Safeway proceeds with groundbreaking attempt to sue ex-employees for price fixing

The High Court has rejected an attempt by the ex-employees and directors involved to have the case thrown out of court. It said that because Safeway has a prospect of successfully rebutting the defendants' key arguments in the case then it should go ahead.

The Office of Fair Trading (OFT) investigated some supermarkets, including Safeway, over the collusion between shop chains and dairy companies in relation to retail prices for dairy products.

Safeway made a deal with the OFT covering its activity up to the point when it was acquired by rival Morrisons, which continues to dispute the OFT's allegations.

Safeway faces a fine of £16 million, which may in due course be reduced to nearly £11m because of its co-operation with the OFT.

The company then launched a suit against ex-employees and directors seeking damages and compensation because, it says, those ex-employees and directors were responsible for some of the infringing behaviour in breach of their contracts and duties to the company.

Competition law expert Adrian Wood said that the case is unique. "This is the first known reported case in the English courts in which a company infringing competition law has sought to recover damages against former personnel who are alleged to be the perpetrators of the relevant anti-competitive behaviour," he said.

The case is in its preliminary stages and the ex-employees had asked the High Court to throw the case out because it breached a basic legal principle, 'ex turpi causa'. This rule says that someone who does something unlawful cannot sue someone else for the consequences of that action.

The ex-employees also said that the case was inconsistent with competition law.

The High Court has refused to throw the case out. Mr Justice Flaux said that Safeway had "a
real prospect of successfully defeating at trial any defence of ex turpi causa or that their claims are contrary to the competition regime".

Wood said that the case could help to clarify when directors are considered to be acting on their own account and when on behalf of their employer.

"Once the full facts of the case emerge at trial it will be interesting to see how the court, for the purposes of assessing the scope of the ex turpi causa rule, formally as a matter of public policy draws the distinction between situations where directors are considered as acting as the governing mind of the company (and thus barring the type of claim brought in this case), as opposed to acting on a 'frolic of their own'," he said.

Wood said that if Safeway is successful it will change several aspects of the employment of company directors.

"First, premiums for directors and officers' liability insurance will rocket and the scope of policy exclusions will be widened," he said. "In the Safeway case, the claim relates to the value of the probable penalty plus legal costs of handling the investigation, but there seems no reason in principle why claims could not also involve any losses arising from successful follow-on damages claims. Insurers will be looking closely at those risks."

"Secondly, companies will wish to ensure more than ever before that their senior staff sign up to annual competition compliance statements, as well as embed more compliance training in their business operations," said Wood.

"Thirdly, internal procedures for progressing company competition leniency applications will become more complicated because astute employees may, as the price for their future cooperation in the leniency application, seek formal upfront written assurances from the company that they will not be pursued for damages," he said.

The case could also go some way to ensuring that individuals take much more care to avoid breaking competition law, said Wood.

"A decision in favour of the claimants at full trial will act as a powerful individually tailored incentive for employees and senior staff to toe the line on competition compliance," he said. "The risk of being subjected to criminal cartel prosecutions or possible directors' disqualification proceedings is developing quickly as part of the compliance psyche amongst businesses. But a third enforcement limb, albeit this time of a private law nature, could yet be seen by the authorities as being the most effective weapon in securing competition compliance."