertaking may be penalised under Community competition law only if it has infringed prohibitions contained in Article [81(1)] or Article [82] of the Treaty. In that respect, it should be noted that the applicability of Article [81(1)] is based on a number of conditions, namely that, (a) there must be an agreement between at least two undertakings or a similar arrangement such as a decision of an association of undertakings or a concerted practice between undertakings, (b) that arrangement must be capable of affecting trade within the Community, and (c) that it must have as its object or effect the restriction of competition to an appreciable extent. It follows that, in the context of that article, the effects of the conduct of an undertaking on competition within the common market may be examined only if the existence of an agreement, a decision of an association of undertakings or a concerted practice within the meaning of Article [81(1)] of the Treaty has already been established (Case 56/65 Société Technique Minière v Maschinenbau Ulm [1966] ECR 235, at p. 248 et seq.). It follows that the aim of that provision is not to ‘eliminate’ obstacles to intra-Community trade altogether; it is more limited, since only obstacles to competition set up as a result of a concurrence of wills between at least two parties are prohibited by that provision.
175. That interpretation of Article [81(1)] of the Treaty was followed by the Court of Justice in Case C-73/95 P Viho v Commission [1996] ECR I-5457, paragraphs 15 to 17, in which, upholding a judgment of the Court of First Instance, it held that the fact that the policy implemented by a parent company consisting essentially in dividing various national markets between its subsidiaries might produce effects outside the ambit of the group which were capable of affecting the competitive position of third parties could not render Article [81(1)] of the Treaty applicable, even when read in conjunction with Article 2 and Article 3(c) and (g) of the EC Treaty. On the other hand, such unilateral conduct could fall under Article [82] of the Treaty if the conditions for its application, as laid down in that article, were fulfilled.
176. Having regard to the foregoing considerations, and contrary to what the Commission and the BAI appear to maintain, the right of a manufacturer faced, as in this case, with an event harmful to his interests, to adopt the solution which seems to him to be the best is qualified by the Treaty provisions on competition only to the extent that he must comply with the prohibitions referred to in Articles [81] and [82]. Accordingly, provided he does so without abusing a dominant position, and there is no concurrence of wills between him and his wholesalers, a manufacturer may adopt the supply policy which he considers necessary, even if, by the very nature of its aim, for example, to hinder parallel imports, the implementation of that policy may entail restrictions on competition and affect trade between Member States.”
In paragraph 180 of its judgment, the CFI considered the consequences of giving Article 81(1) the wide interpretation accorded to it by the Commission, saying this:
“An extension of the scope of Article [81(1)] of the Treaty, such as that proposed by the Commission, would lead to a paradoxical situation in which refusal to sell would be penalised more heavily in the context of Article [81(1)] than in that of Article [82], since the prohibition in Article [81(1)] would hit a manufacturer deciding to refuse or restrict future supplies but without terminating his commercial relations with his customers altogether, whereas, under Article [82], refusal to supply, even if it is total, is prohibited only if it constitutes an abuse. The case-law of the Court of Justice indirectly recognises the importance of safeguarding free enterprise when applying the competition rules of the Treaty where it expressly acknowledges that even an undertaking in a dominant position may, in certain cases, refuse to sell or change its supply or delivery policy without falling under the prohibition laid down in Article [82] ….”
The CFI expressed its conclusion as follows (in paragraph 183 of its judgment):
“183. It follows from the whole of the foregoing considerations that the Commission incorrectly assessed the facts of the case and made an error in the legal assessment of those facts by holding it to be established that there was a common intention between Bayer and the wholesalers referred to in the Decision, which justified the conclusion that there was an agreement within the meaning of Article [81(1)] of the Treaty, designed to prevent or limit exports of Adalat from France or Spain to the United Kingdom.”
I turn next to the judgment of the ECJ in Bayer. Before the ECJ the Commission’s primary submission was that the CFI had adopted too restrictive an interpretation of the concept of an agreement within the meaning of Article 81(1), and that on the facts it was possible to find that agreement had been reached as to an export ban.
In paragraph 70 of its judgment the ECJ said this:
“70. The attempt to use Article [81(1)] of the Treaty to penalise an undertaking not in a dominant position which decides to refuse deliveries to wholesalers, in order to prevent them from making parallel exports, clearly disregards the necessary conditions for applying Article [81(1)] and the general system of the Treaty. Under that system, methods adopted by a Member State which prevent parallel exports are indeed prohibited by Article 30 of the Treaty, but unilateral measures taken by private undertakings are subject to restrictions, by virtue of the principles of that Treaty, only if the undertaking in question occupies a dominant position on the market, within the meaning of Article [82] of the Treaty, which is not the case here.”
In paragraphs 100 to 104 of its judgment, the ECJ addressed the Commission’s argument that the CFI should have found that Bayer’s manifest intention to restrict parallel imports could constitute the basis of an agreement, within the meaning of Article 81(1), as follows:
“100. Concerning [the Commission’s] arguments that the Court of First Instance should have acknowledged that the manifestation of Bayer’s intention to restrict parallel imports could constitute the basis of an agreement prohibited by Article [81(1)] of the Treaty, it is true that the existence of an agreement within the meaning of that provision can be deduced from the conduct of the parties concerned.
101. However, such an agreement cannot be based on what is only the expression of a unilateral policy of one of the contracting parties, which can be put into effect without the assistance of others. To hold that an agreement prohibited by Article [81(1)] of the Treaty may be established simply on the basis of the expression of a unilateral policy aimed at preventing parallel imports would have the effect of confusing the scope of that provision with that of Article [82] of the Treaty.
102. For an agreement within the meaning of Article [81(1)] of the Treaty to be capable of being regarded as having been concluded by tacit acceptance, it is necessary that the manifestation of the wish of one of the contracting parties to achieve an anti-competitive goal constitute an invitation to the other party, whether express or implied, to fulfil that goal jointly, and that applies all the more where, as in this case, such an agreement is not at first sight in the interests of the other party, namely the wholesalers.
103. Therefore, the Court of First Instance was right to examine whether Bayer’s conduct supported the conclusion that the latter had required of the wholesalers, as a condition of their future contractual relations, that they should comply with its new commercial policy.
104. Concerning the judgment in Sandoz , relied upon by [the Commission], it is undisputed that, in that case, the manufacturer had sought the cooperation of wholesalers in order to eliminate or reduce parallel imports, their cooperation being necessary, in the circumstances of that case, in order to attain that objective. In such a context, the insertion by the manufacturer of the words ‘export prohibited’ on invoices amounted to a demand for a particular line of conduct on the part of the wholesalers. That is not the case here.”
Turning to the findings of fact made by the CFI, the ECJ said this (in paragraphs 118 to 120 of its judgment):
“118. …. it should be recalled that the Court of First Instance set out from the general principle that in order for there to be an agreement within the meaning of Article [81(1)] of the Treaty it is sufficient that the undertakings in question should have expressed their joint intention to conduct themselves on the market in a specific way (paragraph 67 of the judgment under appeal). Having concluded, when examining the alleged intention of Bayer to impose an export ban, that the latter had not imposed such a ban, the Court of First Instance proceeded to make an analysis of the wholesalers’ conduct in order to determine whether there was nevertheless an agreement prohibited by Article [81(1)] of the Treaty.
119. In that context, it first rejected the argument that an agreement was established by reason of a tacit acceptance by the wholesalers of the alleged export ban, since, as it had just held, the Commission had not sufficiently established in law either that Bayer had imposed such a ban or that the supply of medicinal products was conditional on compliance with that alleged ban ….
120. In those circumstances the Court of First Instance went on to examine whether having regard to the actual conduct of the wholesalers following the adoption by the applicant of its new policy of restricting supplies, the Commission could legitimately conclude that they acquiesced in that policy (paragraph 124 of the judgment under appeal).”
Addressing the Commission’s argument on the facts, the ECJ said this (in paragraphs 140 and 141 of its judgment):
“140. By these pleas, the appellants are seeking to challenge the assessment by the Court of First Instance that the Commission could not effectively rely on the case-law precedents referred to in order to call into question the analysis which led the Court of First Instance to conclude that in this case acquiescence of the wholesalers in Bayer’s new policy was not established ….
141. In that respect, it is important to note that this case raises the question of the existence of an agreement prohibited by Article [81(1)] of the Treaty. The mere concomitant existence of an agreement which is in itself neutral and a measure restricting competition that has been imposed unilaterally does not amount to an agreement prohibited by that provision. Thus, the mere fact that a measure adopted by a manufacturer, which has the object or effect of restricting competition, falls within the context of continuous business relations between the manufacturer and its wholesalers is not sufficient for a finding that such an agreement exists.”
The ECJ accordingly concluded (in paragraph 146 of its judgment) that the CFI had made no error of law in holding that the case-law relied on by the Commission was inapplicable in that case.
I turn next to the decision of the European Commission in Distillers, upon which Mr Brealey relies. Distillers, which was decided by the Commission in December 1977, was not referred to by either the CFI or the ECJ in Bayer, nor is there any reference to it in the opinion of the Advocate General (Tizzano). In Distillers, a company with a substantial market share in the production and sales of whisky and other spirits in the United Kingdom applied to the Commission for exemption under Article 81(3). Its standard conditions of sale in relation to spirits supplied to United Kingdom trade customers only included a clause which prohibited resale for delivery outside the United Kingdom. In response to a request from the Commission, the company submitted a revised set of standard conditions which permitted export by United Kingdom trade customers to other member states, together with the text of a circular letter informing its United Kingdom trade customers of the revised conditions. The circular letter contained statements to the effect that although export to other member states was permitted, United Kingdom trade customers would only be entitled to trade discounts in respect of goods which were sold for consumption within the United Kingdom. In support of its claim for exemption, the company contended that its price terms were an indispensable restriction in order to avoid the destruction of its distribution system by parallel exports from the United Kingdom to other member states. The Commission concluded that the company’s price terms, which included the terms of the circular letter, formed an essential part of the company’s agreements with its United Kingdom customers, and as such constituted agreements between undertakings within the meaning of Article 81(1). It further concluded that in so far as they provided for the application of different prices for spirits exported to other EEC countries from those sold for consumption within the United Kingdom the price terms restricted the opportunity for resale in other Member States and hence distorted competition. In the result, exemption was refused.
In Distillers, the company did not contend that its price terms were not caught by Article 81(1); on the contrary, its claim was for exemption under Article 81(3). Hence it is not, perhaps, surprising that the Commission’s decision contains no analysis of the concept of ‘unilateral’ conduct on the part of a supplier in setting the prices for its products.
The only other European authority to which I need refer is Sandoz. In paragraphs 58 and 59 of this judgment I have quoted those paragraphs of the CFI’s judgment in Bayer in which Sandoz is discussed and distinguished. The ECJ referred only briefly to Sandoz in its judgment in Bayer, in the context of an argument by Bayer and the Commission that as a precondition of an agreement within the meaning of Article 81(1) it was necessary to establish a system of subsequent monitoring and penalties on wholesalers, saying this (in paragraph 85 of its judgment):
“In Sandoz , the manufacturer had sent invoices to its suppliers carrying the express words ‘export prohibited’, which had been tacitly accepted by the suppliers [reference is then made to paragraphs 161 to 163 of the CFI’s judgment, quoted in paragraph 58 above]. The Court could therefore hold that there was an agreement prohibited by Article [81(1)], without being required to seek proof of that in the existence of a system of subsequent monitoring.”
The domestic authorities
I need only refer to the BMW Cases.
In Cound, the plaintiff was a BMW dealer for a specified area. The dealership agreement prohibited it from selling other makes of car within that area. BMW was entitled to terminate the agreement at any time by giving 12 months’ written notice. It gave such a notice. The plaintiff claimed damages and a declaration that the giving of the notice was invalid since the dealership agreement was in breach of Article 81(1), having as its object or effect the prevention, restriction or distortion of competition within member states. BMW contended that the agreement was exempt under Article 81(3). In the alternative, it contended that the giving of the notice was unilateral conduct on its part, and as such was not prohibited by Article 81(1). The judge at first instance (HHJ Lee QC) accepted BMW’s alternative contention and struck out the claim in so far as it was based on the giving of the notice. In the course of his judgment, the judge said this (at p.296B-D):
“The defendants submit that the plaintiffs’ case hinges on the contention that the defendants’ conduct in terminating the dealership is not unilateral, but is capable of constituting an agreement within Article [81(1)] of the Treaty.
The plaintiffs contend, as a matter of law, that the giving of the notice of termination forms part of the contractual relations between the defendants and their dealers and is, accordingly, [within] the scope of Article [81(1)].
The defendants submit that while it is correct that the European Court of Justice has given a wide meaning to the expression ‘agreement’ in Article [81], there is no authority for the startling proposition that any conduct taking place in the context of a contractual relationship or in relation to such a relationship is an agreement within Article [81(1)].”
Later in his judgment, the judge said this (at p.299E-G):
“In my judgment, what is alleged here by the agreements is significantly different from what was being considered in the AEG case or the Ford case. Each of those cases was concerned with an agreement between a supplier and a group of dealers and the agreement fell within Article [81(1)] as the European Court determined.
Here, the conduct the subject of the plaintiffs’ claim was the giving of the notice of termination of the dealership agreement and the relief the plaintiffs seek is a declaration that that notice of termination is unlawful, void and of no effect, and damages by reason of the notice being given in breach of Article [81(1)].
That is the conduct on which the statement of claim …. is focused and that is unilateral conduct and not conduct amounting to an agreement at all. Indeed, I cannot conceive how what the plaintiffs allege …. could amount to an agreement or could fall within Article [81(1)].”
The Court of Appeal dismissed the plaintiff’s appeal. Balcombe LJ gave the leading judgment, with which Pill LJ and Sir Roger Parker agreed. In the section of his judgment headed ‘Unilateral conduct’, Balcombe LJ said this (at pp.310-311):
“Article [81] prohibits ‘agreements between undertakings, decisions by associations of undertakings and concerted practices”. Prima facie the unilateral action of [BMW] in giving notice to [the plaintiff] to terminate the agreement would not fall within the ambit of such a prohibition.”
After referring to the authorities relied on by counsel for the plaintiff, Balcombe LJ continued:
“I do not find it necessary to consider these cases in detail since in my judgment their effect is correctly summarised in the last two sentences of the following passage from Bellamy and Child, Common Market Law of Competition (4 th edn), para 2-022:
‘ 2-022 Unilateral Action. Action taken by an undertaking without any agreement or concert with another undertaking does not infringe Article [81(1)], although an undertaking in a dominant position may by unilateral conduct infringe Article [82]. However, care needs to be taken in determining whether particular conduct is truly ‘unilateral’. If, for example, a supplier operates a restricted system of distribution, the apparently ‘unilateral’ exclusion of a particular dealer may infringe Article [81(1)] if it results from an understanding, tacit or express, between the supplier and his existing dealers, to exclude certain dealers from the distribution network. Similarly, the sales policy of a manufacturer who maintains a restricted system of distribution may be regarded as impliedly accepted by that manufacturer’s dealers so as to give rise to an agreement within the meaning of Article [81(1)].’
As the Court of First Instance …. said in Viho v. Commission :
’61. Article [81(1)(d)] of the Treaty prohibits agreements between undertakings, decisions by associations of undertakings and concerted practices which apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage. The discrimination at which Article [81(1)] is aimed must therefore be the result of an agreement, a decision or a concerted practice between separate and autonomous economic entities and not the result of unilateral conduct by a single undertaking.’
The judge held that the notice of termination was unilateral conduct outside the ambit of Article [81]. I agree.”
In Clover Leaf Cars, a similar issue arose. At first instance, Rattee J struck out the claim, holding (at p.549D-E) that there was “no basis for the plea that the dealers accepted somehow, tacitly or expressly, any particular policy pursuant to which the notice of termination might be given”. The Court of Appeal dismissed the plaintiff’s appeal. In the course of his judgment Staughton LJ (with whom Thorpe LJ agreed) said this (at p.552D-F):
“It does not, in my judgment, follow that in every case unilateral action by a manufacturer is to be deemed to have been agreed to by the network of dealers. Indeed, it would be contrary to common sense to suppose that all the other dealers of BMW have tacitly agreed that if they become subsidiaries of a plc, and if that increases the percentage of distributors who are subsidiaries of a plc above BMW’s limit, then they will be dismissed on notice.
Whether that be so or not, the point was, in my opinion, conclusively decided against the distributors by the Cound decision. Balcombe LJ said so briefly, but clearly, in his judgment, with which the other members of the court agreed. Accordingly, I find no prospect of Clover Leaf succeeding in this court on the unilateral conduct point.”
THE ARGUMENTS ON THIS APPEAL
Mr Brealey’s argument is straightforward. He submits that once one finds an express agreement between undertakings relating to the conduct of which complaint is made there is no need to look for any further evidence of a ‘concurrence of wills’ in order to engage Article 81(1). He submits that the judge misunderstood the judgments of the CFI and the ECJ in Bayer, and that he confused the law relating to express agreement with that relating to implied agreement. In the instant case, he submits, by the agreements in question the parties put down in legally enforceable documents all the terms governing their contractual relationship, including those relating to price. That, he submits, is sufficient to engage Article 81(1). He submits that the concept of an ‘agreement’ within the meaning of Article 81(1) is wider and more flexible than the corresponding concept in domestic law, and that if the judge’s approach is correct it would have the effect of restricting that concept so as to make it narrower than the equivalent domestic law concept. He submits that in interpreting Article 81(1) the courts should adopt a purposive approach.
Mr Brealey submits that it is only in cases where there is no express agreement that it becomes necessary, in order to engage Article 81(1), to infer a consensus from the conduct of the parties. Only in such cases, he submits, does the concept of ‘tacit acquiescence’, such as was found to exist in Sandoz, have any relevance.
As to Bayer, Mr Brealey stresses that the objectionable conduct was the imposition of an export ban, rather than the limiting of quotas. In the absence of direct documentary evidence of an agreement in relation to the imposition of such a ban, the Commission was obliged to infer such agreement from the parties’ conduct. That, he submits, is not this case, given the existence of written agreements whereby Unipart agreed to pay the prices set by Cellnet from time to time.
As to the ECJ’s judgment in Bayer, Mr Brealey submits that it supports his interpretation of the CFI’s judgment. He submits that there is nothing in either the CFI’s judgment or the ECJ’s judgment to support Cellnet’s contention that, in addition to agreeing expressly to pay Cellnet’s excessive prices, Unipart must have acquiesced in Cellnet’s underlying policy of ‘margin squeeze’. In the alternative he submits that if acquiescence is required, it is to be found in the fact that Unipart paid the prices set by Cellnet from time to time.
As to the BMW Cases, Mr Brealey submits that (as the judge noted in paragraph 20 of his judgment, quoted in paragraph 43 above) there is an obvious and significant distinction between the exercise of a right to terminate and the exercise of a contractual right to amend an ongoing agreement. However, he submits that the judge fell into error when (in paragraph 22 of his judgment, quoted in paragraph 44 above) he concluded that the decisions in the BMW Cases were “entirely consistent” with Bayer. He submits that if Cellnet’s submissions were taken to their logical conclusion, a supplier’s standard terms and conditions would fall outside Article 81(1). Yet, he submits, that would be contrary to authority, since Article 81(1) has consistently been applied to a supplier’s standard terms, which are proffered to dealers on a ‘take it or leave it’ basis.
Mr Brealey cites Distillers as an example of a case in which the conduct of which complaint was made formed part of the commercial relationship between the parties. He submits that the instant case is on all fours with Distillers in this respect.
Mr Brealey accordingly submits that the effect of the judge’s interpretation of Article 81(1) is artificially to cut down the application of the Treaty, and that it leads to a situation in which a term of a contract admittedly distorts competition but escapes scrutiny. He submits that there is no justification whatever for the interpretation of Article 81(1) which the judge adopted.
Mr Green submits that the answer to the issue of law, as formulated by him before the judge (see paragraph 37 above), is: No. He submits that the judgments of the CFI and of the ECJ in Bayer are decisive of the issue, and that the judge reached the right conclusion for the right reasons.
Mr Green draws a distinction between Unipart’s agreement to pay the prices set by Cellnet from time to time and an agreement (whether express or tacit) between Unipart and Cellnet as to the setting of those prices by Cellnet at an allegedly anti-competitive level. He submits that it is Cellnet’s policy of setting its prices at an allegedly anti-competitive level which is the true subject of Unipart’s complaint; not the (assumed) fact that Unipart had no real commercial choice but to agree to pay those prices.
A complaint of that nature might, he submits, be brought under Article 82, in cases where a supplier enjoys a dominant position in the market; but it cannot, he submits, found a claim under Article 81(1) in the absence of an ‘agreement between undertakings’ relating to such a policy. He submits that there is plainly no such agreement in the instant case.
In the alternative, should his submissions on the issue as to the existence of a relevant ‘agreement between undertakings’ not be accepted, Mr Green advances the contention set out in Cellnet’s Respondent’s Notice (see paragraph 47 above). He submits that in order to determine whether Unipart’s agreement to pay the prices set from time to time by Cellnet has an anti-competitive effect it is necessary to consider the situation which would exist had no such agreement been made. While accepting that in many cases this process would involve a detailed investigation of the facts, Mr Green submits that in the instant case such an investigation is not necessary since it is plain that the existence of Cellnet’s contractual right to set its prices cannot have altered the market in any way. Accordingly he submits that, if and so far as necessary, summary judgment can and should be granted on this alternative ground.
CONCLUSIONS
The scope and purpose of Article 81(1)
In Bayer, both the CFI and the ECJ stressed the differing roles of Articles 81 and 82 and the fact that the aim of Article 81 is “not to ‘eliminate’ obstacles to intra-Community trade altogether; it is more limited, since only obstacles to competition set up as a result of a concurrence of wills between at least two parties are prohibited by that provision” (see paragraph 174 of the CFI’s judgment, quoted in paragraph 61 above). As the ECJ put it (in paragraph 70 of its judgment, quoted in full in paragraph 65 above):
“The attempt to use Article [81(1)] of the Treaty to penalise an undertaking not in a dominant position which decides to refuse deliveries to wholesalers, in order to prevent them from making parallel exports, clearly disregards the necessary conditions for applying Article [81(1)] and the general system of the Treaty.”
In identifying the scope and purpose of Article 81(1), therefore, it is in my judgment of fundamental importance to recognise that (as the CFI points out in paragraph 176 of its judgment, quoted in paragraph 61 above) a supplier may adopt whatever supply policy he regards as necessary to protect his commercial interests, provided only that in so doing he does not abuse a dominant position (Article 82), and that there is no relevant ‘concurrence of wills’ between the supplier and his wholesalers (Article 81). In other words, as the ECJ put it in paragraph 70 of its judgment (quoted in full in paragraph 65 above):
“…. unilateral measures taken by private undertakings are subject to restrictions, by virtue of the principles of [the] Treaty, only if the undertaking in question occupies a dominant position on the market, within the meaning of Article 86 of the Treaty, which is not the case here”.
The “paradoxical” consequences of adopting a wider interpretation of Article 81(1) were spelt out by the CFI in paragraph 180 of its judgment (quoted in paragraph 62 above).
In the light of Bayer, therefore, no wider purpose can be attributed to Article 81(1) than the (limited) purpose identified by the CFI and the ECJ in that case. It follows that if and in so far as Mr Brealey, in urging us to adopt a ‘purposive’ approach to the interpretation of Article 81(1), is inviting us to infer that Article 81(1) has some wider purpose than that identified in Bayer, his invitation must be rejected.
The conduct of which complaint is made
Approaching Article 81(1) on that basis, the first step, in my judgment, is to identify as precisely as possible the conduct of which complaint is made: that is to say the conduct which is alleged to have caused the loss in respect of which damages are claimed. For in my judgment it is that conduct which must be the subject of an agreement between undertakings if Article 81(1) is to be engaged in respect of it.
In my judgment it is clear on the face of the Particulars of Claim (summarised in paragraphs 24 to 34 above) that the conduct of which complaint is made in the instant case is not that Cellnet set its own prices for airtime (most suppliers set the prices for their products); nor is it merely that Cellnet set its prices at a level which was excessively high (a supplier who does that risks going out of business as a result). The anti-competitive conduct which is alleged in the instant case is that Cellnet set its prices at an excessively high level as part of its policy of ‘margin squeeze’ – a policy which is described in detail in paragraphs 14 and 15 of the Particulars of Claim (quoted in paragraph 26 above): hence the allegation of “unlawful margin squeeze” in paragraph 36 of the Particulars of Claim (quoted in full in paragraph 30 above). Take away that allegation, and in my judgment there is nothing left of Unipart’s complaint.
The relevant inquiry
Accordingly, given that Unipart does not seek to invoke Article 82, the relevant inquiry, in my judgment, is whether Cellnet’s conduct in adopting a policy of ‘margin squeeze’ (assuming for present purposes that it in fact adopted such a policy) was the subject of an ‘agreement’ between Cellnet and Unipart; or whether it was ‘unilateral’ conduct on Cellnet’s part and thus outside the scope of Article 81(1). To put it another way, the issue is whether Unipart can establish to the requisite legal standard a concurrence of wills between it and Cellnet concerning Cellnet’s adoption of the policy of ‘margin squeeze’ (see paragraph 77 of the CFI’s judgment in Bayer, quoted in paragraph 52 above).
The contractual relationship between Cellnet and Unipart
In my judgment, the mere fact that the conduct of which complaint is made took place against the backdrop of a continuing commercial relationship between supplier and dealer takes the inquiry no further. In Bayer, for example, as is clear from the Commission’s summary of the facts of that case, the conduct of which complaint was made took place in the context of a commercial relationship between Bayer and its wholesalers which dated from the beginning of the last century. In any event I respectfully agree with Judge Lee QC in Cound (see paragraph 74 above) that it would be startling indeed if “any conduct taking place in the context of a contractual relationship or in relation to such a relationship is an agreement within [Article 81(1)]”.
In my judgment the decisions of this court in the BMW Cases are entirely consistent with the relevant principles, as established by Bayer. The BMW Cases demonstrate, in my judgment, that the mere fact that the conduct of which complaint is made has contractual effect does not prevent such conduct from being wholly unilateral.
In argument, Mr Brealey laid considerable stress on the fact that Cellnet’s standard terms and conditions allowed it to vary its prices from time to time. In my judgment, however, that is nothing to the point, so far as the present inquiry is concerned. As I see it, the position vis-à-vis Article 81(1) would be just the same if Cellnet had demanded a single, non-variable – but excessive – price for its airtime.
So did the fact that Cellnet’s standard conditions of sale set the prices for its airtime amount to an agreement on the part of Unipart to the adoption by Cellnet of a policy of ‘margin squeeze’? In my judgment, one only has to formulate the question to realise that the answer to it must be: No. It is, after all, a commonplace for a dealer to agree, without negotiation, to pay a supplier’s published prices for its products. In Bayer, for example, the dealers placed orders on Bayer’s standard terms, yet even the Commission (which held that Bayer was in breach of Article 81(1)) regarded those standard terms as “neutral”, commenting merely (in paragraphs 50 and 52 of its Decision) that they were “the usual clauses included in a contract for the sale of goods”.
Nor do I derive any assistance from the Commission’s decision in Distillers. Distillers was in my judgment a very different case from the instant case, in that in Distillers the offending policy was held by the Commission to be “an integral element in the continuous commercial relations between the parties”. In the instant case, on the other hand, it cannot in my judgment be said that Cellnet’s alleged policy of ‘margin squeeze’ was an integral part of the contractual relationship constituted by the incorporation of Cellnet’s standard terms, and, in particular, of the term whereby Unipart agreed to pay for airtime in accordance with Cellnet’s published price list.
I therefore conclude that Unipart’s contractual obligation to pay the prices set by Cellnet from time to time in accordance with its published price list is not an agreement which can found a claim under Article 81(1) for damages for losses incurred as a result of Cellnet’s alleged adoption of a policy of ‘margin squeeze’.
‘Margin squeeze’: tacit acquiescence by Unipart?
On the face of it, therefore, Cellnet’s alleged conduct in adopting a policy of ‘margin squeeze’ was unilateral conduct on its part. However it remains to consider whether it can be said that Unipart consented to or tacitly acquiesced in such a policy, thereby giving rise to the requisite ‘concurrence of wills’ (as that concept is explained in the passages in the judgments of the CFI and the ECJ in Bayer quoted earlier in this judgment).
Plainly Unipart did not positively consent to the adoption of such a policy, which would have operated directly against its commercial interests: indeed, it complained to OFTEL about Cellnet’s conduct. So the only question is whether there was in the instant case ‘tacit acquiescence’ of the kind which was found to exist in Sandoz.
I find it impossible to see how, applying Bayer, a finding of tacit acquiescence by Unipart could be made in this case. In paragraph 101 of its judgment in Bayer (quoted in paragraph 66 above) the ECJ referred to “a unilateral policy of one of the contracting parties, which can be put into effect without the assistance of others” (my emphasis). In my opinion the policy of ‘margin squeeze’ (if adopted) was just such a policy. Indeed, its anti-competitive efficacy derives from the very fact that a network operator, by reason of its market power (albeit not amounting to a dominant position), coupled with its ability to cross-subsidise its own TSPs, is in a position to put pressure on ISPs with a view to driving them out of the market. It requires no cooperation or assistance from the ISPs: on the contrary it is, by its very nature, a unilateral policy aimed at “the weakening of ISPs and their eventual elimination from the mobile service provision market” (see paragraph 15 of the Particulars of Claim, quoted in full in paragraph 26 above).
Thus the instant case is in my judgment distinguishable from Sandoz. In Sandoz, the repeated orders for products, and the successive payments by the wholesalers of the prices stated on the invoices, coupled with the lack of any protest, were held to constitute tacit acquiescence by the wholesalers in the clauses stipulated in the invoice and the type of commercial relations underlying the business relations between Sandoz and its clientele (see paragraph 161 of the CFI’s judgment in Bayer, quoted in paragraph 58 above). In effect, the wholesalers in Sandoz were found to have become party to, or complicit in, the anti-competitive policy adopted by Sandoz. As the ECJ said in the course of its judgment in Sandoz (in a passage quoted by the CFI in paragraph 162 if its judgment in Bayer: see paragraph 58 above):
“…. the whole of the continuous commercial relations, of which the ‘export prohibited’ clause formed an integral part …. were governed by a pre-established general agreement applicable to the innumerable individual orders for Sandoz products.”
In my judgment for reasons I have already given, and applying Bayer, no equivalent finding is open in the instant case in relation to Cellnet’s alleged adoption of a policy of ‘margin squeeze’.
I conclude, therefore, that the judge was right to regard Bayer as decisive of the issue before him and to conclude that the conduct of which complaint is made in the instant case “was indeed truly unilateral”. That conclusion makes it unnecessary for me to address Mr Green’s alternative contention, raised by the Respondent’s Notice.
RESULT
I would dismiss this appeal.
Mr Justice Laddie:
I agree.
Lord Justice Peter Gibson:
I also agree.