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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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Neutral Citation Number: [2003] EWHC 687 (Comm)
Case No: 1997 Folio No. 956

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
[2003] EWHC 687 (Comm Court)

Royal Courts of Justice
Strand, London, WC2A 2LL
10 April 2003

B e f o r e :

THE HONOURABLE MR JUSTICE COLMAN
____________________

Between:
YEHESKEL ARKIN
Claimant
- and -

BORCHARD LINES LIMITED & ORS
Defendant

____________________

Nicholas Green QC and Roger Masefield (instructed by Singletons) for the Claimant
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

____________________

HTML VERSION OF HANDED DOWN JUDGMENT
____________________

Crown Copyright ©

    INDEX

      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

     
    Mr Justice Colman:

    Introduction

  1. The Claimant, Mr Arkin, claims damages for breach of the Rome Treaty and in particular of Article 82 and, in the alternative, of Article 81. This, I am told, is the first time that the English courts have had to determine such a claim. The nearest similar case is Courage Ltd v Crehan [2001] 3 WLR 1646, but that was concerned only with Article 81 (then numbered 85) and not with Article 82.

  2. Mr Arkin was managing director of a liner operating company called BCL Shipping Line Ltd ("BCL"). He and his wife were the only shareholders. BCL was incorporated in the United Kingdom. It operated liner services on various routes to and from Haifa and Ashdod in Israel. This action is concerned only with the operation of liner services on the routes between ports in the North Continent and Israel and ports on the East and West Coasts of the United Kingdom and Israel. There was both northbound and southbound traffic on both routes. I refer to these routes collectively as "the Relevant Market", although I shall have to consider later in this judgment the legal justification for treating them as a single market.

  3. The liner services offered by BCL with which this action is concerned were for container transport, although BCL also carried break bulk cargoes as well as containers on board its vessels. Those vessels were owned by one-ship companies usually incorporated in Liberia and invariably owned and controlled by Mr Arkin. BCL chartered from those companies the tonnage deployed on its liner services.

  4. BCL was incorporated in 1988 and entered the Relevant Market in March of that year. It subsequently operated services between Israel and South Africa, the Adriatic and Turkey. It had a large office in Israel as well as its head office in London.

  5. Up to that time the only regular liner services on the Relevant Market were provided by two conferences. CONISCON provided the services between the North Continent and Israel and UKISCON those between the East and West Coasts of the United Kingdom and Israel. Both Conferences had almost identical conference agreements signed on 31 July 1984 which included a provision that the parties were "committed to do their utmost in order to compete with any third party line commencing any service within the scope of (the) Agreement."

  6. The defendants were all members of one or both of CONISCON and UKISCON. The members of CONISCON were Zim, who are 1st and 6th Part 20 defendants, DNOL 3rd Part 20 defendant, KNSM, 5th Part 20 defendant, Borchard who are 1st defendant and Part 20 Claimant, ISCONT and CIS. The members of UKISCON were Zim, Furness Withy who are 3rd defendant and 8th Part 20 Defendant, Ellerman Lines now known as Camomile Lines who are 2nd defendant and 10th Part 20 Defendant, Borchard, ISCONT and CIS.

  7. Mr Arkin, in addition to his ownership and control of BCL and the shipowner companies, also owned and controlled Multifleet Marine Ltd, a UK incorporated management company which had the function of operating and managing the one-ship companies. It was viewed by Mr Arkin and his various bankers as a group control company. Its functions included the payment of the disbursements, including port dues, charter hire and commissions, arising from the operation of the lines and the shipowner companies.

  8. Another liner operator owned and controlled by Mr Arkin was BCSL. This operated liner services between the United States and Israel. Other liner services operated by Mr Arkin's group included those to South America and West Africa. Included in that group was a company called Bay Maritime, whose only relevant function was a treasury for funding other companies in the group.

  9. In the course of 1988 and 1989 and up to August 1990 BCL built up a small and fairly stable market share on the Relevant Market. This was in the order of 10-12 per cent. The rates were substantially below those of the Conferences – usually by about 20 per cent. BCL aimed to attract business from shippers who were prepared to accommodate delayed delivery and less regular services than those offered by the Conference vessels. BCL only operated about two shipments per month and because its vessels were slower and were not exclusively container ships but also carried break bulk cargoes, loading operations tended to be less speedy and smooth-running than with conference vessels which only loaded containers. BCL vessels therefore tended to attract less valuable cargoes than Conference vessels.

  10. In spite of the fact that for these reasons BCL aimed at the bottom end of the market, the Conferences saw it as a serious competitor. They engaged in vigorous anti-competitive activities even before the time when BCL entered the Relevant Market. Thus, in December 1986 both conferences introduced a system of non-contractor rates (NCRs). These involved charging shippers who did not ship exclusively with Conference members a 20 per cent premium above tariff. In June 1987 so-called "fighting committees" were set up to co-ordinate the Conference's response to competitors. There can be no real doubt, although this was not debated in the present trial, that the NCR system was unlawful because it was an abuse of the Conference's dominant position under Article 86 (now 82) and because it was at that time the result of an anti-competitive agreement, decision or concerted practice under Article 85 (now 81).

  11. It was not until 1 July 1987 that EC Regulation 4056/86 ("the Block Exemption") came into effect. This was an important event for the European shipping industry and the Conferences in particular because it created an exception to the effect of Article 85 (now 81) in favour of liner conferences charging uniform or common rates of freight. In essence, under Article 85(3) it exempted from unlawfulness agreements, decisions or concerted practices by liner conferences which would otherwise have been unlawful anti-competitive conduct and rendered void under Article 85(1) and (2) and imposed on such liner conferences various duties to be performed in the course of their operations.

  12. I shall have to examine the meaning and effect of this Block Exemption in some detail later in this judgment.

  13. After BCL entered the market the Conferences operated the NCR system and for internal reasons, which do not matter for present purposes, introduced a rating structure which permitted some conference members to charge lower rates than others on the same route.

  14. In January 1989 BCL sent to the European Commission a complaint about the conduct of the Conferences on the Relevant Market, alleging breach of Articles 85 and 86. Support for BCL's complaint was subsequently provided by the British Shippers' Council, the Israeli Shippers' Council and the European Shippers' Council. Throughout 1989 and up to August 1990 the Conferences very closely monitored BCL's activities on the Relevant Market and, although they never undercut its rates, they aimed to recapture from BCL its most important carryings of paper, tyres and spares. To this purpose, the Conferences set up a Freight Managers Committee (FMC) which took decisions about challenging the competition from BCL by targeting particular shippers.

  15. Up to the beginning of 1990 the BCL operations in Israel were managed by Mr Arkin's niece and nephew Na'ama and Boaz Arkin. Both had previous experience in the shipping industry and both played an important part in launching and developing BCL business on the Relevant Market. They had important client contracts. However, disagreements arose between Mr Arkin and those two over whether a service between Israel and the USA should be set up. They were opposed to it. Mr Arkin claimed to have dismissed them early in 1990. He replaced them with an established and experienced shipping agency, Johnson Stevens. However, in the summer of 1990 Na'ama and Boaz Arkin were recruited by Mr Aponte, owner of Mediterranean Shipping Corporation (MSC), to set up an office in Israel to enable him to start a service on the Relevant Market.

  16. The advent of MSC had an immediate and dramatic effect on the market. In the space of only six months it achieved a market share of over 30 per cent on the CONISCON routes. BCL therefore had to compete not only with the Conferences but also with MSC. BCL, having had a market share of 12 per cent southbound and 6 per cent northbound in September 1990, at first held that share until the end of 1990 but then, having reduced its capacity from three to two vessels, its market share fell back to 7 per cent until September 1991. During the period from September 1990 until March 1991 BCL made three rate reductions which appear to have had the purpose of charging less than either the Conferences or MSC, the latter having entered the market at roughly the same rates as BCL, but subsequently having further lowered its rates in October 1990. It was not until December 1990 and January 1991 that the Conference began to reduce its rates apparently to reduce the differential with those of MSC.

  17. In the meantime, the European Commission was still considering BCL's complaint. On 19 November 1990 BCL wrote to the Commission asking for its complaint against the Conferences to be advanced with urgency but also mentioned that the "cartel" had started a price war. Having received from the Commission a request for information about the price war BCL replied on 9 January 1991 that because they wanted their original complaint dealt with, they did not want to go into the question of the price war.

  18. On 15 January 1991 the Conferences decided, on legal advice, to abandon the NCR system and so to inform the Commission. This was made public in February when the Conferences' solicitors, Lovell White Durrant also informed the Commission. Differential rating was also abandoned.

  19. These proceedings were begun six years after 18 April 1991 and it is accepted by the Claimant that it is not entitled to rely on any conduct of the defendants occurring before that date as giving rise to a cause of action for breach of the Conference members' duty in respect of which this claim can be pursued.

  20. Between 18 April 1991 and the end of September 1991 there developed between the Conferences, MSC and BCL a rate war of some ferocity and of unusual length. This saw the Conference rates on the North Continent-Israel southbound route fall from DM 1525/1675 per TEU (twenty foot container equivalent unit) to DM 975/1050 and BCL's rates fall from DM 1500/1600 to DM 750 in the same period. I shall have to consider the details and purposes of the Conferences' rate-cutting policy and the reaction to it of MSC and BCL later in this judgment. A fundamental issue on the question of liability is whether the Conferences reduced their rates with the intention of eliminating or distorting competition in the Relevant Market.

  21. The collapse in the rate levels severely reduced BCL's freight revenue. It was eventually forced to withdraw from the Relevant Market at the beginning of October 1991. At that point, it was charging such low rates that freight income was making no contribution to its operating costs and was not even enough to cover its average variable costs. Conference members were also suffering substantial losses. CIS subsequently went into administration. Furness Withy and DNOL gave notice of withdrawal from the Conferences in September 1991.

  22. BCL went on trading, providing liner services on the South Africa-Israel and other routes. BCSL also continued providing liner services on the United States route. There was also the liner service between Brazil and West Africa. The shipowner companies sold a number of vessels and attempts were made to re-finance outstanding loans.

  23. On 4 November 1991 the European Commission issued its Statement of Objections. That put forward the prima facie view that the Conferences were in breach of Article 81 by reason of the NCR and of differential rates between Conference members.

  24. The exercise of refinancing the Multifleet group was pursued during January to May 1992. This in part involved a German bank called Marcard Stein. The negotiations were complex and the detail does not matter for present purposes. They were the background to an earlier trial in this court, which I heard: Ocarina Marine Ltd and Others v. Marcard Stein, Judgment (Unreported) 13 February 1998. The trial was largely concerned with whether the indebtedness of Multifleet Marine Ltd as it existed in April/May 1992 had been guaranteed or secured by three one-ship companies which had owned three of the vessels in the group. The evidence in that trial has been admitted as evidence in this trial. It leaves no doubt that by May 1992 the Multifleet group was insolvent. Having sold almost its entire fleet of 15 vessels by September 1991 its debts exceeded the remaining net equity in its two remaining unsold vessels. The group then ceased trading, having no further funds and no further ability to refinance the outstanding debts. BCL and BCSL were thereupon also obliged to cease trading. They could not continue if the group stopped trading.

  25. BCL failed to file accounts for 1991 and 1992 and on 7 September 1993 it was struck off the Companies Registry and a week later it was dissolved.

  26. The European Commission held a hearing of BCL's complaint on 30 April 1992. In the course of that hearing BCL's counsel informed the Commission that the Conferences' conduct complained of came to an end after February 1991 and further that what happened as from January 1991 was irrelevant for the purposes of BCL's complaints. Although BCL kept open its right to bring a separate complaint in respect of later conduct, it was not requesting that such conduct should be considered for the purpose of the instant complaint. No such complaint was ever made. Eventually by letter dated 19 September 1993 the Commission informed BCL's lawyers that there was an insufficiently strong Community interest in proceeding to a Decision on BCL's complaint in view of the fact that the Conferences had amended their agreements in early 1991. By ceasing to operate the NCR system and differential rate system those Conference agreements appeared to be entitled to the benefit of the Block Exemption.

  27. There the matter rested for two and half years until, in February 1996, Mr Arkin consulted his present solicitors. On 2 October 1996 BCL was restored to the Register and put into liquidation and on 20 March 1997 took an assignment from the liquidator of the choses in action for claims for damages and costs "for breach of Article 85 and/or under any similar provisions". I subsequently decided that this wording was wide enough to cover claims for breach of Article 86(now 82). Half of the amount recovered was to go to the Liquidator and the other half to Mr Arkin.

  28. Legal aid was first granted to Mr Arkin, thereby enabling the writ to be served on 18 April 1997.

  29. In 1997 legal aid was first granted to Mr Arkin and then withdrawn. Counsel and solicitors subsequently represented him under conditional fee agreements. Mr Arkin had no funds except his state pension. The provision of expert accountancy and tax evidence on behalf of Mr Arkin and the cost of organisation of documents on his behalf has been financed by MPC, Managers & Processors of Claims Limited (MPC) on a conditional basis.

  30. The Claim

  31. The claim is brought primarily for breach of the defendants' duty under Article 82 of the Rome Treaty. The Claimant asserts that from the period 18 April to the end of September 1991 (which is the relevant period in view of the Limitation Act cut-off date) the Conference members acting collectively as both Conferences occupied a dominant position in container carriage on the Relevant Market and abused that position in three respects, namely their rate-setting policy in the course of the rate war which involved predatory pricing, their use of so-called "fighting ships" and their spreading of rumours that BCL was insolvent and/or would have to leave the relevant market.

  32. The secondary basis for the claim is for breach of Article 81 of the Rome Treaty. Here the basis is that the Conferences were at all material times during the relevant period disentitled to the protection of the Block Exemption and were therefore by their price fixing agreements or decisions or concerted practices acting contrary to the prohibition in Article 81. The Claimant asserts that the benefit of the Block Exemption is not available to the defendants because the Conferences, particularly UKISCON were not charging uniform or common rates of freight and secondly because they were in breach of other requirements of the Block Exemption by their predatory pricing, use of fighting ships and rumour-mongering.

  33. It is said by the Claimant that these breaches of duty have caused BCL heavy losses both during and after the relevant period until it ceased trading in May 1992 and have further caused it the loss of the profits that it would have made if it had not been forced to cease trading when it was, but went on for a further 10 years. They also claim exemplary damages amounting to over $80 million. It is said that the Conferences pursued a deliberate course of breach of duty under Articles 82 or 81 motivated by the purpose of obtaining a financial benefit from the departure of BCL from the market which would exceed any possible fine or compensation with which they might be charged.

  34. The defendants' case on Article 82 is that the Conferences lost their previous dominant position when MSC entered the market and succeeded in gaining a substantial market share in a very short time and thereafter retaining it. The defendants say that their relative market power was no longer such as to make their position dominant. They further assert that if they did occupy a dominant position, they were not in abuse of it for in their rate-setting they did not have the intention of eliminating or distorting competition but rather of competing in a fair and proportionate way with MSC and BCL and with the purpose of preventing further loss of market share and regaining recently lost customers. They deny the use of fighting ships or spreading rumours.

  35. As to Article 81, the defendants say that they did charge uniform rates and that they were not in breach of the Block Exemption. Consequently, they are entitled to its protection. Alternatively, any breaches of the requirements of the Block Exemption were severable by reason of the operation of Article 4 of the Regulation. They take the fundamental point that if the Claimant fails under Article 82 on his abuse arguments he cannot succeed under Article 81.

  36. The defendants also say that even if there were breaches of Articles 81 or 82, those breaches did not cause the claimed loss. Any such loss, was caused by the irrational conduct of BCL, which was already insolvent by the beginning of the relevant period, in attempting to remain in the Relevant Market and progressively reducing its rates to what have been described as suicide levels by July and September 1991 and thereby causing itself crippling loss. In any event, the defendants say that there is no evidence that the alleged breaches of duty caused the collapse of the Multifleet group as a whole or, therefore, the inability of BCL to go on trading after May 1992. The defendants also rely on the fact that at the start of the relevant period, BCL was insolvent to found a defence of ex turpi causa based on wrongful trading by BCL. They deny that any loss would have been caused in any event because BCL could not have traded profitably once MSC had entered the market.

  37. Article 82 – Dominance

    Were the two Conferences a collective Entity?

    The Parties' Submissions

    The Claimant

  38. It is submitted that the UK/Israel and Coniscon Conferences should be treated as one entity for the purpose of ascertaining whether any of the defendants have participated in abuse of a dominant position. The two Conferences held joint decision-taking meetings and demonstrated a sufficiently unified economic position and administrative structure with a sufficiently common purpose in the market to be treated as a single undertaking. The fact that a conference could be a dominant entity for the purposes of Article 82 was implicit in Regulation 4056/86 – the Block Exemption – and was recognised as such by the Commission's decision in the CMB Case, supra, at paragraphs 59 and 60, and by the decision of the CFI at [1997] 4 CMFR paragraphs 64 and 65. Those decisions were approved on appeal by the ECJ at [2000] 4 CMLR 1076.

  39. In the present case there were two distinct conferences solely because not all the participating lines were members of both conferences. Some of them operated exclusively on the UK-Israel or North Continent-Israel routes respectively. Zim, Borchard, CIS and ISCONT were members of both conferences, whereas Ellerman and Furness Withy were only in the UK-Israel Conference and DNOL and KNSM were only in CONISCON. However, the two conferences co-operated to a significant extent with regard to their policy towards competitors, holding joint executive conference meetings and joint meetings of the FMC committee from 1990 onwards, setting up a joint computerised fighting centre to process information on "competition carryings", exchanging information on common competitors, making tonnage available as between the conferences and co-ordinating sailing schedules through a tonnage centre located in London. The conferences were regarded by the shippers and their representative bodies, such as the Israeli Shippers Council, as a single "cartel". Further, the conferences were actively discussing a formal merger from October 1991 and the two secretariats eventually did merge in April 1992.

  40. The Defendants and Part 20 Defendants

  41. Borchard expressly accepted that, on the basis of the decisions in CMB, the two conferences should be considered as a collective entity.

  42. The 2-4 Defendants did not demur in their final submissions from the Claimants' approach.

  43. Zim, however, presented a submission to the following effect.

  44. In relation to any particular conduct alleged to be abusive it is necessary to investigate whether each member of the allegedly collective entity was aware sufficiently precisely and with sufficient immediacy whether other members were indeed pursuing the same strategy. Further, all members of the entity have to have a common policy the effect of which is that individual members will be deterred from deviating from the common policy. Yet further, that, in order to establish that such an entity holds a dominant position, it must be established that members' perception of the likely reaction of competitors external to the entity and of consumers is that such reaction would not jeopardise the objectives intended to be achieved by the conduct in question.

  45. Zim relies for this submission on the recent decision of the CFI in Airtours v. Commission (Case T-342/99, 6 Jun 2002). Zim argues that, as regards the main feature of the Conferences' conduct said by the Claimant to be abusive – predatory pricing, that is establishing freight rates below ATC – the state of knowledge of the individual members of the costs of the other members was non-existent or almost entirely deficient and therefore no individual member would know whether any other member in adopting the conference tariffs or any reduction on those tariffs was operating at below ATC. Accordingly, no individual member would know whether collectively there was predatory pricing. In this connection, Zim relies on the evidence of Mr David Johnson and Dr Bishop.

  46. Analysis

  47. The question whether the two conferences together constituted a collective entity has to be resolved at the outset of consideration of the Claimant's case under Article 82. The Claimant asserts that the defendants' breaches of duty consisted in their participation in one or both conferences and, most significantly, in relation to pricing alleged to be predatory. Since liability is founded on participation in either or both conferences, it is essential to identify the characteristics of the conferences and of their inter-relationship which in relation to the conduct complained of could render either or both of them collective entities.

  48. It is clear from the decision of the CFI in the CMB Case, supra, as appears from paragraphs 64 to 68 of the judgment, that the fundamental question in the context of the shipping industry is whether the conference members operated a decision-taking system which enabled them "to adopt together the same conduct on the market in order to react unilaterally to a change, deemed to be a threat" to their position as competitors in the market. It is thus the ability to develop a common overall strategy directed to overcome the threat to their market share which is the essence of the collective feature, whether of a single conference or of a combination of conferences.

  49. The judgment of the CFI in the TAA Case (T-395/94) (28.2.02.) took a similar approach to that in CMB in as much as it emphasised the fact that a liner conference as defined by the Council for the purposes of qualification for block exemption under Regulation 4056/86 could be characterized as a collective entity which presented itself as such on the market since it fixed uniform freight rates for all its members in the sense that the same price would be charged for the carriage of the same cargo from point A to point B, regardless of which ship-owning member of the conference was responsible for carriage (paragraph 157 of the judgment).

  50. It is thus the decision–taking structure directed to fixing a uniform freight rate or to establishing some other uniform conduct directed to protection against competition that renders the entity "collective". On the face of it, that is a quite distinct question from two further questions:

  51. (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.
  52. The relevant issue in Airtours plc v, Commission (T-342/99) (6.6.02) was whether, in declaring incompatible with the common market the merger of Airtours and First Choice plc, the Commission had applied a new and incorrect definition of collective dominance. The Commission's conclusion was arrived at on the ground that the merger would create a collective dominant position in the United Kingdom market for short-haul foreign package holidays as a result of which competition would be significantly impeded in the common market. The substance of that decision is summarised at paragraph 67 of the judgment of the CFI. It shows that the Commission's decision turned on its perception of the impact of the proposed merger on competition between the largest players in the short-haul market. It concluded that by reducing the participants in 80 per cent of the market from four to three, the resulting three would have little incentive to compete with each other, and could have every interest in adopting parallel conduct tending towards reduced capacity for there would, for economic reasons, be an increased degree of transparency and interdependence. In testing whether the Commission had applied the correct legal principle for identification of the results of the merger giving rise to a collective dominant position the CFI quoted with approval a definition of collective dominance which was common ground in that case (paragraph 62). It was as follows:

  53. "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."
  54. This definition is relied upon by Zim in support of its submission that, unless it were established that there was sufficiently available to the participants in the conferences information as to other members' costs bases, there would be lacking the essential characteristic of an entity necessary to render it capable of exercising collective dominance and collective abuse of a dominant position.

  55. I cannot accept this submission. The CFI was concerned in Airtours with the impact on other participants in the market of a merger between two existing participants. It was thus essential to investigate whether the state of knowledge amongst those participants, following a merger, of each other's market strategy was such as to lead to a continuing "tacit co-ordination" in their conduct. In that context the element of collectivity could be derived from the likelihood of such tacit co-ordination. This, in my judgment, does not support the proposition that a system of joint decision–taking which as a matter of fact leads to predatory pricing on a uniform basis lacks collectivity absent knowledge of the costs of co-participants in the relevant entity. That which renders the entity a collective one is the facility that members can co-ordinate their policy by taking joint decisions on such matters as uniform pricing so as to promote a uniform market strategy. It is this system of effecting a uniform response to competitive pressure which renders the entity a collective one. The question whether the uniform rates thus agreed upon by that entity are below the ATC of any of the members of the entity is, as will be developed later in this judgment, an important matter of evidence which goes to the underlying purpose of the collective decisions of the entity and in particular whether, if the entity holds a dominant position, the implementation of those decisions represents an abuse of that position.

  56. Further, although on the evidence individual members of the two conferences did not know the precise level of costs of other members on particular routes, each must have appreciated throughout at least a substantial part of the later period before BCL withdrew from the market that many of them were failing to trade profitably as the conference tariffs were reduced. Indeed, this belief must have been reinforced by the notices of withdrawal of DNOL from CONISCON and of Furness Withy from UKISCON on 12 September 1991, which were attributed in press reports to the low level of conference rates. Further CIS went into administration at the end of December 1991. By 7th February 1992 Zim, in pressing for an increase in conference tariffs observed that "all conferences vessels are fully booked with non-economical rates which incurs tremendous losses to all concerned". It is, in my judgment, proper to infer that if Zim expressed that view early in February 1992, that must have been information which the other conference members must have regarded as at least probably correct not only at that time but since the time when rate reductions gathered pace in the summer of 1991.

  57. I therefore find that the two conferences were indeed sufficiently connected and their decision-taking as to the levels at which they set tariffs was sufficiently concerted for them both to be treated as connected entities for the purposes of an investigation as to whether they were as such dominant in the relevant market and, if so, whether they acted collectively in abuse of a dominant position.

  58. What was the Relevant Product Market?

  59. The issue that arises is whether, for the purposes of ascertaining whether the conferences held a dominant position, one looks only to the container market or to a wider market including bulk and refrigerated carriage - the "break bulk" market.

  60. The Parties' Submissions

    The Claimant

  61. The Claimant submits that the break bulk market should be ignored and only the container market should be considered. Whereas the conferences provided only container services, BCL's vessels had both container and bulk carriage capacity. It is submitted that carrying capacity which did not exert a major influence on the demand for container services should not be treated as included in the relevant market. In this connection the claimant relies on the evidence given to the Commission by the British and Israeli Shippers' Councils in response to requests for comment on the lists of competitors put forward by the conferences. There were 13 lines in addition to BCL and MSC. Most of them were exclusively bulk carriers. They were described by the letter of 6th May 1991 from the Israeli Shippers Council as "only partly in competition with members" of the conferences. In its context this was because most of them did not offer container services. By its letter of 14th May 1991 the British Shippers' Council observed that these services were "predominantly break bulk and as such did not provide like for like comparable liner services in the market. These services therefore have little if any competitive influence on the conference".

  62. The Claimant further relied on the evidence of Mr Meurs who accepted that the shippers' councils held that view, although not necessarily the conferences. However, there was also evidence which the Claimant relies on as supporting the proposition that the conferences also held that view. Thus, the Conference Agreements were, by Clause 4.1, expressly applicable only to the container trade. Secondly, exclusivity agreements which the Conferences invited shippers to accept in 1988 did not apply to bulk or refrigerated cargoes. Thirdly, the Conferences internal documents analysing their own and competitors' market share related only to the container trade. Finally, the Conferences' joint minutes, when considering "opposition" lines rivals, refer only to MSC,BCL and MCL and not to any line which was a bulk cargo line.

  63. The Claimant relies also on the expert evidence.

  64. Mrs. Jean Richards, who was called as shipping industry expert by the Claimant, stated in her supplemental report that although shippers of bulk cargo might switch to containers if the cargo were suitable for such carriage, they would be unlikely to wish to move back to bulk carriage in view of the fact that the process of containerisation was a capital-intensive one for a shipper or importer.

  65. Mr. Johnson, the 2-4 Defendants and Part 20 Defendants' shipping industry expert, when invited by the court to estimate the overall proportion of all cargo passing between UK, North Europe and Israel and in reverse in 1991 which might be sensitive to freight rates in as much as they might be switched from containers to bulk carriage, stated that it would be below 10 per cent. In cross-examination he accepted that the products that might be subject to switching out of containers and back to bulk carriage on these routes were likely to be sugar and building materials.

  66. Dr. Bishop, the Claimant's expert economist also stated in his report that the relevant market was the container market.

  67. Professor Yarrow, Zim's expert economist, did not express a view on whether the effect of the evidence was that the relevant market was the container market, but he accepted in the course of questioning by the court that, if the extent of transfer of demand from the container market to the bulk market when container rates changed would only be very modest or perhaps negligible, one could be reasonably confident in concluding that the relevant market was the container market.

  68. The Defendants and Part 20 Defendants

  69. Borchard and Zim advanced no positive case challenging the Claimant's position that the relevant market was the container market.

  70. The 2-4 Defendants, while asserting that the issue was irrelevant because the Conferences were dominant neither in the container market nor in the break bulk market, submitted in the alternative that, on the basis of Mr. Johnson's evidence in his report about the total cargo tonnages carried by the conferences and their competitors, the relevant market included break bulk and refrigerated capacity for certain cargoes.

  71. Conclusion as to the Relevant Product Market

  72. Identification of a relevant product market depends crucially on the extent to which demand-side participants are prepared to substitute alternative goods or services from outside the assumed market range in response to less favourable terms of supply, such as price increases. In Hoffman La Roche v Commission Case 85/76, the ECJ stated at paragraph 28:

  73. "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."
  74. It is therefore the extent of interchangeability which is the key consideration. The court is concerned to delineate the boundaries of the relevant market by locating the point beyond which other products or services present only an insignificant degree of competition by reason of interchangeability: see Ahmed Saeed Flugreisen v Zentrale zur Bekampfung unlauteren Wettbewerb [1990] 4 CMLR 102. In United Brands v Commission [1978] ECR 207 the issue arose whether the banana market could be treated as the relevant product market as distinct from the entire fresh fruit market. The ECJ stated its approach at paragraph 22:

  75. "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."
  76. The Commission's Relevant Market Notice, like the United States Department of Justice 1984 Merger Guidelines, adopts a hypothetical model test of interchangeability as follows. How would customers in the market for product A react to a small but non-transitory increase in the price of A? If an increase in price of 5 to 10 per cent would lead to such a substantial substitution into product B as to render the increase in the price of A unprofitable by reason of consequentially reduced demand, product B must generally be treated as within the relevant market. This is generally referred to as "the SSNIP test".

  77. The evidence in the present case strongly suggests that during the period 1990-1991 there was both a substantial increase in the tonnages carried on the UK and North Europe to Israel routes and a steady decline in the use of bulk capacity relative to container capacity. This relative shift in demand for the two kinds of capacity suggests that the supply of bulk capacity was more vulnerable to interchangeability than was the supply of container capacity, there being a developing preference for container transport for those cargoes which were significant on the conference routes. The general effect of the evidence of Jean Richards strongly supports the asymmetric nature of the bulk and container markets. The analytical exercise conducted by Dr. Bishop by reference to relative trends in container and bulk time charter rates also suggests that these markets overall had no great overlap. Mr. Johnson's, albeit very broad brush, estimate of the extent of demand side switching from container capacity to bulk capacity at below 10 per cent further suggests that the two services had little practical overlap. However, not a great deal of weight can be placed on this view because it referred to a period of declining container rates. The real test would be the level of switching if container rates were increasing.

  78. I conclude that from the demand-side point of view, container transport was, during the period in question, seen as a generally more desirable mode of carriage than bulk carriage. It was seen as more reliable, more efficient and worth the deployment of, and investment in, the necessary cargo handling facilities. Although in certain trades, sugar and building material amongst them, there was some interchangeability from containers to break bulk capacity, this represented a very small overlap. Overall, there is, in my judgment, sufficient evidence to infer that a small long-term increase in container tariffs would not have led to any significant shift in demand from containers to break bulk and, having regard to the relative proportions of the total cargo carried by all means on these routes, certainly not to the extent that would have equaled the benefit to the conferences of a tariff increase.

  79. Accordingly, I hold that the relevant product market was the container market, both northbound and southbound and in respect of both Conferences' routes.

  80. Dominant Position

    The Claimant's Submissions

  81. The Claimant submits that in every case where the issue of dominance arises it is necessary to consider as a fundamental factor the undertakings' share of the relevant product market. In general the following exposition given by the ECJ in Michelin v Commission [1983] ECR 3461, [1985] 1 CMLR 282 needs to be qualified because the court has applied different indicators as to dominance:

  82. "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."
  83. In particular the existence of a dominant position does not indicate that all competitive pressures on the dominant party are absent and it can arise where substantial and even fierce competition from rival suppliers has a direct impact on market price. The Claimant relies on the CMB case as an example. Further an undertaking can be dominant even when other suppliers collectively have market shares which are large and even if in aggregate they exceed that of the undertaking. The Claimant relies for this proposition on United Brands, supra, and Virgin-British Airways Case 219/99. The ability to act "to an appreciable extent independently" is no more than an ability to affect or damage or hinder rivals in the market: it is not necessary that the undertaking has the ability to eliminate rivals.

  84. In reliance on the CMB Case the Claimant puts forward six relevant factors to be taken into account when assessing dominance.

  85. (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.

  86. Amongst these factors it is submitted that market share is fundamentally important. Thus in Hoffmann La Roche v Commission, supra, at paragraph 41 it was said that very large market shares are in themselves, and save "in exceptional circumstances", evidence of the existence of this dominant position. There is no case where market shares at the level of the Conferences in the present case (about 66 per cent) have not been held to give rise to a dominant position.

  87. The Claimant refers to a number of cases in which a market share lower than that of the Conferences in this case has been held to give rise to dominance, in particular Virgin-British Airways, supra, in which the Commission found British Airways dominant with 39.7 per cent, and United Brands, supra, where dominance was found at 40 to 45 per cent. It is right to observe that in both those cases the dominant undertaking was far larger than its nearest rivals. Much reliance is placed by the Claimant on the ECJ judgment in AKZO v Commission [1991] ECR1 – 3359 in which the ECJ held that 50 per cent of the market over a period of 3 years was a very large share of the market which was in itself, save in exceptional circumstances, evidence of the existence of a dominant position - applying Hoffman v la Roche, supra.

  88. Building on these decisions the Claimant submits that the greater the market share above 50 per cent the stronger is the presumption in favour of dominance and the more insurmountable becomes the burden on the defendant to rebut that presumption. Thus, for example, in Michelin [1985] 1CMLR 282 the ECJ held that a market share of 57 –65 per cent was "a valid indication of (its) preponderant strength in relation to its competitors."

  89. The Claimant submits that the market share of the Conferences was nearly 100 per cent during a period of about 4 years before BCL entered the market in 1988. By August 1990 BCL's share had been established at about 10 per cent. There was little or no new entry into the market other than BCL.

  90. Following the entry into the market of MSC in September 1990, the market share of the Conferences dropped. By January 1991 MSC's market share was 25-30 per cent. During the period January to March 1991 the Conference's market share was 66 per cent overall (58% southbound 75% northbound), MSC's market share was 27 per cent and BCL's share had fallen to 7 per cent. Over the whole of 1991 the Conference's market share averaged 68 per cent. Thus, throughout the relevant period, the Conference's market share was more than twice as large as that of MSC, its closest rival and accordingly there must be a very strong presumption of dominance.

  91. The Claimant submits that, in addition to the presumption attaching to this very large market share, there are other important factors which reinforce the conclusion of dominance. In particular the Conferences had long experience in the trades. Zim was 50 per cent owned by the State of Israel and in effect its national shipping line. It had very strong links with Israeli shippers and Israeli governmental institutions. In 1991 eighty five per cent of its 1500 employees worked in Israel. Borchard had operated in the trade since the 1930's and other conference members had done so for over 20 years. The Conference in general and Zim in particular therefore were in a position of strong influence over Israeli shippers who controlled both the import trade by the terms on which they purchased and the export trade by the terms on which they sold.

  92. A further factor, which, in the Claimant's submission, enhanced the Conferences' dominant position was the scope of the container service which they were able to offer. As pleaded by Borchard, the Conference was able to ensure that any of its vessels could serve any port at which any outsider sought to call - either under its existing schedule or by minor modifications to it. Thus in its Statement of Objections the Commission set out the number of sailings per year operated by Conference vessels - 151 or 12 to 13 per month, utilizing a total of 17 vessels of various capacities, ranging from 3 vessels of 240 TEU and 5 of 230/250 TEU, to one of 510 TEU, giving a total capacity of 6900 TEU's. By comparison their competitors offered a modest breadth of service. Until MSC came on the scene BCL offered 2 to 3 sailings per month, and MCL offered only a southbound service 2 or 3 times a month. From September 1990 MSC opened its service with 2 sailings a month by two 650 TEU ships. Up to that time shippers who regularly shipped containers could not avoid using the Conferences' services. In January 1991 MSC added two more vessels to its service bringing its total capacity to about 3000 TEU's with a service of 50 sailings per year or about 4 per month.

  93. Additionally, the Conferences' breadth of service in the Eastern Mediterranean enabled them to take measures to challenge competition from rivals who tried to establish services, such as BCL between Izmir and Israel and MSC calling at Cyprus. This they did during March – July 1991.

  94. Further, the Conferences were in a strong enough position relative to BCL and MSC to set tariffs above those charged by those competitors. Indeed, BCL recognized that if it were to compete effectively with the Conferences it was going to have to charge substantially less than the tariff. The Conferences' services had a premium value above the charges by competitors, which they could maintain in their charges without losing custom.

  95. The Conferences also had a superior intelligence – gathering facility to that of BCL or MSC. They reinstated the so-called FMC or "freight management committee" in Israel at a joint conferences meeting on 10th April 1991. Its function was stated to be that of "ensuring an utmost exchange of information on competition and to co-ordinate possible contacts/visits to clients". Zim was particularly adept in accumulating information about competitors as appeared from the evidence of Mr. Levy. Indeed, in April 1990 Mr. Levy had set up a system for computerising information about the operations of competitors. Although, as he said in evidence, 80 per cent of his information was from public sources, the rest was from his personal contacts in the shipping industry.

  96. The Claimant further relies on the great financial strength of the Conferences compared with their rivals, BCL and MSC. Although the latter had, by the beginning of 1990, expanded formidably from an operation with one 2800 dwt vessel 20 years previously to a medium sized carrier on a global scale operating 15 services with a fleet of 30 vessels having a capacity of nearly 390,000 TEU's each year, it was not a mainstream carrier, such as Zim or KNSM or Ellerman, all of whom were operating a wide international range of services, the last being valued at $60 million in September 1991. Indeed, the Conferences embarked on a price war in 1991 in the face of an estimate made in August 1990 that an all out freight war would cost DM50 million per year. Indeed, in July 1991 they considered that they should intensify the price war against MSC.

  97. Finally, the very fact that the Conferences were prepared to engage in a price war with BCL and MSC over such a long period is relied on as evidence of dominance. The willingness and ability to sustain the cost of predatory pricing indicated that the Conferences were working on the assumption that the benefits of success would outweigh the cost and that was a further pointer to dominance.

  98. In relation to the two main challenges to dominance advanced on behalf of the defendants, namely the submission that there were low entry barriers to the relevant market and the effect of MSC's entry on to the relevant market, the Claimant's submissions were as follows.

  99. As to low entry barriers, the Claimant submitted that, whereas the height of entry barriers is a relevant consideration on the issue of dominance, the defendants had exaggerated its importance relative to very high market share. In support of this proposition the Claimant relied on the CMB Case, supra, in as much as it was there held that the Conference was dominant even though in the West African trade the barriers to entry were distinctly lower than in the Israeli trade. Therefore the weight to be attached to the higher barriers to entry in the latter trade should not outweigh the higher level of market share in this case. Further, in the United Brands Case, supra, the entry barrier of a high capital cost of market entry, in spite of which there had been market penetration of 55 per cent by new entrants, did not prevent United Brands being held to be dominant.

  100. There were on the evidence relatively high barriers to entry on to the Israel trade. First and foremost was the Arab boycott of vessels and carriers. According to the evidence, which I accept, the Israel trade represented an extraordinary market and one which, as Mr. Johnson put it, "only the courageous would enter for a specific reason as against the general market", like trading to Cuba. It would involve the risk of adverse complications for carriers trading to Israel who wished also to conduct business with Arab states. Chartering in tonnage would be significantly more difficult so as to avoid black-listing. Vessels trading to Israel would be subject to extra hull and machinery insurance premiums. Due to political instability in the Eastern Mediterranean additional war risks premium might be incurred.

  101. Further, the Israel liner trade was relatively small and specialist. The ports were sometimes congested. The Israeli shippers, who controlled both northbound and southbound movements, and who, according to Mr. Meurs of KNSM, controlled about 75 to 80 per cent of the total trade, were notoriously difficult to deal with. Dealings with them by carriers involved hard bargaining on rates and service. It was therefore essential for a carrier to have a good personal relationship with the shipper if that carrier was to compete effectively in that market. Many of the Conference members, particularly Zim and Borchard, had been well-established in the Israel trade for many years and had strong links with the shippers as well as being experienced in the carriage of specialist cargoes. Additionally, if an outsider attempted to enter the Israel market, the progress in penetration could ordinarily be expected to be slow and the initial years were likely to involve substantial sunk costs and to be loss-making. A new entrant would therefore need a deep pocket to be able to afford to enter the market. Finally a potential new entrant would be deterred by the existing market strength of the Conferences which made it difficult for those shippers with requirements for regular tonnage to avoid using conference lines vessels both because of the regularity of conference sailings and the aggressive reaction of the conferences if they did not do so. The Claimant's expert economist, Dr Bishop, recognized that what he called "cultivating a reputation for toughness of price competition" would be a deterrent to outsiders attempting to penetrate the market. It is submitted that the substantial financial resources of many of the conference members would enable them to respond aggressively, which is what they did in 1991.

  102. The fact that during the period 1984 to 1994 only two carriers of any substance entered the market (BCL and MSC) suggested that there were substantial barriers to entry, particularly given that demand for capacity increased in 1989-1991.

  103. As to the effect of the entry into the market of MSC, the Claimant submits that the CMB Case, supra, where the market share of the conferences dropped by over 26% in three years establishes that where over a relevant period a dominant undertaking steadily loses market share to rivals in the market to the effect that its share is heavily reduced, but yet remains over 50 per cent, it does not thereby cease to have a dominant position. For that to happen its market share would have to be reduced to below 50 per cent. The Claimant argues that, given that there was a considerable expansion of demand for capacity in 1990-1991, although the Conferences lost market share, they did not lose overall tonnage and that MSC was obliged to incur very substantial costs in operating at lower rates than the Conference in order to gain a market foothold in an expanding market. Accordingly, MSC's entry and subsequent market share does not establish loss of dominance on the part of the Conferences.

  104. The Claimant further relies on the decision of the ECJ in United Brands for the proposition that the advantage of "lively competition" from market rivals with a 55 per cent market share in aggregate is not imcompatible with retention of a dominant position.

  105. In the present case MSC's market share, having risen during the period from September 1990 to January 1991 from nil to 25 per cent, did not alter greatly after that in spite of the competition presented by MSC. The advent of MSC did not pose any real threat to the survival of the conferences. The fact that Furness Withy, DNOL and KNSM left the Conferences in 1991/1992 and CIS went into liquidation was nothing to the point. The Conferences had to be looked at as a whole and not by reference to individual members who for their own tactical reasons might have chosen to leave and transfer their available capacity to other routes.

  106. From the point of view not only of relative market share but also of their other relative market strengths the case of dominance was stronger in this case than in the CMB Case.

  107. Dominant Position

    The Defendants' Submissions

  108. Borchard relies on the definition of a dominant position in The Office of Fair Trading Guidelines 402 Chapter II Prohibition, para 3.9.

  109. "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."
  110. It relies further on the explanation of the application of this test by the ECJ in Hoffman La Roche, supra, at paragraphs 38-41.

  111. On this basis Borchard argues that the effect of these authorities is that the position of economic strength of the allegedly dominant undertaking must at least enable it to prevent effective competition being maintained or to "hinder the maintenance of effective competition" as indicated by the ECJ in the Michelin Case, and that, although this does not involve that all competition is precluded, it does mean that the undertaking will have an appreciable influence over the conditions under which competition will develop and that it will be able to act largely in disregard of that competition so long as such conduct does not operate to its detriment. At the point where the strength of the competition is such that the undertaking cannot control the conditions under which the competitor acts and will act in disregard of its competitor at its peril the undertaking will cease to be dominant.

  112. Very large market shares may alone be evidence of dominance but there may be exceptional circumstances in which they are not. A high market share held for a long period with relative stability is an important consideration in favour of dominance. So too is the ability of the undertaking to manage such a large part of the supply relative to total demand that competitors cannot rapidly respond to demand from customers prepared to switch their business to their undertaking.

  113. Borchard further relies on Professor Yarrow's evidence that the rate of decline of the Conferences' market share in the period to January 1990 was of an "unprecedented" order of magnitude. This was much more rapid than the loss of market share in the CMB case (26 per cent over a three year period). In any event, in that case the decline in market share occurred after the end of the period of abusive conduct during which period the market remained steady at above 90 per cent.

  114. As to the decision of the ECJ in AKZO, supra, it is submitted that in addition to the size of market share two factors are to be considered even if the share is above 50 per cent. These are stability of the share, that is the period over which it is held and "exceptional" circumstances which may displace the presumption of dominance arising from the very high market share. The rapidity of loss of market share after the entry of MSC in September 1990 showed that the market share was not stable. Even though the Conference's market share remained relatively high at over 60 per cent after April 1991, the issue of dominance during that period has to be considered in the light of the earlier events following MSC's entry. Reliance is placed on Professor Yarrow's evidence that a dominant undertaking would not have allowed itself to lose 30 per cent of its market share in 3 months. Further, during the period after the Conferences' market share had fallen so rapidly, it stabilized because they stopped acting independently and permitted their own rates to be controlled by the market rates set by MSC and BCL.

  115. As to the breadth of experience of the Conference lines in comparison with that of their rivals, the evidence of customers shopping around for better rates suggested that little weight should be attached to this. Frequency of service provided by the conferences, although to be taken into consideration, should carry little weight because otherwise the Conferences could have charged a higher differential over competitors, according to Professor Yarrow. On the evidence the Conferences could not charge a significant premium over MSC's rates unless they were prepared to lose business. Borchard relies in support of this proposition on the evidence of Professor Yarrow to the effect that the Conferences were, during 1991, re-acting to MSC's rate-cutting and that customer demand was very sensitive to changes in price.

  116. Borchard challenges the Claimant's point that the Conference had a relatively deep pocket by comparison with MSC. The latter, having determined to enter the market, conducted a sustained price war at great cost. Several of the Conference members did not have a deep pocket and withdrew. CIS collapsed. Further, the Conferences were cumbersome in decision-taking as they had to respond collectively to MSC's rate changes, which meant that they were simply left to re-act to the price war.

  117. As to the United Brands Case, that like TetraPak, Akzo and CMB, differed from the present case because there was no comparable rapid capture of market share in those cases. After MSC had captured the market share the Conferences were obliged to bring prices into line with MSC and they ceased acting independently. The continuing level of market share after it had dropped to 65% did not connote dominance but merely competition.

  118. It was clear that the conferences could not act independently of MSC and of their customers. The willingness of shippers to employ MSC during the relevant period suggested the existence of effective competition and, as observed by Professor Yarrow, was inconsistent with dominance. Borchard emphasise that the speed and degree of the incursion into the market of the new entrant was highly relevant to dominance, particularly when it changed the nature of the market for good, as happened in this case.

  119. In summary, Borchard submits that the authorities support the proposition that, with regard to dominance, each case has to be decided on its own facts and that there is no reported case closely similar on its facts to this. In essence, at no relevant time during the period from MSC's entry until BCL's departure did the Conferences have sufficient power over the market to act so as effectively to eradicate or significantly hinder or reduce competition. This was particularly demonstrated by the history of market share as between the Conferences and MSC relative to their respective rate changes.

  120. The 2-4 Defendants draw attention, as particularly pertinent to the facts here, to the judgment of the ECJ in Hoffman La Roche, supra, at paragraphs 70-71.

  121. "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."
  122. In such a case the established undertaking would not have secured for itself "at the very least during relatively long periods, that freedom of action which is the special feature of a dominant position" (ECJ in Hoffman La Roche, at paragraph 41).

  123. It is further submitted that the southbound routes generated substantially higher revenues than the northbound routes, which I accept. Further, the Conferences had a lower share of the southbound market (in January/March 1991, 58 per cent) than of the northbound market (66 per cent), which I also accept. MSC had made a permanent inroad into both markets by April 1991. It had by then taken a market share of 30-33 per cent. This market development was inconsistent with dominance.

  124. The strength of MSC in the market was due to the following facts:

  125. "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."
  126. By April 1991 MSC had become the largest single container carrier in the trade – that is to say larger than any of the Conference members taken separately – having doubled its capacity on those routes in January 1991.

  127. The price war which was pursued by BCL and MSC against the Conferences during 1991 demonstrated the inability of the Conferences to "behave to an appreciable extent independently of their competitors" (Michelin [1983] ECR 3461 at p3503 para 30).

  128. The 2-4 Defendants submit that statistics as to market share are no more than an aid to identify dominance and are not conclusive. In the present case the circumstances in which MSC was able to wrest market share, the absence of entry barriers, the economic strength of MSC and its ability to sustain a long and vigorous price war without conceding market share to the Conferences outweighed the conclusion as to dominance that might otherwise be drawn from the conferences' market share.

  129. These defendants further rely on the perception of the European Shippers Council expressed in its 13 May 1991 letter to the European Commission in which the Council stated that "independents are left free to compete with the Conference Lines. Independent Lines do under-quote the Conference tariffs frequently but not always to the same extent".

  130. Zim relies in relation to the assessment of dominant position on Guidelines 415 on Market Power issued by the Office of Fair Trading pursuant to its powers under the Competition Act 1998, section 52(1). Guideline 415, it is submitted, provide a useful analysis of a market condition analogous to dominance. The main points may be summarised as follows:

  131. "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."
  132. Zim further draws attention to a passage in the judgment of the ECJ in Hoffman La Roche, supra, at para 48:

  133. "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."
  134. Zim submits in reliance on Prof Yarrow's evidence that entry barriers to the relevant market were low. Mrs Richards also accepted that, given the entry into the market of MSC, there were no major barriers to entry. Further, Zim relies on Prof Yarrow's identification of an essential consideration in respect of dominance – the ability of the undertaking to determine the rate of differential. There could be no dominance where, as in the present case, the Conference had no such power.

  135. As to actual market share in this case, Zim relies strongly on the evidence of Professor Yarrow that, whereas by January 1991 MSC had captured 30 per cent, by the end of 1992, over a year after BCL had left the market, MSC's share had risen to 40 per cent.

  136. Zim submits that the Claimant has exaggerated the height of entry barriers. It relies on Prof Yarrow's evidence and that of Mr Johnson who agreed with Prof Yarrow as to the implications in respect of entry barriers of first BCL and then MSC entering the market and gaining a market share in a very short time.

  137. As to the seriousness of the threat to the Conferences' market share represented by MSC, Zim relies on Mr Johnson's evidence to the effect that the Conferences' conduct in response to the rate war was to reduce rates in line with their competitors in order to protect their position. Had they failed to act they could have been expected to lose more and more business to MSC and at a lower cost to MSC in reduced rates.

  138. Dominant Position: the relevant Principle

  139. Before formulating the relevant underlying principle for identifying a dominant position it is necessary to consider three major decisions by the ECJ, namely Hoffmann-La Roche, supra, AKZO, supra and CMB, supra.

  140. The Hoffman-La Roche Case

  141. The issue was whether Hoffman-La Roche ("HLR") had a dominant position within the common market in the supply of certain vitamins and whether it had abused that position under Article 86 by concluding during the relevant period with certain purchasers of such vitamins agreements which imposed an obligation on the purchasers to buy all or most of their requirements of vitamins exclusively or in preference from HLR or which achieved that effect by means of the grant of fidelity rebates.

  142. Having observed at paragraph 38 that Article 86 was an application of the general objective of the activities of the Community laid down by Article 3(f) now 3(1)(g) of the Treaty, "namely the institution of a system ensuring that competition in the common market is not distorted", the judgment continues:

  143. "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."
  144. It is reasonably clear from this passage that to characterize an undertaking's market position as "dominant" involves in substance an evaluation of the ability of that undertaking to "distort" competition on the relevant market within the meaning of Article 3(1)(g) having regard to the power of the undertaking relative to the other participants in the market and relative to that of potential entrants to the market. The process of evaluation necessarily involves an assessment of the market participants - both competitors and customers and in that process of the relative weight to be accorded to each area of evidence. The exercise involves a decision as to whether evidence suggesting the undertaking's ability to distort competition outweighs evidence to the contrary. In this context the weight to be accorded to the market share of the undertaking depends at the outset on how large the market share is shown to be. A market share may be so large that, in the absence of very strong evidence to the contrary, the extent of the market share alone may be enough to establish dominance. As a matter of common sense, the larger the market share the greater the evidential weight in favour of dominance it is likely to represent. The inference of dominance to be drawn from a very large market share is thus likely to be very difficult to rebut. The use of the words "exceptional circumstances" referred to by the ECJ in paragraph 41 of Hoffmann – La Roche is, in my judgment, intended to make the point that, where the undertaking's market share is very large, that evidence in rebuttal is likely to be of very unusual facts and market conditions.

  145. The facts in Hoffman-La Roche exemplify the application of this approach: see for example as to vitamin A where HLR's share was 47 per cent (paragraphs 50-52), vitamin B group where HLR's share was 86 per cent (paragraphs 53-56), vitamin B3 where HLR's share was, in 1972, 28.9 per cent by value and 18.9 per cent by quantity, in 1973, 34.9 per cent by value and 23.4 per cent by quantity and, in 1974, 51 per cent by value and 41.2 per cent by quantity. In the case of vitamin A the ECJ observed that the shares of the four other producers ranged from 27 per cent down to 1 per cent and stated:

  146. "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.'"
  147. Accordingly a finding by the Commission of dominance was upheld.

  148. As to Vitamin B group the Court held that HLR's market shares were so large that they were of themselves evidence of a dominant position.

  149. However, the Court reversed the Commission's finding of a dominant position in the case of Vitamin B3. It observed at paragraph 58:

  150. "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."
  151. In relation to Vitamin C group where HLR's market share over the relevant three years ranged from 66.2 per cent to 64.8 per cent by value and from 64.4 per cent to 63 per cent by quantity the ECJ upheld the Commission's finding of dominance, referring to the gap between HLR's shares and those of its next largest competitors (14.8 per cent) as confirming the conclusion of dominance.

  152. In relation to Vitamin E group the agreed market shares of HLR ranged from 54 per cent to 64 per cent by value and from 50 per cent to 60 per cent by quantity. The Court observed:

  153. "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."
  154. It is to be observed that there appears to have been no evidence of special market circumstances which could outweigh the inference to be drawn from the preponderance of HLR's market share over its nearest competitor in the case of the Vitamins A, B group C group and E group. In the case of B3 the market share by value was 51 per cent in 1974 but, significantly, the inference which might otherwise have been drawn from this level of market share was not drawn. The reasoning cited above is instructive. The share was yet 6 per cent lower in 1971 than in 1972 and in 1973 a Japanese exporter succeeded in achieving a 30 per cent penetration of the market. Further, there were no additional facts which, when considered in addition to market share, established dominance. The 51 per cent by value in 1974 was thus held insufficient in these circumstances from which to infer dominance in that year. No doubt the 30 per cent Japanese penetration in one year was a significant factor in outweighing the market share in the following year. This authority is thus a helpful example of the kind of unusual circumstances which may displace the inference of dominance based on a very large market share.

  155. The AKZO Case

  156. The threshold issue was whether AKZO had a dominant position in the organic peroxides market. The alleged abuses were the targeting of the customers of a competitor, ECS, by means which included charging them lower prices than AKZO charged its own customers. The Commission's decision that AKZO held a dominant position in the organic peroxides market was based on the following factors set out at paragraph 56 of the judgment:

  157. "(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."
  158. The ECJ further took into account that AKZO had a stable market share of about 50 per cent from 1979 to 1982 and that it had not adduced any evidence to show that its share decreased during subsequent years.

  159. In concluding that the Commission's decision must be upheld the Court observed:

  160. "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 ..…."
  161. The reference to Hoffman-La Roche identifies, by footnote, paragraph 41 of the judgment which is cited above. As I have already explained, that judgment makes it clear that, in deciding whether in the context of a particular market an undertaking has a dominant position, considerable weight is to be attached to a very large market share amongst other factors, albeit that factor when taken alone is not necessarily determinative. Further, as I have also held, paragraph 41 of that judgment certainly does not state that very large market shares when taken alone are always irrebutably presumed to establish dominance but rather that, generally but not inevitably, a very large market share will be such strong evidence of dominance that it will not usually be outweighed by other factors.

  162. Accordingly, the passage at paragraph 61 of AKZO is to be understood as meaning that a market share of 50 per cent falls within the range of "very large market share" and therefore will generally be such strong evidence of dominance that it will not usually be outweighed by other factors unless they are unusual ones, peculiar to the conditions of the market in question.

  163. The fact that the ECJ in AKZO, as in Hoffman-La Roche, deployed additional factors which corroborated the conclusion that could be drawn from a very large market share further demonstrates that the latter is no more than strong evidence of dominance and is not irrebutably determinative of it.

  164. The CMB Case

  165. The Commission had ruled that CMB should be fined on the basis of a breach of Article 86 during the period 1988-1989. It was common ground between the parties that Cewal (the conference in question) had a market share during that period which exceeded 90 per cent. In subsequent years the market share fell: in 1990 above 80 per cent, in 1991 above 70 per cent and, in 1992, 64 per cent. The CFI, at para 77, observed that "throughout the period concerned, Cewal's market shares remained high, despite their steady erosion". It went on: "whilst retention of market share may show that a dominant position has been retained (Hoffman – La Roche), a decline in market shares which are still very large cannot in itself constitute proof of the absence of a dominant position". The CFI went on to conclude that the Commission was entitled to reach its conclusion on dominance on the facts, not only on the basis of market share but also, in as much as it had regard to other factors, namely:

  166. "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."
  167. It is clear from later passages in the judgment of the CFI that the only relevant period of abusive conduct was during the period when the market share of Cewal was over 90 per cent: see paragraph 169 and 183. Accordingly, the subsequent erosion of market share in the period 1990 to 1992 could be relevant to any breach of Article 86 only as evidence that during the period while the market share was still more than 90 per cent Cewal did not enjoy a dominant position. Thus, in so far as the CFI referred in paragraph 77 to " the period concerned" it must be taken to have been looking at the relevant evidence of market share as distinct from the period during which the abusive conduct occurred. The substance of the passage in question is therefore to the effect that the Commission was entitled to conclude that in 1988-1989 Cewal held a dominant position, taking into account that throughout the relevant period (1988 and 1989) its market share remained over 90 per cent, that after the relevant period its share gradually declined and that other factors, such as the Ogefrem agreement gave it added market strength during the relevant period.

  168. It follows that the court's application of principle to the facts in CMB is of only limited assistance when considering application in the present case where, on the evidence, loss of the Conferences' market share immediately prior to the period of alleged abuse was considerable, extremely rapid and, on the Conferences' case, uncontrollable by them.

  169. Discussion

  170. The "power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers" (Hoffmann La Roche, para 38) represents that position of economic strength necessary to distort competition on the relevant market (Article 3(1)(g)). For this purpose it is enough if the undertaking has sufficient strength, if not to dictate, "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 by it does not operate to its detriment" (Hoffmann La Roche, para 39). In this connection, it is to be noted that the existence of competition in fact in any given market is not incompatible with an undertaking having a dominant position in that market.

  171. In order to give precision to the application of these principles, it is important to formulate a working definition of competition and in particular of the manner in which it may be diminished. A useful reference point is to be found in OFT Guideline 400: The Major Provisions, published by the Director General of Fair Trading as an ancillary to the Competition Act 1998.

  172. "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."
  173. It stands to reason that there can only be competition in any given market if there are available competitors with the ability to compete. Accordingly, if in a particular market one undertaking has sufficient economic strength not merely to compete but also to exclude competitors from the market as a whole or at least to reduce their ability to compete in the market as a whole, that undertaking can generally be said to occupy a dominant position.

  174. Having regard to the overriding objective of Article 82, namely the preservation of existing competitive conditions in a given market, the requirement that a dominant position be proved represents an important part of this protective provision. It enables the Commission to police the preservation of competitive conditions by testing the likely future effect of conduct on the part of a market participant which apparently has the aim of preventing or reducing competition from rivals. Pursuing such a course of conduct is not per se contrary to the overriding objective unless the party concerned can make it succeed. The ability to do so depends on its relative market power at the time of the conduct. If it has a dominant position in this sense the Commission is entitled to presume that the abusive conduct may well succeed, even though it may not yet have done so, and that there is, currently, therefore abuse of that participant's dominant position. In other words, if the relative market strength of the undertaking is such as to prove a material threat to the maintenance or creation of competition should the undertaking determine that competition should be diminished or prevented, that undertaking will have a dominant position.

  175. In this connection, it is important to distinguish between the exercise of identifying sufficiency of economic strength to amount to dominance on the one hand and the use of economic strength in order to diminish or remove competition on the other. For the former purpose, it may be necessary to investigate not only the market share of the undertaking in question relative to that of its competitors but also such other factors as the ability of the undertaking effectively to ignore price differentials created by competitors because such differentials are unlikely to have the effect of reducing its market share. Equally, there is nothing incompatible in an undertaking with a dominant position taking part in justifiable competition. That would be the case where it did not misuse its economic strength. There can be no doubt, as is common ground, that the response or lack of response of an undertaking to competitive pressure in the relevant market can be evidence directly relevant to the issue of dominance. Equally, the effect of such response on market rivals can be evidence directly relevant to the issue of the extent of the market power of the undertaking in question relative to the market power of its competitors.

  176. The authorities to which I have referred demonstrate that the size of an undertaking's market share relative to that of its main competitors will in the ordinary case be a very weighty factor in determining whether it is dominant. Thus, it would indeed be hard to envisage that with a market share of 90 per cent any undertaking in any market would be unable to reduce or eradicate competition. However, as one comes to lower levels of market share, even above 50 per cent, the relative economic power of the undertaking may be reduced by outside factors, notably the economic strength of competitors. In such case the relevant test must be whether the relative strength of the allegedly dominant undertaking and its main competitors is such that the former undertaking could, if it chose to do so, either significantly reduce their market share to the point where they could offer materially less effective competition or drive them out of the market altogether or, if they had not yet entered the market, effectively deter them from doing so.

  177. Dominance on the Facts?

  178. Having regard to the effect of the authorities, which I have considered above, the essential issue on the facts can be stated as follows. During the relevant period from 19 April 1991 to the departure of BCL from the market on 3 October 1991 was the economic power of the Conferences, relative to that of their main competitor, MSC, and other less powerful competitors such as BCL, such as to enable the Conferences at least so substantially to reduce the market share of MSC and others had they chosen to do so or otherwise to reduce MSC's and the others' ability to compete as to diminish to a material extent effective competition in the relevant market as a whole? If the answer to that question is Yes, the Conferences held a dominant position. But if the answer is No, they did not. It is, in my judgment, correct to test dominance with primary reference to MSC in the present case because the main source of competitive power in the relevant market was that of MSC which had already entered the market six months before the commencement of the relevant period and had by then established itself as a market participant. It is therefore justifiable to "load test" the Conferences' relative economic strength by reference to their ability at the start of the relevant period to subjugate or reduce the competition presented by MSC. Unless the Conferences were likely to be able at least to reduce MSC's market share to a material extent if they chose to do so, as distinct merely from presenting competition to MSC, it is difficult to see on what other basis it could be said that they held a dominant position.

  179. In order to answer this question it is necessary to investigate the state of market competition before commencement of the relevant period in