Damages claim in anti-competitive beer contract

COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

Published October 4, 2001

Courage Ltd v Crehan Case C-453/99

Before G C. Rodriguez Iglesias President and Judges C. Gulmann, M. Wathelet, V. Skouris, D.A.O. Edward, P. Jann, L. Sevón, F. Macken, N. Colneric, J.N. Cunha Rodrigues And C.W.A. Timmermans Advocate General J Mischo

(Opinion March 22)

Judgment September 20, 2001

A party to a contract that was liable to distort or restrict competition could in principle claim damages from the other party for loss caused by the distortion or restriction of competition. Community law none the less did not preclude a rule of national law which prevented such a party from relying on his own illegality, provided, however, that that party, being in an economically stronger position than the other, bore significant responsibility for the distortion of competition. The Court of Justice of the European Communities so held by way of preliminary ruling on a reference under article 234 EC by the Court of Appeal. After Courage, a brewery with 19 per cent of the United Kingdom beer sales market, and Grand Metropolitan plc agreed to merge their leased public houses and to transfer them to a company owned in equal shares by them, Inntrepreneur agreed that all its tenants would have to buy their beer exclusively from Courage. Inntrepreneur issued a standard form lease agreement to its tenants, including the defendant, Bernard Crehan, in which the exclusive purchase obligation, the “beer tie”, was not negotiable. In an action by Courage against the defendant for the recovery of a sum for unpaid deliveries of beer, he contended that the beer tie was contrary to 85 of the EC Treaty (now article 81 EC) and counter-claimed for damages. The basis of his claim was that Courage sold its beers to clients who were not bound by the beer tie at substantially lower prices than those given in the price list imposed on its tied tenants, which price difference resulted in a reduction in the profitability of tied tenants, so driving them out of business. Among the issues raised, which the Court of Appeal referred to the European Court, was the effect in the circumstances of the rule of English law that a party to an illegal agreement could not claim damages from the other party, so that even if the defendant could rely on an infringement of article 85 of the Treaty, English law would bar his claim for damages. Article 85 provides: “(1) The following shall be prohibited … all agreements between undertakings, decisions by associations of undertakings and concerted practices … which have as their object or effect the prevention, restriction or distortion of competition within the common market…. “(2) Any agreements or decisions prohibited pursuant to this article shall be automatically void….” In its judgment the Court of Justice held: Article 85 constituted a fundamental provision whose importance was emphasised by the express statement in article 85(2) that any agreements or decisions prohibited pursuant to the article were to be automatically void. That principle of automatic nullity could be relied on by anyone and the courts were bound by it once the conditions for the application of article 85 were met, and since the nullity was absolute, an agreement rendered null and void by the provision had no effect as between the contracting parties and could not be set up against third parties. Moreover, it was capable of having a bearing on all the effects, past or future, of the agreement or decision concerned. Also, it had been held that article 85(1) produced direct effects in relations between individuals and created rights for the individuals concerned which the national courts had to safeguard. It followed from those considerations that any individual could rely on a breach of article 85(1) before a national court, even where he was a party to a contract that was liable to restrict or distort competition within the meaning of that provision. As to compensation for loss caused by such a breach, it was established by law that the national courts whose task it was to apply the provisions of Community law in areas within their jurisdiction had to ensure that those rules took full effect and protect the rights which they conferred on individuals. The full effectiveness of article 85, and in particular the practical effect of the prohibition in article 85(1), would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or conduct liable to restrict or distort competition. There should therefore not be any absolute bar to such an action being brought by a party to a contract which would be held to violate the competition rules. However, in the absence of directly relevant Community rules, it was for each member state’s domestic legal system to lay down the rules governing actions for safeguarding rights which individuals derived directly from Community law, provided that such rules complied with the principles of equivalence, that they were not less favourable than ones governing similar domestic actions, and effectiveness, that they did not render practically impossible or excessively difficult the exercise of rights conferred by Community law. The court had held in that regard that Community law did not prevent national courts from ensuring that the protection of the rights guaranteed by Community law did not entail the unjust enrichment of those who enjoyed them. Similarly, provided that the principles of equivalence and effectiveness were respected, Community law did not preclude national law from denying a party who was found to bear significant responsibility for the distortion of competition the right to obtain damages from the other contracting party, since Community law accepted the principle, recognised in most member states’ legal systems, that a litigant should not profit from his own unlawful conduct. The matters to be taken into account in that regard included the economic and legal context in which the parties found themselves and the respective bargaining power and conduct of the two parties to the contract. In particular, it was for the national court to ascertain whether the party who claimed to have suffered loss through concluding a contract that was liable to restrict or distort competition found himself in a markedly weaker position than the other party, such as seriously to compromise or even eliminate his freedom to negotiate the terms of the contract and his capacity to avoid the loss of reduce its extent, in particular by availing himself in good time of all the legal remedies available to him. A contract might prove to be contrary to article 85(1) for the sole reason that it was part of a network of similar contracts which had a cumulative effect on competition: in such a case, the party contracting with the person controlling the network could not bear significant responsibility for the breach of article 85, particularly where in practice the terms of the contract were imposed on him by the party controlling the network. On those grounds the European Court of Justice ruled: 1. A party to a contract liable to restrict or distort competition within the meaning of article 85 of the EC Treaty could rely on the breach of that provision to obtain relief from the other contracting party. 2. Article 85 precluded a rule of national law under which a party to a contract liable to restrict or distort competition within the meaning of that provision was barred from claiming damages for loss caused by performance of that contract on the sole ground that the claimant was party to that contract. 3. Community law did not preclude a rule of national law barring a party to a contract liable to restrict or distort competition from relying on his own unlawful actions to obtain damages where it was established that that party bore significant responsibility for the distortion of competition.

“The Times” 4 October 2001