The first and final stop for exemplary damages?

Exemplary damages and competition law are not obvious bedfellows.

The prospect of having to defend potentially ruinous exemplary damages actions could significantly compromise the present leniency regime, by reducing the incentives to come forward.  In addition, exemplary damages may violate the principle of ne bis in idem (i.e. that no one shall be punished twice for the same offence).  Nevertheless, the Competition Appeal Tribunal (the “CAT”) has moved to make the first award of exemplary damages in a UK competition law case – but at what cost?

The basic purpose of exemplary damages is to punish a party who has calculated that it will be worthwhile committing an offence because he stands to gain more than he would lose even if he were forced to pay ordinary compensatory damages. In the context of competition law, exemplary damages serve the same purpose as regulatory fines – to punish and deter anticompetitive conduct – but this potentially sits at odds with the leniency regime, the success of which is based upon leniency applicants being assured of impunity from antitrust fines.  While leniency applicants cannot escape the clutches of follow-on compensatory damages, any case law suggesting that they could be liable for exemplary damages could serve to devastate the workings of a leniency regime which is a highly cherished weapon in the arsenal of competition authorities.

Cardiff Bus v 2 Travel Group

In the Cardiff Bus abuse of dominance case, the CAT granted to the claimant, 2 Travel, follow-on compensatory damages in excess of £33,000 to account for loss of profits and exemplary damages of £60,000 because of Cardiff Bus’ “knowing disregard of an appreciated and unacceptable risk that the Chapter II prohibition was either probably or clearly being breached”.

The abusive conduct carried out by Cardiff Bus included undercutting the prices charged on certain routes operated by new entrant, 2 Travel, and timing its buses to depart just before the scheduled departure times of 2 Travel. Shortly after the liquidation of its competitor, Cardiff Bus ceased to operate its “White Service” on those routes.

The CAT considered that not only did Cardiff Bus have an explicit intention to exclude its competitor from the market, but its senior management also declined to take sufficiently detailed legal advice on their conduct because they knew that they would be advised of its illegality and they wished to avoid a paper trail, having already taken a view to commence the service no matter what. This behaviour, i.e. acting with a “knowing disregard of an appreciated and unacceptable risk”, was sufficient for the CAT to award exemplary damages against Cardiff Bus.

Conclusion

The truth of the matter is that the CAT’s judgment serves to provide some welcome clarity in this area in that it has successfully awarded exemplary damages without compromising either the rights of leniency applicants (which were not relevant in this case since Cardiff Bus was not a leniency applicant in any event) or the principle of ne bis in idem (since the OFT had not actually imposed an antitrust fine).

Whether this case serves to open the floodgates for other exemplary damages claims remains to be seen, but in reality, and given the desire of the authorities to preserve the successful operation of the leniency regime, this seems unlikely.