Neutral Citation Number: [2007] EWHC 1373 (Ch) Case No: HC06C03700 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Royal Courts of Justice Strand, London, WC2A 2LL 15/06/2007 Before : THE HONOURABLE MR JUSTICE RIMER - - - - - - - - - - - - - - - - - - - - - Between : 1) CHESTER CITY COUNCIL Claimants 2) CHESTER CITY TRANSPORT LIMITED - and - 1) ARRIVA PLC Defendants 2) ARRIVA CYMRU LIMITED 3) ARRIVA NORTH WEST LIMITED - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mr Mark Brealey QC and Mr Gerard Rothschild (instructed by DLA Piper UK LLP) for the Claimants Mr Thomas Sharpe QC, Mr Paul Harris and Mr Conall Patton (instructed by Dickinson Dees LLP) for the Defendants Hearing dates: 22, 23, 26, 27, 28 February, 1, 2, 5, 6, 7, 22 and 23 March 2007 - - - - - - - - - - - - - - - - - - - - - Approved Judgment I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. ............................. THE HONOURABLE MR JUSTICE RIMER MR JUSTICE RIMER : Introduction 1. The claimants are Chester City Council (“the Council”) and Chester City Transport Limited (“CCT”). The Council owns all the issued shares of CCT, a bus company providing services in and around the City of Chester. CCT trades as “ChesterBus”. The defendants are Arriva plc, Arriva Cymru Limited and Arriva North West Limited (“Arriva”). The claimants seek declarations, injunctions and damages founded on their assertion that, in breach of section 18 of the Competition Act 1998, Arriva has abused what is said to be its dominant position in the relevant bus market by threatening predatory behaviour directed at driving CCT out of business. 2. The litigation follows the Council’s announcement in August 2006 of its decision to sell CCT by way of a tender. Arriva wished to tender but was not prepared to do so on the terms stipulated by the Council. Arriva was, however, resolute that it wished to provide its own bus services on the commercial routes then served by CCT and on 10 September 2006 it registered duplicate services on all CCT’s commercial routes, registrations which on their face declared an intention to operate those services from 7 January 2007. On 11 September 2006 Arriva followed those registrations with a written offer to the Council to buy the assets and undertaking of CCT. As the offer was not made in accordance with the Council’s tender terms, the Council refused to consider it. The Council further took the view that Arriva’s threatened route duplication was predatory, that its tactics would jeopardise the process of the sale of CCT and that the implementation of what it regarded as a threat to compete with CCT on all its routes would put CCT out of business. On 10 October 2006 the claimants issued proceedings in the Chancery Division and sought interim relief against Arriva restraining it from operating the registered services. Arriva gave undertakings not to do so pending an expedited trial. 3. The claim raised a number of issues. In particular, it raised a factual dispute as to Arriva’s intentions with regard to its September registrations. Arriva’s position is that it never intended to operate those services in competition with CCT: it says that its intention at the time of their registration was only ever to operate them in succession to CCT either (i) following an acquisition of CCT’s assets and undertaking; or (ii) following CCT’s demise as a trading company by January 2007 by reason of insolvency. Arriva’s position was and is that there was nothing predatory towards CCT about its intentions and it appears to marvel at the thought that anyone could have thought otherwise. The claimants’ case is that this is disingenuous nonsense and that at the time of the September registrations Arriva intended to do just what the registrations appeared to declare, namely to operate competing services as from 7 January 2007 on the same commercial routes as CCT at the same times and with the same bus numbers; and they say all the evidence is consistent with that. In addition to this factual issue, the claim raised issues as to whether, even if the claimants were right, Arriva’s actions threatened an infringement of section 18 of the Competition Act 1998. That raised issues as to whether Arriva was dominant in the relevant market and, if so, whether it was threatening to abuse its position as such. The claimants’ position was and is that Arriva is dominant and was abusing its position. Arriva’s position was and is that it is not dominant and that no question of alleged abuse arises. 4. The expedited trial came on for hearing on 8 December 2006. It was adjourned on its first day. The lead up to that was that on 27 November 2006 Arriva had notified the Council that it had de-registered most of the services the subject of the September registrations and now intended to operate an admittedly competing service on just three of CCT’s routes with effect from 21 January 2007. Arriva concedes that, had it entered the market in January 2007 and operated the routes the subject of its original registrations in competition with CCT (whose demise by reason of insolvency has not happened and does not appear to be threatened), it would not have been economic to do so and would have been loss-making: that is because there were not enough passengers to go round. As for the three routes the subject of the revised registrations (1, 1A and 15A), those are CCT’s most profitable routes, which account for the bulk of its revenue from its commercial services and which Arriva intend to operate with increased frequency and at the most profitable times. Arriva was unready to deal at the trial with the claimants’ evidence in response to its late change of stance, and also asserted that the claimants would have to amend their particulars of claim in order to advance the amended claim they were proposing to make. The result was that the trial was adjourned. 5. Arriva has continued its undertakings in the meantime and the adjourned trial took place before me over 12 days in February and March 2007. The issue as to Arriva’s intentions with regard to the September registrations has remained a central issue, even though, as matters stand at present, Arriva has no continuing proposal to operate all those routes. On one view that issue might be thought to have disappeared as a result of Arriva’s change of stance. But its investigation is relevant to the question of the justification for the bringing of this claim in the first place (and so at least goes to costs) and also to the whole picture as to Arriva’s intentions with regard to its proposed operations in the Chester bus market even though now those intentions are, again as matters stand at present, confined to competition with CCT on just three routes. The claimants assert that this revised stance, involving the cherry-picking of the three best routes, is just as predatory as the original one and that it also constitutes a threatened abuse by Arriva of its dominant position, the abuse being said to lie in “flooding” the bus routes and selling below cost. They do not allege that Arriva will charge lower fares than CCT. But they do allege that, as regards the three routes, the fares charged will be insufficient to cover Arriva’s costs, and that as a result Arriva will make a loss. Arriva defends its revised registrations. It asserts that it will cover its costs on the three routes and make a profit. It resists all suggestions that anything it has done was intended to be predatory or amounted to an abuse of its alleged position of dominance in the relevant market. It continues to deny that it was or is so dominant. If it was and is not dominant, the claimants have no case. 6. Some abuses by those in a dominant position are exploitative, excessive pricing being a typical example. Other abuses are exclusionary, being directed at driving others out of business. Predation is an abuse of the latter type. For example, the dominant undertaking might offer goods at uncommercially low prices and so cause a competitor to withdraw from the market, following which the dominant undertaking will raise its prices and recoup the losses it incurred in the predation exercise. The guidance from the Office of Fair Trading (“the OFT”) is that “Predation occurs in the bus industry when a dominant bus operator tries to drive a rival from the market by either flooding a route (or routes) with buses, or charging such low fares that the smaller company cannot afford to stay in the market, or both. This may amount to a breach of the Chapter II prohibition of the Act relating to the abuse of a dominant position” (OFT, Frequently asked questions on competition law and the bus industry, July 2006). 7. Arriva rightly regards this claim as raising serious charges against it. But its position is that the claimants are using these proceedings in order to be shielded from what is no more than healthy competition. If the order sought is made, Arriva will be barred from competing with CCT in Chester. It will, in addition, face the potentially serious consequences of an investigation under the parallel jurisdiction of the OFT, possibly resulting in a fine for any proven breach of section 18. And whilst Arriva will have been removed from the playing field, any other bus company which has the fortune not to be regarded as dominant in the relevant market will be at liberty to compete with CCT in whatever manner it likes.