Abuse of dominance
Abuse of a dominant position occurs when the occupier of a dominant position in a market engages in behaviour with the intention to eliminate or weaken a competitor or to deter future entry into the market by new competitors. We have looked at three cases that can provide guidance as to how damages might be assessed by the courts.
Albion Water Limited v Dŵr Cymru Cyfyngedig [2013] CAT 6
In Albion Water (and with Shepherd and Wedderburn acting for Albion), Dŵr Cymru had abused its dominant position by charging Albion an anti-competitive and unlawfully high price for use of water pipe infrastructure.
This resulted in 1) reduced profitability of Albion’s water supply to customers and 2) the loss of a profitable supply contract.
The Competition Appeal Tribunal (CAT) found that Albion needed to establish both loss and causation.
In establishing causation, the CAT concluded that “it was entirely foreseeable that, by offering an abusive access price and thereby preventing Albion from pursuing its business under a common carriage arrangement, Albion would be hampered in the development of its business”.
To work out the loss, the CAT compared the amount that Albion would have earned in the absence of the anti-competitive price (during the period in which the price was charged) with the price that was actually earned, choosing the mean figure within the range of reasonable figures.
When assessing the loss under the second head of claim, the quantum would be the relevant percentage of profit which Albion would have made under the supply contract.
It was accepted that there was no certainty (or even near certainty) that Albion would have won the contract, however it was determined that it was highly likely that Albion would have won a supply contract in some form.
To reflect this uncertainty, and following previous case-law, the CAT reduced the damages awarded by one third.
2 Travel Group Plc (in Liquidation) v Cardiff City Transport Services Ltd [2012] CAT 19
In this case, the Office of Fair Trading (now the Competition and Markets Authority) found that Cardiff City Transport (CCT), as an operator of buses, had abused its dominant position by engaging in predatory conduct aimed at a new entrant to the market, 2 Travel.
The CAT awarded damages in respect of 2 Travel’s claim for lost profits (for the period from the date the infringement commenced to the date the Claimant went into liquidation) but did not accept 2 Travel’s other claims which included, loss of a capital asset, loss of a commercial opportunity, and liquidation costs.
The CAT found that the liquidation was likely to have occurred notwithstanding CCT’s behaviour and so there was no causation between the infringing action and the other losses 2 Travel sustained.
And exemplary damages?
This case gave rise to some crucial principles for exemplary damages.
The CAT found that the defendant had acted “in knowing disregard of an appreciated and unacceptable risk that the Chapter II prohibition was either probably or clearly being breached or it deliberately closed its mind to that risk.”
The CAT noted that the aim of exemplary damages is to ‘punish and deter’, and while such an award is rare, 2 Travel was awarded the sum of £60,000, nearly twice the amount of compensation awarded for lost profits.
Enron Coal Services Limited (in liquidation) v English Welsh & Scottish Railway Limited [2009] CAT 12
In this case, English Welsh & Scottish Railway (EWS), the Defendant, provided coal haulage services to the Claimant, Enron Coal Services Limited (ECSL).
The Office of Rail Regulation found that EWS had abused its dominant position in the rail haulage market by engaging in selective and discriminatory pricing practices which effectively foreclosed ECSL’s entry into the market.
ECSL claimed that this abuse of dominance also resulted in it losing a “substantial chance” of securing a supply contract with a third party.
ECSL had to demonstrate that there was a “real or substantial chance” that its negotiations would have resulted in a supply contract being agreed. Essentially, would the alleged loss have occurred “but for” the unlawful conduct of the defendant?
The CAT found that EWS “did not have had a real or substantial prospect” of securing the contract applying ‘but for’ test and found that no loss had been suffered as a result of the infringement.
Damages were refused on this basis.
Conclusion
A claim for abuse of dominance is a useful remedy for parties who feel that their entry into particular markets is being foreclosed or where they are struggling to compete due to aggressive competitor behaviour. Those who consider that they may have been adversely affected by another company’s potential abuse of their dominant position in the marketplace may wish to seek legal advice to help determine whether or not they may have a claim.
For bespoke advice from our expert team on any of the topics discussed in this article, speak to Gordon Downie, Partner in our regulation and markets team, or your usual Shepherd and Wedderburn contact.