| COMPETITION — Abuse of dominant position — Margin squeeze — Competitor complaining of price quoted for common carriage of water through water supply network — Whether owner of network abusing dominant position in water industry — Whether margin squeeze — Appropriate test — Competition Act 1998, s 18
Dŵr Cymru Cyfyngedig v Albion Water Ltd (Water Services Regulatory Authority and others intervening) [2008] EWCA Civ 536; [2008] WLR (D) 169
CA: Sir Anthony Clarke MR, Longmore and Richards LJJ: 22 May 200}
To establish abuse of dominant position by margin squeeze, there was no need for transformative activity (or added value) by the competitor on the downstream market, and for the dominant undertaking to avoid the costs associated with that transformative activity, or a need for the competitor to displace (rather than duplicate) the activities of the dominant undertaking in the downstream market and thereby to relieve the incumbent of the costs associated with those activities.
The Court of Appeal so held when dismissing an appeal by Dŵr Cymru Cyfyngedig, from decisions of the Competition Appeal Tribunal dated 22 December 2005 [2006] Comp AR 269, 6 October 2006 [2007] Comp AR 22, and 18 December 2006 [2007] Comp AR 328, that Dŵr Cymru was guilty of margin squeeze and had abused its dominant position in the water industry.
The decision arose following a complaint to the Director General of Water Services by Albion Water Ltd, the statutory water undertaker in respect of Shotton Paper Mill on Deeside, in respect of the cost to Albion of carrying to Shotton, through Dŵr Cymru’s water supply network, non-potable water purchased from another supplier. Albion complained that the price offered by Dŵr Cymru for common carriage was excessive, gave rise to a “margin squeeze” (also referred to as “price squeeze”) and was discriminatory, in breach of the prohibition in s 18 of the 1998 Act of conduct amounting to an abuse of a dominant position. The Director dismissed the complaint and Dŵr Cymru appealed to the tribunal.
RICHARDS LJ, delivering the judgment of the court, said that margin squeeze was a recognised form of abuse of dominant position. It was possible to identify common features to the various formulations of the test in the relevant guidance and case law. Such features included the existence of two markets (an upstream market and a downstream market), a vertically integrated undertaking which was dominant on the upstream market and active (whether or not also dominant) on the downstream market, and the need for access to an input from the upstream market in order to operate in the downstream market. The next common feature was the setting of upstream and downstream prices by the dominant undertaking that left an insufficient margin for an equally efficient competitor (rather than a reasonably efficient competitor) to operate profitably in the downstream market. It was common ground that a margin squeeze would not be abusive if there was an objective justification for the conduct in question. However, transformative activity, displacement or avoided costs were not necessary features of the test of margin squeeze.
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Appearances: Christopher Vajda QC and Meredith Pickford (Wilmer Cutler Pickering Hale and Dorr LLP) for Dŵr Cymru; Rhodri Thompson QC and John O’Flaherty (Palmers, Kingston upon Thames) for Albion; Rupert Anderson QC and Valentina Sloane (Pinsent Masons) for the Water Services Regulation Authority, intervening. The Office of Fair Trading and the Office of Communications also intervened, by way of written submissions.
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