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Judgments - Inntrepreneur Pub Company (CPC) and others (Original Appellants and Cross-respondents) v. Crehan (Original Respondent and Cross-appellant)

HOUSE OF LORDS

SESSION 2005-06

[2006] UKHL 38

on appeal from [2004] EWCA Civ 637

 

OPINIONS

OF THE LORDS OF APPEAL

for judgment IN THE CAUSE

 

Inntrepreneur Pub Company (CPC) and others (Original Appellants and Cross-respondents) v. Crehan (Original Respondent and Cross-appellant)

 

 

Appellate Committee

 

Lord Bingham of Cornhill

Lord Nicholls of Birkenhead

Lord Hoffmann

Lord Rodger of Earlsferry

Lord Walker of Gestingthorpe

 

 

Counsel

Original Appellants and Cross-respondents:

Iain Milligan QC

Nicholas Green QC

James Flynn QC

Martin Rodger

Dinah Rose

(Instructed by Sprecher Grier Halberstam)

Original Respondents and Cross-appellants:

David Vaughan QC

Mark Brealey QC

Marie-Eleni Demetriou

Michael Bools

(Instructed by Maitland Walker)

Interveners

Sir Jeremy Lever QC, Jon Turner and Ronit Kreisberger for the Office of Fair Trading

Stephen Morris QC, Helen Davies and Colleen Hanley (instructed by Freshfields Bruckhaus Deringer) for Visa Europe Limited and Visa UK Limited

 

Hearing dates:

6, 7, 8 and 12 June 2006

 

on

WEDNESDAY 19 July 2006

 

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Inntrepreneur Pub Company (CPC) and others (Original Appellants and Cross-respondents) v. Crehan (Original Respondent and Cross-appellant)

[2006] UKHL 38

LORD BINGHAM OF CORNHILL

My Lords,

    1.  I have had the great advantage of reading in draft the opinion of my noble and learned friend Lord Hoffmann. I agree with his analysis and conclusions and would make the orders which he proposes. His summary of the facts (already the subject of detailed recitation by Park J and the Court of Appeal: [2003] EWHC 1510 (Ch), [2003] EuLR 663; [2004] EWCA Civ 637, [2004] EuLR 693) and of the relevant materials enables me to express my reasons for concurring without repetition. Like my noble and learned friend I shall for convenience refer to the current numbering of the Treaty articles.

    2.  The sharpness of the issue between the parties to this appeal tends to conceal the bedrock of common ground which underlies the case. I think it is worth drawing attention to a number of important matters which are not contentious.

    3.  There is, first of all, no question about the importance of article 81 EC prohibiting, as incompatible with the Treaty, agreements and practices which prevent, restrict or distort competition between Member States. As the Court of Justice of the European Communities observed in Eco Swiss China Time Ltd v Benetton International NV (Case C-126/97) [1999] ECR 1-3055, para 36, and repeated in Courage Ltd v Crehan (Case C-453/99) [2002] QB 507, 521, para 20,

    "Article [81] of the Treaty constitutes a fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market."

It is indeed clear that without effective competition transcending national boundaries there can be no effective common market.

    4.  It is also clear, secondly, that article 211 EC imposes a duty on the Commission to ensure the proper functioning and development of the common market. That duty applies in the field of competition as in other fields, as is made clear by article 85 EC. In Stergios Delimitis v Henninger Bräu AG (Case C-234/89) [1991] ECR 1-935, para 44, the Court stressed the responsibility of the Commission for the implementation and orientation of Community competition policy, a point reiterated in Masterfoods Ltd v HB Ice Cream Ltd (Case C-344/98) [2000] ECR 1-11369, para 46. English decisions have recognised the primary responsibility of the Commission and its specialist expertise in determining competition questions: Iberian UK Ltd v BPB Industries PLC [1997] EuLR 1, 16; Coal Authority v H J Banks Co Ltd [1997] EuLR 610, 620; Morgan Stanley Dean Witter Bank Ltd v Visa International Service Association (unreported), 2 May 2001, p 7 Toulson J.

    5.  But, thirdly, it is well-established that article 81 is directly enforceable. This means that national competition authorities and courts share, and have always shared, with the Commission the duty to give effect to the prohibition in article 81(1), and the legal consequences of automatic avoidance under article 81(2) have always been a matter for determination by national courts alone. Article 9(1) of Council Regulation (EEC) 17/62 conferred sole power on the Commission to make declarations of inapplicability under article 81(3) of the Treaty, and it was for the Commission to grant negative clearance under article 2. But in general the Community competition regime has rested on a duty of wholehearted (or sincere) cooperation owed by Member States to the Community (and, presumably, each other). The source of this duty is found in article 10 of the Treaty, imposing as it does both positive and negative duties on Member States. They are duties comparable with those which English law readily implies into contracts: Mackay v Dick (1881) 6 App Cas 251, 263; Stirling v Maitland (1864) 5 B&S 840, 852. The Court of Jutice has invoked these duties on many occasions: in Deutsche Grammophon Gesellschaft mbH v Metro-SB-Grossmärkte GmbH & Co KG (Case 78/70) [1971] ECR 487, para 5, it recognised the provision as laying down "a general duty for the Member States, the actual tenor of which depends in each individual case on the provisions of the Treaty or on the rules derived from its general scheme". The particular importance of wholehearted cooperation between national courts and the Commission in the field of competition is reflected in the Commission's 1993 "Notice on Cooperation between National Courts and the Commission in Applying Articles 81 and 82 of the EC Treaty" (OJ 1993 C 39/6), in Council Regulation (EC) No 1/2003 "on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty" ("the modernisation regulation") and in the Commission's "Notice on cooperation within the Network of Competition Authorities" (2004/C 101/03).

    6.  It is common ground, fourthly, that under article 249 of the Treaty a Commission decision is legally binding in its entirety upon those to whom it is addressed. The converse is also true: such a decision is not legally binding on those to whom it is not addressed. That is important, since it is not suggested that any relevant decision of the Commission was addressed to Inntrepreneur, the effective appellant before this House.

    7.  Thus the divisive question arises: should the trial judge in this case have treated the Commission's factual assessment of the UK beer market in its Whitbread, Bass and Scottish and Newcastle decisions as effectively binding upon him although not formally so? This was the burden of the closing submission made by Mr Crehan's counsel, as recorded by the judge in para 156 of his judgment:

    "So in this case was it difficult, because of beer ties and similar agreements, for aspiring entrants to gain access to the relevant United Kingdom market? Mr Vaughan and Mr Brealey have presented several different arguments on the basis of which they say that I should answer the question: yes. I think that logically their first argument is that in Whitbread the Commission decided that the answer was yes, and that that ought to be good enough to determine the issue for me. They point out that the Commission has had much experience of matters involving the United Kingdom pub and beer markets. It has a staff of skilled economists. It has itself investigated aspects of the market from time to time over the years. It has a special understanding of the concepts which underlie the competition principles of Community law, including in particular article 81. Mr Vaughan and Mr Brealey say that I should not take on the task of deciding for myself whether I share the view of the Commission. I should simply say that the body best qualified to decide the question has decided it, and I should not second guess that body. I should adopt the findings which the Commission made in Whitbread and proceed with the rest of the case on the footing that Delimitis condition 1 is satisfied."

As my noble and learned friend observes, the judge recognised the obvious attractions of following this course but concluded he ought not to do so. To have done so without himself addressing the facts would not, I think, have been a judicial response to the case as presented to him.

    8.  In the Whitbread decision, which may fairly be treated as the leading example, the Commission reviewed in some detail the market (the 1989 Monopolies and Mergers Commission's Report, the Beer Orders, supply factors, competition between brewers, market entry at brewing level, market entry at retail level, changes in arrangements between pub tenants and their landlords) and the particular agreements under consideration. It then made its legal assessment, first on Delimitis 1, and then on Delimitis 2 and other issues. It concluded that article 81(1) applied but granted exemption under article 81(3).

    9.  In his particulars of claim in this action dated 10 June 2002, Mr Crehan's pleading turned (at para 122) to Delimitis 1 and foreclosure of the market. Facts were then pleaded to show that the Delimitis 1 condition was satisfied and the market foreclosed. At para 128 it was pleaded:

    "Mr Crehan will further rely on the facts and matters in the Commission Decisions (referred to in paragraph 119 above) in support of this contention: in particular Whitbread (paragraphs 108-127), Bass (paragraphs 125-144), Scottish & Newcastle (paragraphs 95-114). He will further rely on the MMC Reports referred to below."

This appears to suggest that Mr Crehan would rely on the facts found by the Commission, as he was of course entitled to do, but not that those facts, even if persuasive, were effectively binding on the judge.

    10.  This, as I understand, is how Inntrepreneur understood the issue. It denied (in para 57 of its amended defence and counterclaim of 19 December 2002) that article 81(1) applied. Para 67 of this pleading read:

    "67.  The decisions of the Commission in relation to Bass, Whitbread and Scottish & Newcastle (S&N) are not binding on the court, and, in so far as they conclude that the United Kingdom market was foreclosed, misapply the guidance of the European Court in Delimitis and are vitiated by inadequate and incorrect analysis. Notably the Commission failed to give any or adequate attention to the possibilities of expansion for existing players in the market, but focussed on the possibilities of entry to the market for overseas competitors. Furthermore, the Commission's analysis in these decisions should be reassessed in the light of its own later views in [sic] the correct scope and application of Article 81, as referred to in paragraph 64 above. It is averred that the fact that the Commission's conclusions on foreclosure were not appealed to the CFI is irrelevant."

Thus, as it seems to me, issue was squarely joined on the foreclosure issue and the reliability of the Commission's assessment in Whitbread and the other decisions. To address that issue the parties adduced very detailed factual evidence from over 30 witnesses, supplemented by a large number of experts, culminating in a very lengthy trial. This was not an appropriate procedure if it was to be said that the judge should not look beyond the Commission reports. As it was, I consider that the judge was bound to address the evidence adduced before him, analyse it in a conscientious judicial manner and express his conclusions, giving particular attention to those points on which he differed from the Commission.

    11.  If the procedural course adopted for trial of this case had led to a decision incompatible with the law of the Community, the plain duty of a national court would of course be to give effect to the latter. Community law prohibits the making by national courts of decisions which contradict decisions of Community institutions on the same subject matter between the same parties, and strongly discourages the making by national courts of decisions which may be inconsistent with decisions which may yet be made by Community institutions on the same subject matter between the same parties. But it does not, as my noble and learned friend's analysis of the relevant authorities shows, go the length of requiring national courts to accept the factual basis of a decision reached by a Community institution when considering an issue arising between different parties in respect of a different subject matter. Were this otherwise, the Commission's letter and enclosure of 24 November 1997 to Mr Crehan's solicitors, written nearly two months after its article 19(3) notice to Whitbread, would have been very misleading if not disingenuous, since whether or not article 81(1) was applicable to Mr Crehan's agreement would not in any real sense have been a question which the national court would be in a position to decide.

    12.  The judge had either to accept the Commission's assessment, which (unless required) would have been an abdication of the judicial function, or form his own opinion, giving such weight to the Commission's assessment as in his judgment the evidence merited. He chose the latter course, and save on one limited point (on which it regarded his view as tenable) the Court of Appeal did not criticise his findings. Its difference was one of approach, holding that he was effectively bound to adopt the Commission's conclusions. As already explained, I do not, with respect, accept the Court of Appeal's approach as correct. I would accordingly uphold the judge's decision on Delimitis 1, and would make the orders which my noble and learned friend proposes.

LORD NICHOLLS OF BIRKENHEAD

My Lords,

    13.  I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Bingham of Cornhill and Lord Hoffmann. For the reasons they give, with which I agree, I would allow this appeal.

LORD HOFFMANN

My Lords,

    14.  The Commission is the central institution responsible for the administration of European competition policy. It has power, among other things, to decide whether an agreement prevents, restricts or distorts competition in breach of article 81 of the EC Treaty. Since article 81 is directly applicable in all member states, national courts have concurrent jurisdiction to decide the same question. If an action before a national court raises a question of fact which has already been decided by the Commission in proceedings relating to other participants in the same market, ought the national court to follow the Commission or is it free to reach a different conclusion? Park J, after hearing evidence, rejected a finding by the Commission that in 1991-1993 it was difficult for sellers to enter the English on-the-premises beer market. The Court of Appeal held that he should have followed the Commission and reversed his judgment. In my opinion Park J was entitled to decide for himself and his judgment should be restored.

    15.  The proceedings have been long and complex but only a brief sketch is needed to explain the point which the House has to decide. A full and admirably lucid narrative is given in the judgment of Park J [2003] EuLR 663. In 1991 the claimant Mr Crehan entered into agreements to take leases of two public houses in Staines from the defendant Inntrepreneur Pub Company (CPC) ("Inntrepreneur"). They were in standard form containing ties which obliged him to buy his beer from Courage Ltd ("Courage") at its list prices. Both businesses failed because, as the judge found, Mr Crehan could not compete with other public houses who were able to buy their beer at lower prices and he therefore did not do enough trade to cover the rent he had agreed to pay. Mr Crehan surrendered his two leases in March and September 1993, having lost a substantial sum of money.

    16.  In 1993 Courage sued Mr Crehan for £15,226 outstanding on the beer account and Mr Crehan counterclaimed against Courage and Inntrepreneur for damages, alleging that his losses had been caused by a tie agreement which was unlawful under what was then article 85 and is now article 81, to which, for convenience, I shall refer to it throughout my speech as article 81:

    "1.  The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the common market…

    2.  Any agreements or decisions prohibited pursuant to this article shall be automatically void.

    3.  The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

    -  any agreement or category of agreements between undertakings,

    -  any decision or category of decisions by associations of undertakings,

    -  any concerted practice or category of concerted practices,

    which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

    (a)  impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

    (b)  afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question."

 
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