Hold very tight please, claimants

Award of exemplary damages in Cardiff Bus case raises the stakes for claimants in damages actions

Marc Israel

On 5 July the Competition Appeal Tribunal (CAT) handed down its judgment in the Cardiff Bus case, awarding damages in a ‘follow-on’ claim for the first time. This is also the first case in which exemplary damages for a breach of competition law have been awarded.

In January 2011, 2 Travel brought a claim against Cardiff Bus following a 2008 decision of the Office of Fair Trading (OFT) which found that, by engaging in predatory conduct, Cardiff Bus had infringed the Competition Act by abusing a dominant position in the market. In particular, when 2 Travel launched a no-frills bus service, Cardiff Bus introduced its own no-frills service on the same routes and at similar times of the day, with exclusionary and predatory intent. Shortly after 2 Travel’s exit from the market, Cardiff Bus withdrew its own no-frills services.

In its claim before the CAT, 2 Travel claimed for losses under a number of heads including loss of profits, loss of capital asset, loss of commercial opportunity, wasted staff and management time, and liquidation costs. 2 Travel also claimed exemplary damages, whose purpose is to ‘punish and deter’ the defendant in addition to compensatory damages that might be awarded. While the CAT dismissed most of 2 Travel’s claims it awarded damages for loss of profits (of £33,818.79 plus interest) and also exemplary damages of £60,000.

Notwithstanding the low value of the damages awarded, this was a landmark judgment and shows the willingness and ability of the CAT to deal with complex issues of causation and quantification of losses in the context of damages claims in competition cases.

It should be noted that although 2 Travel’s claim was before the CAT, the circumstances in which it considered exemplary damages to be appropriate are likely to apply equally to competition claims before the High Court.

The fact that damages were awarded on an exemplary basis is particularly noteworthy. While the primary purpose of a damages award is to compensate a claimant’s loss, exemplary damages can be awarded where compensatory damages alone would be insufficient to punish the defendant for ‘outrageous conduct’ including, as in this case, when the defendant was or should have been aware that its conduct was probably illegal.

The CAT also stated that when exemplary damages are considered they should have some bearing to the compensatory damages awarded – in this case, awarding exemplary damages about twice the size of the compensatory award – and that they should have regard to the economic size of the defendant to be “of an order of magnitude sufficient to make the defendant take notice”.

While the CAT concluded that it was “under no illusions that this judgment is likely to incentivise the bringing of claims for exemplary damages in competition cases”, in reality it is unlikely that they will be awarded in many cases. Therefore, while this landmark judgment is no doubt good news for potential claimants considering competition-based damages actions in the UK, it is unlikely to open the floodgates. It does, however, raise the stakes.
Nikos Dimopoulos, a solicitor in Macfarlanes’ competition team, assisted with this article