ECJ gives jurisdiction guidance in competition damages claims

In FlyLAL v Air Baltic and Riga Airport the ECJ considered the interpretation of Articles 5(3) and 5(5) of the Brussels I Regulation (Reg 44/2001) in a competition damages context.

Although the Brussels I Regulation has now been replaced by the Recast Brussels Regulation (Reg 1215/2012), the provisions that were considered in this case are repeated in identical terms (in Articles 7(2) and 7(5) of the Recast Regulation) and the case is therefore still helpful when considering how those provisions should be interpreted.

Background

This matter was referred to the ECJ by the Lithuanian Court of Appeal. The underlying claim concerns a long-running damages action brought by Lithuanian Airlines (flyLAL) (which had operated flights out of Vilnius airport in Lithuania before going out of business) against both Air Baltic (a Latvian airline) and the operator of Riga Airport in Latvia. From 2004, Air Baltic had started operating flights out of Vilnius airport, directly competing with FlyLAL on certain routes.

FlyLAL claimed that the loss of sales and income which led to its collapse were caused by an alleged anti-competitive agreement between the Defendants, by which Riga airport charged reduced airport fees to Air Baltic, and Air Baltic then used the sums saved to engage in predatory pricing which drove flyLAL out of the market in Vilnius and ultimately caused its business to fail. Once the Lithuanian competition had exited the market, it was alleged that Air Baltic had then moved the majority of the flights it had operated out of Vilnius back to Riga airport.

Jurisdiction had been founded before the Lithuanian Court on Article 5(3) and 5(5) of the Brussels I Regulation. Amongst the matters to come before the Court of Appeal in Lithuania was whether that court had jurisdiction to hear the claim at all. A reference was made to the ECJ on the interpretation of Articles 5(3) and 5(5) in the context of competition damages claims.

Article 5(3): jurisdiction in matters relating to tort

Article 5(3) provides that, in tortious damages claims, a Defendant domiciled in one Member State may, in another contracting state, be sued “in the courts for the place where the harmful event occurred”. It is settled law that the place where the harmful event occurred can mean either (i) the where the damage occurred or (ii) the place of the event giving rise to the damage. In competition claims, identifying these places can be difficult.

Article 5(3) is engaged for competition damage claims on the basis that the cause of action is framed as breach of statutory duty (ie a tort).

The place where the damage occurred

The ECJ distinguished between initial damage resulting directly from the anti-competitive behaviour giving rise to the claim, which may provide a basis for jurisdiction under Article 5(3), and subsequent adverse consequences which may not. In this case, it held that the financial losses suffered by flyLAL due to its inability to operate profitably out of Vilnius airport resulted directly from the alleged anti-competitive behaviour of the Defendants. Such loss of income could therefore amount to “damages” capable of establishing jurisdiction under Article 5(3).

The ECJ also held that the place in which damage occurred in a competition damages context would be the market affected by the anti-competitive conduct, that is the place where the loss of sales occurred. The relevant market in this case was the Lithuanian market for flights into and out of Vilnius airport.

The place of the event giving rise to the damage

In competition damages claims, the ECJ held that ascertaining the place where the event giving rise to the damage occurred will depend upon the nature of the anti-competitive behaviour.

• where an anti-competitive agreement contrary to Article 101 TFEU is alleged, the relevant place will be wherever the anticompetitive agreement was concluded, and
• for a claim arising out of abuse of a dominant position contrary to Article 102 TFEU, the relevant place will be determined by reference to where the abuse was implemented.

For cases such as that brought by flyLAL, where a chain of anti-competitive conduct allegedly caused the damage, the ECJ advised that courts must seek to identify the event of most importance in implementing the overall anti-competitive strategy.

Article 5(5): Jurisdiction founded on operation of a branch

The Lithuanian Court also sought guidance on the application of Article 5(5) of the Brussels I Regulation to competition damages claims.

Article 5(5) provides that where disputes arise out of the operations of a branch, agency or other establishment, a Defendant may be sued in the courts for the place in which that branch, agency or establishment is situated.

Case law (see Mahamdia, C-154/11), has established that to found jurisdiction under this head:

• the branch must be a centre of operations, with a degree of permanence. It must have a management and be materially equipped to negotiate business with third parties, and
• the dispute must concern either acts relating to the management of the branch or commitments entered into by that branch on behalf of the parent.

The question of whether the Article 5(5) test was satisfied in this case was considered by the ECJ, who held that the branch must actually have participated in the anti-competitive behaviour giving rise to a damage claim in order to provide a basis for jurisdiction under Article 5(5). In the case where the damage is allegedly caused by abuse of a dominant position consisting of the application of predatory pricing, the branch of the undertaking which holds that dominant position must actually and significantly itself participate in the abusive practice.