Safeway Stores Ltd & Ors v Twigger & Ors [2010] EWCA Civ 1472

Case No A3/2010/0675[2010] EWCA Civ 1472
IN THE COURT OF APPEAL (CIVIL DIVISION)
[2010] EWHC 11 (Comm)
ON APPEAL FROM HIGH COURT OF JUSTICE
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE FLAUX
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 21/12/2010
Before
THE RIGHT HONOURABLE LORD JUSTICE PILLTHE RIGHT HONOURABLE LORD JUSTICE LONGMORETHE RIGHT HONOURABLE LORD JUSTICE LLOYD
Between
SAFEWAY STORES LIMITED & OTHERSRespondentsTWIGGER & OTHERSAppellants
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7404 1424Official Shorthand Writers to the Court)
Mr Jonathan Sumption QC, Mr Andrew Mitchell & Mr David Murray for 1 st-7 th& 9 th-11 th Appellants (instructed by CMS Cameron McKenna LLP), Mr Conall Patton for the 8 th Appellant for the Issue on Costs (instructed by Clifford Chance LLP) for the AppellantsMr Robert Anderson QC & Mr Tristan Jones (instructed by Wragge & Co LLP) for RespondentsHearing Hearing dates : 10 th& 11 th November 2010
Judgment

Introduction and Background

[1]This appeal from Flaux J raises a short but not easy question of law namely: if an undertaking such as Safeway infringes provisions of the Competition Act 1998 relating to anti-competitive activity and is duly penalised by the Office of Fair Trading, can that undertaking recover the amount of such penalties from its directors or employees who were themselves responsible for the infringement? The owners of Safeway in the form of their shareholders (different from those at the time of the relevant activity, by reason of a subsequent take-over) say that it is only right and just that they (who knew nothing of any such illegal activity) should be compensated by the wrongdoers; the defendant directors and employees (who on the facts which must be assumed for the purposes of the appeal are responsible) say that it would be inconsistent with principle for Safeway to be liable for penal sanctions but to be able to seek an indemnity for what is their own wrongful conduct. They rely on the maxim ex turpi causa non oritur actio and have sought summary judgment against Safeway on the basis that their claim has no realistic prospect of success. Flaux J declined to grant summary judgment in favour of the defendants and, awarding the claimants their costs, decided that the case must proceed to trial. All the defendants, with his leave, appeal, but since Flaux J’s decision, the claimants have discontinued against the 8th defendant. A point arises on that discontinuance since the 8th defendant says he should be repaid the costs, which he has paid pursuant to the orders of Flaux J after his application for summary judgment failed, while the claimants say that the judge’s order cannot be disturbed once they have discontinued.[2]The judge has set out the relevant facts and statutory provisions with such admirable economy that I can substantially repeat them for the purposes of this judgment.[3]The defendants are former employees and in some cases directors of the claimant companies, companies in the Safeway Group, which was sold to Morrisons in May 2004. The first claimant carried on business as a supermarket retailer prior to the sale. The first claimant was a wholly owned subsidiary of the third claimant which in turn was a wholly owned subsidiary of the second claimant.[4]The eighth defendant was at the times material to the claim the chairman of the second claimant. All the other defendants had contracts of employment with the first claimant. The third and fifth defendants were directors of the first claimant. The second and seventh defendants were directors of the second claimant.[5]From 2000 onwards concerted direct action was taken by British dairy farmers to put pressure on dairy processors and supermarkets to increase farm gate prices for dairy products. In 2002 and 2003, the claimants (acting by the defendants) engaged in repeated direct and indirect exchange of commercially sensitive retail pricing intentions with other large supermarkets and dairy processors. This resulted in initiatives which increased the price of milk and other dairy products for consumers. The price increases were passed back to the farmers.[6]In January 2005, the Office of Fair Trading (“OFT”) launched an inquiry into the various initiatives by the claimants and other supermarkets and the dairy processors. As a result of the inquiry the OFT alleged that the claimants and other supermarkets had breached the prohibition contained in section 2(1) in Chapter I of the Competition Act 1998 (“the 1998 Act”).[7]Section 2 of the 1998 Act provides: “1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which – a) may affect trade within the United Kingdom, and b) have as their object of effect the prevention, restriction or distortion of competition within the United Kingdom, are prohibited unless they are exempt in accordance with the provisions of this part. 2) Subsection (1) applies, in particular, to agreements, decisions or practices which – a) directly or indirectly fix purchase or selling prices or any other trading conditions; b) limit or control production, markets, technical development or investment; c) share markets or sources of supply; d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 3) Subsection (1) applies only if the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom. 4) Any agreement or decision which is prohibited by subsection (1) is void”.[8]On 20th September 2007, the OFT gave the claimants written notice, a so-called statement of objections, informing the claimants that as a result of the investigation, the OFT intended to make a decision that the Chapter I prohibition had been infringed. We have not seen a copy of the statement of objections because of confidentiality obligations owed by the claimants to the OFT.[9]Upon the service of the statement of objections, under section 31 of the Act, the claimants would have had the opportunity to make representations to the OFT, which could include a formal oral hearing. However, they chose not to do so. Instead, on 6th December 2007, the claimants and the OFT entered into an “early resolution” or “fast track” agreement as to the terms on which the OFT investigation into the claimants’ practices would be resolved. Similar agreements were reached with other supermarket owners, but the investigation into some supermarkets continues. As part of the terms agreed with the OFT, the claimants admitted that, by participating in the initiatives mentioned above, they had breached the Chapter I prohibition in the Competition Act through the repeated exchange of commercially sensitive retail pricing intentions. The precise terms of the fast track agreement are also subject to obligations of confidentiality and we have not seen them.[10]The claimants’ pleaded case is that by participating in and facilitating the initiatives, each of the defendants was in breach of his or her contract of employment and/or in breach of fiduciary duties owed to the claimants and/or negligent. It is also alleged that in breach of contract and/or of fiduciary duty the defendants failed to report the initiatives to his or her superiors or the Board of Directors of any of the claimants. Details of what each of the defendants is alleged to have done or failed to do are set out in paragraphs 34 to 39 of the Particulars of Claim, but it is not necessary to repeat those details here.[11]It is said by the claimants that, as a consequence of the defendants’ breach of contract and/or fiduciary duty and/or negligence, the claimants have suffered loss and damage. The principal element of this loss is the penalty from the OFT to which the claimants are exposed. The levying of penalties is dealt with by section 36 of the Competition Act which provides, so far as relevant:- “1) On making a decision that an agreement has infringed the Chapter I prohibition, the OFT may require an undertaking which is a party to the agreement to pay the OFT a penalty in respect of the infringement. 2) On making a decision that conduct has infringed the Chapter II prohibition, the OFT may require the undertaking concerned to pay the OFT a penalty in respect of the infringement. 3) The OFT may impose a penalty on an undertaking under subsection (1) or (2) only if the OFT is satisfied that the infringement has been committed intentionally or negligently by the undertaking. 4) Subsection (1) is subject to section 39 and does not apply if the Director is satisfied that the undertaking acted on the reasonable assumption that that section gave it immunity in respect of the agreement”.[12]Despite having served the statement of objections in September 2007, the OFT has yet to make a “decision” under this section, but it has indicated to the claimants that when it does so the penalty that will be imposed may be as much as £16,449,893. This may be discounted by up to 35% in recognition of the co-operation of the claimants in the OFT investigation. If the full discount is achieved, the penalty could be £10,692,431. The maximum penalty which can be imposed is a sum equivalent to 10% of the worldwide turnover of the relevant undertaking. The proposed penalty has apparently been calculated by reference to the worldwide turnover of the Morrisons group. However, it represents a tiny fraction of that turnover, possibly as little as 0.1%.[13]In addition to the claim for breach of contract, breach of fiduciary duty and negligence, the claimants allege that the defendants conspired to procure the claimants’ participation in the initiatives and, in furtherance of the conspiracy carried out the anti-competitive measures which were unlawful acts. It is alleged that since those unlawful acts were intended to increase the claimants’ retail prices, they were aimed at the claimants.[14]Apart from claiming an indemnity against the liability for a penalty, the claimants also claim as damages their costs, including legal costs, of the OFT investigation, some £200,000.

Engagement of the ex turpi causa maxim

[15]The first question considered by the judge was whether the contraventions of the Competition Act were sufficiently illegal or unlawful to engage the maxim ex turpi causa. He held (in favour of the defendants) that the infringements that occurred were sufficiently serious to engage the maxim and he also held that a penalty under section 36 of the 1998 Act was akin to a fine and the claimants do not now dispute these propositions.

Application of the ex turpi causa maxim

[16]Although the maxim goes back at least as far as the judgment of Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp. 341, its modern application dates from Tinsley v Milligan [1994] AC 340, which held, overruling Euro-Diam v Bathurst [1990] 1 QB1, that the courts had no discretion in relation to the maxim. The modern law has now culminated in Gray v Thames Trains Ltd [2009] 1 AC 1339 when Lord Hoffmann said (para 30) that it expressed not so much a principle as a policy and that it was a rule which may be stated in a narrower form and a wider form (para 32). In its narrower form it is that a claimant cannot recover for damage which is the consequence of a sentence imposed upon him for a criminal act; in its wider version it is that a claimant may not recover for damage which is the consequence of his own criminal act. Both versions of the rule are often in play as they are in the present case because it is said that recovery of the penalty likely to be imposed by the OFT is recovery for the consequence of a sentence for the criminal (or quasi – criminal) act of entering into an illegal agreement, whereas recovery of the costs of the OFT investigation is recovery for the consequences of making the illegal agreement. The main difference between the application of the two forms of the rule appears to be that there is no question of any causation problem in the application of the narrower version whereas difficult problems of causation may (in theory) arise if it is only the broader version of the rule on which reliance can be placed (para 51). The rationale of the maxim is the need for the criminal courts and the civil courts to speak with a consistent voice. It would be inconsistent for a claimant to be criminally and personally liable (or liable to pay penalties to a regulator such as the OFT) but for the same claimant to say to a civil court that he is not personally answerable for that conduct.[17]Most of the cases, in which the maxim has been applied to criminal or illegal acts and their consequences, have been cases in which the crime or other illegal act has involved a mental element. In Gray itself the claimant had killed a pedestrian as a result of the post-traumatic stress he had suffered as a consequence of the Ladbroke Grove/Paddington rail crash on 5th October 1999. He was charged with murder but at his trial the Crown accepted his plea of guilty to manslaughter on the grounds of diminished responsibility. The House of Lords decided that Mr Gray was still criminally responsible although that responsibility was less than it would have been if he had been convicted of murder. By reason of the maxim Mr Gray was held to be unable to recover from Thames Trains for his loss of earnings while he was detained in a mental hospital nor could he recover any indemnity for his forcible incarceration or for any damage he might have to pay to the representatives of the dead man. The manslaughter was thus sufficiently criminal for the maxim to be successfully invoked by the defendant train operators.[18]It has not been expressly decided whether the maxim (in either its narrower or wider version) applies where the criminal act is one of strict liability and the claimant may not have been at fault at all. The closest case is Askey v Golden Wine Co Ltd [1948] 2 All ER 35 in which Mr Askey had been convicted of offences under the then applicable Food and Drugs legislation and was held to be unable to recover an indemnity for the consequences of his punishment but it was clear that Mr Askey had in fact acted intentionally or in a criminally negligent way. The problem of strict liability offences need not, however, concern the court in this case because section 31(3) of the Act makes it clear that the OFT may only impose a penalty if is satisfied that the infringement “has been committed intentionally or negligently by the undertaking.” We must therefore proceed on the basis that Safeway is attempting to recover damages for the consequences of an infringement committed intentionally or negligently.

Application of the maxim to Corporations

[19]The difficulty and novelty of the present case is that the claimant is a corporation and can only act through its human agents. If it is those human agents who have acted intentionally or negligently and have thus caused the corporation to become liable by way of penalty to the OFT, does the maxim apply to preclude recovery of that penalty and its consequences from the very employees and directors whose conduct has created the corporation’s liability? The judge has held that it arguably does not, because it has not been shown (at this stage of the proceedings, at any rate) that any of the defendants was the “directing mind or will” of any of the claimant companies; he thought that, unless that could be shown, it was impossible to say that the claimant companies were “personally” at fault and the maxim only applies where the claimant was “personally” at fault, as accepted by Mr Jonathan Sumption QC in argument in the case of Stone & Rolls v Moore Stephens [2009] 1 AC 1391 and confirmed by the House of Lords in that case (paras 8 and 27-28).[20]At this stage it is important to recognise that the claimants’ liability is not a vicarious one. They are not liable for the illegal acts of their agents or employees because s. 36 of the Competition Act only imposes liability on an undertaking which is a party to an agreement which infringes the prohibition in Chapter I of the Act and that liability can only be imposed if the infringement has been committed intentionally or negligently by the undertaking. The liability to pay the penalty is thus a liability of the undertaking where it (the undertaking) has intentionally or negligently committed the infringement. Mr Sumption submits in this case that that liability is therefore a “personal” liability of the undertaking.[21]Mr Robert Anderson QC for the claimants submits that the companies could only be personally at fault if the infringement was committed or authorised by the Board of Directors acting as such or by the shareholders in general meeting, unless there was some special rule of attribution applicable in the circumstances of the case. He relied for this purpose on the decision of the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 in which the relevant New Zealand statute had provided that any person who became a substantial security holder in a body called a “public issuer” had to give notice that he was a substantial security holder as soon as he knew or ought to have known that he was such a holder. The chief investment officer of the appellant company used company funds to acquire shares in a public issuer but neither he nor the company gave the required notice that the company had become a substantial security holder in the public issuer. The New Zealand Securities Commission instituted proceedings against the company for that failure and the question was whether the knowledge of the chief investment officer was attributable to the company, so that the company was liable for the failure. The Privy Council held that the knowledge of the officer was attributable to the company which was therefore liable for the failure; in the course of the judgment, Lord Hoffmann explained the law of attributability to a company in criminal law which ordinarily imposes “liability only for the actus reus and the mens rea of the defendant himself”.[22]He said at page 507C:- “One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all; for example, a law which created an offence for which the only penalty was community service. Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by a resolution of the board or an unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.” Mr Anderson submitted that there was no need to have regard to any “special rule of attribution” in this case because the ex turpi maxim could not apply unless the claimants were personally at fault and in no way could they be said to be personally at fault in this case.[23]This submission misunderstands or misapplies the use of the word “personally” as applied in the requirement for the claimant to be “personally” at fault. No one is liable for the penalty imposed by the Competition Act except the relevant undertaking. The liability is, therefore, personal to the undertaking. If there is a liability it cannot be imposed on any person other than the undertaking and the undertaking is personally liable for the infringement. If a penalty is imposed, it will only be because the undertaking itself has intentionally or negligently committed the infringement. In those circumstances it is the undertaking which is personally at fault (there can be no one else who is) and, once the maxim is engaged, the undertaking cannot say that it was not personally at fault in order to defeat the application of the maxim. The whole hypothesis of the undertaking’s liability is that it is personally at fault.

The judge expressed his views in the following way at para 62:

[24]- “Attractively though these submissions on behalf of the defendants were put, I cannot accept them. It is true that, as between the claimants and the OFT, the issue of attribution did not arise since the relevant wrongdoing was inevitably that of the claimants as the “undertakings”. It would have been of no avail for the claimants in their dealings with the OFT to say that it was the defendants who had carried out the anti-competitive acts and practices, since the defendants were directors and employees acting in the course of their employment. However, contrary to the defendants’ submissions, the question whether, in consequence, the ex turpi causa rule applies to preclude a claim over against the defendants is simply not addressed by the Competition Act, which is not concerned with relations between the undertaking and its employees. It seems to me that the answer to that question depends upon the correct analysis of the liability which the claimants are under.” The judge then concluded that the claimants’ liability was, arguably, not a personal liability at all and that the determination of that question depended on whether it could be said that each of the defendants was “the directing mind or will” “of the claimant companies” which could not be decided on an application for summary judgment (para 68).[25]The judge’s approach would of course be correct if the question whether the claimant companies were “personally” liable depended on proof that the defendants were their “directing mind or will” (the phrase used by Lord Haldane in Lennards Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] A.C. 705, 713-4). But in my judgment it does not so depend because it was sufficient for the OFT to show that the companies intentionally or negligently infringed the provisions of the 1998 Act; the companies have accepted that they did so infringe the 1998 Act and the question whether the defendants were the “directing mind and will” of the companies does not come into the matter.[26]Mr Anderson further submits that the word “personal” in the requirement for the claimant to be “personally” at fault is used in a different sense from that in which it is used when one says that a corporation who cannot be vicariously liable is “personally” liable. But it is difficult to see why that should be so. If, indeed, it were the law that the ex turpi maxim could only be used against a company if the act was specifically authorised by the whole Board of Directors (or the shareholders in general meeting) there would be little scope for the maxim to be used at all in a corporate context. That would not be a desirable legal development. To the extent that it might be suggested that the maxim could be used, in addition, against a company when it was an employee who was “the directing mind or will” who intentionally or negligently committed the act of infringement, that would involve a potentially difficult and fact-sensitive inquiry which would be inappropriate for a maxim that is intended to be both comprehensible and readily applicable. It is more in accordance with principle to say that if the liability of the company is personal (rather than merely vicarious) then there is no impediment to the application of the maxim, save (perhaps) in cases of strict liability where there has been no intention or negligence on the part of any person, which is not something that needs decision now.[27]The judge appears to have accepted this part of Mr Anderson’s argument because he says (in paras 74 and 75) that the claimant companies were liable to pay penalties not by virtue of any special rule of attribution in the Meridian sense but by virtue of the general law of agency. But to talk of liability for the acts of one’s agents is to talk of vicarious liability and the company’s liability is not vicarious for the simple reason that the Act of 1998 does not impose any liability of any kind on the directors or employees of an undertaking for which the companies can be vicariously responsible. The liability is a “personal” one and that is enough to make the acts of the company “personal” for the purpose of the application of the maxim.[28]There is undoubtedly a principle of English law that acts of an agent are not to be regarded as attributable to his principal if the acts of the agent were deliberately intended to be in fraud of and cause loss to his principal. It is arguably wider than this and may extend to acts of an agent which are in breach of his duty to his principal and which have, in fact, resulted in harm to his principal. The judge relied on this principle, which takes its name from In Re Hampshire Land Co [1896] 2 Ch. 743, to hold that the maxim ex turpi causa was arguably inapplicable in this case since the acts of the defendants were in breach of their duty to the claimants and have resulted in financial loss in the form of the penalties to be levied by the OFT.[29]In my judgment, however, this cannot be an answer to the defendants’ summary judgment application since the same need for consistency between criminal (or quasi-criminal) liability and civil liability is still required to exist. Once it is appreciated that the claimant companies are (personally and not vicariously) liable to pay the penalties exigible under the 1998 Act, those companies cannot invoke the Hampshire Land principle to say that they were not “truly” liable. The principle gives them no defence to the OFT’s claim for the penalties; they are personally liable to pay those penalties and it would be inconsistent with that liability for them to be able to recover those penalties in the civil courts from the defendants. The statutory scheme has attributed responsibility to the claimant companies and the Hampshire Land exception to the ordinary rule of attribution can have no import on the application of the ex turpi maxim.[30]This is not a decision which requires any resolution of fact but is a pure matter of law.[31]Although the main point in this case is (as I have said) not entirely easy, the sooner the defendants (and indeed the claimants) know the correct legal position, the fewer costs will need to be incurred. It is sensible to determine the case now. I would, for the reasons I have given, respectfully disagree with the judge, allow the defendants’ appeal and say that they are entitled to judgment.

Discontinuance

[32]It is, finally, necessary to consider the effect of the claimants’ discontinuance against the eighth defendant on the costs order made by the judge. The judge, having decided that his application for summary judgment had failed (along with the applications made by the other defendants) naturally decided that those defendants ought to pay the costs. Can the claimants retain the benefit of that costs order against the eight defendant by virtue of having discontinued when they did? That would to my mind be unjust if (as has now happened) it turns out that the judge ought in fact to have acceded to the applications for summary judgment.[33]The formal position must, in my view, be that orders for costs in favour of a claimant before discontinuance remain in effect. They will not be unwound merely because the claimant discontinues. Any potential injustice can be avoided by a defendant because CPR 38.4 provides that the defendant may, 28 days after service of the notice of discontinuance, apply to have the notice set aside. CPR 38.5(3) also provides that discontinuance does not affect proceedings to deal with any question of costs. At the beginning of the hearing the 8th defendant made it clear that he wished to continue with his appeal in order to deal with the question of costs. We allowed him to do so. Now that the appeal of the 1st to 7th and 9th to 11th defendants has been successful, the 8th defendant should be entitled to benefit from any order which may in due course be made reversing the order of Flaux J in relation to costs.[34]I note that Pill LJ considers service of a notice of discontinuance has the legal consequence that costs orders already made in favour of the discontinuing party are automatically reversed without further order unless that party is able (on application) to show that the defendant's conduct was abusive or vexatious. He may, of course, be right, but I would prefer to wait for a case in which the point arises for decision, before coming to a final view.[35]I agree with the judgment of Longmore LJ.[36]The central and decisive point is that it is the undertaking, the party to the agreement, decision or concerted practice which constitutes a breach of the Chapter I prohibition, that is liable to a penalty under section 36 of the 1998 Act, if the breach was committed intentionally or negligently. Only the undertaking can be so liable. To emphasise that, if it were necessary, it may be noted that the undertaking can appeal against the imposition of a penalty, or its amount, under section 46 of the 1998 Act – see sub-section (3)(i) – and that although third parties may appeal against a number of decisions under the 1998 Act under section 47, if the Competition Appeal Tribunal considers that the third party has a sufficient interest, those decisions do not include decisions as to the imposition or amount of a penalty: see section 47(1).[37]Although (on the facts to be assumed for the summary judgment application) it is by virtue of what the defendants did that the claimants committed the relevant breaches, every such breach was and remains the act of the respective claimant. The consequent liability to a penalty is, as Longmore LJ says, a personal liability of that claimant. I therefore disagree with the judge’s conclusion that it was arguable that the claimants’ liability was not primary or direct (see his paragraph 77). In my judgment it was primary, personal and direct. In no sense was it secondary or vicarious.[38]It follows that the ex turpi causa principle does apply to preclude the claimants from seeking to recover from the defendants either the amount of the eventual penalty (under the narrow version of the principle) or the costs of coping with the OFT investigation (under the wider version).[39]I therefore agree that the appeal by the first to seventh and ninth to eleventh defendants should be allowed and summary judgment be entered in their favour.[40]I also agree as to the position in respect of the costs ordered by the judge against the eighth defendant. The claimants’ discontinuance as against him at a time when his appeal was pending cannot preclude the court from making such order as it thinks appropriate as to those costs or as to his costs of the appeal.[41]I prefer not to express a view as to the effect that the discontinuance might have had in other circumstances.[42]I also agree that the appeal should be allowed. The claimants, as an undertaking, have breached the prohibition in section 2 of the Competition Act 1998 (“the 1998 Act”) and a penalty has been imposed on the basis that the infringement has been committed “intentionally or negligently by the undertaking” within the meaning of section 36 of the Act. The judge held that a penalty under section 36 was akin to a fine and that is not now disputed by the claimants. The claimants now seek to recover the amount of the penalty from their directors or employees who were responsible for the infringement.[43]Only the undertaking can appeal against the imposition of a penalty, or its amount, under section 46 of the 1998 Act. The defendants rely on the principle ex turpi causanon oritur actio to defeat the claim. I agree with Longmore LJ that the liability is personal to the claimants and that they are not entitled to pass it on to their employees.[44]The policy of the 1998 Act is to protect the public and to do so by imposing obligations on the undertaking specifically. The policy of the statute would be undermined if undertakings were able to pass on the liability to their employees, or the employees’ D & O insurers. Only if the undertaking itself bears the responsibilities, and meets the consequences of their non-observance, are the public protected. A deterrent effect is contemplated and the obligation to provide effective preventative measures is upon the undertaking itself. As Mr Sumption QC submitted, the provisions of the 1998 Act may be contrasted with those in Part 6 of the Enterprise Act 2002, which created a criminal offence of dishonesty in agreeing to make identified anti-competitive agreements. Under that statute, the offence can be committed only by individuals.[45]In Tesco Supermarkets Ltd v Nattrass [1972] AC 153, at 194B, Lord Diplock considered statutory purpose in the context of the Trade Descriptions Act 1968:
“Consumer protection, which is the purpose of statutes of this kind, is achieved only if the occurrence of the prohibited acts or omissions is prevented. It is the deterrent effect of penal provisions which protects the consumer from the loss he would sustain if the offence were committed. If it is committed he does not receive the amount of any fine. As a tax-payer he will bear part of the expense of maintaining a convicted offender in prison.”
[46]The purposes of the Restrictive Trade Practices Act 1976 were considered in Director General of Fair Trading v Pioneer Concrete (UK) Ltd & Anr [1995] 1 AC 456, (per Lord Templeman at page 465B and Lord Nolan at page 475 A-D, with whom the other members of the Committee agreed). Policy was considered important, when attributing responsibility. In the present case, the policy of the Act attributes liability to the undertaking and it is for the undertaking to organise its affairs in such a way as can prevent infringements. In the context of this statute, it is the undertaking which has “personal liability”, in the sense that expression is used in Gray v Thames Trains Ltd [2009] 1 AC 1339, by Lord Hoffmann at paragraph 41 and Lord Rodger at paragraph 69.[47]The court has been referred to many cases over a long period of time in which reliance has sought to be placed on the principle ex turpi causa. It is not necessary, for present purposes, to analyse them in detail. The circumstances in the cases cited to the court are diverse and range, for example, from a claim by a person who could have been prosecuted under the Foreign Enlistment Act 1870 (Burrows v Rhodes & Jameson [1899] 1 QB 817), to a claim by moneylenders who unlawfully issued a circular to a minor due to the negligence of the agency acting for them (R Leslie Ltd v Reliable Advertising & Addressing Agency Ltd [1915] 1 KB 652), to a claim by builders who did work for an architect owner in excess of licences granted in reliance on assurances by the architect that he would obtain the necessary licences (Strongman (1945) Ltd v Sincock [1955] 2 QB 525).[48]In Gray, the claimant was convicted of manslaughter committed while he was suffering from a post-traumatic stress disorder following a rail accident caused by the defendants’ negligence. The court would not award damages to compensate for the consequences of manslaughter, for which he had personal responsibility, notwithstanding that the tortious act of the defendant had led him to commit that offence.[49]In Osman v J Ralph Moss Ltd [1970] 1 Lloyd’s Law Reports 313, on the other hand, a motorist who had been convicted of driving without an insurance policy was held entitled to sue insurance brokers who had negligently recommended him to take out a motor policy with a company whose shaky financial foundation was well known in insurance circles. The driver believed with justification that he was covered against third party risks.[50]Phillimore LJ, having considered earlier authorities, stated, at page 320:
“Here is a case of absolute liability. This man incurred that liability through no fault, no negligence or dishonesty on his part. He incurred it because he was grossly misled by the insurance brokers whose duty it was to advise him. It would, as I think, be quite wrong in such circumstances if he was not able to recover the amount of this fine as a just debt.”
Other heads of damage were also held to be recoverable. Sachs LJ and Edmund Davies LJ gave judgments to a similar effect.[51]It is not easy to provide a single, simple rule which applies to the wide range of situations in which civil claims may follow a conviction or quasi-conviction. The principle is one of law but its application will vary with the circumstances. Findings in this case, or by the House of Lords in Gray, do not in my judgment necessarily have the effect of overruling cases cited where the principle has not been applied.[52]On the present statutory scheme, the answer is in my view clear but other situations may be more complex. Save to comment that there is a theme that, where there is a personal responsibility for the conviction, the principle ex turpi causa is normally applied, it is not necessary to consider them further. I also agree with Longmore LJ that in the circumstances the Hampshire Land principle has no application.[53]I agree with Longmore LJ that the defendants’ appeal should be allowed and that they are entitled to judgment.

Discontinuance Against Eighth Defendant

[54]The eighth defendant joined in the failed application before Flaux J to seek summary judgment. On his decision not to strike out, the judge understandably made a costs order against all defendants. On 20th August 2010, that is after this court was seised of their appeal, notice of discontinuance was served in respect of the eighth defendant. By solicitor’s letters of 8 September and 13 September, the claimants argued that the proceedings against the eighth defendant had been brought to an end and “discontinued in toto”. The eighth defendant could no longer join in the appeal, even to seek to reverse the order below for costs against him.[55]The court heard submissions before the commencement of the appeal and reserved its position. During those submissions the claimants accepted, rightly in my view, that the eighth defendant could remain a party to the appeal for the purposes of challenging the judge’s order as to costs, and he did so.[56]In the event, the appeal of the other defendants on the merits has been successful and I agree with Longmore LJ that the eighth defendant should be entitled to benefit from any order which may in due course be made reversing Flaux J’s order in relation to costs.[57]I do not, however, agree with the claimants’ submissions on the effect of discontinuance. RSC rule 38.6 provides, so far as is material:
“(1) Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant. (2) If proceedings are only partly discontinued – (a) the claimant is liable under paragraph (1) for costs relating only to the part of the proceedings which he is discontinuing; and (b) unless the court orders otherwise, the costs which the claimant is liable to pay must not be assessed until the conclusion of the rest of the proceedings.”
[58]The claimants have sued the eighth defendant but, by discontinuing their claim, they accepted that it is not a valid claim against the defendant. The position should be, and in my view the wording of the rule provides, that in those circumstances the claimant is on the face of it liable for the eighth defendant’s costs. That would have the effect of reversing the order for costs below. The claimant should not normally have the luxury of bringing a claim now accepted as invalid and not meeting costs incurred along the way. Of course, if the eighth defendant’s conduct in the course of proceedings was found to have been abusive or vexatious, different considerations may apply but an appropriate application would need to be made by the claimant discontinuing.[59]I do not accept that there is a burden on the party against whom a claim is discontinued to have to seek to set aside the notice under CPR rule 38.4 and keep alive the claim against him in order to contest costs below. In my judgment, that is to put the burden in the wrong place and it is for the party discontinuing a claim to take the initiative. It is for the claimant discontinuing to seek a different order or to achieve by negotiation a discontinuance on other terms.[60]The starting position should be, in my view, that a party who unilaterally discontinues a claim against a defendant by serving a notice of discontinuance, is liable for the costs of that defendant, as provided by r.38.6. Even had the appeal by the other defendants failed in this court, the claimants should in my view have met the costs of the party against whom they had discontinued when the claim reached this court. It has not been suggested that the application to strike out was vexatious or other than arguable.

Cited in 11 later judgments

and 2 more of the most senior