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 It has since been revoked with effect from 1 May 2004 and replaced by Regulation (EC) No 1/2003.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:

    "A beer supply agreement is prohibited by article 85(1) of the … Treaty if two cumulative conditions are met. The first is that, having regard to the economic and legal context of the agreement at issue, it is difficult for competitors who could enter the market or increase their market share to gain access to the national market for the distribution of beer in premises for the sale and consumption of drinks. The fact that, in that market, the agreement in issue is one of a number of similar agreements having a cumulative effect on competition constitutes only one factor amongst others in assessing whether access to that market is indeed difficult. The second condition is that the agreement in issue must make a significant contribution to the sealing-off effect brought about by the totality of those agreements in their economic and legal context. The extent of the contribution made by the individual agreement depends on the position of the contracting parties in the relevant market and on the duration of the agreement."

    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):

    "As a result of the above characteristics, foreign brewers or indeed new brewers who own few or no on-licensed premises still have difficulty selling substantial quantities of draught or bottled beer independently in the United Kingdom"

    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:

    "There is…no more request for exemption pending for the 'old' lease. This means that the only remaining question with regard to the application of Community competition law to the 'old' lease is whether or not article [81](1) is applicable.

    This is a question which the national court is in a position to decide. It can be added that the national court can take into account some factual and legal elements which the Commission has made public on earlier occasions. With regard to a general market description, reference can be made to the earlier mentioned 19(3) notice [of 30 July 1993] and to similar such notices in the Bass and Whitbread cases. As to the legal point of the applicability of article [81](1), indirect guidance can be taken from the Commission's intention indicated in the earlier mentioned Inntrepreneur 19(3) notice to grant an exemption to the lease.

    Furthermore, in the event that the national judge finds that article [81](1) is applicable, he is in a position to determine the civil law effects following from the prohibition set out in article [81](2)…The judge can also award compensation for loss suffered as a result of an infringement of article [81]. …

    The Commission considers that there are insufficient grounds for granting the complainant's application as, in the absence of a request for exemption pursuant to article [81](3), it would lead to a duplication of procedures and is therefore not in the Community interest for the Commission to rule upon the complainant's request that the 'old' lease has infringed article [81](1) since the date of its introduction."

    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:

    "Conclusion on first Delimitis test

    It can thus be concluded that an examination of all tying agreements, including but not limited to beer-supply agreements entered into, and the other factors relevant to the economic and legal context of the UK on-trade market shows that the brewers' tying agreements had in 1990 and still have today, on the basis of the most recent available information, the cumulative effect of considerably hindering independent access to that market, for new national and foreign competitors."

    35.  After the recitals, the actual decision of the Commission was relatively brief:

    "The Commission of the European Communities…has adopted this decision:

    Article 1

    1.  The provisions of article [81](1) of the Treaty are, pursuant to article [81](3), declared inapplicable to the individual lease agreements…

    2.  This decision shall apply from 1 January 1990 until 31 December 2008.

    Article 2

    This decision is addressed to Whitbread plc."

    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:

    "I am not prepared to find that the United Kingdom market was foreclosed to that extent simply because the Commission thought that it was and said so in its decision in Whitbread. I have made up my own mind on the basis of the extensive evidence which has been placed before me. I do not suggest that the market was 100% open to all comers. The tied estates, even after the Beer Orders, cannot be brushed aside as insignificant and they did to some extent seal off a part of the market. But the sealing off was not complete even within the tied estates. Much more importantly, leaving the tied estates aside, there were in my view, amply sufficient fully contestable other outlets to mean that Delimitis condition I was not satisfied."

    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:

    "Member states shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty or resulting from action taken by the institutions of the Community. They shall facilitate the achievement of the Community's tasks.

    They shall abstain from any measure which could jeopardise the attainment of the objectives of this Treaty."

    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:

    "97.  …In our judgment, in the present case the English court was obliged under the duty of sincere cooperation to give to the Commission much greater deference than that which the judge, with all respect to him, was prepared to give. We accept that the Commission and the ECJ left it to the English court to determine whether the application, made by this court on making the reference, that the beer tie in the Inntrepreneur lease contravened article 81(1) was correct. However, it is apparent from what the Commission said in the letter of 24 November 1997 to [the complainants], that it expected the English court to take into account its earlier conclusions not only in respect of Inntrepreneur but also in cases such as Whitbread, even though not final decisions. The fact that it was considered unnecessary and therefore undesirable for the Commission itself formally to give the decision as to whether article 81(1) applied when the English court was in a position to give the decision and to award compensation (which the Commission could not do) did not leave the judge free to reconsider the Commission's earlier conclusions afresh. Still less was the judge free so to do in 2003, by which time the Whitbread, Bass and Scottish & Newcastle decisions with its conclusions, central to those decisions, on the foreclosure of the relevant market had been published and the comfort letter of 24 January 2000 relating to RetailLink had been issued. We accept that it is a ready inference from that letter that in the Commission's view article 81(1) applied to the Inntrepreneur leases throughout the period relevant to Mr Crehan's case.

    98.  Inntrepreneur in its evidence and submissions to the judge did not attempt to distinguish the present case from Whitbread and the other decisions of the Commission going to the applicability of article 81(1) to the relevant market. Instead it attacked those decisions as fundamentally flawed. In our judgment it was inappropriate for the judge to adopt the approach that he should receive such evidence and hear such submissions, as the effect of the judge second-guessing the Commission and concluding that the Commission was wrong has been to create an irreconcilable inconsistency in the application of the Community's competition policy to the relevant market. We do not say that the Commission is infallible; far from it. We do say that if the Commission is to be shown to be wrong in its decisions on the applicability of article 81(1), that has to be decided not by the national court but by the ECJ or CFI. The judge's decision offended against the principle of legal certainty in the Community. In our opinion the judge failed to comply with the duty of sincere cooperation and thereby erred in law."

    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:

    "Account should here be taken of the risk of national courts taking decisions which conflict with those taken or envisaged by the Commission in the implementation of articles [81](1) and [82], and also of article [81](3). Such conflicting decisions would be contrary to the general principle of legal certainty and must, therefore, be avoided when national courts give decisions on agreements or practices which may subsequently be the subject of a decision by the Commission…"

    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:

    "50.  If the conditions for the application of article [81](1) are clearly not satisfied and there is, consequently, scarcely any risk of the Commission taking a different decision, the national court may continue the proceedings and rule on the agreement in issue. It may do the same if the agreement's incompatibility with article [81](1) is beyond doubt and, regard being had to the exemption regulations and the Commission's previous decisions, the agreement may on no account be the subject of an exemption decision under article [81](3).

    52.  If the national court…considers in the light of the Commission's rules and decision-making practices, that that agreement may be the subject of an exemption decision, the national court may decide to stay the proceedings or to adopt interim measures pursuant to its national rules of procedure. A stay of proceedings or the adoption of interim measures should also be envisaged where there is a risk of conflicting decisions in the context of the application of articles [81](1) and [82]."

    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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