The decision by the House of Lords in Inntrepreneurs Pub Company v. Crehan concerning the Inntrepreneur chain of "franchised" pubs and its exclusive supply of beer under the "franchise" agreement is the latest and probably final step in a long standing dispute about the consequences of the infringement of European Competition Law by a franchise (or indeed other) agreement. It concluded that damages can be awarded for breach of Article 81(1) of the Treaty of Rome - the EU's anti-trust law - but should not be awarded in this particular case.

Background

The case was first brought by the "franchisee" Mr Crehan some 13 years ago. Mr Crehan had entererd into franchise agreements (or "leases" as they were called) for two pubs from the Innterpreneur Pub Company. The agreements contained an exclusive purchase obligation (a so called "beer tie") in favour of Courage brewery.

In due course, The European Commission published a notice under Article 19(3) stating that the Inntrepreneur "leases" infringed Article 81(1) EC but qualified for exemption. However, as a result of discussions between Courage and the Inntrepreneur franchisees, the application for exemption was withdrawn and a new notification was made for a new lease with financial terms that were more advantageous to the franchisees.

However, in the meantime Mr Crehan had ceased trading at the Phoenix Public House claiming that the beer tie had driven him out of business. Mr Crehan was sued for monies due by Courage (the nominated supplier) and counterclaimed against both Courage and Inntrepreneur (the franchisor) for the loss he suffered by complying with the terms of the lease which contravened Article 81(1) EC. In the course of the proceedings the question arose whether a franchise counterparty to an agreement) could claim damages on the grounds that it infringes Article 81 EC. This question was referred to the European Court of Justice (the ECJ) for a preliminary judgment. It ruled that a franchisee or other party to an agreement prohibited under EC Competition Law was entitled to damages and not just an injunction.

The case was referred back to the High Court which held that Article 81(1) EC had not been infringed so that Mr Crehan was not entitled to damages as the UK beer market was not foreclosed by the "beer tie". This was contrary to the European Commission's findings in relation to similar "beer tie agreements" of two other large-scale owners of public houses (Bass plc and Whitbread plc).

On appeal the Court of Appeal reversed this decision and awarded damages of £131,336 (plus interest) to Mr Crehan. It held that the Judge had been wrong in law to ignore the decision of the European Commission.

The House of Lords' ruling

On further appeal the House of Lords unanimously overruled the Court of Appeal and held that the High Court Judge was right to reach his own view on foreclosure and refused to award damages for Mr Crehan. The House referred to the EC case law on conflicts between decisions of the Commission and national courts (in particular Delimitis and Masterfoods) which laid down the general principle that, in order to avoid conflicting decisions, national courts must give priority to the decisions of European institutions on the validity of agreements when determining domestic disputes. The House of Lords found that where there was no question of a conflict of decisions. The decision of the Commission was simply evidence properly admissible before the English court which, given the expertise of the Commission, might well be regarded by that court as highly persuasive. As a matter of law, however, it was only part of the evidence which the court would take into account. If the judge comes to the conclusion that the view of the Commission was wrong, it would be inconsistent with his judicial oath for the judge to say that, as a matter of deference, he proposes nevertheless to follow the Commission. Therefore, the Court of Appeal was wrong to reverse the ruling of the High Court Judge and Mr Crehan's claim for damages was thus dismissed.

Comment

Even though the House of Lords eventually refused Mr Crehan's claim for damages it did not deny the principle of damages for breach of European Competition Law as was set out by the ECJ in 2001. Moreover, this principle was reiterated in a recent ECJ ruling of 13 July 2006 (Manfredi v. Lloyd Adriatico Assicurazioni SpA, case C-295/04). However, it firmly stated that a decision of the EU Commission is not binding on an English Court - it is only strong evidence.

Against the background of current EC legislation the ruling of the House of Lords is not surprising. Article 16 of Council Regulation (EC) No 1/2003 states that "when national courts rule on agreements, decisions or practices under article 81 or article 82 of the Treaty which are already the subject of a Commission decision, they cannot take decisions running counter to the decision adopted by the Commission. They must also avoid giving decisions which would conflict with a decision contemplated by the Commission in proceedings it has initiated." As Lord Hoffmann stated in the House of Lords' ruling, "this article makes it clear that a relevant conflict exists only when the "agreements, decisions or practices" ruled on by the national court have been or are about to be the subject of a Commission decision. It does not apply to other agreements, decisions or practices in the same market."

The effect of this judgment is that potential litigants seeking to rely on an infringement decision of the Commission to bring a damages claim will only be able to rely on the decision with absolute certainty when bringing a claim against a party that was the addressee of that decision. Where the litigation concerns situations which are only similar to the ones addressed in the decision of the Commission, the court will take this decision simply as evidence.

However, as the House of Lords stressed in its judgment, given the expertise of the Commission, it is very likely for courts to treat a Commission decision as highly persuasive.