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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Arkin v Borchard Lines Ltd. & Ors [2003] EWHC 687 (Comm) (10 April 2003) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2003/687.html Cite as: [2003] 2 Lloyd's Rep 225, [2003] 2 LLR 225, [2003] EWHC 687 (Comm), [2003] Eu LR 287 |
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QUEENS BENCH DIVISION
COMMERCIAL COURT
[2003] EWHC 687 (Comm Court)
Strand, London, WC2A 2LL | ||
B e f o r e :
____________________
| YEHESKEL ARKIN | Claimant | |
| - and - | ||
| BORCHARD LINES LIMITED & ORS | Defendant |
____________________
Peter Irvin and Sarah Lee (instructed by Constant and Constant) for the 1st Defendant
Steven Gee QC and Hugh Mercer (instructed by Davies Arnold Cooper) for the 2nd, 3rd, 4th Defendants and the 3rd, 5th 8th and 10th Part 20 Defendants
Vasanti Selvaratnam QC and Fergus Randolph (instructed by Berwin Leighton Paisner) for the 1st and 6th Part 20 Defendant
Hearing dates : 20.2.02 to 26.4.02 ,
2.10.02 to 31.10..02 and 16.12.02 to 20.12.02
____________________
Crown Copyright ©
| TITLE | PARAGRAPH NO. | |
| Introduction | 1-35 | |
| Article 82 – Dominance | ||
| Were the two Conferences a collective Entity? | ||
| The Parties' Submission, The Claimant | 36-37 | |
| The Defendants and Part 20 Defendants | 38-42 | |
| Analysis | 43-51 | |
| What was the Relevant Product Market? | 52 | |
| The Parties' Submissions, The Claimant | 53-59 | |
| The Defendants and Part 20 Defendants | 60-61 | |
| Conclusion as to the Relevant Product Market | 62-67 | |
| Dominant Position, The Claimant's Submissions | 68-91 | |
| Dominant Position, the Defendants' Submissions | 92-166 | |
| Dominant Position: The Relevant Principle | 117 | |
| The Hoffman-La Roche Case | 118-127 | |
| The AKZO Case | 128-133 | |
| The CMB Case | 134-136 | |
| Discussion | 137-142 | |
| Dominance on the Facts | 143-200 | |
| Abuse of Dominant Position | ||
| The Parties' Submissions, The Claimant | 201-242 | |
| Abuse of Dominant Position | ||
| The Defendants' Submissions | 243-292 | |
| Discussion | 293-305 | |
| Abuse of Dominant Position: the Facts | ||
| Predatory Pricing | 306-341 | |
| Fighting Ships | 342-351 | |
| Circulating Rumours | 352-358 | |
| Conclusion on the Case under Article 82 | 359 | |
| Article 81 | ||
| The Parties' Submissions, | ||
| The Claimant' Submissions | 360-372 | |
| The Defendants' Submissions | 373-402 | |
| Article 81: the Pleaded Case | 403-417 | |
| Article 81, the Block Exemption and the UNCTAD Code | 418-427 | |
| The Relationship between the case under Article 81 and that under Article 82 | 428-430 | |
| Did the Conferences qualify as a Liner Conference? | 431-442 | |
| Measures to reduce the Capacity of BCL and other Competitor | 443-447 | |
| Predatory Pricing and Fighting Ships and Pricing below Cost | 448-455 | |
| Negotiations with MSC | 456-465 | |
| The Conference Agreements of July 1984 | 466-468 | |
| Failure to publish the Special Commitment or Selective Rates | 469-474 | |
| Conclusion as to the Case on Article 81 | ||
| The Letter from the Commission of 19 September 1993 | 475-479 | |
| Uniform Rates: a Hypothetical Issue | 480-485 | |
| Conclusion on the Article 81 Case | 486-488 | |
| Causation | ||
| Introduction | 489-490 | |
| Claimant's Submissions | 491-510 | |
| Defendants' Submissions | 511-535 | |
| Conclusions on Causation | 536-570 | |
| Insolvency as a Defence | 571-587 | |
| Quantification of Damage | 588-592 | |
| Conclusions | 593-595 |
Introduction
The Claim
Article 82 – Dominance
Were the two Conferences a collective Entity?
The Parties' Submissions
The Claimant
The Defendants and Part 20 Defendants
Analysis
(i) whether the collective entity thus identified is dominant in relation to the market in question,
and
(ii) whether, if so, the conduct of the collective entity complained of represents an abuse of that entity's dominant position.
"First, each member of the dominant oligopoly must have the ability to know how the other members are behaving in order to monitor whether or not they are adopting the common policy. As the Commission specifically acknowledges, it is not enough for each member of the dominant oligopoly to be aware that interdependent market conduct is profitable for all of them but each member must also have a means of knowing whether the other operators are adopting the same strategy and whether they are maintaining it. There must, therefore, be sufficient market transparency for all members of the dominant oligopoly to be aware, sufficiently precisely and quickly, of the way in which the other members' market conduct is evolving;
Second, the situation of tacit coordination must be sustainable over time, that is to say, there must be an incentive not to depart from the common policy on the market. As the Commission observes, it is only if all the members of the dominant oligopoly maintain the parallel conduct that all can benefit. The notion of retaliation in respect of conduct deviating from the common policy is thus inherent in this condition. In this instance, the parties concur that, for a situation of collective dominance to be viable, there must be adequate deterrents to ensure that there is a long-term incentive in not departing from the common policy, which means that each member of the dominant oligopoly must be aware that highly competitive action on its part designed to increase its market share would provoke identical action by the others, so that it would derive no benefit from its initiative (see, to that effect, Gencor v. Commission, paragraph 276);
Third, to prove the existence of a collective dominant position to the requisite legal standard, the Commission must also establish that the foreseeable reaction of current and future competitors, as well as of consumers, would not jeopardize the results expected from the common policy."
What was the Relevant Product Market?
The Parties' Submissions
The Claimant
The Defendants and Part 20 Defendants
Conclusion as to the Relevant Product Market
"If a product could be used for different purposes and if these different uses are in accordance with economic needs, which are themselves also different, there are good grounds for accepting that this product may, according to the circumstances, belong to separate markets which may present specific features which differ from the standpoint both of the structure and of the conditions of competition.
However this finding does not justify the conclusion that such a product together with all the other products which can replace it as far as concerns the various uses to which it may be put and with which it may compete, forms one single market.
The concept of the relevant market in fact implies that there can be effective competition between the products which form part of the same market in so far as a specific use of such products is concerned."
"for the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets it must be possible for it to be singled out by such special features distinguishing it from other fruits that it is only exposed to their competition in a way that is hardly perceptible."
Dominant Position
The Claimant's Submissions
"Consequently Article 86 prohibits any abuse by an undertaking of a dominant position on the common market or a substantial part thereof in so far as it may affect trade between Member States, that is to say in so far as it prohibits any abuse of a position of economic strength enjoyed by an undertaking which enables it to hinder the maintenance of effective competition on the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of consumers."
(i) Market share in the relevant product market;(ii) Breadth and length of experience of the alleged dominant undertaking in the trade;
(iii) The extent of the service offered by the alleged dominant undertaking by comparison with the service offered by rivals;
(iv) The ability of the alleged dominant undertaking to obtain and utilize market intelligence and information;
(v) The depth of financial resources available to the alleged dominant undertaking relative to the resources of rivals;
(vi) Whether the conduct of the alleged dominant undertaking is typical of that to be expected of undertakings enjoying substantial market power.
Dominant Position
The Defendants' Submissions
"An undertaking may be dominant if it possesses a substantial level of market power. The essence of dominance is the power to behave independently of competitive pressures. This can allow a dominant undertaking to charge higher prices profitably (or, if it is a dominant buyer, extract lower prices) than if it faced effective competition. It can also use its market power to engage in anti-competitive conduct and exclude or deter competitors from the market."
It also relies on the definition in United Brands, quoted in para 3.10 of Guidelines:
"…….. a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of consumers."
"70. The court has already held inter alia in its judgment of 14 February 1978 in case 27/76 United Brands Company and United Brands Continental bv. v. Commission of the European Communities (1978) ECR 207 that even the existence of lively competition on a particular market does not rule out the possibility that there is a dominant position on this market since the predominant feature of such a position is the ability of the undertaking concerned to act without having to take account of this competition in its market strategy and without for that reason suffering any detrimental effects from such behaviour.
71. However, the fact that an undertaking is compelled by the pressure of its competitiors' price reductions to lower its own prices is in general incompatible with that independent conduct which is the hallmark of a dominant position."
"1. MSC was a well established efficient operator;
2. MSC was offering a regular fixed day of the week service;
3. MSC had access to other routes – so they operated on this trade giving shippers the opportunity to trans-ship on to others, and its operations on other trades would be benefited through the extra business generated from this trade;
4. Boaz and Na'ama Arkin had all the contacts giving MSC the benefit of a highly competent and well-connected Israeli agency;
5. MSC used older ships and so had lower costs;
6. MSC was an established shipping line with its own vessels – it had the fleet ready to switch into this trade;
7. MSC had substantial capital – it sustained substantial losses and continued to trade."
"1. Market shares are an important factor but do not on their own determine whether an undertaking is dominant;
2. It is also necessary to consider the position of other undertakings operating in the same market and how market shares have changed over time;
3. An undertaking is more likely to be dominant if its competitors enjoy relatively weak positions or if it enjoys both a high and stable market share;
4. The Director General will usually look at the history of the market shares of all the undertakings in the market. This is more informative than considering market shares at a particular point in time, partly because such a snapshot might hide the dynamic nature of the market;
5. Volatile market shares for the largest undertakings, or successful entry and expanding market shares for many small undertakings, for example, may indicate that a market is relatively competitive;
6. Market shares are not always a reliable guide to market power. An undertaking with a persistently high market share may not necessarily hold market power for two reasons: first, if entry into the market is easy, the incumbent undertaking is likely to be constrained to act competitively so as to avoid attracting entry over time by potential competitors. Secondly, in a market where undertakings regularly improve the quality of their products, a persistently high market share may indicate no more than a persistently successful innovation. While consideration of market shares over time is important when assessing market power, an analysis of entry conditions and other factors are equally important;
7. Entry barriers and exit conditions are important in assessing whether an undertaking possesses market power. While an incumbent with apparent market power may claim that potential competition is waiting in the wings, a more objective judgment can be made by the Director if hard evidence of successful entry in the recent history of the market is provided;
8. Growth or prospective growth in a market will usually have bearing on the likelihood of entry: entry will usually be more likely in a growing market than in a static or declining one because it will be easier for an entrant to be accommodated without any precipitous collapse in prices and profits;
9. The main potential constraint on the market power of a seller is the strength of buyers and the structure of the buyer's market. The potential market power of a seller is offset by the buying power of a buyer, but for which prices would have been higher.
10. An undertaking's conduct in a market or its financial performance may in itself, provide evidence that it possesses market power;
11. Persistently significant high returns, relative to those which would prevail in a competitive market of similar risk and rate of innovation, may suggest that market power does exist. This would be especially so if they did not stimulate new entry or innovation."
"On the other hand the relationship between the market shares of the undertaking concerned and of its competitors, especially those of the next largest, the technological lead of an undertaking over its competitors, the existence of a highly developed sales network and the absence of potential competition are relevant factors, the first because it enables the competitive strength of the undertaking in question to be assessed, the second and third because they represent in themselves technical and commercial advantages and the fourth because it is the consequence of the existence of obstacles preventing new competitors from having access to the market."
Dominant Position: the relevant Principle
The Hoffman-La Roche Case
"38. The dominant position thus referred to relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers.
39. Such a position does not preclude some competition, which it does where there is a monopoly or a quasi-monopoly, but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment.
A dominant position must also be distinguished from parallel courses of conduct which are peculiar to oligopolies in that in an oligopoly the courses of conduct interact, while in the case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally.
The existence of a dominant position may derive from several factors which, taken separately, are not necessarily determinative but among these factors a highly important one is the existence of very large market shares.
40. A substantial market share as evidence of the existence of a dominant position is not a constant factor and its importance varies from market to market according to the structure of these markets, especially as far as production, supply and demand are concerned.
Even though each group of vitamins constitutes a separate market, these different markets, as has emerged from the examination of their structure, nevertheless have a sufficient number of features in common to make it possible for the same criteria to be applied to them as far as concerns the importance of the market shares for the purpose of determining whether there is a dominant position or not.
41. Furthermore although the importance of the market shares may vary from one market to another the view may legitimately be taken that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position.
An undertaking which has a very large market share and holds it for some time, by means of the volume of production and the scale of the supply which it stands for – without those having much smaller market shares being able to meet rapidly the demand from those who would like to break away from the undertaking which has the largest market share – is by virtue of that share in a position of strength which makes it an unavoidable trading partner and which, already because of this secures for it, at the very least during relatively long periods, that freedom of action which is the special feature of a dominant position."
"51. Since the relevant market thus has the particular features of a narrow oligopolistic market in which the degree of competition by its very nature has already been weakened, Roche's share, which is equal to the aggregate of the shares of its two next largest competitors, proves that it is entirely free to decide what attitude to adopt when confronted by competition.
Roche's technical lead over its competitors due to the fact that it is the proprietor of several patents relating to vitamin A, even after the expiration of these patents, is a further indication that it occupies a dominant position.
As has been indicated above, the same applies to the absence of potential competition from new manufacturers, whereas the competition derived from the surplus manufacturing capacity of existing undertakings rather favours Roche as is apparent from an extract from management information of the middle of August 1971 which reads 'although BASF will continue to intensify its activities, we expect to achieve a further steady increase of our turnover. However, the present overcapacity of production is such that a fixing of prices cannot be expected for the next few years. Such a development would, of course, be accelerated if one of our smaller competitors ceased production.'"
"58 Market shares of this size either in value or in quantity, complemented by the statement in the document jointly prepared by the parties that the figures for 1971 were 6% lower still than those for 1972 do not in themselves constitute a factor sufficient to establish the existence of a dominant position for most of the period considered by the Commission.
On the contrary it has become apparent that the rectification which the latter had to carry out was due to its omission to take account of the imports of a Japanese competitor which in 1973 accounted for 30% of the market.
On the other hand the Commission, in the case of this particular market, has not indicated what the additional factors would be, which together with the market share as corrected, nevertheless would be of such a kind as to admit of the existence of a dominant position.
The findings lead to the conclusions that, as far as concerns vitamin B3, there is insufficient evidence of the existence of a dominant position held by Roche for the period under consideration."
"The size of these shares, which is in itself significant, is made the more so by the fact that the shares of Roche's competitors must be estimated, after the before-mentioned rectification, for 1974, according to value, at 16%, 6% and 1% in the case of the other producers and at 19% for one or more importers who were in general firms operating from non-Member States.
Such a position as the one which has been established conforms even more typically than the one established in the case of vitamin A to the pattern of a narrow oligopolistic market in which Roche's share is much larger than the combined shares of the two next largest competitors.
Therefore the Commission was right to find that there was a dominant position on this market."
The AKZO Case
"(i) AKZO's market share is not only large in itself but is equivalent to all the remaining producers put together;
(ii) apart from Interox and Luperox the remaining producers have a limited product range and/or are of local significance only;
(iii) AKZO's market share (as well as that of the second and third placed producers Interox and Luperox) has remained steady over the period under consideration and AKZO has always successfully repulsed any attacks on its position by smaller producers;
(iv) AKZO was able even during periods of economic downturn to maintain its overall margin by regular price increases and/or increases in sales volume;
(v) AKZO offers a far broader range of products than any rival, has the most highly developed commercial and technical marketing organization, and possesses the leading knowledge in safety and toxicology;
(vi) AKZO has on its own account been able effectively to eliminate 'troublesome' competitors (besides ECS) from the market or weaken them substantially: the example of SCADO for one shows that AKZO is in a position, if it so wishes, to exclude a less powerful producer;
(vii) once such small but potentially dangerous competitors are neutralized, AKZO has been able to raise the price for the particular product in respect of which their competition was felt."
"60 With regard to market shares the Court has held that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position: Case 85/76, Hoffmann-La Roche v. EC Commission. That is the situation where there is a market share of 50 per cent such as that found to exist in this case.
61. Moreover, the Commission rightly pointed out that other factors confirmed AKZO's predominance in the market. In addition to the fact that AKZO regards itself as the world leader in the peroxides market, it should be observed that, as AKZO itself admits, it has the most highly developed marketing organisation, both commercially and technically, and wider knowledge than that of its competitors with regard to safety and toxicology ..…."
The CMB Case
"significant difference between Cewal's market share and that of its principal competitor, the benefits derived from the contract with Ogefrem giving Cewal exclusivity, the large size of its network, its capacities and the frequency of its services and, lastly, the experience acquired by Cewal over several decades on the market concerned."
Discussion
"Competition lies at the heart of any successful market economy and is crucial to the protection of consumers' interests and the efficient allocation of resources. It is a process whereby undertakings constantly try to gain an advantage over their rivals and win more business by offering more attractive terms to customers or by developing better products or more effective ways of meeting their requirements. Competition has several dimensions of which price is only one, albeit in many markets, the most important. It encourages the development of new or improved products or processes and enhances economic growth and living standards."
Dominance on the Facts?