No restitutionary remedies for cartel victims

The judgment in Devenish Nutrition Limited v Sanofi-Aventis SA [2008] EWCA Civ 1086 has not only clarified the law on remedies available to victims of cartels; it is also of interest because the Court of Appeal made some important observations about the remedies available in tort law generally.

The background to the case is a decision adopted by the European Commission, in November 2001, in which it found that 13 vitamin manufacturers had infringed Article 81 EC by entering into worldwide cartels in respect of various vitamins. The Commission imposed what were, at the time, record fines upon the cartelists, amounting in total to some ‚¬855m.

Following the Commission's decision, Devenish and a number of other companies that had purchased vitamins from the cartelists issued a claim in the High Court. In addition to seeking compensation in respect of the 'overcharge', that is the actual price charged by the cartelists less the price that would have been charged if there had been no cartel, the claimants sought various different remedies. In particular, the claimants argued that they should be entitled to an account of profits, restitutionary damages, and exemplary damages (subject to a right of election).

'Proprietary' torts only

At first instance Lewison J held that the claimants were not entitled to any of these remedies but were confined to compensatory damages. In particular, Lewison J rejected the argument that compensatory damages would be inadequate due to evidential difficulties of exact proof. In respect of an account of profits and restitutionary damages, Lewison J held that these could only be awarded in response to 'proprietary' torts (for example trespass to goods or land) and not in a claim for breach of statutory duty, the cause of action relied upon by the claimants. Lewison J also held that the Commission's imposition of fines on the defendants precluded an award of exemplary damages, both as a matter of domestic and EC law.

The only part of Lewison J's judgment which Devenish appealed was the refusal to award an account of profits or restitutionary damages. Devenish sought to persuade the Court of Appeal that as a result of Attorney General v Blake [2001] AC 268 '“ where the House of Lords held that an account of profits could be awarded for breach of contract '“ a restitutionary award should now be generally available for all torts. In the words of Arden LJ, the appeal therefore raised 'a fundamental issue for the purposes of the law of tort'.

Upholding the decision of Lewison J, the Court of Appeal held (by a majority) that it was bound by its previous decision in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 as to the categories of tort in respect of which restitutionary awards could be recovered.

These categories did not include breach of statutory duty and therefore Devenish was not entitled to restitution.

Moreover, the Court of Appeal stated that, even if it had not been bound by this precedent, a restitutionary award would only be available in 'exceptional circumstances', and this condition was not satisfied in the present case because compensatory damages would be an adequate remedy for Devenish.

Finally, the Court of Appeal also rejected Devenish's contention that EC law required English domestic law to provide cartel victims with a restitutionary award.

The need to incentivise

There are two significant aspects to the Court of Appeal's decision. First, insofar as it confines victims of cartels to recovering compensatory damages, it will no doubt be regarded as a backward step by those who are keen to promote the private enforcement of competition law. Many potential claimants might be unwilling to incur risk of litigation if they know that they will only ever receive compensation. This problem '“ namely the need to incentivise private individuals and companies to bring competition law claims '“ explains why in the US victims of cartels are entitled to recover treble damages. However, as against this, it is necessary to balance the fact that the cartelists in this case had already received substantial fines from the European Commission; if, in addition, a restitutionary award had been granted, they would have suffered considerable injustice.

Secondly, the Court of Appeal accepted that, but for Stoke-on-Trent City Council v W & J Wass Ltd, restitution should now be available in response to all torts, provided that there are 'exceptional circumstances' which justify departing from the usual, compensatory measure of damages. It could be argued that this conclusion is based on an excessively liberal reading of Attorney-General v Blake. If Lord Nicholls, who gave the lead judgment in that case, had intended to establish such a proposition (and thereby effect a fundamental change in the pre-existing law), surely he would have said so expressly? Moreover, in proprietary torts, there is a direct nexus between claimant and defendant. In contrast, in many other tort cases the relevant tortious acts will affect an extremely wide pool of potential claimants over an extended period of time. In such circumstances, the availability of a restitutionary award would give rise to a huge number of potential multiple claimants. If some claimants sought to recover compensation while others claimed a restitutionary award, this would lead to a wholly inappropriate mixing and matching of remedies.