English Welsh & Scottish Railway Ltd v E. On UK Plc & Anor

Where contractual terms infringe the prohibition on abuse of a dominant position, they are void and the court applies the ordinary doctrine of severance to determine whether the remainder of the contract survives. Severance is unavailable where removing the offending terms would fundamentally change the contract so that it is no longer the kind of agreement the parties intended to make. A clause preserving the validity of the remaining provisions does not overcome that result. Where the unlawful provisions formed the essential character of the agreement, the entire contract is void and unenforceable.

English Welsh & Scottish Railway Ltd operated bulk rail freight services. It had agreed to carry specified coal for E.ON under a Coal Carriage Agreement containing extensive exclusivity provisions.

The Office of Rail Regulation found that the provisions infringed Article 82 EC and, from 1 March 2000, the Chapter II prohibition in section 18 of the Competition Act 1998. It directed their removal or compliant modification. The parties disagreed about the effect of those directions and whether the remaining agreement continued to bind them.

EWS sought a declaration that the Coal Carriage Agreement was wholly void and unenforceable. The central issues were the meaning of the directions, the legal effect of the unlawful terms, and whether they could be severed.

1. The court granted EWS a declaration. The ORR’s directions required the exclusionary terms to be removed unless the parties agreed compliant modifications within 30 days. They did not require the parties to agree to removal, nor did they contemplate that removal would await enforcement proceedings under section 34 of the Competition Act 1998.

2. In light of the ORR’s findings, Article 1.3 of Council Regulation No 1/2003 and the direct effect of Article 82 EC, clauses 4.2, 4.3, 5.4 and 6.1 were illegal as a matter of public law from the execution of the agreement. From 1 March 2000 they were additionally contrary to the Chapter II prohibition. The directions were administrative measures intended to bring the agreement into conformity with the law.

3. The court held that the doctrine of severance applies to terms void for breach of Article 82 EC and the Chapter II prohibition, just as it applies to restraints of trade and terms void under Article 81 EC and the Chapter I prohibition. The relevant question was whether the offending terms could be removed while leaving an enforceable contractual residue. The formulations reviewed in Crehan v Courage Limited; Byrne v Inntreprenneur Beer Supply Co Ltd [1999] EuLR 834 provided the relevant framework.

4. E.ON accepted that the agreement without the exclusionary terms would be fundamentally different in nature. The concession was well founded. The exclusionary provisions formed the essential character of the agreement, so severance failed. Clause 34 did not preserve the remainder because, consistently with Richard Ground Ltd v (GB) Ltd [1997] EuLR 277, such a clause cannot permit severance where the common-law test is not satisfied.

5. Accordingly, the exclusionary terms were void from inception and the whole Coal Carriage Agreement was void and unenforceable. The precise wording of the declaration was left for further submissions.