Arkin v Borchard Lines Ltd. & Ors

The Claimant, Mr Arkin, claims damages for breach of the Rome Treaty and in particular of Article 82 and, in the alternative, of Article 81. This, I am told, is the first time that the English courts have had to determine such a claim. The nearest similar case is Courage Ltd v Crehan [2001] 3 WLR 1646, but that was concerned only with Article 81 (then numbered 85) and not with Article 82.

Mr Arkin was managing director of a liner operating company called BCL Shipping Line Ltd (“BCL”). He and his wife were the only shareholders. BCL was incorporated in the United Kingdom. It operated liner services on various routes to and from Haifa and Ashdod in Israel. This action is concerned only with the operation of liner services on the routes between ports in the North Continent and Israel and ports on the East and West Coasts of the United Kingdom and Israel. There was both northbound and southbound traffic on both routes. I refer to these routes collectively as “the Relevant Market”, although I shall have to consider later in this judgment the legal justification for treating them as a single market.

The liner services offered by BCL with which this action is concerned were for container transport, although BCL also carried break bulk cargoes as well as containers on board its vessels. Those vessels were owned by one-ship companies usually incorporated in Liberia and invariably owned and controlled by Mr Arkin. BCL chartered from those companies the tonnage deployed on its liner services.

BCL was incorporated in 1988 and entered the Relevant Market in March of that year. It subsequently operated services between Israel and South Africa, the Adriatic and Turkey. It had a large office in Israel as well as its head office in London.

Up to that time the only regular liner services on the Relevant Market were provided by two conferences. CONISCON provided the services between the North Continent and Israel and UKISCON those between the East and West Coasts of the United Kingdom and Israel. Both Conferences had almost identical conference agreements signed on 31 July 1984 which included a provision that the parties were “committed to do their utmost in order to compete with any third party line commencing any service within the scope of (the) Agreement.”

The defendants were all members of one or both of CONISCON and UKISCON. The members of CONISCON were Zim, who are 1^st and 6^th Part 20 defendants, DNOL 3rd Part 20 defendant, KNSM, 5^th Part 20 defendant, Borchard who are 1^st defendant and Part 20 Claimant, ISCONT and CIS. The members of UKISCON were Zim, Furness Withy who are 3^rd defendant and 8^th Part 20 Defendant, Ellerman Lines now known as Camomile Lines who are 2^nd defendant and 10^th Part 20 Defendant, Borchard, ISCONT and CIS.

Mr Arkin, in addition to his ownership and control of BCL and the shipowner companies, also owned and controlled Multifleet Marine Ltd, a UK incorporated management company which had the function of operating and managing the one-ship companies. It was viewed by Mr Arkin and his various bankers as a group control company. Its functions included the payment of the disbursements, including port dues, charter hire and commissions, arising from the operation of the lines and the shipowner companies.

Another liner operator owned and controlled by Mr Arkin was BCSL. This operated liner services between the United States and Israel. Other liner services operated by Mr Arkin’s group included those to South America and West Africa. Included in that group was a company called Bay Maritime, whose only relevant function was a treasury for funding other companies in the group.

In the course of 1988 and 1989 and up to August 1990 BCL built up a small and fairly stable market share on the Relevant Market. This was in the order of 10-12 per cent. The rates were substantially below those of the Conferences – usually by about 20 per cent. BCL aimed to attract business from shippers who were prepared to accommodate delayed delivery and less regular services than those offered by the Conference vessels. BCL only operated about two shipments per month and because its vessels were slower and were not exclusively container ships but also carried break bulk cargoes, loading operations tended to be less speedy and smooth-running than with conference vessels which only loaded containers. BCL vessels therefore tended to attract less valuable cargoes than Conference vessels.

In spite of the fact that for these reasons BCL aimed at the bottom end of the market, the Conferences saw it as a serious competitor. They engaged in vigorous anti-competitive activities even before the time when BCL entered the Relevant Market. Thus, in December 1986 both conferences introduced a system of non-contractor rates (NCRs). These involved charging shippers who did not ship exclusively with Conference members a 20 per cent premium above tariff. In June 1987 so-called “fighting committees” were set up to co-ordinate the Conference’s response to competitors. There can be no real doubt, although this was not debated in the present trial, that the NCR system was unlawful because it was an abuse of the Conference’s dominant position under Article 86 (now 82) and because it was at that time the result of an anti-competitive agreement, decision or concerted practice under Article 85 (now 81).

It was not until 1 July 1987 that EC Regulation 4056/86 (“the Block Exemption”) came into effect. This was an important event for the European shipping industry and the Conferences in particular because it created an exception to the effect of Article 85 (now 81) in favour of liner conferences charging uniform or common rates of freight. In essence, under Article 85(3) it exempted from unlawfulness agreements, decisions or concerted practices by liner conferences which would otherwise have been unlawful anti-competitive conduct and rendered void under Article 85(1) and (2) and imposed on such liner conferences various duties to be performed in the course of their operations.

I shall have to examine the meaning and effect of this Block Exemption in some detail later in this judgment.

After BCL entered the market the Conferences operated the NCR system and for internal reasons, which do not matter for present purposes, introduced a rating structure which permitted some conference members to charge lower rates than others on the same route.

In January 1989 BCL sent to the European Commission a complaint about the conduct of the Conferences on the Relevant Market, alleging breach of Articles 85 and 86. Support for BCL’s complaint was subsequently provided by the British Shippers’ Council, the Israeli Shippers’ Council and the European Shippers’ Council. Throughout 1989 and up to August 1990 the Conferences very closely monitored BCL’s activities on the Relevant Market and, although they never undercut its rates, they aimed to recapture from BCL its most important carryings of paper, tyres and spares. To this purpose, the Conferences set up a Freight Managers Committee (FMC) which took decisions about challenging the competition from BCL by targeting particular shippers.

Up to the beginning of 1990 the BCL operations in Israel were managed by Mr Arkin’s niece and nephew Na’ama and Boaz Arkin. Both had previous experience in the shipping industry and both played an important part in launching and developing BCL business on the Relevant Market. They had important client contracts. However, disagreements arose between Mr Arkin and those two over whether a service between Israel and the USA should be set up. They were opposed to it. Mr Arkin claimed to have dismissed them early in 1990. He replaced them with an established and experienced shipping agency, Johnson Stevens. However, in the summer of 1990 Na’ama and Boaz Arkin were recruited by Mr Aponte, owner of Mediterranean Shipping Corporation (MSC), to set up an office in Israel to enable him to start a service on the Relevant Market.

The advent of MSC had an immediate and dramatic effect on the market. In the space of only six months it achieved a market share of over 30 per cent on the CONISCON routes. BCL therefore had to compete not only with the Conferences but also with MSC. BCL, having had a market share of 12 per cent southbound and 6 per cent northbound in September 1990, at first held that share until the end of 1990 but then, having reduced its capacity from three to two vessels, its market share fell back to 7 per cent until September 1991. During the period from September 1990 until March 1991 BCL made three rate reductions which appear to have had the purpose of charging less than either the Conferences or MSC, the latter having entered the market at roughly the same rates as BCL, but subsequently having further lowered its rates in October 1990. It was not until December 1990 and January 1991 that the Conference began to reduce its rates apparently to reduce the differential with those of MSC.

In the meantime, the European Commission was still considering BCL’s complaint. On 19 November 1990 BCL wrote to the Commission asking for its complaint against the Conferences to be advanced with urgency but also mentioned that the “cartel” had started a price war. Having received from the Commission a request for information about the price war BCL replied on 9 January 1991 that because they wanted their original complaint dealt with, they did not want to go into the question of the price war.

On 15 January 1991 the Conferences decided, on legal advice, to abandon the NCR system and so to inform the Commission. This was made public in February when the Conferences’ solicitors, Lovell White Durrant also informed the Commission. Differential rating was also abandoned.

These proceedings were begun six years after 18 April 1991 and it is accepted by the Claimant that it is not entitled to rely on any conduct of the defendants occurring before that date as giving rise to a cause of action for breach of the Conference members’ duty in respect of which this claim can be pursued.

Between 18 April 1991 and the end of September 1991 there developed between the Conferences, MSC and BCL a rate war of some ferocity and of unusual length. This saw the Conference rates on the North Continent-Israel southbound route fall from DM 1525/1675 per TEU (twenty foot container equivalent unit) to DM 975/1050 and BCL’s rates fall from DM 1500/1600 to DM 750 in the same period. I shall have to consider the details and purposes of the Conferences’ rate-cutting policy and the reaction to it of MSC and BCL later in this judgment. A fundamental issue on the question of liability is whether the Conferences reduced their rates with the intention of eliminating or distorting competition in the Relevant Market.

The collapse in the rate levels severely reduced BCL’s freight revenue. It was eventually forced to withdraw from the Relevant Market at the beginning of October 1991. At that point, it was charging such low rates that freight income was making no contribution to its operating costs and was not even enough to cover its average variable costs. Conference members were also suffering substantial losses. CIS subsequently went into administration. Furness Withy and DNOL gave notice of withdrawal from the Conferences in September 1991.

BCL went on trading, providing liner services on the South Africa-Israel and other routes. BCSL also continued providing liner services on the United States route. There was also the liner service between Brazil and West Africa. The shipowner companies sold a number of vessels and attempts were made to re-finance outstanding loans.

On 4 November 1991 the European Commission issued its Statement of Objections. That put forward the prima facie view that the Conferences were in breach of Article 81 by reason of the NCR and of differential rates between Conference members.

The exercise of refinancing the Multifleet group was pursued during January to May 1992. This in part involved a German bank called Marcard Stein. The negotiations were complex and the detail does not matter for present purposes. They were the background to an earlier trial in this court, which I heard: Ocarina Marine Ltd and Others v. Marcard Stein, Judgment (Unreported) 13 February 1998. The trial was largely concerned with whether the indebtedness of Multifleet Marine Ltd as it existed in April/May 1992 had been guaranteed or secured by three one-ship companies which had owned three of the vessels in the group. The evidence in that trial has been admitted as evidence in this trial. It leaves no doubt that by May 1992 the Multifleet group was insolvent. Having sold almost its entire fleet of 15 vessels by September 1991 its debts exceeded the remaining net equity in its two remaining unsold vessels. The group then ceased trading, having no further funds and no further ability to refinance the outstanding debts. BCL and BCSL were thereupon also obliged to cease trading. They could not continue if the group stopped trading.

BCL failed to file accounts for 1991 and 1992 and on 7 September 1993 it was struck off the Companies Registry and a week later it was dissolved.

The European Commission held a hearing of BCL’s complaint on 30 April 1992. In the course of that hearing BCL’s counsel informed the Commission that the Conferences’ conduct complained of came to an end after February 1991 and further that what happened as from January 1991 was irrelevant for the purposes of BCL’s complaints. Although BCL kept open its right to bring a separate complaint in respect of later conduct, it was not requesting that such conduct should be considered for the purpose of the instant complaint. No such complaint was ever made. Eventually by letter dated 19 September 1993 the Commission informed BCL’s lawyers that there was an insufficiently strong Community interest in proceeding to a Decision on BCL’s complaint in view of the fact that the Conferences had amended their agreements in early 1991. By ceasing to operate the NCR system and differential rate system those Conference agreements appeared to be entitled to the benefit of the Block Exemption.

There the matter rested for two and half years until, in February 1996, Mr Arkin consulted his present solicitors. On 2 October 1996 BCL was restored to the Register and put into liquidation and on 20 March 1997 took an assignment from the liquidator of the choses in action for claims for damages and costs “for breach of Article 85 and/or under any similar provisions”. I subsequently decided that this wording was wide enough to cover claims for breach of Article 86(now 82). Half of the amount recovered was to go to the Liquidator and the other half to Mr Arkin.

Legal aid was first granted to Mr Arkin, thereby enabling the writ to be served on 18 April 1997.

In 1997 legal aid was first granted to Mr Arkin and then withdrawn. Counsel and solicitors subsequently represented him under conditional fee agreements. Mr Arkin had no funds except his state pension. The provision of expert accountancy and tax evidence on behalf of Mr Arkin and the cost of organisation of documents on his behalf has been financed by MPC, Managers & Processors of Claims Limited (MPC) on a conditional basis.

The claim is brought primarily for breach of the defendants’ duty under Article 82 of the Rome Treaty. The Claimant asserts that from the period 18 April to the end of September 1991 (which is the relevant period in view of the Limitation Act cut-off date) the Conference members acting collectively as both Conferences occupied a dominant position in container carriage on the Relevant Market and abused that position in three respects, namely their rate-setting policy in the course of the rate war which involved predatory pricing, their use of so-called “fighting ships” and their spreading of rumours that BCL was insolvent and/or would have to leave the relevant market.

The secondary basis for the claim is for breach of Article 81 of the Rome Treaty. Here the basis is that the Conferences were at all material times during the relevant period disentitled to the protection of the Block Exemption and were therefore by their price fixing agreements or decisions or concerted practices acting contrary to the prohibition in Article 81. The Claimant asserts that the benefit of the Block Exemption is not available to the defendants because the Conferences, particularly UKISCON were not charging uniform or common rates of freight and secondly because they were in breach of other requirements of the Block Exemption by their predatory pricing, use of fighting ships and rumour-mongering.

It is said by the Claimant that these breaches of duty have caused BCL heavy losses both during and after the relevant period until it ceased trading in May 1992 and have further caused it the loss of the profits that it would have made if it had not been forced to cease trading when it was, but went on for a further 10 years. They also claim exemplary damages amounting to over $80 million. It is said that the Conferences pursued a deliberate course of breach of duty under Articles 82 or 81 motivated by the purpose of obtaining a financial benefit from the departure of BCL from the market which would exceed any possible fine or compensation with which they might be charged.

The defendants’ case on Article 82 is that the Conferences lost their previous dominant position when MSC entered the market and succeeded in gaining a substantial market share in a very short time and thereafter retaining it. The defendants say that their relative market power was no longer such as to make their position dominant. They further assert that if they did occupy a dominant position, they were not in abuse of it for in their rate-setting they did not have the intention of eliminating or distorting competition but rather of competing in a fair and proportionate way with MSC and BCL and with the purpose of preventing further loss of market share and regaining recently lost customers. They deny the use of fighting ships or spreading rumours.

As to Article 81, the defendants say that they did charge uniform rates and that they were not in breach of the Block Exemption. Consequently, they are entitled to its protection. Alternatively, any breaches of the requirements of the Block Exemption were severable by reason of the operation of Article 4 of the Regulation. They take the fundamental point that if the Claimant fails under Article 82 on his abuse arguments he cannot succeed under Article 81.

The defendants also say that even if there were breaches of Articles 81 or 82, those breaches did not cause the claimed loss. Any such loss, was caused by the irrational conduct of BCL, which was already insolvent by the beginning of the relevant period, in attempting to remain in the Relevant Market and progressively reducing its rates to what have been described as suicide levels by July and September 1991 and thereby causing itself crippling loss. In any event, the defendants say that there is no evidence that the alleged breaches of duty caused the collapse of the Multifleet group as a whole or, therefore, the inability of BCL to go on trading after May 1992. The defendants also rely on the fact that at the start of the relevant period, BCL was insolvent to found a defence of ex turpi causa based on wrongful trading by BCL. They deny that any loss would have been caused in any event because BCL could not have traded profitably once MSC had entered the market.

It is submitted that the UK/Israel and Coniscon Conferences should be treated as one entity for the purpose of ascertaining whether any of the defendants have participated in abuse of a dominant position. The two Conferences held joint decision-taking meetings and demonstrated a sufficiently unified economic position and administrative structure with a sufficiently common purpose in the market to be treated as a single undertaking. The fact that a conference could be a dominant entity for the purposes of Article 82 was implicit in Regulation 4056/86 – the Block Exemption – and was recognised as such by the Commission’s decision in the CMB Case, supra, at paragraphs 59 and 60, and by the decision of the CFI at [1997] 4 CMFR paragraphs 64 and 65. Those decisions were approved on appeal by the ECJ at [2000] 4 CMLR 1076.

In the present case there were two distinct conferences solely because not all the participating lines were members of both conferences. Some of them operated exclusively on the UK-Israel or North Continent-Israel routes respectively. Zim, Borchard, CIS and ISCONT were members of both conferences, whereas Ellerman and Furness Withy were only in the UK-Israel Conference and DNOL and KNSM were only in CONISCON. However, the two conferences co-operated to a significant extent with regard to their policy towards competitors, holding joint executive conference meetings and joint meetings of the FMC committee from 1990 onwards, setting up a joint computerised fighting centre to process information on “competition carryings”, exchanging information on common competitors, making tonnage available as between the conferences and co-ordinating sailing schedules through a tonnage centre located in London. The conferences were regarded by the shippers and their representative bodies, such as the Israeli Shippers Council, as a single “cartel”. Further, the conferences were actively discussing a formal merger from October 1991 and the two secretariats eventually did merge in April 1992.

Borchard expressly accepted that, on the basis of the decisions in CMB, the two conferences should be considered as a collective entity.

The 2-4 Defendants did not demur in their final submissions from the Claimants’ approach.

Zim, however, presented a submission to the following effect.

In relation to any particular conduct alleged to be abusive it is necessary to investigate whether each member of the allegedly collective entity was aware sufficiently precisely and with sufficient immediacy whether other members were indeed pursuing the same strategy. Further, all members of the entity have to have a common policy the effect of which is that individual members will be deterred from deviating from the common policy. Yet further, that, in order to establish that such an entity holds a dominant position, it must be established that members’ perception of the likely reaction of competitors external to the entity and of consumers is that such reaction would not jeopardise the objectives intended to be achieved by the conduct in question.

Zim relies for this submission on the recent decision of the CFI in Airtours v. Commission (Case T-342/99, 6 Jun 2002). Zim argues that, as regards the main feature of the Conferences’ conduct said by the Claimant to be abusive – predatory pricing, that is establishing freight rates below ATC – the state of knowledge of the individual members of the costs of the other members was non-existent or almost entirely deficient and therefore no individual member would know whether any other member in adopting the conference tariffs or any reduction on those tariffs was operating at below ATC. Accordingly, no individual member would know whether collectively there was predatory pricing. In this connection, Zim relies on the evidence of Mr David Johnson and Dr Bishop.

The question whether the two conferences together constituted a collective entity has to be resolved at the outset of consideration of the Claimant’s case under Article 82. The Claimant asserts that the defendants’ breaches of duty consisted in their participation in one or both conferences and, most significantly, in relation to pricing alleged to be predatory. Since liability is founded on participation in either or both conferences, it is essential to identify the characteristics of the conferences and of their inter-relationship which in relation to the conduct complained of could render either or both of them collective entities.

It is clear from the decision of the CFI in the CMB Case, supra, as appears from paragraphs 64 to 68 of the judgment, that the fundamental question in the context of the shipping industry is whether the conference members operated a decision-taking system which enabled them “to adopt together the same conduct on the market in order to react unilaterally to a change, deemed to be a threat” to their position as competitors in the market. It is thus the ability to develop a common overall strategy directed to overcome the threat to their market share which is the essence of the collective feature, whether of a single conference or of a combination of conferences.

The judgment of the CFI in the TAA Case (T-395/94) (28.2.02.) took a similar approach to that in CMB in as much as it emphasised the fact that a liner conference as defined by the Council for the purposes of qualification for block exemption under Regulation 4056/86 could be characterized as a collective entity which presented itself as such on the market since it fixed uniform freight rates for all its members in the sense that the same price would be charged for the carriage of the same cargo from point A to point B, regardless of which ship-owning member of the conference was responsible for carriage (paragraph 157 of the judgment).

It is thus the decision–taking structure directed to fixing a uniform freight rate or to establishing some other uniform conduct directed to protection against competition that renders the entity “collective”. On the face of it, that is a quite distinct question from two further questions:

The relevant issue in Airtours plc v, Commission (T-342/99) (6.6.02) was whether, in declaring incompatible with the common market the merger of Airtours and First Choice plc, the Commission had applied a new and incorrect definition of collective dominance. The Commission’s conclusion was arrived at on the ground that the merger would create a collective dominant position in the United Kingdom market for short-haul foreign package holidays as a result of which competition would be significantly impeded in the common market. The substance of that decision is summarised at paragraph 67 of the judgment of the CFI. It shows that the Commission’s decision turned on its perception of the impact of the proposed merger on competition between the largest players in the short-haul market. It concluded that by reducing the participants in 80 per cent of the market from four to three, the resulting three would have little incentive to compete with each other, and could have every interest in adopting parallel conduct tending towards reduced capacity for there would, for economic reasons, be an increased degree of transparency and interdependence. In testing whether the Commission had applied the correct legal principle for identification of the results of the merger giving rise to a collective dominant position the CFI quoted with approval a definition of collective dominance which was common ground in that case (paragraph 62). It was as follows:

“First, each member of the dominant oligopoly must have the ability to know how the other members are behaving in order to monitor whether or not they are adopting the common policy. As the Commission specifically acknowledges, it is not enough for each member of the dominant oligopoly to be aware that interdependent market conduct is profitable for all of them but each member must also have a means of knowing whether the other operators are adopting the same strategy and whether they are maintaining it. There must, therefore, be sufficient market transparency for all members of the dominant oligopoly to be aware, sufficiently precisely and quickly, of the way in which the other members’ market conduct is evolving;

Second, the situation of tacit coordination must be sustainable over time, that is to say, there must be an incentive not to depart from the common policy on the market. As the Commission observes, it is only if all the members of the dominant oligopoly maintain the parallel conduct that all can benefit. The notion of retaliation in respect of conduct deviating from the common policy is thus inherent in this condition. In this instance, the parties concur that, for a situation of collective dominance to be viable, there must be adequate deterrents to ensure that there is a long-term incentive in not departing from the common policy, which means that each member of the dominant oligopoly must be aware that highly competitive action on its part designed to increase its market share would provoke identical action by the others, so that it would derive no benefit from its initiative (see, to that effect, Gencor v. Commission, paragraph 276);

Third, to prove the existence of a collective dominant position to the requisite legal standard, the Commission must also establish that the foreseeable reaction of current and future competitors, as well as of consumers, would not jeopardize the results expected from the common policy.”

This definition is relied upon by Zim in support of its submission that, unless it were established that there was sufficiently available to the participants in the conferences information as to other members’ costs bases, there would be lacking the essential characteristic of an entity necessary to render it capable of exercising collective dominance and collective abuse of a dominant position.

I cannot accept this submission. The CFI was concerned in Airtours with the impact on other participants in the market of a merger between two existing participants. It was thus essential to investigate whether the state of knowledge amongst those participants, following a merger, of each other’s market strategy was such as to lead to a continuing “tacit co-ordination” in their conduct. In that context the element of collectivity could be derived from the likelihood of such tacit co-ordination. This, in my judgment, does not support the proposition that a system of joint decision–taking which as a matter of fact leads to predatory pricing on a uniform basis lacks collectivity absent knowledge of the costs of co-participants in the relevant entity. That which renders the entity a collective one is the facility that members can co-ordinate their policy by taking joint decisions on such matters as uniform pricing so as to promote a uniform market strategy. It is this system of effecting a uniform response to competitive pressure which renders the entity a collective one. The question whether the uniform rates thus agreed upon by that entity are below the ATC of any of the members of the entity is, as will be developed later in this judgment, an important matter of evidence which goes to the underlying purpose of the collective decisions of the entity and in particular whether, if the entity holds a dominant position, the implementation of those decisions represents an abuse of that position.

Further, although on the evidence individual members of the two conferences did not know the precise level of costs of other members on particular routes, each must have appreciated throughout at least a substantial part of the later period before BCL withdrew from the market that many of them were failing to trade profitably as the conference tariffs were reduced. Indeed, this belief must have been reinforced by the notices of withdrawal of DNOL from CONISCON and of Furness Withy from UKISCON on 12 September 1991, which were attributed in press reports to the low level of conference rates. Further CIS went into administration at the end of December 1991. By 7^th February 1992 Zim, in pressing for an increase in conference tariffs observed that “all conferences vessels are fully booked with non-economical rates which incurs tremendous losses to all concerned”. It is, in my judgment, proper to infer that if Zim expressed that view early in February 1992, that must have been information which the other conference members must have regarded as at least probably correct not only at that time but since the time when rate reductions gathered pace in the summer of 1991.

I therefore find that the two conferences were indeed sufficiently connected and their decision-taking as to the levels at which they set tariffs was sufficiently concerted for them both to be treated as connected entities for the purposes of an investigation as to whether they were as such dominant in the relevant market and, if so, whether they acted collectively in abuse of a dominant position.

The issue that arises is whether, for the purposes of ascertaining whether the conferences held a dominant position, one looks only to the container market or to a wider market including bulk and refrigerated carriage - the “break bulk” market.

The Claimant submits that the break bulk market should be ignored and only the container market should be considered. Whereas the conferences provided only container services, BCL’s vessels had both container and bulk carriage capacity. It is submitted that carrying capacity which did not exert a major influence on the demand for container services should not be treated as included in the relevant market. In this connection the claimant relies on the evidence given to the Commission by the British and Israeli Shippers’ Councils in response to requests for comment on the lists of competitors put forward by the conferences. There were 13 lines in addition to BCL and MSC. Most of them were exclusively bulk carriers. They were described by the letter of 6^th May 1991 from the Israeli Shippers Council as “only partly in competition with members” of the conferences. In its context this was because most of them did not offer container services. By its letter of 14^th May 1991 the British Shippers’ Council observed that these services were “predominantly break bulk and as such did not provide like for like comparable liner services in the market. These services therefore have little if any competitive influence on the conference”.

The Claimant further relied on the evidence of Mr Meurs who accepted that the shippers’ councils held that view, although not necessarily the conferences. However, there was also evidence which the Claimant relies on as supporting the proposition that the conferences also held that view. Thus, the Conference Agreements were, by Clause 4.1, expressly applicable only to the container trade. Secondly, exclusivity agreements which the Conferences invited shippers to accept in 1988 did not apply to bulk or refrigerated cargoes. Thirdly, the Conferences internal documents analysing their own and competitors’ market share related only to the container trade. Finally, the Conferences’ joint minutes, when considering “opposition” lines rivals, refer only to MSC,BCL and MCL and not to any line which was a bulk cargo line.

The Claimant relies also on the expert evidence.

Mrs. Jean Richards, who was called as shipping industry expert by the Claimant, stated in her supplemental report that although shippers of bulk cargo might switch to containers if the cargo were suitable for such carriage, they would be unlikely to wish to move back to bulk carriage in view of the fact that the process of containerisation was a capital-intensive one for a shipper or importer.

Mr. Johnson, the 2-4 Defendants and Part 20 Defendants’ shipping industry expert, when invited by the court to estimate the overall proportion of all cargo passing between UK, North Europe and Israel and in reverse in 1991 which might be sensitive to freight rates in as much as they might be switched from containers to bulk carriage, stated that it would be below 10 per cent. In cross-examination he accepted that the products that might be subject to switching out of containers and back to bulk carriage on these routes were likely to be sugar and building materials.

Dr. Bishop, the Claimant’s expert economist also stated in his report that the relevant market was the container market.

Professor Yarrow, Zim’s expert economist, did not express a view on whether the effect of the evidence was that the relevant market was the container market, but he accepted in the course of questioning by the court that, if the extent of transfer of demand from the container market to the bulk market when container rates changed would only be very modest or perhaps negligible, one could be reasonably confident in concluding that the relevant market was the container market.

Borchard and Zim advanced no positive case challenging the Claimant’s position that the relevant market was the container market.

The 2-4 Defendants, while asserting that the issue was irrelevant because the Conferences were dominant neither in the container market nor in the break bulk market, submitted in the alternative that, on the basis of Mr. Johnson’s evidence in his report about the total cargo tonnages carried by the conferences and their competitors, the relevant market included break bulk and refrigerated capacity for certain cargoes.

Identification of a relevant product market depends crucially on the extent to which demand-side participants are prepared to substitute alternative goods or services from outside the assumed market range in response to less favourable terms of supply, such as price increases. In Hoffman La Roche v Commission Case 85/76, the ECJ stated at paragraph 28:

“If a product could be used for different purposes and if these different uses are in accordance with economic needs, which are themselves also different, there are good grounds for accepting that this product may, according to the circumstances, belong to separate markets which may present specific features which differ from the standpoint both of the structure and of the conditions of competition.

However this finding does not justify the conclusion that such a product together with all the other products which can replace it as far as concerns the various uses to which it may be put and with which it may compete, forms one single market.

The concept of the relevant market in fact implies that there can be effective competition between the products which form part of the same market in so far as a specific use of such products is concerned.”

It is therefore the extent of interchangeability which is the key consideration. The court is concerned to delineate the boundaries of the relevant market by locating the point beyond which other products or services present only an insignificant degree of competition by reason of interchangeability: see Ahmed Saeed Flugreisen v Zentrale zur Bekampfung unlauteren Wettbewerb [1990] 4 CMLR 102. In United Brands v Commission [1978] ECR 207 the issue arose whether the banana market could be treated as the relevant product market as distinct from the entire fresh fruit market. The ECJ stated its approach at paragraph 22:

“for the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets it must be possible for it to be singled out by such special features distinguishing it from other fruits that it is only exposed to their competition in a way that is hardly perceptible.”

The Commission’s Relevant Market Notice, like the United States Department of Justice 1984 Merger Guidelines, adopts a hypothetical model test of interchangeability as follows. How would customers in the market for product A react to a small but non-transitory increase in the price of A? If an increase in price of 5 to 10 per cent would lead to such a substantial substitution into product B as to render the increase in the price of A unprofitable by reason of consequentially reduced demand, product B must generally be treated as within the relevant market. This is generally referred to as “the SSNIP test”.

The evidence in the present case strongly suggests that during the period 1990-1991 there was both a substantial increase in the tonnages carried on the UK and North Europe to Israel routes and a steady decline in the use of bulk capacity relative to container capacity. This relative shift in demand for the two kinds of capacity suggests that the supply of bulk capacity was more vulnerable to interchangeability than was the supply of container capacity, there being a developing preference for container transport for those cargoes which were significant on the conference routes. The general effect of the evidence of Jean Richards strongly supports the asymmetric nature of the bulk and container markets. The analytical exercise conducted by Dr. Bishop by reference to relative trends in container and bulk time charter rates also suggests that these markets overall had no great overlap. Mr. Johnson’s, albeit very broad brush, estimate of the extent of demand side switching from container capacity to bulk capacity at below 10 per cent further suggests that the two services had little practical overlap. However, not a great deal of weight can be placed on this view because it referred to a period of declining container rates. The real test would be the level of switching if container rates were increasing.

I conclude that from the demand-side point of view, container transport was, during the period in question, seen as a generally more desirable mode of carriage than bulk carriage. It was seen as more reliable, more efficient and worth the deployment of, and investment in, the necessary cargo handling facilities. Although in certain trades, sugar and building material amongst them, there was some interchangeability from containers to break bulk capacity, this represented a very small overlap. Overall, there is, in my judgment, sufficient evidence to infer that a small long-term increase in container tariffs would not have led to any significant shift in demand from containers to break bulk and, having regard to the relative proportions of the total cargo carried by all means on these routes, certainly not to the extent that would have equaled the benefit to the conferences of a tariff increase.

Accordingly, I hold that the relevant product market was the container market, both northbound and southbound and in respect of both Conferences’ routes.

The Claimant submits that in every case where the issue of dominance arises it is necessary to consider as a fundamental factor the undertakings’ share of the relevant product market. In general the following exposition given by the ECJ in Michelin v Commission [1983] ECR 3461, [1985] 1 CMLR 282 needs to be qualified because the court has applied different indicators as to dominance:

“Consequently Article 86 prohibits any abuse by an undertaking of a dominant position on the common market or a substantial part thereof in so far as it may affect trade between Member States, that is to say in so far as it prohibits any abuse of a position of economic strength enjoyed by an undertaking which enables it to hinder the maintenance of effective competition on the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of consumers.”

In particular the existence of a dominant position does not indicate that all competitive pressures on the dominant party are absent and it can arise where substantial and even fierce competition from rival suppliers has a direct impact on market price. The Claimant relies on the CMB case as an example. Further an undertaking can be dominant even when other suppliers collectively have market shares which are large and even if in aggregate they exceed that of the undertaking. The Claimant relies for this proposition on United Brands, supra, and Virgin-British Airways Case 219/99. The ability to act “to an appreciable extent independently” is no more than an ability to affect or damage or hinder rivals in the market: it is not necessary that the undertaking has the ability to eliminate rivals.

In reliance on the CMB Case the Claimant puts forward six relevant factors to be taken into account when assessing dominance.

Amongst these factors it is submitted that market share is fundamentally important. Thus in Hoffmann La Roche v Commission, supra, at paragraph 41 it was said that very large market shares are in themselves, and save “in exceptional circumstances”, evidence of the existence of this dominant position. There is no case where market shares at the level of the Conferences in the present case (about 66 per cent) have not been held to give rise to a dominant position.

The Claimant refers to a number of cases in which a market share lower than that of the Conferences in this case has been held to give rise to dominance, in particular Virgin-British Airways, supra, in which the Commission found British Airways dominant with 39.7 per cent, and United Brands, supra, where dominance was found at 40 to 45 per cent. It is right to observe that in both those cases the dominant undertaking was far larger than its nearest rivals. Much reliance is placed by the Claimant on the ECJ judgment in AKZO v Commission [1991] ECR1 – 3359 in which the ECJ held that 50 per cent of the market over a period of 3 years was a very large share of the market which was in itself, save in exceptional circumstances, evidence of the existence of a dominant position - applying Hoffman v la Roche, supra.

Building on these decisions the Claimant submits that the greater the market share above 50 per cent the stronger is the presumption in favour of dominance and the more insurmountable becomes the burden on the defendant to rebut that presumption. Thus, for example, in Michelin [1985] 1CMLR 282 the ECJ held that a market share of 57 –65 per cent was “a valid indication of (its) preponderant strength in relation to its competitors.”

The Claimant submits that the market share of the Conferences was nearly 100 per cent during a period of about 4 years before BCL entered the market in 1988. By August 1990 BCL’s share had been established at about 10 per cent. There was little or no new entry into the market other than BCL.

Following the entry into the market of MSC in September 1990, the market share of the Conferences dropped. By January 1991 MSC’s market share was 25-30 per cent. During the period January to March 1991 the Conference’s market share was 66 per cent overall (58% southbound 75% northbound), MSC’s market share was 27 per cent and BCL’s share had fallen to 7 per cent. Over the whole of 1991 the Conference’s market share averaged 68 per cent. Thus, throughout the relevant period, the Conference’s market share was more than twice as large as that of MSC, its closest rival and accordingly there must be a very strong presumption of dominance.

The Claimant submits that, in addition to the presumption attaching to this very large market share, there are other important factors which reinforce the conclusion of dominance. In particular the Conferences had long experience in the trades. Zim was 50 per cent owned by the State of Israel and in effect its national shipping line. It had very strong links with Israeli shippers and Israeli governmental institutions. In 1991 eighty five per cent of its 1500 employees worked in Israel. Borchard had operated in the trade since the 1930’s and other conference members had done so for over 20 years. The Conference in general and Zim in particular therefore were in a position of strong influence over Israeli shippers who controlled both the import trade by the terms on which they purchased and the export trade by the terms on which they sold.

A further factor, which, in the Claimant’s submission, enhanced the Conferences’ dominant position was the scope of the container service which they were able to offer. As pleaded by Borchard, the Conference was able to ensure that any of its vessels could serve any port at which any outsider sought to call - either under its existing schedule or by minor modifications to it. Thus in its Statement of Objections the Commission set out the number of sailings per year operated by Conference vessels - 151 or 12 to 13 per month, utilizing a total of 17 vessels of various capacities, ranging from 3 vessels of 240 TEU and 5 of 230/250 TEU, to one of 510 TEU, giving a total capacity of 6900 TEU’s. By comparison their competitors offered a modest breadth of service. Until MSC came on the scene BCL offered 2 to 3 sailings per month, and MCL offered only a southbound service 2 or 3 times a month. From September 1990 MSC opened its service with 2 sailings a month by two 650 TEU ships. Up to that time shippers who regularly shipped containers could not avoid using the Conferences’ services. In January 1991 MSC added two more vessels to its service bringing its total capacity to about 3000 TEU’s with a service of 50 sailings per year or about 4 per month.

Additionally, the Conferences’ breadth of service in the Eastern Mediterranean enabled them to take measures to challenge competition from rivals who tried to establish services, such as BCL between Izmir and Israel and MSC calling at Cyprus. This they did during March – July 1991.

Further, the Conferences were in a strong enough position relative to BCL and MSC to set tariffs above those charged by those competitors. Indeed, BCL recognized that if it were to compete effectively with the Conferences it was going to have to charge substantially less than the tariff. The Conferences’ services had a premium value above the charges by competitors, which they could maintain in their charges without losing custom.

The Conferences also had a superior intelligence – gathering facility to that of BCL or MSC. They reinstated the so-called FMC or “freight management committee” in Israel at a joint conferences meeting on 10^th April 1991. Its function was stated to be that of “ensuring an utmost exchange of information on competition and to co-ordinate possible contacts/visits to clients”. Zim was particularly adept in accumulating information about competitors as appeared from the evidence of Mr. Levy. Indeed, in April 1990 Mr. Levy had set up a system for computerising information about the operations of competitors. Although, as he said in evidence, 80 per cent of his information was from public sources, the rest was from his personal contacts in the shipping industry.

The Claimant further relies on the great financial strength of the Conferences compared with their rivals, BCL and MSC. Although the latter had, by the beginning of 1990, expanded formidably from an operation with one 2800 dwt vessel 20 years previously to a medium sized carrier on a global scale operating 15 services with a fleet of 30 vessels having a capacity of nearly 390,000 TEU’s each year, it was not a mainstream carrier, such as Zim or KNSM or Ellerman, all of whom were operating a wide international range of services, the last being valued at $60 million in September 1991. Indeed, the Conferences embarked on a price war in 1991 in the face of an estimate made in August 1990 that an all out freight war would cost DM50 million per year. Indeed, in July 1991 they considered that they should intensify the price war against MSC.

Finally, the very fact that the Conferences were prepared to engage in a price war with BCL and MSC over such a long period is relied on as evidence of dominance. The willingness and ability to sustain the cost of predatory pricing indicated that the Conferences were working on the assumption that the benefits of success would outweigh the cost and that was a further pointer to dominance.

In relation to the two main challenges to dominance advanced on behalf of the defendants, namely the submission that there were low entry barriers to the relevant market and the effect of MSC’s entry on to the relevant market, the Claimant’s submissions were as follows.

As to low entry barriers, the Claimant submitted that, whereas the height of entry barriers is a relevant consideration on the issue of dominance, the defendants had exaggerated its importance relative to very high market share. In support of this proposition the Claimant relied on the CMB Case, supra, in as much as it was there held that the Conference was dominant even though in the West African trade the barriers to entry were distinctly lower than in the Israeli trade. Therefore the weight to be attached to the higher barriers to entry in the latter trade should not outweigh the higher level of market share in this case. Further, in the United Brands Case, supra, the entry barrier of a high capital cost of market entry, in spite of which there had been market penetration of 55 per cent by new entrants, did not prevent United Brands being held to be dominant.

There were on the evidence relatively high barriers to entry on to the Israel trade. First and foremost was the Arab boycott of vessels and carriers. According to the evidence, which I accept, the Israel trade represented an extraordinary market and one which, as Mr. Johnson put it, “only the courageous would enter for a specific reason as against the general market”, like trading to Cuba. It would involve the risk of adverse complications for carriers trading to Israel who wished also to conduct business with Arab states. Chartering in tonnage would be significantly more difficult so as to avoid black-listing. Vessels trading to Israel would be subject to extra hull and machinery insurance premiums. Due to political instability in the Eastern Mediterranean additional war risks premium might be incurred.

Further, the Israel liner trade was relatively small and specialist. The ports were sometimes congested. The Israeli shippers, who controlled both northbound and southbound movements, and who, according to Mr. Meurs of KNSM, controlled about 75 to 80 per cent of the total trade, were notoriously difficult to deal with. Dealings with them by carriers involved hard bargaining on rates and service. It was therefore essential for a carrier to have a good personal relationship with the shipper if that carrier was to compete effectively in that market. Many of the Conference members, particularly Zim and Borchard, had been well-established in the Israel trade for many years and had strong links with the shippers as well as being experienced in the carriage of specialist cargoes. Additionally, if an outsider attempted to enter the Israel market, the progress in penetration could ordinarily be expected to be slow and the initial years were likely to involve substantial sunk costs and to be loss-making. A new entrant would therefore need a deep pocket to be able to afford to enter the market. Finally a potential new entrant would be deterred by the existing market strength of the Conferences which made it difficult for those shippers with requirements for regular tonnage to avoid using conference lines vessels both because of the regularity of conference sailings and the aggressive reaction of the conferences if they did not do so. The Claimant’s expert economist, Dr Bishop, recognized that what he called “cultivating a reputation for toughness of price competition” would be a deterrent to outsiders attempting to penetrate the market. It is submitted that the substantial financial resources of many of the conference members would enable them to respond aggressively, which is what they did in 1991.

The fact that during the period 1984 to 1994 only two carriers of any substance entered the market (BCL and MSC) suggested that there were substantial barriers to entry, particularly given that demand for capacity increased in 1989-1991.

As to the effect of the entry into the market of MSC, the Claimant submits that the CMB Case, supra, where the market share of the conferences dropped by over 26% in three years establishes that where over a relevant period a dominant undertaking steadily loses market share to rivals in the market to the effect that its share is heavily reduced, but yet remains over 50 per cent, it does not thereby cease to have a dominant position. For that to happen its market share would have to be reduced to below 50 per cent. The Claimant argues that, given that there was a considerable expansion of demand for capacity in 1990-1991, although the Conferences lost market share, they did not lose overall tonnage and that MSC was obliged to incur very substantial costs in operating at lower rates than the Conference in order to gain a market foothold in an expanding market. Accordingly, MSC’s entry and subsequent market share does not establish loss of dominance on the part of the Conferences.

The Claimant further relies on the decision of the ECJ in United Brands for the proposition that the advantage of “lively competition” from market rivals with a 55 per cent market share in aggregate is not imcompatible with retention of a dominant position.

In the present case MSC’s market share, having risen during the period from September 1990 to January 1991 from nil to 25 per cent, did not alter greatly after that in spite of the competition presented by MSC. The advent of MSC did not pose any real threat to the survival of the conferences. The fact that Furness Withy, DNOL and KNSM left the Conferences in 1991/1992 and CIS went into liquidation was nothing to the point. The Conferences had to be looked at as a whole and not by reference to individual members who for their own tactical reasons might have chosen to leave and transfer their available capacity to other routes.

From the point of view not only of relative market share but also of their other relative market strengths the case of dominance was stronger in this case than in the CMB Case.

Borchard relies on the definition of a dominant position in The Office of Fair Trading Guidelines 402 Chapter II Prohibition, para 3.9.

“An undertaking may be dominant if it possesses a substantial level of market power. The essence of dominance is the power to behave independently of competitive pressures. This can allow a dominant undertaking to charge higher prices profitably (or, if it is a dominant buyer, extract lower prices) than if it faced effective competition. It can also use its market power to engage in anti-competitive conduct and exclude or deter competitors from the market.”

It also relies on the definition in United Brands, quoted in para 3.10 of Guidelines:

“…….. a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of consumers.”

It relies further on the explanation of the application of this test by the ECJ in Hoffman La Roche, supra, at paragraphs 38-41.

On this basis Borchard argues that the effect of these authorities is that the position of economic strength of the allegedly dominant undertaking must at least enable it to prevent effective competition being maintained or to “hinder the maintenance of effective competition” as indicated by the ECJ in the Michelin Case, and that, although this does not involve that all competition is precluded, it does mean that the undertaking will have an appreciable influence over the conditions under which competition will develop and that it will be able to act largely in disregard of that competition so long as such conduct does not operate to its detriment. At the point where the strength of the competition is such that the undertaking cannot control the conditions under which the competitor acts and will act in disregard of its competitor at its peril the undertaking will cease to be dominant.

Very large market shares may alone be evidence of dominance but there may be exceptional circumstances in which they are not. A high market share held for a long period with relative stability is an important consideration in favour of dominance. So too is the ability of the undertaking to manage such a large part of the supply relative to total demand that competitors cannot rapidly respond to demand from customers prepared to switch their business to their undertaking.

Borchard further relies on Professor Yarrow’s evidence that the rate of decline of the Conferences’ market share in the period to January 1990 was of an “unprecedented” order of magnitude. This was much more rapid than the loss of market share in the CMB case (26 per cent over a three year period). In any event, in that case the decline in market share occurred after the end of the period of abusive conduct during which period the market remained steady at above 90 per cent.

As to the decision of the ECJ in AKZO, supra, it is submitted that in addition to the size of market share two factors are to be considered even if the share is above 50 per cent. These are stability of the share, that is the period over which it is held and “exceptional” circumstances which may displace the presumption of dominance arising from the very high market share. The rapidity of loss of market share after the entry of MSC in September 1990 showed that the market share was not stable. Even though the Conference’s market share remained relatively high at over 60 per cent after April 1991, the issue of dominance during that period has to be considered in the light of the earlier events following MSC’s entry. Reliance is placed on Professor Yarrow’s evidence that a dominant undertaking would not have allowed itself to lose 30 per cent of its market share in 3 months. Further, during the period after the Conferences’ market share had fallen so rapidly, it stabilized because they stopped acting independently and permitted their own rates to be controlled by the market rates set by MSC and BCL.

As to the breadth of experience of the Conference lines in comparison with that of their rivals, the evidence of customers shopping around for better rates suggested that little weight should be attached to this. Frequency of service provided by the conferences, although to be taken into consideration, should carry little weight because otherwise the Conferences could have charged a higher differential over competitors, according to Professor Yarrow. On the evidence the Conferences could not charge a significant premium over MSC’s rates unless they were prepared to lose business. Borchard relies in support of this proposition on the evidence of Professor Yarrow to the effect that the Conferences were, during 1991, re-acting to MSC’s rate-cutting and that customer demand was very sensitive to changes in price.

Borchard challenges the Claimant’s point that the Conference had a relatively deep pocket by comparison with MSC. The latter, having determined to enter the market, conducted a sustained price war at great cost. Several of the Conference members did not have a deep pocket and withdrew. CIS collapsed. Further, the Conferences were cumbersome in decision-taking as they had to respond collectively to MSC’s rate changes, which meant that they were simply left to re-act to the price war.

As to the United Brands Case, that like TetraPak, Akzo and CMB, differed from the present case because there was no comparable rapid capture of market share in those cases. After MSC had captured the market share the Conferences were obliged to bring prices into line with MSC and they ceased acting independently. The continuing level of market share after it had dropped to 65% did not connote dominance but merely competition.

It was clear that the conferences could not act independently of MSC and of their customers. The willingness of shippers to employ MSC during the relevant period suggested the existence of effective competition and, as observed by Professor Yarrow, was inconsistent with dominance. Borchard emphasise that the speed and degree of the incursion into the market of the new entrant was highly relevant to dominance, particularly when it changed the nature of the market for good, as happened in this case.

In summary, Borchard submits that the authorities support the proposition that, with regard to dominance, each case has to be decided on its own facts and that there is no reported case closely similar on its facts to this. In essence, at no relevant time during the period from MSC’s entry until BCL’s departure did the Conferences have sufficient power over the market to act so as effectively to eradicate or significantly hinder or reduce competition. This was particularly demonstrated by the history of market share as between the Conferences and MSC relative to their respective rate changes.

The 2-4 Defendants draw attention, as particularly pertinent to the facts here, to the judgment of the ECJ in Hoffman La Roche, supra, at paragraphs 70-71.

“70.

The court has already held inter alia in its judgment of 14 February 1978 in case 27/76 United Brands Company and United Brands Continental bv. v. Commission of the European Communities (1978) ECR 207 that even the existence of lively competition on a particular market does not rule out the possibility that there is a dominant position on this market since the predominant feature of such a position is the ability of the undertaking concerned to act without having to take account of this competition in its market strategy and without for that reason suffering any detrimental effects from such behaviour.

71.

However, the fact that an undertaking is compelled by the pressure of its competitiors’ price reductions to lower its own prices is in general incompatible with that independent conduct which is the hallmark of a dominant position.”

In such a case the established undertaking would not have secured for itself “at the very least during relatively long periods, that freedom of action which is the special feature of a dominant position” (ECJ in Hoffman La Roche, at paragraph 41).

It is further submitted that the southbound routes generated substantially higher revenues than the northbound routes, which I accept. Further, the Conferences had a lower share of the southbound market (in January/March 1991, 58 per cent) than of the northbound market (66 per cent), which I also accept. MSC had made a permanent inroad into both markets by April 1991. It had by then taken a market share of 30-33 per cent. This market development was inconsistent with dominance.

The strength of MSC in the market was due to the following facts:

“1.

MSC was a well established efficient operator;

2.

MSC was offering a regular fixed day of the week service;

3.

MSC had access to other routes – so they operated on this trade giving shippers the opportunity to trans-ship on to others, and its operations on other trades would be benefited through the extra business generated from this trade;

4.

Boaz and Na’ama Arkin had all the contacts giving MSC the benefit of a highly competent and well-connected Israeli agency;

5.

MSC used older ships and so had lower costs;

6.

MSC was an established shipping line with its own vessels – it had the fleet ready to switch into this trade;

7.

MSC had substantial capital – it sustained substantial losses and continued to trade.”

By April 1991 MSC had become the largest single container carrier in the trade – that is to say larger than any of the Conference members taken separately – having doubled its capacity on those routes in January 1991.

The price war which was pursued by BCL and MSC against the Conferences during 1991 demonstrated the inability of the Conferences to “behave to an appreciable extent independently of their competitors” (Michelin [1983] ECR 3461 at p3503 para 30).

The 2-4 Defendants submit that statistics as to market share are no more than an aid to identify dominance and are not conclusive. In the present case the circumstances in which MSC was able to wrest market share, the absence of entry barriers, the economic strength of MSC and its ability to sustain a long and vigorous price war without conceding market share to the Conferences outweighed the conclusion as to dominance that might otherwise be drawn from the conferences’ market share.

These defendants further rely on the perception of the European Shippers Council expressed in its 13 May 1991 letter to the European Commission in which the Council stated that “independents are left free to compete with the Conference Lines. Independent Lines do under-quote the Conference tariffs frequently but not always to the same extent”.

Zim relies in relation to the assessment of dominant position on Guidelines 415 on Market Power issued by the Office of Fair Trading pursuant to its powers under the Competition Act 1998, section 52(1). Guideline 415, it is submitted, provide a useful analysis of a market condition analogous to dominance. The main points may be summarised as follows:

“1.

Market shares are an important factor but do not on their own determine whether an undertaking is dominant;

2.

It is also necessary to consider the position of other undertakings operating in the same market and how market shares have changed over time;

3.

An undertaking is more likely to be dominant if its competitors enjoy relatively weak positions or if it enjoys both a high and stable market share;

4.

The Director General will usually look at the history of the market shares of all the undertakings in the market. This is more informative than considering market shares at a particular point in time, partly because such a snapshot might hide the dynamic nature of the market;

5.

Volatile market shares for the largest undertakings, or successful entry and expanding market shares for many small undertakings, for example, may indicate that a market is relatively competitive;

6.

Market shares are not always a reliable guide to market power. An undertaking with a persistently high market share may not necessarily hold market power for two reasons: first, if entry into the market is easy, the incumbent undertaking is likely to be constrained to act competitively so as to avoid attracting entry over time by potential competitors. Secondly, in a market where undertakings regularly improve the quality of their products, a persistently high market share may indicate no more than a persistently successful innovation. While consideration of market shares over time is important when assessing market power, an analysis of entry conditions and other factors are equally important;

7.

Entry barriers and exit conditions are important in assessing whether an undertaking possesses market power. While an incumbent with apparent market power may claim that potential competition is waiting in the wings, a more objective judgment can be made by the Director if hard evidence of successful entry in the recent history of the market is provided;

8.

Growth or prospective growth in a market will usually have bearing on the likelihood of entry: entry will usually be more likely in a growing market than in a static or declining one because it will be easier for an entrant to be accommodated without any precipitous collapse in prices and profits;

9.

The main potential constraint on the market power of a seller is the strength of buyers and the structure of the buyer’s market. The potential market power of a seller is offset by the buying power of a buyer, but for which prices would have been higher.

10.

An undertaking’s conduct in a market or its financial performance may in itself, provide evidence that it possesses market power;

11.

Persistently significant high returns, relative to those which would prevail in a competitive market of similar risk and rate of innovation, may suggest that market power does exist. This would be especially so if they did not stimulate new entry or innovation.”

Zim further draws attention to a passage in the judgment of the ECJ in Hoffman La Roche, supra, at para 48:

“On the other hand the relationship between the market shares of the undertaking concerned and of its competitors, especially those of the next largest, the technological lead of an undertaking over its competitors, the existence of a highly developed sales network and the absence of potential competition are relevant factors, the first because it enables the competitive strength of the undertaking in question to be assessed, the second and third because they represent in themselves technical and commercial advantages and the fourth because it is the consequence of the existence of obstacles preventing new competitors from having access to the market.”

Zim submits in reliance on Prof Yarrow’s evidence that entry barriers to the relevant market were low. Mrs Richards also accepted that, given the entry into the market of MSC, there were no major barriers to entry. Further, Zim relies on Prof Yarrow’s identification of an essential consideration in respect of dominance – the ability of the undertaking to determine the rate of differential. There could be no dominance where, as in the present case, the Conference had no such power.

As to actual market share in this case, Zim relies strongly on the evidence of Professor Yarrow that, whereas by January 1991 MSC had captured 30 per cent, by the end of 1992, over a year after BCL had left the market, MSC’s share had risen to 40 per cent.

Zim submits that the Claimant has exaggerated the height of entry barriers. It relies on Prof Yarrow’s evidence and that of Mr Johnson who agreed with Prof Yarrow as to the implications in respect of entry barriers of first BCL and then MSC entering the market and gaining a market share in a very short time.

As to the seriousness of the threat to the Conferences’ market share represented by MSC, Zim relies on Mr Johnson’s evidence to the effect that the Conferences’ conduct in response to the rate war was to reduce rates in line with their competitors in order to protect their position. Had they failed to act they could have been expected to lose more and more business to MSC and at a lower cost to MSC in reduced rates.

Before formulating the relevant underlying principle for identifying a dominant position it is necessary to consider three major decisions by the ECJ, namely Hoffmann-La Roche, supra, AKZO, supra and CMB, supra.

The issue was whether Hoffman-La Roche (“HLR”) had a dominant position within the common market in the supply of certain vitamins and whether it had abused that position under Article 86 by concluding during the relevant period with certain purchasers of such vitamins agreements which imposed an obligation on the purchasers to buy all or most of their requirements of vitamins exclusively or in preference from HLR or which achieved that effect by means of the grant of fidelity rebates.

Having observed at paragraph 38 that Article 86 was an application of the general objective of the activities of the Community laid down by Article 3(f) now 3(1)(g) of the Treaty, “namely the institution of a system ensuring that competition in the common market is not distorted”, the judgment continues:

“38.

The dominant position thus referred to relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers.

39.

Such a position does not preclude some competition, which it does where there is a monopoly or a quasi-monopoly, but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment.

A dominant position must also be distinguished from parallel courses of conduct which are peculiar to oligopolies in that in an oligopoly the courses of conduct interact, while in the case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally.

The existence of a dominant position may derive from several factors which, taken separately, are not necessarily determinative but among these factors a highly important one is the existence of very large market shares.

40.

A substantial market share as evidence of the existence of a dominant position is not a constant factor and its importance varies from market to market according to the structure of these markets, especially as far as production, supply and demand are concerned.

Even though each group of vitamins constitutes a separate market, these different markets, as has emerged from the examination of their structure, nevertheless have a sufficient number of features in common to make it possible for the same criteria to be applied to them as far as concerns the importance of the market shares for the purpose of determining whether there is a dominant position or not.

41.

Furthermore although the importance of the market shares may vary from one market to another the view may legitimately be taken that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position.

An undertaking which has a very large market share and holds it for some time, by means of the volume of production and the scale of the supply which it stands for – without those having much smaller market shares being able to meet rapidly the demand from those who would like to break away from the undertaking which has the largest market share – is by virtue of that share in a position of strength which makes it an unavoidable trading partner and which, already because of this secures for it, at the very least during relatively long periods, that freedom of action which is the special feature of a dominant position.”

It is reasonably clear from this passage that to characterize an undertaking’s market position as “dominant” involves in substance an evaluation of the ability of that undertaking to “distort” competition on the relevant market within the meaning of Article 3(1)(g) having regard to the power of the undertaking relative to the other participants in the market and relative to that of potential entrants to the market. The process of evaluation necessarily involves an assessment of the market participants - both competitors and customers and in that process of the relative weight to be accorded to each area of evidence. The exercise involves a decision as to whether evidence suggesting the undertaking’s ability to distort competition outweighs evidence to the contrary. In this context the weight to be accorded to the market share of the undertaking depends at the outset on how large the market share is shown to be. A market share may be so large that, in the absence of very strong evidence to the contrary, the extent of the market share alone may be enough to establish dominance. As a matter of common sense, the larger the market share the greater the evidential weight in favour of dominance it is likely to represent. The inference of dominance to be drawn from a very large market share is thus likely to be very difficult to rebut. The use of the words “exceptional circumstances” referred to by the ECJ in paragraph 41 of Hoffmann – La Roche is, in my judgment, intended to make the point that, where the undertaking’s market share is very large, that evidence in rebuttal is likely to be of very unusual facts and market conditions.

The facts in Hoffman-La Roche exemplify the application of this approach: see for example as to vitamin A where HLR’s share was 47 per cent (paragraphs 50-52), vitamin B group where HLR’s share was 86 per cent (paragraphs 53-56), vitamin B3 where HLR’s share was, in 1972, 28.9 per cent by value and 18.9 per cent by quantity, in 1973, 34.9 per cent by value and 23.4 per cent by quantity and, in 1974, 51 per cent by value and 41.2 per cent by quantity. In the case of vitamin A the ECJ observed that the shares of the four other producers ranged from 27 per cent down to 1 per cent and stated:

“51.

Since the relevant market thus has the particular features of a narrow oligopolistic market in which the degree of competition by its very nature has already been weakened, Roche’s share, which is equal to the aggregate of the shares of its two next largest competitors, proves that it is entirely free to decide what attitude to adopt when confronted by competition.

Roche’s technical lead over its competitors due to the fact that it is the proprietor of several patents relating to vitamin A, even after the expiration of these patents, is a further indication that it occupies a dominant position.

As has been indicated above, the same applies to the absence of potential competition from new manufacturers, whereas the competition derived from the surplus manufacturing capacity of existing undertakings rather favours Roche as is apparent from an extract from management information of the middle of August 1971 which reads ‘although BASF will continue to intensify its activities, we expect to achieve a further steady increase of our turnover. However, the present overcapacity of production is such that a fixing of prices cannot be expected for the next few years. Such a development would, of course, be accelerated if one of our smaller competitors ceased production.’”

Accordingly a finding by the Commission of dominance was upheld.

As to Vitamin B group the Court held that HLR’s market shares were so large that they were of themselves evidence of a dominant position.

However, the Court reversed the Commission’s finding of a dominant position in the case of Vitamin B3. It observed at paragraph 58:

“58

Market shares of this size either in value or in quantity, complemented by the statement in the document jointly prepared by the parties that the figures for 1971 were 6% lower still than those for 1972 do not in themselves constitute a factor sufficient to establish the existence of a dominant position for most of the period considered by the Commission.

On the contrary it has become apparent that the rectification which the latter had to carry out was due to its omission to take account of the imports of a Japanese competitor which in 1973 accounted for 30% of the market.

On the other hand the Commission, in the case of this particular market, has not indicated what the additional factors would be, which together with the market share as corrected, nevertheless would be of such a kind as to admit of the existence of a dominant position.

The findings lead to the conclusions that, as far as concerns vitamin B3, there is insufficient evidence of the existence of a dominant position held by Roche for the period under consideration.”

In relation to Vitamin C group where HLR’s market share over the relevant three years ranged from 66.2 per cent to 64.8 per cent by value and from 64.4 per cent to 63 per cent by quantity the ECJ upheld the Commission’s finding of dominance, referring to the gap between HLR’s shares and those of its next largest competitors (14.8 per cent) as confirming the conclusion of dominance.

In relation to Vitamin E group the agreed market shares of HLR ranged from 54 per cent to 64 per cent by value and from 50 per cent to 60 per cent by quantity. The Court observed:

“The size of these shares, which is in itself significant, is made the more so by the fact that the shares of Roche’s competitors must be estimated, after the before-mentioned rectification, for 1974, according to value, at 16%, 6% and 1% in the case of the other producers and at 19% for one or more importers who were in general firms operating from non-Member States.

Such a position as the one which has been established conforms even more typically than the one established in the case of vitamin A to the pattern of a narrow oligopolistic market in which Roche’s share is much larger than the combined shares of the two next largest competitors.

Therefore the Commission was right to find that there was a dominant position on this market.”

It is to be observed that there appears to have been no evidence of special market circumstances which could outweigh the inference to be drawn from the preponderance of HLR’s market share over its nearest competitor in the case of the Vitamins A, B group C group and E group. In the case of B3 the market share by value was 51 per cent in 1974 but, significantly, the inference which might otherwise have been drawn from this level of market share was not drawn. The reasoning cited above is instructive. The share was yet 6 per cent lower in 1971 than in 1972 and in 1973 a Japanese exporter succeeded in achieving a 30 per cent penetration of the market. Further, there were no additional facts which, when considered in addition to market share, established dominance. The 51 per cent by value in 1974 was thus held insufficient in these circumstances from which to infer dominance in that year. No doubt the 30 per cent Japanese penetration in one year was a significant factor in outweighing the market share in the following year. This authority is thus a helpful example of the kind of unusual circumstances which may displace the inference of dominance based on a very large market share.

The threshold issue was whether AKZO had a dominant position in the organic peroxides market. The alleged abuses were the targeting of the customers of a competitor, ECS, by means which included charging them lower prices than AKZO charged its own customers. The Commission’s decision that AKZO held a dominant position in the organic peroxides market was based on the following factors set out at paragraph 56 of the judgment:

“(i)

AKZO’s market share is not only large in itself but is equivalent to all the remaining producers put together;

(ii)

apart from Interox and Luperox the remaining producers have a limited product range and/or are of local significance only;

(iii)

AKZO’s market share (as well as that of the second and third placed producers Interox and Luperox) has remained steady over the period under consideration and AKZO has always successfully repulsed any attacks on its position by smaller producers;

(iv)

AKZO was able even during periods of economic downturn to maintain its overall margin by regular price increases and/or increases in sales volume;

(v)

AKZO offers a far broader range of products than any rival, has the most highly developed commercial and technical marketing organization, and possesses the leading knowledge in safety and toxicology;

(vi)

AKZO has on its own account been able effectively to eliminate ‘troublesome’ competitors (besides ECS) from the market or weaken them substantially: the example of SCADO for one shows that AKZO is in a position, if it so wishes, to exclude a less powerful producer;

(vii)

once such small but potentially dangerous competitors are neutralized, AKZO has been able to raise the price for the particular product in respect of which their competition was felt.”

The ECJ further took into account that AKZO had a stable market share of about 50 per cent from 1979 to 1982 and that it had not adduced any evidence to show that its share decreased during subsequent years.

In concluding that the Commission’s decision must be upheld the Court observed:

“60

With regard to market shares the Court has held that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position: Case 85/76, Hoffmann-La Roche v. EC Commission. That is the situation where there is a market share of 50 per cent such as that found to exist in this case.

61.

Moreover, the Commission rightly pointed out that other factors confirmed AKZO’s predominance in the market. In addition to the fact that AKZO regards itself as the world leader in the peroxides market, it should be observed that, as AKZO itself admits, it has the most highly developed marketing organisation, both commercially and technically, and wider knowledge than that of its competitors with regard to safety and toxicology ..….”

The reference to Hoffman-La Roche identifies, by footnote, paragraph 41 of the judgment which is cited above. As I have already explained, that judgment makes it clear that, in deciding whether in the context of a particular market an undertaking has a dominant position, considerable weight is to be attached to a very large market share amongst other factors, albeit that factor when taken alone is not necessarily determinative. Further, as I have also held, paragraph 41 of that judgment certainly does not state that very large market shares when taken alone are always irrebutably presumed to establish dominance but rather that, generally but not inevitably, a very large market share will be such strong evidence of dominance that it will not usually be outweighed by other factors.

Accordingly, the passage at paragraph 61 of AKZO is to be understood as meaning that a market share of 50 per cent falls within the range of “very large market share” and therefore will generally be such strong evidence of dominance that it will not usually be outweighed by other factors unless they are unusual ones, peculiar to the conditions of the market in question.

The fact that the ECJ in AKZO, as in Hoffman-La Roche, deployed additional factors which corroborated the conclusion that could be drawn from a very large market share further demonstrates that the latter is no more than strong evidence of dominance and is not irrebutably determinative of it.

The Commission had ruled that CMB should be fined on the basis of a breach of Article 86 during the period 1988-1989. It was common ground between the parties that Cewal (the conference in question) had a market share during that period which exceeded 90 per cent. In subsequent years the market share fell: in 1990 above 80 per cent, in 1991 above 70 per cent and, in 1992, 64 per cent. The CFI, at para 77, observed that “throughout the period concerned, Cewal’s market shares remained high, despite their steady erosion”. It went on: “whilst retention of market share may show that a dominant position has been retained (Hoffman – La Roche), a decline in market shares which are still very large cannot in itself constitute proof of the absence of a dominant position”. The CFI went on to conclude that the Commission was entitled to reach its conclusion on dominance on the facts, not only on the basis of market share but also, in as much as it had regard to other factors, namely:

“significant difference between Cewal’s market share and that of its principal competitor, the benefits derived from the contract with Ogefrem giving Cewal exclusivity, the large size of its network, its capacities and the frequency of its services and, lastly, the experience acquired by Cewal over several decades on the market concerned.”

It is clear from later passages in the judgment of the CFI that the only relevant period of abusive conduct was during the period when the market share of Cewal was over 90 per cent: see paragraph 169 and 183. Accordingly, the subsequent erosion of market share in the period 1990 to 1992 could be relevant to any breach of Article 86 only as evidence that during the period while the market share was still more than 90 per cent Cewal did not enjoy a dominant position. Thus, in so far as the CFI referred in paragraph 77 to “ the period concerned” it must be taken to have been looking at the relevant evidence of market share as distinct from the period during which the abusive conduct occurred. The substance of the passage in question is therefore to the effect that the Commission was entitled to conclude that in 1988-1989 Cewal held a dominant position, taking into account that throughout the relevant period (1988 and 1989) its market share remained over 90 per cent, that after the relevant period its share gradually declined and that other factors, such as the Ogefrem agreement gave it added market strength during the relevant period.

It follows that the court’s application of principle to the facts in CMB is of only limited assistance when considering application in the present case where, on the evidence, loss of the Conferences’ market share immediately prior to the period of alleged abuse was considerable, extremely rapid and, on the Conferences’ case, uncontrollable by them.

The “power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers” (Hoffmann La Roche, para 38) represents that position of economic strength necessary to distort competition on the relevant market (Article 3(1)(g)). For this purpose it is enough if the undertaking has sufficient strength, if not to dictate, “at least to have an appreciable influence on the conditions under which that competition will develop and in any case to act largely in disregard of it so long as such conduct by it does not operate to its detriment” (Hoffmann La Roche, para 39). In this connection, it is to be noted that the existence of competition in fact in any given market is not incompatible with an undertaking having a dominant position in that market.

In order to give precision to the application of these principles, it is important to formulate a working definition of competition and in particular of the manner in which it may be diminished. A useful reference point is to be found in OFT Guideline 400: The Major Provisions, published by the Director General of Fair Trading as an ancillary to the Competition Act 1998.

“Competition lies at the heart of any successful market economy and is crucial to the protection of consumers’ interests and the efficient allocation of resources. It is a process whereby undertakings constantly try to gain an advantage over their rivals and win more business by offering more attractive terms to customers or by developing better products or more effective ways of meeting their requirements. Competition has several dimensions of which price is only one, albeit in many markets, the most important. It encourages the development of new or improved products or processes and enhances economic growth and living standards.”

It stands to reason that there can only be competition in any given market if there are available competitors with the ability to compete. Accordingly, if in a particular market one undertaking has sufficient economic strength not merely to compete but also to exclude competitors from the market as a whole or at least to reduce their ability to compete in the market as a whole, that undertaking can generally be said to occupy a dominant position.

Having regard to the overriding objective of Article 82, namely the preservation of existing competitive conditions in a given market, the requirement that a dominant position be proved represents an important part of this protective provision. It enables the Commission to police the preservation of competitive conditions by testing the likely future effect of conduct on the part of a market participant which apparently has the aim of preventing or reducing competition from rivals. Pursuing such a course of conduct is not per se contrary to the overriding objective unless the party concerned can make it succeed. The ability to do so depends on its relative market power at the time of the conduct. If it has a dominant position in this sense the Commission is entitled to presume that the abusive conduct may well succeed, even though it may not yet have done so, and that there is, currently, therefore abuse of that participant’s dominant position. In other words, if the relative market strength of the undertaking is such as to prove a material threat to the maintenance or creation of competition should the undertaking determine that competition should be diminished or prevented, that undertaking will have a dominant position.

In this connection, it is important to distinguish between the exercise of identifying sufficiency of economic strength to amount to dominance on the one hand and the use of economic strength in order to diminish or remove competition on the other. For the former purpose, it may be necessary to investigate not only the market share of the undertaking in question relative to that of its competitors but also such other factors as the ability of the undertaking effectively to ignore price differentials created by competitors because such differentials are unlikely to have the effect of reducing its market share. Equally, there is nothing incompatible in an undertaking with a dominant position taking part in justifiable competition. That would be the case where it did not misuse its economic strength. There can be no doubt, as is common ground, that the response or lack of response of an undertaking to competitive pressure in the relevant market can be evidence directly relevant to the issue of dominance. Equally, the effect of such response on market rivals can be evidence directly relevant to the issue of the extent of the market power of the undertaking in question relative to the market power of its competitors.

The authorities to which I have referred demonstrate that the size of an undertaking’s market share relative to that of its main competitors will in the ordinary case be a very weighty factor in determining whether it is dominant. Thus, it would indeed be hard to envisage that with a market share of 90 per cent any undertaking in any market would be unable to reduce or eradicate competition. However, as one comes to lower levels of market share, even above 50 per cent, the relative economic power of the undertaking may be reduced by outside factors, notably the economic strength of competitors. In such case the relevant test must be whether the relative strength of the allegedly dominant undertaking and its main competitors is such that the former undertaking could, if it chose to do so, either significantly reduce their market share to the point where they could offer materially less effective competition or drive them out of the market altogether or, if they had not yet entered the market, effectively deter them from doing so.

Having regard to the effect of the authorities, which I have considered above, the essential issue on the facts can be stated as follows. During the relevant period from 19 April 1991 to the departure of BCL from the market on 3 October 1991 was the economic power of the Conferences, relative to that of their main competitor, MSC, and other less powerful competitors such as BCL, such as to enable the Conferences at least so substantially to reduce the market share of MSC and others had they chosen to do so or otherwise to reduce MSC’s and the others’ ability to compete as to diminish to a material extent effective competition in the relevant market as a whole? If the answer to that question is Yes, the Conferences held a dominant position. But if the answer is No, they did not. It is, in my judgment, correct to test dominance with primary reference to MSC in the present case because the main source of competitive power in the relevant market was that of MSC which had already entered the market six months before the commencement of the relevant period and had by then established itself as a market participant. It is therefore justifiable to “load test” the Conferences’ relative economic strength by reference to their ability at the start of the relevant period to subjugate or reduce the competition presented by MSC. Unless the Conferences were likely to be able at least to reduce MSC’s market share to a material extent if they chose to do so, as distinct merely from presenting competition to MSC, it is difficult to see on what other basis it could be said that they held a dominant position.

In order to answer this question it is necessary to investigate the state of market competition before commencement of the relevant period in April 1991 for it was during the period from September 1990 that MSC was able to effect a major penetration of the market. Evidence of how that penetration came to be accomplished may clearly assist in testing the relative strength of the Conferences in April 1991.

Indeed, all the defendants rely heavily on the events during this earlier period in support of the proposition that the Conferences did not hold a dominant position as at April 1991.

On the more lucrative south bound route, between October 1990 and April 1991 inclusive, the Conferences’ market share dropped from 66.16 per cent to 56.20 per cent. During the same period MSC’s share rose from 7.16 per cent to 39.23 per cent. During the same period the shares of BCL fell from 16.48 per cent to 3.98 per cent and that of MCL from 7.68 per cent to 0.59 per cent. Although, therefore, MSC had certainly captured a significant proportion of the Conferences’ market share (nearly 16 per cent) in that period, it had captured a very much greater proportion of the shares of both BCL and MCL than of the Conference.

The graphs at Figure 1 and 2 illustrate the comparative rate changes from October 1990 to October 1991 for the southbound Continent – Israel route during the period. These were produced by Professor Yarrow, the expert economist called by Zim. The rates on which they are based were average rates in the sense that they were averages of several different rates published by each of the three parties, BCL, CONISCON and MSC. Professor Yarrow had taken these rates from the primary materials provided to him. The rates which he shows are consistent with the comparative table produced by the Claimant’s expert forensic accountant, Mr Dyson, as an appendix to his first report. Mr Wilkinson, the expert forensic accountant called by the 2-4 Defendants and four Part 20 Defendants, produced a comparative rate table showing rate figures substantially similar to those of Mr Dyson. Finally, Mr Johnson, the shipping industry expert called the 2-4 Defendants and four Part 20 Defendants, produced a schedule of rate changes which in some cases indicated the lowest and the highest rates charged by BCL, MSC and CONISCON and in others the average rate. It was the practice of the Conference to quote a range of rates applicable to particular cargoes and in some cases applicable at different loading ports. Further, in the course of final submissions further schedules were put in by counsel for the Claimant, the 2-4 Defendants and Zim respectively. Of those, that of the Claimant is at Figure 3 and that of the 2-4 Defendants is at Figure 4.

In considering the evidential relevance of these comparative rate changes, I have come to the conclusion that, although there were different rates for different ports and different products, the most appropriate course for all purposes in this judgment is to rely on the average rates on which all the experts were broadly in agreement from the outset. Whereas it is true that on some occasions rate changes brought about differentials between the rates charged by one or other of those relevant competitors in respect of one port and not another or one product and not another, there is no way on the expert evidence of testing the relative importance of a rate charge in respect of a particular product or group of products as distinct from one all in rate change. This is because there has been no expert analysis of the relative quantities of cargo shipped at each port in each group. The same can be said of the rates for different ports. It is thus impossible to give relative weight to individual product and port differentials. It would thus also be impossible to calculate weighted averages for the rate changes. For example, a rate change which showed that one party was on an all in basis undercutting at Port A an all in or special product rate charged at all ports by another party may evidence anything from an entirely trivial to a highly material differential between those parties, depending on how much cargo of the relevant kind could be expected to be shipped at Port A.

As appears from Chart 3, at figure 1 in the course of that period up to and including April 1991 there commenced a series of rate reductions by BCL, MSC and the Conferences. At the time when MSC entered the market BCL had been operating since the end of June 1990 at rates well below the CONISCON Conference rates (DM 2300 as against DM 2879 per TEU). There can, in my judgment, be little doubt that, given its financial strength and market share, had that Conference determined to drive down BCL’s market share by substantially undercutting BCL’s rates, it would have succeeded in doing so. Its rate-setting policy at that time, as evidenced by the Conferences’ minutes, can confidently be attributed to a preference for the higher revenues to be derived from higher rates rather than the higher market share obtainable by entering into a rate-undercutting contest with BCL. The minutes of the 16 August 1990 special joint Conferences meeting in London show that the Conferences were closely monitoring competition from BCL and the impact of future entry by MSC on the market. Indeed, the Conferences agreed to rate reductions to DM 2450 in paper, tyres and vehicle spare parts (which currently represented an important part of BCL’s trade) “in order to show the market that the Conference lines are conscious of the prevailing situation”. It is to be noted that the Conferences were then content to leave the general tariff otherwise unchanged and were thus still charging rates well above those of BCL.

BCL again slightly reduced its southbound rates on 17 September 1990, the rate for the lowest category of goods being DM 2002 and for the highest DM 2615. Then on 23 September 1990, MSC entered the market at the rate of DM 2200, thereby substantially undercutting the Conference on all commodities and undercutting the average BCL rate by DM 100. In spite of the advent of MSC, the Conference held its rate. There is no evidence that it contemplated blocking MSC’s market entry by charging rates which would enable it to prevent MSC obtaining a significant market share. The Conference meeting minutes of the 16 August show that the perception of MSC was of a line which was “tough, aggressive and respected” and very efficient, offering tight and reliable schedules, and which preferred to operate as an independent at rates below conference level”. The evidence in this trial was that past conduct of MSC suggested that its owner, Mr Aponte, might have a policy of targeting a particular market by undercutting established operators until he had established a stable market share of around 30 per cent and then waiting to recover the cost of market entry as rates increased. That meeting of the Conferences was clearly very concerned about the impact of the future entry of MSC, but the views of the members were divided as to the policy that the Conferences should adopt. In the end, the decision was “to follow a very careful and selective fighting policy in order to maintain rates as far as ever possible.” Instructively, it is recorded that EMCOL had calculated that “an all out fight” would cost the CONISCON Conference lines DM 50 million for the first year alone. The lack of immediate response by way of rate reduction to the entry of MSC, some six weeks later strongly suggests that the Conference as a whole preferred to permit MSC to enter the market without seeking by overall undercutting to prevent it from doing so. I infer that it would have been impossible to force such an expensive exercise on the members, even if some more financially robust members, such as Zim, had wished to do so.

What then followed was that on 12 October 1990, less than three weeks after the entry of MSC, BCL, no doubt observing it was losing custom to MSC rather than to the Conference, announced a major Southbound all in rate reduction from DM2300 to DM1700. This produced an immediate reaction from MSC, which two days later announced a reduction in all the southbound rates to DM1650, thereby undercutting BCL. As can be seen from figure 1, this had the effect of opening up a very large differential between BCL and the Conference - about 43 per cent.

A special Conferences’ meeting was held in London on 17^th October 1990.

I infer that this refers to percentages of the actual business or amount of cargo currently handled by the Conferences. In the end there was no agreement as to whether to change the current policy of selective rates agreed at the 16 August meeting to one of an all in tariff reduction “close to competition’s level”.

In the meantime there was a close monitoring by the FMC of the competitors’ activities, including very detailed reports of movements of vessels by MSC and BCL.

On 13/14 November 1990 at the joint Conferences’ meeting in Hamburg, the conferences were given legal advice by Mr. S Polito, a partner in Lovells, in relation to their dealings with the European Commission arising out of BCL’s complaint. The minutes state:

“Mr Polito pointed out that it should be a helpful factor to Mr Kreis to learn about the changed situation in the market with BCL, MSC and MCL arriving at a market share of 33% by the end of the year against previously 18%. The speed with which the trade moved away from the Conferences to outsiders clearly indicates that there is no major barrier for a shipping company to get into the market.

Mr Polito was advised that the conferences presently followed a mixed freight policy comprising:

- special rate lists open to all clients

- volume related quantity rebates with specific clients

- special rate agreements with clients with quantities linked to such agreements

Mr Polito confirmed that “once the dual rate system has been abandoned and considering that with a trade share of 65% the Conferences do no longer maintain a dominant position the freedom of action for the Conferences has greatly widened. Within reason the Conferences may opt for rate flexibility. It will also be very difficult for the commission to criticize the Conferences for undercutting competition rates. So yes, the Conferences may take fighting actions though there is some legal uncertainty to it.”

The competitors’ market share of 18 per cent was, as appears from the minutes, that attributable to BCL and MCL, but not including MSC. It was an expression of available capacity as distinct from utilized capacity. It was anticipated that MSC’s entry would increase total competitors’ available capacity to about 33 per cent on an annualised basis. That was on the basis that MSC had a capacity lower than that of BCL. Against that background the meeting took the following decisions as to freight policy. On the UK Israel route “ an aggressive freight policy should be pursued” and the instructions of 24 September 1990 to FMC were to be reconfirmed, including authority “to match competition rates in case of need if otherwise the cargo cannot be regained/retained for the Conference”. It was stated that:

“Activities of MSC and MCL are as much perturbing as BCL if not more in the UK trade and fighting should be equally directed against all three lines.”

As to the Israel route, the minute recorded:

“- Based on opposition figures available the FMC proper to pick and to recommend to the Executive Committee another 3 main commodities southbound (next to tyres, paper and vehicle spare parts) which to be especially attacked on basis of competition rates plus a certain percentage having in mind the regular and reliable services of the Conference lines. Case need, however, opposition rates to be matched.

- the existing Special Rate List southbound to be extended by the list of commodities submitted by CIS (as per enclosure) at rates 20% below tariff. Furthermore existing positions of the Special Rate List still above 20% below tariff to be adjusted accordingly.”

Either in early November 1990 or in early December 1990 (it is unclear which) the CONISCON Tariff rate was reduced to about DM 2303 to DM 2324.

It is to be inferred from the foregoing that the Conferences as a whole were unwilling to reduce their average overall rates below those of MSC. Indeed, they were prepared to charge a rate somewhat in excess of MSC in view of what they regarded as their “regular and reliable service”. Further, they appear to have been conducting an essentially defensive policy by choice at this stage, envisaging that by the end of the year they might have conceded to competitors at least a 30 per cent market share. Although there was much “fighting” talk, the course adopted appears to have been one of rate-matching rather than of undercutting, consistently with an essentially defensive policy.

By the end of November 1990, after two months, MSC had secured a market share of 19.39 per cent on the southbound routes. The Conferences held their market shares steady. The main victim of MSC’s entry had been BCL which lost market share.

Nevertheless, the UK Conference clearly felt threatened by competitive activity on the east coast UK – Israel route in November 1990 and at a meeting in London on 26 November it was agreed to reduce the tariff rates both for southbound and northbound routes with effect from 1^st December 1990. The rates adopted were in line with the Conferences’ agreed policy of matching those charged by BCL and MSC subject to a small premium.

At a joint meeting of the Conferences in London on 15^th January 1991 it was recorded that since the 13/14 November meeting the situation for both the Conferences had “deteriorated considerably”. In particular MSC’s announced intention to introduce two extra vessels would involve that the total capacity of the competitors, including both MSC and BCL was about 75 per cent of that of the Conferences. The Conferences agreed “after long and controversial discussions to compromise” by reducing rates on the Coniscon route to an average of DM 1800 and to make similar reductions on the UK route. Again, these rates were matching those of BCL and MSC subject to a small premium. There was no undercutting. However, the Conferences’ market share, in particular on the southbound route was being gradually eroded. By the end of January 1991 it had dropped to 51 per cent while that of MSC had increased to 34 per cent. According to the minutes of the 15^th January meeting there had already been informal but largely inconclusive talks with MSC. These were not recorded in any documents before the court. However, those talks were probably directed to agreeing market shares and rates. A small area of agreement appears to have been achieved but it was never implemented. There was by then a clearly discernible trend of reduction in the Conferences’ market share. The Conferences’ position in the market was thus becoming increasingly vulnerable in terms of market share. However, by reason of the increasing demand for capacity, the Conferences appear to have retained broadly unchanged levels of tonnage carried.

It was not until the beginning of February 1991 that the Conferences abandoned their NCR system of charging higher rates to shippers who did not to use Conference capacity exclusively. Consequently, the successful entry of MSC into the market and its capture of a significant market share by January 1991 occurred during a period when the Conferences were trying to achieve customer loyalty by means of advantageous rates for loyal customers, a device which could ordinarily be expected to protect an undertakings’ existing business against outside competition.

After January 1991 the market share of BCL was seriously eroded. It appears likely that this trade went to both the Conference and MSC. No doubt, in order to attempt to win back customers, BCL on 18 March reduced its southbound rates from the Continent to an average of about DM 1550-1600 per TEU. This rate had the effect of undercutting both MSC (DM 1650) and the Conference (DM 1800). There was no immediate reaction from either. However, on 15 April the Conference tariff was reduced to DM 1650, equivalent to the existing MSC rate, and then, on 22 April, just after the commencement of the relevant period both MSC and BCL reduced their average rates southbound to DM 1575, thereby marginally undercutting the Conference’s latest reduction.

The minutes of the joint conferences meeting at Tel Aviv on 10 April 1991 record that the reputation of MSC in the Israel market was that of an operator providing a reliable and timely service with clients “very firm in their support”. MSC followed an aggressive freight policy, making rate reductions for large quantities. BCL was recorded as maintaining a “low profile” service and concentrating more on trade with the United States. It was further recorded that outside competition was carrying about 40 per cent or more of the southbound trade and that this showed that “the Conferences did not achieve the goal of their fight, partly perhaps due to service, but to the major part certainly due to the failure in their freight policy”. The meeting then agreed on the rate reduction to DM 1650 already referred to.

By the beginning of the relevant period on 19 April 1991 the Conferences had therefore not prevented MSC from entering the market and gaining a substantial share of the southbound market. To a significant extent this was at the expense of the Conferences’ market share, although it was to an even greater extent at the expense of BCL’s share. This was, at least in part due to the fact that the Conferences had seriously over-estimated their collective market power relative to that of MSC. In particular, they had fixed their tariff rates on the assumption that client loyalty and what they saw as their more reliable and more available service were strong enough to justify charging rates which were consistently above those of MSC and BCL. During the earlier part of the period from September 1990 they had still been operating the NCR system and they may have felt confident that this would preserve their market share. It did not. The reality was that in a market in which demand for capacity was expanding, shippers appear to have been prepared to shop around for a cheaper and in some respects a more reliable service. The level of customer loyalty was fragile. In this regard, the same day each week sailing offered by MSC was seen as an important advantage by some shippers. The Conferences’ loss of market share did not reflect an equivalent loss of existing business, but rather a failure to attract as much of the increased demand for capacity as MSC.

Secondly, the Conferences were during this earlier period obliged to develop their rate policy by a decision-taking process which was relatively cumbersome and slow to react to their deteriorating market position and had to be unanimous. The views of the members clearly differed fairly widely as to the rate levels at which they should challenge MSC. Furthermore, the comments of Mr Polito at the joint conferences meeting in Hamburg on 13/14 November 1990 suggest, and I infer, that it was by then accepted, at least by some members, that it was likely to be unhelpful with regard to the proceedings before the Commission if the Conferences set out to prevent MSC penetrating the market at all. It appears to have been considered likely that MSC would secure a large enough share of the market to lead to the total competitors’ share exceeding 30 per cent.

Further, it is probable that MSC had decided to penetrate the market in reliance on the advice of Boaz and Na’ama Arkin. Mr Aponte was likely to have had in mind a particular target market share, to achieve which he had probably decided to charge relatively low freight levels, while providing surplus capacity and to forego profits until the MSC market share had stabilised in relation to that of the Conferences at his desired level. Had the Conferences reacted at the outset to MSC’s attempted market penetration by immediately challenging the outsider by vigorously undercutting MSC’s rates, it is difficult to envisage whether MSC would have gained a foothold. However, it is more probable than not, in view of what was to happen during April to September 1991, that MSC would at least have participated in a violent price war. Mr Aponte appears to have had the financial and material resources to sustain a long and violent price war and, given the shippers’ favourable reception of MSC’s service, it is not impossible that any such war could have been won by MSC securing its desired market share.

Accordingly, I do not consider that the events of the period September 1990 to April 1991 provide particularly strong evidence that the Conferences had ceased to hold a dominant position in the market, as submitted by the defendants. The rapidity of MSC’s market penetration could equally well be explained by the disinclination of the Conferences to block MSC’s entry by means of sufficiently fierce counter measures. Such a course would almost certainly have amounted to a breach of Article 82 which is probably one reason why it was never attempted.

Against this background, it is necessary to ask whether in April 1991 the economic and market strength of the Conferences relative to MSC and other competitors, such as BCL, taken together was such as to enable the Conferences, had they chosen to do so, to deprive those competitors of a material part of the market share which they had by then acquired, or at least to reduce their ability to compete with the Conferences.

The answer to this question raises difficult problems as to the application of the European jurisprudence to the evidence. The main one is that only limited assistance can be derived from the events of the price war. This is because it is necessary to distinguish lack of market power from lack of willingness to use it. In my judgment, dominant position under Article 82 cannot in principle be tested by reference to the willingness or unwillingness of an undertaking to use such market power as it has to the full. The necessary question is whether the undertaking has sufficient market power to distort competition should it choose to exercise that power and not whether the undertaking can be expected to exercise such power as it has.

The position at the commencement of the relevant period was therefore that MSC had achieved significant market penetration and BCL had managed to retain part of its limited market share. The Conferences had lost about one fifth of their southbound market share in seven months, but still retained over 56 per cent, and had not lost any of their northbound market share which stood at over 79 per cent, which was roughly the same as it had been in October 1990.

Having regard to the following matters, I find that at the end of April 1991 the Conferences still disposed of significant market power relative to their competitors and potential competitors.

These considerations point towards the Conferences retaining a dominant position.

However, in view of the extraordinarily vigorous competition presented by MSC and its robust determination, the Conferences’ market power relative to MSC in particular by April 1991 had material limitations. One is concerned here not merely with an assessment of what course the Conferences had the power to take but the relative effect on that course which MSC had the power to bring about in response. It is the very tough approach, and well organized and attractive service offered by MSC which represents the feature of this case which sets it apart on its facts from all other cases on Article 82. Thus, if one asks whether in April 1991 the position of the Conferences was such that they had the power to behave to an appreciable extent independently of their competitors and customers (per the ECJ in Hoffmann – La Roche, supra) the answer is that, with regard to MSC, they probably did not. On the evidence, had they continued to charge the same rates as previously, without following down or matching MSC’s rates, I find that they would probably have lost market share more completely and more rapidly than they did subject to MSC’s objective as to the maximum market share that it required. Their perception was that if they took no action to lower rates they could lose customers, not only market share, but existing business. That perception was, in my judgment, well-founded.

It is now necessary to consider the position after the commencement of the relevant period.

On 24 April CONISCON reduced its southbound rate to an average of DM 1600, slightly above the levels announced by MSC and BCL two days earlier but slightly undercutting on three classes of goods the MSC and BCL all-in rates. These three classes included paper, which was one of BCL’s main cargoes, but did not include tyres or vehicle spares, two other of BCL’s most important cargoes. This was an unusually rapid response from the Conference. The effect was immediate. Only two days later and only four days after its previous reduction MSC further reduced its all in rate southbound to DM 1475. According to Mr Arkin’s unused witness statement, BCL appear to have reduced their rate to the same level as MSC. That opened up a differential on average of DM 125 compared with the Conference. CONISCON again responded rapidly. On 5 May 1991 it brought down its average rate to DM 1525 but for some classes of goods its rate was DM 25 below MSC’s lowest all-in rate. This reduced the CONISCON/MSC average differential to DM 50. This was obviously regarded by MSC as too small. One week later, on 12 May, MSC’s rate was reduced to DM 1400, thereby restoring the DM 125 average differential.

It appears that the reducing differential between the Conference and MSC arrested the Conference’s loss of market share, for in May 1991 that increased from 56.2 to 60.56 per cent. This is of some significance. It suggests that if the differential was more than marginally above MSC’s rates the Conferences would not be able to retain market share. In the meantime, MSC’s southbound market share fell from 39.23 per cent in April to 27.19 per cent in May, whereas BCL’s share rose from apparently as low as 3.98 per cent in April to 11.325 per cent in May 1991, notwithstanding that from 26 April its rate was undercut by MSC to the extent of DM 100 and from 5 May by CONISCON to the extent of DM 50.

Over five weeks later, at the joint Conferences’ meeting at Hamburg on 11 and 12 June 1991, CONISCON agreed a further reduction in rates giving an average of DM 1400 which was equivalent to MSC’s current rate save for three classes of goods on which the Conference undercut MSC’s rate by DM 50. The purpose of this reduction was expressed as being to regain at least some of the market share lost earlier to MSC. It is to be observed from the minutes that this was clearly the lowest rate for which a collective decision could be obtained consistently with preserving the Conference membership.

It is to be assumed from such evidence as there is (Mr Arkin’s witness statement) that BCL had followed the rates down since 22 April 1991. By 3 July 1991 BCL’s all-in rate had been reduced to DM 1250.

The rate war then gathered pace.

On 23 June 1991 MSC again undercut CONISCON southbound rates by reducing its rates to DM 1300.

By 10 July 1991 BCL having just reduced its southbound all in rate to DM 1250 it made a further reduction a few days later to DM 1150.

On 4 July 1991 a meeting was held in London between representatives of the Conferences and Mr Aponte of MSC. It was the purpose of the Conferences to persuade Mr Aponte to agree to limit MSC’s market share to a maximum of 15 per cent and to obtain MSC’s participation in a non-competition agreement if they would not join the Conference. Their negotiating fall-back position supported by some but not all of the conference members was something below 20 per cent. Mr Aponte would not agree to any of this. He did not wish MSC to join the Conferences. Nor did he wish to reduce MSC’s four-vessel capacity. He was, however, prepared to enter into some form of co-operation agreement which would involve MSC charging rates slightly below the Conference rates, but he believed that both should be charging rates in the DM 1700-1800 range. At one point Mr Aponte conceded that he would be prepared to sell slots on his vessels to another outsider, but not to the Conference, and thereby to reduce MSC’s market share.

None of these suggestions was acceptable to the Conferences and on 5 July 1991 it was therefore decided to discontinue the negotiations and continue the rate war by further reducing the average southbound Continental-Israel tariff from 10 July by DM 100 to equal MSC’s average DM 1300. For three classes of goods the Conference rate was DM 50 below MSC’s current all in rate. It was agreed to continue to target individual customers on the UKISCON route and to charge rates set at a level likely to recover business from MSC. It was decided to adopt a more aggressive attitude generally. It was hoped that a market sharing agreement might be reached with Mr Aponte at some time in the future. However, the Conferences’ policy was significantly restrained by some members, notably EMCOL and Furness Withy who were distinctly less enthusiastic than others and who proposed reducing from 6 to 2 months the notice period for a member leaving the Conferences.

It is to be observed, firstly, that the negotiating position adopted by the Conferences and Mr Aponte respectively did not suggest a position of substantial bargaining inequality. MSC was clearly not prepared to reach any agreement which involved conceding any of its market share to the Conferences. The latter were prepared to concede a reduced market share to MSC provided that they took over the balance. In particular the Conferences clearly did not act as if they were prepared to go to any length to restrict MSC to their preferred market share distribution. Secondly, the development of future policy was clearly to a significant extent restrained by the views of the more dove-like members.

In the meantime, by about 10 July 1991, there is some evidence to suggest that BCL had reduced its average rate southbound from the Continent to DM 1000. Further, it thereby hit what witnesses described as a psychological rate floor.

The reaction of MSC to the Conference’s decision on 5 July was to reduce its rate to DM 1200 within 3 days, thereby undercutting the Conference rate.

It was at this point that Mr Arkin made his bold decision to reduce the BCL rate still further - setting it at DM 850 on 15^th July and doing so with considerable press coverage. The position then was that BCL had opened up a DM 350 differential in comparison with the MSC rate and a DM 450 differential from the CONISCON rate. Three weeks later the Conference, but not MSC, reduced this differential by dropping its rate to an average DM 1075, thereby undercutting MSC by DM 125 but not undercutting BCL. MSC then responded on 6 August by reducing its rate to DM 1000. That left BCL with a rate that was still well below those of both CONISCON and MSC.

In line with its policy of enhanced aggression towards MSC, CONISCON then for the first time undercut MSC’s average rate by setting a lower average rate of DM 975 with effect from 20 August. However, this rate was slightly above that set by BCL. MSC went down to an average DM 925 for Rotterdam/Antwerp and about DM 1000 for Bremen/Hamburg traffic southbound.

The Conferences then set lower rates on 2 September and MSC then further reduced its rates on 16 September to undercut very slightly the Conference rates. All rates of MSC and the Conference were still above BCL’s rates but the rate reductions of both had reduced the differential to as little as DM 25 per cent TEU for Antwerp/Rotterdam traffic. Having left its rate unchanged since the huge reduction on 15 July, BCL then yet again undercut both MSC and the Conference by a reduction in its all in southbound Antwerp/Rotterdam rate on 18 September to DM 750.

In parallel to this intense rate-cutting activity in the course of June to August 1991, the Conference’s market share of the southbound trade rose to 65.33 per cent, but then dropped back to 62.11 per cent in July and 63.49 per cent in August, whereas MSC’s share had by June dropped from its peak of 39.23 per cent in April to 23.43 per cent in July only to rise again to 30.21 per cent in August. By the time when BCL left the market on 3 October 1991, having only two weeks earlier set an even lower rate of DM 750, the Conference’s market share was just under 65 per cent and that of MSC had dropped back to 26 per cent. Following BCL’s departure from the market MSC appears immediately to have picked up BCL’s market share, its own share rising to 34.78 per cent and thereafter settling at around 30 per cent and then in the course of 1992 stabilising at between about 35 per cent and 43 per cent.

I have so far referred to market shares on the CONISCON southbound route on which the largest part of the UK, Continent-Israel cargoes in terms of TEU’s was carried. The ratio of southbound to northbound cargo was roughly 5:4 during the relevant period. Market shares of the Conferences, MSC, BCL and MSC for both routes can be calculated on the basis of a weighted average as follows:

These figures reflect the Conferences’ stronger position on the northbound routes relative to MSC. On that route MSC had by the end of June 1991 only achieved 18 per cent market share. Accordingly, the Conferences had a more powerful position on those routes, which was relevant to relative market strength in as much as were MSC to deploy vessels southbound they would be less able to take on northbound cargo and MSC might be unable to use them economically on the return voyage to UK or the Continent. That the Conferences recognized the importance of the northbound market is reflected in their targeting of competitors’ customers and their use of special rates. However, this is a consideration of only limited weight because MSC had the advantage of being able to deploy empty space on northbound vessels travelling from ports other than Israel.

At the joint conferences meeting in London on 12^th September 1991 DNOL and Furness Withy gave notice of termination of their memberships of the conferences. The Conference decided to reduce its Continent-Israel rates to the same levels as MSC had announced.

The vigorous rate competition throughout the relevant period and the maintenance by MSC of substantially its market share do not suggest that the position of the Conferences relative to MSC in terms of market power had significantly strengthened since the commencement of the relevant period. If it were the Conferences’ purpose to reduce MSC’s market share relative to their own, they failed to do so.

Reviewing the relevant period from April until October 1991, the Conferences had demonstrated an inability to prevent MSC from consolidating its position in the market. In so far as the Conferences may have hoped that this might be a consequence of the rate war their hopes were disappointed. Indeed, MSC represented as robust a source of competition in October 1991 as at the beginning of the relevant period. Whereas it is clear from the authorities that vigorous competition is not necessarily incompatible with one participant having a dominant position, nonetheless the events of the relevant period do not suggest that the Conferences were in practice able to deploy their market power to reduce to any substantial extent the ability of MSC and BCL to offer effective competition. The ability of the Conferences to respond to MSC’s or BCL’s rate reductions by matching reductions so as to maintain the pre-existing differential does not in itself evidence sufficient strength “to have an appreciable influence on the conditions under which competition will develop” in the sense referred to in Hoffmann La Roche, paragraph 39, for, at the start of the relevant period vigorous competition had already developed and the Conferences were never subsequently able “to act largely in disregard of it”.

As I have already indicated, the facts of this case differ in certain directly relevant respects from those of any of the decided cases on Article 82. Although the Conferences’ market share was very large, the evidence demonstrates a reluctance to respond as fiercely as they might have done to vigorous competition from MSC. Their abstinence from undercutting save in respect of a few limited groups of products, such as classes 1 to 3 the rates set by MSC and BCL except after BCL had set its “suicide rate” suggests restraint in competition rather than an all-out show of force. Further, the aggressive rate cutting by MSC, which repeatedly undercut the Conferences’ rates and then by BCL in July 1991 had the effect of presenting to the Conferences a continuing challenge in respect both of their existing customers and their existing market share.

Against this factual situation application of some of the tests expressed in the authorities for identifying dominance present great difficulty. On the face of it, MSC was in reality uncontrollable by the rating policies adopted by the Conferences. Further, having regard to the objections of some of the existing members of the Conferences, doubtless due to their concern at the escalating cost of the rate war, the Conferences were constrained to retain a responsive policy as distinct from an unrestrained aggressive one. In these circumstances, the fundamental question has to be whether the reluctance of the Conference members to expose MSC and BCL to a much more aggressive policy at an earlier stage must lead to the conclusion that the Conferences did not have a dominant position. Were it the case on the evidence that the Conference members could never have led down the rates because they lacked the financial means to do so, there would be some basis for concluding that, notwithstanding the other factors pointing towards their having a dominant position, such as the size of their market share, they were incapable of controlling MSC or imposing on it terms of competition. Apart from the case of CIS which eventually became insolvent, there is no evidence that the other larger Conference members, such as Zim and Borchard, could not have survived fighting MSC and BCL into a position of subservience, if not withdrawal from the market, had they chosen to do so. In the last analysis, one comes back to the position that dominance has to be tested by the potential ability of the undertaking to control the conditions and not by its prospective willingness to do so. This is consistent with the whole purpose of Article 82 which necessarily rests on an assessment of the potential impact on competition if the undertaking chooses to deploy the full market power which it has at its disposal. The substance of the yardstick indicated in Hoffmann – La Roche, paragraph 39, of the ability to act largely in disregard of competitors in the relevant market is, when properly understood, no more than one consideration which, as a matter of evidence may, in some cases lead to the inference that an undertaking has at the material time such market power relative to its competitors that it can, if it chooses to deploy its full power, eliminate those competitors or substantially reduce the competition which they provide. For example, if an undertaking with a very large market share were to increase its prices, the fact that it then lost a substantial part of its market share would not lead inexorably to the conclusion that it had never had a dominant position: it might merely suggest that the pricing policy adopted by the undertaking was misconceived and that it had encouraged competition rather than reducing it. However, the inference of dominance would be justifiably drawn if the undertaking could increase its prices and yet retain its market share for that would indicate that it possessed a level of market power far greater than that of its rivals.

Having regard to all these considerations, I have come to the conclusion that after MSC entered the market the Conferences did indeed continue to dispose of market power so great relative to that of MSC that, had they brought that fully to bear on the market they could indeed have substantially distorted, if not eliminated, competition. Having regard to their market share and the other factors identified in paragraph 106 above, they retained that level of market power throughout the relevant period. Had they chosen to exercise the market power at their disposal they could, in my judgment, by yet fiercer pricing tactics have forced MSC to accept a reduced market share than that which MSC had achieved. They therefore occupied a position of dominance and retained that position throughout the relevant period.

Three categories of abusive conduct are relied upon. These are:

As to predatory pricing, the Claimant submits as follows.

The Conferences were fixing their rates at below average longterm variable cost. This gave rise, in the absence of any objectively justified reasons, to an irrebutable presumption of eliminatory intent, that is to say a presumption that they were fixing rates in order to eliminate or at least substantially to reduce competition on the relevant market. In the AKZO case, supra, the ECJ held as follows:

“70

Article 82 prohibits a dominant undertaking from eliminating a competitor and thereby strengthening its position by using methods other than those which come within the scope of competition on the basis of quality. From that point of view, however, not all competition by means of price can be regarded as legitimate.

71.

Prices below average variable costs (that is to say, those which vary depending on the quantities produced) by means of which a dominant undertaking seeks to eliminate a competitor must be regarded as abusive. A dominant undertaking has no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, since each sale generates a loss, namely the total amount of the fixed costs (that is to say, those which remain constant regardless of the quantities produced) and, at least, part of the variable costs relating to the unit produced.

72.

Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can derive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them.”

In Tetra Pak v. Commission [1996] ECR 1-5951the ECJ stated:

“41.

In AKZO this Court did indeed sanction the existence of two different method of analysis for determining whether an undertaking has practised predatory pricing. First, prices below average variable costs must always be considered abusive. In such a case, there is no conceivable economic purpose other than the elimination of a competitor, since each item produced and sold entails a loss for the undertaking. Secondly, prices below average total costs but above average variable costs are only to be considered abusive if an intention to eliminate can be shown.”

The relevant period of time over which the costs were to be measured in order to ascertain what were the variable costs was the alleged or putative period during which predatory pricing took place. For this proposition they rely on the evidence of their expert economist, Dr Bishop, who referred to the rationalization of this approach by Professor Baumol in an article entitled “Predation and the logic of the Average Variable Cost Test”, and on the OFT Guidance Document 414 on Predation:-

“….. the time period over which the alleged predatory price or set of prices prevailed or could reasonably be expected to prevail.”

In the present case that period extended from late 1990, when the Conference reduced its rates, to the Spring of 1992 when prices were again increased.

Alternatively, the relevant period was April to September 1991.

During this extended period the Conferences could have avoided the costs actually incurred by withdrawing some of the 17 vessels from the service in order to avoid empty capacity and so that the vessels could be redeployed on more profitable routes.

It was agreed between the expert accountants, Mr Dyson, on behalf of the Claimant, Mr Wilkinson, on behalf of the Defendants, that throughout 1991 the Conferences’ long term net ocean average variable costs (“LTNOAVC”) and average total costs (“ATC”) exceeded revenue, although some of the liner companies, such as EMCOL and Furness Withy were operating with much higher costs levels than others such as Zim. Although it was also agreed that they were operating at rates which were above short term net ocean average variable costs (“STNOAVC”), this was not the relevant yardstick as a matter of law.

The Claimant submits in the alternative that, if the LTNOAVC is not such as to give rise to a presumption of eliminatory intent, the Conferences were fixing rates far below ATC throughout the relevant period and that, if it were established that these rates were being fixed with eliminatory intent, there would be an abuse of the Conference’s dominant position.

In this connection, it is submitted on behalf of the Claimant that the Conferences did have an intention to eliminate competition. As to intention, this was sufficiently established if it could be inferred that the Conferences knew or must have known or turned a blind eye to the fact that their conduct would have had a detrimental impact on competition. As to the intended effect of the conduct, it was necessary only that the Conferences’ rate-setting was with the purpose of harming or damaging the competitors’ ability to compete and thereby “hindering the maintenance of the degree of competition still existing in the market or the growth of that competition” (AKZO, supra, at paragraph 69).

The Claimant further refers to Tetra Pak II [1996] ECR I 5951 and in particular to the following amongst other passages in the ECJ judgment:

“Furthermore, it would not be appropriate, in the circumstances of the present case, to require in addition proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to penalise predatory pricing whenever there is a risk that competitors will be eliminated. The Court of First Instance found, at paragraphs 151 and 191 of its judgment, that there was such a risk in this case. The aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors.”

The Claimant draws attention to that decision as illustrative of those matters which may be taken into account in determining whether there was eliminatory intent, in particular:

In reliance on the CMB Case, supra, the Claimant emphasizes the special responsibility not to imperil competition which rests on a party with a dominant position. It is convenient to set out here the relevant passage from the judgment of the ECJ:

“[113] It is, moreover, established that, in certain circumstances, abuse may occur if an undertaking in a dominant position strengthens that position in such a way that the degree of dominance reached substantially fetters competition.

[114] Furthermore, the actual scope of the special responsibility imposed on a dominant undertaking must be considered in the light of the specific circumstances of each case which show that competition has been weakened (Case C-333/94P, Tetra Pak v. EC Commission).

[115] The maritime transport market is a very specialized sector. It is because of the specificity of that market that the Council established, in Regulation 4056/86, a set of competition rules different from that which applies to other economic sectors. The authorisation granted for an unlimited period to liner conferences to co-operate in fixing rates for maritime transport is exceptional in light of the relevant regulations and competition policy.

[116] It is clear from the eighth recital in the preamble to Regulation 4056/86 that the authorization to fix rates was granted to liner conferences because of their stabilising effect and their contribution to providing adequate efficient scheduled maritime transport services. The result may be that, where a single liner conference has a dominant position on a particular market, the user of those services would have little interest in resorting to an independent competitor, unless the competitor were able to offer prices lower than those of the liner conference.

[117] It follows that, where a liner conference in a dominant position selectively cuts its prices in order deliberately to match those of a competitor, it derives a dual benefit. First, it eliminates the principal, and possibly the only, means of competition open to the competing undertaking. Secondly, it can continue to require its users to pay higher prices for the services which are not threatened by that competition.”

The Claimant argues by analogy that in the present case, where the Conference enjoyed a 90 per cent market share when MSC entered the market – which was a similar share to that of the CEWAL conference in CMB – it was an abuse of the Conference’s dominant position thereafter to attempt to regain its lost market share by reducing rates well below ATC and so causing great losses to competitors and conference members alike. In the CMB Case among the factors relied on by the Commission to establish eliminatory intent were:

The CFI referred, as evidence of eliminatory intent, to the existence of a “fighting committee” to fight competitors and the use of aggressive language in internal documents, such as references to “getting rid” of a competitor.

The decision of the Competition Commission Appeal Tribunal in Napp Pharmaceutical Holdings Ltd v. Director General of Fair Trading Case no. 1001/1/01 (15 January 2002) is also relied on by the Claimant. This case involved an allegation by the Director General that Napp had infringed section 18 of the Competition Act 1998 by abuse of a dominant position within the United Kingdom. The Commission found that prices were fixed by Napp below direct costs and that this pricing policy “hindered competition and raised barriers to entry to the significant disadvantage of competitors” (paragraph 307). At paragraph 309 the judgment observes:

“We accept the Director’s submission that to establish an intention to eliminate competition it is sufficient to show that the undertaking concerned must have been aware or, at least, could not have been unaware, that its conduct was of such a nature as to eliminate competition: see the cases cited at paragraphs 450 and 456 below.”

A further passage from the judgment at paragraph 456 is also in point:

“As to the meaning of ‘intentionally’ in section 36(3), in our judgment an infringement is committed intentionally for the purposes of the Act if the undertaking must have been aware that its conduct was of such a nature as to encourage a restriction or distortion of competition: see Musique Diffusion Francais and Park Pen cited above. It is sufficient that the undertaking could not have been unaware that its conduct had the object or would have the effect of restricting competition without it being necessary to show that the undertaking also knew that it was infringing the Chapter I or Chapter II prohibition: see BPB Industries and British Gypsum cited above, at paragraph 165 of the judgment, and Case T-29/92 SPO and Others v. Commission [1995] ECR II-289, at paragraph 356. While in some cases the undertaking’s intention will be confirmed by internal documents, in our judgment, and in the absence of any evidence to the contrary, the fact that certain consequences are plainly foreseeable is an element from which the requisite intention may be inferred. If, therefore, a dominant undertaking pursues a certain policy which in fact has, or would foreseeably have, an anti-competitive effect, it may be legitimate to infer that it is acting ‘intentionally’ for the purposes of section 36(3).”

In reliance in particular on the CMB Case the Claimant emphasizes that where eliminatory intent is established it is not a reasonable and proportionate response for a dominant party such as a conference to match the rates of an independent line on a selective basis even where its rates are above ATC. In a case where as here its rates are below ATC there is a stronger case of abuse where the Conference matched or undercut the rates of BCL and MSC.

Against the background of these decisions the Claimant submits as his secondary case that, if in the present case it is necessary for an intention to eliminate on the part of the Conferences to be proved in order to make good his case on abuse of dominant position the following evidence establishes that intention.

As to the defendants’ submission that the Conferences’ rate fixing was justifiable because it was for the purpose of self-defence, the Claimant submitted as follows:

The Claimant further submits that penetration of the market by MSC to that limited extent did not represent a real and credible threat to the survival of the Conferences. An important reason for this was the growth of demand for capacity on both the relevant market routes. Thus, on the northbound routes the Conferences carried a total of 2081 TEUS in October 1990 and had an overall market share in the order of 79 per cent, whereas in October 1991 the Conferences carried at least 3091 TEUs but their market share had declined to about 69 per cent. In the same period MSC had carried northbound 64 TEUs in October 1990 representing an overall market share of 2.45 per cent and 1353 TEUs in October 1991 representing 30.45 per cent. On the southbound routes the Conferences carried 3129 TEUs in October 1990 with a 68 per cent market share, increasing to over 4413 TEUs in October 1991 when their overall market share was down to 64 per cent. This, it was submitted, demonstrated that, as Mrs Richards said in her evidence, following MSC’s entry into the market, the demand for capacity grew and MSC captured much of the additional demand, whereas the Conferences increased their carryings overall but saw their overall market share decline. This showed that the fight between the Conferences and MSC was, so far as the Conferences were concerned, a fight for the new business and not a fight for survival. I interpose that the accuracy of these statistics was questioned by Mr Wilkinson, the defendants’ accountancy expert, in the course of his evidence because it was unclear if or how the calculations of each month’s carryings had taken account of voyages lasting in excess of 30 days. It was then not clear how some of the figures could be reconciled with the provisional voyage accounts of BCL. That may be so, but the statistics do, in my judgment, provide an order of magnitude basis for comparing the relationship between the actual quantity of cargo carried and the percentage shares in the market during the relevant period.

Secondly, as to the preconditions, it is submitted that the response to MSC’s market penetration was not reasonable or proportionate. The rate reductions by the Conferences led to their members suffering very large losses. By January 1991 the Conferences had reduced their rates by nearly 40 per cent since MSC entered the market. The Claimant also relies on the Conferences’ rate setting policy which, it is submitted, involved undercutting MSC’s rates in the period after April 1991, notwithstanding their earlier (December 1990) belief that they could still charge a small premium above the rates of MSC and still retain and regain customers.

The Claimant further relies on the tactics of the Conferences at and after the 4 July 1991 meeting with MSC which were motivated by a desire to force MSC to submit to a market share below 20 per cent. There was further the participation of the Conferences in the rate war leading to rates matching BCL’s suicide rates with the result that within 12 months from MSC’s entry the Conference rates on some routes stood at about 30 per cent of what they had been in September 1990. In the very long experience of the shipping industry of Mr Johnson, the 2-4 Defendants and four Part 20 Defendants’ expert, the Conferences’ conduct in the rate war represented “an extraordinary violent attitude towards their contracts” which involved rate reductions further than he had ever known. The evidence of Professor Yarrow was that rate wars were generally short-lived, whereas this one continued for many months.

Therefore, neither pre-condition for self-defence was satisfied .

The Claimant challenges the argument that the Conferences could have any defence based on an honest belief founded on legal advice that their conduct did not infringe Article 82. Reliance is placed on the judgment of the ECJ in Miller International [1978] ECR 1-313 at paragraph 18 and in John Deere [1985] 2 CMLR 554.

The Claimant further contends that in any event the advice which the Conferences received from Mr. Polito of Lovell White Durrant at a meeting at Hamburg in November 1990 was equivocal as to whether the Conferences held a dominant position. This is clear from a note of the meeting. There was no evidence that any legal advice was received in relation to the Conferences’ conduct of the rate war.

Reliance is also placed on the absence of minutes of the January 1991 meeting with Mr. Aponte of MSC and on the fact that the only document referring to the July meeting with Mr Aponte is Mr. Stramer’s memorandum of 9 July marked “secret” as evidencing the Conferences’ knowledge that those negotiations were or might be illegal. This was supported by the evidence of Mr. Meurs. Contrary to what Mr. Stramer had claimed, there was no contemporary evidence of legal advice having been obtained in relation to the meetings with MSC. I interpose that it is to be inferred from the lack of minutes and the designation of Mr. Stramer’s memo as “secret” that, if legal advice had been obtained, it was not to the effect that the meetings with MSC were legal.

As to an argument that what would otherwise be abusive pricing might not be so if the dominant undertaking would be unable to recoup its losses at a future date, the Claimant relied on the decision of the ECJ in Tetra – Pak, supra, at paragraph 44 to the effect that once it was established that there was a risk that competitors would be eliminated, thereby endangering the maintenance of undistorted competition, the pricing was necessarily abusive, regardless of whether the undertaking would be able to recoup its losses. In any event, in the present case the evidence suggested that the Conferences were able to recoup their losses after rates had increased in 1992 following the price war.

As to fighting ships, the Claimant submits as follows.

In the CMB Case the Commission referred to Article 18 of the UNCTAD Code, which provides:

“Members of a conference shall not use fighting ships in the conference trade for the purpose of excluding, preventing or reducing competition by driving a shipping line, not a member of the conference, out of the said trade.”

The Commission also referred at paragraph 77/78 to the OECD recommendation that a fighting ship was a device to forestall a non-conference line in obtaining the cargo. The Commission relied upon the following evidence in arriving at its conclusion that the use of fighting ships was an abuse by the Conference of its dominant position:

“(1)

The dissemination of information to conference members by a conference secretariat of the dates of forthcoming departures scheduled by the independent company, of the type of cargoes to be loaded and, as far as information was available, of the identity of the shippers;

(2)

The convening of a Special Fighting Committee which had as its task the taking of decisions as to which conference ships would offer reduced rates different from the conferences’ normal rates at which vessels were to sail either on or close to (before or after) the date on which the independent vessel was scheduled to sail;

(3)

The adoption of fighting rates derogating from the conference’s scale of charges, fixed by common agreement but which depended upon the charges applied by the independent line; and

(4)

A sharing of the losses from the application of rates which differed from the conferences’ normal rate.”

The Claimant contends that, having regard to evidence of a similar kind in this case, abuse by fighting ships is established. In particular, the conferences changed routes to call at the same ports as their competitors and co-ordinated their vessels to arrive at similar times to those of BCL and MSC. This had already happened prior to the commencement of the relevant period with regard to Flushing, to which in the event neither BCL nor the conferences sent vessels. On 25^th March 1991 – also before the commencement of the relevant period - Zim, having observed that BCL had started to pick up cargoes at Izmir and MSC in Cyprus, recommended that the Conference should start directing vessels to those two places to pick up cargoes at competitive rates “in order to intensify any competitive activity”. By 5^th July 1991 Zim was shipping to Izmir and had threatened to boycott the containers of any shipper that used BCL.

Further, one of the functions of the FMC was to circulate to the Conference members information as to BCL’s and MSC’s advertised sailing times and to update them as to changes in those schedules. The Claimant relies on the evidence of Mr. Levy as to the purpose of this activity, namely so that the Conferences would be able to compare this information with their own sailing/loading schedule and be able “to follow up the competitors’ activity and collect it”. Mr. Levy went on to explain that it was necessary to know the competitors’ schedules and their progress schedule “in order to be able to allocate or to decide when a Conference vessel would operate to that port because Haifa and Ashdod were congested and Conference vessel frequently clashed with competitors’ vessels”. The Claimant submits that this evidence supports the inference that, contrary to the evidence of Mr. Levy in cross-examination by Mr. Irvin on behalf of Borchard, the Conferences were scheduling sailings to Israeli ports to cause maximum congestion whenever BCL vessels called at these ports. Further the Conferences were using their competitors’ sailing schedules to co-ordinate Conference sailings by means of the tonnage co-ordination center in London, referred to by Mr. Stramer in his evidence as having the function of “co-ordinating the sailings and loadings for both UK and the Continent”.

The Claimant submits on the basis of the decision of the Commission and the judgments of the CFI and the ECJ in the CMB Case that

These requirements were satisfied by the conduct of the Conferences in the present case.

The third respect in which the Claimant alleges that there was abuse by the Conferences of a dominant position was by spreading rumours of BCL’s financial difficulties. It is submitted that, given the special responsibility of a dominant undertaking to protect the level of competition in the market, it is not necessary that the rumours should be false. In any event, rumours of that kind would make it more difficult for a competitor to trade in the relevant market and would therefore involve a reduction in competition.

The Claimant relies on the following as evidence of such rumour – mongering.

In a letter dated 6^th February 1991 – before the start of the relevant period - Mr. Behrisch of the BCL Haifa head office wrote to Mondi, one of its customers on the Israel-South Africa market denying rumours of financial difficulty and stating:

“I would like to draw your attention to the endless stories from our various competitors and “friends” claiming that we shall not last more than a few months, that we shall not have vessels to carry your cargoes, that we shall not be able to supply trucks from Eilat to Tel Aviv etc etc etc.”

On 15 August 1991 Mr. Arkin sent a circular fax message to all BCL’s local agents enclosing a press release denying “systematic and vicious rumours about our financial strength and intentions” that had been and still were being circulated by BCL’s competitors. The press release re-assured all clients and competitors that BCL would maintain its operations and would if necessary provide more capacity for additional cargo.

On 14 October 1991, after the end of the relevant period, BCL’s Antwerp agents, Noord Naatie, sent a fax message to BCL asking for a bank guarantee in respect of certain post-dated cheques sent to it by BCL. The message referred to “competitors” in the trade stating that BCL would “leave the theater”.

The Claimant submits that it can be inferred that these rumours were being spread by the Conferences or by their members purporting to act on the Conferences’ behalf from the reference to “competitors” in the plural in the Noord Naatie fax, since the only other competitor was MSC. Further, the anti – competitive conduct of rumour mongering was consistent with the Conferences’ contractual propose of doing their utmost to fight competition as provided for in clause 13.1 of the July 1984 Agreements.

The Claimant also relies on the assertion that Zim was circulating rumours on the South African-Israel market where it was BCL’s only competitor. The reference in BCL’s message of 6 February 1991 to Mondi to its “various competitors and ‘friends’” circulating such rumours could only refer to Zim, the only competitor on that route, and in so doing Zim must to be taken to be acting to give effect to the Conferences’ policy of fighting competition on the relevant market. Therefore, if Zim were circulating rumours on the South African market, it was probably also doing the same on the UK and European markets. The Claimant relies on answers of Mr. Stramer in cross-examination to the effect that one or more of Zim’s salesmen might have said that BCL was losing business. Further, whereas Zim knew of the press release by Mr. Arkin in August 1991, it took no steps to ensure that its salesmen, who were directly employed by it, did not spread rumours about BCL’s financial position. It is submitted that Zim is therefore vicariously liable for the activities of such salesmen and that if that is the kind of rumour mongering perpetrated on the South Africa route it could be inferred that Zim’s salesmen were responsible for similar conduct on the UK and European routes. It is argued that, in view of the Conferences’ agreed policy or overall plan of fighting competition in the sense of attempting to reduce MSC’s and BCL’s market shares by targeting their customers, the Conference as a whole was liable for the activities of the salesmen of Zim in giving effect to that policy even though other individual Conference members might not be aware of exactly what tactics such salesmen were using.

Borchard accepts that in relation to predatory pricing there are three relevant types:

It submits that in the present case there was no intent to eliminate BCL or MSC. For this purpose, the intention that must be proved is a subjective intention to bring about a deliberately desired and pursued objective. In as much as the Competition Commission Appeal Tribunal held in the Napp Case, supra, that in order to establish an intention to eliminate competition it is enough to show that the undertaking must have been aware or at least that it could not have been unaware that its conduct was of such a nature as to eliminate, was obiter, that being a case of pricing below AVC, and in any event incorrect.

The relevant intention had to be an intention completely to eliminate a competitor and not, as submitted by the Claimant, merely to harm or deter a competitor or to strengthen or maintain a dominant position.

It is argued that the decision in the CMB Case turns on the evidence of the Conference minutes in that case which referred to “getting rid of” the only competitor. Proof of intention totally to eliminate was logically essential because only if the competitor could be totally eliminated could the dominant undertaking revert to charging higher rates. Reliance was placed on the Opinion of the Advocate General in CMB, paragraph 136:

“The reason for restraining dominant undertakings from seeking to hinder the maintenance of competition by, in particular, eliminating a competitor is that they would thus be enabled to charge abusively high prices. Thus, an inefficient monopoly would be reinstated and consumers would benefit only in the short run. If that result is not part of the dominant undertaking’s strategy it is probably engaged in normal competition.”

Borchard also relies on an answer of Dr Bishop to a question by the Court:

“Yes, the purpose of the conduct must be such that it is not conduct that a competitor would enter into in normal competitive circumstances, where what is meant by normal competitive circumstances are circumstances where you cannot conceive of eliminating someone and making the market less competitive and therefore more remunerative for you in the future.”

Borchard further submits that the use of words such as “fight” or “fighting committee” do not evidence eliminatory intent and clause 13.1 of the July 1984 Agreements merely imposes a duty to compete.

It is submitted that, before MSC entered the market, the Conferences’ main purpose in the steps relied upon by the Claimant was to regain market share and not to force BCL out of the market. They raised rates rather than lowered them and BCL maintained a steady market share. Their main concern in 1991 was how to deal with MSC, given that they did not know how big a share of the market MSC aimed to achieve. They could not have raised prices and maintained market share unless there were an agreement with MSC which would have been unlawful: otherwise the shippers would have gone to competitors.

The Conferences were entitled to compete on price in order to retain existing market share and regain lost market share. For this purpose they could reduce their rates to meet MSC’s rates. Reliance is placed on the evidence of Dr Bishop who accepted in answer to questions from the court that participation in competition by a dominant party was not necessarily inconsistent with the overriding purpose of Article 82 provided that the competitive actions taken by the dominant undertaking did not have the motive of excluding competition or substantially diminishing it.

Borchard relies on the following passage from the judgment of the CFI in the CMB Case: at paragraph 146.

“As has already been pointed out, it has been consistently held that whilst the fact that an undertaking is in a dominant position cannot deprive it of entitlement to protect its own commercial interests if they are attacked: and whilst such an undertaking must be allowed the right to take such reasonable steps as it deems appropriate to protect those interests, such behaviour cannot be allowed if its real purpose is to strengthen this dominant position and thereby abuse it (in particular, BPB Industries and British Gypsum v. E C Commission”.

It further relies on a passage from the Advocate General’s statement in CMB at para 128 which is based on the judgment of the ECJ in AKZO at paras 155-156:

“Although a dominant undertaking is permitted to meet competition by ‘making defensive adjustments, even aligning itself on [the competitor’s] prices, in order to keep the customers which were originally its own’, it would not be legitimate for it to attempt to maintain, through a selectively offered price reduction, the customers that it has poached through below-cost pricing from its competitors unless it gives its own ‘customers the benefit of this adjustment’”.

It is further submitted that the presumption of eliminatory intent which arises from pricing below AVC does not arise with regard to LTNOAVC which is equivalent to ATL. It is not possible to equate AVC with LTNOAVC. Two tests can apply only if ATC is below AVC and not when they are equivalent.

In any event, it is submitted, in reliance on the statement of the Advocate General in CMB at paragraph 127, that, even if prices are below average variable cost, it is open to the dominant undertaking to adduce evidence that such pricing is not part of a plan to eliminate its competitor.

Borchard further submits that an intention of recoupment is a necessary feature of abuse by price cutting. Mr Irvin relies on a passage from the statement of the Advocate General in CMB at paragraph 136:

“Thus, to the extent that it is necessary, I believe that the present case passes the test of recoupment. At the same time, I would say that some such requirement should be part of the test for abusively low pricing by dominant undertakings. It is implied in the first paragraph of the quotation from AKZO (see paragraph 126 above). It is inherent in the Hoffmann La Roche test (see paragraph 24 above).”

As to fighting ships, Borchard submits that at the least it is necessary that there be identified specific vessels which are said to have been designated as fighting ships. Since the Claimant does not allege that particular vessels were so designated, its case on fighting ships is indistinguishable from its case on predatory pricing by selective discounts. Further, in the case of a containerized liner service, a system of fighting ships would be ineffective. As Mr Johnson said in evidence, which I accept, this trade normally involves the provision by each line to the shipper of the line’s container. The cargo is then loaded into it ashore and subsequently it is transported to the vessel and the container laden on board. This makes it impossible to switch vessels at the last minute because the shipper has already committed himself to the vessel when he books the container from the line. Other witnesses supported this opinion, namely Mr Record of Furness Withy and Mr Tubb of Borchard. Moreover, the unpredictable nature of BCL’s schedules would have made it impossible to organize matching vessels.

As to rumour-mongering, Borchard submits that there is no evidence that the Conference ever engaged in or condoned this. Mr Tubb of Borchard had never heard of such rumours. No witness was called who had ever encountered such rumours. Reliance is placed on a fax message from Luder Bischoff, BCL’s Bremen agents, dated 23 August 1991 sent to Mr Arkin in response to Mr Arkin’s circular message and press release about rumours. The agent declined to circulate the press release to customers, stating that they had not encountered “any disadvantageous rumours” about the financial situation of BCL and they did not wish to alarm customers.

Spreading information as to BCL’s financial position that was true could not as a matter of common sense be an abuse of a dominant position, Mr Stramer’s evidence that it was not impossible that one of his many salesmen might have passed a comment about BCL’s financial position had to be taken alongside his evidence that it was not Zim’s sales strategy to blacken competitors. The highest Mr Stramer conceded was that it might have been said to a customer that, if Zim was losing money, so also must Mr Arkin.

The submissions of the 2-4 Defendants on abuse may be summarized as follows.

The Claimant’s reliance on clause 13.1 of the July Agreements was misplaced. That provision was capable of referring to lawful competition and it was to be so construed.

In the CMB Case the ECJ had recognized that the maritime transport market was “a very specialised sector”. Reliance is placed on the statement of the Advocate General at paragraph 127 in support of the submission that, even if prices are set by a dominant undertaking below AVC, the presumption of eliminatory intent is rebuttable:

“Therefore, sales below average (or short-run marginal; AKZO, paragraph 70) costs are in effect presumed to be abusive. While it is usually rational to sell above average variable costs, because that permits some return on capital, where the market will not bear a higher price, it is not usually rational to sell below average variable costs. Marginal costs need not be incurred and business has no interest in incurring them so as to make a loss. A dominant firm would be permitted, however, to rebut this presumption by showing that such pricing was not part of a plan to eliminate its competitor.”

The 2-4 Defendants emphasise that in the CMB Case the conference admitted the eliminatory purpose of the rate setting, that there was a selective low price policy targeted at the competitor’s particular sailings and not overall market rate reductions. Similarly, AKZO was concerned with the targeting of the competitor’s customers by offers at unreasonably low prices, below average total costs and below the prices offered generally to others.

As to the fighting ships, in CMB, as appears from the facts set out in the Decision of the Commission at paragraphs 73 and 74 particular conference vessels were designated as fighting ships in respect of the particular sailings of the competitor’s vessels with the purpose of removing the only competitor.

Against this background, it is submitted that the Claimant, having alleged in his pleading that the Conference was in abuse by having operated fighting ships wholly failed to particularize a single instance of a fighting ship in relation to a particular BCL ship.

The 2-4 Defendants rely on the evidence of Mr Stramer, Mr Record and Mr Meurs as to the practical impossibility of switching containerized cargo at the last minute from a BCL ship to a Conference ship given that normal booking practice involved booking a container several days in advance. Once the container was loaded with cargo it would be extremely impractical to switch the cargo to another container for another vessel. Further, it would not be commercially sensible to disrupt the Conferences’ sailing schedule in order to match a particular arrival of a BCL vessel.

Further, Mr Meurs denied that the Conference was instructing Zim to harm BCL on the Izmir or South Africa routes.

As to rumour-mongering there was no evidence that, if it existed, it emanated from the Conference members. Any such rumours about BCL’s financial position could have been propagated by Boaz and Na’ama Arkin at MSC. Even if such rumours had been spread, they were true. By 6 February 1991 BCL was indeed already seriously insolvent on its balance sheet – to the extent of at least US $3 million and that failed to take into account an unsecured debt from BCSL of US $3.6 million.

The 2-4 Defendants strongly argue that it was not surprising that any such rumours might be circulating having regard to the great reduction in BCL’s rates in July 1991. There was evidence to suggest that this caused the trade to believe that BCL was about to withdraw, as shown, for example, by a fax message from BCL’s Belgian agent sent on 15 July 1991 in which he referred to the rate of DM 850 as a “suicide rate” which had created the impression in Belgium that BCL was about to close down. Furthermore, Mr Hiya, of Borchard, who was an experienced agent in Israel, said in evidence that the rate reduction by BCL was crazy and “committing suicide”.

The 2-4 Defendants submitted that there was no evidence that they circularized customers with rumours of BCL’s insolvency.

As to predatory pricing, the 2-4 Defendants submit that the issue that arises is whether the dominant party set its prices at the levels which it did in order to eliminate a competitor. By reference to the decisions of the ECJ in AKZO and Tetra Pak, it is submitted that if pricing is set below AVC that can lead to the inference of predatory intent. It is submitted that whether predatory intent is proved is a matter of evidence and in particular whether in any particular case an inference of such an intent can be drawn from the relationship between prices and AVC. Reliance is placed on a passage in Bellamy & Child, European Competition Law, 5^th Edition at paragraph 9-077 line 26:

“To the extent that this implies a rigid presumption that pricing below average variable costs must be predatory, it is open to criticism. Prices below average variable costs may be set pro-competitively….”.

It is argued that one has to look at competitors’ rates – in this case those set by MSC and BCL in considering whether the inference of predatory intent can be drawn, in particular in a case where those rates may be set below AVC. If the Conference could not legally reduce their costs to that market rate they could be destroyed because they would lose their customers. The Napp Case further illustrates how the relationship between the low price (in that case charged for drugs to the hospitals) and the direct cost of production operates as evidence of exclusionary intent.

The 2-4 Defendants draw attention to the fact, which I accept, that MSC deployed a high level of available capacity on the north European route, particularly after it added two additional vessels of 950 TEUs in January 1991 and when it later replaced the two 535 TEU vessels in the middle of 1991 with two vessels each of 1000 TEUs. Not only was there additional available capacity but it was only partly filled for at least some of the relevant period. As accepted by Mrs Richards, MSC on occasions in mid-1991 was operating with approximately the same proportion of spare capacity as the Conferences. The 2-4 defendants say that by reason of this and of the lower rates charged and regular service provided by MSC, demand for the Conference capacity naturally declined.

The 2-4 Defendants rely on the evidence of Mr Koch of DNOL, Mr Hiya of Borchard, Mr Record of Furness Withy, Mr Stramer of Zim and Mr Meurs of KNSM as demonstrating that throughout the relevant period the Conferences were trying to retain business and regain such business as had been lost and not to force BCL or MSC out of the market. In implementing that policy they did not lead the market down but reacted to MSC’s and BCL’s rate reductions by reducing their own rates to those which were slightly above those of their competitors or matched them. The so-called “Fighting Committee” was properly described as a competition committee.

There was, as I accept, no evidence that the Conferences had indeed recouped the whole of their losses arising from their reduction in rates or that there was ever any significant chance that they would do so. This pointed away from an intention to eliminate.

As to the element of intent in the cause of action, it is submitted by the 2-4 defendants that there must be established against each defendant subjective intent on the part of one or more individuals for whom that defendant is legally responsible that rates were cut for the purpose of eliminating the claimant BCL from the market. In other words, it must be proved that the rate-cutting policy was aimed at BCL with that object in mind. On that assumption the conduct of the Conferences which was aimed exclusively at MSC could not found a cause of action for BCL.

Alternatively, the Conference members did not perceive that after the entry of MSC they had a dominant position. When they reduced their rates in self-defence in response to MSC they did so mistakenly believing that this was necessary to protect their market share and they were no longer dominant and therefore lacked the necessary intent to found an abuse.

The 2-4 Defendants further submit that they were entitled to act in self-defence by reducing prices to protect their business in the face of BCL’s rate reductions. Merely meeting competition would not be an abuse of a dominant position. These defendants rely by way of analogy on cases on self-defence in the face of a physical attack to the effect that reasonable and proportionate measures could be taken to protect the defendants’ market share and that reasonableness is to be tested by reference to the facts as the defendants believed them to be. In this connection, these defendants refer to the judgment of the ECJ in United Brands at paragraph 189 where the court recognized that the fact that an undertaking was in a dominant position could not disentitle it from protecting its own commercial interests if they were attacked. In such a case the undertaking had the right to take such reasonable steps as it deemed appropriate to protect its commercial interests but such behaviour could not be permitted if its actual purpose was to strengthen its dominant position and abuse it. These defendants also drew attention to a passage in the judgment of the CFI in the CMB Case, supra, at paragraphs 146 and 148, the latter envisaging the possibility that a dominant undertaking might in some cases be justified in entering into a price war started by a competitor if its response was reasonable and proportionate. It is submitted that in the present case the Conference’s participation in a price war begun by BCL and MSC was a reasonable and proportionate defence of its commercial position not motivated by the purpose of eliminating BCL from the market.

These defendants further rely on the reference to the UNCTAD Code of Conduct for Liner Conferences referred to in the Recitals to the Block Exemption and in particular to the Annex to Resolution 1 of 6 April 1974 at paragraph D2 in relation to non-conference shipping lines. This provides:

“2.

Non-conference shipping lines competing with a conference should adhere to the principle of fair competition on a commercial basis;

3.

In the interest of sound development of liner shipping service, non-conference shipping lines should not be prevented from operating as long as they comply with the requirements of paragraph 2 above.”

It is submitted that BCL acted contrary to the principle of fair competition on a commercial basis and therefore contrary to the interest of the sound development of the liner shipping service and that the reasonableness and proportionality of the Conferences’ response has to be assessed in this context. For the purpose of self-defence it was justifiable for the Conference to respond to the activities of both BCL and MSC. Reliance is placed on Mr Johnson’s evidence that if the Conference had not reacted competitively to the price war conspicuously and promptly, this would have provided MSC in particular with cheap and instant access to whatever share of the market it wanted. Participation in such price competition was invariably what a conference would do to retain cargo support.

Zim challenges the argument advanced by the Claimant based on the evidence of Dr Bishop, citing Professor Baumol, that average variable cost is to be measured by reference to the period of the alleged or putative period of predatory pricing (see paragraph 205 above). It is submitted, in reliance on the joint report of the accountancy experts, Mr Dyson and Mr Wilkinson, that it is inappropriate to compare revenue (price) at a given point in time with the magnitude of costs which may vary over an extended period because one is not comparing like with like. Professor Yarrow’s evidence to similar effect is also relied upon. Zim draws attention to paragraph 4.5 of the OFT Guideline:

“Before variable costs can be discussed in detail, the relevant time frame must be clarified as the variability of a cost and hence the magnitude of variable costs will depend crucially on the time frame under consideration – given enough time, for instance, a machine can be replaced by a smaller or larger machine. In AKZO the Court did not discuss explicitly the timescale appropriate for analyzing predation.”

It is submitted that Professor Baumol’s paper is not dealing with variable costs but with avoidable costs, that is to say those that will be avoided if an undertaking ceases to supply a particular market, whereas the comparative exercise necessary in the predatory pricing test requires comparison between revenue and costs which vary with the undertaking’s output. These definitions are derived from OFT Guideline at paragraph 9. Even if the Baumol reasoning is applied, it involves comparing the incremental revenue from the sales over the relevant period compared with the costs escapable over the entire period during which the prices prevailed, thus comparing like with like. Zim further makes the point that it is unrealistic to compare short-term pricing decisions with much longer term investment decisions. It is submitted that the ECJ has never used the Baumol test or suggested that it is appropriate.

Zim submits, in reliance on the decision of the CCAT in Napp, supra, that since it is common ground that the Conferences were not setting rates below their average variable costs but were setting rates below their average total costs during the relevant period, the claimant cannot succeed in establishing an abuse by predatory pricing unless an intent to eliminate is shown to exist by means of “convincing proof …….. in the form of a firm, precise and consistent body of evidence” (Napp at paragraph 112). The standard of proof was the criminal standard.

It is argued that, given that rates were set above AVC, it was open to the Conferences not merely to meet competitor’s prices but to undercut them. In the present case there is no evidence of intent to eliminate BCL from the market. In particular the following points are relied on:

The relevant intention involved a subjective test and not an objective test: as indicated in Napp at paragraph 309. Thus, carelessness or negligence falling short of “blind eye” knowledge would not suffice.

The subjective element of the breach of Article 82 – must relate to the target competitor under attack. In this case that was BCL alone. There was no pleaded case that the Conferences intended to eliminate MSC, as distinct from BCL. There was no evidence that the Conferences intended to eliminate MSC but merely that in self-defence they were trying to survive. The Claimant had not pleaded that unlawful price-cutting by the Conferences which was directed at MSC with the purpose of eliminating MSC was the effective cause of BCL’s losses. Even if this case had been open to the Claimant on the pleadings it was bound to fail on the facts. The rate war was fought out between BCL and MSC. The Conferences were dragged into the fight against their will and such response as they made was solely in self-defence. BCL chose to lead a rate war which it could not win and it was Mr. Arkin’s continual leading down of rates that caused BCL to withdraw from the market.

In reliance on the ECJ judgment in AKZO at paragraph 71 it was submitted that it was relevant to investigate whether there was evidence of recoupment or expectation of recoupment, for, if there were no such evidence, that pointed against eliminatory intent. The Claimant had failed to adduce any evidence of recoupment or expectation of recoupment. The evidence was that, although rates were eventually raised in 1992 – after the relevant period – they never went back to anywhere near the levels before the entry of MSC and the losses sustained in the rate war were not fully recovered in the event.

The Claimant’s suggestion that it was open to the Conferences to reduce their costs by reducing capacity, that is by withdrawing vessels was misconceived. It was contrary to the evidence of the Claimant’s expert, Mrs. Richards, who said in evidence that it would not have been prudent to withdraw tonnage in an expanding market where the over-capacity would be seen to be temporary. Secondly, vessel costs were fixed and not variable and therefore withdrawal would have no impact on variable costs. Thirdly, it was difficult to withdraw capacity at short notice, according to Mr. Johnsons’s evidence, particularly where there were slot agreements. In any event it was Zim’s evidence, as accepted by the Claimant, that all the Conferences’ vessels were fully booked, which made them not immediately dispensible.

Zim further challenges the Claimant’s submission which extends abusive intent to include hinderance of or damage to a competitor’s ability to compete. The CMB case does not support this proposition.

Zim also challenges the Claimant’s case on the targeting of paper, tyres and spare parts - BCL’s three most important cargoes as examples of selective eliminatory pricing. However, it is submitted that on the evidence these rates were both linear and volume related and therefore objectively justified.

Zim attacks the Claimant’s point that in April 1991 the Conferences could have raised their prices above average total costs. It points to the evidence of Mr. Johnson that such a course was simply unthinkable. It would have been a shattering blow to any customers. It was, as he put it, “simply not remotely feasible in an international liner conference”.

Zim submits that there was no evidence of the use of fighting ships. In particular, the evidence establishes that BCL never called at Flushing so that there would be no question of fighting ships proceeding to that port. On the issue of fighting ships generally, the witnesses all spoke with one voice: they were never used. A fighting ship is to be understood as meaning a vessel placed on the berth by the conference to sail in competition with a non-conference vessel: see CMB at page 74. It was not enough that because of the abundance of Conference tonnage at any one time it was normal for Conference vessels to load within a few days at the same port as BCL’s vessels. In any event, containerized cargo did not lend itself to the use of fighting ships because of the difficulty of switching cargo out of one liner’s container into another’s.

Finally Zim submits, like the other defendants, that there was no evidence of circularisation of customers and the spreading of rumours of BCL’s financial difficulties. There was evidence (from Mr. Hiya) that the shipping market in Israel was rife with rumours and in his experience similar rumours had circulated about Borchard’s financial difficulties. The claimant had failed to establish that such rumours emanated from any Conference member. None of the documents relied on by the Claimant attached the rumours to the conferences or their members. The Noord Natie telex of 14 October 1991 was hardly surprising in view of the fact that 10 days earlier BCL had announced the suspension of the service between Europe and Israel.

In order to identify the underlying concept of abuse of a dominant position it is once again necessary to go back to Article 3(i)(g) of the Treaty cited at paragraph 119 above. It is part of “the system for ensuring that competition in the internal market is not distorted” (Hoffman – La Roche paragraph 38). Accordingly, conduct which is designed by an undertaking having the capability of distorting competition in the relevant market, that is to say an undertaking in a dominant position, with the predominant purpose of distorting competition, will amount to an abuse of that dominant position. Quite simply, an undertaking in a dominant position must not reduce or attempt to reduce the ability of other participants in the market or of the would be entrants into the market to compete. This principle palpably underlies the reasoning of the European courts in all the authorities to which I have referred in summarizing the submissions of the parties.

The concept of abuse thus involves an undertaking employing its market power amounting to dominance in such a way as to prevent competition or to diminish competition or otherwise to take unfair advantage of its position in a manner prejudicial to consumers.

There are clearly numerous ways in which a dominant undertaking can purposely distort competition. These include the three relied on by the Claimant in this case: predatory pricing, the use of fighting ships and circularisation of rumours of the impending risk of financial collapse of a competitor.

In determining whether there has been an abuse it is important to keep in mind the need to distinguish between the allegedly abusive conduct on the one hand and the proof of the purpose for which such conduct is being pursued on the other hand. Thus, in the field of predatory pricing, reductions in rates, which, on the face of it, could be consistent with fair competition, will be abusive if they have the primary purpose of distorting competition by completely eliminating a competitor or competitors from the relevant market or by materially diminishing the ability of competitors to continue to compete as affectively as they currently can.

One means of establishing that price reductions are abusive because they have that primary purpose is to investigate the relationship between the price and the average cost of a unit of supply. As appears from the submissions of the parties, issues have arisen as to the application of this approach. Thus the decisions of the ECJ in AKZO, supra, and Tetra Pak 11, supra, both lay down that where prices are set below average variable cost, that must be considered abusive, in the latter case holding that in such a case “proof of intention to eliminate competitors was therefore not necessary”.

At first sight this would appear to impose an irrebuttable presumption of the intended purpose. The reasoning is that it is presumed that a dominant undertaking can have no purpose in pricing below average variable cost except to force competitors to withdraw from the market or at least so weaken them that they are substantially less able to enter into ordinary price competition, the ultimate objective of the dominant undertaking being to increase its relative market power thereby enabling it to raise prices and increase profits. This gives rise to conceptual difficulties. Whereas one of the effects of a dominant undertaking selling at below average variable cost may well be to diminish the continuing ability of competitors to offer the same level of competition, nonetheless the dominant undertaking’s primary purpose in so doing may be objectively justifiable, such as in the case of short run promotions and where in a service industry, such as telecommunications, charging below average variable cost will bring in more customers thereby increasing the value of the service to existing customers. OFT Guideline 414 paragraph 4.8 gives further examples. If the dominant undertaking is to be shut out from rebutting the presumption of abusive intent, as the authorities suggest, this would on the face of it, hardly be consistent with a subjective test of intent. However, in AKZO, supra, at paragraphs 70-72 and Tetra Pak, paragraph 41 the ECJ held that where prices were set at above average variable cost but below average total cost such prices were only to be considered abusive if an intention to eliminate could be shown. This clearly means that in such cases the burden of proof of abusive intent is on the Commission. In principle, therefore, excess of cost of production over selling price can be relevant only as evidence of intent.

In my judgment, neither AKZO nor Tetra Pak are to be understood as displacing the need to prove abusive or eliminatory intent in cases where price is below average variable cost. Analysis of the issues before the courts in those cases shows that the substance of the remarks on this matter was that the inference of abusive intent to be drawn from pricing below average variable was so strong that, in the absence of any evidence which displaced such inference, it was unnecessary for it to be supplemented or corroborated by any further evidence of such intent. So, understood, there is no conceptual dislocation between proof of intent where the price is set below average variable cost and where it is set above average variable cost and below average total cost. It is simply that where the price is below average variable cost, the burden of proof shifts to the dominant undertaking to disprove eliminatory intent.

At this point it is necessary to consider the issue as to the correct methodology for quantification of average variable costs. As appears from the parties’ respective submissions, to which I have referred, the Claimant takes as the appropriate variable costs figure the LTNOAVC extending throughout 1991 or at least during the period of alleged predatory pricing. The accounting experts, Mr Dyson and Mr Wilkinson, share the view on the evidence before this court that this is roughly equivalent to ATC. They are also agreed that the individual rates charged fell below ATC and therefore below LTNOAVC but above STNOAVC. Both are also agreed that in principle one can only derive a meaningful comparison by comparing price with cost over an equivalent period as distinct from short duration price compared with long term average cost.

These experts are agreed that STNOAVC represents the costs which vary with the level of cargo lifted for the sea voyage and can be assessed by ascertaining what additional cost will on average be incurred if one extra container is shipped. The relevant period of time for this purpose has to be short term. This is explained by Professor Yarrow and Mr Bishop, the expert economists, as the period of time over which an operator can revise the sailing deployment of a vessel.

In order to resolve the issue as to whether it is relevant to compare rates with LTNOAVC it is important not to lose sight of the function of this comparative exercise. Its only function is as evidence of abusive intent. As such it is concerned with the purpose of the Conferences in reducing any particular rate and in particular whether comparison between the reduced rate and the level of costs in question gives rise to an inference of such intent. In as much as the purpose of this exercise is to ascertain the intent at a point in time when a decision to reduce rates is taken, the question is whether the dominant party has set the rates at that level primarily with regard to the likely adverse effect on a competitor’s ability to compete or primarily for some other reason which can be objectively justified as consistent with ordinary competition. It is therefore relevant to consider his perception of the prospective cost of reducing rates taking into account his view of the period of time during which the rate might be expected to be in place. That forward projection would necessarily have been short in the present case. The evidence of Mr Johnson was that rate wars in this trade were ordinarily short in duration. They certainly could not be expected to last for a year or even several months. Moreover, to consider variable costs averaged from data over a period commencing long before a given rate reduction and extending up to a date far in the future, as appears to be suggested by the Claimant in reliance on Professor Baumol’s theory, presents itself to me as an unjustifiable methodology in view of the evidential purpose of carrying out the comparison. What costs were actually incurred and what the resultant average costs were beyond the horizon of the dominant undertaking’s probable contemplation at the relevant point of time are considerations which are, in my view, not relevant. Accordingly, for the purpose of establishing an inference of predatory intent the only appropriate comparison in the present case is with STNOAVC. That being so, since the rates charged are agreed to have been above that level but below ATC, it is necessary for the Claimant to establish that the price reductions were effected with eliminatory intent.

It is further necessary to consider whether, as submitted by the Claimant, there is an objective element in the necessary intent. The question whether particular abnormal conduct of a dominant party has or is likely to have the effect necessary to amount to an abuse because it hinders competition is judged objectively: see Hoffmann La-Roche at paragraph 91 and BP Industries and British Gypsum [1993] 5 CMLR 32 paragraphs 69 et seq. However, where the conduct is not intrinsically abnormal market conduct, such as price reductions, it may amount to an abuse if its purpose is to hinder competition for example by eliminating a competitor or by other means. The ECJ observed in United Brands, supra, at paragraphs 189-190:

“189.

Although it is true, as the applicant points out, that the fact that an undertaking is in a dominant position cannot disentitle it from protecting its own commercial interests if they are attacked, and that such an undertaking must be conceded the right to take such reasonable steps as it deems appropriate to protect its said interests, such behaviour cannot be countenanced if its actual purpose is to strengthen this dominant position and abuse it.

190.

Even if the possibility of a counter-attack is acceptable that attack must still be proportionate to the threat taking into account the economic strength of the undertakings confronting each other.”

Where it is necessary to investigate eliminatory intent, however, the test is clearly subjective and not objective. There is, in particular, nothing in the authorities relied on by the Claimant (Musique Diffusion Francaise [1983] ECR 1825, Hoffmann – La Roche, supra, BPB Industries, supra,) to suggest that as a matter of law the fact that the eliminatory consequences were reasonably foreseeable must lead to the conclusion that those consequences were intended. The test is essentially subjective – Did the undertaking have the necessary intention to procure the hinderance of competition? – but intention must be proved by inference from its conduct. If it is to be inferred from that conduct that in all the surrounding circumstances the undertaking must have intended to achieve the effect in question, intention is proved. Further, if it is to be inferred that the undertaking must have foreseen what the consequences of its conduct were likely to be, but proceeded with it, not caring whether those consequences resulted, sufficient intention is proved. In this connection, it may be appropriate to test the undertaking’s state of knowledge by asking whether a conference in the position of the one in question would be able reasonably to foresee the consequence of what it was doing and, if yes, by drawing from that the inference that the Conference did indeed know of the risk of those consequences. But such an inference may not necessarily be justifiable on the whole of the evidence.

Finally, it is right to say that the case pleaded and advanced by the Claimant identifies the necessary predatory intent as “aimed at” BCL alone. Mr Green QC in the course of opening, did observe in answer to the Court, that if it were found that the Conferences only intended to discourage shippers from using MSC, as distinct from BCL, that would not damage the Claimant’s case because the Conferences would still be liable to BCL for the consequences of their anti-competitive conduct. It is obviously important that in a case where liability may depend on intention to cause economic disadvantage as in a claim under Article 82, the alleged intention should be expressly pleaded. This point was not specifically revisited in the Claimant’s closing submissions in which the case was put on the basis that the Conferences eliminatory conduct was aimed at all competitors, that is both BCL and MSC and further that the Conferences did indeed appreciate that their pricing policy could inevitably cause significant harm to both BCL and MSC. Since in the course of this trial there has been an extremely thorough investigation of the conduct of the Conferences from 1990 to the time when BCL left the relevant market, there is no injustice to the Defendants in permitting the Claimant to advance the case identified on the general pricing policies of the Conferences and the alleged anti-competitive intention behind them as identified in the closing submissions. In any event, as a matter of law, if the Conferences appreciated that their policy generally, including that towards MSC as well as to BCL would substantially weaken BCL’s ability to compete and thereby substantially reduce the overall availability of competition in the relevant market, that would sufficiently provide the requisite eliminatory intent.

It is first necessary to refer to the progressive series of rate reductions which began when MSC entered the market in September 1990. Up to that time there had been no rate war between the Conferences and BCL. The rate reduction to DM 2480 agreed to by the Conferences at the 16 August 1990 meeting in respect of paper, tyres and vehicle spares which represented an important part of BCL’s carryings was to a level well above that charged by BCL. There was no matching or undercutting.

When MSC entered the market it did so at rates slightly below those of BCL. This evoked no response from the Conferences. I have already concluded that the Conferences were unwilling to embark on an exclusionary rate war at this stage. However, BCL clearly saw MSC as a major challenge to its market share. Up to that time its rates had offered about a 20 per cent discount from the Conference rates on the Southbound CONISCON route. With the entry of MSC at a rate below its own it was faced with the position where it was no longer cheapest in the market. Within three weeks, it had introduced a reduction of over 25 per cent in its overall rate. This was clearly intended to challenge MSC which it must then have seen as a major rival, not least, I infer, because of the entry into the Israel market offered to MSC by Boaz and Na’ama Arkin’s agency. That 12 October 1990 reduction gave BCL a 23 per cent discount on MSC’s rate and a much larger discount on CONISCON’s rate. The response of MSC was immediate, as I have already described. It undercut BCL’s new rate by DM 50 per TEU, thereby opening up a 43 per cent differential between it and the Conference rates (DM 1650 against DM 2879). The minutes of the Conference meetings on 17 October 1990 and 13/14 November 1990, to which I have already referred (see paragraph 220 above) in more detail, demonstrate that, although the Conference was prepared to follow the rates down, it was not prepared to match, much less to undercut, BCL’s rates or those of MSC. In the event, there was a rate reduction to DM 2303 in early November or early December 1990. That rate was substantially above those of MSC and BCL. On the UK-Israel route the Conference acted consistently with the joint policy, reducing its east coast rate in both directions, but leaving a discount above the BCL and MSC rates.

The meeting of the Conferences on 15 January 1991, already described in paragraph 220(ii)(g) above, decided on a further rate reduction in view of concerns about MSC’s inroads into the market and its intention to introduce two extra vessels. Again, the reduced southbound average rate (DM 1800) was above those of MSC (DM 1650) and BCL (DM 1700). The evidence does not suggest that the Conferences were trying at this stage to pursue anything else but normal and fair competition. The fact that the Conferences had a dominant position could not render it unfair. Indeed, there is no evidence to suggest that there was any collective will on the part of the Conferences to go beyond the minimum reduction regarded as necessary to compete for the trade in the face of a falling market share. There is, in my judgment, nothing in the authorities to suggest that if the purpose of setting rates in excess of those of competitors in response to rate reductions and rapidly falling market share is to attract sufficient business to retain existing market share and recover what has been lost over a very recent period, that is of itself evidence of an eliminatory intent. A dominant undertaking is entitled to take part in ordinary competition by reasonable and proportionate rate reductions without having to worry that its competitive measures may actually succeed, thereby restoring at least some part of its recently lost market share and so, at least in theory, reducing the market share and therefore the market strengths of its competitor. If, however, the purpose of its rate reductions is to eliminate or substantially reduce the competitive capability of competitors with the object of increasing its power to control the market, the undertaking’s conduct must be regarded as abusive.

Following this response of the Conferences, BCL, it is to be inferred, regarded the reduced discount between its rates and those of the Conference as too small (DM 100). After a period of two months, it therefore reduced the southbound Continent-Israel rate to DM 1550 to DM 1600 on 18 March 1991. Following that, at the first meeting of the Conferences on 10 April 1991 the members decided on a further reduction in the southbound average rate to DM 1650 with three classes of cargo at average DM 1600 equivalent to BCL’s Hamburg/Bremen rate. The reason for this was that they were not succeeding in making any substantial recovery of market share because, as they saw it, MSC’s reliable service was attractive to the shippers. It was also making rate reductions for large quantities of cargo. The main reason for the Conferences’ inability to regain any significant part of their lost market share was expressed to be “a failure in their freight policy”. Again, however, there was no undercutting. The average Conference rate was equivalent to that of MSC set on 14 October although three classes were rated at DM 50 below MSC’s all in rate. It is to be noted that since November 1990 the Conferences had made three rate reductions, each of which had reduced the differential with MSC’s rates. It is also to be noted that this last reduction did not in average take the rate down as far as BCL’s DM 1600. This and the reference in the minutes to BCL as maintaining a low profile suggests that the Conferences were directing their rate policy to competing with MSC and that BCL was regarded as relatively less important. There is certainly nothing to suggest any collective eliminatory intent in respect of BCL in the period of seven months up to and including the commencement of the relevant period. The evidence of the witnesses who had participated in these meetings, to which I have referred in outlining the defendants’ submissions, was entirely consistent with this conclusion.

If there was no collective eliminatory intent before the start of the relevant period, did one develop subsequently?

In paragraphs (177) to (189) above I have already traced the progressive reduction in rates in the course of April to July 1991. The policy of the Conference during this period is shown to be one of closely tracking the rates charged by MSC and on setting rates which on average slightly exceeded those most recently set by MSC, although occasionally undercutting MSC’s rates for three classes of commodities.

As it is to be assumed that BCL was charging the same as MSC by following down its rates, it may well be that the Conference rates bore the same relation to those of BCL as to those of MSC. However, because it is not known precisely when BCL reduced its rates between 18 March and early July, it is not established to what extent there was at any time any undercutting of BCL’s rates even for particular classes of goods.

Although in the course of his cross-examination by Mr Green QC, Mr Meurs of KNSM described the Conference and MSC as having hopped over each other in the price war and accepted the suggestion that the Conference undercut MSC in a leap-frogging process, his answers do not accurately reflect the contents of the primary documents. These show that as a matter of comparison of average rates the Conferences remained consistently above the rates of either or both of MSC and BCL. It was only in respect of a limited group of products that the Conference rates were ever set below those of MSC.

Much the same picture emerges on the southbound UK-Israel Conference rates. When MSC entered the market in September 1990 the Conference rate was US$1663 and BCL’s rate was US$1366 which represented an 18 per cent differential. MSC came in at US$1110. This evoked an immediate response from MSC which reduced its rate to US$1083 undercutting BCL. The Conference then reduced its tariff to US$1330. By January 1991 this was deemed ineffective to retain customers or retrieve market share and the rate was again cut to US$1200. It is to be observed that at this point the Conference had consistently preserved a premium over the reducing MSC and BCL rates and that MSC had undercut BCL’s rate. BCL then retained its rate until 18 March 1991 when it was reduced to US$992. This undercut MSC which was in turn lower than the Conference rate. MSC then further reduced its rate to US$925. The evidence then establishes a cascade of rate reductions by MSC which, during the period to 8 July, brought the rate down to US$672 in four further reductions. These were in line with the rate reductions on its Continent-Israel southbound route and, I infer, with the purpose of leap-frogging rate reductions by the Conference.

The position on the southbound routes which existed by the beginning of July 1991 was therefore that the Conferences had followed down MSC’s rate reductions, but never undercutting MSC or BCL on average rates, although slightly undercutting MSC’s rate for some goods. This was, I find, in implementation of the Conferences’ rating policy developed at the 10 April 1991 joint meeting, the purpose of which was to prevent further erosion of the Conferences’ market share and, if possible, to regain recently lost customers and lost market share. The unsuccessful attempt at the 4 July 1991 meeting to persuade Mr Aponte to agree to a reduced market share did not affect this policy. I infer that the Conference decided to continue the rate war more vigorously in the hope that MSC would change its aggressive undercutting tactics and that it might eventually wish to agree to share the market with the Conferences at higher rates than were currently being charged. The contemporary documents, such as the Conference minutes suggest a real fear of further erosion of market share and a collective belief that only by closely challenging MSC on its rate reductions could the Conferences protect their existing business. The Conferences’ main tactic was therefore to charge very roughly the same rates as its main competitor, MSC.

It is important to appreciate that by April 1991 the Conferences had reduced their rates to below the level of what the expert accountants agree to be the estimated ATC of Zim, the member with the lowest individual ATC. It is unclear whether at that point in time all the members appreciated that their rates had become loss-making. However, I find that this must have become obvious to all of them by the early part of the relevant period. For some members, such as EMCOL, whose ATC was over DM 2400, it must have been apparent throughout the relevant period.

During the period from April until early July the Conferences saw MSC as the only serious threat to their retaining customers and market share. BCL was maintaining a low profile on the Continent-Israel route, but was regarded as somewhat stronger on the UK-Israel route. This was the position when on 15 July 1991 Mr Arkin introduced his “suicide rate” of DM 850. The effect of this was to create an immense discount by BCL on the Conferences’ rate of DM 1300 and on MSC’s current rate of DM 1250. The Conference clearly considered this a threat to its existing customers and market share and some two weeks later the Conference reduced its Continent-Israel southbound rate to DM 1000. This was the first time that the Conference’s average rate had undercut the rate charged by MSC. However, this considerable rate reduction was clearly in response to BCL’s “suicide rate”. The Conference clearly must have taken the view that it was unsafe to allow there to remain such a considerable differential between BCL’s rate and its own. BCL’s rate represented more than a 32 per cent discount on the Conference’s rate. If BCL had not reduced its rate at all, I find that it is inconceivable that the Conference would have reduced its rate at this time. If BCL had reduced its rate to no lower level than that of MSC it is also more likely than not that the Conference would have left its rate unchanged. The whole focus of its rate policy was to resist MSC. However, MSC’s determined tenacity produced a matching rate reduction in its own continent southbound rate to DM1000 on 6 August 1991. I have already described the further progressive rate reductions which followed.

On 12 September BCL yet again attempted to increase its discount on both MSC and the Conference by reducing its rate even lower to DM750. On 3 October BCL left the market. That matching of rates between the Conference and MSC appears to have continued until, in December 1991 rates began to rise.

The evidence of Mr. Johnson, which was not challenged on this matter and which I accept, was to the effect that the rate war was both unusually fiercely fought and lasted considerably longer than usual for the shipping industry. There is much truth also in the description given by Mr Meurs: “It was an ordinary freight war as a result of too much capacity for the available cargo and all players (without discrimination or hindrances) were scrambling for customers and market shares by using the price mechanism. There are always casualties in such processes and it depends on who wants to hang in there against who cannot afford to lose more money.” The unusual feature of this case when compared with other cases on Article 82 is that the market participants with considerably smaller shares than the allegedly dominant party competed with very aggressive determination and in the case of MSC with resources apparently adequate to sustain a prolonged rate war at rate levels which may well have been well below its average total costs, although there is no evidence of precisely what those costs were. In the case of BCL this aggressive determination was, as will appear later in this judgment, the result of Mr. Arkin’s unrealistic belief in the level of loss that BCL could absorb.

There is no direct evidence that the Conference’s collective purpose in participating in the rate war was primarily to eliminate either MSC or BCL from the market or even, if not entirely to exclude them, substantially to diminish their ability to take part in ordinary market competition. Evidence in the minutes of the hope that a continuation of reduced differentials and the close matching of MSC’s rates might temper its ferocity was, I find, an ordinary operation of a participant in a fiercely competitive market and, taken alone, is not indicative of exclusionary intent.

Accordingly, it is necessary to consider whether any such collective purpose can be inferred from the other conduct of the Conferences.

There was evidence which went some way to supporting an inference of eliminatory intent. In particular their rates were eventually set at levels well below ATC. They were trying to reach an agreement with MSC which would lead to MSC having a smaller market share and the Conference members having a larger market share than they currently had and which would stabilize rates at higher than current levels. By 12 June 1991 they were employing the tactic of rapidly matching on average rates MSC’s reduced rates and marginally undercutting them by a small mount for limited classes of products, as distinct from allowing MSC a small discount. Eventually, after BCL had announced its suicide rate in July 1991, they were twice on average rates marginally undercutting MSC’s southbound Continent rates, although permitting BCL a small discount.

There is however a further aspect of the Conferences’ rating policy which has been relied upon as evidencing eliminatory intent. That is the introduction of emergency rates for particular cargoes and rates and the use of selective rates aimed at particular shippers on the UK-Israel rate. The advent of these aspects of rating policy in so far as they are relevant may be summarized as follows.

At a meeting of the FMC Principals on 26 November 1990 it was agreed that special or emergency rates at below the tariff rates should be introduced on the UK-Israel route. These rates were agreed to relate to particular commodities, but it was agreed that it was not the object to underquote BCL “for it was still believed that the Conference could obtain a slight premium for the service offered”. These rates were agreed to be applicable until 31 March 1991. There was also agreement that even lower rates should apply to these special rate cargoes for a few particular shippers who had either taken business away from the Conference or were threatening to do so unless the Conference reduced its rates. However, very little was agreed and most of the decisions on special rates for particular shippers were deferred. Nevertheless, a decision was taken to set up a decision-taking system for granting special rates to particular shippers with voting depending on the size of the rate discount proposed.

There is direct contemporary evidence of the motivation for those special rates. It is contained in a fax dated 12 December 1990 from ISCONT to the Conference members which is worth quoting in full:

“Noted regretfully that no agreement was reached regarding reducing rates n/b, which means that the lines are compelled to continue with the existing mechanism of the FMC on an individual basis.

Have expressed already our opinion at last FMC meeting, London 26.11.90, that this system is working against the Conference Lines.

The idea that by keeping the current rates at a high level, lines will indeed succeed to maintain their earnings, is in our opinion an illusion, very soon. Losses which we shall suffer due to losing shipments will be much higher than the eventual earnings.

At present we are losing more and more customers who switch to competition without leaving a trace. They just disappear from our manifests and reappear in the lists of competition. Those lists are becoming longer and longer from one sailing to the other. If we want to regain those customers we shall very soon have no choice but to match competition rates or even quote lower, which will decrease our income further.

Such a deterioration could have been stopped only by a reduced tariff or by introducing special commodity rates at a level preventing customers from switching to competition.

The opinion that lines will be able to keep different clients by granting each one of them special rates/commitment, is also dangerous, because such agreements with so many customers cannot remain secret for a long period. Sooner or later this will be known by other customer shipping same commodities or similar at higher rates, and the results will not be to the benefit of the conference lines.

Wish to emphasise that we experienced already the system of negotiating with individual clients and the conclusions were very disappointing. The moment that a name of a customer is mentioned in one of the telexes or faxes same client is being “attacked” by salesmen of all the lines who try to obtain his shipments. Furthermore, the salesmen who are anxious to obtain new bookings, contribute to the deterioration of rates by offering lower rates to clients who even didn’t ask for it. (This happened already time and again …)

All these will create Chaos in the market, leading to a situation in which the Conference Lines will compete between themselves and fight each other (recently experienced).

The only conclusion to prevent such a deterioration is by implementing a new list of special rates at a realistic level, as already suggested at last FMC meeting in London.”

The system of emergency rates and further discounts targeted at particular shippers was continued at the joint Conferences’ meeting on 10 April 1991. It was proposed that the Special Lines Committee should be authorized to agree on further reductions for specific clients or commodities upon application. It seems probable, but it is not entirely clear, that this proposal was adopted. It was certainly agreed that decisions by the Special Lines Committee were to be by simple majority vote. These decisions were against the background that the emergency rates were further reduced because the Conferences were continuing to lose business in spite of the decisions taken about emergency rates at the 26 November 1990 meeting.

At the joint Conferences meeting on 11/12 June 1991 it was noted, as recorded in the minutes which I have quoted above, that in the UK trade the fight against outsider competition was already being fought on a case by case basis with special rates being offered to specific clients which policy had so far been successful. That system was not considered appropriate on the Continent – Israel route, where there were many more shippers.

According to the evidence of Mr. Record of Furness Withy, the UK Conference continued throughout 1991 to give special rates to particular customers where these rates were considered necessary by the line’s salesmen to regain business recently lost to BCL or to discourage the imminent removal of business to either of them. Mr. Meurs of KNSM gave evidence to the same effect relating to both the customers of BCL and of MSC.

According to his evidence, which I accept, the system of selective rating worked in the following way. If a salesman reported back to the UK conference member that BCL, MSC or MCL had recently taken business from the Conference Line or that a shipper was threatening to shift business to an outside competitor, in spite of being offered the emergency rate, the conference member would consider whether the rate for that shipper’s cargo type ought to be reduced yet further. If so, the member would inform the Conference and get approval for a lower selective rate. This rate could then be offered to the shipper in question and to other shippers of the same commodity. The purpose was to preserve or regain recently lost business and the rate offered was generally above that of the outside competitor.

In relation to this type of targeting of particular customers by the use of selective preferential rates which were at a discount from the emergency rate for particular commodities, it has to be said that this was a case which, although mentioned in the Claimant’s pleadings, was not particularized until after the conclusion of the evidence. The pleaded case on predatory pricing and fighting ships gave no particulars of the rates which had been offered to particular customers or of the relationship which those rates bore to BCL’s rates from time to time or of cargoes which had been targeted and which in consequence had been switched from BCL to the Conferences. Nor was there pleaded any further specific allegation of particular instances of targeting by selective rates under the more general allegation of predatory pricing. The case on this type of abuse is therefore pleaded in an extremely generalized way. This absence of specificity in the pleaded allegation was unsatisfactory. The Claimant, not having obtained disclosure of documents from the Conferences which referred to any specific selective rating, endeavoured to extract details from the defendants’ witnesses in cross-examination.

Further, if it be accepted that there were at least some instances where Conference members were permitted by the Special Lines Committee or the Executive Committee to offer preferential rates no evidence has been adduced as to any particular instance of it or as to the aggregate extent of this practice or as to whether particular shippers to whom preferential rates were offered were former customers of the Conference members who had recently been persuaded to use BCL or who had threatened to do so or as to whether preferential rates matched or were below BCL’s rates to any particular shipper or as to what effect the practice had on the amount of cargo offered to BCL as distinct from MSC and therefore whether it had or could have been assumed to have any measurable impact on BCL’s general viability as a competitor in the relevant market or on the general level of outsider competition in the market.

The extent of this practice and the impact which it might be expected to have on the level of competition in the market, generally, is therefore quite impossible to evaluate with any real confidence.

It is submitted by the Claimant that eliminatory intent in respect of this practice can be inferred. Thus it is said that it must have been appreciated that the consequence of persuading shippers to accept specially targeted preferential rates was bound to involve the risk that if those shippers moved their business from BCL back to the Conferences BCL would be a weakened competitive force in the market. Accordingly, even if distortion of competition was not the main purpose of this practice, it was a likely consequence of it which the Conferences must have appreciated.

This argument would equally apply to any competitive pricing by a dominant undertaking which either reduced the price differential or matched the prices being offered to customers by a competitor. The suggestion that every time there is offered to a former customer a price which either reduces the price differential or which matches the price charged by a competitor who has just recently wrested that customer’s business from a dominant undertaking there is an inference of eliminatory intent is inconsistent with the ability of a dominant undertaking ever to compete on price. In my judgment, except perhaps in cases where the competition is palpably of great fragility, as in the CMB case, this severe inhibition on competitive response by a dominant undertaking is simply not supported by the authorities. Because virtually nothing is known of the extent or impact of this practice or of the proportion of total carryings on the relevant market were likely to be affected by it, there is an insufficient basis for drawing the inference that the Conferences had the means of knowing whether engaging in price competition with BCL as distinct from MSC would be likely to lead BCL to leave the market and thereby to distortion of competition in the market. This was not BCL’s only market. It was seen by the Conferences to concentrate on the United States – Israel market and to adopt a low profile on the Continent – Israel market.

In this connection it is to be noted that BCL was only carrying a small proportion of the UK – Israel – UK cargoes. The figures for the UK East Coast trade which, if not precisely accurate, do provide an order of magnitude level of market distribution share, show that in the period October 1990 to September 1991 the Conferences carried 7199 TEUs southbound and 10,119 TEUs northbound, whereas the figures for BCL were only 1082 southbound and 583 northbound. MSC, on the other hand, had a far higher market share on these routes than BCL with figures of 3864 southbound and 2536 northbound. Moreover, it would have been obvious to the Conferences that, if BCL had left the UK market, there would be a real probability amounting almost to a certainty that MSC as their most powerful competitor would take over at least a large part of BCL’s business, thereby depriving the Conferences of any substantial overall increase in market share. This is what happened after BCL left the market in October 1991. MSC increased its market share from the end of 1991 to the effect that the Conferences did not increase their market share on the CONISCON southbound route which carried far more tonnage than any of the other routes. Indeed, from February 1992 they had a reduced market share on that route compared with the period from May to September 1991.

In my judgment, the most that can be inferred in all the circumstances is that the Conferences must have appreciated that if they succeeded in winning business from BCL by targeted preferential pricing, BCL might suffer greater losses due to loss of such business. On the very limited evidence before the court it is not possible to infer that the Conferences must have realised that what they were doing during the relevant period would be likely either to cause BCL to leave the market or to result in a material reduction in competition if they did so. Indeed such limited evidence as there is suggests the contrary. Accordingly, eliminatory intent in the form of recklessness as to the eliminatory effect of emergency or selective rates cannot be inferred on the evidence now before me. Indeed, on that evidence, I conclude that it is more probable than not that the emergency and selective rate system was pursued during the relevant period without eliminatory intent.

It is however necessary to take into account the aggregate effect of all the matters relied on by the parties and those which I have so far considered in the context of the Conferences’ conduct before and particularly during the relevant period.

Against the pricing policy considerations to which I have already referred is the fact that the Conferences appear by April 1991 to have resigned themselves to MSC having at least a significant market share. The rating policy adopted by CONISCON after 19 April 1991 did not generally involve undercutting MSC’s or BCL’s rates except for a limited number of products and then, when in July BCL so dramatically reduced its rates, the Conference did not attempt to undercut it, although it followed the BCL rate to a level below that of MSC. The sequence of rate changes by the Conference was throughout responsive to its competitors’ reductions. Its average rating never led the rates down. At no stage did its average rate undercut the lowest market rate. The response was thus, at least on the face of it, measured rather than disproportionate. Similarly, the system of emergency and selective rating was deployed as a protective measure essentially responsive to the recent loss of business or to the threat of imminent loss of business.

In my judgment, it is to be inferred on the whole of the evidence that the rating policy of the Conferences had the purpose of preventing the further erosion of their market share by MSC and their loss of customers to competitors generally as well as the regaining of recently lost customers. The real purpose was not either to drive MSC or BCL out of the market or to weaken them so substantially that the Conferences could control competition generally and thereby materially reduce it. Had that been the purpose of the Conferences they could be expected to have embarked on a policy of vigorous undercutting of their competitors’ rates from the outset. That was so much the obvious means of destroying competition from MSC and BCL that the failure to pursue that policy from the outset must be regarded as very strong evidence against eliminatory intent.

Although the Conferences’ continuous rate setting at levels well below ATC, but not below AVC, might in some cases suggest an eliminatory intent, it is not a feature to which, in view of the way the price war developed, very much weight can be attached. Equally, the argument that the Conferences must have embarked on the price war with the purpose of recouping their losses upon the future increase in rates, and therefore with eliminatory intent, is, in my judgment, unpersuasive. It is an unavoidable consequence of a price war that prices will fall in the course of it and that accordingly profits will fall and losses may be incurred in the immediate future. No doubt those who take part in price wars always hope that eventually prices will rise again in future and that immediate losses will be at least in part off-set by future profits, but unless it can be shown on the whole of the evidence that the means of achieving an ultimate recoupment of losses is perceived to be the substantial long term reduction of the power of competitors to compete by challenging the dominant undertaking’s imposition of higher rates, mere hope of future recoupment after victory in a price war is not in itself evidence which adds much weight to other considerations. In any event, in the present case there is no evidence to suggest that the Conferences had any coherent policy or intention of recoupment. In this connection, the inconclusive negotiations with Mr. Aponte in July 1991 and the Conference’s continuation of its rate-matching competition after that do not suggest that the Conferences intended to change their policy at that stage to one designed to weaken their competitors, as distinct from one designed to counter loss of customers. The fact that the conferences doubtless hoped that eventually Mr Aponte’s ferocity would be tempered by the decline in rates and that he would then stop undercutting the Conference rates and might even reach a rate-setting or market share agreement, as appears to have happened in January 1992, does not displace their essentially protective objective as the real purpose of their rating policy.

For these reasons the Claimant has not established that there was predatory pricing by the Conferences in this case. Indeed, I conclude that the Conferences’ rate-setting during the relevant period was more probably than not without eliminatory intent.

Fighting Ship

Any case on fighting ships would have to be related to fighting ships directed at BCL as distinct from MSC. If all that BCL could establish was that the Conferences had directed fighting ships as that expression is traditionally understood, at MSC, no claim could arise in respect of this type of abuse of a dominant position because BCL could not have sustained any loss caused by that abuse.

Fighting ships are usually defined as the practice of sending a particular vessel to a particular port so as to arrive at or about the same time as a vessel operated by a competitor is scheduled to arrive with the purpose of persuading shippers to dispatch their cargo on the fighting ship in preference to the competitor’s vessel, normally by reason of their being targeted by operators of the fighting ship, perhaps by means of rates which match or undercut those of the competitor.

In the CMB Case, in which eliminatory intent was expressly admitted, the Conference had not designated particular vessels as fighting ships, but it had substantially more sailings from the ports in question than its sole competitor and it had targeted the shippers in those ports with rates which were lower than its normal tariff and established a loss-sharing system to compensate members for the reduced rates. It was held by the CFI that the Commission was entitled to treat this system as an abuse of the Conference’s dominant position. Although this was described by the Commission as using “fighting ships”, it was in substance the use of targeting matching pricing by a dominant undertaking with the admitted purpose of driving the sole competitor out of the market. The use of targeting matching rates coupled with the normal prevalence of sailings was a practice which, in view of the very fragile strength of the competitor - 10 per cent market share relative to the Conference (90 per cent) - given the eliminatory intent, was capable of amounting to an abuse of the Conference’s overwhelmingly dominant position. Whereas the Claimant does not adduce evidence in the present case that any particular vessel or vessels were sent by the Conference to any particular port to coincide with a scheduled sailing by any particular BCL vessel, it does rely on a similar kind of abuse to that identified in the CMB Case.

Having concluded that the Conference’s participation in the rate war did not have as its purpose the elimination of either MSC or BCL from the market and was not designed substantially to reduce the ability of MSC and BCL to offer competition to the Conferences but rather to win back or win over the shippers by offering rates similar to those of MSC and eventually (in July and August 1991) to those of BCL, the Claimant would have to establish that there was eliminatory intent in its rating of cargoes for vessels which were scheduled to call at the same ports as vessels of BCL. This presents the Claimant with a difficult evidential problem.

I have already decided that the Claimant has not established that in setting up the system of emergency rates and selective rating the Conferences did have eliminatory intent. Further, there is no evidence that this particular system was brought into effect with reference to any particular shipper or any particular commodity or at any particular port. The information about it is so sparse that there is an insufficient basis for drawing any inference that its purpose was eliminatory. Indeed, the evidence suggests the contrary.

If there were no eliminatory intent in relation to the general level of tariff rate-fixing or in relation to the more specific emergency rate or selective rate fixing, it cannot be possible, in the absence of any other specific evidence to establish that there was such intent in relation to the rating of cargo to be carried on any particular vessels at a particular port. Since there is no such other evidence, the basis for the Claimant’s case on fighting ships founded on the Conferences’ pricing policy at particular ports must fail.

Accordingly, the submission based on such preferential rating put forward by the Claimant under the heading of “fighting ships”, which is really a hybrid of predatory pricing and fighting ships, must be rejected.

I am bound to say that it was not entirely clear whether the Claimant continued to run what might be described as a traditional fighting ships case, that is to say the allegation that particular vessels were sent to particular ports with the purpose of winning cargo from scheduled sailings by BCL. If so, I have no hesitation in rejecting it on the evidence. Apart from the fact that it was firmly denied by all the witnesses of fact who were asked about it, I accept the evidence of Mr. Johnson, who had vast experience of container transport, that the system of pre-booking containers for loading cargo would effectively prevent last minute attempts by Conference vessels to wrest cargoes from BCL. The shipper would already have committed himself to BCL’s container and could not ordinarily be expected to embark on the disruptive exercise of transferring the cargo from that container to another, perhaps in another part of the port, merely to use a Conference vessel. Those engaged in this industry would not expect this to be done and I do not consider that experienced operators such as the Conference members would even contemplate attempting it.

It is suggested that Conference minutes provide evidence that the purpose of collecting at the port just before BCL was to block out BCL by increasing the congestion which was endemic in the ports of Ashdod and Haifa. In my judgment the collation and distribution of such information was a normal shipping industry practice also carried out by BCL and, having regard to the evidence of Mr. Levy, is more likely to have been motivated by a desire to avoid congestion than to cause it. Further, it cannot, in my judgment, realistically be inferred from what Zim proposed should be done at Izmir that it was Conference policy to take similar action at ports in Israel or UK or northern Europe.

Accordingly, whether the Claimant puts its fighting ships case on the traditional concept of a fighting ship or on the hybrid version of predatory pricing, that case fails.

Circulating Rumours

I accept the submission of the Claimant that the evidence supports the conclusion that from February 1991 – before the start of the relevant period – people in the shipping market were spreading rumours about the financial instability of BCL and its survivability in the market. I further accept that the evidence relied on by the Claimant supports the conclusion that those concerned in spreading such rumours were the agents or employees of competitors of BCL. The content of the rumours is only vaguely defined in the sparse evidence of their existence. It goes primarily to the current financial condition of BCL and to the prospects of BCL being able to continue trading in the relevant market at the levels to which rates had been reduced.

There is no doubt that, in addition to the Conference Members, MSC and, to a much lesser extent, MCL were competitors of BCL on the relevant market. Nor is there any doubt that Zim was a member of both conferences and the only competitor of BCL on the Israel – South Africa route. There was also a multitude of other carriers on the Israel routes whose operations were confined to the break bulk market but who in that limited field were competitors of BCL.

The references in the various messages relied upon by the Claimant to “competitors” in the plural gives rise in no case to an inference that the rumours originated from representatives of the Conference members or Zim in particular. The origin of those rumours referred to in the 6 February 1991 message cannot in the context of that message be taken to be a competitor in the Israel-South Africa market. This is because the message is dealing with all the routes on which BCL was currently operating and not solely with the South African trade. It is completely unclear from the message where it is being said that the rumours originated. If they originated outside that market, they could well have originated from MSC or MCL or agencies of those competitors. As to the other two messages relied upon, these also could as well refer to MSC or MCL as to Conference members. Instead, the probability is that, if the writer of each such message, particularly Mr. Arkin and Mr. Behrisch of BCL, Haifa, had known who was circulating the rumours they would have said so. Yet nowhere in these messages is it alleged that it was the members of the Conferences, as distinct from MSC, that were spreading rumours. Whatever Mr. Arkin may have suspected at the time, the strong probability is that he had no firm knowledge of the origin of the rumours. If he had such knowledge at the time there is no explanation before the court as to why he has not included that information in his evidence. Whereas Mr. Stramer of Zim accepted in cross-examination that Zim’s salesmen might have been telling the shippers that BCL was in financial trouble, he certainly did not accept that this was with Zim’s consent or acquiescence. He fairly commented that Zim could not control what all of its hundreds of salesmen might say to clients and so perhaps one of the salesmen said something like that. It was a possibility that he would have said BCL was losing business, but he had no knowledge of that being done and it would not necessarily have happened. Mr. Stramer appeared to me to be an honest and open witness and I accept his evidence on this point. However, such evidence is not such as to lead to the conclusion that it is more probable than not that it was a Zim salesman who was spreading such rumours.

The Claimant relies on the mandate given by the Conferences to the FMC at the 10 April 1991 meeting “to co-ordinate possible contacts/visits to clients” and submits that, against the background of the Conferences enhanced policy of fighting competition, it was probably in the course of such visits that the rumours were being spread. This is entirely speculative and adds little weight to the other evidence relied on.

Further, the agent of BCL at Bremer, Luder Bischoff, sent a message on 23 August 1991 saying that it was attentive to the market but had not heard adverse rumours about the financial situation of BCL.

Reviewing this evidence as a whole, I am not satisfied that it is more probable than not that such rumours were being spread by employees of Conference members as distinct from agents of MSC. The price war was being conducted for most of the period under consideration primarily by MSC and the Conferences, but it is clear from the history of relative rate reductions that both saw themselves as engaged to challenge BCL for cargo. If anything, MSC challenged BCL somewhat more closely than the Conferences in the earlier part of the relevant period. In the event, it is quite impossible to conclude with sufficient confidence that the Conferences’ representatives were responsible for these rumours. There certainly was no evidence that it was the policy of the Conferences that such rumours should be circulated as a weapon in the rate war. Nor is it established that it was the policy of any of the Conference members taken individually that such a weapon should be used.

I therefore conclude that it has not been established that there was any abuse of the Conferences’ dominant position by the spreading of rumours.

My conclusion is therefore that the Claimant has failed to establish that the Conference acted in breach of Article 82 of the Rome Treaty on any of the grounds relied upon.

As an alternative case to that which alleges breach of Article 82, the Claimant puts forward the following case on breach of Article 81.

It is submitted that there was an agreement between the Conference members, which affected trade between member states, which restricted internal competition between the members which allowed them collectively to fix prices, share markets and exchange information and which restricted external competition between the Conferences and outside competitors because ,in accordance with their agreement, the Conferences collectively took steps that had as their object and/or effect the elimination or restriction of the competition offered by outside competitors.

The July Agreements each provided by clause 13.1 as follows:

“The parties are committed to do their utmost in order to compete with any third party Line commencing any service within the scope of this Agreement and, to that effect, they shall abide by the Executive Committee’s decisions in all matters pertaining thereto.”

The collective steps which the Conferences took through the Executive Committee and the FMC were intended to restrict or eliminate competition from MSC and BCL. Those steps consisted of (i) setting prices at predatory levels below cost, (ii) the operation of a system of selective and discriminatory prices that were targeted at the outsider’s customers; (iii) the operation of fighting ships; (iv) the circulation of rumours of BCL’s insolvency. The combination of the members and their agreements to act collectively for the purpose of distorting competition was outside the protection of the Block Exemption.

The Block Exemption, Regulation 4056/86, in respect of liner conferences provided no protection to the Conferences because they did not constitute a liner conference as defined and because it did not protect against collective conduct which was intended to eliminate or restrict external competition.

The Claimant referred to the judgment of the CFI in Atlantic Container Line AB v. European Commission (Case T395/94), the TAA Case for the proposition that only those agreements which satisfy the conditions of Article 81(3) of the Treaty are protected by Article 3 of the Block Exemption. It is convenient to set out Article 81 and Article 3 and 4 of the Block Exemption in full:

The Claimant emphasises that Article 3 is to be strictly applied, as indicated in the TAA Case, supra, at paragraph 146, and that in as much as Article 81(3)(b) bars from exemption agreements or concerted practices which are intended substantially to eliminate or restrict competition, agreements made or decisions taken by Conferences with the intent of eliminating or restricting competition are not protected by Article 3 of the Block Exemption.

In the TAA Case the judgment of the CFI includes the following at paragraphs 161-2:

“… according to Article 85(3)(b) of the Treaty, an exemption cannot be granted to an agreement which eliminates competition. In that regard, the Court of Justice has stated that ‘if Article [3(g)] provides for the institution of a system ensuring that competition in the common market is not distorted, then it requires a fortiori that competition must not be eliminated. This requirement is so essential that without it numerous provisions of the Treaty would be pointless (Case 6/72 Europemballage Corporation and Continental Can v. Commission [1973] ECR 215, paragraph 24). Similarly, it is clear from the case law that ‘price competition is so important that it can never be eliminated’ (Case 26/76 Metro v. Commission [1977] ECR 1875, paragraph 21).

In Regulation No 4056/86, the Council did not intend to derogate, and indeed could not have derogated, from Article 85(3) of the Treaty. On the contrary, the Council refers on several occasions, in particular in the 13^th recital in the preamble to Regulation No. 4056/86 and in Article 7 thereof, to the need to ensure that the block exemption does not cover practices, which are incompatible with Article 85(3) of the Treaty. As regards the exemption of a horizontal price-fixing agreement which has as its object to effect the elimination, at least to a large extent, of internal competition between conference members, the existence of external competition from the independent shipping companies, that is those which operate outside the conference, constitutes the principal guarantee of maintaining effective competition where there is a block exemption. The introduction, or the practice, of differentiated prices makes it possible to attract into a group independent shipping companies which, otherwise, would continue to compete with the members of the conference. Admittedly, any agreement between shippers fixing two, or more, levels of prices does not automatically lead to the elimination of external competition. Thus, an agreement fixing several levels of prices, of the type contained in the TAA, might bring together only carriers representing, collectively, a relatively small part of the market and thus, not lead not the elimination of external competition. By contrast, a conference whose members charge uniform freight rates might represent almost the entire market and eliminate external competition. However, those situations are largely theoretical and, in general, it cannot be disputed that the possibility of fixing different levels of prices makes it possible to attract into the group companies which, without that flexibility, would remain independent and that this situation is likely to lead to the elimination of external competition; by contrast, the obligation to fix uniform freight rates for all conference members is not such as to encourage all operators to join the conference, which guarantees the existence of external competition.”

The Claimant further draws attention to the need, when interpreting the Block Exemption, to have regard to the UNCTAD Code, as indicated in the TAA Case at paragraph 147. In particular, reliance is placed on Articles 12 and 18 of that Code which provide:

“12.

In arriving at a decision on questions of tariff policy in all cases mentioned in this Code, the following points shall, unless otherwise provided, be taken into account.

(a)

Freight rates shall be fixed at as low a level as is feasible from the commercial point of view and shall permit a reasonable profit for shipowners;

(b)

The cost of operations of conferences shall, as a rule, be evaluated for the round voyage of ships, with the outward and inward directions considered as a single whole. Where applicable, the outward and inward voyage should be considered separately. The freight rates should take into account, among other factors, the nature of cargoes, the interrelation between weight and cargo measurement, as well as the value of cargoes;

(c)

In fixing promotional freight rates and/or special freight rates for specific goods, the conditions of trade for these goods of the countries served by the conference, particularly of developing and land-locked countries shall be taken into account.

It is submitted that the Conferences acted in breach of the Code and therefore outside the scope of the Block Exemption in agreeing to fix prices below ATC and on a discriminatory basis and to use fighting ships with the intention of substantially eliminating or restricting competition and by rumour-mongering.

Further, the Claimant submits that the Conferences cannot claim the protection of the Block Exemption for two fundamental reasons:

As to 1. the Conference did not set a “common and uniform” freight rate as required by Article 3 for the following reasons.

As to (2) compliance with Article 4, of the Block Exemption, following the TAA Case, it was necessary for the defendants to prove that there was such compliance if they were to be entitled to the protection of the Block Exemption since Article 4 had the purpose of giving effect to Article 81(3) of the Treaty and must therefore be interpreted consistently with it. Compliance with Article 4 had not been established in as much as the Conferences were charging different rates for the three different routes served, namely Continent-Israel, East Coast UK-Israel and West Coast UK-Israel which were not objectively economically justified because they were below cost and were discriminatory and aimed at eliminating or restricting competition from BCL and MSC by matching or undercutting their rates. This did affect trade within the EU in as much as the shippers sought out carriage from cheaper ports such as those in the UK or the north Continent depending upon the rate differential.

It is submitted that the Claimant’s case on breach of Article 81 by predatory pricing is misconceived because dominance is an essential feature of predation and the Claimant’s Article 81 case arises only if the Conferences were not in a dominant position. If an undertaking is not dominant, an agreement to charge below cost prices with eliminatory intent would be futile because the lack of dominance would lead to failure.

Loyalty arrangements and special commitments were not per se impermissible as recognised by the TAA Case at paragraphs 155 and 159.

In the present case there was no evidence that the selective pricing system was dealt with outside the Conferences’ regime. Nor was there evidence that it was not objectively justified. Indeed, the evidence of Mr Record supported the proposition that selective pricing did not discriminate between shippers. Although Mr Meurs had conceded in cross-examination that, “in certain times it could have happened that” the selective rate was applied because the customer was shipping with BCL or MSC, there was no evidence as to how often this happened or that it was approved by the Conference committee. Nevertheless, Mr Meurs did say in evidence that differentiation in rates between shippers of the same product would generally be attributable to quantity shipped or their different special requirements.

There was no evidence to support the allegation by the Claimant that the Conferences had taken collective steps to eliminate any competitor.

If an intention to eliminate had not been established for the purposes of the case under Article 82 it could not be established for the purposes of an alternative case put forward in the absence of dominance under Article 81.

The Claimant’s argument that the UNCTAD Code had to be grafted on to the Block Exemption and caused the Block Exemption to impose duties which its wording otherwise would not, went too far. The TAA Case did not support that proposition.

The CMB Case was inconsistent with the Claimant’s proposition that if the Conference as beneficiary of the Block Exemption conducted itself in an impermissible manner, for example, by charging rates, which were neither common nor uniform, it totally lost the protection of the Block Exemption for all other market pricing activities.

The 2-4 defendants submit that on the evidence the rates for a particular commodity would tend to be the same and there would not generally be discounted rates for some ships but not for others because the market was transparent.

Independent and unilateral action including rate-setting by Conference members was not an infringement of the Block Exemption as shown by the TAA Case, paragraph 155-159 in the case, for example, of promotional freight rates and loyalty agreements. Even if the operation of selective rates were impermissible under the Block Exemption, that did not remove the protection of the Block Exemption except for the particular impermissible transactions because of the facility of severance.

Even if unilateral action on rate-fixing by one member of the Conference was a breach of Article 81, it did not involve loss of the protection of the Block Exemption because under Article 1(b) the reference to “uniform or common freight rates” did not mean that in a rapidly falling market there could not be some flexibility to permit rates to be adjusted downwards.

These defendants, like all the others, draw attention to the fact that the Claimant has not pleaded or proved any specific instances of lack of uniform or common freight rates and accordingly the defendants have not been confronted with any specific case to answer. In any event, on Mr Record’s evidence the system of selective rate-fixing did not depart from the requirement for common or uniform rates: what was clear was that the special commitments request was in effect a proposal to lower the common or uniform rate.

Further, it was open to conference members to respond to particular competition in respect of a given product by reducing rates in self-defence. For this proposition these defendants rely on the general statement of principle on self-defence made by the CFI in the CMB Case at paragraph 146, already cited at paragraph 251 above. There was nothing in the Block Exemption which prevented the Conferences responding to unfair competition from outsiders on an uneconomic basis.

The Conference Agreements of July 1984 were entirely consistent with the Block Exemption. They were in writing and they provided for the setting of common and uniform freight rates. The terms were varied by agreement of the existing members in January 1991 in respect of clause 7.4. In a letter dated 19 September 1993, in which the European Commission discontinued the existing proceedings, the Director of the Directorate for Competition, Mr John Temple Lang, had stated that the Conference agreements as amended appeared to be covered by the Block Exemption. If the Conferences had agreed to the application of rates which were common or uniform, that agreement would at most, amount to a departure pro tanto from what was permitted under the Block Exemption and that variation of the agreement could therefore be blue-pencilled, leaving the remainder intact.

These defendants, in common with the others, emphasise that a great deal of the Claimant’s case on Article 81 was raised for the first time after the conclusion of the evidence and without the defendants being given a fair warning in the pleadings as to what was to be advanced. In particular, the Claimant had failed to plead anything about Article 4 of the Block Exemption and had not pleaded any case under Article 81 which dealt with causation of loss.

As to the argument that, by reference to the CMB Case, the two conferences could not be entitled to the protection of the Block Exemption because they charged different rates for different routes, this was not supported by the CMB Case which was concerned with a non-competition agreement between two conferences. There was nothing analogous in the present case. In particular, there was no mutual exclusion agreement which barred the members of one conference from competing on the routes of the other conference.

As to the UNCTAD Code, its sole relevance was to assist in the interpretation of the Block Exemption. It could not be used as if its duties were incorporated into the Block Exemption and it was not part of European law. In this connection, even if the UNCTAD Code were incorporated, the effect of Article 12(a) which is set out at paragraph 451 above was not to prohibit setting prices at below cost in order to engage in legitimate competition but to prescribe for shippers and carriers a fair balance expressed with reference to a low level of freight in the shippers’ interest and a reasonable level of profit in the carrier’s interest.

Further, there was nothing in the UNCTAD Code which required a process of consultation with shippers’ Councils if rates were to be reduced as distinct from increased. It was for the shippers to ask for Consultation under Article 5(1) of the Code, not for the Conference to initiate them.

As to the relationship between Articles 3 and 4 of the Block Exemption, if properly construed, agreements or concerted practices falling within Article 4 were simply outside the protection of Article 3. This was consistent with the second paragraph of Article 4 as to severance and the flexibility of remedies available to the Commission under Article 7. If severable, an agreement or decision in breach of Article 4 would not therefore render void the entire agreement which was the basis of the Block Exemption. This preservation as exempt from Article 81 of the lawful activities of the Conference would be consistent with the European competition law public policy of encouraging an orderly and stable shipping market.

Further, the 2-4 defendants submit that if there is conduct which is not protected by the Block Exemption, that conduct of the conferences which is within the Block Exemption, since it remains protected, cannot be taken into account in considering whether any and, if so, how much loss has been caused to the Claimant. The only appropriate approach to proof of causation of loss is to compare that which has occurred with the position that would have prevailed but for that conduct not covered by the Block Exemption. In other words, the breach of duty is the conduct outside the Block Exemption and it is that conduct which must be proved by the Claimant to have caused the loss.

Finally, the 2-4 defendants emphasise that the standard of proof of breach of duty in respect of Article 81 has been held in Shearson Lehman Hutton v. Maclaine Watson [1989] 2 Lloyd’s Law Reports 570 to be “a high degree of probability, but less than the standard of proof in criminal matters”: per Webster J. at p619L. In this connection, it is urged that the Claimant has not relied on the first two witness statements of Mr Arkin, who has not been called, has not called any witnesses of fact, notwithstanding that some were clearly relevant and available, has not been able to produce a complete set of management documents for BCL or the lines and has had to rely on its forensic accountancy expert, Mr Dyson, to build a case ostensibly based on inference from such documents as exist but which is in many respects speculative because the primary facts are so sparse. This court should be slow to draw inferences adverse to the defendants where the standard of proof is so high. Further, the Claimant launched his case right at the end of the limitation period and that had the consequence that fewer contemporary documents were available to the defendants, many having been destroyed, and these defendants’ witnesses had either died or, if called, had to recall events over ten years ago. In this connection, reliance is placed on the words of Lord Bridge in R v. Home Secretary, Exp Khawaja [1984] 1 AC 74 at p124 C-F:-

“Accordingly, I have no doubt that when a person detained and proposed to be removed as an illegal entrant enjoys the right to be in this country in pursuance of leave to enter and remain here which is valid on its face the onus lies on the immigration officer to prove the fact that the leave was obtained by fraud in contravention of section 26(1)(c) of the Act. The question about which I have felt most difficulty concerns the standard of proof required to discharge this onus. I was at first inclined to regard the judgment of Lord Parker CJ in Reg v. Governor of Brixton Prison, Ex parte Ahsan [1969] 2 QB 222 as sufficient authority for the proposition that proof is required beyond reasonable doubt. But I have been persuaded by the reasoning on this point in the speech of my noble and learned friend, Lord Scarman, and by the authorities which he cites that that proposition cannot be sustained. These have led me to the conclusion that the civil standard of proof by a preponderance of probability will suffice, always provided that, in view of the gravity of the charge of fraud which has to be made out and of the consequences which will follow if it is, the court should not be satisfied with anything less than probability of a high degree. I would add that the inherent difficulties of discovering and proving the true facts in many immigration cases can afford no valid ground for lowering or relaxing the standard of proof required. If unlimited leave to enter was granted perhaps years before and the essential facts relied on to establish the fraud alleged can only be proved by documentary and affidavit evidence of past events which occurred in some remote part of the Indian sub-continent, the courts should be less, rather than more, ready to accept anything short of convincing proof.”

Zim’s submission, in so far as not already covered by the other defendants may be summarised as follows.

The substance of the Claimant’s case on Article 81 involved recycling the facts on which its Article 82 case was based. It was clear that this was impermissible from the following passage in the judgment of the CFI in SIV v. Commission [1992] ECR II – 1403 at page 1548:

“it should be pointed out that for the purposes of establishing an infringement of Article 86 of the Treaty, it is not sufficient, as the Commission’s agent claimed at the hearing, to ‘recycle’ the facts constituting an infringement of Article 85, deducing from them the finding that the parties to the agreement or to an unlawful practice jointly hold a substantial share of the market, that by virtue of that fact alone they hold a collective dominant position, and that their unlawful behaviour constitutes an abuse of a dominant position.”

While Zim accepts that both Articles 81 and 82 can be applied to the same agreement or conduct, it is necessary that the claim under each Article be proved separately. Problems of running parallel claims were exemplified by predatory pricing which has only ever been recognised as arising under Article 82 and an agreement which created a dominant position for the purposes of Article 82 might nonetheless be held not to be an agreement eliminating competition within the meaning of Article 81(3)(b) as in the United Brands Case, supra. For this reason, that part of the Article 81 case, which rests on predatory pricing and that part which rests on the operation of fighting ships and spreading rumours, must fail since they involved recycling the Article 82 claim.

Since the Claimant had not pleaded a case based on UKISCON and CONISCON not being liner conferences within the meaning of the Block Exemption nor a case based on Article 4 of the Block Exemption, it was now too late to rely on these points. That issue gave rise to the investigation of facts which the defendants had not come to court to deal with.

Zim distinguishes the TAA Case, supra, arguing by reference to paragraph 163 of the CFI judgment that the real problem in that case was the differential pricing by members of TAA whereas, in the present case the dual rate system of non-contractor rates had been formally and publicly abandoned in February 1991, before the relevant period.

The UNCTAD Code contained nothing which prevented conferences from competing in a price war.

Zim, in reliance on the decision of the CFI in the FEFC Case, submits that in view of the fact that Regulation 4056/86, having been introduced only with effect from 1 July 1987, was relatively new and gave rise to legal uncertainty there being no decision on its meaning, the court should not accept the Claimant’s “all or nothing” approach which involved striking down the whole Block Exemption and holding that there was a breach of Article 81 on the basis of “one minor infringement” of the Block Exemption.

Zim relies on the letter of 19 September 1993 from Mr John Temple Lang of the European Commission already referred to and on its conclusion that the Conference agreements as amended appeared to be covered by the Block Exemption and strongly challenges the Claimant’s submission that no weight could be attached to it because it was obtained by misleading statements by the Conferences. In particular, there was no misrepresentation regarding the Conferences’ drastic action and fighting measures to meet the competition from MSC and BCL, and its participation in the price war. Zim argues that, this being a decision of the Commission that there had been no infringement of EU law, it is not open to the English court to re-determine it. Although it was not a definitive decision, the English courts should not go behind it because the Conference members have relied upon it for nine years on the assumption that they were protected by the Block Exemption and because it had never been challenged before the Commission and the issues which were raised before the Commission were the same as those now before the English court. They rely on the decisions of the European Court in TWD Textilwerk Deggadart v. Germany [1994] ECR I-833 and on the recent unreported decision in HJ Banks & Co Ltd v. The Coal Authority (unreported) Case C-390/98, a reference from the Court of Appeal.

As to the Claimant’s submission that the Conferences did not charge common or uniform freight rates, Zim’s case is that the only pleaded allegation of any irregularity after April 1991 is of the use of selective rates for particular shippers who had been BCL’s or MSC’s customers in order to reduce BCL’s market share. The evidence did not support such a practice. Zim relies on the evidence of Mr Stramer and Mr Record to the effect that deals with individual shippers which were below tariff rates would be extended, with the Conferences’ agreement, to all other shippers from whom such a rate was similarily economically justified on the ground of, for example, increased volume. This was certainly true in relation to papers, tyres and spare parts, which were commodities important to BCL.

As to the effect of the Conferences’ contracts with MSC, Zim submits that although there were negotiations with Mr Aponte, no agreement was ever reached, as confirmed by the evidence of Mr Meurs and Mr Stramer. There being no such agreement, the Conferences’ reliance on the Block Exemption could not be questioned.

The substance of the Claimant’s case is that the Conferences are not entitled to the protection of the Block Exemption and that accordingly their concerted rate fixing was prohibited and therefore unlawful by reason of Article 81(1). It is said that by the conduct of the rate war by means of these unlawfully fixed rates BCL was forced to suffer heavy losses and was eventually forced out of the market and caused to collapse.

It is common ground that the defendants have the burden of proving that they were entitled to the protection of the Block Exemption and therefore that their rate-fixing was lawful.

In relation to this issue, the question arises whether the Claimant has raised for the first time after the conclusion of the evidence allegations which go to the availability of the protection of the Block Exemption and which the Claimant ought to have pleaded. In principle, if the allegation was not raised in the pleadings, ought to have been pleaded and was not raised by way of an application to amend the pleadings at latest before the conclusion of the evidence, it cannot ordinarily be relied upon in final submissions. Were it otherwise the fair conduct of the trial and its efficient management would be seriously prejudiced.

The Claimant’s pleadings had by the commencement of the trial become very large and complex. However, they contained (at A9-10) from the outset an allegation that the Block Exemption did not apply to the Conferences because they did not charge uniform or common freight rates, in particular a special rate confined to Borchard, CIS and Iscont and also the charging of “different rates” from the tariff to shippers who used BCL. It was also alleged that the Block Exemption did not apply to an agreement or concerted practice which had the object of reducing capacity or discriminating between equivalent transactions. However, the Further Information served in January 2000 stated (A/96) that the different rates referred to the system of non-contractor rates (which was abolished at the end of 1990) which was well before the commencement of the relevant period. However, following late disclosure of numerous contemporary documents relating to Conference meetings, in December 2001 the Claimant served Amended Replies to the Amended Defences. In the Amended Reply to Borchard’s Amended Defence (A/261) the defendants’ entitlement to rely on the Block Exemption “at any material time” is denied for the reasons already given in the Amended Particulars of Claim. This pleading goes further and deals with Borchard’s reliance on the letter from the European Commission dated 19 September 1993 already referred to. Reliance on that letter is then challenged on the basis that the information supplied by the Conferences to the Commission in February 1991 was false and misleading – one of the reasons being that the Conferences were not by February 1991 charging tariff rates which were common and uniform but were instead charging discriminatory and selective rates to their competitors’ customers with a view to reducing those competitors market shares. Further in that part of the same pleading headed “Background of the Claim” and which apparently dealt with the Claimant’s case on abuse of dominant position it is pleaded (A/268) that in particular the UKISCON Conference was at the same time as drastically reducing rates (up to and including August 1991) continuing to offer selective rates to certain of BCL’s customers, those selective rates being described as “rates that were neither common nor uniform and differed from the published tariff”. Thus, although there is a distinct assertion that selective rates were charged during the relevant period and that this involved that the Conference rates were neither common nor uniform, this allegation has not been expressly tied into the grounds for alleging that the Block Exemption did not apply at any material time, the expressly pleaded basis for lack of common or uniform rates having been left in place as the NCR system, which had been abandoned before the start of the relevant period.

In its Amended Reply to the 2-4 defendants’ defence served in September 2001 the allegation that the Conferences were entitled to rely on the Block Exemption is expressly based on specific allegations, including the lack of common “and” uniform tariffs due to the use of discriminatory and selective rates offered to the customers of competitors with a view to reducing those competitors’ market share (A/298). It is also alleged that the Conferences’ decisions to take “drastic counter-actions” and “fighting measures” against competition with the stated aim of reducing the capacity of the competition, the scheme of predatory pricing and/or pricing below average total cost or average variable cost with a view to driving new competitors out of the market and/or into insolvency and also the continuing secret negotiations with MSC which they knew to be unlawful were all contrary to their duties under the Block Exemption.

The overall effect is that the Claimant has pleaded against the 2-4 defendants in relation to Article 81 and the Block Exemption:

It would be right to assume that, in view of the fact that it is quite clear from other parts of the pleadings what the Claimant’s case on predatory pricing and rating below cost is, this part of the Article 81 case is based on substantially the same facts as the case on abuse of dominant position under Article 82.

As regards Borchard, the pleading position is less satisfactory. I have already drawn attention to the diffuse lack of co-ordination of the allegations in the Claimant’s pleadings under Article 81. On balance however, I take the view that a perceptive pleader reading the Claimant’s Amended Reply would have realised that it was not unlikely that a challenge to reliance on the Block Exemption was to be based on those matters relied upon three months earlier in the Amended Reply to the 2-4 defendants’ Amended Defence. Accordingly, it would not, in my judgment, be unfair to permit the Claimant to run against all the defendants the case on Article 81 more explicitly identified in the Amended Reply to the 2-4 defendants’ Amended Defence.

The Claimant argues that it is for the defendants to prove that they are entitled to protection against the effect of Article 81 by the Block Exemption and that this burden extends to proving that they are not disentitled to that protection by reason of facts falling within Article 4 of the Block Exemption. Accordingly, particularly since the facts relevant to compliance with Article 4 are substantially within the knowledge of the Conferences, it is not for the Claimant to plead into a detailed case on such non-compliance.

This submission is, in my judgment, unsustainable for two reasons.

Firstly, Article 4 is expressed not as laying down a threshold pre-requisite for application of the Block Exemption but as a condition of the continuing protection of the Block Exemption. It is in substance, automatically withdrawing the protection which would otherwise be available because of the detrimental manner in which the Conference has operated the agreement, decision or concerted practice envisaged by Article 3. The mischief at which Article 4 aims is the causing of the detriment defined in the first paragraph and the remedy which it provides is the automatic removal of protection from that agreement or decision which has given rise to the detriment. Accordingly, whereas it is quite correct that the Conferences have the burden of establishing that they are a liner conference and that their agreement, decision or concerted practice has the qualifying characteristics for exemption identified in Article 3, once they have satisfied that burden, it is for the Claimant to allege and prove at least an answerable case that, by reason of facts falling within Article 4, the Conference is not entitled to the protection which it claims. That case must be sufficiently strong to transfer the evidential burden in respect of Article 4 to the Conferences. It is thus incumbent upon the Claimant to plead that case.

Secondly, wherever the burden of proof may lie in relation to Article 4, it is for the Claimant who wishes to advance a positive case on loss of protection to plead that case. This is a very complex claim raising difficult and largely undecided points of European Law founded on complicated facts and expert evidence. The Commercial Court Guide at C1.2(f ) requires points of European law to be pleaded. This includes the factual basis for those points. Indeed, the fair and properly informative conduct of a trial such as this requires any positive case to be pleaded regardless of where the burden of proof lies.

The Claimant has endeavoured to raise in closing submissions a number of unpleaded points on the defendants’ reliance on the Block Exemption. These are:-

None of these points were the subject of an application to amend the pleadings at any stage. Points 1 and 2 are quite distinct from any other issues in this case. Had they been pleaded before the trial began, the defendants might well have wished to call factual evidence or raise points on them with their experts. It would be unjust to permit them to be raised for the first time at the trial. As to point 3, this is at least in part what the defendants have described as recycling the Claimant’s abuse of dominant position case and is in part based on the same facts as the Claimant’s case on predatory pricing and fighting ships. It is, however, not part of the Claimant’s pleaded case that there was any detriment to ports or transport users under Article 4 but only to carriers, such as BCL, who were affected by the Conferences’ rates-setting policy. There is nothing in the pleaded case about EU ports being adversely affected by rate differentials causing shippers to ship their cargo to Israel from ports with lower rates than others. Nor is there any pleaded suggestion that rate differentials were not economically justified between ports as distinct from between shippers.

In these circumstances, the very most that could on the Claimant’s pleaded case fairly be advanced in respect of Article 4 was the argument that the Conference’s rate-setting policy, in as much as it involved predatory pricing, fighting ships, discrimination between shippers and charging below cost and therefore rates which differed from port to port, caused detriment to certain carriers, namely BCL, and was not economically justified because of the defendants’ eliminatory intent. This, in my judgment, is the maximum that can be permitted to the Claimant without injustice to the defendants, for although this case is advanced with reference to Article 4, it does not on proper analysis of Article 4 involve any factual or expert evidence over and above that which the defendants needed to adduce for the purposes of the pleaded issues.

The prohibition of anti-competitive agreements or concerted practices in Article 81(1) is tempered by the facility for declarations of inapplicability under Article 81(3). It is on the basis of the latter that the block exemptions are issued. Sub-article 3 requires a double set of material factors to be considered before a Block Exemption is issued:

The purpose and effect of any block exemption therefore has to be construed against this background, for the assumption must be that the words used reflect and are consistent with Article 81.

The Block Exemption (Regulation 4056/86) begins with an extended recital of some 19 paragraphs. For present purposes, it is sufficient to refer to the third, fifth, sixth and fourteenth paragraphs which state as follows:

“3.

Whereas this situation necessitates the adoption of a Regulation applying the rules of competition to maritime transport; whereas Council Regulation (EEC) No. 954/79 of 15 May 1979 concerning the ratification by Member States of, or their accession to, the United Nations Convention on a Code of Conduct for Liner Conferences will result in the application of the Code of Conduct to a considerable number of conferences serving the Community; whereas the Regulation applying the rules of competition to a maritime transport foreseen in the last recital of Regulation (EEC) No. 954/79 should take account of the adoption of the Code; whereas, as far as conferences subject to the Code of Conduct are concerned, the Regulation should supplement the Code or make it more precise;

5.

Whereas this Regulation should take account of the necessity, on the one hand to provide for implementing rules that enable the Commission to ensure that competition is not unduly distorted within the common market, and on the other hand to avoid excessive regulation of the sector;

6.

Whereas this Regulation should define the scope of the provisions of Articles 85 and 86 of the Treaty, taking into account the distinctive characteristics of maritime transport; whereas trade between Member States may be affected where restrictive practices or abuses concern international maritime transport, including intra-Community transport, from or to Community ports; whereas such restrictive practices or abuses may influence competition, firstly, between ports in different Member States by altering their respective catchment areas, and disturb trade patterns within the common market;

14.

Whereas the automatic nullity provided for in Article 85(3) in respect of agreements or decisions which have not been granted exemption pursuant to Article 85(3) owing to their discriminatory or other features applies only to the elements of the agreement covered by the prohibition of Article 85(1) and applies to the agreement in its entirety only if those elements do not appear to be severable from the whole of the agreement whereas the Commission should therefore, if it finds an infringement of the block exemption, either specify what elements of the agreement are by the prohibition and consequently automatically void, or indicate the reasons why the agreement is therefore void in its entirety;”

The effect of the third paragraph of the Recital is expressed to be both to “take account of the adoption of the UNCTAD Code” and to “supplement” the Code or “make it more precise” where conferences are subject to the Code.

Whereas there can be no doubt that the provisions of the UNCTAD Code provide an important reference basis for construing the Block Exemption, as is clear from the approach of the CFI in the TAA Case, paragraphs 147 to 155, there is nothing in the Recitals or the main body of the Block Exemption which operates as an express incorporation of the detailed provisions of the Code. Thus, whereas the proper construction of such phrases as “uniform or common freight rates” in the Block Exemption may be construed by reference to their meaning in the Code, there is no basis for reading the Block Exemption as incorporating for example such provisions as those relating to the manner of expressing published tariffs specified in Article 13(2) of the Code, as distinct from or in addition to those set out in Article 5(4) of the Block Exemption.

As is clear from the Recitals’ fifth paragraph, the Block Exemption has to be read and enforced with regard to the objective of balancing the need to avoid unduly distorting competition in the Common Market and the need to avoid excessive regulation of maritime transport. This precisely reflects Article 81(3). The fourteenth paragraph of the Recitals is also consistent with the need for that balancing exercise. The Commission should in case of an infringement of the Block Exemption investigate whether those elements of the agreement said to infringe the Block Exemption and therefore void are severable from the rest of the agreement and if they are not it should give reasons why the whole agreement is void. In other words, the Commission is empowered to strike down the entire agreement, typically a liner conference agreement, only if the offensive parts cannot be severed.

The Block Exemption defines “liner conference” as follows:

“Liner conferences” means a group of two or more vessel-operating carriers which provides international liner services for the carriage of cargo on a particular route or routes within specified geographical limits and which has an agreement or arrangement, whatever its nature, within the framework of which they operate under uniform or common freight rates and any other agreed conditions with respect to the provisions of liner services.”

Thus, the agreement or arrangement provides the framework within which the group operates under “uniform or common freight rates”. That phrase has been explained in the TAA Case, supra, at paragraphs 145 to 160. For present purposes, the following features of the operation of uniform or common rates are material, having regard in particular to the judgment of the CFI in the TAA Case:

The salient characteristics of such independent action are therefore that it is the individualistic action of a particular carrier and does not represent a lower tier of rates which may be generally charged by some members and not by others in derogation from the conference tariff. It is to be observed that the judgment expressly envisages that this will occur only in respect of “a single ad hoc transaction” and not as a rate that “may be generally charged or which varies according to the members who are would be shippers of the product in question”. The substance of this concept is therefore that “independent action” means action outside the rate system as regulated by the Conference and which is charged for a single specific transaction. What matters is therefore whether this lower rate is put forward only by an individual carrier or by the conference as a rate which is neither under a promotional system or loyalty agreement but can generally be charged by some conference members to some or all shippers for a service which is subject to a higher rate in the conference tariff. It is thus the individualistic and one-off nature of the rate which stops it derogating from the concept that a shipper should have “access to a reference rate in respect of a particular commodity” (TAA Case paragraph 158) and should know that, absent a loyalty agreement, he is being charged the same rate as every other shipper for the same service.

Article 4 of the Block Exemption operates by way of automatic avoidance of the exemption of the relevant agreement or decision, or the offensive part of it severable from the effect of Article 81(2). Thus, if the application of one or more of the differences in rates or conditions of carriage listed caused detriment to certain ports, transport users or carriers, that event will automatically render void the agreement or decision or, if severable the offensive part of it “unless such rates or conditions can be economically justified”. This goes back to the balancing concept, already identified in paragraph 366 above, of avoiding the risk of eliminating competition in respect of a substantial part of the goods or services in question (Article 81(3)(b)) on the one hand and attainment of the beneficial objectives identified in Article 81(3) on the other hand. Thus, if the application of those differing rates which cause damage cannot be objectively economically justified by reference to, for example, the cost of the service or to normal market competitive forces, but is attributable to the objective of excluding a competitor from the market so as materially to reduce competition, the application of such differing rates will be rendered unlawful and void.

All the defendants have challenged the Claimant’s reliance for the purposes of its case under Article 81 of matters, such as predatory pricing and the use of fighting ships which the Claimant has relied upon as the basis of its case under Article 82 on abuse of dominant position. What is said is, for example, that there can be no recycling of the Article 82 case and that predatory pricing is a concept unique to abuse of dominant position under Article 82.

In support of the proposition that such recycling is impermissible, reliance is placed on the Societa Italiana Vetro SpA (SIV) Case, supra, and in particular on that passage from the judgment of the CFI which is cited at paragraph 394 of this judgment. The issue in relation to which the court made its observation about “recycling” in that passage was whether the combination of three glass producers had the effect of creating an undertaking with a dominant position in the relevant market. The precise ambit of the relevant market was a major issue. The Commission had sought to deploy evidence of the concerted unlawful practices of the glass producers which was crucial to the case under Article 85 (now 81) as evidence that the combined undertaking held a dominant position in the relevant market for the purposes of Article 86 (now 82). The observation made by the court at page 1549 of that judgment makes clear that the court was in the passage cited simply rejecting the Commission’s assertion that, without further evidence of, for example, the ambit of the relevant market, dominance could be inferred from the evidence of breach of Article 85. On analysis, therefore, this judgment goes nowhere near the proposition for which it is relied upon and, if it did, it would be palpably wrong in principle.

If one assumes that, contrary to the judgment in the present case, dominance has not been established, and that, accordingly, the case on Article 82 fails, the facts which are proved and which, had there been dominance, would have amounted to abuse of that dominant position by reason of, for example, pricing with intent to eliminate, could certainly be at least potentially relevant to the issue whether Article 4 of the Block Exemption has operated to derogate from the exception in Article 3 on the grounds that application of rates or conditions which differ according to country of origin or destination or port of loading or discharge has caused damage to carriers and further cannot be economically justified. Moreover, as appears from Article 81(3)(b), if the agreement in question which would otherwise qualify for the Block Exemption affords the undertakings in it “the possibility of eliminating competition in respect of a substantial part of the products (or services) in question” the exemption provided by the Block Exemption should not be granted. Thus, for example, if in the present case I had concluded that the Claimants had established for the purposes of Article 82 that the Conference’s predominant purpose in its rate-setting was eliminatory rather than genuinely competitive, that conclusion could have been deployed to challenge the exception otherwise available under Article 3. In substance, it is not open to a conference to enjoy the protection against unlawfulness and avoidance under Article 81(1) and (2) if and to the extent that it uses that protection to set rates having the predominant purpose of “eliminating competition in respect of a substantial part of the (services) in question” (cf Article 81(3)(b)). If the conference does not occupy a dominant position, this factual situation may not normally arise because the action with eliminatory intent would be futile. However, there is no reason in principle why, even if there were no position of dominance, such action should not have the consequence that the Block Exemption protection is lost. Essentially, conduct by a conference which is inconsistent with Article 81(3)(b), cannot enjoy the protection of the Block Exemption. The fact that such conduct, in a case where the conference holds a dominant position, may also amount to an abuse of that position and is therefore unlawful under Article 82 is nothing to the point. The principles under Article 81(3) applicable to an agreement, decision or concerted action of a group of collectively dominant undertakings must be exactly the same as that applicable in the case of collectively non-dominant undertakings. It is inconceivable that the draftsmen of the Rome Treaty envisaged any disparity between the two, for the attribute of market dominance is conceptually irrelevant to the anti-competitive practices at which Article 81 is aimed.

The issue open to the Claimant on the pleadings can be expressed as follows. Were the Conferences at any relevant time during the relevant period unprotected from the effect of Article 81(1) by reason of their having ceased to have the benefit of the protection afforded by the Block Exemption due to their failure to operate under uniform or common freight rates within Article 1(3)(b) of the Block Exemption?

For this purpose, it is necessary to investigate precisely what the system of special rate commitments and the emergency tariff truly involved.

On the basis of the contemporary documents and the evidence of Mr Record, Mr Meurs and Mr Stramer, the picture of selective pricing which emerges is somewhat blurred, but is sufficiently delineated for present purposes. However, the relevant witnesses relied heavily on the contemporary documents to assist their recollection and that recollection was somewhat indistinct on matters of detail.

Typically, a particular shipper of a particular commodity who was previously a customer of a conference member would have recently started to ship by BCL or MSC or would inform the agent of a conference member that he imminently proposed to do so. The agent would ascertain the rate charged to that shipper by BCL or MSC and would then approach his liner company and ask for authority to charge that customer for that commodity a rate lower than the Conference’s emergency tariff. The liner company would consider the request and, if in favour, it would make a special rate application to the Special Lines Committee. That Committee would then consider the application and, if in favour, it would notify approval to the member. The liner company would then authorise its agent to quote the reduced rate to the shipper in question. The rate was likely to be slightly higher than the competitor’s rate and would usually be applicable to future shipments on the same route of that same commodity, with a minimum quantity qualification. Notice of the special rate commitment thus authorised by the Conference was then circulated to all the Conference members. That rate would be applicable to all shipments of precisely the same commodity on that route and subject to the same minimum quantity requirement. The list of special rates would not, however be published to shippers in the same way as a tariff. It would be kept secret from them in case shippers of similar but not identical commodities attempted to negotiate down the rates for such commodities. The effect of this regime was that all shippers of the precisely same commodity on the exactly same route in the same quantity would be charged the same rate except that there might occasionally be a case where a liner company charged a particular shipper of particular commodity a rate designed to preserve or regain the customer from a competitor which was not charged to other shippers of the same commodity, either because that commodity was unique to the shipper or because the rate had not been approved by the Conference. Shippers would in practice get to know of the special rates very quickly due to the very transparent nature of the Israeli shipping industry.

Accordingly, although the special rates were not published to shippers in the same way as a tariff, they would very soon come to know of them.

The effect of this regime was therefore not that there would be multiple Conference rates for the same service but that there would be a single (inadequately published) rate for the same service. Although such rate would have originated in the belief that it was required in order to recover recently lost business from BCL or MSC, once approved, it would be charged by all Conference members to all shippers regardless of whether that was necessary to regain business or to prevent a customer going to a competitor.

It was on the UKISCON route that such special rate commitments were most prevalent. They were the most effective means of preventing further loss of customers on that route. The same system was hardly used at all on the CONISCON route because the number of shippers was much greater on that route. Once the rate war began, special rate commitments fell into disuse: they were overtaken by the very rapid fall in the tariff.

I therefore conclude that, where a special rate commitment had been approved by the Special Lines Committee, that rate became the only Conference rate for all shippers of precisely that commodity on that same route subject to the same minimum qualifying quantity. The resulting rate was therefore not a rate charged either by some members and not others or to some shippers and not others. It was in substance therefore a uniform rate within the meaning of the Block Exemption. If and to the extent that a particular liner company decided to charge a particular shipper a rate which had not been approved by the Conference, that was independent action of the kind envisaged by the CFI in the TAA Case at paragraph 159 and did not represent any derogation from uniformity of rating by the Conference.

I therefore reject the submission on behalf of the Claimant the system of special rate commitments derogated from the principle of uniformity under the Block Exemption.

I have not dealt specifically with the so-called “emergency tariff” which was in force in 1991. This was introduced by way of substitution for the all in tariff in respect of particular commodities from particular ports. It was thus targeted at particular commodities from such ports. Although it was motivated by a desire to regain recently lost customers or prevent further erosion of market share, it was a system of uniform rates in the sense that all members used it and all shippers of identical commodities benefited from it.

I therefore conclude that throughout the relevant period the Conferences did charge uniform rates and that accordingly they were “liner Conferences” within the definition in the Block Exemption.

It is right to add that if, contrary, to my conclusion, it was held that the special rate commitments represented non-uniform rating, it would have been impossible on the evidence now before me to reach any conclusion as to the order of magnitude of this practice in comparison with carryings at rates which were not subject to this system but were uniform rates. It would therefore have been quite impossible to form even a guess as to whether that system taken alone caused any loss to the Claimant or whether in combination with other alleged causes of losses it made any contribution to the Claimant’s overall alleged loss.

Those measures relied upon by the Claimant appear to be the prosecution of the rate war and connected conduct, such as the use of fighting ships. These are said to have been pursued with the intention of eliminating or reducing competition by forcing BCL to wholly or partly withdraw from the relevant market. Essentially, the Claimant’s case is that what the Conferences were doing with their rates was inconsistent both with Article 81(3)(b) and with Article 4 of the Block Exemption for the different rates being charged in the relevant period could not be “economically justified”.

Article 4 is clearly to be construed by reference to Article 81 and to the 5th paragraph of the recitals to the Block Exemption cited at paragraph 423 above.

In consequence, the words in Article 4 which refer to economic justification have to be construed by reference to the overriding objective of preventing the distortion of competition. Thus, if rate differentiation is by reference to country of origin or destination or to port of loading or discharge the predominant purpose of which is the elimination of a competitor or the distortion of competition, such rate differentiation cannot be economically justified.

I have already concluded, in relation to the case on abuse under Article 82, that the predominant purpose of the Conferences in engaging in the rate war was not to eliminate either MSC or BCL but to prevent the further defection to either MSC or BCL of the Conferences’ customers and, if possible, to regain those who had recently deserted the Conferences. These objectives were ordinary competitive purposes and were not designed substantially to reduce competition. Accordingly, in so far as the measures relied upon were the Conferences’ pricing policy and the so-called use of fighting ships, they were not deployed for the purpose of reducing the capacity of competitors and in particular of BCL.

Since no other measures have been pleaded, I conclude that there were no such measures and that this allegation does not present any ground for disentitling the Conference from relying on the protection of the Block Exemption.

As I have already explained in considering abuse of dominant position, pricing below cost is not per se inconsistent with the requirements of Article 82: it is no more than evidence from which an eliminatory intent can be inferred. Further, as already indicated, in the context of Article 82 the fundamental factual requirement for predatory pricing and for the abusive deployment of fighting ships is eliminatory intent on the part of the dominant undertaking. The exemption from the prohibition of agreements, arrangements and concerted practices in Article 81 must also have regard to the same overriding objective of discouraging conduct the predominant purpose of which is the elimination or distortion of competition in the common market. Therefore, undertakings which benefit from a block exemption but use that facility for that purpose, as exemplified by Article 4 in this Block Exemption, lose the protection of the Block Exemption in respect of that conduct. The eliminatory intent which, leads to that loss of protection, can logically be no different in substance from the eliminatory intent which causes rating policy to amount to an abuse of a dominant position for the purposes of Article 82.

That being so, the conclusion that for the purposes of the case under Article 82 there was no eliminatory intent in relation to rate-setting by the Conferences leads inexorably to the conclusion that there was no eliminatory intent in that respect for the purposes of the case under Article 81. Once that feature is removed, the Conference’s rate-setting must be regarded as unobjectionable. It is quite clear that ordinary competitive pricing by a conference is, in the absence of eliminatory intent, not inconsistent with the philosophy underlying Article 81(3) in general or its obligation under the Block Exemption in particular. The requirement under the Block Exemption that the differentiation in rates must be “economically justified” in accordance with Article 4 is not, in my judgment, designed to prohibit rate-setting predominantly designed to meet competition from outsiders, provided that the purpose of the rate setting is not to eliminate or distort competition. In particular, as regards carriers, the “detriment” envisaged is not that which naturally flows from the cost of facing competition on rates. Accordingly, rates which have as their main purpose the meeting of competition without destroying or distorting it can normally be regarded as “economically justified” for the purposes of Article 4, for there is nothing in the Block Exemption which prohibits ordinary competition, even if it involves participation in a rate war. It is not the function of the Block Exemption to disable liner conferences from responding to this kind of ordinary market competition, provided that they do not have an eliminatory intent.

In as much the Claimant’s case under Article 81 in respect of fighting ships also rests crucially on the presence of eliminatory intent, both in relation to the positioning of vessels and the creation of conference sailing schedules, as well as in relation to the setting of rates from particular ports on particular routes, the conclusion in relation to fighting ships with regard to the Claimant’s case under Article 82 is necessarily determinative of this part of the case under Article 81.

The Claimant’s submission as to pricing below cost based on Article 12(a) of the UNCITAD Code involves two distinct propositions:

For reasons which I have already given, I cannot accept proposition (i). Moreover, it is not possible, having regard to the purpose of Article 4 of the Block Exemption already discussed, to read into Article 4 a requirement that rate differentials can only be “economically justified” if they do not involve charging below cost. As already discussed in relation to Article 82 and, with regard to normal competition, in relation to Article 81, there may be many different circumstances in which a conference might be objectively economically justified in reducing its rates to below average total cost in the ordinary course of response to competitive pressure from outsiders. It must be a matter for investigation in each case whether charging below cost is in all the circumstances, including the effect of outsiders’ competition, economically justified.

As to (ii), the purpose of Article 12(a) of the UNCTAD Code is to indicate the considerations which a conference ought to take into account in arriving at a decision on tariff policy. These considerations are clearly directed at restraining overcharging by a conference. However, the requirement to consider that rates should be fixed “at as low a level as is feasible” is ameliorated in favour of the Conference members by the requirement that the rates should permit a reasonable profit. This requirement cannot, in my judgment, be construed as preventing a conference in all circumstances from competing with outsiders by reducing rates below cost. The overall objective under the Code of encouraging a stable market, cannot sensibly require that conferences should, in all circumstances, sit on their hands and keep their rates above average cost where they would otherwise lose their customers to outside competition.

Accordingly, I conclude that the fact that the Conference set its rates at below average total cost did not in itself disentitle the defendants from relying on the protection provided by the Block Exemption. The reduction of rates to such low levels in the present case was, as I have found, motivated by the desire of the Conferences to stop the erosion of their market share and the departure of their customers as well as to regain customers recently lost to MSC and BCL. Such reductions were, in my judgment, economically justified in all the circumstances and were not inconsistent with either Article 81(3) or the Block Exemption.

It follows that the defendants are not disentitled from relying on the protection of Article 3 of the Block Exemption by reason of predatory or selective pricing or fighting ships or setting rates below average total cost.

Although the Claimant has relied on negotiations involving Mr Eickhoff and Mr Aponte in January 1991 which, it is submitted, reached an agreement which Mr Aponte failed to honour, the only such conduct of which there is evidence and which occurred after the commencement of and during the relevant period is the meeting with Mr Aponte in July 1991 already described in paragraph 184 above. This had the aim of persuading Mr Aponte to stop the rate war either by MSC becoming a member of the Conferences or by giving MSC an agreed market share and an agreed market price above that to which rates had then fallen. Had the latter type of agreement been reached, it would have been in contravention of Article 81(1) and would have been void unless some special exemption could be obtained for it from the Commission. Like the negotiations for agreement that had taken place in January 1991 this meeting was unminuted. It is to be inferred that the Conferences were aware that at the very lowest they might well be acting unlawfully were such an agreement achieved.

The July meeting was a failure. No agreement was reached. If these negotiations represent a free-standing point which precludes reliance by the defendants on the Block Exemption, it must be tested on the assumption that the Conferences would otherwise be a liner conference not disentitled from reliance on the Block Exemption by any other conduct on its part.

The most that can be said about the July negotiations is that they were an attempt to achieve an unlawful agreement. The only decision involved was the Conferences’ decision to enter upon those negotiations. That decision was itself an unlawful “agreement” under Article 81(1) because it had an objective prohibited by Article 81(1) and avoided by Article 81(2) which could not become a justifiable objective under Article 81(3) since the Block Exemption could not apply to an agreement between a liner conference and an outside competitor which had the effect which the Conferences were attempting to achieve, namely, quantification of market share and price fixing.

On this basis, is it the position that from the time of that decision in late June or early July 1991 the Conferences were outside the protection of the Block Exemption?

In order to answer this question, it is necessary to consider an issue which is also relevant to a wider area of the case under Article 81 if my conclusions are wrong on the uniform rate structure, measures to reduce capacity, predatory pricing, fighting ships and pricing below cost. That is the submission by all the defendants that because both the 14^th paragraph of the Recitals and Article 4 of the Block Exemption provide for the severance, from the rest of the agreement or decision, if possible, of those parts of an agreement or decision which have not been granted exemption under Article 81(3) and which are therefore automatically void, the balance of the agreement or decision remains intact and therefore not unlawful.

The requirement reflected in the 14^th paragraph of the Recitals to the Block Exemption, quoted at paragraph 423 above, that the Commission must satisfy itself as to whether severance can be effected and, if not, give its reasons for that conclusion is a strong indication of the general philosophy of the Block Exemption, namely the preservation of so much of the Liner Conference agreements and decisions as are compatible with Article 81(3). This finds further specific expression in Article 4, second paragraph which provides that, if severable, it is only such parts of an agreement or decision as do not comply with the first paragraph of Article 4, which shall automatically void. It is to be noted that the 14^th paragraph of the Recital is not dealing with the circumstances to which Article 4 is directed but relates generally to agreements and decisions which have not been granted exemption pursuant to Article 81(3). The automatic nullity provision in Article 81(2) is expressed to apply only to “the elements of the agreement covered by the prohibition in Article 81(1)”. In other words, for the purposes of working out whether and, if so, to what extent there has been compliance with the requirements of Article 81(1) and 81(3) in the context of the Block Exemption one must consider whether the agreement or decision in question can be severed from that of which it is a part and, if so, one must confine avoidance to that part only.

It is against this background that it is necessary to evaluate the impact of the Conferences’ decision to re-open negotiations with Mr Aponte. That decision failed to achieve its unlawful object and had no wider purpose or intended effect. Although, had the negotiations concluded with a market-sharing and rate-setting agreement with MSC, there would have been an argument for the proposition that such agreement was not severable from the underlying liner conference agreements and therefore wholly disqualified the Conferences from exemption under the Block Exemption, the same cannot be said for the July 1991 decision to negotiate with MSC. That decision was entirely isolated administrative conduct which had only one direct effect on the activities of the Conferences, namely the re-opening of negotiations. It had no direct impact on the rates being charged or the deployment of Conference tonnage. It was, accordingly, severable from all other acts of the Conferences and did not therefore render any other conduct of the Conferences beyond the negotiations themselves unlawful or void because of loss of exemption. In this connection, it is relevant to consider the approach by the Commission which is called for by the 13^th paragraph of the Recitals to the Block Exemption. This provides as follows:

“Whereas there can be no exemption if the conditions set out in Article 85(3) are not satisfied; whereas the Commission must therefore have power to take the appropriate measures where an agreement or concerted practice owing to special circumstances proves to have certain effects incompatible with Article 85(3); whereas, in view of the specific role fulfilled by the conferences in the sector of the liner services, the reaction of the Commission should be progressive and proportionate; whereas the Commission should consequently have the power first to address recommendations, then to take decisions.”

The philosophy of a “progressive and proportionate” reaction is clearly directed to the action by way of punishment or otherwise open to the Commission. The need for a proportionate response does, however, suggest that, in line with the duty to investigate applying principles of severance, the Commission has to keep in mind the desirability of preserving conferences as important contributors to the well-being of the market. Accordingly, like the Commission, a domestic court such as this, should not be astute to avoid severing an unlawful agreement or decision where it is sufficiently separated from the Conferences’ other agreements and decisions.

The Claimant further draws attention both to the January 1991 negotiations, which may have ended in an agreement with MSC and the later negotiations and the agreement that resulted from them in February/March 1992, which was unlawful. These matters, in my judgment, have no bearing on the exempt status of the Conferences during the relevant period. In particular, the Claimant accepts that, assuming there was a concluded agreement in January 1991, it was never performed and certainly had no direct effect on the conduct of the Conferences after April 1991. Secondly, the January/February 1992 agreement was negotiated, entered into and performed after the end of the relevant period and could therefore have no effect on the legality of the Conference’s conduct during that period. There is no evidence at all, apart from the July meeting, that the conferences took any further decisions to negotiate or negotiated with MSC during the relevant period. Whereas, as I have held, they may have hoped that MSC would become unwilling to continue the rate war and that an agreement might eventually be made, I cannot accept the submission by the Claimant that the Conferences conducted the rate war in order to obtain such an agreement or that it was, as the Claimant puts it, “the object” of their conduct during the relevant period to obtain such an agreement. The highest it can be put is that this was a hope collateral to the predominant purpose of the rate-setting policy which was retention of customers and the regaining of recently lost customers.

Consequently, there is nothing in the conduct of the Conferences with regard to negotiations with MSC which disentitled them from relying on the Block Exemption.

Clause 13.1 which is quoted at paragraph 248 above is said to be evidence of an intention to restrict or eliminate competition in the relevant market and therefore to be inconsistent with Article 81, thereby disentitling the Conferences from relying on the Block Exemption.

I am unable to accept this submission. An obligation to do their utmost to compete with any third party line commencing any service can hardly be described as an agreement to eliminate or distort competition. It is, on the contrary, an agreement to compete. However, the means of competition which are prohibited are not identified. The doing of “their utmost in order to compete” with such third party does not necessarily require or permit the use of abusive means. Nor does it require steps to be taken to drive the newcomer out of the market. There can be perfectly effective competition without eliminatory intent. Whereas, but for the newcomer, there would be no effective competition, the means of competition open to a dominant party will normally be very limited. Indeed, they must be sufficiently anodyne to avoid destroying a small and tenuous market share. Accordingly, in such circumstances Clause 13.1 must not be construed as a license to take competitive steps which are eliminatory and which may drive the only competitor out of the market.

Accordingly, this provision does not require conduct which will necessarily provide a basis for loss of exemption under the Block Exemption. The provision itself is therefore unexceptable.

The Claimants base on Article 5.4 of the Block Exemption the argument that the Conferences were in breach of their obligations under the Block Exemption by failing to publish the rates approved to be charged under special commitments, that is to say the selective rates. Article 5.4 provides as follows:

“Tariffs, related to conditions, regulations and any amendments thereto shall be made available on request to transport users at reasonable cost, or they shall be available for examination at offices of shipping lines and their agents. They shall set out all the conditions concerning loading and discharge, the exact extent of the services covered by the freight charge in proportion to the sea transport and the land transport or by any other charge levied by the shipping line and customary practice in such matters.”

It is to be observed that this obligation is neither a qualifying condition for entitlement to the protection of the Block Exemption nor subject to automatic avoidance under Article 4. It is in substance an ancillary provision the purpose of which is to facilitate the transparency and smooth working of a liner conference’s dealings with the shippers. The consequence of a breach of an Article 5 obligation is set out in Article 7 as follows:

“Where the persons concerned are in breach of an obligation which, pursuant to Article 5, attaches to the exemption provided for in Article 3, the Commission may, in order to put an end to such breach and under the conditions laid down in Section II:

- address recommendations to the persons concerned;

- in the event of failure by such persons to observe those recommendations and depending upon the gravity of the breach concerned, adopt a decision that either prohibits them from carrying out or requires them to perform specific acts or, while withdrawing the benefit of the block exemption which they enjoyed, grants them an individual exemption according to Article 11(4) or withdraws the benefit of the block exemption which they enjoyed.”

In other words, the consequence of the breach is in the hands of the Commission and it is for the Commission to decide by reference to the gravity of the breach what steps to take to cure the non-compliance, ranging from recommendations to the persons in breach to, in the event of failure to observe the recommendations, a range of remedies up to total withdrawal of the benefit of the block exemption. Whether in any particular case that benefit would have been totally lost would depend on:

I infer that if the Commission had been informed of the selective rate system it would have recommended compliance with Article 5.4 by publication and I further infer that, in view of BCL’s still pending proceedings before the Commission, the Conferences would have taken legal advice at that point, would have been advised to comply with the recommendations or to discontinue altogether the system of special rate commitments and would have followed that advice. It is therefore more probable than not that there would have been no loss of protection under the Block Exemption.

Accordingly, this point does not provide the Claimant with a basis for its claim based on loss of exemption in respect of Article 81.

It follows that on none of the grounds advanced by the Claimant have the defendants failed to establish that the Conferences were entitled to rely on the protection provided by the Block Exemption. The Claimant has not displaced the defendants’ case that on the facts before this court the Conferences were entitled to the protection of the Block Exemption at all material times.

Consideration of this letter arises only if I am wrong in concluding that the Conferences were during the relevant period charging uniform or common rates (see paragraphs 425 above).

The Director’s letter, referring to the “rate differential system”, which meant the system of allowing some conference members to charge lower rates than others on the same route, and to the “loyalty arrangements”, which meant the NCR system, stated:

“The hearing took place on 30 April 1992.

After the hearing the lines have communicated evidence which demonstrate that they have formally terminated their rate differential system in January 1991 and abandoned their loyalty arrangements in February 1991.

Since February 1991, the lines have thus discontinued those aspects of their Agreements to which the Commission objected in the Statement of Objections. There seems to be no longer any necessity to require them to terminate their arrangements as was envisaged in the Statement of Objections.

On the basis of the information available and after a preliminary examination, the Agreements which were amended early in 1991 appear to be Conference agreements which can benefit now from the block exemption granted by Article 3 of Regulation no. 4056/86.

In view of the termination of the infringements and also of the fact that the trades concerned seem open now to competition as demonstrated by the successful entry of MSC, I think that this case does not display any more a sufficiently strong community interest to make a formal decision necessary.

Please let me know if you wish to make further comments, and do so within two months of the date of receipt of this letter. We, of course, reserve the right to re-examine this case should substantial new information be made available, whether it be through your observations or a later date.”

It is thus quite clear that the Commission had arrived at its decision on the information given to it about interest rate differentials and the NCR system and had concluded that, those being the basis upon which in its Statement of Objections it had expressed the preliminary opinion that the Conference was not entitled to the Block Exemption, in view of their having been abandoned in early 1991 it now appeared that the amended July Agreements were Conference agreements entitled to the Block Exemption. That conclusion was not arrived at on the basis of any information about the special commitment system or emergency tariffs and nobody reading it who was conversant with that system could possibly have understood that it referred to them or those tariffs in some way approved of them.

Moreover, Zim’s reliance on the decision of the ECJ in Banks v. The Coal Authority, supra, takes the matter no further. Indeed, at paragraph 112 the Court makes clear that a party is only shut out from challenging in national courts a decision of the Commission in those cases where the commission has ruled on the issue that is sought to be raised in the national court. In the present case, the issue in this court is simply not that of which the Commission was seized. This court is in no way concerned with the differential charging regime or the NCR system with which the Commission was concerned in dealing with BCL’s complaint and in issuing its Statement of Objections. It is not open to the Claimant to rely on either of those systems as a basis for its claim because they had been discontinued at least two months before the commencement of the relevant period. None of those matters on which the Claimant is now entitled to rely for the proposition that the Conferences were not liner conferences entitled to the benefit of the Block Exemption had been placed before the Commission when the letter was written. Indeed, BCL had in 1992 expressly abstained from pursuing any further complaint on any other grounds against the Conferences. Since BCL was under no obligation to resort to the Commission’s regulatory procedure, from which it could derive no compensation, before launching a claim for compensation in a national court, there are no public policy reasons which preclude it from reliance in this court on allegations of disqualification from the Block Exemption upon grounds which it had not relied upon before the Commission.

It follows that the Commission’s letter of 19 September 1993 is of no assistance to the defendants.

If I am wrong in concluding that the emergency tariff and the special rate commitment or selective rate system did provide for uniform rates, it is submitted by the defendants that this conduct can be severed from other conduct of the Conferences – for example their participation in the rate war – leaving the Conferences entitled to the benefit of the Block Exemption for all such other activities.

Article 4 of the Block Exemption has no direct relevance because the express power to sever set out in the second paragraph expressly relates only to the automatic disentitlement to exemption defined in the first paragraph of that Article. This issue is concerned not with any of the specific causes of avoidance raised by that Article but with the threshold condition of qualification for any benefit from the Block Exemption, set out in Article 1(b). The Block Exemption contains no express provision dealing with what is to happen where a would-be liner conference charges some rates which are not uniform or common and other rates which are. Is the consequence that the conference is totally disqualified from exemption, even in respect of its uniform rates? For example, in the present case there is strong evidence of the widespread use of selective rates on the UK – Israel routes yet evidence that this system was hardly ever used on the Continent-Israel routes. Does that result in the whole activity of CONISCON as well as UKISCON being outside the protection of the Block Exemption? Or is it only in respect of conference activities relating to the UK route and, if identified, the carriage of particular commodities on particular Europe-Israel routes, that agreements of the conference are void and that the conferences therefore do not qualify as liner conferences? Further, is it the umbrella decision of the Conferences on 10 April 1991 that provided for special rates to be permitted or is it each separate decision which approved a special commitment application that is void?

The answer to these questions is to be found in the 14^th paragraph of the Recitals. This addresses itself to the effect of Article 81(2) generally and relates to all circumstances in which Article 81(3) does not apply (“owing to their discriminatory or other features”). It expressly recites that Article 81(2) operates to avoid only to the extent of those “elements” of the agreement or decision which are “covered by the prohibition” of Article 81(1). The absence of uniform rates is an “element” of the agreements or decisions of the conferences in as much as it involves “applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage” (Article 81(1)(d)).

Accordingly, if one starts from the approach of the 14^th paragraph of the Recitals, the position must be that the departure from uniform rates will only totally disentitle the conference from relying, in any respect, on the protection of the Block Exemption if that lack of uniformity cannot be severed from the Conference agreements and decisions on other matters. The facility of severance therefore does apply to decisions which adopt a secondary series of rates in parallel with the Conference tariff.

How would the severance exercise work in practice? One must have regard to the overriding need in the interests of the shipping industry and its users for the benefits which liner conferences in compliance with Article 81(3) provide and the “progressive and proportionate” approach enjoined for the Commission by the 13th paragraph of the Recitals. I consider that if a conference has decided to institute a dual rating system involving rates, which are neither uniform nor common, in relation to the carriage of a particular commodity or on a particular route or both, it should be disentitled from reliance on the Block Exemption in respect of the carriage of that commodity on the route or routes to which the decision as to lack of rate uniformity applies or, if the decision as to lack of rate uniformity applies to all commodities on a particular route, the disentitlement to protection applies to that route generally.

It is for the Conferences to establish that they are entitled to rely on the Block Exemption. It follows, logically, that if evidence is adduced by which the Claimant establishes that a system of selective rates was introduced for the UK-Israel routes generally, that raises a case of sufficient strength, if unchallenged, to justify the inference that the Conference was not entitled to any benefit of the Block Exemption on those routes. If that inference is to be rebutted it is for the Conference to adduce evidence that, for example, the system of selective rates only applied to particular commodities or to shipments from particular ports so as to make good a defence justifying severance of the offending decisions. In the present case, as I understood the available contemporary documents, there is no evidence as to the precise application or incidence of such selective pricing. However, the evidence that the system was widely used on the UK-Israel route is, in my judgment, strong enough, if not rebutted, to give rise to the inference that all the Conference’s operations on that route throughout the relevant period were subject to the application of this system and were accordingly disentitled to protection under the Block Exemption. I am not persuaded that the evidence of the operation of a similar system on the Continent-Israel route is strong enough to give rise to a similar inference in respect of the Conference’s operations on that route.

It follows that the defendants have established that they were at all material times entitled to the protection of the Block Exemption in respect of the whole of their operations on both routes.

The Claimant has therefore failed to establish any breach of duty by the defendants on the basis of its alternative case. In this connection, I would only add that I have not for the purpose of this part of the judgment, revisited rumour-mongering. Unless it were an emanation of the collective policy or decisions of the Conference, contrary to my finding under the Article 82 case, it would not provide even an arguable basis for an allegation of breach of any prohibition under Article 81. Had it occurred, it would be necessary to investigate whether and to what extent it could be severed so as to preserve the Block Exemption protection for other conference agreements, decisions or concerted practices. As discussed in relation to selective pricing, the burden of establishing that severance was justifiable would be on the defendants.

In the event the Claimant has failed to establish that the defendants were in breach either of Article 82 or Article 81.

The Claimant has lost on liability and questions of causation will only arise if I am subsequently held to be wrong in this conclusion. However, in view of the substantial amount of time and evidence that was devoted to this issue at the trial, it is right that I should record what conclusions I would have reached on causation. In so doing, however, I am concerned that there are several different ways in which the defendants could be liable for breach of Article 81. This arises from the consequences of severance discussed in paragraph 484 above. There are several different ways in which this could operate in practice, depending upon what conclusion was reached about the duration and nature of the system of selective pricing and the extent to which decisions to permit it were severable from other agreements and decisions of the Conferences. Further, it might be held that exemption under the Block Exemption arose by reason of predatory pricing and/or fighting ships only during the later part of the relevant period. Further, in relation to the primary case under Article 82, it might be concluded that abuse of the Conferences’ dominant position took place only during the later part of the relevant period.

In these circumstances, I have considered whether it would be desirable to refrain at this stage from making any hypothetical findings on causation, leaving it to the Court of Appeal, if it hears an appeal, to remit the case to this court if necessary for further findings on causation and quantum. I have however, come to the conclusion that it would be more useful for the parties to this complex and expensive litigation if I gave my conclusions on the main issues on this part of the case. However, I shall do so on the assumption that (i) as regards the Article 82 case, the defendants were abusing their dominant position throughout the relevant period and (ii) as regards the Article 81 case, the defendants were at no stage during the relevant period entitled to the protection of the Block Exemption because they were collectively applying all their rates with eliminatory intent and severance was not available to provide them with any entitlement to protection. I shall further assume that the Conferences were both abusing their dominant position and unprotected by the Block Exemption.

The Claimant submits, in summary, that:-

The Claimant says that these losses to BCL in turn caused cash crises in the Multifleet group and by September 1991 caused the group to sell vessels and to refinance borrowings. As a result of such sales and refinancing the net equity in the group shipowning companies fell from $14.2 million at April 1991 to about $1,314,000 at 31 May 1992.

In the result, by the end of 1991 or the beginning of 1992, at the latest, it is accepted by Mr. Dyson that the group had inadequate net capital. This occurred much earlier according to Mr. Wilkinson. This led to BCL's and Multifleet’s collapse in May 1992.

Thus, the collapse of these companies was caused by the price war.

In order to displace that conclusion on causation, it was for the defendants to prove that some other cause was the predominant cause of their collapse. If that other cause was the conduct of BCL itself, it was not enough for the defendants to prove that it had been merely negligent or unreasonable or uncommercial : it had to be shown that it acted recklessly, otherwise it would be a case merely of contributory negligence or failure to mitigate.

For this proposition the Claimant relies on Clerk & Lindsell, 18^th Edition paras 2-51 and 2-52. viz:

“When the conduct of the claimant exacerbates, or adds to the injuries, of which he complains, that conduct will generally result in a reduction of his damages on grounds of contributory negligence, or failure in his duty to mitigate damage. However, it may be that the conduct of the claimant is so wholly unreasonable and/or of such overwhelming impact that that conduct eclipses the defendant’s wrongdoing and constitutes a novus actus.

It is submitted that for the claimant’s subsequent conduct to be regarded as a novus actus interveniens it should be such as can be characterized as reckless. Unreasonable conduct can be dealt with by a finding of contributory negligence. Once the court has determined that the defendant was in breach of a duty to exercise reasonable care for the claimant’s safety, the claimant’s negligent conduct should not lead to a finding of novus actus.”

The Claimant also refers to the cases which have held that there will not be a novus actus interveniens where the claimant has been placed in an emergency or dilemma situation by the defendant’s negligence, even if the claimant acted recklessly or negligently ( Clerk & Lindsell, para 2-53).

In relation to the key issues on causation the Claimant submits as follows.

The departure from BCL of Boaz and Na’ama Arkin at the beginning of 1990 did not cause loss to BCL. They did not start work for MSC until eight months after leaving BCL and the first MSC vessel did not enter the trade for another two months. During that period BCL’s market share had risen from 4% - 5% to 12% southbound and 6% northbound. By October 1990 it had risen to 16.5% southbound. During this period BCL started making profits on both the routes and its customers remained loyal to it.

When MSC entered the market it targeted higher value cargoes and more time -sensitive shippers than did BCL. The latter concentrated on the bottom end of the market where cargo values were lower and shippers less concerned with speedy movement. This proposition was supported by the fact that, as soon as MSC entered the market, it captured market share almost entirely from the Conferences whose customers it targeted. BCL retained a constant market share of 6% to 7% moreover BCL was by April 1991 losing far more customers to the Conference than it was to MSC. There was contemporary evidence from the British Shippers’ Council as late as 14 May 1991 that shippers still regarded MSC with some caution. There is also contemporary evidence that at least some shippers were anxious that BCL should not leave the market, possibly viewing it as a counter-weight to the Conference and MSC.

Further, had it not been for the unlawful rate war assumed to have been waged by the Conferences, each of BCL, MSC and the Conferences could have survived on the relevant market at a more profitable rate level. This was because the market was expanding and MSC would have been content with no more than 30 per cent market share and would have been prepared to tolerate BCL. But for the Conferences’ unlawful prosecution of the rate war, at worst any such war would have been of much shorter duration and less violent and after that rates would have stabilized. That short rate war would have had little or no adverse financial effect on BCL in view of the expanding market and the fact that BCL was targeting the bottom end of the market. The Claimant refers to the evidence of his shipping industry expert, Mrs Richards who said that BCL

“had the potential to be a sound little company and had the capability of developing a reasonable position on the UK-Continent-Israel trade with their customer case.”

With reference to the adoption by Mr. Arkin of the “suicide rate” of DM850 on 8 July 1991, the Claimant submits that it was no more suicidal for him to adopt that low rate than for the Conference members who by 22 August had an all in continent southbound rate of DM900 for Antwerp, having regard to the fact agreed by the accountancy experts that some Conference members had break even levels above that of BCL. Mr. Arkin was confronted by an extreme re-action from the Conferences.

Further, the Claimant relies on Mr. Dyson’s evidence that for BCL this low rate made commercial sense. It was above BCL’s average variable cost. It therefore contributed to its overhead costs and it enabled BCL to improve its market share. It also only applied to part of BCL’s total freight income. Mr. Dyson stated that the DM 850 rate only applied to Antwerp and Rotterdam, but, I interpose, the contemporary evidence suggests that the same rate was probably being charged from Bremen and Hamburg, which, as Mr. Dyson accepted in cross-examination, was hardly surprising, given their proximity. The reduced rate therefore applied to all BCL’s Continent southbound carryings, namely 67 per cent of BCL’s total freight income. Accordingly, the Claimant submits that this rate reduction did not amount to a reckless intervening act. Rather it was an attempt to mitigate loss by engendering a contribution to fixed costs and improving market share. It thereby mitigated BCL’s loss.

The Claimant submits that this low rate only played a relatively small part in BCL’s operations and what matters is not what was the immediate cause of BCL leaving the market but what caused BCL to collapse in May 1992.

The reduced rate was not applied to UK- Israel traffic or to any northbound traffic. Further it only applied for a very short time and was rapidly overtaken by the Conferences’ rate reductions which leap-frogged over those of MSC and BCL.

I interpose that even for the purposes of this hypothetical analysis I do not accept for reasons which I have already explained that undercutting by the Conferences occurred except during the last six weeks before BCL left the market and it was then confined to only a few classes of goods and on average never occurred in relation to the lowest quoting competitor, so that at no single time did the Conferences lead the average rates down below those of both MSC and BCL. On this basis, I reject the Claimant’s submission that the Conference led the rates down during July to September and I further reject the submission that the Conferences would have reduced any rate to DM 850 had it not been for BCL first reducing its rates to DM850. I have already demonstrated that the Conferences were never charging the lowest average all in rate. Although, as noted in a letter of 14 January 1992 from Mr. Eickhoff to Mr. Polito of Lovells, the Conferences were mainly concerned to react to MSC’s rates, that certainly does not appear to be what invariably happened in August and September 1991 when the Conferences followed down BCL’s plunge below DM1000, at times undercutting MSC. The truth is that, although the Conferences doubtless saw MSC as a much greater threat to their customers than BCL, they and MSC also saw BCL as a competitor whose rates needed to be tracked and, if necessary challenged. The vigorous rate-cutting by the Conferences and BCL from 30 July to 12 September 1991 indicates that BCL, having substantially reduced its rates on 8 July, found itself confronted by an extremely hard fought rate war between MSC and the Conferences at a level of rates into which BCL had initially led them. No doubt BCL was, as the Claimant submits, determined to retain an adequate differential between it and both the Conference tariff and the MSC rate. Certainly, contemporary evidence suggests that Mr Arkin saw himself as “leading” in the rate war. In its circular letter to its agents dated 13 September 1991 it was stated quite openly that BCL could “only lead the freight war” and “could not afford to be led by rates the competition is dictating”.

The Claimant further argues that the substantial increase in carrying by BCL in September compared with August 1991 suggests that the DM 850 rate may have had the effect of regaining customers or of attracting new ones. It shows that the market did not react unfavourably to BCL’s advertising campaign featuring the unusual centre piece of a girl on his staff dressed as a sea captain.

It is further argued that the reduction of BCL’s rates was something it was forced into in order to retain its usual substantial differential below the Conference’s tariff in response to the vigorous predatory price-cutting in its war against MSC, particularly after the abortive meeting with Mr Aponte. Accordingly, this reduction by BCL was not unreasonable or reckless in commercial terms, and did not “eclipse” the effect of the predatory rate-cutting of the Conferences.

The Claimant further submits that it was neither reckless nor even unreasonable for BCL to stay in the relevant market until October 1991 in the face of falling rates for the following reasons:

As to the defendants’ case that BCL was doomed from the outset because it was insolvent or nearly insolvent at the commencement of the relevant period, the Claimant makes the following submissions.

The defendants, including Borchard, submit that the starting point for investigating causation of loss is the state of the relevant market as it already existed on 18 April 1991 and at no earlier date. By that time MSC had established itself with the help of Na’ama and Boaz Arkin. The decline in rates which had already occurred had caused all of MSC, BCL and the Conferences to be trading at a loss. BCL in particular had incurred a trading loss of about $1 million in the period from September to December 1990. Further, the market was expanding and rates were therefore falling with the increase in capacity arising from MSC having entered the market and increased its tonnage to four vessels in January 1991.

In a letter to the Commission dated 20 October 1993 Mr Arkin stated that by February 1991 “the damage to my business had been done”. I interpose that this letter was written in response to that dated 19 September 1993 by John Temple Lang on behalf of the Commission to which I have already referred to above and by which BCL had been informed that in view of the fact that the Conferences had abandoned non-uniform rates by February 1991 there was no longer a sufficient community interest in continuing the proceedings, Mr Arkin’s letter included the following passage:

“Despite the detailed explanation in your letter of the Commission’s decision not to pursue this case further, I find it most unsatisfactory that shipping lines which, according to the Commission’s own Statement of Objections as I understand it, were operating under a cargo sharing agreement designed to eliminate competition, should be allowed to do so with impunity, and in fact to benefit from their actions. Although these shipping lines formally terminated their rate differential system in January 1991 and abandoned their loyalty agreements in February 1991, by then the damage to my business had been done. I was forced to suspend BCL’s operations as a direct result of their cartel practices.

I also question your assumption that the trades concerned are now open to competition, as demonstrated by the successful entry of MSC. I believe I have proof that prices are now co-ordinated between MSC and the Conference and that cartel practices are still being used to exclude competition, although the tactics have changed. I am now trying to accumulate new evidence of these practices, which I hope to be able to present shortly.”

The defendants say that this is fatal to his claim: it shows that his perception in looking back from a time much closer to events than the trial was that the significant damage to BCL had already been caused before the commencement of the relevant period.

The key question is, the defendants submit, whether the breach of duty which has been established was the dominant or effective cause of the loss: Galoo v. Bright Grahame Murray [1994] 1 WLR 1360. The defendants emphasise the distinction between conduct which causes loss and conduct which merely affords to a claimant the opportunity to incur and to continue to incur losses.

The defendants draw attention to the evidence of Mr Wilkinson showing the sharp decline in revenue per container on three round voyages by BCL vessels starting Israel northbound to the north Continent and returning to Israel. The revenue fell from $1201 per southbound TEU on the 4 June-10 July voyage of the US Trader 12 to $666 on the US Trader’s next voyage starting from Antwerp on 22 July.

It is right to add that the calculations of revenue per southbound TEU show that in February/March 1991 BCL was earning $1431 and $1422 for the Wind Trader 14 and Atlantic 24 voyages respectively but that thereafter revenue progressively fell until Wind Trader 17 which commenced on 14 May 1991. There was then a temporary improvement for one voyage, US Trader II starting on 4 June for which revenue was $1201. The last three southbound voyages had slightly improved revenues - $922 (starting 2 August) $729 (starting 21 August) and $765 (starting 6 September). All these figures are below BCL’s breakeven costs. Indeed, BCL suffered losses on four out of five voyages in 1991 before the start of the relevant period, such being as great as $187,046 (Wind Trader 15) and incurred an overall net loss on those voyages of $483,379 that is $96,676 average loss per voyage. Whereas on the voyages in the relevant period, of which there were 10, including some northbound, all of them loss-making, the total loss has been estimated at $1,727,242, that is $172,724 average loss per voyage. At the point when Mr Arkin reduced BCL’s rate to DM 850 BCL’s average loss per voyage during the relevant period had been $102,025. Its loss on the next (and last) four voyages was an average of $211,326.

When BCL left the market two months after its rate cut to DM 850 on 15 July 1991, it blamed the rate war and the low rates for its decision. In this connection, the defendants rely on Mr Arkin having informed Lloyd’s List that his breakeven revenue was DM 1500, taking into account involvement on other routes. Mr Wilkinson calculated that at 18 April 1991 the break even rates were $1489 on Wind Trader and $1403 on US Trader. This showed that, by cutting rates below that figure, he was deliberately incurring substantial losses per TEU. This was reflected in the concerns of customers of BCL in Israel at the 15 July rate reduction, recorded in the report in Globes on 26 July: “Everyone closely connected to the matter knew this borders on economic suicide”. Indeed, Mr Arkin stated in his witness statement that the loss per voyage at this time amounted to US$500,000. Mr Meurs, then of KNSM, stated that, by taking its rate below DM 1000 which was a psychological floor, BCL pushed the Conference and others in the market below that barrier and that, but for that, the rates would have levelled off at about DM 1000.

Further, the perception of those who worked at BCL was similar to that of others in the market. Mr Novotny stated in his witness statement:

“The decision to cut rates was entirely Mr Arkin’s while myself and other members of staff told him on more than one occasion that we felt it was not a correct move to make. All that Mr Arkin was creating was a freight war that I did not believe he could win …..”

Mr Novotny went on to state that Arkin was determined after his niece and nephew joined MSC that they and it should not succeed. Mr Arkin insisted on cutting even though (in Mr Novotny’s view) BCL could have competed against MSC’s proposed rates and not made losses. He said that part of BCL’s problem was lack of financial control. It was very difficult for the managers to understand its affairs.

The defendants submit that, having already been trading at a loss on the relevant market after MSC entered that market in September 1990, BCL continued to make losses in 1991 due to the increase in capacity on the market and its prosecution of a price war with MSC. This was followed by BCL driving down the rates below DM 1000 in July 1991 thereby increasing its losses still further.

BCL was already trading while insolvent in April 1991 as shown by the 1990 audited accounts and trading continued up to May 1992 while losses increased and indebtedness to the shipowner companies in the Multifleet group increased. More and more vessels had to be sold to raise funds until by May 1992 only two vessels remained, Wind Trader and Pacific Trader, neither of which represented any net equity. For BCL to continue trading through the relevant period by participation in a loss-making market such as the relevant market was unreasonable.

BCL managed to continue trading for as long as it did on the basis of funding which it received by way of loan from Bay Maritime, another of Mr Arkin’s companies, and which, by 31 December 1990, had amounted to $4.733 million out of BCL’s total trade creditors of $8,964,912. The other basis on which BCL continued to trade was its non-payment of charter hire to the shipowner companies of the Multifleet group on whose vessels its carryings were made. This indebtedness, although under the control of Mr Arkin, like that to Bay Maritime, was repayable on demand. It remained outstanding and was never converted into capital issued to the creditor companies.

The defendants draw attention to the lack of disclosed documents relevant to BCL’s financial situation or to that of other companies in the Multifleet group, the continuing viability of which was relevant to the financial survivability of BCL itself. The defendants’ accountancy expert, Mr Wilkinson, considered that there was insufficient documentary material to identify the precise reasons for the collapse of BCL or Multifleet: it was only possible to speculate. The Claimant had provided no satisfactory explanation for the lack of documents. BCL did not go into liquidation until 1996. If the Claimant claimed damages for loss which he alleged was caused by the Conferences’ conduct and that loss included the inability of the company to make profits from continuing to carry on business after the collapse of the Multifleet group in May 1992 it was for the Claimant to adduce evidence in support of that causal linkage either in the form of contemporary documents or accounts or by oral factual evidence or both. Amongst the considerations material to the existence of that causal link were the following:

In relation to the Multifleet group, it was therefore clear from the Ocarina Case that the group was deeply insolvent by April 1992 and that such insolvency had built up over a lengthy period. The explanation for the immediate financial problems which had been given on 21 April 1992 to Marcard Stein, the lender bank in the Ocarina Case, namely that losses had been incurred due to the harsh winter in the Middle East, fraud in South Africa and the cost of moving an administrative office to Cyprus should be treated as excuses put up to the bank to try to induce it to lend more money to Multifleet.

In addition to those financial problems, the defendants submit that the shipowner companies, being tax resident in the UK, owed considerable amounts in tax. The defendants’ tax expert, Ms Bill, calculated that by 18 April 1991 outstanding corporation tax of those companies would have totalled £1,105,894 which with accrued interest of £96,016 would be equivalent to $2,134,452. She also calculated that the tax payable and outstanding interest at 1 October 1991 would have been £1,291,459 with interest at just over £1 million.

The defendants submit that the Diab Memorandum relied upon by the Claimant as a basis for calculating the indebtedness and from that the net asset value of the Multifleet group was wholly unreliable because it was based on financial information which was out of date at the time and which did not take account of very substantial liabilities. Thus, BCSL was making heavy losses on the United States-Israel route, which by 31 December 1990 had reached a cumulative total of $3,744,818 after only 20 months operations. The BCL accounts for 1989 and 1990 told a similar story: a loss of $842,629 in 1989 and of $1,645,749 in 1990. Of the latter figure, it is agreed between the accountancy experts that on the Continent-Israel line there was a loss of $491,961. Therefore, by deduction there must have been a loss of $1,128,543 on the other routes operated in 1990 by BCL. Further, the Diab memorandum stated with regard to the value of the lines that all the mortgage debts for the vessels would be paid off in three years, which was misleading because the liner operators were not keeping up charter hire payments to the shipowner companies and were therefore failing to contribute to debt servicing.

The defendants point to evidence which I accept that in October and December 1990, Mr Arkin gave inaccurate and deficient information to Marcard Stein and to BBL. Further, information given to Societe Generale on 3 April 1991 by Mr Behrisch gave information projecting increasing freight income when in truth freights were falling considerably from October 1990 and omitted losses already incurred in 1991.

The model which Mr Dyson, the Claimant’s forensic accountant, put forward as the basis for his calculation of losses was seriously flawed. One of the most fundamental flaws was that it failed to take account of the fact that, once the Multifleet group had collapsed in May 1992, BCL could not have gone on independently trading. Only therefore if it could be established that the collapse of the Multifleet group was caused by the defendants’ breach or breaches of duty under Articles 81 or 82 could BCL establish that it was entitled to any damages in respect of its inability to trade after that group collapsed.

The defendants have made serious criticisms not only of the quality and accuracy of Mr Dyson’s evidence but also of his independence as an expert witness. The latter criticism was founded on his close relationship with MPC, the company which has already been funding this litigation and has undertaken to pay Ernst & Young’s fees. They had provided a guarantee to Ernst & Young for £800,000, but the outstanding fees so far stood at £1.5 million. The defendants point to Mr Dyson’s evidence being consistently favourable to the claimant.

I am bound to say that Mr Dyson, like Mr Wilkinson, was in this case been confronted by an exercise in accounting reconstruction of an order of magnitude which I certainly have never previously encountered. The attempt to produce from the disparate and, as I find, largely unreliable contemporancous documentation produced by the Claimant or engendered by BCL and Multifleet and disclosed by the defendants, estimates of the true financial condition of BCL and Multifleet during 1990 to May 1992 has involved a highly complicated exercise constantly concerned with whether justifiable inferences can be drawn from sparse and usually unreliable documents as distinct from merely speculative conclusions. This was no easy exercise. The line between proper inference and proper extrapolation on the one hand and speculative reconstruction on the other is often extremely fine and views on its location can differ between highly competent professionals – as they can between judges. Having heard Mr Dyson giving evidence for many days under searching cross-examination and having on many occasions questioned him quite closely myself, I am entirely satisfied that he was doing his best to give an objective view of the evidence. He may not have had the shipping industry experience of Mr Wilkinson and that may on occasion have caused him to have misunderstood matters of detail, but I have no doubt that he did not demonstrate that partiality which would justify my treating his evidence overall as unreliable. Nor was his lack of familiarity with the shipping industry so serious a deficiency as to render his accountancy analyses intrinsically unreliable. The many occasions on which he changed important parts of his evidence, usually in response to points raised by Mr Wilkinson, suggest to me rather that he was prepared to abandon positions which he had come to regard as untenable either on further investigation of documents or following discussion with Mr Wilkinson, rather than trying to defend those positions. This may have involved extremely disruptive consequences for those representing the defendants in their conduct of the trial but it cannot be regarded as an indication of an inappropriate lack of objectivity. The truth is that huge amounts of detailed analysis were agreed between experts in the course of long discussion sessions during the trial. This process of agreement was extremely helpful to the court and reflected a very proper process of compromise which must at times have been very hard for both experts to maintain given the inadequate and unreliable materials on which they had to work, some of which emerged very late in the trial. There were several unfortunate incidents arising out of and in relation to some of the many meetings between experts. I consider that, given the unattractive and complex nature of the evidence on which they had to work both Mr Dyson and Mr Wilkinson did a remarkably impressive joint exercise.

The defendants submit that the predominant cause of the departure of BCL from the market was its unreasonable conduct. It unreasonably ignored the state of the market after the entry of MSC and failed to form any prudent and informed judgment as to whether it was wise to continue to challenge as a competitor at such low rates. It was unreasonable for BCL to remain in the market after 18 April 1991 and that unreasonableness continued throughout the relevant period. BCL, having stayed in the market at loss-making rates which, by July 1991, were well below its average total costs, then made matters worse by its suicide rates first introduced on 15 July and then further decreased in September. Its remaining in the market and its subsequent rate-setting was so unreasonable as to amount to the proximate cause of its departure from the market.

It was not known what revenues were derived from trading the two re-deployed vessels, the US Trader and the Wind Trader, on other routes. Therefore there was no evidence that the redeployment had caused BCL any loss, for those vessels might have been earning more than they would have earned if they had not been withdrawn. Nothing had been pleaded and no evidence had been adduced. There were no trading accounts for the period after September 1991 or any other evidence to establish what profits or losses were being made by BCL on other routes. It was for the Claimant to prove that what have happened during the relevant period had caused the ultimate cessation of business.

It was not open to the Claimant to recover damages in respect of loss caused in the course of trading in the relevant period which could have been suffered in any event. The Claimant’s losses included the cost of congestion at Israeli ports. There was no basis for including these losses which were not caused by the Conferences breaches of duty but be extraneous circumstances which would have been encountered in any event.

BCL was not entitled to assume for the purpose of its losses that the market during the relevant period would have enjoyed the relatively profitable conditions which existed up to the entry of MSC. The assumption had to be made that MSC and the Conferences would be in competition at least to some extent. That assumption would also involve that the Conferences did not compete with predatory intent. That would have been the state of the market if the Conferences had complied with Articles 81 and 82. It was therefore necessary for the Claimant to put forward and prove what hypothetically would have been the market rates on which BCL would have traded by reference to the market rates at which the Conferences and MSC would have traded.

Zim advanced submissions on causation similar to those summarised above.

There is no question but that the burden of proving that the defendants’ unlawful conduct caused the claimed loss rests on the Claimant. In Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360 the Court of Appeal highlighted the need to distinguish in some causation cases between conduct on the part of the defendant which caused the loss and conduct which gave the opportunity for the loss to be sustained. Where the issue is whether there was a break in the chain of causation by conduct on the part of the claimant, that is to say whether the effect of the defendant’s conduct was more than to provide the opportunity for the claimant by his own deliberate act to cause himself loss, the approach must be one of common sense, there being in each case an overarching concept that the chain of causation can be broken only if it is concluded that the claimant’s own conduct displaced that of the defendant as the predominant cause of the claimant’s loss. The claimant’s so-called “duty”to mitigate is a misnomer rendered respectable only by age. In reality the concept is that, if the claimant’s conduct is such that it breaks the chain of causation between the claimed breach of duty on the part of the defendant and the loss, the claimant is not entitled to be compensated, for the claimant has failed to discharge the legal burden of proving the essential causal link between his loss and the defendant’s breach of duty. There has been an intervening dominant cause engendered by the claimant himself.

In order to ascertain whether the claimant’s conduct is such as to break the chain of causation, as I have described it, it may assist to test the causal effect of that conduct by reference to the extent to which it is the result of the exercise of a choice of action substantially independent of the breach of duty. In this connection, the Claimant’s reliance on the passage from Clerk & Lindsell para. 2-51 cited above, needs qualification. In cases to which the Law Reform (Contributory Negligence) Act 1945 applies the availability of the power to reduce damages by reference to the extent to which the claimant is responsible for his own loss introduces a means of reducing damages by reference to a consideration of relative fault up to the point where there is just less than 100 per cent responsibility. At that point it may well be that in most cases the claimant’s conduct could aptly be described as reckless, as suggested in the passage cited. However, the 1945 Act does not apply to a claim under Articles 81 or 82. That is because, adopting the approach identified by Hobhouse J. in Forsikringsaktieselskapet Vesta v. Butcher [1986] 2 Lloyd’s Rep. 179 at page 196 and approved by the House of Lords at [1989] AC 852 at page 860, in the absence of the Articles and the duty imposed by them, there would be no co-extensive duty of care on the conferences to avoid doing that which is rendered unlawful by those provisions. In this kind of case of breach of statutory duty it can confidently be taken that the broader approach of simply asking whether the breach of duty was the predominant cause of the loss is likely to be more helpful. The extent, if any, to which the claimant’s conduct was unreasonable and the extent of the effect of what he has done on the claimed loss will usually prove to be sufficient yardsticks for resolving this issue.

Translated into the facts of this case, the issue is essentially whether BCL’s response to the price setting policies of the Conferences was so unreasonable that it represented an intervening cause of such losses as may be proved to have been sustained by BCL.

The categories of loss said to have been caused by these breaches of duty are

In substance, this involves the Claimant establishing that, the breaches of duty by the defendants during the relevant period prevented BCL from trading profitably or increased its losses during the relevant period and between the end of that period and May 1992 and eventually caused BCL to cease trading.

On the whole of the evidence in particular including that which I have outlined in the course of setting out the parties’ respective submissions, I have reached the following conclusions.

BCL could have maintained a small but relatively stable market share in competition only with the Conferences, both on the North Continent and UK routes. Its customers were reasonably loyal to it because they preferred its rates which were kept well below those of the Conferences’ and were prepared to accept a slower, less predictable and less convenient service on vessels partly used for bulk cargoes. It is extremely improbable that BCL could have continued to trade profitably or maintained even the modest market share that it had by August 1990 if it had not maintained a substantial differential between its rates and those of the Conferences.

Mr. Arkin’s expertise in the shipping industry consisted in the use of his experience as a marine engineer in the selection and purchase of old tonnage at cheap prices for the purpose of operating relatively inexpensive container and bulk services slower and less regular than could be obtained from liner operators using more modern vessels and in re-selling such vessels at a profit. Consistently with this purpose Mr. Arkin well understood that BCL’s ability to trade profitably in the relevant market depended heavily on the maintenance of rates offering a substantial discount to those of the Conferences.

Internal financial management and control and office organization was extremely poor in all Mr. Arkin’s companies. When the auditors of BCL, Harris Kafton, prepared the 1990 accounts in September 1991 they recorded that the accounting system was “a complete shambles” with no proper procedures for filing documents to support and substantiate accounting entries and no periodical review of ledger balances. There had been a lack of internal control and supervising relapses.

It was widely known in the shipping community by April 1992 that Mr. Arkin and Mr. Sofianos lacked business ability. The evidence in the Ocarina case and in this case indicates that Mr. Arkin lacked the ability to relate the demands of capital debt servicing to the realistic ability of his liner operating companies, such as BCL, to earn profits. It also indicates that his determination to succeed in the shipping industry led to his taking a quite unrealistic view of the financial viability of his companies. His unwillingness to accept in May 1992 that the Multifleet group was insolvent when it had been in acute financial difficulties, if not insolvent, for months before that illustrates a stubborn lack of realism with regard to his companies.

After MSC entered the market in September 1990 its vessels challenged BCL’s hitherto relatively comfortable niche market position in several different ways. First, the introduction of two extra vessels offering a regular and predictable service materially increased market capacity. Secondly MSC’s rates were equivalent to or close to those of BCL and customers for whom a regular service mattered were offered, at least in this respect, better value for their money. This was the first time since BCL entered the market that it had been confronted by serious competition at rates similar to its own. Mr. Arkin’s reaction was to reduce BCL’s rates, initially undercutting MSC by as much as 23 per cent. He saw fit to embark on a rate war with MSC aimed at retaining a substantial discount below MSC’s rates. This case can only be understood if it is appreciated that in late 1990 and 1991 both BCL and the Conferences saw their market share and existing clientele exposed to fierce attack by MSC. For the Conferences that meant following down MSC’s rates and for Mr. Arkin keeping ahead of MSC’s reductions in order to maintain BCL’s discount. BCL managed to retain its market share of 6% to 7% but its reduced rates led to reduced revenue. That meant that, after MSC entered the market on 23 September 1990, every one of the Continent-Israel-Continent voyages undertaken by BCL vessels up to and including April 1991 were seriously loss-making. A total loss of $720,323 was sustained by BCL on the 7 voyages completed by the end of 1990, starting with Brasiliana 30 on 20 September. Thereafter, starting with Atlantic 22 on 10 December 1990, further losses of $711,002 were sustained on those further voyages undertaken before 19 April 1991.

The operation of BCL on these routes on a continuously loss-making basis between September 1990 and April 1991 caused a rapidly deteriorating financial situation by the commencement of the relevant period. Although BCL had been trading profitably on the relevant market up to September 1990, it then incurred a trading loss on the Continent-Israel route of $491,961 for the year up to December 1990. It was also incurring other trading losses during 1990. Although there is insufficient evidence to quantify them individually route by route, the 1990 audited accounts showed that BCL was sustaining losses on other routes totalling $1,128,543 for the whole of 1990. The increase in BCL’s losses in the year to December 1990 ($1,645,749) compared with the previous year amounting to $842,629 in spite of the profitable trading on the relevant market up to the entry of MSC shows that BCL was probably not only trading at a loss but also with sharply deteriorating results on other routes such as the Adriatic and South African route at the same time as it was reducing its rates and suffering losses on the relevant market. Between September 1990 and 18 March 1991 BCL reduced its rate on the Continent-Israel route on three occasions, starting with an average of DM 2300 and ending with DM 1500/DM 1600, and its freight revenue per TEU dropped from $1295 to $1090 between January and April 1991.

The rating policy adopted from September 1990 up to the end of 1990 could not be justified unless it could reasonably be anticipated by BCL that rates on the relevant market would return to substantially profitable levels in the very near future. Although the evidence that rate wars were normally of considerably shorter duration than that in this case would justify BCL remaining in the market for a few weeks or even months until the rate war ended and rates returned to a stable and profitable level, once it became clear to BCL, as it must have done before April 1991, that there was no immediate prospect of rates returning to profitable levels and every likelihood that the Conferences and MSC might further reduce rates, it would be obvious that its losses would only be still further increased by remaining in the market.

As I have already indicated, by 31 December 1990 BCL was indebted to the extent of $8,964,912 and out of that some $4.733 million was due to indebtedness to Bay Maritime and a further large proportion to the shipowner companies in respect of outstanding charter hire. Although Mr Arkin controlled both groups of creditors, the financial viability of the Multifleet group would be seriously imperiled if increasing debts were permitted to build up, particularly in respect of charter hire. This expedient would prevent the shipowner companies from servicing their various mortgage loans. It could be effective only for as long as there was remaining equity in the shipowner companies so as to permit the refinancing of the various mortgage debts by re-negotiation or the productive sale of ships as and when cash ran out. However, in this connection, as I have already indicated, BCSL was also running up huge losses on the United States Israel route which by 31 December 1990 had reached a total of $3,744,818 after only 20 months in that market.

By April 1991, there was no reasonable prospect that the rate war was about to end and that rates would rise significantly or at all in the near future. By that time BCL was losing nearly $500 per TEU. Whereas it is true that freight derived from its carryings of bulk cargoes was assisting with the operating costs of vessels, the contribution was not substantial and was far more than off set by the huge losses on the containers. Accordingly, BCL had arrived at a position by April 1991 where it was operating at a substantial loss on the relevant market. On a simple voyage in March/April 1991 (Wind Trader 15) it suffered an estimated loss of $187,046 on a total freight income of $387,560. It was also operating at a loss on its other routes. It had retained its market share but it had reduced its rates by 35 per cent from the June 1990 level.

In these circumstances, I fully accept Mr Johnson’s evidence that he found Mr Arkin’s rating policy at this time incomprehensible. In my judgment, the fact that there might have been substantial net equity remaining in the shipowner companies could not justify on any rational basis the continued rate-cutting and continuing to incur such large losses which were likely to increase if rates were further reduced. The argument that some members of the Conferences, such as Furness Withy who were also suffering losses, did not withdraw at that stage is unpersuasive. They were bound to give six months’ notice to the other Conference members and they were part of larger shipping groups which probably did not suffer from a combination of widespread loss making in other operations and relatively high gearing like BCL and Multifleet.

Moreover, the financial position of BCL was by this time extremely serious. Since the end of 1990 it had been an insolvent operation propped up by defaulting on its indebtedness to the shipowner companies and by a series of loans from Bay Maritime which I infer were repayable on demand.

In the course of this trial a significant amount of time and costs was expended on an investigation of the defendants’ submission that BCL and the shipowner companies would have had very substantial UK tax liabilities in addition to their trading indebtedness. The 2-4 defendants relied on the expert evidence of Ms Bill, an accountant expert in taxation, and the Claimant on the evidence of Mr Brown of Ernst & Young, who had been a Principal Inspector of Taxes with the Inland Revenue since 1993. Between then and 1996, when he joined Ernst & Young, he was a Deputy Controller in the Special Compliance Office of the Inland Revenue. Ms Bill expressed the opinion that, during the period 1986 to April 1992, the shipowner companies realised profits of £10.4 million in respect of which they should have paid tax in the sum of £3,893,791, together with interest and penalties. This was upon the basis that those companies were tax resident in the United Kingdom. That depended, it was common ground, on whether their central management and control was in the United Kingdom. The defendants submitted on the evidence that it was, whereas the Claimant submitted that it was not, on the main ground that Mr Arkin travelled all over the world, visiting his ships and customers and agents as well as inspecting ships for purchase and took essential management decisions outside the United Kingdom. The issue raised difficult questions as to the application of the central management and control test. Having considered the evidence of Ms Bill and Mr Brown, I have no doubt that the most likely outcome if this matter had been brought to the attention of the Inland Revenue when it should have been in 1991 would have been that a settlement would have been reached at a level significantly below the maximum payable if the companies were proved tax resident in the United Kingdom. Since that outcome would obviously have been anticipated by a tax accountant advising Mr Arkin, it is appropriate to take this into account for the purpose of testing the rationality of Mr Arkin’s trading policy as well as the issue of the insolvency of BCL. Mr Brown considered that a settlement of about £1 million payable in 1992 might have been arrived at. He relied on his considerable experience in settling claims while at the Inland Revenue. But this was a very rough estimate. Whereas a director in the position of Mr Arkin looking forward from April 1991 should clearly have taken into account the maximum tax exposure if the Inland Revenue fought out the issue of tax residency and won, in practice that would not be a realistic approach for a businessman in Mr Arkin’s position. He would have been entitled to order the affairs of his group on the assumption a lower settlement would be attainable. This would have been unlikely to be less than £1 million and might have been rather more, perhaps £1.5 million. This is a sufficiently quantified indication of the order of magnitude of outstanding tax that Mr Arkin ought to have taken into account in taking his management and rating decisions in 1991. It is for present purposes therefore unnecessary to resolve the tax residency issue.

Taking fully into account all those points relied on by the Claimant which I have set out earlier in this section of my judgment, I therefore conclude that the decision of BCL to continue in the relevant market after 19 April 1991 was in all the circumstances of BCL’s position so irrational that it could not be justified. If it remained in the market any longer, it would clearly be confronted by a continuing rate war between MSC and the Conferences and probably would only be able to retain its customers and market share if it matched or undercut MSC’s rates. I consider that no reasonable liner operator in the same financial position as BCL in April 1991 would in those circumstances have remained in the relevant market at that time. Accordingly, that which was the predominant cause of BCL’s continuing losses on that market was its failure to withdraw, if only temporarily, prior to 19^th April 1991.

Once it is concluded that BCL’s decision to remain in the market after 19 April was the predominant cause of its loss of profits between then and October 1991 when it left the market, it is unnecessary to decide whether the conduct of the Conferences following 19 April caused BCL to leave the relevant market and subsequently to go out of business. However, I shall briefly consider the position in case another view be taken of BCL’s position in April 1991.

BCL’s rate reductions may have continued after 18 March 1991 until about 3 July 1991 which is the next date on which there is firm evidence of a specific further reduction. Mr Arkin stated in his unused witness statement that BCL “acted quickly to match MSC’s rates”. There is no other firm evidence of rate reductions by BCL during that period. However, MSC, now fully engaged in its rate war with the Conferences, reduced its rates in four stages from 22 April to 26 June inclusive and consequently, if Mr Arkin’s statement is accurate, BCL must also have reduced its rates to match those of MSC during the same period. This matching exercise continued into July. By 10 July the position was that MSC was charging DM 1200 (DM 1100 Antwerp), the Conference was charging DM 1250/1350 and BCL was charging DM 1150. it was at that point that BCL introduced its DM 850 rate. That was on 15 July. The voyages which commenced in May and June before that announcement all made significant losses and engendered freight well below the break even figure which has been estimated by Dyson at $1379 per TEU. By way of example the voyage of US Trader 11 which began on 4 June engendered $1201 per TEU. As there were 267 TEUs carried on that voyage, the shortfall on break even must have been at least $53,400. The reduction of BCL’s rate to DM 850 ($476) gave rise, according to both accountancy experts, to additional losses of $63,000 per voyage. Thus the voyage of Wind Trader 19 commencing on 2 August 1991 ran at a loss totaling $155,004, the freight per TEU being only $922. The voyage (US Trader 13) starting on 21 August 1991 ran at a loss of $197,927 with freight engendered at only $729 per TEU – just over half breakeven.

The reduction of BCL’s rate to DM 850 not only took rates below what some witnesses described as the psychological floor of DM 1000 but opened up a 29 per cent discount as against MSC’s latest rate. This was the largest differential ever created by a BCL rate reduction. Further, it was inevitably going immediately to create hugely increased losses for BCL. Indeed, this conclusion is, in my judgment, inescapable on the basis that the total of costs per container, variable port costs and commission amounted to $596.60 per TEU whereas the DM 850 rate was equivalent to $476. Not only, therefore, was the BCL rate reduction to a level of just over one third breakeven, but substantially below BCL’s average variable costs. Accordingly, it would have been cheaper for BCL to sail its vessels entirely empty. Such a reduction could not by any stretch of the imagination be justifiable for a company in the financial condition of BCL at the time even if there were a reasonable prospect that rates would in the near future rise to levels above breakeven. No such prospect existed in July 1991. Indeed, after BCL had led the rates below DM 1000 first the Conference and then MSC reduced their lowest rates to DM 800. Then on 22 August, both for the first time reduced their lowest rates to below DM 1000, with MSC as low as DM 875. BCL was then in the totally untenable position that, having deliberately created a 29 per cent discount from MSC at a huge potential loss to itself, it saw its discount disappear within 6 weeks. It is a measure of the continuing irrationality by which Mr Arkin was driven that, instead of being realistic and leaving the market at once, he yet again reduced BCL’s rate this time to DM 750 on 18 September.

The contemporary view in the shipping industry of BCL’s rate policy in July – September 1991 was that it was “suicidal”. The evidence was all one way. It is, however, important to consider the evidence of Mr Novotny who worked at BCL Israel at the time. He stated as follows:

“I believe that Mr Arkin made most of his money out of speculation in tonnage. He was not, by choice, a liner operator and in my view did not fully understand the trade. Running liner operations provided a use for his various company ships and the chance to make money on ships being chartered in.

When Boaz and Na’ama Arkin joined MSC, it set off a considerable amount of emotions in Mr Arkin. He was determined they should not succeed. There had previously been bad blood between Mr Arkin and Boaz and Na’ama’s father.”

He then continued with the remarks referred to at paragraph 518 above to the effect that Mr Arkin ignored the advice of his own staff not to cut rates.

Apart from involving BCL in a completely hopeless loss-making downwards spiral, Mr Arkin’s decision to reduce rates which could be seen by shippers to be loss-making, according to the evidence, raised serious doubts amongst its customers as to BCL’s ability to survive. It was for this reason that BCL issued its explanation of why it was reducing rates, and indeed leading them down.

Finally, I should add that the well-established principle of European law that a dominant undertaking has to be particularly sensitive to the need to protect fledgling and relatively weak competitors from elimination is of no assistance to the Claimant on this part of the case. It is assumed for this purpose that the Conferences were indeed in breach of their duties as a dominant undertaking because of the likely effect on BCL of their eliminatory pricing. At the stage of testing causation of loss, that breach of duty has already been assumed. It cannot diminish the irrationality of BCL in remaining in the market while it inflicted on itself by rate reductions ever-increasing losses. The analogy with the eggshell skull cases relied upon by the Claimant takes the matter no further. A company which is badly and, indeed, irrationally run does not in the face of breach of Articles 81 or 82 stand in aposition analogous to that of a claimant who on account of some physical defect sustains more serious physical damage than would an ordinarily robust person who had been exposed to the same tortious physical contact. On the contrary, in the case of the individual the excessive injury is not avoidable by him, whereas, in the case of the company, it is avoidable by reason of the intervention of rational management decisions.

In the event I conclude that the rate policy adopted by BCL after April 1991 and until it left the market at the beginning of October 1991 was so unreasonable that it broke the chain of causation between the Conference’s rate policy amounting to predatory pricing and fighting ships and the losses suffered during the relevant period. In this connection it seems that, as asserted by Mr Arkin, the greater part of the loss was suffered during the last three months – from July to September 1991 during the period of the very low rates. The predominant cause of those losses was BCL’s irrational failure to leave the market earlier and further its irrational decision to reduce rates to the suicide levels on and after 15 July.

As regards the claim for loss of profits after BCL left the market and after it ceased trading in May 1992, given that the predominant cause of the losses up to October 1991 was BCL’s irrational continuation in the market at hugely loss-making rates, and not the predatory pricing or fighting ships operated by the Conferences, it is necessary for the Claimant to establish that both BCL’s non-participation in the market after October 1991 and its ultimate cessation of trading in May 1992 were nonetheless predominantly caused by the Conference’s predatory pricing and use of fighting ships. For this the Claimant has to start with the commercial and financial position of BCL in October 1991 when it left the market and to show that it was incapable of subsequently re-entering the relevant market and trading profitability and further that its incapability was predominantly caused by the Conferences’ breaches of duty under Articles 81 or 82. The Claimant then has to go on to show that its going out of business in May 1992 was also caused by such breaches of duty.

In order to make this good the Claimant faces two major evidential problems. The first is that BCL went on trading on other routes for over six months after it left the relevant market. It redeployed the US Trader and the Wind Trader from the Conference routes to other routes but there is no evidence of what they or any other vessels on those routes then earned. Nor is there any reliable evidence as to what was happening generally on BCL’s other routes or BCSL’s routes in 1991 and January – May 1992. In 1990 the combined loss incurred by both less the loss on the North Europe line was $3,624,618. It is not known whether similar or greater losses were being incurred but it seems very likely that they were. If those lines had been engendering significant profits it is highly improbable that the entire Multifleet Group would have collapsed in May 1992. It is also highly improbable that it would have been necessary for those vessels that were sold in 1991 and 1992 to have been put up for sale. As is clear from the evidence in the Ocarina Case the whole Multifleet group was financially crippled by April 1992 and, unless its bankers could be persuaded to provide it with yet further borrowings, its collapse was inevitable. A major cause of this problem was that BCSL was massively in default in the payment of charter hire to the various shipower companies whose capacity it was using. This was a potentially fatal problem. If the charter hire was not timeously paid, the bank loans to the shipowner companies could not be serviced, and Multifleet could not pay the vessel’s outgoings, such as port dues and bunker bills. This was a similar problem to that confronting BCL which by the end of 1990 had run up the very substantial charter hire indebtedness to which I have already referred.

That indebtedness must have grown during 1991, but to what extent it had grown after October 1991 is impossible to say.

Given that it is clear that BCL’s UK and North Continent Israel routes were only a part, possibly not even as much as 50 per cent, of the whole of BCL’s operations, it is impossible to arrive at any reliable assessment of what causal contribution, if any, losses suffered on the UK and North Continent-Israel routes or the withdrawal from that market made to the financial condition of BCL from the time of its withdrawal from the relevant market. Up to the late summer of 1991 there were 15 Multifleet vessels – either owned by shipowner companies or on long-term charter. In September 1991 Multifleet was endeavouring to sell or place on the market six of these, leaving nine vessels for operation on its American, Brazilian and South African Lines. As there had only been two of these 15 vessels on the UK and North Europe – Israel line throughout 1991 – first Atlantic and Wind Trader and, after April, US Trader and Wind Trader – it is intrinsically improbable that Multifleet had been crippled by losses suffered by reason of the trading of only two vessels out of this fleet.

It is also necessarily impossible to form any reliable view on what ultimately caused the Multifleet group to collapse. This was Mr Wilkinson’s view and I have no doubt that it is correct. It is not possible on the sparse evidence before the court or the evidence in the Ocarina case to do more than speculate as to the level of indebtedness of Multifleet by April/May 1992. There are no audited or management accounts for 1991 or 1992 either of the group as a whole or, if any, of the liner operators or the shipowner companies. The Diab memorandum of November 1990 is too far away in time to be helpful and has been shown by the defendant to have defects which I find render its accuracy extremely doubtful. Mr Amit Schiffmann’s broad estimate in his evidence in the Ocarina trial of Multifleet’s total indebtedness excluding outstanding mortgage debts as at the end of April 1992 as $13 million to $15 million is the only potentially reliable estimate of its extent. How that figure was made up has not proved possible to ascertain from the material before this court. However, one thing is clear from Mr Schiffmann’s evidence and that is that the immediate cause of the collapse of Multifleet was a combination of very substantial indebtedness which needed to be discharged to keep the vessels from being arrested together with the exhaustion of any significant remaining equity in the group’s vessels. It needed immediate cash and it could offer no security for further bank loans of sufficient amount to discharge its urgent indebtedness.

The Claimant has failed to establish that the losses caused by BCL’s participation in the UK and North Europe-Israel was the predominant cause or one of several predominant causes of the whole group’s financial disablement. I am bound to observe that, if the necessary contemporary documents had been available, it would have been most surprising if the effect of participation in the relevant market would have been established as the predominant cause. The order of magnitude of the losses sustained by BCL on that market appears to have been far less than the total indebtedness of the Multifleet group when it collapsed, even allowing for some exaggeration by Amit Schiffmann. Further, participation in the relevant market had ceased over six months earlier and there is no evidence that any of the indebtedness which urgently had to be discharged in April/May 1992 arose out of trading in that market. I therefore find that the Claimant has not proved that Multifleet’s collapse was caused by the conduct of the defendants in the relevant market.

That conclusion leads to the further conclusion that BCL’s cessation of trading in May 1992 has not been proved to have been caused by the events on the relevant market. In particular, it is clear that BCL could survive only as long as the Multifleet group. Once that disappeared, BCL could not continue to trade. Indeed, it is absolutely clear that it ceased trading because Multifleet collapsed. It depended on the Multifleet companies for its vessels. If it is not established – as it is not – that Multifleet’s collapse was caused by the defendants’ breach of duty, it cannot be established that BCL’s cessation of trading was also caused by that breach of duty.

Accordingly, the Claimant has failed to prove that if, contrary to my conclusions, there were breaches of duty by the defendants, those breaches were the predominant cause of any claimed loss.

This point only arises if my conclusions on breach of duty and causation are wrong. It can be dealt with briefly. It can be summarized as follows.

There can be no doubt that BCL was insolvent in balance sheet terms by April 1991. Its assets were dwarfed by its indebtedness, as I have already described. However, in order for there to be wrongful trading – which is the only possible basis of the defence of illegality or ex turpi causa advanced by the defendants – it is necessary to go further than establishing balance sheet insolvency. In Re Cubelock (22 May 1900) Unreported, an issue arose as to whether directors of a company were guilty of wrongful trading in circumstances where the company, having been under-capitalized when incorporated, could only go on trading in reliance on bank borrowings and eventually collapsed into insolvent liquidation. Park J. observed:

“71.

There is another respect in which I do not agree with the way in Mr Franses has viewed the matter. He seems to me to proceed on the basis that, if the company was insolvent in balance sheet terms – that is if its balance sheet liabilities exceeded its balance sheet assets – but the directors allowed it to continue to trade, that would in itself constitute wrongful trading of a sort which justified the directors being disqualified. I do not agree with that approach, at least not without substantial qualifications. It is common for a company to trade when its shareholders’ funds as shown in the balance sheet are in deficit. In some cases the directors may be culpably wrong in allowing the company to carry on, but in other cases they are not, particularly in a company’s early months when it is seeking to get itself established and may have anticipated an initial period of losses before turning the corner and moving into profit.

7.2

What makes trading wrongful is not the bare fact of balance sheet insolvency, but the continuation of trading at a time when the directors either knew or on any realistic view ought to have known that there was no reasonable prospect that the company’s creditors would ever get paid ……The law has to leave room for cases where it was unacceptable for directors to take the view that their company, though insolvent in balance sheet terms for the present, was going to trade its way into profit so that all the creditors would be paid. Further, there has to be room for cases like that even if in the event the directors turn out to be wrong, so that the company does not succeed in trading out of its difficulties, and as it turns out the creditors, or some of them are not paid. Indeed, as will appear later, I believe that this case is of that nature.”

This statement of principle is, in my view, entirely correct.

Park J. also indicated that there was nothing unlawful in the company being funded by the directors personally making loans to it. It is argued that, by analogy, there could be nothing wrong in Mr. Arkin procuring that there should be a loan by the shipowner companies to BCL of outstanding charter hire and that Bay Maritime should advance funds to BCL.

Since this point arises only if breaches of duty did cause loss to BCL, the factual foundation for the point must be that BCL acted rationally in continuing to participate in the market and in continuing to reduce its rates during the relevant period. That conclusion could be arrived at only if it was reasonable for the directors to consider that in spite of market conditions the continuance of trading on the basis of inter-company funding within the group up to the future point of time when rates had returned to profitable levels offered a reasonable prospect of ultimately repaying the company’s creditors, that is of the company once again making substantial profits. If that was indeed a tenable view for the directors of BCL to take in 1991 I do not consider that it could be said that they were guilty of wrongful trading. It is therefore hard to see how this point can arise if the defendants are wrong on their case on causation.

If there is any factual basis on which the point can arise independently of causation, it is necessary to consider whether, if there were wrongful trading, that would preclude recovery of damages from the defendants on grounds of ex turpi causa, as the defendants assert. The Claimant submits that in order to make good BCL’s claim he does not have to rely on its or his own unlawful conduct in causing BCL to continue in business. The unlawfulness is collateral to the cause of action and need not be relied upon as a necessary or consistent part of the claim.

In support of this approach the Claimant relies on Tinsley v Milligan [1994] 1 AC 340. The issue in that case was whether the defendant was entitled to enforce a resulting trust over a house which had been purchased in the name of the plaintiff as part of an unlawful scheme to defraud the Department of Social Security. The House of Lords held by a majority of three to two that, once the beneficial interest had been created when legal title to the house passed to the plaintiff, the defendant did not need to rely on the unlawful underlying agreement in order to prove the beneficial interest upon which he relied. Lord Jauncey, Lord Lowry and Lord Browne-Wilkinson all based their conclusion on the line of cases culminating in Bowmakers Ltd v. Barnet Instruments Ltd [1945] KB. 65. In that case the plaintiff sued in conversion, but, to do so, had to assert that it had title to the goods. Its title was acquired under purchase contracts which were illegal but it was held that, because it did not have to establish more than its title and for that purpose did not have to rely on the illegal contracts, it was entitled to succeed. That case was to be distinguished from such cases as Palaniappa Chettiar v. Arunasalam Chettiar [1962] A.C. 294 in which the plaintiff, in seeking to recover land which he had conveyed to his son for an illegal purpose, had to rely on that underlying and illegal transaction to rebut the presumption of advancement.

In the course of argument there was also discussion of the decision of Browne J. in Pye Ltd. V. B.G. Transport Services Ltd. [1966] 2 Lloyd’s Rep. 3000. In that case the plaintiff owners of goods stolen from the defendant carriers’ vehicle brought an action for negligent breach of contract or breach of duty as a bailee claiming damages for loss of the goods calculated on the basis of their true value. The goods had been invoiced to the buyers at prices which were found by the judge to result from an arrangement with the buyers to defraud the Persian Customs and in breach of the Customs and Excise Act 1952. It was argued that the plaintiff could not, in order to prove the true value of the goods, rely on evidence that the true value was not that shown in the invoices, which were bogus, but that shown on their price lists, thereby referring to their own illegality. This argument was rejected because, analogously to the Bowmaker Case, supra, the plaintiff did not need to rely on these illegal contracts to establish or support their cause of action, their measure of damages being the market value of the goods.

This last case demonstrates that the process of analysis required in cases which do not involve the assertion by a plaintiff of a legal or beneficial interest in property is basically similar to that in the property cases. The key question is Can the claimant prove his cause of action without inviting the court to enforce or directly give effect to an illegal transaction or some analogous unlawfulness? This is the substance of the following passage in the speech of Lord Browne-Wilkinson in Tinsley v. Milligan ,supra, at page 326

“I therefore reach the conclusion that, although there is no case overruling the wide principle stated by Lord Eldon, as the law has developed the equitable principle has become elided into the common law rule. In my judgment the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title: he is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction.”

The Insolvency Act 1986, section 214 on which the defendants rely, provides as follows:

“(1)

Subject to subsection (3) below, if in the course of the winding up of a company it appears that subsection (2) of this section applies in relation to a person who is or has been a director of the company, the court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company’s assets as the court thinks proper.

(2)

This subsection applies in relation to a person if :-

(a)

the company has gone into insolvent liquidation,

(b)

at some time before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, and

(c)

that person was a director of the company at that time;

but the court shall not make a declaration under this section in any case where the time mentioned in paragraph (b) above was before 28 April 1986.

(3)

The court shall not make a declaration under this section with respect to any person if it is satisfied that after the condition specified in subsection (2)(b) was first satisfied in relation to him that person took every step with a view to minimizing the potential loss to the company’s creditors as (assuming him to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation) he ought to have taken.

(4)

For the purposes of subsections (2) and (3), the facts which a director of a company ought to know or ascertain, the conclusions which he ought to reach and the steps which he ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both-

(a)

the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and

(b)

the general knowledge, skill and experience that that director has.

(5)

The reference in subsection (4) to the functions carried out in relation to a company by a director of the company includes any functions which he does not carry out but which have been entrusted to him.

(6)

For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.

(7)

In this section “director” includes a shadow director.

(8)

This section is without prejudice to section 213.”

It is to be observed that section 214 creates a compensatory facility quite separate from the regime applicable to the more serious conduct of fraudulent trading, which is at once a criminal offence under section 458 of the Companies Act 1991, and the basis of a compensatory facility under section 213 of the Insolvency Act. The defendants do not allege fraudulent trading in this case. Accordingly, the sole basis of an ex turpi causa argument is that BCL was caused to trade by its directors in circumstances amounting to wrongful trading by them within section 214. Such conduct is not without a more criminal offence either on the part of the directors or the company itself. It is in reality the basis for a statutory facility for civil compensation for creditors by directors whose conduct falls within the section. In these circumstances, the submission by the defendants that, where directors so permit a company to go on trading in circumstances falling short of fraudulent trading, the company is trading in a manner prohibited by any rule of law, is simply wrong. The correct analysis is that the director’s conduct in allowing the company to trade is wrongful in the sense that, although it is not a criminal offence, it may give rise to a right to creditors of the company to claim compensation from the director if and only if the company goes into insolvent liquidation. Thus, while so trading, the company can fully enforce its contracts with third parties. They could not assert that such contracts were illegal on the grounds that the directors in procuring the company to go on trading at the time when the contract was made had incurred a potential liability to compensate third party creditors. There is therefore no turpi causa upon which any such argument can be founded.

Further, in order to make good a defence based on ex turpi causa the defendants are therefore obliged to assert that BCL could not establish its cause of action under Articles 81 and 82 unless it pleaded and proved the unlawful conduct of its directors in permitting it to go on trading in the relevant market when it was insolvent. With regard to my analysis of the effect of the Bowmakers Case, supra, and of section 214 of the Insolvency Act, it is clear that this defence must also be fundamentally misconceived.

Firstly, in order to make good its cause of action, all that BCL would have to do would be to prove that during the relevant period it was a carrier who suffered loss because it was affected by predatory pricing or fighting ships (Article 81) or that during the relevant period the abuse by the Conferences of their dominant position caused loss to it, a competitor in the relevant market (Article 82). The quality of the conduct of its directors in their permitting the company to trade during the relevant period is of absolutely no relevance at all.

Secondly, the continuation of trading by BCL in such circumstances would not be capable of rendering it criminally liable or constituting either a tort or breach of statutory duty by that company. It would not therefore preclude the company from basing a cause of action on its continued trading, even if it were necessary for it to do so, which it is not.

It is true that Mr Arkin was a director and is the Claimant in these proceedings, but he claims as statutory assignee and not qua director. His cause of action is the assignor’s cause of action. The defendants cannot deploy against him any personal defence against his claim as assignee because, even if he personally were liable to compensate the creditors of the company by reason of section 214 of the Insolvency Act, that liability would not have sprung from breach of any duty in law which he owed to the defendants.

Finally, if contrary to my conclusion that the defendants cannot rely on an ex turpi causa defence, the view was taken that BCL’s conduct in trading in the relevant market was (a) unlawful and (b) inseparable from its cause of action, I should nonetheless have held that in the circumstances of this case, this court should decline to permit reliance on that defence. That conclusion is founded on the statements of principle by the ECJ in its recent judgment Courage v. Crehan (Case 453/99) 20 September 2001. It is unnecessary for present (hypothetical) purposes to explain the reasoning in that case in any detail. All that need be said is that the overriding objective of protecting the European market against conduct which either inconsistently with Article 82 or in breach of Article 81 has the effect of distorting competition or posing the risk of such distortion may in some cases justify a domestic court applying European Law in disapplying defences, such as illegality of a contract, which obstruct the protective regime provided for by Articles 81 and 82. In the present case there can be no doubt that, if continuing to trade on the relevant market were sufficiently relevant, to the cause of action and materially unlawful, that should not shut out BCL from compensation. In such a case the European law public policy supersedes that of the domestic law because the claimant is within the constituency of those whom it is the purpose of European law to protect

In the event, the defence based on wrongful trading could not succeed in this case.

I have concluded that the Claimant has failed to establish that the defendants were in breach of Articles 81 or 82. I have also decided that, if that is not correct, then on certain assumptions as to the nature and extent of the breaches of those two Articles or either of them, the losses claimed by the Claimant would not have been caused by those breaches of duty by the defendants. I have further decided that, if there were breaches of those Articles or either of them and that the claimed losses were caused by any of those breaches, the defence of ex turpi causa would not assist the defendants.

The quantification of damages would arise only if my conclusions on both liability and causation are incorrect. However, quantification obviously depends on both the precise nature and extent of the breach of either of Articles 81 and 82 and the extent to which any decision on causation is incorrect.

In these circumstances, it could not be an efficient exercise to attempt at this stage to calculate recoverable damage. Accordingly, in the event of its being decided that damages need to be calculated the case should be remitted for further consideration of this issue. That would be on the basis of such further judgments as might be given on appeal but upon and only upon the evidence that has already now been added in this trial.

However, it may be helpful if I indicate my conclusion on one aspect of the methodology of loss calculation. This relates to how one identifies the factual basis for the calculation of loss sustained by BCL and caused by the Conferences’ breaches of duty. Clearly one has to start from the exact nature of the breach of duty and to investigate the position in which BCL would have been but for that breach. That involves creating a hypothetical scenario which starts on 18 April 1991 from the facts as they in truth existed up to that date. These facts include the level of rates then being charged by BCL, MSC and the Conferences and the financial condition of BCL and the Multifleet group in general as it then in truth was. Starting from that basis, the question then is not what would have been the maximum level of rates that could have been charged by the Conferences if they had acted in accordance with their duty not to charge predatory rates or to use fighting ships or to spread rumours. The correct test is, in my judgment, simply to ask what, as a matter of commonsense is the amount of the loss which has been directly caused to BCL by the actual level of rates and the use of fighting ships and rumour spreading by the Conferences. In order to prove such loss the Claimant might show that for the whole or part of the relevant period it was reasonable for BCL to go on trading with an increasing loss which would not otherwise have been suffered if rates had not dropped since 18 April 1991 as much as they did. How much they could be expected to drop or whether they could have been expected to drop at all clearly depends, in part, on the extent of rate-cutting to be expected by MSC and what response to that rate-cutting the Conferences could have been expected to make, consistently with their duties under Articles 81 and 82. Further, the Claimant might show that, after BCL withdrew, the additional losses which it then suffered were directly caused by the previous conduct of the Conferences during the relevant period.

Finally, in respect of the period after total cessation of trading by BCL, it would have to be proved that the conduct of the Conferences during the relevant period had caused Multifleet to collapse and BCL in consequence to cease trading.

Article 82

Article 81

Causation (which arises on the hypothesis that it may ultimately be held that the Conferences were in breach of Articles 82 or 81).

Given the conclusions arrived at, this is too hypothetical an exercise and, if it ever becomes necessary to determine this issue it should be remitted. In any event, the necessary methodology would involve starting from the relevant market as it existed at the commencement of the relevant period, including the presence of MSC and the level of rates as they then stood. The correct test would then be to ask what loss, if any, the Conferences’ rate-setting, use of fighting ships and/or rumour mongering had as a matter of common sense directly caused to BCL. For this purpose it would be necessary to reconstruct the most likely market conditions which could be expected in all the circumstances assuming that the Conferences’ conduct did not infringe Articles 82 or 81.