Neutral Citation Number: [2004] EWCA Civ 1034 Case No: A3...

Neutral Citation Number: [2004] EWCA Civ 1034Case No: A3 2002 2587

IN THE SUPREME COURT OF JUDICATURECOURT OF APPEAL (CIVIL DIVISION)ON APPEAL FROM HIGH COURTCHANCERY DIVISIONMR JUSTICE LLOYD

Royal Courts of JusticeStrand, London, WC2A 2LL

Date: 30/07/2004Before :

LORD JUSTICE PETER GIBSON LORD JUSTICE JONATHAN PARKER

andMR JUSTICE LADDIE

- - - - - - - - - - - - - - - - - - - - -Between :

Unipart Group Ltd Appellant- and -

O2 (UK) Ltd (formerly BT Cellnet Ltd) and Anor Respondents

- - - - - - - - - - - - - - - - - - - - -

Mark Brealey QC (instructed by Messrs Nabarro Nathanson) for the AppellantNicholas Green QC and Sarah Stevens (instructed by Messrs Lovells) for the Respondents

Hearing dates: 8 July 2004- - - - - - - - - - - - - - - - - - - - -

Judgment

Judgment Approved by the court for handing down(subject to editorial corrections)

Unipart Group Ltd v. O2(UK) Ltd & Anor

CONTENTS

Introduction paragraphs 1 � 16

The contractual relationship between the parties paragraphs 17 � 22

The pleadings paragraphs 23 � 36

The judge�s judgment paragraphs 37 � 45

The grounds of appeal paragraph 46

Cellnet�s Respondent�s Notice paragraph 47

The authorities:

XXThe European authorities paragraphs 48 � 72

XXThe domestic authorities paragraphs 73 � 78

The arguments on this appeal paragraphs 79 � 89

Conclusions paragraphs 90 � 108

Result paragraph 109

Lord Justice Jonathan Parker :

INTRODUCTION

1. This appeal concerns the applicability of Article 81 in Chapter 1 of Part III of theEC Treaty to allegedly anti-competitive conduct in the market for the wholesalesupply of airtime for mobile telephones.

2. Article 81(1) is in the following terms (so far as material):

�The following shall be prohibited as incompatible with thecommon market: all agreements between undertakings,decisions by associations of undertakings and concertedpractices which may affect trade between Member Statesand which have as their object or effect the prevention,



restriction or distortion of competition within the commonmarket �..�

3. A number of examples are then given.

4. Article 81(2) provides that any agreements or decisions prohibited under Article81(1) shall be automatically void. Article 81(3) lists various exemptions fromthe prohibition in Article 81(1), none of which applies in the instant case.

5. Article 82 is also of indirect relevance to the present appeal, in that therelationship between the Articles 81 and 82 forms an important part of the contextin which Article 81 is to be interpreted. Article 82 provides (so far as material):

�Any abuse by one or more undertakings of a dominantposition within the common market or in a substantial partof it shall be prohibited as incompatible with the commonmarket in so far as it may affect trade between MemberStates. Such abuse may, in particular, consist in: �.�

6. As in the case of Article 81(1), a number of examples are then given.

7. The particular issue raised by the appeal is whether the anti-competitive conductof which complaint is made was the subject of an agreement betweenundertakings, within the meaning of Article 81(1); or whether, by contrast, it was�unilateral� conduct, as that concept has been explained and developed in theauthorities. If the former, Article 81 is engaged; if the latter, it is not.

8. The claimant in the action is Unipart Group Limited, as assignee of the cause ofaction (if any) of its former subsidiary UniqueAir Limited. The first defendant inthe action is O2 (UK) Limited, formerly called BT Cellnet Limited. The seconddefendant is Call Connections Limited, a subsidiary of the first defendant. Sinceno distinction falls to be made on this appeal between Unipart and UniqueAir, orbetween the first and second defendants, I shall refer to them as �Unipart� and�Cellnet� respectively.

9. Unipart�s claim in the action relates to the period 1996-1999. During that period,it carried on business as an independent service provider (�ISP�), purchasingairtime wholesale from network operators (i.e. operators of mobiletelecommunications systems under licence) and retailing the airtime as part of apackage to end-users. Cellnet has at all material times carried on business as anetwork operator. It also owns or controls a number of service providers (referredto as �tied service providers� or �TSPs�).



10. During the relevant period Unipart purchased airtime from Cellnet under the termsof various written agreements in Cellnet�s standard form for the supply of airtimeto service providers (including its TSPs). Only two of those agreements havebeen referred to on this appeal: an agreement dated 21 October 1986 (�the 1986Agreement�) relating to Cellnet�s analogue system, and an agreement dated 21September 1994 (�the 1994 Agreement�) relating to Cellnet�s digital system.However, it is common ground that these two agreements were typical of theagreements which governed the contractual relationship between Unipart andCellnet during the relevant period.

11. By the agreements in question, Unipart agreed to pay for airtime on Cellnet�stelecommunications system in accordance with Cellnet�s charges as specifiedfrom time to time in its published price list.

12. In the action Unipart claims damages against Cellnet, alleging that the terms andconditions on which Cellnet supplied airtime to ISPs (including Unipart) duringthe relevant period breached Article 81. In particular, it is alleged that Cellnetadopted a policy of �margin squeeze�; that is to say a policy of charging serviceproviders excessive prices for airtime and thereby, due to its market power,compelling ISPs to reduce or even to eliminate their retail margins in order toremain competitive, whilst at the same time cross-subsidising its TSPs from theresulting profits and thereby placing them at a competitive advantage over ISPs.Unipart seeks to found its claim for damages under Article 81(1) on its agreementto pay the prices set by Cellnet from time to time.

13. Whilst denying that it adopted a policy of �margin squeeze�, Cellnet contends thatin any event Article 81 is not engaged since such a policy (if adopted) was not thesubject of any agreement between undertakings, within the meaning of the Article;rather, it contends that the adoption of such a policy can only have been a�unilateral� act on its part, and as such outside the terms of the Article. Inparticular, Cellnet denies that Unipart�s agreement to pay the prices set by Cellnetfrom time to time can found a claim under Article 81 for damages allegedlysuffered by Unipart as a result of �margin squeeze�.

14. Cellnet accordingly applied for summary judgment, alternatively for the claim tobe struck out. The application was heard by Lloyd J.

15. In his judgment delivered on 22 November 2002 the judge held in favour ofCellnet that there was no relevant agreement between undertakings within themeaning of Article 81(1). He held that �the conduct complained of was indeedtruly unilateral on the part of Cellnet�. Accordingly, by his order of that date heentered summary judgment in favour of Cellnet.

16. With the permission of the judge, Unipart appeals against that order.



THE CONTRACTUAL RELATIONSHIP BETWEEN UNIPART AND CELLNET

17. I turn next to the contractual relationship between Unipart and Cellnet during therelevant period, as exemplified by the 1986 Agreement and the 1994 Agreement.

18. Both agreements were, to use the judge�s word, �facultative�, in the sense thatUnipart remained free to decide how much (if any) airtime to purchase, andgenerally how much (if any) business to transact with Cellnet thereunder.

19. Clause 5(1) of the 1986 Agreement provided as follows (so far as material):

�[Unipart] shall pay in respect of its Subscribers thecharges of [Cellnet] �. set out in the Tariff of Chargespublished from time to time by Cellnet (the current Tariffof Charges being attached hereto). Such Tariff of Chargesmay be altered by [Cellnet] at any time subject to thegiving of such prior notice as may be practicable (and inany event one month�s prior notice) to [Unipart].�

20. Clause 4.1 of the 1994 Agreement provided as follows (so far as material):

�[Unipart] shall pay Cellnet for all access to the System[i.e. Cellnet�s cellular telecommunication system] and useof the System �. and all other services provided to[Unipart] by Cellnet, in accordance with Cellnet�s chargespublished from time to time in the Price List.�

21. The �Price List� was defined in clause 1.1 as meaning Cellnet�s price list asamended by Cellnet from time to time.

22. Clause 29 of the 1994 Agreement provided as follows (so far as material):

�This Agreement and the Price List constitutes the entireagreement between the parties hereto in connection withaccess to the System �. pursuant to this Agreement andthere are no other agreements, written or oral. �.�

THE PLEADINGS

23. I turn next to the pleadings.

24. Paragraph 1 of Unipart�s Particulars of Claim, under the heading �Nature of theClaim�, pleads as follows:



�By this Claim [Unipart] claims relief against [Cellnet] as aresult of the way in which Cellnet sold airtime on itsmobile telecommunications network. The terms andconditions pursuant to which Cellnet sold airtime distortedcompetition contrary to Article 81 �.�

25. In paragraph 6 it is alleged that during the relevant period (1996-1999) Cellnetenjoyed substantial market power in the mobile telecommunications market. It is,however, important for present purposes to note that it is not alleged that Cellnetoccupied a dominant position in that market, such as might found a claim underArticle 82.

26. Paragraphs 14 and 15 of the Particulars of Claim are in the following terms (so faras material):

�ANTI-COMPETITIVE MARGIN SQUEEZE

14. A mobile network operator (i) that possesses a highdegree of market power in the wholesale supply of airtimeand makes high returns on its mobile telecommunicationsnetwork (due to limited competition in that market) and (ii)that substantially influences the retail prices for its airtimehas the potential to squeeze the margins of serviceproviders but cross-subsidise its TSPs so distortingcompetition between the ISPs and TSPs. The marginsqueeze works as follows:

(a) If wholesale prices are set at a high level relative toretail prices�. such that TSPs are unable to make anadequate return on capital, the margin available to ISPs isalso reduced to a level which prevents an adequate returnon capital being made (since they face the same or similarwholesale prices �. and must set competitive retail prices�.).

(b) From the network operator�s point of view the effect issimply to transfer losses from the service provision level tothe network level. The TSPs are able to survive in theservice provision market, despite their inadequate margin,because their losses are financed from the high rates ofreturn made by the mobile network operator.

(c) ISPs, on the other hand, do not have this possibility totake profits at the network level and are therefore unable tomake an adequate return on capital.

15. The margin squeeze is anti-competitive since it has asits object (in the sense of being reasonably foreseeable) oreffect the competitive weakening of ISPs and their eventual



elimination from the mobile service provision market.This reduces competition in the mobile service provisionmarket and customer choice.�

27. Paragraph 16 of the Particulars of Claim pleads that �[i]n order to preventCellnet�s wholesale terms and conditions distorting competition� the Departmentof Trade and Industry attached conditions to Cellnet�s licence which wereenforced by the Office of Telecommunications (�OFTEL�); and that thoseconditions included a condition prohibiting Cellnet from granting unfair cross-subsidies to its TSPs. Paragraphs 17 to 21, under the heading �The OFTELFormula�, plead that in 1994 OFTEL introduced a formula �to ensure that amargin squeeze would not distort competition between Cellnet TSPs and ISPsselling Cellnet airtime�. Paragraph 22 alleges that Cellnet circumvented theOFTEL formula by making incentive payments direct to its TSPs. Paragraph 25pleads that in 1997 OFTEL amended its formula, so as to treat such incentivepayments as a cost to the TSP. Paragraphs 26 to 30 plead that in February 1999OFTEL published its finding (which it confirmed in July 1999) that �Cellnet wassqueezing the margins of service providers and providing cross-subsidies to itsTSPs�.

28. In paragraph 32 of the Particulars of Claim is alleged that Cellnet set its prices forairtime at anti-competitive levels. The paragraph reads as follows:

�During 1996-1999 the terms and conditions pursuant towhich Cellnet supplied airtime to service providers,including [Unipart], breached Article 81. These terms andconditions breached Article 81 when considered in the legalcontext (i.e. the conditions set out in Cellnet�s licence) andthe economic context of the Cellnet TSPs failing to meetthe OFTEL formula and/or failing to obtain a reasonablereturn on capital.�

29. Paragraph 33 of the Particulars of Claim alleges that service providers weregranted access to Cellnet�s mobile telecommunications network by agreements inCellnet�s standard form. Paragraph 34 alleges that Unipart and Cellnet were�undertakings� for the purposes of Article 81. Paragraph 35, under the heading�Relevant agreements between undertakings�, pleads as follows:

�Therefore, the agreements between undertakings relevantto this Claim are:

(a) The individual agreements for the supply of airtimebetween Cellnet and [Unipart].

(b) The bundle of agreements for the supply of airtimeconcluded between Cellnet and those service providersthat constituted undertakings.�



30. Paragraph 36 of the Particulars of Claim, which appears under the general heading�Prevention, restriction or distortion of competition� and the sub-heading �Marginsqueeze�, is central to the issue which arises on this appeal. It reads as follows:

�36. For the period 1996-1999 Cellnet�s terms andconditions upon which it provided airtime to serviceproviders resulted in an unlawful margin squeeze on[Unipart] and other ISPs selling Cellnet airtime. This putthe ISPs including [Unipart] at a competitive disadvantagevis-à-vis the Cellnet TSPs.� (Emphasis supplied)

31. In paragraph 39 of the Particulars of Claim it is alleged that the object or effect ofthe agreements governing the contractual relationship between Cellnet andUnipart during the relevant period was the distortion of competition in the UKmobile service provision market. In paragraphs 40 and 41 similar allegations aremade in relation to Cellnet�s agreements with other service providers.

32. Paragraph 42 of the Particulars of Claim alleges that:

��. [t]he margin squeeze was achieved by virtue ofCellnet�s substantial market power in the wholesale supplyof mobile telecommunications airtime in the UnitedKingdom�.

33. Paragraph 44 of the Particulars of Claim pleads that the terms and conditions onwhich Cellnet supplied airtime to Unipart and to other service providers during therelevant period had an effect on the pattern of trade between member states.Paragraphs 45 to 48 plead that Cellnet�s breach of Article 81 caused loss anddamage to Unipart.

34. By its prayer for relief Unipart seeks, firstly, declarations that the terms andconditions on which Cellnet supplied airtime during the relevant period to Unipartand to other service providers breached Article 81; and, secondly, damages.

35. By its draft Defence, Cellnet denies the allegations of �margin squeeze�,contending that Unipart�s references to OFTEL are selective and misleading.Paragraphs 30 and 31 of the Defence, under the heading �Agreements betweenundertakings�, are in the following terms (so far as material):

�30. Regarding paragraphs 33 to 35 [of the Particulars ofClaim], for the purpose of establishing �agreementsbetween undertakings� within the meaning of Article 81(1)it is necessary to prove:

(a) that there is an agreement in the sense of asubjective concurrence of wills. A unilateral act is notan agreement; �.



[(b)]

31. �.it is averred that the level of prices set out in thePrice List were [sic] not agreed between Cellnet and itsservice providers, but in all material respects were setunilaterally by Cellnet.�

36. In paragraph 34 of its draft Defence Cellnet denies that the agreements relied onby Unipart had as their object or effect the prevention, restriction or distortion ofcompetition within the common market, as required by Article 81(1). Inparagraphs 42 to 45 of its draft Defence, Cellnet denies Unipart�s allegations ofloss and damage.

THE JUDGE�S JUDGMENT

37. The issue of law before the judge as formulated by Mr Nicholas Green QC (forCellnet) � a formulation from which Mr Mark Brealey QC (for Unipart) did notdissent � was as follows:

�In a case where a supplier agrees a price with a dealer, butwhere power to set a price is entirely in the hands of thesupplier, can there be a breach of Article 81 where the levelof price set by the supplier is alleged to be restrictive ofcompetition?�

38. In addressing that issue, the judge proceeded on the assumption that theallegations of fact in the Particulars of Claim, including the allegation of distortionof competition, were true.

39. After summarising the factual allegations and the arguments which had beenaddressed to him, the judge turned to the decision of the European Court of FirstInstance (�the CFI�) in Case T-41/96 Bayer AG v. European Commission [2000]ECR II-3383. Mr Green had relied strongly on Bayer in support of thesubmission that the setting of the level of price was �unilateral� conduct byCellnet, to which Article 81 could have no application.

40. In Bayer, which I shall have to consider in more detail later in this judgment, theCFI held that, contrary to the decision of the European Commission, allegedlyanti-competitive conduct by a manufacturer in relation to the supply of its productto wholesalers was unilateral conduct on its part, and hence that Article 81 wasnot engaged. The Commission�s appeal to the European Court of Justice (�theECJ�) was pending when the judge delivered judgment in the instant case. (TheCommission�s appeal has since been dismissed by the ECJ, and I shall refer in duecourse to the ECJ�s judgment.)



41. After citing two passages from the judgment of the CFI in Bayer (viz. paragraphs64-72, quoted in paragraph 51 below, and paragraphs 172-176, quoted inparagraph 61 below), the judge continued (in paragraphs 17 and 18 of hisjudgment):

�17. Thus a distinction has to be drawn betweensomething which is genuinely unilateral conduct on the partof an undertaking, on the one hand, and on the other theconcurrence of wills of two separate undertakings bywhich, in whatever manner, they express their jointintention as regards the implementation of a policy, thepursuit of an objective, or the adoption of a given line ofconduct on the market. While practices apparentlyunilateral on the part of a supplier may be regarded as thesubject of an agreement between undertakings, they cannotproperly be so regarded unless they receive the express ortacit acquiescence of the customers. A manufacturer whodoes not have a dominant position may adopt a supplypolicy which suits him, even if designed to hinder parallelimports, and even though the implementation of that policymay entail restrictions on competition and affect tradebetween member states, so long as there is no concurrenceof wills between him and his wholesale customers on thepoint.

18. Mr Green submits that this is exactly such a caseif, as I have to assume for present purposes, Cellnet�spolicy did distort competition. ISPs such as UniqueAir didnot acquiesce tacitly or otherwise in Cellnet�s policy.Indeed they complained vociferously to OFTEL about itand, it is said, persuaded OFTEL to force Cellnet to reduceits wholesale charges. They were no more acquiescent thanwere Bayer�s French and Spanish customers. That shows,he says, if demonstration were needed, that Cellnet�sconduct was truly unilateral, and was opposed and objectedto by the other parties to the relevant agreement, so thatthere was certainly no concurrence of wills, indeed quitethe contrary.�

42. The judge then turned to two decisions of this court, on which Mr Green had alsorelied, namely Richard Cound Ltd v. BMW (GB) Ltd [1997] EuLR 277 and CloverLeaf Cars v. BMW (GB) Ltd [1997] EuLR 535. In those cases (which I shall call�the BMW Cases�), this court held that the giving of a notice of termination undera contract was unilateral conduct, and not the subject of an agreement betweenundertakings within the meaning of Article 81.

43. The judge continued (in paragraph 20 of his judgment):



�20. To give notice of termination of an agreement,whereby the entire agreement is brought to an end, mayseem to be fairly obviously unilateral action, at any rate asbetween the parties to the agreement. Mr Green submits,however, that the reasoning applies equally to the exerciseby the manufacturer of a unilateral right reserved by theagreement to alter the prices payable. It is accepted, andindeed alleged as the basis of the Claimant�s case, thatCellnet set the level of prices itself. It is not alleged, and todo so would be inconsistent with the whole way the casehas been presented to me, that UniqueAir acquiesced tacitlyor otherwise in Cellnet�s alleged policy of setting prices soas to produce a margin squeeze. Thus, he submits, I can seethat this action by Cellnet was truly unilateral, albeit that ithad effect, as regards UniqueAir, under a contract, either bysetting the prices originally in force to which UniqueAirbound itself when entering into the contract for the firsttime, or by altering the prices for the future during thesubsistence of the contract.�

44. The judge then returned to the CFI decision in Bayer, saying this (in paragraphs21 and 22 of his judgment):

�21. The propositions which Mr Green derives fromBayer include in particular, in response to the way MrBrealey puts his case, the point that it is not sufficientmerely to allege that (a) there is an agreement betweenundertakings and that (b) the effect of that agreement, asregards the prices charged, is to distort competition. Hesays that would be inconsistent with paragraph 176 of thejudgment. Mr Brealey counters by submitting that inPhilips Electronics NV v. Ingman Ltd [1998] 2 CMLR 839it was held by Laddie J that a price provision could by itselfinfringe article 81. That case arose from the patent poolingagreement between Philips and Sony as regards CDtechnology. Under that agreement the patents had beenassigned to Philips and terms were agreed as to the basis onwhich licences would be granted to third parties to use thepatents. Clearly it was possible that this agreementinfringed article 81, and it was so alleged. It was alsoalleged that the terms of the standard licence infringed thearticle separately. The major objection to the standardlicence was to the royalty rate, which was said to be toohigh, or discriminatory, or both. Laddie J, considering astriking out application, said that it seemed to be arguablethat an excessive royalty might constitute an abuse underarticle 81. He referred to one case under this article, CoditelNo 2 [1982] ECR 3381, which arose from an exclusivelicence as regards copyright, and quoted a passage from the



judgment which shows that the court saw it as possible thatthe exercise of the exclusive right to exhibit a film mightcreate barriers which are artificial and unjustifiable in termsof the needs of the cinematographic industry or thepossibility of charging fees which exceed a fair return oninvestment. As it seems to me both the case before Laddie Jand Coditel are clearly distinguishable from the presentcase. The Philips case arose from an agreement betweenundertakings, namely that between Philips and Sony, sothat Philips could not have argued that their conduct inrespect of the standard licence was purely unilateral. InCoditel any distortion of competition also arose from anagreement between undertakings, namely the provision forexclusivity in the licence. That too was the subject of thenecessary concurrence of wills.

22. So it seems to me that neither Philips nor Coditelprovides guidance as to the answer on the facts of thepresent case, whereas Bayer lays down principles, withwhich the Court of Appeal decisions in 1995 are entirelyconsistent, and which are binding on me in seeking todetermine whether the conduct alleged by the Claimant iscapable of constituting an agreement between undertakingswithin the meaning of article 81.�

45. The judge then referred to the authorities on which Mr Brealey had relied(including the decision of the European Commission in A. Bulloch & Co v.Distillers Co Ltd [1978] 1 CMLR 400 (�Distillers�)) as examples of cases inwhich conduct which at first appears to have been unilateral proves, on furtherinvestigation, to have been the subject of an agreement between undertakingswithin the meaning of Article 81. The judge continued (in paragraph 24 of hisjudgment):

�24. In the light of the reasoning in Bayer, however, itseems to me that the question I have to ask is whether theconduct complained of, which on the face of it is unilateral,could be shown to be the subject of express or tacitacquiescence on the part of UniqueAir, so that UniqueAiragreed to the conduct objected to. Mr Brealey says that it isobviously so, because UniqueAir agreed to pay the pricescharged, and therefore agreed to the prices. That seems tome too simple an approach. Of course UniqueAir agreed tothe terms of clause 4.1, and was contractually bound, onprinciples of English contract law, to pay the prices, subjectonly to proper notice of any new price list. But clause 4.1 isnot what is objected to. It seems to me that Mr Green isright to say that the acquiescence has to be in relation tothat to which objection is taken, namely the level of prices,not just the fact of having to pay a given price. TheClaimant, however, does not allege that it did acquiesce in



that and indeed shows that to the contrary it objected tothem and, as regards OFTEL, it says successfully. It seemsto me that I must draw the conclusion that the conductcomplained of was indeed truly unilateral on the part ofCellnet, and that on the facts alleged it cannot be shown tohave been the subject of an agreement betweenundertakings, and it does not infringe article 81. It followsthat the claim could not succeed at trial and I will givejudgment for the Defendants under CPR Part 24.�

THE GROUNDS OF APPEAL

46. By its grounds of appeal Unipart contends that the judge fell into error in holdingthat for Unipart�s claim to succeed it had to prove that it acquiesced in Cellnet�salleged policy of margin squeeze. It is contended that it is sufficient for Unipartto establish that it agreed to pay the prices set by Cellnet; that the imposition of anadditional requirement of acquiescence in the alleged policy of margin squeeze iscontrary to the plain words of Article 81 and is not supported by authority; andthat the judge incorrectly interpreted the CFI�s judgment in Bayer. In thealternative, it is contended that Unipart�s conduct in continuing to pay the pricesset by Cellnet constituted sufficient acquiescence to engage Article 81.

CELLNET�S RESPONDENT�S NOTICE

47. By a Respondent�s Notice, Cellnet invites us to uphold the judge�s decision on theadditional ground that Unipart�s pleaded case does not disclose any restriction ordistortion of competition. In support of this additional ground Cellnet contendsthat the agreements on which Unipart seeks to found its claim �did not change thecompetitive relationship between Cellnet and [Unipart]�; and that �the setting of aprice for a product or service, as between seller and buyer, does not fall within theconcept of a restriction or distortion of competition within Article 81 �.�.

THE AUTHORITIES

The European authorities

48. As the judge rightly recognised, the judgments of the CFI and the ECJ in Bayerare of central importance for present purposes. The facts in Bayer were, briefly,as follows. The Bayer Group, headed by Bayer AG (the applicant), had for manyyears supplied a pharmaceutical product called Adalat to wholesalers in allmember states. In most member states, the price of Adalat was fixed directly orindirectly by the national health authorities. Between 1989 and 1993 the pricesfixed by the health authorities in France and Spain were substantially lower thanthose which applied in the United Kingdom. This price differential ledwholesalers in France and Spain to re-export Adalat to the United Kingdom.



These �parallel imports� caused Bayer to suffer substantial trading losses. Facedwith that situation, Bayer changed its delivery policy by ceasing to fulfil in theirentirety the increasingly large orders for Adalat placed by its wholesalers inFrance and Spain, and by limiting its deliveries to such wholesalers to thequantities required to meet domestic demand in those member states. Followingcomplaints by the wholesalers, the European Commission investigated the matter.The Commission decided (Decision 96/478/EC) that Bayer�s practice inrestricting deliveries of Adalat to France and Spain infringed Article 81, on thebasis that such practice had been agreed between Bayer and the wholesalers �aspart of their ongoing business relations� (see paragraph 1 of the Commission�sDecision).

49. Bayer applied to the CFI to annul the Decision on the primary ground that theallegedly infringing conduct was unilateral conduct on its part and hence did notfall within the scope of Article 81 in the absence of any agreement between it andits wholesalers relating to the export of Adalat to the United Kingdom. Itcontended that it had adopted a unilateral policy of limited delivery in order tomake parallel exports more difficult; and that, far from agreeing to such a policy,the wholesalers in question had opposed it. It contended that the requisite�concurrence of wills�, which was the central element in the concept of agreement,was plainly lacking; and that without a �concurrence of wills� Article 81 could notapply.

50. The Commission, on the other hand, contended that there was agreement betweenBayer and the French and Spanish wholesalers in relation to the export of Adalatto other member states. Its case was that Bayer�s delivery policy amounted to anexport ban, to which the wholesalers had consented, in the knowledge thatotherwise their orders would be further restricted: in other words, that thewholesalers agreed to the policy so as to obtain sufficient supplies in return.

51. In paragraphs 64 to 72 of its judgment (quoted by the judge in paragraph 16 of hisjudgment in the instant case), the CFI said this, under the heading �PreliminaryObservations�:

�64. It is clear from the wording of [Article 81(1)] thatthe prohibition thus proclaimed concerns exclusivelyconduct that is coordinated bilaterally or multilaterally, inthe form of agreements between undertakings, decisions byassociations of undertakings and concerted practices.

65. In this case, it is found in the Decision that there isan �agreement between undertakings� within the meaningof that article. The applicant maintains, however, that theDecision penalises unilateral conduct on its part that fallsoutside the scope of the article. It claims that theCommission has given the concept of an agreement withinthe meaning of Article [81(1)] of the Treaty aninterpretation which goes beyond the precedents in the



case-law and that its application to the present caseinfringes that provision of the Treaty. The Commissioncontends that it has fully followed the case-law in itsevaluation of that concept and has applied it in a whollyappropriate manner to the facts of this case. It thereforeneeds to be determined whether, having regard to thedefinition of that concept in the case-law, the Commissionwas entitled to perceive in the conduct established in theDecision the factors constituting an agreement betweenundertakings within the meaning of Article [81(1)] of theTreaty.

66. The case-law shows that, where a decision on thepart of a manufacturer constitutes unilateral conduct of theundertaking, that decision escapes the prohibition in Article[81(1)] of the Treaty (Case 107/82 AEG v Commission[1983] ECR 3151, paragraph 38; Joined Cases 25/84 and261/84 Ford and Ford Europe v Commission [1985] ECR2725, paragraph 21; Case T-43/92 Dunlop Slazenger vCommission [1994] ECR II-441, paragraph 56).

67. It is also clear from the case-law in that in orderfor there to be an agreement within the meaning of Article[81(1)] of the Treaty it is sufficient that the undertakings inquestion should have expressed their joint intention toconduct themselves on the market in a specific way (Case41/69 ACF Chemiefarma v Commission [1970] ECR 661,paragraph 112; Joined Cases 209/78 to 215/78 and 218/78Van Landewyck and Others v Commission [1980] ECR3125, paragraph 86; Case T-7/89 Hercules Chemicals vCommission [1991] ECR II-1711, paragraph 256).

68. As regards the form in which that commonintention is expressed, it is sufficient for a stipulation to bethe expression of the parties� intention to behave on themarket in accordance with its terms (see, in particular, ACFChemiefarma, paragraph 112, and Van Landewyck,paragraph 86), without its having to constitute a valid andbinding contract under national law (Sandoz, paragraph13).

69. It follows that the concept of an agreement withinthe meaning of Article [81(1)] of the Treaty, as interpretedby the case-law, centres around the existence of aconcurrence of wills between at least two parties, the formin which it is manifested being unimportant so long as itconstitutes the faithful expression of the parties� intention.

70. In certain circumstances, measures adopted orimposed in an apparently unilateral manner by amanufacturer in the context of his continuing relations with



his distributors have been regarded as constituting anagreement within the meaning of Article 85(1) of theTreaty (Joined Cases 32/78, 36/78 to 82/78 BMW Belgiumand Others v Commission [1979] ECR 2435, paragraphs 28to 30; AEG, paragraph 38; Ford and Ford Europe,paragraph 21; Case 75/84 Metro v Commission (�Metro II�)[1986] ECR 3021, paragraphs 72 and 73; Sandoz,paragraphs 7 to 12; Case C-70/93 BMW v ALD [1995] ECRI- 3439, paragraphs 16 and 17).

71. That case-law shows that a distinction should bedrawn between cases in which an undertaking has adopteda genuinely unilateral measure, and thus without theexpress or implied participation of another undertaking, andthose in which the unilateral character of the measure ismerely apparent. Whilst the former do not fall withinArticle [81(1)] of the Treaty, the latter must be regarded asrevealing an agreement between undertakings and maytherefore fall within the scope of that article. That is thecase, in particular, with practices and measures in restraintof competition which, though apparently adoptedunilaterally by the manufacturer in the context of itscontractual relations with its dealers, nevertheless receive atleast the tacit acquiescence of those dealers.

72. It is also clear from that case-law that theCommission cannot hold that apparently unilateral conducton the part of a manufacturer, adopted in the context of thecontractual relations which he maintains with his dealers, inreality forms the basis of an agreement betweenundertakings within the meaning of Article [81(1)] of theTreaty if it does not establish the existence of anacquiescence by the other partners, express or implied, inthe attitude adopted by the manufacturer (BMW Belgium,paragraphs 28 to 30; AEG, paragraph 38; Ford and FordEurope, paragraph 21; Metro II, paragraphs 72 and 73;Sandoz, paragraphs 7 to 12; BMW v ALD, paragraphs 16and 17).�

52. The CFI then turned (in paragraphs 73 to 77 of its judgment) to the application ofthe concept of �agreement�, saying this:

�73. In this case, in the absence of direct documentaryevidence of the conclusion of an agreement between theparties concerning the limitation or reduction of exports,the Commission has held that the concurrence of willsunderlying that agreement is clear from the conduct of theapplicant and the wholesalers referred to in the Decisionrespectively.



74. Thus, in the Decision, the Commission states (recital155) that �Bayer France and Bayer Spain have committedan infringement of Article [81(1)]� of the Treaty and thatthe conditions for applying that article were met becausethose subsidiaries imposed �an export ban as part of theircontinous commercial relations with their customers�. Itthen states (recital 156) that �analysis of the conductengaged in by Bayer France and Bayer Spain vis-à-vis theirwholesalers shows that Bayer France and Bayer Spain haveimposed an export ban in their commercial relations withtheir wholesalers� and presents it as an established fact(recital 176) that the wholesalers adopted �an implicitacquiescence in the export ban�.

75. Where, therefore, the Commission refers in theDecision to the �export ban�, it views it as a unilateraldemand which has formed the subject-matter of anagreement between the applicant and the wholesalers. Ifthe Commission concluded that an agreement existedcontrary to Article [81(1)] of the Treaty, it did so because itconsidered it established that the applicant sought andobtained an agreement with its wholesalers in Spain andFrance, the purpose of which was to prevent or limitparallel imports.

76. The applicant acknowledges having introduced aunilateral policy designed to reduce parallel imports.However, it denies having planned and imposed an exportban. In that regard, it denies ever having had discussionswith the wholesalers, let alone making an agreement withthem, in order to prevent them from exporting or to limitthem in the export of the quantities delivered. Moreover, itstates that the wholesalers did not adhere in any way to itsunilateral policy and had no wish to do so.

77. In those circumstances, in order to determine whetherthe Commission has established to the requisite legalstandard the existence of a concurrence of wills between theparties concerning the limitation of parallel exports, it isnecessary to consider whether, as the applicant maintains,the Commission wrongly assessed the respective intentionsof Bayer and the wholesalers.�

53. The CFI turned first to Bayer�s intention. In paragraph 109 of its judgment itconcluded:

��. that the Commission has not proved to the requisitelegal standard either that Bayer France and Bayer Spainimposed an export ban on their respective wholesalers, orthat Bayer established a systematic monitoring of the actual



final destination of the packets of Adalat supplied after theadoption of its new supply policy, or that the applicantapplied a policy of threats and sanctions against exportingwholesalers, or that it made supplies of this productconditional on compliance with the alleged export ban.�

54. The CFI continued:

�Nor, finally, do the documents reproduced in the Decisionshow that the applicant sought to obtain any form ofagreement from the wholesalers concerning theimplementation of its policy designed to reduce parallelimports.�

55. The CFI then turned to the intention of the wholesalers. In paragraphs 123 and124 of its judgment, the CFI said this:

�123. Since, in this case, the Commission does not haveany document referring expressly to an agreement betweenBayer and its wholesalers concerning exports for thepurpose of establishing a concurrence of wills, it claims tohave followed the case-law approach consisting ofexamining the actual conduct of the wholesalers in order todetermine the existence of their acquiescence. �.

124. In the circumstances of this case, it therefore needs tobe determined whether, having regard to the actual conductof the wholesalers following the adoption by the applicantof its new policy of restricting supplies, the Commissioncould legitimately conclude that they acquiesced in thatpolicy.�

56. The CFI concluded (in paragraph 157 of its judgment) that:

��. the Commission was therefore wrong in holding thatthe actual conduct of the wholesalers constitutes sufficientproof in law of their acquiescence in the applicant�s policydesigned to prevent parallel imports.�

57. The CFI then turned to the case-law relied on by the Commission, referring(among others) to the decisions of the ECJ in Case C-277/87 Sandoz v.Commission [1990] I-45, Case 102/82 AEG v. Commission [1983] ECR 3151, andCases 228 and 229/2 Ford v. Commission [1984] ECR 1129.

58. In paragraphs 161 and 162 of its judgment, the CFI said this about the ECJdecision in Sandoz:



�161. That case concerned the penalty imposed by theCommission on a subsidiary of a multinationalpharmaceutical company, Sandoz, which was guilty ofinserting into invoices which it sent to customers(wholesalers, pharmacies and hospitals) the express words�export prohibited�. Sandoz had not denied the presence ofthese words in its invoices, but had disputed that there wasan agreement within the meaning of Article [81(1)] of theTreaty. The Court of Justice dismissed the action afterreplying to each of the applicant�s arguments. Itconsidered that the sending of invoices with those wordsdid not constitute unilateral conduct, but, on the contrary,formed part of the general framework of commercialrelations which the undertaking maintained with itscustomers. It reached that conclusion after examining theway in which the undertaking proceeded before authorisinga new customer to market its products and taking intoaccount the practices repeated and applied uniformly andsystematically at each sales operation (paragraph 10 of thejudgment). It was at that stage in its reasoning that theCourt of Justice dealt with the question of the acquiescenceof the commercial partners in the export ban, mentioned inthe invoice, in the following terms:

�It should also be noted that the customers of SandozPF were sent the same standard invoice after eachindividual order or, as the case may be, after thedelivery of the products. The repeated orders of theproducts and the successive payments without protestby the customer of the prices indicated on the invoices,bearing the words �export prohibited�, constituted atacit acquiescence on the part of the latter in the clausesstipulated in the invoice and the type of commercialrelations underlying the business relations betweenSandoz PF and its clientele. The approval initiallygiven by Sandoz PF was thus based on the tacitacceptance on the part of the customers of the line ofconduct adopted by Sandoz PF towards them.�

162. It was only after those findings that the Court ofJustice concluded that the Commission was entitled to takethe view that �the whole of the continuous commercialrelations, of which the �export prohibited� clause formed anintegral part, established between Sandoz PF and itscustomers, were governed by a pre-established generalagreement applicable to the innumerable individual ordersfor Sandoz products. Such an agreement is covered by theprovisions of Article [81(1)] of the Treaty�.



163. Although the two cases [i.e. Sandoz and Bayer]resemble each other in that they concern attitudes ofpharmaceutical groups designed to prevent parallel importsof medicinal products, the concrete circumstancescharacterising them are very different. In the first place,unlike the situation in the present case, the manufacturer inSandoz had expressly introduced into all its invoices aclause restraining competition, which, by appearingrepeatedly in documents concerning all transactions,formed an integral part of the contractual relations betweenSandoz and its wholesalers. Second, the actual conduct ofthe wholesalers in relation to the clause, which theycomplied with de facto and without discussion,demonstrated their tacit acquiescence in that clause and thetype of commercial relations underlying it. On the facts ofthe present case, however, neither of the two principalfeatures of Sandoz is to be found; there is no formal clauseprohibiting export and no conduct of non-contention oracquiescence, either in form or in reality.�

59. In paragraph 167 of its judgment, the CFI concluded that the ECJ�s judgment inSandoz:

��. merely confirms the case-law to the effect that,although apparently unilateral conduct by a manufacturermay lie at the root of an agreement between undertakingswithin the meaning of Article [81(1)] of the Treaty, this ison the condition that the subsequent conduct of thewholesalers or customers may be interpreted as de factoacquiescence.�

60. In paragraph 168 of its judgment the CFI concluded that for the same reasons theCommission could not validly rely on the ECJ decisions in AEG and in the Fordcases in support of the argument that the wholesalers acquiesced in Bayer�s policyof restricting deliveries in order to reduce parallel imports.

61. In paragraphs 172 to 176 of its judgment (quoted by the judge in his judgment inthe instant case) the CFI said this:

�172. The Commission�s reasoning shows that itmaintains, albeit ambiguously (see the structure of theDecision summarised in recitals 155 and 156 anddeveloped in recitals 171 to 188), that the mere finding offact that the wholesalers did not interrupt their commercialrelations with Bayer after the latter established its newpolicy designed to restrain exports is a sufficient ground forit to hold that the existence of an agreement between



undertakings within the meaning of Article [81(1)] of theTreaty is established.

173. Such an argument cannot be accepted. The proofof an agreement between undertakings within the meaningof Article [81(1)] of the Treaty must be founded upon thedirect or indirect finding of the existence of the subjectiveelement that characterises the very concept of anagreement, that is to say a concurrence of wills betweeneconomic operators on the implementation of a policy, thepursuit of an objective, or the adoption of a given line ofconduct on the market, irrespective of the manner in whichthe parties� intention to behave on the market in accordancewith the terms of that agreement is expressed (see, inparticular, ACF Chemiefarma, paragraph 112; VanLandewyck and Others, paragraph 86). The Commissionmisjudges that concept of the concurrence of wills inholding that the continuation of commercial relations withthe manufacturer when it adopts a new policy, which itimplements unilaterally, amounts to acquiescence by thewholesalers in that policy, although their de facto conductis clearly contrary to that policy.

174. Moreover in accordance with the general schemeof the Treaty, an undertaking may be penalised underCommunity competition law only if it has infringedprohibitions contained in Article [81(1)] or Article [82] ofthe Treaty. In that respect, it should be noted that theapplicability of Article [81(1)] is based on a number ofconditions, namely that, (a) there must be an agreementbetween at least two undertakings or a similar arrangementsuch as a decision of an association of undertakings or aconcerted practice between undertakings, (b) thatarrangement must be capable of affecting trade within theCommunity, and (c) that it must have as its object or effectthe restriction of competition to an appreciable extent. Itfollows that, in the context of that article, the effects of theconduct of an undertaking on competition within thecommon market may be examined only if the existence ofan agreement, a decision of an association of undertakingsor a concerted practice within the meaning of Article[81(1)] of the Treaty has already been established (Case56/65 Société Technique Minière v Maschinenbau Ulm[1966] ECR 235, at p. 248 et seq.). It follows that the aimof that provision is not to �eliminate� obstacles to intra-Community trade altogether; it is more limited, since onlyobstacles to competition set up as a result of a concurrenceof wills between at least two parties are prohibited by thatprovision.



175. That interpretation of Article [81(1)] of the Treatywas followed by the Court of Justice in Case C-73/95 PViho v Commission [1996] ECR I-5457, paragraphs 15 to17, in which, upholding a judgment of the Court of FirstInstance, it held that the fact that the policy implementedby a parent company consisting essentially in dividingvarious national markets between its subsidiaries mightproduce effects outside the ambit of the group which werecapable of affecting the competitive position of third partiescould not render Article [81(1)] of the Treaty applicable,even when read in conjunction with Article 2 and Article3(c) and (g) of the EC Treaty. On the other hand, suchunilateral conduct could fall under Article [82] of theTreaty if the conditions for its application, as laid down inthat article, were fulfilled.

176. Having regard to the foregoing considerations, andcontrary to what the Commission and the BAI appear tomaintain, the right of a manufacturer faced, as in this case,with an event harmful to his interests, to adopt the solutionwhich seems to him to be the best is qualified by the Treatyprovisions on competition only to the extent that he mustcomply with the prohibitions referred to in Articles [81]and [82]. Accordingly, provided he does so without abusinga dominant position, and there is no concurrence of willsbetween him and his wholesalers, a manufacturer mayadopt the supply policy which he considers necessary, evenif, by the very nature of its aim, for example, to hinderparallel imports, the implementation of that policy mayentail restrictions on competition and affect trade betweenMember States.�

62. In paragraph 180 of its judgment, the CFI considered the consequences of givingArticle 81(1) the wide interpretation accorded to it by the Commission, sayingthis:

�An extension of the scope of Article [81(1)] of the Treaty,such as that proposed by the Commission, would lead to aparadoxical situation in which refusal to sell would bepenalised more heavily in the context of Article [81(1)]than in that of Article [82], since the prohibition in Article[81(1)] would hit a manufacturer deciding to refuse orrestrict future supplies but without terminating hiscommercial relations with his customers altogether,whereas, under Article [82], refusal to supply, even if it istotal, is prohibited only if it constitutes an abuse. The case-law of the Court of Justice indirectly recognises theimportance of safeguarding free enterprise when applyingthe competition rules of the Treaty where it expresslyacknowledges that even an undertaking in a dominant



position may, in certain cases, refuse to sell or change itssupply or delivery policy without falling under theprohibition laid down in Article [82] �.�

63. The CFI expressed its conclusion as follows (in paragraph 183 of its judgment):

�183. It follows from the whole of the foregoingconsiderations that the Commission incorrectly assessed thefacts of the case and made an error in the legal assessmentof those facts by holding it to be established that there wasa common intention between Bayer and the wholesalersreferred to in the Decision, which justified the conclusionthat there was an agreement within the meaning of Article[81(1)] of the Treaty, designed to prevent or limit exportsof Adalat from France or Spain to the United Kingdom.�

64. I turn next to the judgment of the ECJ in Bayer. Before the ECJ theCommission�s primary submission was that the CFI had adopted too restrictive aninterpretation of the concept of an agreement within the meaning of Article 81(1),and that on the facts it was possible to find that agreement had been reached as toan export ban.

65. In paragraph 70 of its judgment the ECJ said this:

�70. The attempt to use Article [81(1)] of the Treaty topenalise an undertaking not in a dominant position whichdecides to refuse deliveries to wholesalers, in order toprevent them from making parallel exports, clearlydisregards the necessary conditions for applying Article[81(1)] and the general system of the Treaty. Under thatsystem, methods adopted by a Member State which preventparallel exports are indeed prohibited by Article 30 of theTreaty, but unilateral measures taken by privateundertakings are subject to restrictions, by virtue of theprinciples of that Treaty, only if the undertaking in questionoccupies a dominant position on the market, within themeaning of Article [82] of the Treaty, which is not the casehere.�

66. In paragraphs 100 to 104 of its judgment, the ECJ addressed the Commission�sargument that the CFI should have found that Bayer�s manifest intention to restrictparallel imports could constitute the basis of an agreement, within the meaning ofArticle 81(1), as follows:

�100. Concerning [the Commission�s] arguments that theCourt of First Instance should have acknowledged that themanifestation of Bayer�s intention to restrict parallelimports could constitute the basis of an agreement



prohibited by Article [81(1)] of the Treaty, it is true that theexistence of an agreement within the meaning of thatprovision can be deduced from the conduct of the partiesconcerned.

101. However, such an agreement cannot be based onwhat is only the expression of a unilateral policy of one ofthe contracting parties, which can be put into effect withoutthe assistance of others. To hold that an agreementprohibited by Article [81(1)] of the Treaty may beestablished simply on the basis of the expression of aunilateral policy aimed at preventing parallel importswould have the effect of confusing the scope of thatprovision with that of Article [82] of the Treaty.

102. For an agreement within the meaning of Article[81(1)] of the Treaty to be capable of being regarded ashaving been concluded by tacit acceptance, it is necessarythat the manifestation of the wish of one of the contractingparties to achieve an anti-competitive goal constitute aninvitation to the other party, whether express or implied, tofulfil that goal jointly, and that applies all the more where,as in this case, such an agreement is not at first sight in theinterests of the other party, namely the wholesalers.

103. Therefore, the Court of First Instance was right toexamine whether Bayer�s conduct supported the conclusionthat the latter had required of the wholesalers, as acondition of their future contractual relations, that theyshould comply with its new commercial policy.

104. Concerning the judgment in Sandoz, relied upon by[the Commission], it is undisputed that, in that case, themanufacturer had sought the cooperation of wholesalers inorder to eliminate or reduce parallel imports, theircooperation being necessary, in the circumstances of thatcase, in order to attain that objective. In such a context,the insertion by the manufacturer of the words �exportprohibited� on invoices amounted to a demand for aparticular line of conduct on the part of the wholesalers.That is not the case here.�

67. Turning to the findings of fact made by the CFI, the ECJ said this (in paragraphs118 to 120 of its judgment):

�118. �. it should be recalled that the Court of FirstInstance set out from the general principle that in order forthere to be an agreement within the meaning of Article[81(1)] of the Treaty it is sufficient that the undertakings inquestion should have expressed their joint intention to



conduct themselves on the market in a specific way(paragraph 67 of the judgment under appeal). Havingconcluded, when examining the alleged intention of Bayerto impose an export ban, that the latter had not imposedsuch a ban, the Court of First Instance proceeded to makean analysis of the wholesalers� conduct in order todetermine whether there was nevertheless an agreementprohibited by Article [81(1)] of the Treaty.

119. In that context, it first rejected the argument that anagreement was established by reason of a tacit acceptanceby the wholesalers of the alleged export ban, since, as ithad just held, the Commission had not sufficientlyestablished in law either that Bayer had imposed such a banor that the supply of medicinal products was conditional oncompliance with that alleged ban �.

120. In those circumstances the Court of First Instancewent on to examine whether having regard to the actualconduct of the wholesalers following the adoption by theapplicant of its new policy of restricting supplies, theCommission could legitimately conclude that theyacquiesced in that policy (paragraph 124 of the judgmentunder appeal).�

68. Addressing the Commission�s argument on the facts, the ECJ said this (inparagraphs 140 and 141 of its judgment):

�140. By these pleas, the appellants are seeking tochallenge the assessment by the Court of First Instance thatthe Commission could not effectively rely on the case-lawprecedents referred to in order to call into question theanalysis which led the Court of First Instance to concludethat in this case acquiescence of the wholesalers in Bayer�snew policy was not established �.

141. In that respect, it is important to note that this caseraises the question of the existence of an agreementprohibited by Article [81(1)] of the Treaty. The mereconcomitant existence of an agreement which is in itselfneutral and a measure restricting competition that has beenimposed unilaterally does not amount to an agreementprohibited by that provision. Thus, the mere fact that ameasure adopted by a manufacturer, which has the objector effect of restricting competition, falls within the contextof continuous business relations between the manufacturerand its wholesalers is not sufficient for a finding that suchan agreement exists.�



69. The ECJ accordingly concluded (in paragraph 146 of its judgment) that the CFIhad made no error of law in holding that the case-law relied on by theCommission was inapplicable in that case.

70. I turn next to the decision of the European Commission in Distillers, upon whichMr Brealey relies. Distillers, which was decided by the Commission inDecember 1977, was not referred to by either the CFI or the ECJ in Bayer, nor isthere any reference to it in the opinion of the Advocate General (Tizzano). InDistillers, a company with a substantial market share in the production and salesof whisky and other spirits in the United Kingdom applied to the Commission forexemption under Article 81(3). Its standard conditions of sale in relation tospirits supplied to United Kingdom trade customers only included a clause whichprohibited resale for delivery outside the United Kingdom. In response to arequest from the Commission, the company submitted a revised set of standardconditions which permitted export by United Kingdom trade customers to othermember states, together with the text of a circular letter informing its UnitedKingdom trade customers of the revised conditions. The circular letter containedstatements to the effect that although export to other member states was permitted,United Kingdom trade customers would only be entitled to trade discounts inrespect of goods which were sold for consumption within the United Kingdom.In support of its claim for exemption, the company contended that its price termswere an indispensable restriction in order to avoid the destruction of itsdistribution system by parallel exports from the United Kingdom to other memberstates. The Commission concluded that the company�s price terms, whichincluded the terms of the circular letter, formed an essential part of the company�sagreements with its United Kingdom customers, and as such constitutedagreements between undertakings within the meaning of Article 81(1). It furtherconcluded that in so far as they provided for the application of different prices forspirits exported to other EEC countries from those sold for consumption withinthe United Kingdom the price terms restricted the opportunity for resale in otherMember States and hence distorted competition. In the result, exemption wasrefused.

71. In Distillers, the company did not contend that its price terms were not caught byArticle 81(1); on the contrary, its claim was for exemption under Article 81(3).Hence it is not, perhaps, surprising that the Commission�s decision contains noanalysis of the concept of �unilateral� conduct on the part of a supplier in settingthe prices for its products.

72. The only other European authority to which I need refer is Sandoz. Inparagraphs 58 and 59 of this judgment I have quoted those paragraphs of theCFI�s judgment in Bayer in which Sandoz is discussed and distinguished. TheECJ referred only briefly to Sandoz in its judgment in Bayer, in the context of anargument by Bayer and the Commission that as a precondition of an agreementwithin the meaning of Article 81(1) it was necessary to establish a system ofsubsequent monitoring and penalties on wholesalers, saying this (in paragraph 85of its judgment):



�In Sandoz, the manufacturer had sent invoices to itssuppliers carrying the express words �export prohibited�,which had been tacitly accepted by the suppliers [referenceis then made to paragraphs 161 to 163 of the CFI�sjudgment, quoted in paragraph 58 above]. The Courtcould therefore hold that there was an agreement prohibitedby Article [81(1)], without being required to seek proof ofthat in the existence of a system of subsequent monitoring.�

The domestic authorities

73. I need only refer to the BMW Cases.

74. In Cound, the plaintiff was a BMW dealer for a specified area. The dealershipagreement prohibited it from selling other makes of car within that area. BMWwas entitled to terminate the agreement at any time by giving 12 months� writtennotice. It gave such a notice. The plaintiff claimed damages and a declarationthat the giving of the notice was invalid since the dealership agreement was inbreach of Article 81(1), having as its object or effect the prevention, restriction ordistortion of competition within member states. BMW contended that theagreement was exempt under Article 81(3). In the alternative, it contended thatthe giving of the notice was unilateral conduct on its part, and as such was notprohibited by Article 81(1). The judge at first instance (HHJ Lee QC) acceptedBMW�s alternative contention and struck out the claim in so far as it was based onthe giving of the notice. In the course of his judgment, the judge said this (atp.296B-D):

�The defendants submit that the plaintiffs� case hinges onthe contention that the defendants� conduct in terminatingthe dealership is not unilateral, but is capable ofconstituting an agreement within Article [81(1)] of theTreaty.

The plaintiffs contend, as a matter of law, that the giving ofthe notice of termination forms part of the contractualrelations between the defendants and their dealers and is,accordingly, [within] the scope of Article [81(1)].

The defendants submit that while it is correct that theEuropean Court of Justice has given a wide meaning to theexpression �agreement� in Article [81], there is no authorityfor the startling proposition that any conduct taking place inthe context of a contractual relationship or in relation tosuch a relationship is an agreement within Article [81(1)].�

75. Later in his judgment, the judge said this (at p.299E-G):



�In my judgment, what is alleged here by the agreements issignificantly different from what was being considered inthe AEG case or the Ford case. Each of those cases wasconcerned with an agreement between a supplier and agroup of dealers and the agreement fell within Article[81(1)] as the European Court determined.

Here, the conduct the subject of the plaintiffs� claim wasthe giving of the notice of termination of the dealershipagreement and the relief the plaintiffs seek is a declarationthat that notice of termination is unlawful, void and of noeffect, and damages by reason of the notice being given inbreach of Article [81(1)].

That is the conduct on which the statement of claim �. isfocused and that is unilateral conduct and not conductamounting to an agreement at all. Indeed, I cannotconceive how what the plaintiffs allege �. could amount toan agreement or could fall within Article [81(1)].�

76. The Court of Appeal dismissed the plaintiff�s appeal. Balcombe LJ gave theleading judgment, with which Pill LJ and Sir Roger Parker agreed. In the sectionof his judgment headed �Unilateral conduct�, Balcombe LJ said this (at pp.310-311):

�Article [81] prohibits �agreements between undertakings,decisions by associations of undertakings and concertedpractices�. Prima facie the unilateral action of [BMW] ingiving notice to [the plaintiff] to terminate the agreementwould not fall within the ambit of such a prohibition.�

77. After referring to the authorities relied on by counsel for the plaintiff, BalcombeLJ continued:

�I do not find it necessary to consider these cases in detailsince in my judgment their effect is correctly summarisedin the last two sentences of the following passage fromBellamy and Child, Common Market Law of Competition(4th edn), para 2-022:

�2-022 Unilateral Action. Action taken by anundertaking without any agreement or concert with anotherundertaking does not infringe Article [81(1)], although anundertaking in a dominant position may by unilateralconduct infringe Article [82]. However, care needs to betaken in determining whether particular conduct is truly�unilateral�. If, for example, a supplier operates arestricted system of distribution, the apparently �unilateral�exclusion of a particular dealer may infringe Article [81(1)]



if it results from an understanding, tacit or express, betweenthe supplier and his existing dealers, to exclude certaindealers from the distribution network. Similarly, the salespolicy of a manufacturer who maintains a restricted systemof distribution may be regarded as impliedly accepted bythat manufacturer�s dealers so as to give rise to anagreement within the meaning of Article [81(1)].�

As the Court of First Instance �. said in Viho v.Commission:

�61. Article [81(1)(d)] of the Treaty prohibits agreementsbetween undertakings, decisions by associations ofundertakings and concerted practices which applydissimilar conditions to equivalent transactions with othertrading parties, thereby placing them at a competitivedisadvantage. The discrimination at which Article[81(1)] is aimed must therefore be the result of anagreement, a decision or a concerted practice betweenseparate and autonomous economic entities and not theresult of unilateral conduct by a single undertaking.�

The judge held that the notice of termination wasunilateral conduct outside the ambit of Article [81]. Iagree.�

78. In Clover Leaf Cars, a similar issue arose. At first instance, Rattee J struck outthe claim, holding (at p.549D-E) that there was �no basis for the plea that thedealers accepted somehow, tacitly or expressly, any particular policy pursuant towhich the notice of termination might be given�. The Court of Appeal dismissedthe plaintiff�s appeal. In the course of his judgment Staughton LJ (with whomThorpe LJ agreed) said this (at p.552D-F):

�It does not, in my judgment, follow that in every caseunilateral action by a manufacturer is to be deemed to havebeen agreed to by the network of dealers. Indeed, it wouldbe contrary to common sense to suppose that all the otherdealers of BMW have tacitly agreed that if they becomesubsidiaries of a plc, and if that increases the percentage ofdistributors who are subsidiaries of a plc above BMW�slimit, then they will be dismissed on notice.

Whether that be so or not, the point was, in my opinion,conclusively decided against the distributors by the Counddecision. Balcombe LJ said so briefly, but clearly, in hisjudgment, with which the other members of the courtagreed. Accordingly, I find no prospect of Clover Leafsucceeding in this court on the unilateral conduct point.�



THE ARGUMENTS ON THIS APPEAL

79. Mr Brealey�s argument is straightforward. He submits that once one finds anexpress agreement between undertakings relating to the conduct of whichcomplaint is made there is no need to look for any further evidence of a�concurrence of wills� in order to engage Article 81(1). He submits that the judgemisunderstood the judgments of the CFI and the ECJ in Bayer, and that heconfused the law relating to express agreement with that relating to impliedagreement. In the instant case, he submits, by the agreements in question theparties put down in legally enforceable documents all the terms governing theircontractual relationship, including those relating to price. That, he submits, issufficient to engage Article 81(1). He submits that the concept of an�agreement� within the meaning of Article 81(1) is wider and more flexible thanthe corresponding concept in domestic law, and that if the judge�s approach iscorrect it would have the effect of restricting that concept so as to make itnarrower than the equivalent domestic law concept. He submits that ininterpreting Article 81(1) the courts should adopt a purposive approach.

80. Mr Brealey submits that it is only in cases where there is no express agreementthat it becomes necessary, in order to engage Article 81(1), to infer a consensusfrom the conduct of the parties. Only in such cases, he submits, does the conceptof �tacit acquiescence�, such as was found to exist in Sandoz, have any relevance.

81. As to Bayer, Mr Brealey stresses that the objectionable conduct was theimposition of an export ban, rather than the limiting of quotas. In the absence ofdirect documentary evidence of an agreement in relation to the imposition of sucha ban, the Commission was obliged to infer such agreement from the parties�conduct. That, he submits, is not this case, given the existence of writtenagreements whereby Unipart agreed to pay the prices set by Cellnet from time totime.

82. As to the ECJ�s judgment in Bayer, Mr Brealey submits that it supports hisinterpretation of the CFI�s judgment. He submits that there is nothing in eitherthe CFI�s judgment or the ECJ�s judgment to support Cellnet�s contention that, inaddition to agreeing expressly to pay Cellnet�s excessive prices, Unipart musthave acquiesced in Cellnet�s underlying policy of �margin squeeze�. In thealternative he submits that if acquiescence is required, it is to be found in the factthat Unipart paid the prices set by Cellnet from time to time.

83. As to the BMW Cases, Mr Brealey submits that (as the judge noted in paragraph20 of his judgment, quoted in paragraph 43 above) there is an obvious andsignificant distinction between the exercise of a right to terminate and the exerciseof a contractual right to amend an ongoing agreement. However, he submits thatthe judge fell into error when (in paragraph 22 of his judgment, quoted inparagraph 44 above) he concluded that the decisions in the BMW Cases were�entirely consistent� with Bayer. He submits that if Cellnet�s submissions were



taken to their logical conclusion, a supplier�s standard terms and conditions wouldfall outside Article 81(1). Yet, he submits, that would be contrary to authority,since Article 81(1) has consistently been applied to a supplier�s standard terms,which are proffered to dealers on a �take it or leave it� basis.

84. Mr Brealey cites Distillers as an example of a case in which the conduct of whichcomplaint was made formed part of the commercial relationship between theparties. He submits that the instant case is on all fours with Distillers in thisrespect.

85. Mr Brealey accordingly submits that the effect of the judge�s interpretation ofArticle 81(1) is artificially to cut down the application of the Treaty, and that itleads to a situation in which a term of a contract admittedly distorts competitionbut escapes scrutiny. He submits that there is no justification whatever for theinterpretation of Article 81(1) which the judge adopted.

86. Mr Green submits that the answer to the issue of law, as formulated by him beforethe judge (see paragraph 37 above), is: No. He submits that the judgments of theCFI and of the ECJ in Bayer are decisive of the issue, and that the judge reachedthe right conclusion for the right reasons.

87. Mr Green draws a distinction between Unipart�s agreement to pay the prices setby Cellnet from time to time and an agreement (whether express or tacit) betweenUnipart and Cellnet as to the setting of those prices by Cellnet at an allegedly anti-competitive level. He submits that it is Cellnet�s policy of setting its prices at anallegedly anti-competitive level which is the true subject of Unipart�s complaint;not the (assumed) fact that Unipart had no real commercial choice but to agree topay those prices.

88. A complaint of that nature might, he submits, be brought under Article 82, incases where a supplier enjoys a dominant position in the market; but it cannot, hesubmits, found a claim under Article 81(1) in the absence of an �agreementbetween undertakings� relating to such a policy. He submits that there is plainlyno such agreement in the instant case.

89. In the alternative, should his submissions on the issue as to the existence of arelevant �agreement between undertakings� not be accepted, Mr Green advancesthe contention set out in Cellnet�s Respondent�s Notice (see paragraph 47 above).He submits that in order to determine whether Unipart�s agreement to pay theprices set from time to time by Cellnet has an anti-competitive effect it isnecessary to consider the situation which would exist had no such agreement beenmade. While accepting that in many cases this process would involve a detailedinvestigation of the facts, Mr Green submits that in the instant case such aninvestigation is not necessary since it is plain that the existence of Cellnet�scontractual right to set its prices cannot have altered the market in any way.



Accordingly he submits that, if and so far as necessary, summary judgment canand should be granted on this alternative ground.

CONCLUSIONS

The scope and purpose of Article 81(1)

90. In Bayer, both the CFI and the ECJ stressed the differing roles of Articles 81 and82 and the fact that the aim of Article 81 is �not to �eliminate� obstacles to intra-Community trade altogether; it is more limited, since only obstacles tocompetition set up as a result of a concurrence of wills between at least twoparties are prohibited by that provision� (see paragraph 174 of the CFI�sjudgment, quoted in paragraph 61 above). As the ECJ put it (in paragraph 70 ofits judgment, quoted in full in paragraph 65 above):

�The attempt to use Article [81(1)] of the Treaty to penalisean undertaking not in a dominant position which decides torefuse deliveries to wholesalers, in order to prevent themfrom making parallel exports, clearly disregards thenecessary conditions for applying Article [81(1)] and thegeneral system of the Treaty.�

91. In identifying the scope and purpose of Article 81(1), therefore, it is in myjudgment of fundamental importance to recognise that (as the CFI points out inparagraph 176 of its judgment, quoted in paragraph 61 above) a supplier mayadopt whatever supply policy he regards as necessary to protect his commercialinterests, provided only that in so doing he does not abuse a dominant position(Article 82), and that there is no relevant �concurrence of wills� between thesupplier and his wholesalers (Article 81). In other words, as the ECJ put it inparagraph 70 of its judgment (quoted in full in paragraph 65 above):

��. unilateral measures taken by private undertakings aresubject to restrictions, by virtue of the principles of [the]Treaty, only if the undertaking in question occupies adominant position on the market, within the meaning ofArticle 86 of the Treaty, which is not the case here�.

92. The �paradoxical� consequences of adopting a wider interpretation of Article81(1) were spelt out by the CFI in paragraph 180 of its judgment (quoted inparagraph 62 above).

93. In the light of Bayer, therefore, no wider purpose can be attributed to Article 81(1)than the (limited) purpose identified by the CFI and the ECJ in that case. Itfollows that if and in so far as Mr Brealey, in urging us to adopt a �purposive�approach to the interpretation of Article 81(1), is inviting us to infer that Article



81(1) has some wider purpose than that identified in Bayer, his invitation must berejected.

The conduct of which complaint is made

94. Approaching Article 81(1) on that basis, the first step, in my judgment, is toidentify as precisely as possible the conduct of which complaint is made: that is tosay the conduct which is alleged to have caused the loss in respect of whichdamages are claimed. For in my judgment it is that conduct which must be thesubject of an agreement between undertakings if Article 81(1) is to be engaged inrespect of it.

95. In my judgment it is clear on the face of the Particulars of Claim (summarised inparagraphs 24 to 34 above) that the conduct of which complaint is made in theinstant case is not that Cellnet set its own prices for airtime (most suppliers set theprices for their products); nor is it merely that Cellnet set its prices at a levelwhich was excessively high (a supplier who does that risks going out of businessas a result). The anti-competitive conduct which is alleged in the instant case isthat Cellnet set its prices at an excessively high level as part of its policy of�margin squeeze� � a policy which is described in detail in paragraphs 14 and 15of the Particulars of Claim (quoted in paragraph 26 above): hence the allegation of�unlawful margin squeeze� in paragraph 36 of the Particulars of Claim (quoted infull in paragraph 30 above). Take away that allegation, and in my judgment thereis nothing left of Unipart�s complaint.

The relevant inquiry

96. Accordingly, given that Unipart does not seek to invoke Article 82, the relevantinquiry, in my judgment, is whether Cellnet�s conduct in adopting a policy of�margin squeeze� (assuming for present purposes that it in fact adopted such apolicy) was the subject of an �agreement� between Cellnet and Unipart; or whetherit was �unilateral� conduct on Cellnet�s part and thus outside the scope of Article81(1). To put it another way, the issue is whether Unipart can establish to therequisite legal standard a concurrence of wills between it and Cellnet concerningCellnet�s adoption of the policy of �margin squeeze� (see paragraph 77 of theCFI�s judgment in Bayer, quoted in paragraph 52 above).

The contractual relationship between Cellnet and Unipart

97. In my judgment, the mere fact that the conduct of which complaint is made tookplace against the backdrop of a continuing commercial relationship betweensupplier and dealer takes the inquiry no further. In Bayer, for example, as is clearfrom the Commission�s summary of the facts of that case, the conduct of whichcomplaint was made took place in the context of a commercial relationshipbetween Bayer and its wholesalers which dated from the beginning of the last



century. In any event I respectfully agree with Judge Lee QC in Cound (seeparagraph 74 above) that it would be startling indeed if �any conduct taking placein the context of a contractual relationship or in relation to such a relationship isan agreement within [Article 81(1)]�.

98. In my judgment the decisions of this court in the BMW Cases are entirelyconsistent with the relevant principles, as established by Bayer. The BMW Casesdemonstrate, in my judgment, that the mere fact that the conduct of whichcomplaint is made has contractual effect does not prevent such conduct frombeing wholly unilateral.

99. In argument, Mr Brealey laid considerable stress on the fact that Cellnet�sstandard terms and conditions allowed it to vary its prices from time to time. Inmy judgment, however, that is nothing to the point, so far as the present inquiry isconcerned. As I see it, the position vis-à-vis Article 81(1) would be just the sameif Cellnet had demanded a single, non-variable � but excessive � price for itsairtime.

100. So did the fact that Cellnet�s standard conditions of sale set the prices for itsairtime amount to an agreement on the part of Unipart to the adoption by Cellnetof a policy of �margin squeeze�? In my judgment, one only has to formulate thequestion to realise that the answer to it must be: No. It is, after all, acommonplace for a dealer to agree, without negotiation, to pay a supplier�spublished prices for its products. In Bayer, for example, the dealers placed orderson Bayer�s standard terms, yet even the Commission (which held that Bayer wasin breach of Article 81(1)) regarded those standard terms as �neutral�,commenting merely (in paragraphs 50 and 52 of its Decision) that they were �theusual clauses included in a contract for the sale of goods�.

101. Nor do I derive any assistance from the Commission�s decision in Distillers.Distillers was in my judgment a very different case from the instant case, in that inDistillers the offending policy was held by the Commission to be �an integralelement in the continuous commercial relations between the parties�. In theinstant case, on the other hand, it cannot in my judgment be said that Cellnet�salleged policy of �margin squeeze� was an integral part of the contractualrelationship constituted by the incorporation of Cellnet�s standard terms, and, inparticular, of the term whereby Unipart agreed to pay for airtime in accordancewith Cellnet�s published price list.

102. I therefore conclude that Unipart�s contractual obligation to pay the prices set byCellnet from time to time in accordance with its published price list is not anagreement which can found a claim under Article 81(1) for damages for lossesincurred as a result of Cellnet�s alleged adoption of a policy of �margin squeeze�.



�Margin squeeze�: tacit acquiescence by Unipart?

103. On the face of it, therefore, Cellnet�s alleged conduct in adopting a policy of�margin squeeze� was unilateral conduct on its part. However it remains toconsider whether it can be said that Unipart consented to or tacitly acquiesced insuch a policy, thereby giving rise to the requisite �concurrence of wills� (as thatconcept is explained in the passages in the judgments of the CFI and the ECJ inBayer quoted earlier in this judgment).

104. Plainly Unipart did not positively consent to the adoption of such a policy, whichwould have operated directly against its commercial interests: indeed, itcomplained to OFTEL about Cellnet�s conduct. So the only question is whetherthere was in the instant case �tacit acquiescence� of the kind which was found toexist in Sandoz.

105. I find it impossible to see how, applying Bayer, a finding of tacit acquiescence byUnipart could be made in this case. In paragraph 101 of its judgment in Bayer(quoted in paragraph 66 above) the ECJ referred to �a unilateral policy of one ofthe contracting parties, which can be put into effect without the assistance ofothers� (my emphasis). In my opinion the policy of �margin squeeze� (ifadopted) was just such a policy. Indeed, its anti-competitive efficacy derivesfrom the very fact that a network operator, by reason of its market power (albeitnot amounting to a dominant position), coupled with its ability to cross-subsidiseits own TSPs, is in a position to put pressure on ISPs with a view to driving themout of the market. It requires no cooperation or assistance from the ISPs: on thecontrary it is, by its very nature, a unilateral policy aimed at �the weakening ofISPs and their eventual elimination from the mobile service provision market�(see paragraph 15 of the Particulars of Claim, quoted in full in paragraph 26above).

106. Thus the instant case is in my judgment distinguishable from Sandoz. In Sandoz,the repeated orders for products, and the successive payments by the wholesalersof the prices stated on the invoices, coupled with the lack of any protest, were heldto constitute tacit acquiescence by the wholesalers in the clauses stipulated in theinvoice and the type of commercial relations underlying the business relationsbetween Sandoz and its clientele (see paragraph 161 of the CFI�s judgment inBayer, quoted in paragraph 58 above). In effect, the wholesalers in Sandoz werefound to have become party to, or complicit in, the anti-competitive policyadopted by Sandoz. As the ECJ said in the course of its judgment in Sandoz (in apassage quoted by the CFI in paragraph 162 if its judgment in Bayer: seeparagraph 58 above):

��. the whole of the continuous commercial relations, ofwhich the �export prohibited� clause formed an integral part�. were governed by a pre-established general agreementapplicable to the innumerable individual orders for Sandozproducts.�



107. In my judgment for reasons I have already given, and applying Bayer, noequivalent finding is open in the instant case in relation to Cellnet�s allegedadoption of a policy of �margin squeeze�.

108. I conclude, therefore, that the judge was right to regard Bayer as decisive of theissue before him and to conclude that the conduct of which complaint is made inthe instant case �was indeed truly unilateral�. That conclusion makes itunnecessary for me to address Mr Green�s alternative contention, raised by theRespondent�s Notice.

RESULT

109. I would dismiss this appeal.

Mr Justice Laddie:

110. I agree.

Lord Justice Peter Gibson:

111. I also agree.

Neutral Citation Number: [2004] EWCA Civ 1034 Case No: A3...

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Transcript of Neutral Citation Number: [2004] EWCA Civ 1034 Case No: A3...