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Sunday, 24 January 2010

This is a fun one, although not for the defendants. The case is Safeway v Twigger [2010] EWHC 11 Comm, decided on 15 January 2010 which arose out of the OFT's investigation into price fixing between the dairy processors and the supermarkets back in 2002-03. The OFT has issued a statement of objections, claiming a breach of the Chapter I prohibition. A number of those accused, including Safeway, entered into early resolution agreements with the OFT in order to resolve the case. For Safeway, the penalty is likely to be in the region of £10 million, including the discount for co-operation. Faced with this penalty, Safeway's, now under new ownership, decided to sue a number of its past employees and directors in order to obtain an indemnity against the penalty, as well as damages. The claim is that this group of people have acted in breach of their contracts, as well as in breach of their fiduciary duties, and negligently. The real target of this action, as the judge noted, would be the directors' and officers' liability insurance available to the defendants.

The defendants responded by arguing that this claim was barred as a matter of public policy for two reasons: it infringed the principle of public policy expressed in the maxim ex turpi causa non oritur actio, and in particular the rule that a person who commits an illegal or unlawful act cannot maintain an action for an indemnity against the liability which results from the act and it was fundamentally inconsistent with the United Kingdom competition regime established by the Competition Act 1998 and other statutes. This case dealt with the defendants' attempt to have the action struck out so the facts alleged by the plaintiff are assumed to be true. The defendants were able to satisfy the judge that a breach of the competition rules was sufficiently serious to engage the ex turpi causa principle, although the judgment contains an interesting discussion of the nature of such liability, but had more difficulty showing that the acts were those of the claimant, Safeway.


 

The problem here is that the defendants' actions were not obviously those of the company, for the purposes of the ex turpi causa rule. There was no decision of the board of directors or the shareholders in general meeting to pursue this course of conduct. As Flaux J put it this, "is wrongdoing for which the claimants have to take responsibility as a matter of law under the Competition Act." Therefore, he thought that the claimants has a real possibility of defeating the ex turpi causa defence at trial. As for the alternative claim, that this was contrary to the competition regime, he thought, "Parliament in both the 1998 Act and the 2002 Act was not intending to affect any common law remedies which an undertaking might have against its directors or employees which (unlike a claim for breach of statutory duty to which the defendants referred) arise wholly independent of the statute." As a result, he dismissed the striking out actions.


 

It strikes me that, if this is correct, then a couple of undesirable consequences flow from it. First, it moves the burden from the offending company to the insurers, albeit with quite a lot of transaction costs on the way. True, this claim will not always run, but it would seem plausible in the case of most companies with some spread of shareholding. Secondly, it would seem to reduce the incentive to enter into early resolution agreements or otherwise admit liability for the directors, as they may subsequently be hit with a claim and it might be more in their, and the insurance companies, personal interest to fight the liability issue. Alternatively, it could encourage them to be first in under leniency to try and obtain a 100% reduction. It's a difficult one, as neither party looks particularly meritorious, and the pre-existing law is difficult, to be polite. I suspect that we will here more about this.


 

Information about the OFT's case can be found here: http://www.oft.gov.uk/oft_at_work/markets/goods/dairy-products/

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