Two cases on cartel damages

Monday 28 July 2014

​​This a​​rticle first appeared in Law News Issue 24 (25 July 2014), published by Auckland District Law Society Inc.

In competition law, attention is usually focused on enforcement proceedings brought by the New Zealand Commerce Commission (Commission) for breaches of the Commerce Act (Act). However, victims of anti-competitive behaviour like cartels are also able to seek damages from those who have caused them harm, under section 82 of the Act. Two recent cases hint at a possible broadening of the heads of loss for which such victims may be able to seek compensation.

New Zealand Bloom v Cargolux

This case concerns a “follow-on” claim for damages in connection with the air cargo cartel. The Commission brought proceedings against several airlines, alleging that they had fixed prices for air freight services by agreeing to impose various surcharges. The Commission negotiated settlements with all of the airlines including Cargolux.

New Zealand Bloom (NZ Bloom) is an exporter of flowers. Between 2004 and 2006, it used Cargolux to fly its flowers to the United States. It sued Cargolux for damages under section 82 in the New Zealand High Court, arguing that Cargolux’s conduct had caused it to pay too much for freight.

The decision dealt firstly with an issue relating to the scope of section 82 of the Act. Effectively by consent, the parties sought an order for prior determination of a separate question under High Court Rule 10.15. That question was whether section 82 permitted NZ Bloom to recover damages from Cargolux in relation to surcharges imposed not just by Cargolux itself, but also by other airlines. Associate Judge Abbott granted the order sought.

The decision dealt secondly with a pleadings issue regarding NZ Bloom’s statement of claim. Cargolux contended that NZ Bloom had failed to provide sufficient particulars as to the allegations that it had breached sections 27 and 30 of the Act, and that those breaches had caused it to suffer the alleged losses. The Court agreed and ordered NZ Bloom to file an amended statement of claim. In particular (and in line with its decision on the first issue), the Court ordered NZ Bloom to make it clear whether it contends that Cargolux had a primary or secondary liability in respect of surcharges imposed by other airlines.

Kone v ÖBB-Infrastruktur

This European case arose in connection with a cartel affecting the elevator and escalator market. In February 2007, the European Commission imposed fines totalling EUR 992 million on the cartelists.

ÖBB took proceedings against Kone and others in an Austrian court. ÖBB sought damages in respect of losses it had suffered as a result of paying higher prices to suppliers which were not members of the cartel, but which had been able to charge more as a result of the cartel driving the market price up. Such conduct is often called “umbrella pricing”.

The Austrian court stayed the proceedings in order to refer a question to the European Court of Justice (ECJ) in respect of Article 101 of the Treaty on the Functioning of the European Union (which is broadly equivalent to section 27 of the Act). In essence, the ECJ was asked to determine whether a victim of a cartel can bring a claim under Article 101 in respect of losses suffered due to umbrella pricing by non-cartelists. The ECJ determined that such claims can be sustained under Article 101.

Comment

Section 82(1) of the Act simply states that “every person is liable in damages for any loss or damage caused by that person engaging in conduct” that constitutes a breach of the key provisions of the Act. It is possible that a New Zealand court would read that wording widely enough to accommodate claims of the nature advanced in these two cases.

If the separate question is ultimately decided in favour of NZ Bloom, it will be able to claim against Cargolux for losses which it suffered principally as a result of the conduct of other cartelists. That would leave Cargolux either to join or seek contribution from those other cartelists, or to foot the bill itself. Obviously, such a decision could make life much more difficult for the first defendant sued in respect of a follow-on claim (and much easier for a plaintiff). Similarly, it could open the door to claims against a single defendant in respect of umbrella pricing by non-cartelists.

Both issues have the potential to significantly increase the potential liability of cartelists, including those who negotiate leniency with the Commission. Whether the New Zealand courts will countenance widening the application of section 82 in these ways remains to be seen.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

Related areas of expertise
  • Competition