Judgments -
Inntrepreneur Pub Company (CPC) and others (Original Appellants and Cross-respondents) v. Crehan (Original Respondent and Cross-appellant)
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17. The central role of the Commission in administering this article (and article 82, which deals with abuse of a dominant position) is created by regulations made under article 83 (formerly article 87). This article gives the Council of Ministers power to make regulations to "give effect to the principles set out in articles 81 and 82", including in particular regulations which "ensure compliance with the prohibitions laid down in article 81(1)", "lay down detailed rules for the application of article 81(3)", "define the respective functions of the Commission and of the Court of Justice" in applying the regulations and "determine the relationship between national laws and the provisions contained in this section or adopted pursuant to this article". 18. At the relevant time, the applicable regulation was the Council Regulation (EEC) No 17/62 (hereafter "17/62"). It has since been revoked with effect from 1 May 2004 and replaced by Regulation (EC) No 1/2003. 19. 17/62 granted the Commission extensive powers. Under article 2 it could grant an applicant "negative clearance", that is to say, a statement certifying that, on the basis of the facts in the possession of the Commission, an agreement gave no grounds for action under article 81(1). Under article 3, anyone having a "legitimate interest" could apply for a decision that an agreement infringed article 81(1) and an order, backed by the possibility of a fine, that the undertaking bring the infringement to an end. Under article 9, the Commission had sole power to declare article 81(1) inapplicable pursuant to article 81(3). Subject to certain exceptions in article 4(2), anyone who wanted to apply for an exemption under article 81(3) had, by article 4(1), first to notify the agreement in question to the Commission. The Commission had power under article 6(1) to backdate an exemption but, in the case of an agreement which had to be notified, not to a date earlier than the date of notification. 20. 17/62 also dealt with the procedure for granting negative clearance or an exemption under article 81(3). By article 19(1) the party seeking the clearance or exemption had to be given an opportunity to be heard and by article 19(3), if the Commission was disposed to grant the clearance or exemption, it had to publish a notice to this effect and invite observations from all interested third parties. 21. Pursuant to article 83, the Council also made Regulation 19/65/EEC which conferred upon the Commission power to make regulations specifying in general terms, pursuant to article 81(3), that article 81(1) would not apply to certain specified categories of agreement. Such regulations made by the Commission are called "block exemptions" and by Title II of Commission Regulation (EEC) No 1984/83 a block exemption was granted for beer supply agreements which satisfied certain specified conditions. 22. Even before Mr Crehan launched his counterclaim in 1993, Inntrepreneur was well aware that its tie agreements might be said to contravene article 81. Mr Crehan was by no means the first to complain of the terms of the Inntrepreneur lease, which was something of an innovation in the trade. The background to its introduction was that in 1991 Courage and Grand Metropolitan plc entered into an agreement by which Grand Metropolitan transferred its brewing interests to Courage and the two companies set up Inntrepreneur as a jointly owned company to which they transferred the ownership of all their tied public houses. As a result, Inntrepreneur acquired the ownership of some 7,355 tied public houses. It was decided that Inntrepreneur would re-let its public houses on new 20 year leases, much longer than had previously been customary, with ties requiring the tenants to buy their beer from Courage. 23. The agreement for merging the public house estates of Courage and Grand Metropolitan was subject to the consent of the Secretary of State for Trade and Industry, as UK competition authority. As a condition of consent the Secretary of State required undertakings that the number of tied public houses would be reduced to 4,350 by 31 October 1992 and that all the tenants would be released from the ties by 28 March 1998. 24. The undertaking to reduce the number of tied houses by 31 October 1992 reflected a general UK policy of opening up the market which had been given effect by the Supply of Beer (Tied Estate) Order 1989 (SI 1989/2390) and the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989 (SI 1989/2258) ("the Beer Orders"). These orders required breweries or brewery groups owning more than 2000 retail outlets substantially to reduce their holdings by sales or releases from tie by 1 November 1992. The result was that in the few years between the making of the orders and November 1992, a great many public houses came on the market or were released from ties. The Orders did not apply to Inntrepreneur because it was not a brewery or brewery group. But the undertakings made it subject to the same rules and, in respect of the 1998 limit, went even further. 25. More or less from the inception of the Inntrepreneur tied estate, some of its tenants complained that the tie in its standard form of lease infringed article 81(1). In an attempt to put this question to rest, Inntrepreneur on 17 July 1992 notified the agreements to the Commission pursuant to article 4(1) of 17/62 and applied for negative clearance pursuant to article 2, or alternatively a decision that the agreements fell within the beer supply block exemption or, in the further alternative, an exemption under article 81(3). There followed lengthy negotiations between Inntrepreneur and the Commission, which were in progress when Mr Crehan launched his proceedings and which I shall in a moment describe in more detail. While they continued, Mr Crehan and a large number of similar claimants agreed to their actions being informally stayed. 26. Although Inntrepreneur had applied for negative clearance on the ground that their agreements did not infringe article 81, the Commission was extremely unreceptive to this argument. In Delimitis v Henninger Bräu AG (Case C-234/89) [1991] ECR I 935, 995 the Court of Justice had given authoritative guidance, in the context of a German beer supply agreement, on the conditions which had to be satisfied for article 81 to apply:
27. These two conditions are commonly called "Delimitis 1" and "Delimitis 2". Inntrepreneur took the view that neither condition was satisfied: they considered that, in the upheaval which had been caused by the Beer Orders (and their own undertakings to the Secretary of State), it was not difficult to gain access to the market (in the common shorthand, the market was not "foreclosed") and if it was, their agreements did not make a significant contribution. But the Commission was unwilling to hear argument on these points. Nor was it impressed by the submission that the agreements fell within the block exemption order. 28. The Commission was however sympathetic to granting an individual exemption under article 81(3). On 30 July 1993 it published a notice pursuant to article 19(3) of 17/62. The notice described the market and said (in paragraph 6):
29. It went on to say that many foreign brewers therefore licensed major UK brewers to brew and distribute their products. That might be taken as expressing the opinion that the market was foreclosed. The notice ended by saying that the Commission intended to grant a retroactive exemption pursuant to article 81(3). 30. The notice stirred up a hornets' nest of disaffected Inntrepreneur tenants. They not only opposed the grant of an exemption but applied under article 3 of 17/62 for a decision that article 81(1) was infringed and for appropriate action by the Commission. Among the applicants was Mr Crehan. On 19 December 1994 the Commission wrote to Inntrepreneur saying that in the light of the objections they were having second thoughts about granting an exemption. There followed further negotiations between Inntrepreneur and the Commission, in the course of which Inntrepreneur put forward a new scheme of looser ties under the name of RetailLink, which was put into effect on 25 February 1997. The Commission indicated that it was likely to grant an exemption for RetailLink and on 26 March 1997 Inntrepreneur formally notified it under article 4(1). This led eventually to another article 19(3) notice saying that the Commission was disposed to grant exemption and finally to a "comfort letter" dated 24 January 2000 in which the Commission said that the agreements notified in 1997 appeared to contain restrictions infringing article 81(1) but that the requirements of article 81(3) appeared to be satisfied. 31. The question which arose after Inntrepreneur had elected to pursue an exemption for its new agreements was what should be done about the applications relating to the period before RetailLink was adopted. They were, on the one hand, Inntrepreneur's application for negative clearance, application of the block exemption or individual exemption, and, on the other, the tenants' applications under article 3 of 17/62 for a determination that they infringed article 81(1). 32. The Commission was distinctly unenthusiastic about proceeding with any of these applications which, so far as it was concerned, were now only of historical interest. Mr Mensching, the senior DG IV official who had been involved in the case from the beginning, suggested that Inntrepreneur withdraw its 1992 notification. On 14 October 1997 Inntrepreneur did so. That left the article 3 applications by the tenants. The Commission dealt with them by a letter dated 24 November 1997 addressed to the complainants, including Mr Crehan, saying that they proposed to reject the applications. The reasons given in an annex to the letter are important and need to be quoted at some length. The Commission noted that there were proceedings on foot in England claiming damages, which raised the question of whether article 81(1) had been infringed and in which this issue could be decided. While Inntrepreneur were seeking exemption under article 81(3), the Commission had to remain seised of the case because only the Commission could grant an exemption. But now that Inntrepreneur had withdrawn its application, there was nothing that the Commission could decide which could not equally be decided by the national court. Accordingly there was no Community interest in the Commission proceeding with the case:
33. The result was that the Commission washed its hands of the old leases and never decided whether they infringed article 81(1) or not. 34. At this point it is necessary to say something about the Bass and Whitbread cases, to which reference is made in the Commission's letter. Inntrepreneur was not the only owner of tied houses to notify its agreements to the Commission. Other large-scale proprietors were also doing so during the late 80s and throughout the 90s. Bass plc notified its tie agreements on 27 October 1987 and a new form of agreement on 12 June 1996. Whitbread plc notified its agreements on 24 May 1994. Scottish & Newcastle plc also did so, on 25 April 1996. In each of these cases the Commission adhered to the view which it had expressed informally to Inntrepreneur, namely, that the relevant market was foreclosed. By the time of the letter to Mr Crehan and the other complainants against Inntrepreneur, the Commission had published article 19(3) notices in respect of the Bass and Whitbread applications, saying that they were minded to grant exemptions under article 81(3). This implied that they regarded article 81(1) as prima facie infringed. Afterwards, the Commission gave formal decisions in all three cases, in similar terms, which were more explicit. The Whitbread decision dated 24 February 1999 said in recital 127:
35. After the recitals, the actual decision of the Commission was relatively brief:
36. The Commission having decided to make no decision on the old Inntrepreneur leases, the scene then shifted to the Strand, where the litigation with the tenants resumed. Mr Crehan's case was chosen as the lead action in group litigation and in 1998 it came before Carnwath J on the preliminary issue of whether a party to an agreement could in principle recover damages from the other party on the ground that it contravened article 81. Following an earlier decision of the Court of Appeal, Carnwath J [1999] Eu LR 409 held that there was no such cause of action and struck out the claim. There followed a reference to the European Court of Justice, which ruled that a party to the agreement could have a cause of action: see Courage Ltd v Crehan (Case C-453/99) [2002] QB 507. Accordingly, the action came on for trial before Park J in February and March 2003 and was heard over 29 days. 37. The action raised a number of issues. One was whether the agreement infringed article 81, which involved deciding whether the two Delimitis conditions were satisfied. A second was whether the agreements fell within the block exemption in Title II of Regulation (EEC) No 1984/83. And then there were questions on the type of damage recoverable and the amount of such damage, if any, for which Mr Crehan was entitled to recover. 38. Although the parties came to court armed not only with witnesses of fact about the state of the market in 1991-1993 (19 for Mr Crehan and 14 for Inntrepreneur) but also with economic and other experts (three for Mr Crehan and five for Inntrepreneur), counsel for Mr Crehan submitted that the court should decide the Delimitis I issue simply on the basis of the Commission's opinion expressed in the recitals to its decision in Whitbread. The judge should not try to "second guess" the Commission. The judge said that there were "obvious attractions" in taking such a course but refused to do so. By that time he had heard lengthy and detailed evidence which satisfied him that, in respect of the period 1991-1993, the Commission's opinion could not be sustained. He concluded [2003] Eu LR 663, para 197:
39. The adverse decision on Delimitis 1 meant that Mr Crehan's case failed. There was no infringement of article 81(1). Although the judge went on to consider Delimitis 2, the block exemption and damages, he dealt with these matters only in case the Court of Appeal should find that he was wrong in saying that there had been no infringement of article 81. 40. This turned out to have been wise, because the Court of Appeal said that he had been wrong not to follow the Commission on this point. In making his own decision, he had not complied with what is generally called the "duty of sincere co-operation" imposed upon the institutions of member states by article 10:
41. The Court of Appeal [2004] Eu LR 693 said that, on the facts of the case, sincere co-operation required the judge not to entertain a submission that the view of the Commission in Whitbread had been wrong:
42. Apart from saying, at para 99, that they were not satisfied that the Commission had committed "egregious errors" and commenting on one point (loan ties with short termination periods), on which they described the judge's view as "at its lowest tenable" (para 107) but not entitling him to reject the contrary view of the Commission, the Court of Appeal made no comment on the judge's analysis of the facts. In their opinion it was an exercise on which he should not have embarked at all. 43. Did the judge err in law? The potentiality for conflict between decisions of the Commission and the national courts is a matter on which the Court of Justice and the Commission itself have provided fairly detailed guidance. In Delimitis v Henninger Bräu AG [1991] ECR I 935, 992, para 47 the Court of Justice said in general terms:
44. This is a useful caution, so far as it goes, but leaves open the question of what counts as a conflicting decision. The comments of the Court of Justice have to be read in the context of the situation of potential conflict which arose in that case. In Delimitis the German court was being asked by the tenant to say that his tied tenancy had contravened article 81(1). But the agreement belonged to a category which did not have to be notified under article 4 of 17/62 and it was therefore always open to the Commission to grant a retroactive exemption which would conflict with a judgment in the tenant's favour by the German court. The conflict envisaged was thus an inconsistency between the legal effects of the two decisions, the Commission saying that an agreement did not contravene article 81 and the German court saying that it did. It was in this context that the court spoke of the risk of conflicting decisions and advised on what to do about avoiding it:
45. It will be noted that in the very last sentence, the Court of Justice adverted to the possibility of a conflict arising, not only from the Commission exercising its exclusive power to grant an exemption under article 81(3) but also from the exercise of its concurrent jurisdiction to decide whether or not an agreement infringed articles 81 or 82, presumably on applications for rulings under article 3 of 17/62. (Whether the same would be true of applications for negative clearance under article 2 is a question to which I shall return). The Court of Justice clearly envisaged that if the Commission decided that an agreement infringed article 81(1), a national court would be obliged to follow that decision and, if such a decision was pending, should stay its own proceedings until the Commission had made its decision. |
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