(by Andreas Stephan) It is disappointing, but understandable under the current law, that a potentially powerful deterrent to cartelists has been struck down before it could have an effect. The Appeal Court ruling blocks British supermarket Morrisons from suing former employees of Safeway Group (acquired by Morrisons in 2004) in relation to cartel fines imposed for the price fixing of dairy products in 2002-3. The Court of Appeal stressed that the Competition Act 1998 relates to the firm and not individuals. The long standing principle is that a claimant cannot recover damages for the consequences of his own (unlawful) acts.

Morrisons had previously enjoyed some success in seeking to recover around £10 million from the former Safeway employees. In January, the individuals had been unsuccessful in . The case would probably have been the first action of its kind in competition law anywhere in the world. The Court of Appeal’s ruling now shuts the door to such actions in England and Wales.

the relevant provisions of the Competition Act 1998 (broadly the domestic equivalent to Article 101-102 TFEU) impose liability on corporations and not individual employees or company directors. The firm is therefore directly or ‘personally’ liable for any breach of competition law, not vicariously liable by virtue of their employees’ actions. The fact that the illegal acts were not backed by the board of directors or created within the formal structure of the firm, does not negate this. The defendants can therefore rely on the principle of ex turpi causa non oritur actio (from a dishonourable cause an action does not arise) to block the action.

As previously discussed on this blog, serious doubts can be raised as to the deterrent effect of civil sanctions on the firm, if these are not accompanied by sanctions on the individuals responsible. In the present case, no criminal charges were brought and no director disqualification orders sought. The employees Morrisons claims were responsible for Safeway’s breach of competition law, moved on to new firms, with the brunt of the OFT’s fines being felt by Morrison’s shareholders. In his reasoning, Lord Justice Pill said “Only if the undertaking itself bears the responsibilities, and meets the consequences of their non-observance, are the public protected. A deterrent effect is contemplated and the obligation to provide effective preventative measures is upon the undertaking itself” (at 44).

While firms clearly have a responsibility to promote competition law compliance among their employees, many cartels are covertly formed by a small number of determined individuals who know what they are doing is illegal. . Ensuring the individuals responsible face consequences is surely a stronger strategy for achieving deterrence.

The Court of Appeal’s decision does not necessarily reflect a misunderstanding of cartel deterrence. The Competition Act relates to undertakings only and does not impose liability on individuals. When the legislation was drafted these issues were not foreseen or subject to proper discussion. With criminal enforcement seriously hindered by the collapsed British Airways case earlier this year, it may be time to rethink the design of civil sanctions so that it is possible for firms to pursue individual cartelists through private actions.