Safeway v Twigger could hamper OFT’s efficacy

Nicholas Heaton

In Safeway Stores Ltd & Ors v Twigger & Ors (2010) the court’s conclusion that Safeway has real prospects of defeating the public policy defences could have important ramifications.

Safeway is expected to receive a hefty fine as a result of the OFT investigation into alleged collusion between supermarkets and dairy processors. Safeway has brought a claim against former directors and employees whom it alleges were responsible, in which it seeks to recover the amount of the fine and its costs for breach of contract and fiduciary duty.

The defendants applied to strike out the claim and obtain summary judgment on the basis that Safeway’s claim must fail as a matter of public policy. Their principal argument was that it infringed the ­principle of ex turpi causa – that you ­cannot rely on your own unlawful or ­illegal acts (in this case Safeway’s breach of competition law) to found a claim.

The court concluded that, although breach of the Competition Act is sufficiently serious to engage this rule, for it to preclude the company’s claim the wrongful acts must be those of the company itself, not merely acts of its employees that were for certain purposes attributed to it.

A company is only primarily liable for a breach of competition law if the anticompetitive conduct was approved by the board or shareholders (not so in this case) or was the act of the company’s ’controlling mind’ (as in a one-man company).

Safeway, therefore, has a good chance that the ex turpi causa defence will fail.

The court stressed that it was applying ­established law, albeit to a novel set of facts.

This is the first UK case in which the courts have indicated that a company may have a good claim to recover a competition law fine from its employees. As damages claims for competition infringements become more common, there is no reason why the same argument would not also apply to a claim to recover damages.

The ability to bring such claims may be attractive, given the high fines and the exposure to substantial damages claims following a finding of infringement. But such claims will only be worthwhile if the employees concerned are ­covered by directors and officers (D&O) insurance. This case may cause D&O insurers to examine the scope of cover they provide.

The risk that an individual may be ­personally liable if their employer is fined may prove a further deterrent to ­anticompetitive behaviour and will need to be factored in to competition compliance programmes. Although individuals in the UK involved in cartels can face criminal sanctions, these powers are used rarely and apply in limited circumstances, whereas any breach of UK or EC ­competition law resulting in a fine could lead to exposure to claims of this kind.

The risk of personal liability may, ­however, create challenges for companies defending themselves in competition investigations. Companies need the ­assistance of employees to understand what has happened, but those individuals may be less willing to cooperate if they could be exposed to personal liability and they may want protection from potential claims before cooperating.

Conflicts of interest could also arise between individuals and the company, requiring separate advice, thus further complicating investigations. In turn, this may make it more difficult for companies to take advantage of the OFT’s leniency programme, which is a key aspect of its antitrust policy.