Network Rail v. Achilles: Establishing Precedent on Anti-Competitive Conduct in Rail Supplier Assurance

Court: England and Wales Court of Appeal (Civil Division)

Date: 2020-03-05

Case Citation: [2020] EWCA Civ 323

Introduction

The case of Network Rail Infrastructure Ltd v. Achilles Information Ltd ([2020] EWCA Civ 323) presents a significant examination of competition law within the UK's rail industry. The core issue revolves around Network Rail's imposition of the RISQS-only rule in its Sentinel and On-Track Plant Operations (OTPO) schemes. This rule mandated that all suppliers seeking to work on Network Rail's infrastructure undergo vetting exclusively through the Rail Industry Supplier Qualification Scheme (RISQS), run by the Rail Safety and Standards Board (RSSB). Achilles Information Limited (Achilles), a competitor to RISQS, challenged this exclusive arrangement, alleging it breached the Competition Act 1998 by restricting competition in supplier assurance services.

The case ascended from the Competition Appeal Tribunal (CAT), which had previously ruled against Network Rail, finding the RISQS-only rule anti-competitive. Network Rail appealed this decision to the Court of Appeal, seeking to overturn the CAT's findings. The appellate court's examination focused on the interpretation and application of Sections 2 and 18 of the Competition Act 1998, concerning prohibitions on anti-competitive agreements and abuse of dominant market positions, respectively.

Summary of the Judgment

The Court of Appeal upheld the CAT's decision, affirming that Network Rail's RISQS-only rule constituted both a breach of Chapter I of the Competition Act 1998 and an abuse of a dominant market position under Chapter II. The Court found that Network Rail, as the predominant operator of railway infrastructure in Great Britain, held a dominant position in the market for supplier assurance services. By mandating exclusivity with RISQS, Network Rail effectively foreclosed competition, preventing Achilles and other potential competitors from entering the market.

Furthermore, the CAT concluded that the RISQS-only rule was not objectively justified on safety grounds and did not meet the criteria for exemption under Section 9 of the Competition Act. Consequently, the Court of Appeal dismissed Network Rail's appeal, reinforcing the principle that dominant firms must not leverage their market position to stifle competition unlawfully.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents to underpin its analysis:

FENIN (Case C205/03P): Addressed whether public bodies engaging in purchasing activities for non-economic purposes could be considered undertakings under competition law.
Socrates Training Ltd v The Law Society of England and Wales ([2017] CAT 10): Explored the anti-competitive effects of market segmentation and restrictions in professional services.
Case C-1/12 Ordem dos Técnicos Oficiais de Contas v Autoridade da Concorrência ("OTOC case"): Discussed the abuse of dominant positions through market segmentation and discriminatory practices.
Wouters (Case C-74/04 P Volkswagen v Commission): Examined whether rules imposed unilaterally by manufacturers on distributors could constitute anti-competitive agreements.
A roports de Paris v Commission and Arriva the Shires Limited v London Luton Airport Operations Limited ([2014] EWHC 64 (Ch)): Clarified that an abuse of dominance does not require the dominant firm to derive a commercial benefit from its conduct.
MasterCard case (Case C-382/12 P): Addressed the necessity of establishing a causal link between benefits and restrictive practices.

These cases collectively informed the Court of Appeal’s understanding of how dominant firms may abuse their positions and the legal thresholds for determining anti-competitive conduct.

Legal Reasoning

The Court of Appeal’s reasoning was methodical, dissecting the CAT’s application of competition law provisions:

Dominant Position: The court affirmed that Network Rail held a dominant market position due to its extensive control over mainline railway infrastructure. Dominance was characterized by Network Rail’s significant market share and the barriers to entry for competitors like Achilles.
Anti-Competitive Agreement (Section 2, Chapter I): The RISQS-only rule was deemed an agreement between undertakings because Network Rail and suppliers implicitly agreed to the terms by participating in the Sentinel and OTPO schemes. The court found that this agreement had the potential to restrict competition by limiting supplier assurance services to RISQS.
Appreciable Effect on Competition: Applying the Socrates and OTOC precedents, the court concluded that the RISQS-only rule significantly foreclosed a substantial segment of the market for supplier assurance services. This segmenting distorted competition, fulfilling the criteria for an anti-competitive effect.
Objective Justification and Exemption (Section 9): Network Rail failed to demonstrate that the RISQS-only rule was objectively necessary for ensuring safety, nor did it provide sufficient evidence that there were no less restrictive means to achieve the same safety objectives. Consequently, the exemption under Section 9 was not applicable.
Abuse of Dominant Position (Section 18, Chapter II): The court reinforced that an abuse does not require the dominant firm to gain a commercial advantage. Network Rail's conduct impaired competition irrespective of any direct commercial benefit.

This layered analysis underscores the court's commitment to maintaining competitive markets, deterring dominant firms from imposing restrictive practices without legitimate justification.

Impact

The judgment has far-reaching implications for competition law within regulated industries, particularly those involving infrastructure access and supplier qualifications. Key impacts include:

Market Access Conditions: Dominant firms must refrain from imposing exclusive conditions that limit competition unless they can provide robust, objective justifications.
Supplier Assurance Services: The ruling ensures that multiple providers can compete in the supplier assurance market, fostering innovation, competitive pricing, and improved quality of services.
Regulatory Compliance: Companies in similar regulated sectors must carefully structure their access requirements to avoid anti-competitive agreements, even when motivated by safety or regulatory compliance.
Legal Precedent: The case serves as a clear precedent reinforcing that dominance does not equate to impunity in competition law, setting a benchmark for future cases involving market segmentation and exclusivity.

Overall, the judgment strengthens the enforcement of competition law, ensuring that dominant market players cannot leverage their positions to the detriment of competitive markets and consumer choice.

Complex Concepts Simplified

Dominant Position:: A status wherein a company possesses significant control over a market, allowing it to operate independently of competitive pressures. Dominance is often indicated by a large market share and barriers that prevent other firms from entering the market.
Chapter I Prohibition (Section 2 of the Competition Act 1998):: This section prohibits agreements, decisions by associations of undertakings, or concerted practices that may affect trade within the UK and have the object or effect of preventing, restricting, or distorting competition.
Chapter II Prohibition (Section 18 of the Competition Act 1998):: It addresses the abuse of a dominant position in a market, prohibiting conduct that harms competition, such as unfair pricing, limiting production, and imposing discriminatory conditions.
Appreciable Effect:: An impact on competition that is more than negligible or insignificant. It must be demonstrated that the conduct affects the market to a degree that can influence prices, output, innovation, or quality significantly.
Ancillary Restraint:: Refers to restrictions that are secondary and not the primary purpose of an agreement. These restraints must be necessary to achieve the main objectives of the agreement and contribute to its efficiency.
Supplier Assurance Services:: Services that assess and verify the competency and reliability of suppliers, ensuring they meet specific standards required by clients, in this case, those seeking access to railway infrastructure.

Understanding these concepts is crucial in appreciating the nuances of competition law and its application in regulated industries.

Conclusion

The Court of Appeal's dismissal of Network Rail's appeal in favor of Achilles stands as a testament to the robust enforcement of competition law within the UK's rail industry. By affirming that the RISQS-only rule was anti-competitive and an abuse of dominance, the court emphasized the necessity for open and competitive markets, even in sectors governed by stringent safety and regulatory standards.

This judgment underscores that dominant firms cannot insulate themselves from competition law through exclusivity agreements without substantive justification. It ensures that multiple suppliers can compete on an equal footing, promoting efficiency, innovation, and quality improvements in supplier assurance services.

For legal practitioners and regulatory bodies, this case highlights the importance of scrutinizing access conditions imposed by dominant players and ensuring they comply with competition law principles. As industries continue to evolve, so too will the interpretations and applications of competition laws, with this case serving as a foundational reference point for future disputes involving market dominance and anti-competitive conduct.