Robert Palmer QC appears in the High Court in first ever Competition Disqualification Order proceedings

In the first contested case of its kind, the High Court has today made a competition disqualification order in respect of a director of whose estate agency breached competition law. Following a four day trial, the court disqualified the director for a period of 7 years.

The case followed an investigation by the Competition and Markets Authority which found in 2017 that 6 estate agents in the Burnham-on-Sea area in Somerset had formed an illegal cartel by agreeing to fix a minimum commission rate of 1.5% for residential estate agency services.

Although the director was not concerned with day-to-day sales, nor attended any of the meetings with the other estate agents at which the fee fixing agreement was made, the Court held that he had been made aware of the cartel agreement and took no steps to prevent or end the estate agency’s participation, so contributing to the breach of competition law. As a result, the court concluded that his conduct fell below the standards of probity and competence appropriate for persons fit to be directors of companies, making him unfit to be involved in the management of a company.

The CMA obtained the power to disqualify directors for anti-competitive conduct in 2003 when the Enterprise Act 2002 came into force, but the first director disqualification was not secured until December 2016 by way of a consensual undertaking. There have now been 17 disqualification undertakings given. The High Court’s first ruling has been much anticipated, and confirms that the Court is likely to treat such cases as serious, with the result that directors may be disqualified for longer periods than the CMA has so far accepted by way of undertaking.

The Court’s decision is also notable for its finding that although Article 8 ECHR is engaged by the making of such an order, there is no obligation on the Court to consider the proportionality of making an order in the individual case, once it has concluded that the conduct of the director makes him unfit. That issue may be the subject of further argument in future cases, but the Court held that on its factual findings in the present case, the making of an order was nonetheless proportionate.

Robert Palmer QC appeared for the director.

Article 39, represented by Khatija Hafesji, granted permission in challenge to Coronavirus Regulations

The Adoption and Children (Coronavirus) (Amendment) Regulations 2020 were laid before Parliament on 23 April 2020, and came into force the following day. The Regulations make a large number of changes to various children’s social care regulations, affecting areas such as social worker visits, looked after children reviews, independent visitors to children’s homes, processes around adoption, and the procedures by which children in care are placed outside of their local authority area.

The Claimant is a charity which represents children in institutional settings, and has challenged the lawfulness of the Regulations. The High Court has granted permission for the claim to proceed to judicial review on three grounds. These are an alleged failure to consult, an alleged breach of the Padfield principle, and a breach of section 7 of the Children and Young Persons Act 2008 (whereby the Secretary of State must exercise his functions in accordance with the general object of promoting the welfare of children).

The claim will be heard on 27-28th July.

Khatija Hafesji acts for Article 39 (led by Steve Broach and Jenni Richards QC of 39 Essex Chambers), and is instructed by Oliver Studdert of Irwin Mitchell Solicitors.

Victory for capped pensioners represented by Gerry Facenna QC and James Bourke: Pensions Act compensation cap is unlawful and must be disapplied.

In a judgment handed down today, the High Court (Mr Justice Lewis) has found that the statutory cap on pension compensation under the Pensions Act 2004 must be disapplied because it involves unlawful age discrimination contrary to EU law and the ECHR. The judgment also finds that the Pension Protection Fund (“PPF”) failed to give proper effect to the 2018 judgment of the EU Court of Justice in Hampshire (see previous news item).

The CJEU’s judgment in Hampshire confirmed that every employee or former employee must receive at least 50% of their accrued pension entitlements in the event of their employer’s insolvency. It followed that restrictions on the compensation payable to employees of insolvent companies under the Pensions Act 2004 were contrary to EU law in so far as they resulted in some pensioners receiving less than half of the pension they had earned during their employment.

In late 2018, the PPF, which is the industry-funded “lifeboat” responsible for insolvent schemes, announced the steps it would take to comply with the Hampshire judgment. Its approach was then challenged by a number of former employees of two insolvent companies (engineering firm Turner & Newall and insurance broker Heath Lambert) and by the British Airline Pilots Association on behalf of former pilots from Monarch Airlines and BMI.

The claim succeeded on two grounds.

First, Mr Justice Lewis found that the cap on compensation in the 2004 Act involves unlawful age discrimination. While the cap introduced in 2004 had the legitimate aims of addressing “moral hazard” and cost, it was not an appropriate means of achieving those aims. The Judge found that this was one of the “rare cases” where the court should hold that a conscious decision by Parliament in an area of economic and social policy was not appropriate. The compensation cap therefore had to be disapplied. The judge found that the cap also breached the ECHR (Article 14 read with Article 1, Protocol 1) because it was manifestly without reasonable foundation and not objectively justifiable.

Second, Mr Justice Lewis found that the PPF had failed properly to implement the CJEU’s judgment in Hampshire. The PPF attempted to do so by using a one-off calculation designed to ensure that the value of the PPF compensation payable to any pensioner during their expected lifetime would be no less than half of the actuarially assessed value of their original scheme benefits. Mr Justice Lewis accepted the Claimants’ argument that this wrongly left open the possibility that, over time, some pensioners would receive less than half of their scheme benefits, e.g. if they lived for longer than the PPF had estimated. The Judge found that EU law required the PPF to put in place measures to identify and remedy that possibility in any individual case where it might arise.

In addition, the Judge found in the Claimants’ favour that: (1) the PPF had failed to ensure that the compensation payable to a survivor of a pensioner would in aggregate amount to at least half of the scheme benefits payable to the survivor; and (2) that the private trustees of schemes in PPF “assessment” are also required to pay the amounts that the PPF would be required to pay in accordance with directly effective EU law.

The judgment represents a victory for pensioners who have campaigned against the compensation cap in the Pensions Act for well over a decade. It means that thousands of former employees of insolvent companies who had seen their pensions slashed by up to 70% or 80% will now receive up to 90% of their pension, including arrears, as well as a guarantee that they will receive no less than half of the value of their original pension benefits throughout their lifetime.

Gerry Facenna QC and James Bourke, instructed by Ivan Walker of Walkers Solicitors, are acting for the Turner & Newall and Heath Lambert Claimants.

The case has been widely covered in the media, including The Financial Times, The Telegraph, Financial Reporter, FT Adviser, Pensions Age.

Rail Franchise Litigation 2019 – Stagecoach and West Coast challenges dismissed

The Technology and Construction Court this morning handed down judgment in the first phase of the 2019 Rail Franchising Litigation ([2020] EWHC 1568 (TCC)).

The 2019 Rail Franchising Litigation was one of the Lawyer’s Top 20 cases for 2020 and involves 14 Members of Monckton Chambers.

The case involves claims by Stagecoach and the West Coast Trains Partnership (which includes Stagecoach, Virgin and SNCF) against the Department for Transport arising out of procurement competitions for the South Eastern, East Midlands and West Coast Partnership railway franchises between 2017 and 2019. The claimants challenged their respective disqualifications from the competitions, seeking damages and other relief, and contested the legality of the awards of the East Midlands and West Coast franchises to Abellio and First Trenitalia respectively.

A fourth claim was brought by Arriva, but was settled on the eve of trial.

The hearing related to pensions issues – namely whether the Secretary of State’s approach to future pensions liabilities was lawful. At the time of the competitions, intervention by the Pensions Regulator had caused significant uncertainty about the way in which pensions deficits and future pensions contributions should be accounted for as part of the Rail Pensions Scheme. That privatised scheme, which remains open to new employees, had around 344,000 members at the end of 2018. The Department for Transport had issued contract terms, as part of a re-bid process, which offered defined but limited protection against some (but not all) of the pensions risks under a so-called Pensions Risk Sharing Mechanism. Stagecoach, Arriva and West Coast rejected the Secretary of State’s risk allocation and offered to contract on different terms.

In today’s judgment, Mr Justice Stuart-Smith ruled in favour of the Department for Transport on all grounds. He held that the pensions terms of the tender met the requirements of transparency and fairness; that the process followed was compliant with the relevant regulatory framework and principles of proportionality and equal treatment; and that the Department acted lawfully in disqualifying the claimants and awarding the franchises to the winning bidders.

Tim Ward QC, Ewan West, and Daisy Mackersie represented Stagecoach

Philip Moser QC, Jack Williams, and Ciar McAndrew represented Arriva

Anneli Howard, Brendan McGurk, Azeem Suterwalla, Fiona Banks, Alfred Artley, and Will Perry represented the Department for Transport

Valentina Sloane QC represented First Trenitalia

Rob Williams QC represented Govia

Monckton success in Supreme Court on interchange fees

Following a four-day hearing in January of this year, on 17 June 2020 the Supreme Court gave judgment ([2020] UK SC 24, on appeal from the Court of Appeal [2018] EWCA Civ 1536) on appeals concerning the lawfulness of Mastercard and Visa’s ‘multilateral interchange fees’ or ‘MIFs’. Interchange fees pass from the banks that provide card services to merchants (acquiring banks) to the banks that issue cards to cardholders (issuing banks). They in turn make up the bulk of the fees that merchants have historically paid to take Visa and Mastercard cards.

The judgment was handed down in three cases: Sainsbury’s v Visa; and Sainsbury’s v MasterCard. Asda, Argos and Morrisons (“AAM”) v Mastercard.

There were five main issues:

First, the Supreme Court agreed with the merchants and the Court of Appeal that the schemes’ UK MIFs were materially indistinguishable from the MIFs that had been considered restrictive of competition by the CJEU in Case C-382/12 P Mastercard. The CJEU’s judgment was therefore binding. The Supreme Court also held that, irrespective of the binding nature of the CJEU’s ruling, the UK MIFs restricted competition as they had the effect of immunising the bulk of the fees paid by merchants to acquiring banks.

Second, the Supreme Court also dismissed the schemes’ argument that the standard of proof required by the Court of Appeal for an exemption was too high. The Supreme Court held that an assessment of alleged benefits accruing to consumers from MIFs depends on “issuer pass-through” (the extent to which issuing banks use MIF revenues to promote card use) and the absence of “always card transactions” (the extent to which cardholders would use their cards anyway). It was incumbent on the schemes to prove their case on exemption with “robust analysis and cogent empirical evidence”. The Supreme Court agreed with the Commission (which intervened in support of the merchants) that a test advanced by the schemes (the so-called ‘merchant indifference test’ or MIT) was not a “silver bullet” for obtaining exemption.

Third, the Supreme Court also dismissed Visa’s argument that for the purpose of deciding whether “consumers” received a fair share under the second condition for exemption, it was necessary in the context of a two-sided market to consider both merchants and cardholders together. The Supreme Court agreed with the merchants and the Court of Appeal that, since merchants suffered the anti-competitive harm of the MIF arrangements, if the merchants were not fully compensated for the harm inflicted on them, they would not receive a “fair” share of any resultant benefits.

Fourth, the Supreme Court also took the opportunity to clarify the law on pass-on. In the Sainsbury’s v MasterCard case the Competition Appeal Tribunal had held that the overcharge had not caused Sainsbury’s to raise prices which it charged its customers. There was a finding of zero pass-on. An appeal against this finding was not pursued on appeal. However, the nature of the pass-on defence remained a live issue in relation to other claims. The Supreme Court considered that the overcharge was prima facie the measure of damages and the legal burden rested with the schemes to prove pass-on. The Supreme Court agreed with the CAT that a retailer had four principal options in the way that they responded to the imposition of an increased cost: (i) suffer a reduction in profit (ii) reduce discretionary spend (iii) reduce its own input costs; and/or (iv) raise its prices. Consistently with the law on mitigation generally, options (iii) and (iv) would be taken into account in any pass-on analysis. The Supreme Court considered that the extent to which these options were employed in the cases before it could “only be a matter of estimation”. The law required no greater precision in the quantification of pass-on from the defendant than from a claimant seeking to quantify damages.

Finally, the Supreme Court also allowed AAM’s appeal against the Court of Appeal’s decision to remit the issue of exemption in its proceedings to the Tribunal. As the Court of Appeal had held that MasterCard had failed to prove the conditions for exemption for its UK MIF, remittal offended against the principle of finality in litigation.

Click here and here for the judgment. Click here for Supreme Court summary. A detailed case note by Khatija Hafesji is here.

Mark Brealey QC appeared for Sainsbury’s, instructed by Mishcon de Reya and Morgan, Lewis & Bockius.

Jon Turner QC, Meredith Pickford QC and Laura Elizabeth John appeared for Asda, Argos and Morrisons, instructed by Stewarts.

Tom Sebastian appeared for the European Commission.

The case attracted much media attention: The Lawyer, The Telegraph, Finextra, Bloomberg Quint, Retail Systems, Law 360, The Times Law Report.

VAT at the opera: deductibility of the theatrical production costs

In HMRC v Royal Opera House Covent Garden Foundation [2020] UKUT 132 (TCC), the Upper Tribunal (Morgan J and Judge Timothy Herrington) held that VAT paid on theatre production costs was not recoverable on the basis of an economic link to taxable catering supplies, overruling a decision in the Opera House’s favour at first instance. The ruling will be significant not just for the wider theatre industry, but more generally as regards the relevance of ‘commercial reality’ arguments to questions of input tax deduction.

Theatre tickets fall within the ‘cultural exemption’ in Schedule 9 of the VAT Act 1994, but many theatres also make taxable supplies of refreshment and merchandise. This raises the question of whether from a VAT perspective production costs fall to be attributed solely to the exempt sales of tickets or to a wider range of taxable supplies too. Hitherto HMRC has not permitted any such deductions (with the exception being for taxable supplies of programmes) on the basis of the Court of Appeal decision’s in Mayflower Theatre Trust Ltd [2007] STC 880, but the Opera House argued that since then the law has developed at both European and domestic level in favour of a more ‘economically realistic’ approach to deductibility. The commercial reality of the situation here was that productions were the ‘hook’, permitting taxable supplies of refreshments in the theatre’s many bars and restaurants, which were all part of a ‘fully integrated’ operatic experience – as such the ‘direct and immediate’ link test for attribution was satisfied.

The First-Tier Tribunal had agreed on this point, and also rejected a subsidiary argument by HMRC that the ‘chain-breaking’ rule (deduction via an exempt transaction) applied. On appeal, however, the Upper Tribunal reversed that decision on the first point and agreed with HMRC that the judge had erred in holding that a commercial link was more than a simple ‘but for’ connection here. Instead the ‘economic approach’ should be confined to overheads cases, and the more traditional ‘cost-component’ remained applicable to specific attribution cases accordingly. On this view, then, the Opera House’s production costs were not a cost component of (for example) taxable supplies of champagne; instead, the productions merely provided the commercial opportunity for such taxable supplies to be made, which was only an indirect link.

The full decision is available here, a detailed case note by Alfred Artley is here and the article published in Tax Journal.

Peter Mantle (instructed by Crowe UK LLP) appeared for the Opera House.

LA Micro jurisdiction challenge: four Monckton counsel in the Chancery Division

Nugee J today handed down judgment in the case of LA Micro Group (UK) Ltd v LA Micro Group [2020] EWHC 1405 (Ch), Inc, dismissing the defendant’s jurisdiction challenge but directing that the claim should now proceed as a standard Part 7 matter. The decision followed a two-day Skype hearing in early April, one of the first such remote hearings to take place in the Chancery Division.

The case involved a complex multi-party shareholder action, with three former business partners in dispute over the beneficial ownership of an English IT company (LA Micro (UK) Ltd). The company had already been the subject of an earlier High Court action (Frenkel v Lyampert & Ors [2017] EWHC 2223 (Ch)), and there were three related sets of proceedings in the US dating back to 2010.

The claim was originally issued as a Part 8 action, with the claimants seeking various declarations purportedly to clarify the English judgment from 2017 and prevent the defendants relitigating similar points in the US. The defendants contested jurisdiction, arguing (inter alia) that outstanding questions about the company’s ownership would be best decided in the course of the ongoing Californian litigation rather than by launching a separate set of proceedings here. They also disagreed that the claim was a proper one for the Part 8 procedure, arguing that the declarations sought did not follow inexorably from findings of fact in the 2017 judgment as alleged.

The judge started by considering the 2017 judgment in detail and agreed that the matters presently in issue were not res judicata. However, based on the further evidence filed with the Part 8 claim, the claimants still had an arguable case on ownership, and the claim could still pass the summary judgment test accordingly. On the question of forum, he accepted that additional English proceedings would lead to fragmentation of the dispute, to some extent increasing costs and inconvenience for the parties. However, it was not clear that the Californian proceedings were the precise ‘mirror-image’ of the English claim, and in any event this factor was outweighed by the English nature of the dispute.

On the procedural question of whether Part 8 was appropriate, the judge agreed that the claimants had been wrong to claim that the relief they sought flowed from the court’s previous findings of fact. As such, the claim should now proceed by way of Part 7 instead, and be pleaded accordingly.

The ruling thus offers helpful guidance on the factors the court may find persuasive when considering questions of forum, especially where foreign courts are already seised of the same or similar issues. Conversely, it also shows the risks of trying to secure relief via Part 8 when the factual basis of the claim is not wholly uncontroversial.

The judgment is available here.

William Buck and William Hooper (instructed by Tom Bolam at Fladgate LLP) appeared for the First Defendant.

Thomas Sebastian and Alfred Artley (instructed by Daniel Wyatt at Reynolds Porter Chamberlain LLP) appeared for the Second Defendant.

Will Hooper successfully represents claimant in battle over $44m Ferrari

In the widely reported case of Fisken v Carl, the High Court has today found that the defendant seller of one of the world’s most expensive cars, a $44m Ferrari 250 GTO Series 1 coupé, was acting in breach of contract in failing to deliver the GTO’s original gearbox to the claimant buyers.

The case concerned a contract for the sale of the GTO. It was known at the time of the contract that the GTO was missing its original gearbox. When it transpired that the gearbox had been found, the claimant buyers sought its delivery from the defendant seller. The defendant denied that the claimant buyers had title to sue on the contract and that in any event he was entitled to a fee in the sum of $500,000 should he be compelled to deliver the gearbox.

In finding that the claimant buyers were a party to the contract, the judgment analyses a series of authorities dating back to the mid-nineteenth century concerning the circumstances where a party who signs a contract in an unqualified manner is entitled to sue on that contract, notwithstanding how he might be described elsewhere in the document, and applies the decision of the Court of Appeal in The Elikon [2003] EWCA Civ 812; [2003] 2 All ER (Comm) 760. Further, the court found that, while there may be certain instances where the defendant seller was entitled to a fee for retrieving and delivering the gearbox, they were not present in the circumstances of the case; and that consideration had already been paid for the gearbox, as included in the price of the GTO.

The court recognised that the defendant seller was wrongly withholding the gearbox and considered the case an appropriate one for specific performance to compel him to secure its delivery to the claimant.

The judgment is found here and a detailed case note by Kristina Lukacova is here.

Will Hooper acted for the claimant, Gregor Fisken Limited, instructed by Simon Walton at Rosenblatt Limited.

The case attracted much media attention in December 2019: The Telegraph; The Daily Mail; Evening Standard; The Sunday Times; The Times.

Isle of Man court dismisses claim for share in aviation contractor: William Buck successfully acts for businessman in resisting claim

On 5 May 2020 the High Court of Isle of Man handed down its judgment in White v Fozard, a long running dispute arising out of a partnership formed in 2005 between a Manx businessman and two US and Canadian consultants who worked with a leading manufacturer of graphic processors. After initial success, the partnership broke down in late 2007 and the Manx businessman went on to develop Channel One International, a highly successful US and Canadian based designer and supplier of safety critical software and hardware for the civil and defence aviation industries.

In 2013 proceedings were commenced by one of the consultants against both the Manx businessman and his business, seeking a substantial share in Channel One International and various accounts and inquiries, both in Florida and the Isle of Man. The claim was founded on the belief that the business had arisen from the partnership and had been improperly misappropriated by the businessman. Having first resisted parallel proceedings in Florida, the litigation was fought in the Isle of Man and raised complex issue of partnership and trust law.

After a trial of the action in February 2020, the high value claim was dismissed in its entirety by the High Court. William Buck, instructed by Simcocks Advocates, acted for the successful businessman throughout the litigation and appeared at the trial as a Manx advocate under temporary license.

Court of Appeal rules on approach to costs in Competition Act appeals

In a further judgment in the Phenytoin litigation, the Court of Appeal has today ruled on the approach to costs in successful Competition Act Appeals (see CMA v Flynn Pharma Ltd [2020] EWCA Civ 167). The Court ruled that where a Competition Act appeal succeeds, the starting point is that the CAT should not award costs against the CMA and in favour of a successful appellant. That starting point may be departed from for good reason, such as financial hardship or where the CMA has acted unreasonably.

The judgment overturns an established line of CAT authority including GISC, the Racecourse case and Eden Brown, as well as Phenytoin itself, in which it had been held that the starting point in Competition Act appeals is that costs follow the event. The effect of the Judgment is that the CAT’s costs order in favour of Pfizer and Flynn (the successful appellants in the CAT) was quashed and replaced with no order as to the costs of the substantive proceedings before the CAT.

The Court of Appeal considered its 2018 judgment in relation to Communications Act appeals, BT v Ofcom [2018] EWCA Civ 2542. The Court held that BT v Ofcom and the preceding authorities established the starting point or default position that no order for costs should be made against a regulator who has brought or defended proceedings in the CAT acting purely in its regulatory capacity. The Court further held that the reasons given by the CAT for taking a different approach in Competition Act appeals were inadequate.

The Court is yet to rule on an application by the Respondents to the Appeal, Pfizer and Flynn, for permission to appeal to the Supreme Court.

The judgment is found here.

Rob Williams QC acted for the CMA, instructed by The Competition and Markets Authority.

Mark Brealey QC acted for Pfizer, instructed by Clifford Chance LLP.