Safeway Stores Ltd & Ors v Twigger & Ors

Where an undertaking is personally liable under the Competition Act 1998 for an infringement committed intentionally or negligently, it cannot recover the resulting penalty from directors or employees whose conduct caused the infringement. The liability is not vicarious merely because the undertaking acted through human agents. The ex turpi causa principle therefore bars recovery of both the penalty and the costs of dealing with the regulatory investigation. The statutory allocation of responsibility also prevents reliance on the Hampshire Land exception to ordinary attribution. Discontinuance does not necessarily prevent a defendant from pursuing an existing costs issue.

Safeway companies sued former directors and employees for breach of contract, breach of fiduciary duty, negligence and conspiracy. They sought an indemnity for penalties which the Office of Fair Trading might impose under section 36 of the Competition Act 1998, together with investigation costs. Flaux J refused summary judgment, holding that it was arguable that the companies were not personally at fault unless the defendants were their directing mind or will: [2010] EWHC 11 (Comm).

The eighth defendant discontinued from the merits claim while the appeal was pending, but continued to challenge the costs order. The central issues were whether the companies’ statutory liability was personal or vicarious for the purposes of ex turpi causa, whether the Hampshire Land principle altered that conclusion, and what costs consequences followed from discontinuance.

1. Appeal allowed. The first to seventh and ninth to eleventh defendants were entitled to summary judgment. The companies could not recover either the eventual OFT penalty or the costs of the investigation.
2. Per Longmore LJ, section 36 of the Competition Act 1998 makes the undertaking liable only where it has itself committed the infringement intentionally or negligently. The liability is personal, not vicarious. It was unnecessary to establish that the individual defendants were the companies’ directing mind or will.
3. The ex turpi causa principle was engaged. In its narrower form it barred recovery of the penalty as the consequence of the claimant’s penal liability. In its wider form it barred recovery of the investigation costs as consequences of the unlawful conduct. The principle promotes consistency between regulatory or criminal liability and civil recovery.
4. The Hampshire Land principle could not assist the companies. The statutory scheme made them personally liable to the OFT, and the exception concerning an agent’s fraud on or breach of duty to the principal did not alter the application of ex turpi causa.
5. Per Lloyd LJ, only the undertaking could be liable for, or appeal against, the penalty. Pill LJ additionally emphasised the public-protection and deterrent policy of the Act. Allowing an undertaking to pass the penalty to employees or their insurers would undermine that policy.
6. As to the eighth defendant, he could continue the appeal on costs and should benefit from any order reversing the costs order below. Longmore LJ preferred to leave the general effect of discontinuance open. Pill LJ considered that discontinuance ordinarily made the claimant liable for the discontinued defendant’s costs under RSC rule 38.6, subject to any application for a different order.

• Court of Appeal (Civil Division) — appeals allowed and summary judgment entered for the relevant defendants. The eighth defendant was permitted to pursue the costs issue.
• High Court of Justice, Commercial Court — Flaux J refused the defendants’ applications for summary judgment and ordered costs against them: [2010] EWHC 11 (Comm).