Chester City Council & Anor v Arriva Plc & Ors

To establish an abuse of dominance under Competition Act 1998, a claimant must prove the relevant product and geographic markets, the defendant’s dominance, and the alleged abusive conduct. Market definition must identify realistic competitive constraints. Where the market is assessed by supply-side substitution, the inquiry concerns suppliers capable of serving the focal market, and capacity may be a more appropriate measure of market power than current output. Low barriers to entry and effective contestability may prevent even a substantial market share from establishing dominance. Serious allegations require strong and compelling evidence. If dominance is not proved, the question of abuse does not arise.

Chester City Council and Chester City Transport Ltd sought declarations, injunctions and damages against Arriva plc and its subsidiaries. They alleged that Arriva occupied a dominant position in the Chester bus market and had threatened predatory conduct contrary to section 18 of the Competition Act 1998.

Arriva had registered services duplicating CCT’s commercial routes, later replacing most registrations with increased-frequency services on three profitable routes. The claimants alleged that the registrations would drive CCT from the market and undermine its proposed sale. The principal issues were Arriva’s intentions, the relevant product and geographic markets, dominance, threatened abuse and consequential damages.

1. The claim was dismissed. The claimants failed to prove that Arriva held a dominant position in the relevant market. Consequently, no question of abuse under section 18 of the Competition Act 1998 arose.
2. The burden rested on the claimants to prove every element on the balance of probabilities. Given the serious allegation of predatory conduct and the potentially severe consequences of a competition-law infringement, the case required strong and compelling evidence.
3. The claimants failed to establish that the product market consisted exclusively of local bus services. The evidence showed some substitutability between buses and other transport modes, including cars and trains. Nor did they prove their proposed geographic market, based principally on eight local authority districts. That approach was arbitrary and included areas from which services could not economically be supplied to Chester.
4. For a market defined by supply-side substitution, the relevant inquiry was the ability of undertakings to supply the focal market, rather than the areas into which resources might be withdrawn. The court accepted an isochrone approach based on economically realistic dead-running time. It also accepted that capacity, measured by vehicle or depot capacity, was a more appropriate indicator of market power than bus hours, which measured activity rather than capability.
5. Arriva’s market share under the principled analyses did not exceed about 31 or 32 per cent. Even on the claimants’ higher estimate, the low barriers to entry, availability of supply-side substitution and ease with which an operator could enter or leave the market meant that Arriva could not be shown to possess the power to act independently of competitors, customers or consumers.
6. The court found that Arriva intended, if it could not acquire CCT’s assets and undertaking, to compete with CCT from January 2007. The original registrations would probably have caused CCT to fail, but that finding did not establish a breach because dominance had not been proved. The revised registrations would probably enable Arriva to recover its direct costs but were likely to produce a trading loss in the first year. The damages claim was also unproved.