R v Bailey

BETWEEN:

Claimant

Defendant

Mr. Michael Bowsher Q.C. and Miss Anneliese Blackwood (instructed by Addleshaw Goddard LLP) appeared for the Claimant.

Mr. James Flynn Q.C. and Mr. Colin West (instructed by Burges Salmon LLP) appeared for the Defendant.

I. INTRODUCTION

(1) The parties and the OFT Decision

This is a claim brought by 2 Travel Group plc (in liquidation) ("2 Travel" [1] ) against Cardiff City Transport Services Limited, trading as Cardiff Bus ("Cardiff Bus"), for damages pursuant to section 47A of the Competition Act 1998 (the "1998 Act"). The claim is thus a "follow-on" action arising out of a decision of the Office of Fair Trading ("OFT") in which it was found that Cardiff Bus committed an infringement of the Chapter II prohibition contained in section 18 of the 1998 Act (decision number CA98/01/2008, dated 18 November 2008, "the OFT Decision").

In determining a claim to which section 47A of the 1998 Act applies, the Tribunal "is bound by any decision mentioned in subsection (6) which establishes that the prohibition in question has been infringed" (section 47A(9)). Section 47A(6)(a) provides that "[t]he decisions which may be relied upon for the purposes of proceedings under this section are...a decision of the OFT that...the Chapter II prohibition has been infringed".

Plainly, the OFT Decision falls within section 47A(6)(a) of the 1998 Act, and the Tribunal is accordingly "bound by any decision...which establishes that the prohibition in question has been infringed".

(2) The scope of the OFT Decision and the Tribunal's jurisdiction

Since, by virtue of section 47A, the basis for 2 Travel's claim, and the extent of the Tribunal's jurisdiction, is the OFT Decision, it is necessary to determine exactly what the OFT Decision decided. 2 Travel cannot put forward, and the Tribunal has no jurisdiction to determine, a claim based upon an infringement not established by the OFT Decision.

There was some disagreement between 2 Travel and Cardiff Bus as to the precise ambit of the OFT Decision. This gave rise to an application, on the part of Cardiff Bus, to strike out parts of 2 Travel's Claim for Damages. The Tribunal heard this application, and rejected it, on the first day of the hearing (Transcript Day 1, page 30). Our reasons for this conclusion are given in Section II below, where we also set out our reasoned findings as to the ambit of the OFT Decision.

It is helpful, however, to state our conclusions as to the ambit of the OFT Decision at this stage. For the reasons we give in Section II, we find that the OFT decided that:

We consider that we are, by virtue of section 47A(9) of the 1998 Act, bound by the OFT Decision to this extent, and to this extent only.

(3) 2 Travel's claim

From 19 April 2004 until mid-December 2004, 2 Travel operated a no-frills bus service on certain routes within Cardiff (the "2 Travel In-Fill Service" or the "In-Fill Service"). The Cardiff Bus White Service was a response to this: it was not disputed before us – and it is clear from the OFT Decision – that the Cardiff Bus White Service was conceived and implemented in response to the 2 Travel In-Fill Service and was, as the OFT Decision found, an infringement of the Chapter II prohibition. We shall refer to Cardiff Bus's unlawful response to the 2 Travel In-Fill Service as the "Infringement".

An overview of 2 Travel's alleged loss and damage is helpfully provided in Appendix 1 to 2 Travel's written opening submissions. In essence, 2 Travel contended that it had suffered loss and damage, by reason of the Infringement, under six broad heads, as follows:

There were three general points to be noted in respect of the claims advanced by 2 Travel:

Our approach to the facts is described, in general terms, in Section I(4) below.

(4) Overview of our approach to the facts

(i) Introduction

In order to assess 2 Travel's losses arising as a result of the Infringement, it is necessary to conduct a detailed review of the facts. In particular, it will be necessary to compare (i) what in fact happened as against (ii) the counter-factual scenario. Both parties were agreed that the appropriate counter-factual scenario was what would have happened had the Cardiff Bus White Service not operated at all , as opposed to it having operated on some different, legitimate, basis. Given the terms of the Decision – and for the reasons we give in Section II below – we agree that this is the correct approach.

Our analysis of the facts, therefore, is undertaken in three broad stages:

(ii) Stage 1: The period prior to the Infringement

In Section V, we consider 2 Travel's business and the development of that business in the period up to 19 April 2004, which was when the 2 Travel In-Fill Service and the illegitimate Cardiff Bus White Service began. There is no need, for this period, to consider any counter-factual scenario: although Cardiff Bus was, in the period leading up to 19 April 2004, making plans for the commencement of its White Service, that service did not operate before 19 April 2004, and 2 Travel makes no allegation that it was affected by Cardiff Bus's conduct prior to 19 April 2004. (We consider that any such allegation, if made, would have been wholly unsustainable.)

It is necessary to consider events up to 19 April 2004 because, without an understanding of 2 Travel's business as it stood at 19 April 2004, it is impossible to make any assessment as to how that business was affected by the Infringement.

(iii) Stage 2: The period subsequent to 19 April 2004

In Section VI, we consider 2 Travel's business and the development of that business in the period subsequent to 19 April 2004. It was during this period that the Infringement took place. Section VI does not consider Cardiff Bus's planning and execution of the Infringement. This (as we explain in paragraph 24 below) is properly the province of our consideration of Claim 6: Exemplary Damages (which is considered in detail in Section XV). Moreover, Section VI is confined simply to an analysis of the facts as they occurred. It makes no attempt to consider what would have happened, had the Infringement not occurred (i.e. it does not seek to consider the counter-factual scenario).

(iv) Stage 3: The counter-factual scenario

Thirdly, we consider the counter-factual scenario or – in plain English – what would have happened, had the Infringement not occurred. Section VII considers how 2 Travel has pleaded its case as to what would have happened had the Infringement never happened. As we describe in greater detail in Section VII, 2 Travel's pleading distinguishes between more or less immediate [2] effects of the Infringement and longer term effects.

These immediate effects had, so 2 Travel contended, longer-term implications. As 2 Travel pleads in paragraph 3.35 of its Claim for Damages, "[a]s a result of the direct disruption at the Cardiff depot, as well as the indirect disruption at 2 Travel's other depots, 2 Travel incurred further losses and its requirement for working capital increased as a result. Whilst working capital was made available, income began to fall more sharply than 2 Travel was able to reduce its cost-base and service levels began to drop across all its depots". In consequence, instead of establishing its In-Fill Service in the Cardiff market, with the prospect of then expanding its operations in Cardiff (and, perhaps, more generally), 2 Travel's business was seriously disrupted, with the result that the business went into a circle of decline and failure, culminating in its liquidation on 20 May 2005.

Section VII, as we have noted, considers how 2 Travel pleads its case on the counter-factual scenario. The next three sections consider the immediate effects that 2 Travel contends were the consequence of the Infringement, namely driver shortages (considered in Section VIII), diversion of management time (considered in Section IX) and loss of revenue as a result of passengers being diverted away from the 2 Travel In-Fill Service (considered in Section X).

Clearly, there is a considerable overlap between the diversion of passengers and 2 Travel's Claim 1: Loss of Profits. Accordingly, this claim is also considered in Section X.

Sections XI to XV then go on to consider the next four heads of 2 Travel's loss, as we have set them out in paragraph 10 above. Thus:

(5) Exemplary damages

Our assessment of the facts in Sections V to XIV contains no consideration of how Cardiff Bus came to plan and execute the Infringement. That is because such matters are irrelevant to 2 Travel's first five claims (Claims 1 to Claim 5): the OFT Decision has found that the Infringement took place, and our role is solely to assess the loss and damage suffered by 2 Travel that flows from that Infringement. In short, we are not concerned with liability, but only with causation and quantification of loss.

However, 2 Travel's Claim 6: Exemplary Damages contends that, because of the nature of the Infringement, 2 Travel is entitled to exemplary damages. Claim 6, amongst other things, necessarily requires consideration of Cardiff Bus's conduct as regards the Infringement, as well as the legal grounds upon which exemplary damages can be claimed. Section XV below considers the question of exemplary damages.

(6) Evidence

During the course of a two-week hearing, the Tribunal heard evidence from a number of persons. In addition, the documentary evidence – in particular in the form of contemporaneous documents produced by both parties – was voluminous. We consider this evidence in Section III below.

There is, in addition to this witness and documentary evidence, the OFT Decision itself. As we have already noted, section 47A of the 1998 Act absolutely binds the Tribunal in respect of any decision establishing that a competition law infringement has taken place. But, in addition, section 58 of the 1998 Act binds the parties to these proceedings to findings of fact made in the OFT Decision, save to the extent that the Tribunal directs otherwise. The OFT Decision itself is, therefore, an important source of evidential findings which have, by virtue of section 58, special importance in these proceedings. We consider the implications of section 58 in Section III also.

(7) Causation

There was one legal issue which divided the parties. This was the appropriate test for causation in a case such as this. This issue is considered in Section IV below.

II. THE INFRINGEMENT DECISION AND CARDIFF BUS'S STRIKE-OUT APPLICATION

(1) Section 47A of the 1998 Act

Section 47A of the 1998 Act provides, in relevant part, as follows:

In English Welsh & Scottish Railway Limited v Enron Coal Services Limited [2009] EWCA Civ 647 (hereafter " Enron 1 "), the Court of Appeal considered section 47A. After setting out the provisions of section 47A, Patten LJ stated as follows:

It is necessary, therefore, for the Tribunal to identify precisely what infringement or infringements the OFT has – in the OFT Decision – decided was/were committed by Cardiff Bus.

(2) Cardiff Bus's strike-out application

Cardiff Bus contended that substantial portions of 2 Travel's Claim for Damages and the associated evidence were irrelevant to the issues which the Tribunal had to decide and which fell outside the Tribunal's jurisdiction. Accordingly, so Cardiff Bus contended, these parts of the Claim for Damages should be struck out under Rule 40 of the Competition Appeal Tribunal Rules 2003 (S.I. 2003 No. 1372).

Cardiff Bus's strike-out application is well-summarised in its written opening submissions:

It is right to say that the OFT did not make findings of fact on questions like intimidation, dangerous driving or "sandwiching". But that is relevant only to the extent to which section 58 of the 1998 Act causes findings of fact in a decision to bind the parties. What matters, for present purposes, is the ambit of any decision as to infringement in the OFT Decision, for it is the Tribunal's task to assess what damage flows from that infringement. If the scope of the infringement, as found by the OFT, is sufficiently wide so as to make relevant to the Tribunal's assessment of damages questions such as intimidation, dangerous driving or "sandwiching", then these are matters that can be raised before us, and on which evidence can be heard. On the other hand, if the scope of the infringement, as found by the OFT, is such as to render irrelevant to the Tribunal's assessment of damages questions such as intimidation, dangerous driving or "sandwiching", then clearly such matters should not form part of the "follow-on" action.

The crucial question lies in ascertaining the ambit of the OFT Decision, and it is to that question we now turn.

(3) The scope of the Infringement as found in the OFT Decision

We consider that the OFT Decision established that:

For present purposes, it is the third element of the OFT Decision which is important. We consider that the OFT Decision did not find that particular aspects of the Cardiff Bus White Service were infringements of the Chapter II prohibition, but that the operation of the Cardiff Bus White Service per se was the infringement. The point is put very clearly in paragraph 1.16 of the OFT Decision:

In other words, for the purpose of assessing what damage flowed from the Infringement, the relevant counter-factual scenario is the one where the Cardiff Bus White Service did not operate at all , rather than the case where the service did operate, albeit in a different way (e.g. with higher fares or to a different timetable).

From this it follows that if (as to which we make no findings at present) there was intimidation by the Cardiff Bus White Service drivers, or "sandwiching" by the White Service buses, this would not have occurred on the counter-factual scenario, because the Cardiff Bus White Service would never have operated. Accordingly, 2 Travel is entitled to plead and rely upon in support of its damages claim any and all aspects of the operation of the Cardiff Bus White Service.

For these reasons we reject Cardiff Bus's application to strike out part of the 2 Travel Claim for Damages.

III. EVIDENCE

(1) Sources of factual findings

A "follow-on" action involves the Tribunal assessing the loss and damage flowing from a finding of infringement made in a decision that is not that of the Tribunal. Here, the finding as to infringement is to be found in the OFT Decision, and the Tribunal is (by section 47A of the 1998 Act) absolutely bound by any "decision" contained in the OFT Decision. A decision, of course, does not necessarily have to be a finding of fact, but can determine a pure question of law or a mixed question of law and fact. Here, we have found the OFT Decision to contain the decisions set out in paragraph 36 above.

Section 47A is buttressed by section 58 of the 1998 Act. By section 58, the parties to this litigation are bound by findings of fact made in the OFT Decision, save to the extent that the Tribunal directs otherwise. The effect of this provision is considered further below, but plainly the Tribunal would be slow to "direct otherwise" in respect of a finding of fact in the OFT Decision that directly underpinned a "decision" contained in the OFT Decision.

The Tribunal also saw more traditional evidence, in the form of witnesses (both factual and expert) and documentary evidence.

In this Section, we consider these three sources of factual findings in greater detail:

(2) Witness evidence

The Tribunal received evidence, both factual and expert, from a number of persons.

(i) 2 Travel's witnesses of fact

We list 2 Travel's witnesses of fact in the order in which they were called. The following persons gave factual evidence on behalf of 2 Travel:

(ii) Cardiff Bus's factual witness

Mr David Ivar Brown gave factual evidence on behalf of Cardiff Bus. He was Cardiff Bus's only factual witness. Mr Brown is the managing director of Cardiff Bus, and he provided three statements to the Tribunal, dated 7 December 2011, 23 December 2011 and 25 January 2012. He gave evidence on 19 March 2012, 21 March 2012 and 10 May 2012.

In the witness box, Mr Brown presented as an impressive witness: knowledgeable about his company and its business; careful in identifying what he did not know, and what he could not remember; precise, when dealing with questions to which he had the answer. Ordinarily, Mr Brown's evidence would be entitled to great weight.

However, 2 Travel, quite properly, through their leading counsel, Mr Bowsher QC, made a number of most serious allegations in relation to Cardiff Bus's conduct as regards the Infringement. These allegations went to Claim 6: Exemplary Damages, and we consider these allegations in greater detail in Section XV below. Inevitably, these allegations had to be put to Mr Brown, as Cardiff Bus's only factual witness, and Mr Bowsher did not shrink from doing so. Mr Brown, politely but extremely firmly, denied the very serious allegations that were put to him.

Clearly, the substance of the allegations made by 2 Travel, and Mr Brown's credibility as a witness, are inter-linked. If there is no substance to these allegations, then our assessment of Mr Brown in paragraph 48 above stands. On the other hand, if we find that 2 Travel's allegations are right, then that involves disbelieving a great deal of what Mr Brown said, and finding that he – in a still impressive, if altogether discreditable manner – was seeking to mislead the Tribunal and misrepresent to it the true position.

Our conclusion as to Mr Brown's credibility as a witness is dealt with below under the substance of Claim 6: Exemplary Damages, in Section XV below.

(iii) The experts

The experts also submitted joint statements (Good/Haberman and Good/Niels) dated respectively 9 and 13 January 2012.

Mr Good gave evidence on 21 and 22 March 2012. Dr Niels gave evidence on 22 March 2012. Mr Haberman gave evidence on 22 and 23 March 2012. We consider that each of the experts did their best to assist the Tribunal and were punctilious in complying with their obligations, as experts, to the Tribunal. All the experts were assisting the Tribunal in determining what would have happened in the counter-factual scenario, which is a difficult issue that involves the weighing and consideration of multiple factors – including the opinion evidence of the experts. The fact that we have not necessarily accepted the opinion advanced by one or more of the experts in no way diminishes the fact that all the experts were, very professionally, doing their best to assist the Tribunal.

(iv) The anonymous evidence

Additionally, we should say that there was an application by 2 Travel to admit certain evidence anonymously. That application was dealt with in the Tribunal's decision of 16 March 2012 ( [2012] CAT 7 ). The application to admit the evidence was rejected. We say nothing more about this, save to note for the record that we have, of course, left entirely out of account all factual points made by 2 Travel in connection with this application.

(3) The documentary evidence

(i) Introduction

It is necessary to draw a distinction between documentary evidence produced by 2 Travel and documentary evidence produced by Cardiff Bus. This is because, whereas gaps in 2 Travel's documentation – and there were gaps, in particular in relation to financial information – occurred through the innocent loss of material over time, in the case of Cardiff Bus, 2 Travel suggested (really, as part of its Claim 6: Exemplary Damages) that "Cardiff Bus' contemporaneous documents appear to reflect a conscious decision not to record anything that might incriminate Cardiff Bus or provide any record of the effects of the predation on 2 Travel or others" (paragraph 19 of 2 Travel's written closing submissions) and that Cardiff Bus's disclosure in these proceedings (and before the OFT) had been similarly informed by the fact that Cardiff Bus "plainly knew from the outset of the predation that its conduct was at best questionable and it is submitted that it is now apparent that Cardiff Bus sought to strengthen its position by providing only limited disclosure" (paragraph 17 of 2 Travel's written closing submissions).

It is evident, therefore, that 2 Travel's disclosure raises different questions to that of Cardiff Bus's disclosure, and we consider this documentary evidence separately.

(ii) 2 Travel's disclosure

It was clear that many letters and memos written by or to 2 Travel, that had once existed, had gone missing. Additionally, a number of 2 Travel's computer hard-drives had been mislaid or damaged (paragraph 20 of 2 Travel's written closing submissions). We heard some evidence as to how these hard-drives might have gone missing, but it was inconclusive. We consider any suggestion that this material was deliberately destroyed by 2 Travel to be misconceived, but we reach no other conclusion as to how or when this material went missing. Equally, we find nothing suspicious in the gaps in 2 Travel's paper disclosure. It is a rare case where the documentary record is absolutely unimpeachable, and this was not such a case. To the contrary – as we have occasion to consider in greater detail – 2 Travel's systems were not of the best, and that no doubt included its filing system. It must also be true that the liquidation cannot have assisted document retention.

We do not consider that there was any pattern to the gaps in 2 Travel's documentary record. In other words, although incomplete, the documents produced by 2 Travel could be relied upon as representing a fair (albeit incomplete) picture of the company's affairs.

Clearly, the relevance and importance of documents turns, in large measure, on the document itself. Nevertheless, as a general proposition, we regard the documentary evidence in this case as being of particular importance. All of the factual witnesses signed their statements in 2011/2012 and gave their evidence in 2012, a number of years after the events they were describing (which mainly took place in the period up to 2005). In such circumstances, it would be scarcely surprising if memories failed or recollections became distorted. In Grace Shipping v Sharp , [1987] 1 Lloyd's Rep 207 at 215, Lord Goff observed: [3]

We consider that Lord Goff's observation is important when weighing the facts in this case, and that the evidence of the witnesses needs to be tested against the contemporary documents.

(iii) Cardiff Bus's disclosure

Absent the very serious allegations made by 2 Travel in connection with Claim 6: Exemplary Damages, precisely the same considerations would apply to Cardiff Bus's disclosure. Given the allegations, however, we consider that it is necessary to bear in mind the approach suggested by JJB Sports plc v Office of Fair Trading [2004] CAT 17 :

JJB Sports (and the cases cited in that decision) concerned infringements of the Chapter I prohibition. Nevertheless, Mr Bowsher invited us to have regard to this decision and to apply a similar approach in this case, which of course concerns an infringement of the Chapter II prohibition. We are, of course, conscious that JJB Sports is concerned with the evaluation of communications between distinct entities or undertakings, in order to ascertain the existence of cartellist behaviour, whereas the present case (at least so far as Claim 6: Exemplary Damages is concerned) requires an evaluation of Cardiff Bus's internal documentation with a view to establishing precisely why the conduct constituting the Infringement was embarked upon by Cardiff Bus. Nevertheless, where (as here) an allegation of conscious wrongdoing is made, we consider that JJB Sports provides a helpful guide to the evaluation of the evidence. To this extent – and to this extent only – we have regard to the decision in JJB Sports .

(4) Section 58 of the 1998 Act

(i) The provision

Section 58 of the 1998 Act provides as follows:

These are "Part 1 proceedings" within the meaning of section 58(1), in that they are proceedings brought by 2 Travel in respect of an alleged infringement of the Chapter II prohibition: Enron Coal Services Limited v English Welsh & Scottish Railway Limited [2011] EWCA Civ 2 (" Enron 2 ") at paragraph 44. Equally, the Tribunal is a "court" for the purposes of section 58: Enron 2 , paragraph 45. Accordingly, since the time for appealing the Decision has expired, and no appeal has been brought by Cardiff Bus, any "OFT's finding" which is relevant to an issue arising in these proceedings is binding on the parties unless this Tribunal directs otherwise.

(ii) Analysis of section 58

A number of points are to be noted in connection with section 58:

(iii) Relationship between section 58 and the decision in Iberian UK Ltd v BPB Industries plc

In its Schedule produced pursuant to the Tribunal's order of 21 April 2011, 2 Travel contended that – to the extent that findings of fact made by the OFT were not binding pursuant to section 58 (or, for that matter, section 47A) – then they were binding pursuant to the decision of Laddie J in Iberian UK Ltd v BPB Industries plc [1996] 2 CMLR 601.

By the time of 2 Travel's written closing submissions, it was clear that 2 Travel was no longer advancing such a contention (we refer to 2 Travel's Answer 1 to the Tribunal's Questions for the Parties dated 5 April 2012), and so we can deal with the decision relatively quickly.

In Iberian UK Limited v BPB Industries plc [1996] 2 CMLR 601, Laddie J held that a decision of the European Commission addressed to a particular undertaking to the effect that the undertaking had committed breaches of Article 82 of the EC Treaty (now Article 102 TFEU) was binding on the undertaking, and could be relied upon by third parties in national courts, so that the relevant undertaking could not deny that it had committed the infringements found by the Commission to have occurred.

Clearly, by a parity of reasoning, what Laddie J said in Iberian is equally applicable as regards OFT decisions. However, we do consider that the decision of Laddie J in Iberian has now been overtaken by legislation, in the case of Commission decisions by Article 16 of Regulation 1/2003, and in the case of decisions of the OFT by sections 47A and 58. We do not consider there to be a role for Iberian in this case given the existence of section 58.

(iv) Findings of fact in the OFT Decision not accepted by the Tribunal

In paragraphs 137 ff of Enron 2 , the Court of Appeal identified the need for the Tribunal to identify, with some precision, those findings not accepted by it under section 58.

In this case, subject to one exception, we do not consider that there are any such findings, and (subject to this exception) we proceed on this basis that the parties are each bound by those findings of fact made in the OFT Decision.

In paragraphs 7.231 to 7.240 of the OFT Decision, the OFT considered the effect of the Infringement on actual competition. The OFT stated:

The conclusions expressed by the OFT in these paragraphs are both tentative and equivocal, and we consider it doubtful whether what is said in these paragraphs could amount to a "finding of fact" for the purposes of section 58 of the 1998 Act. Nevertheless, so that there is no doubt, using our discretion under section 58, we direct that the parties are not bound by any finding of fact made by the OFT as regards the causative effect of the Infringement on 2 Travel. We make this direction because:

(5) Findings of fact that the OFT might have made had Cardiff Bus been more forthcoming

At times in its opening submissions, 2 Travel suggested that had Cardiff Bus provided more material to the OFT, the OFT would have been able to make further or better findings in the OFT Decision. Thus, paragraph 38 of 2 Travel's written opening submissions states:

It is no part of this Tribunal's function to re-visit the OFT Decision, still less for the Tribunal to seek to second-guess the OFT in terms of what the OFT would have decided had more or different evidence been before it. The OFT Decision says what it says and decides what it decides. If the OFT has made decisions or findings in the OFT Decision, then these have legal consequences pursuant to sections 47A and 58 of the 1998 Act. If the OFT has not, then it is idle to hypothesise as to what decisions or findings the OFT might have made. This, fortunately, is one counter-factual inquiry that the Tribunal does not need to explore.

IV. CAUSATION

Generally, in English law, the basic test for causation – the test for "factual causation" – is the "but for test". In paragraph 2-09 of Jones (ed), Clerk & Lindsell on Torts , 20 th ed (2010), the test is described in the following way:

Cardiff Bus put the point in the following way in paragraph 165 of its written opening submissions:

As Cardiff Bus noted, in Enron Coal Services Limited v English Welsh & Scottish Railway Limited [2009] CAT 36 (at paragraph 85(a)) the Tribunal took a "but-for" approach, as did Colman J in Arkin v Borchard Lines Ltd [2003] EWHC 687 (Comm) , [2004] 2 CLC 242 (at paragraphs 489 ff ).

As a test for causation this is all rather vague. We have stated already the extent to which the parties are/are not bound by any findings of fact made by the OFT in the OFT Decision (see Sections II and III above). To this extent, and for the reasons we have given, we reject the contention made in paragraph 91(iii) of 2 Travel's opening submissions.

Equally, we do not understand how – as appears to be suggested in paragraph 91(iv) of 2 Travel's opening submissions – intention alone can be said to be causative. A may very well intend harm to B , but may take no effective steps to cause such harm to be done. In such a case, causation will not be made out. If we may have recourse to the basic concepts of criminal law, 2 Travel's case confuses the actus reus with the mens rea .

In closing, Mr Bowsher was pressed on what 2 Travel's case on causation was (Transcript Day 10, pages 55 to 56):

We consider the significance of 2 Travel's position – including its weak financial position – in the context of the specific heads of loss put forward by 2 Travel. For present purposes, it suffices to say that we consider that such factors can perfectly well be accommodated within a "but for" approach to causation, and that is the approach we adopt. We reject – to the extent that it was ultimately maintained at all – 2 Travel's suggestion that some other test ought to pertain. No authority supporting this test was cited to us, and we consider it difficult to understand what the test propounded by Mr Bowsher actually means.

V. THE FACTS: THE PERIOD PRIOR TO THE INFRINGEMENT (TO 19 APRIL 2004)

(1) The establishment and expansion of 2 Travel

Initially, 2 Travel operated primarily as a coach company. In 2000, 2 Travel purchased a company called "Capital Coaches". This acquisition brought with it depots in Swansea and Cwmbran. 2 Travel's interest in the depot in Swansea – to which we return, and which we have already termed in paragraph 10 above the "Swansea Depot" – was at this time leasehold only.

(2) 2 Travel's financial results for the year ended 31 August 2001

(3) 2 Travel's commencement of business in Cardiff

(4) 2 Travel's financial results for the year ended 31 August 2002

(5) The appointment of Mr Waters

In September 2002, Mr Carl Waters (who previously had been finance director at First Eastern Counties, a First Group subsidiary) joined 2 Travel as its finance director. Mr Fowles accepted that Mr Waters was an experienced accountant with a history in the bus industry, and that he would expect his judgment "to be reliable within industry terms" (Transcript Day 2, page 1). Mr Waters was not called as a witness by 2 Travel, but it was not suggested that he could not have been called (Transcript Day 2, page 2).

On 20 September 2002, shortly after his appointment, Mr Waters wrote an internal memo to Mr Francis, Mr Fowles and Mr Fowles Jnr. Mr Waters – three weeks into his job – noted than an audit by the company's accountants had revealed a lower than anticipated profit, and made a number of points and suggestions:

When this memo was put to Mr Fowles, he commented (Transcript Day 2, page 3):

(6) 2 Travel's flotation on the Alternative Investment Market

On 20 January 2003, 2 Travel was floated on the Alternative Investment Market ("AIM").

Two important documents were published in connection with this flotation. First, a Working Capital Report (dated January 2003) by Solomon Hare (a firm of accountants); and, secondly, a Prospectus for the placing of 12,235,014 new ordinary shares of 0.2p each in 2 Travel at 7 pence per share and for admission to AIM.

Paragraph 4.2 of the Working Capital Report set out 2 Travel's profit and loss accounts for the year ended 31 August 2002 (which we have described in paragraph 91 above), and made projections for the years ending 31 August 2003 and 31 August 2004:

The Prospectus gave (in paragraph 10) the reasons for the placing. These were:

The flotation of 2 Travel was intended to raise about £556,000 net. Additionally, 2 Travel had raised about £148,000 from investors (see paragraph 10 of the Prospectus).

In fact, according to Mr Fowles, the flotation actually raised less than the £556,000 net amount expected: "I recollect it was approximately £200,000 short" (Transcript Day 1, page 138). It is a fair indication of the state of 2 Travel's financial records that it is not possible to be more specific than this as to how much capital was raised on the flotation.

A number of new directors joined the board, in addition to Mr Fowles Jnr. The composition of the board was now as follows:

The result of the flotation was that the original 50% - 50% shareholdings of Mr Fowles and Mr Francis became diluted. About 30% of the shareholding in the company was sold in the flotation. Following this, Mr Fowles and Mr Francis came to hold about 32% of the remaining shares, and Mr Short came to hold around 5%. (Mr Short states that he acquired his shares (£150,000 worth) on or around 9 September 2003: see paragraph 5 of his first witness statement.)

Mentor was appointed as a director on behalf of an investor known as "VCT", which had purchased a tranche of shares in the company on flotation, as well as taking out (in January 2003) £600,000 of loan stock, carrying interest at 8%. The maturity date of this loan was 31 January 2008, whereupon VCT had the option to convert this loan into ordinary shares in the company.

Each company listed on the AIM must have a "nominated adviser" or "nomad". The role of a nomad is to ensure regulatory compliance by AIM-listed companies. 2 Travel's nomad was City Financial Associates ("CFA").

(7) Use of the capital raised

All in, the flotation of 2 Travel raised between £1,104,000 to £1,304,000 (£148,000 from private investors; £600,000 loan stock; £356,000 to £556,000 from the public offering) net. It is, unfortunately, impossible to be more specific because of the state of 2 Travel's books.

This capital was used:

Hawkes Coaches was not acquired (Transcript Day 1, page 143) and, although the vehicle fleet of the company was expanded, this was done by way of hire purchase, rather than using the funds raised on flotation (Transcript Day 1, pages 143 to 144).

Thus, of the £1,104,000 to £1,304,000 raised, only about £500,000 appears to have been used for the purposes described in the Prospectus. The rest – in excess of £500,000 – appears to have gone into 2 Travel's general funds or working capital. Again, the fairly chaotic state of 2 Travel's books makes it impossible to be more specific; but, on the evidence, this is what we find occurred.

As regards the flotation, the chairman's statement (Sir Richard Needham) in 2 Travel's financial statements for the year ended 31 August 2003 noted:

On premises, the chairman's statement noted:

(8) 2 Travel's operations in Cardiff in 2003

By 2003, 2 Travel's Cardiff operations included providing school buses for 12 schools, as well as operating two tendered services (the 98 and 99 routes). For a period of some 9 months, from February 2003, 2 Travel also operated two further services (the 88 and 89 routes) on a sub-contracted basis on behalf of Cardiff Bus.

(9) Cash-flow problems in April 2003

In a memo dated 9 April 2003 from Mr Water to Mr Fowles and Mr Francis, Mr Waters stated:

The memo analysed 2 Travel's cashflow and commented:

This document was put to Mr Fowles in cross-examination by Mr West, junior counsel for Cardiff Bus (Transcript Day 2, page 7):

This was a reference to the Swansea Depot, which at this time was in the process of being purchased (Transcript Day 2, page 8).

(10) The acquisition of CTC and its operation by 2 Travel

CTC was acquired by 2 Travel in April 2003 (Transcript Day 2, pages 24 to 25 (evidence of Mr Fowles)).

On 28 August 2003, one of the employees at CTC emailed Mr Waters in the following terms:

The inference that these payment difficulties were linked to 2 Travel's cash flow difficulties (described in paragraphs 112 to 115 above and further below) is irresistible. Mr Fowles, however, did not accept this (Transcript Day 2, pages 25 to 26):

Yet in a confidential memo from CTC to Mr Fowles and Mr Fowles Jnr dated 2 September 2003, it is clear that systems were not the problem; rather, CTC was simply not paying its suppliers:

Mr Fowles again suggested that this was simply due to the fact that "the transition or merging into the larger company, did prove difficult with the staff" (Transcript Day 2, page 28) and that the suppliers were paid "eventually" (Transcript Day 2, page 29).

Yet even by April 2004, CTC's business was still being mis-managed. A handwritten note (the handwriting was not identified for us) on a memo from Mr Waters dated 25 April 2004 notes in relation to CTC:

(11) Increase in 2 Travel's bus licences

As was adverted to in the chairman's statement set out in paragraph 109 above, 2 Travel's application to increase its bus licences from 80 to 110 was granted on 23 July 2003. One of the conditions of bus licences being granted (pursuant to the financial standing requirements of the Public Passenger Vehicles Act 1981), was that 2 Travel must have ready access to €9,000 in respect of the first bus licence granted, and ready access to €5,000 for each subsequent bus licence granted. 2 Travel must, therefore, have been able to demonstrate to the Traffic Commissioner that it had ready access to €550,000.

(12) 2 Travel's cash flow and predicament in July/August 2003

In a memo, which can be approximately dated to the summer of 2003 (Mr Waters, the author, refers to "10 months down the line" from his previous memo of September 2002), Mr Waters wrote to Mr Fowles, Mr Francis and Mr Fowles Jnr in the following terms:

In short, Mr Waters did not consider 2 Travel's business to be sustainable, and he suggested winding-up the company. This document was put to Mr Fowles (Transcript Day 2, page 11):

In another (undated) memo to Mr Fowles, Mr Francis and Mr Fowles Jnr, Mr Waters returned to the question of the sustainability of 2 Travel's business:

In a memo dated 8 July 2003, Mr Waters informed Mr Fowles, Mr Francis and Mr Fowles Jnr that "in my estimation the Company will run out of cash by the end of July 03". He asked that the position regarding the Swansea Depot be confirmed "as this I believe is the only possible saviour in the short term, whether it be used as security for an overdraft/loan or sold as a development opportunity".

(13) 2 Travel's financial results for the year ended 31 August 2003

Clearly, these results were significantly different from those projected in Solomon Hare's Working Capital Report (which projected turnover of £5,895,000 and profit before taxation of £295,000: paragraph 97 above).

The chairman's statement provided the following summary as regards these results:

Whatever the reason – and there is ample ground for considering that the chairman's statement was viewing matters through less than secure rose-tinted spectacles, it is clear that 2 Travel was suffering significant cash flow difficulties, so serious that 2 Travel's accountants (Bevan Buckland) were concerned as to whether the company could carry on as a going concern. In a letter dated 10 December 2003, written to Mr Waters in connection with the accounts for the year ended 31 August 2003, Bevan Buckland wrote:

The finally-published accounts contained the following note under "Going Concern":

The finally-published accounts showed – amongst other things – "cash at bank and in hand" of £154,400. 2 Travel, of course, had other assets and other liabilities: but it is worth noting that 2 Travel did not – only about a month after the Transport Commissioner approved its additional bus licences – in fact have ready access to the €550,000 it needed, absent an injection of cash by third parties (see paragraph 122 above).

Mr Fowles accepted that this was a serious situation for 2 Travel, and that the company only had net positive assets when the Swansea Depot was taken into account (Transcript Day 2, page 31):

Quite what had happened to the £500,000 or more that 2 Travel had retained from the flotation (see paragraph 108 above) is not known.

(14) Quality of service provided by 2 Travel

Some insight into the quality of the service that 2 Travel was providing can be obtained from the documents. As has been described, 2 Travel operated a number of services for local authorities (including school services), both on a contracted and sub-contracted basis. It also operated some non-local authority services.

(i) City and County of Swansea

On 1 October 2002, Swansea Council again wrote to 2 Travel on the subject of buses that were too old, and gave a final warning to the company:

(ii) Carmarthenshire County Council

On 16 September 2002, Carmarthenshire County Council wrote to Mr Fowles in respect of "various complaints and observations" regarding Local Bus Service Contract 02/665/7483:

(iii) Neath Port Talbot County Borough Council

On 26 September 2002, Neath Port Talbot County Borough Council wrote to Mr Fowles notifying him of various deductions for non-compliance with conditions of contract in respect of services operated by 2 Travel. A further, similar, letter was written to Mr Fowles on 3 October 2002 and on 11 October 2002.

On 17 October 2002, Neath Port Talbot Borough Council wrote to Mr Fowles in the following terms:

(iv) The Vale of Glamorgan Council

In an email dated 5 June 2003, the Council recorded a number of complaints relating to Route No 88. In an email dated 1 July 2003, the Council identified to Cardiff Bus a number of Route No 88 services that had failed to operate, and levied penalties in the amount of £71.44 on Cardiff Bus.

On 9 June 2003, the Council wrote to Cardiff Bus, copied to Mr Fowles Jnr, stating that "we are still receiving numerous complaints about the non-operation of various journeys on these services, which is leaving passengers stranded". Mr Fowles Jnr circulated this letter within 2 Travel (to Mr Fowles, Mr Francis and Mr Waters) under cover of the following memo:

On 31 July 2003, the Council wrote to Mr Fowles Jnr concerning 2 Travel's operational performance and reliability on Route Nos 88 and 89, and issued a formal final warning to the company. 2 Travel was warned that the Council intended to monitor 2 Travel's performance carefully over the next six weeks.

It is evident that problems with this service continued. In an internal memo dated 7 October 2003, Mr Waters observed as follows to Mr Fowles, Mr Fowles Jnr and Mr Francis:

(v) Gorseinon College

One of the contracts specifically referenced in Solomon Hare's Working Capital Report was the contract with Gorseinon College. The Report stated:

This was, in fact, sub-contracted work (Transcript Day 2, page 146), the main contractor being a company trading under the name of "Diamond Holidays". On 9 July 2003, Diamond Holidays wrote to Mr Francis in the following terms:

(vi) Complaints from Cardiff Council

On 21 July 2003, Cardiff Council wrote to Mr Fowles Jnr regarding a failure on the part of 2 Travel to operate (or the late operation of) a bus on route 98.

On 2 September 2003, Cardiff Council wrote to Mr Fowles Jnr regarding three complaints in respect of 2 Travel's school bus services, namely two failures to operate and one late service. The letter stated:

It is only fair to note that Mr Fowles Jnr's explanation, when this letter was put to him, was that 2 Travel had been notified that the schools were closed for training days (Transcript Day 5, page 104 (evidence of Mr Fowles Jnr)). That, of course, does not explain the late service.

On 22 December 2003, Cardiff Council wrote to Mr Fowles Jnr regarding the persistent late running of Countryride Service 646, another school bus service. The letter stated:

On 22 March 2004, Cardiff Council complained about what it termed "major failures in the operation of the journeys" in respect of Countryride Bus Service No 632. The Council requested a written response to these complaints. On the same day, 2 Travel also received a complaint regarding the operation of Bus Service 99. We were not referred to any written response by 2 Travel to these letters. When they were put to Mr Fowles Jnr (Transcript Day 5, page 117), he said:

On 29 March 2004, Cardiff Council wrote to Mr Fowles Jnr expressing extreme concern about the operation of the Route 99 service. Another letter, relating to a further failure in respect of the same service, was written by the council on 29 April 2004.

Mr Fowles declined to accept that 2 Travel had been guilty of "repeated failures to comply with the contracts which you had signed" (Transcript Day 5, pages 117 to 118).

Cardiff Council's complaints continued (e.g. the council's letter of 8 June 2004). Further complaints about service resulted in the council terminating the contract for School Bus Service 655 on 29 June 2004.

(vii) Conclusions

Although these various complaints span some months, we have grouped them together for coherence's sake. In terms of timing, however, all of these complaints have one thing in common: they pre-date the Infringement. We consider that these contemporary documents provide an accurate barometer of the quality of service that 2 Travel was providing before the Infringement took effect. We find that that quality was poor.

(15) 2 Travel's financial position in October 2003

In a memo dated 28 October 2003, Mr Waters informed Mr Francis, Mr Fowles and Mr Fowles Jnr as follows:

The memo went on to conclude:

As have been seen, there were indeed difficulties with Bevan & Buckland, but 2 Travel (narrowly) managed to avoid having its accounts qualified in a manner that would create a major issue on AIM (see paragraphs 131 to 132 above).

The schedule of debts appended to Mr Waters' memo is also instructive:

Mr Fowles, who was asked about this list, was able to assist in describing further some of these "big ticket" liabilities (Transcript Day 2, pages 34 to 36). The liability to Eversheds was in respect of legal advice on the flotation; Solomon Hare were the accountants for the purposes of the flotation; John Owen was the vendor of CTC, who was still owed money; Mr Cleverly was the vendor of the freehold reversion of the Swansea depot, who was also still owed money; CFA is a reference to 2 Travel's nomad (see paragraph 104 above); Downing Classic was a reference to the 8% loan stock; and Matrix was the non-executive director appointed by Downing Classic. The reference to the Inland Revenue is, of course, self-explanatory.

As Bevan & Buckland had noted (see paragraph 131 above), 2 Travel was even having to pay for its fuel out of cash receipts from passengers. Mr Fowles was asked about this (Transcript Day 2, pages 38 to 39):

Interestingly, 2 Travel's bank borrowing did not rise significantly. 2 Travel's bank overdraft was £48,036 as at 1 September 2002, and this increased to only £87,914 by 31 August 2003. Additionally, 2 Travel had financed the acquisition of the Swansea Depot by borrowing around £330,000. But, otherwise, 2 Travel appears to have been funding itself by (i) not paying creditors and (ii) by relying on the "working capital" it had received as a result of the flotation (see paragraph 108 above).

(16) PwC's letter dated 13 November 2003

In a letter dated 13 November 2003, addressed to Sir Richard Needham and described as a "discussion document for further consideration by the board", Mr Harrison – at that time a partner in PwC – set out a proposed strategy to grow the company through a series of acquisitions.

The letter had been preceded by a meeting between Mr Harrison and Sir Richard (Transcript Day 4, page 64 (evidence of Mr Harrison)).

In the event, this particular strategy of expansion through acquisition does not appear to have been pursued. Mr Fowles recognised that – in order to pursue this strategy – it would be necessary to go back to the market to raise further capital (Transcript Day 2, pages 42 to 43):

Mr Harrison's view was that it was completely unrealistic for the company to seek to raise this amount of new capital (Transcript Day 4, pages 91 to 94):

(17) Valuation of the Swansea depot in December 2003

In December 2003, a firm of chartered surveyors called Poolman Harlow were instructed by 2 Travel to value the Swansea depot. Poolman Harlow concluded that the value of the freehold – assuming vacant possession, but making no assumptions as to planning consents, etc – was £850,000.

(18) 2 Travel's interim accounts for the six months to February 2004

Bevan Buckland prepared a report on these accounts, which commented as follows:

(19) The February 2004 PwC Report

(i) Introduction

In February 2004, PwC provided a report to 2 Travel entitled "Overview of business strategy and short term funding requirements", recommending growth of the business by developing additional routes ("the February 2004 PwC Report").

In short, the approach taken in this report was very different from that proposed in PwC's letter of 13 November 2003. Instead of growth through acquisition, the proposal was based upon a strategy of organic growth, increasing utilisation of 2 Travel's assets by registering new routes.

(ii) Manner in which the February 2004 PwC Report was compiled

Mr Harrison said this (Transcript Day 4, page 64):

Mr Ferrand's work would have involved visiting the company, spending time with its directors and employees, and with the company's auditors. Mr Harrison considered that he would have spent somewhere in the region of three days on the report (Transcript Day 5, page 20).

Mr Harrison explained the extent to which PwC would have gone into the figures contained in this report (Transcript Day 4, pages 80-81):

The financial information in the February 2004 PwC Report derived from 2 Travel. This was made clear in the covering letter to the report, which stated:

(iii) Development of new routes

The February 2004 PwC Report stated (at page 13) that the "short term strategy, now that four depots have been established, is to increase revenue by ensuring that all the buses used on school runs have infill routes between the school runs". To this end, a number of new routes had been registered by 2 Travel, including five new "in-fill" services in Cardiff, each service requiring four buses for its operation (i.e. 20 buses in total, for these routes). The report observed that the proposed new routes would effectively utilise fully all available vehicles, and that the roll out of any further services would require additional capital expenditure.

(iv) Revenue projected

In terms of the revenue and profit that the new routes would generate, the report noted (at page 14) that the gross margin would be higher than for other proposed new routes, because these routes were all in-fill and so most of the fixed costs were covered by the contracted school routes. The report made the following projection regarding the proposed new Cardiff routes:

The report set out a number of assumptions regarding the dynamics of the new routes (page 14):

These bullet points make reference, or appear to make reference, to underlying data. Thus, the fourth bullet refers to "market research". Mr Fowles was asked about this (Transcript Day 2, pages 43 to 44):

The fifth bullet refers to an assumption that the new service would attract 30% of all passengers. Again, this was information that was "provided by ourselves on the basis of what have been achieved in other areas, Neath in particular" (Transcript Day 2, page 44 (evidence of Mr Fowles)). Mr Harrison confirmed that he took the 30% figure from Mr Fowles (Transcript Day 4, pages 111 to 112).

The revenue projections for the Cardiff in-fill routes are not further expanded upon in the report, and it is unclear how they have been derived.

Mr Harrison simply relied upon what he was told (Transcript Day 4, page 114). In no sense did these figures bear the imprimatur of PwC. PwC simply transcribed them.

Essentially, three parameters must have been used to derive these projections, namely:

The report says nothing about any of these parameters. However:

As we have noted, the parameters used to generate a per bus per week revenue projection of £1,920 are not stated in the report, and no-one was able to assist us in evidence. But, whatever they were, our attempts to justify this figure on the basis of realistic assumptions have failed. We conclude that the figure was hopelessly over-optimistic.

(vi) Sales growth

Page 18 of the report contains a section dealing with sales growth, which notes:

Thus, turnover for the new routes in Cardiff were projected at £473,000 for the year to August 2004 and £1,588,000 for the year to August 2005. It is impossible to understand how these figures have been derived. It is, however, worth noting that they bear no relation to the weekly, per bus, revenue figures considered above. Such figures – if taken at face value – would produce an annual turnover of £1,996,800 (i.e. £1,920 per bus per week x 20 buses x 52 weeks = £1,996,800). The figures in the document appear now internally inconsistent. If they were justifiable at the time – and we doubt it – then that justification has been lost in the mists of time.

(vii) Working capital requirement

In order to implement this strategy, additional working capital of £600,000 was required.

(20) Reaching accommodation with the Inland Revenue

As was noted in the February 2004 PwC Report, 2 Travel owed £500,000 to the Inland Revenue.

In late-February 2004, 2 Travel reached an agreement with the Inland Revenue that this indebtedness should be paid off in instalments, with a first payment of £50,000 due by 20 March 2004, with subsequent instalments of £20,000/month. The agreement was subject to payment of all other tax on demand, and upon compliance with this payment schedule. The terms of this agreement were set out in a letter from the Inland Revenue dated 20 February 2004.

(21) Obtaining additional working capital

The additional working capital identified as necessary by PwC (see paragraph 190 above) of £600,000 was obtained by 2 Travel from the company's bankers, Barclays, in April 2004. Thus, 2 Travel's overdraft increased from £87,914 (see paragraph 164 above, which gives the figure as at 31 August 2003 – we do not know how this figure varied over time) by a further £600,000, plus borrowing of £330,000 in relation to the Swansea Depot.

This lending was backed by guarantees provided by Mr Francis and Mr Short in the amount of £675,000. These guarantees were provided on or about 2 April 2004, and were provided in exchange for security in the form of a second legal charge over the Swansea property, the first legal charge presumably securing the £330,000 borrowing taken out to acquire the property in the first place.

VI. THE FACTS: EVENTS SUBSEQUENT TO 19 APRIL 2004

(1) Preparation for the provision of Cardiff services

Operations in Cardiff were not well-planned or prepared for by 2 Travel. In an undated memo – which must, however, have been written in June 2003 – Mr Waters said as follows:

In late 2003 or early 2004, a second site was opened by 2 Travel, about half-a-mile from the depot, which had a maintenance facility (Transcript Day 5, page 102 (evidence of Mr Fowles Jnr)).

On 9 March 2004, Mr Fowles Jnr wrote the following internal 2 Travel memo:

There was a further memo – dated 23 March 2004 – which detailed what steps had been taken in relation to the Cardiff depot, and what remained to be done:

On 11 May 2004, after the commencement of the 2 Travel In-Fill Service – Mr Fowles Jnr wrote the following memo:

Mr Fowles Jnr was cross-examined about these documents, and sought to downplay their significance ("I had every assurance I needed about the time we started operations": Transcript Day 5, page 119; "I wouldn't say it was to do with mains water or electricity": Transcript Day 5, page 120; "I wouldn't have thought it was wise to put trained Gurkhas on the streets of Cardiff, for some of the actions that were being undertaken by Cardiff Bus at the time": Transcript Day 5, page 121).

In this case we prefer to rely upon the compelling contemporary documents, rather than ex post facto explanations of them.

(2) Commencement of the 2 Travel In-Fill Service in Cardiff

The Cardiff Bus White Service commenced at the same time. In response to 2 Travel's services, Cardiff Bus introduced the following additional services on the same four routes:

At all material times, Cardiff Bus also offered liveried services on these routes ("Cardiff Bus Liveried Service" or "Liveried Service"). These services operated both before the 2 Travel In-Fill Service and Cardiff Bus White Service began, and after these services ceased:

All of the four routes operated to Cardiff City Centre, with different starting points/destinations. However, they did have common stops. Additionally, these four routes overlapped with other Liveried Services (i.e. in addition to those described in paragraph 204 above), the closer they got to the City Centre. As is stated in paragraph 174 of Cardiff Bus's written opening submissions:

Where there was such an overlap, a potential passenger had more choice of bus service/vehicle.

(3) 2 Travel's complaints regarding the Cardiff Bus White Service

The OFT wrote for further information on 27 April 2004, a request repeated in letters dated 15 June and 10 August 2004. Surprisingly, all of these letters went unanswered by 2 Travel.

In a letter dated 7 May 2004, 2 Travel's solicitors (Darwin Gray) wrote to Cardiff Bus. The letter focuses much more on the manner of driving of individual buses, rather than in making an suggestion that operating the White Service was itself an infringement of competition law, but the letter does say that 2 Travel regarded Cardiff Bus's conduct as a "serious matter" which, amongst other things, had been referred to the OFT. The letter was addressed to the "Managing Director", and it was Mr Brown who responded (in a letter dated 10 May 2004) refuting the allegations.

(5) Correspondence from the Office of the Traffic Commissioner

By a letter dated 8 June 2004, the Office of the Traffic Commissioner wrote to Cardiff Bus enclosing "copies of both reports and correspondence in respect of a complaint made by the operator 2 Travel PLC concerning alleged anti-competitive behaviour that they say they are experiencing on various routes, which you and they appear to operate". The allegations, again, appear to have focused more on the conduct of individual buses. The letter noted:

Mr Brown, responding by a letter dated 17 June 2004, criticised 2 Travel strongly, and maintained Cardiff Bus's innocence. He said:

(6) The VOSA monitoring exercise in Cardiff

In June 2004, as a result of the 2 Travel complaint, VOSA monitored the performance of 2 Travel and Cardiff Bus services. VOSA's letter to the Traffic Commissioner (Mr Dixon) stated:

VOSA sent "irregularity letters" to both 2 Travel and Cardiff Bus. Although both provided a formal response, neither operator actually queried the observations made.

VOSA's letter continued:

The VOSA figures in our judgement should be treated with a degree of caution:

Cautious as we consider we should be about statistics that may not fairly be comparable, nevertheless we conclude that VOSA's observations of 2 Travel's performance, viewed on their own (rather than in comparison with those for Cardiff Bus), show quite poor service.

(7) 2 Travel's board meeting of 25 June 2004

A meeting of the 2 Travel board was scheduled for 25 June 2004. In advance of that meeting, papers were circulated. This information caused concern on the part of 2 Travel's nomad, Mr Tony Rawlinson. On 25 June 2004, Mr Rawlinson faxed Mr Fowles a message to the following effect:

On 25 June 2004, Mr Rawlinson sent an email to Mr Waters, referring to the "clearly very disappointing results", and asking for certain information. One of the points made by Mr Rawlinson was as follows:

This significance of this was pointed out with some cogency in Cardiff Bus's written opening submissions:

Mr Fowles accepted that the bank facility was drawn down to the extent of £550,000 immediately, and was fully drawn by August 2004 (Transcript Day 2, page 65).

In a note dated 2 July 2004, Mr Spooner gave his summary of the 2 Travel Board meeting which had taken place on 25 June 2004. He noted:

(8) Further memo from Mr Waters

On 22 July 2004, Mr Waters wrote a memo to Mr Francis, summarising the main issues which he (Mr Waters) considered were causing considerable problems in the maintenance of complete and accurate financial records. These were:

This document was put to Mr Fowles (Transcript Day 2, pages 67 to 68):

(9) The June 2004 PwC Report

In a further report – undated and apparently only existing in draft, but clearly written in the summer of 2004 (Transcript Day 2, page 66 (evidence of Mr Fowles)) – PwC provided summary draft financial projections for 2 Travel for the period to 31 August 2005. Looking at the figures in the documents, it appears to us that the document was written in June 2004, and we shall refer to the report as the "June 2004 PwC Report".

According to Mr Harrison, this draft report was rather different from the February 2004 PwC Report (Transcript Day 4, page 65):

The June 2004 PwC Report was prepared by a Ms Cheryl Williams, who did financial modelling (Transcript Day 4, page 65 (evidence of Mr Harrison)). Ms Williams would have spent a great deal of time at the company's premises to do this, and Mr Harrison recollected (Transcript Day 4, page 66):

The June 2004 Report:

Mr Fowles, when this document was put to him, did not consider the projections over-optimistic (Transcript Day 2, page 69):

PwC projected a maximum overdraft requirement of £937,000 in April 2005:

It is important to be clear about what this figure means. As we have described (see paragraph 221 above), 2 Travel's overall borrowing was around £675,000, most of which had been drawn down immediately, and all of which had been utilised by August 2004 (see paragraph 233 below). The projected cash flows set out in the June 2004 were as follows:

It is clear from these figures that PwC was projecting additional funding requirements, over and above what 2 Travel had already borrowed. We infer – from the first period of June 2004 – that 2 Travel had actual funding requirements of around £173,000 at about this time, and it is clear that these funding requirements were then projected to increase for a period of time, albeit that these requirements were then projected to fall after a "peak" in April 2005. 2 Travel did not, immediately, need £937,000 in additional funding: it needed about a third of that amount.

(10) The August 2004 action plan

In the light of these financial difficulties, an action plan was agreed with Mr Rawlinson. It was decided to make certain changes to 2 Travel's board of directors. These were set out in a paper dated August 2004. Mr Fowles moved from his role as managing director to operations director. Mr Francis – previously not a director, but company secretary – joined the board as director with responsibility for regulation. Mr Waters would leave as finance director in September 2004 and pending his replacement, PwC would assist with the financial reporting side of the business.

The paper also commented upon the financial position of 2 Travel:

(11) Mr Francis' and Mr Short's offer

Further to this, in a letter dated 12 August 2004, Mr Francis and Mr Short wrote to 2 Travel in the following terms:

The board approved this proposal (Day 2, page 73 (evidence of Mr Fowles)), but the formalities relating to this funding were not completed immediately. As will be seen, Mr Francis and Mr Short executed two further guarantees, guaranteeing the liabilities of 2 Travel to the bank, enabling 2 Travel to borrow further:

(12) The Inland Revenue's petition

As noted in the August 2004 paper to which we refer at paragraphs 232 to 233 above, the Inland Revenue was seeking payment of back taxes in the amount of £464,000, the payment schedule that had been agreed with it not having been complied with. A winding up petition was served in August 2004 (Transcript Day 2, page 70 (evidence of Mr Fowles); Transcript Day 2, page 83 (evidence of Mr Fowles)), and 2 Travel paid £465,000 in settlement of the demand (Transcript Day 3, pages 113 to 114 (evidence of Mr Francis)).

Mr Fowles was absolutely confident that the Inland Revenue was paid by himself, Mr Short and Mr Francis (Transcript Day 2, page 71), and Mr Francis said it came from himself and Mr Short (Transcript Day 3, page 115).

Unfortunately, even on this significant financial question, 2 Travel's financial records are not clear. Given that this was an AIM listed company, subject to London Stock Exchange rules, this is surprising. The best evidence, we find, is contained in a transcript of various exchanges between Mr Francis (representing 2 Travel) and the Transport Commissioner and a financial assessor assisting the Commissioner (a Mr Callaghan). The exchanges occurred on 5 October 2004 during the Traffic Commissioner's assessment of 2 Travel's financial standing (referred to in paragraphs 272 to 273 below). At pages 11 to 12 of the transcript, we find the following exchange:

This is not, unfortunately, the clearest of exchanges. We consider that it is most likely that the Inland Revenue was paid from funds held by 2 Travel advanced to it by the bank, and guaranteed by Mr Francis and Mr Short. Whether these were the funds advanced as a result of the first guarantee (in April 2004: see paragraph 194 above) in the amount of £675,000 or one, other or both of the guarantees we have referenced in paragraph 235 above (and consider in greater detail below) is impossible to say, and does not matter. What we do find, however, is that the payment to the Inland Revenue was met out of these funds, and not out of further funds advanced by Mr Fowles, Mr Francis or Mr Short. The contemporary documentation does not support the existence of such additional lending.

(13) The announcement to the AIM

On 13 August 2004, 2 Travel made the following announcement to the AIM:

As we have already noted, the additional guarantees were actually executed later on, in September and October 2004. It may be that Mr Francis and Mr Short did make funds available in the short term to the company themselves, as their letter of 12 August 2004 suggests, but ultimately (as we have found) 2 Travel was at this time funded by way of significant bank lending, guaranteed by Mr Francis and Mr Short.

(14) The Traffic Commissioner's inquiry into 2 Travel

On 16 August 2004, 2 Travel, as the holder of a Standard International Passenger Service Vehicle operator's licence, was called to a public [4] inquiry before the Traffic Commissioner with regard to three aspects of its services. These aspects were:

Proceedings before the Traffic Commissioner are relatively formal, with the company under inquiry entitled to adduce evidence, and to test the evidence against it by cross-examination.

At the hearing on 16 August 2004, the Traffic Commissioner reserved his decision in respect of 2 Travel's bus service reliability and financial standing. He dealt with the matters arising under the Public Passenger Vehicles Act 1981 in an ex tempore decision on 16 August 2004. As regards these issues, the Traffic Commissioner stated (at pages 102-103 of the transcript):

The Traffic Commissioner's decision in relation to the issue of bus service reliability was made in writing in a decision dated 25 August 2004. He held:

This financial penalty was never paid by 2 Travel (Transcript Day 2, page 80 (evidence of Mr Fowles)).

The question of financial standing was adjourned to 5 October 2004, and is considered further in paragraphs 272 and 273 below.

(15) The King Sturge valuation

The valuation from King Sturge referred to in Mr Francis' and Mr Short's letter (see paragraph 234 above) was obtained on 22 September 2004, and sought to value the Swansea depot as at 31 August 2004. This gave an existing use value to the property of £650,000; a market value of £1 million; and a value of £500,000 to £750,000 per net acre if planning for residential or non-food retail was forthcoming, and if various other development-related conditions were met, giving a value (based on the acreage of 4.69, which might not be the net acreage, which could well be less) in the range of £2,345,000 to £3,517,500.

(16) 2 Travel's detailed complaint to the OFT

On 13 September 2004, the OFT (following on from the previous correspondence referred to in paragraphs 207 to 208 above) referred to the fact that it had not been provided with the further information in relation to 2 Travel's complaint which it had requested, and that the OFT therefore intended to close the case. In response to this letter, 2 Travel submitted a detailed complaint to the OFT on 3 November 2004.

(17) Provision of guarantees limited to £300,000 by Mr Francis and Mr Short and the option agreement

On 22 September 2004, Mr Francis and Mr Short executed a guarantee, guaranteeing the liabilities of 2 Travel to Barclays Bank plc, limited to £300,000.

Also on 22 September 2004, 2 Travel (of the one part) and Mr Francis and Mr Short (of the other part) executed an option agreement relating to the Swansea Depot [5] (the "Option"). Clearly the Option was prepared with legal advice. Its terms notably included the following:

It is thus clear that the Option valued the Swansea Depot at well above the market value provided by King Sturge. This uplift can only have been due to the development potential of the land.

On 28 September 2004, Mr Rawlinson wrote to Mr Francis and Mr Short:

This letter is a little puzzling, as the broad thrust of the funding strategy for 2 Travel must have been clear to Mr Rawlinson by – at the latest – the date of the announcement to AIM on 13 August 2004. It would appear that Mr Rawlinson was concerned that the detail of the transactions, whereby this strategy was implemented, was not properly being scrutinised.

In an undated memo – but almost certainly written in late September or early October 2004 – Mr Spooner wrote:

(18) Discussions within 2 Travel in October 2004

On 7 October 2004, Mr Spooner sent an email to Mr Wilson (VCT) and Ms Sinclair (Matrix). This email stated:

On 8 October 2004, 2 Travel made a trading statement to AIM:

What is interesting about this statement is that whilst it appears to be frank about 2 Travel's difficulties, it says nothing about the Infringement being the cause of these difficulties.

(19) Further guarantee of £650,000

On 8 October 2004, Mr Francis and Mr Short executed a guarantee, guaranteeing the liabilities of 2 Travel to Barclays Bank plc, limited to £650,000. Quite why the additional funding to 2 Travel was guaranteed by two sets of guarantees, and not a single set in a single amount, is unknown.

(20) The EGM

On 29 October 2004, 2 Travel's EGM took place, at which the related party transactions were approved. Although he attended this and some other meetings, there is little sign of the independent chairman, Sir Richard Needham, being sighted as to much of this activity. If he was informed of the everyday progress of the company's financial position and progress, he exercised a light touch.

(21) Proceedings before the Traffic Commissioner concerning 2 Travel's allegations against Cardiff Bus that Cardiff Bus had been operating its services in a dangerous manner

On 22 November 2004, there was a meeting between 2 Travel and Mr Furzeland. Mr Furzeland was the Traffic Commissioner's clerk. The meeting was at the Traffic Commissioner's (Mr Dixon's) request, and the essential purpose was to consider 2 Travel's allegations that Cardiff Bus was acting in an illegal and uncompetitive manner. There is a note of the meeting, dated 13 January 2005, which also sets out Mr Furzeland's conclusions:

(22) Appointment of Grant Thornton as investigating accountants over 2 Travel

In mid-November 2004, £300,000 of 2 Travel's bank lending fell due for repayment, which was not reflected in PwC's model (Transcript Day 2, page 90 (evidence of Mr Fowles); Transcript Day 3, pages 114 and 118 (evidence of Mr Francis)).

Again, there is a great deal that is not known about this £300,000. It may be – but this is speculation – that the money advanced to purchase the Swansea Depot became due. In any event, the contemporary evidence is clear that 2 Travel was faced with an unexpected need to repay £300,000, which had the effect of invalidating or undermining the projections contained in the June 2004 PwC Report. An email sent to Ms Sinclair of Matrix on 16 November 2004 provides:

As a result, it was decided to appoint Grant Thornton as investigating accountants and to suspend trading in 2 Travel's shares. The shares were suspended on 15 November 2004.

Grant Thornton set out their conclusions in a report contained in a letter (marked "draft") dated 23 November 2004 ("the Grant Thornton Report"). The Grant Thornton Report's factual accuracy had been confirmed by Mr Cook (2 Travel's managing director) and Mr Jenkins (2 Travel's finance director), as is noted in paragraph 1.3 of the Report. The Report noted:

At this stage, Mr Fowles apparently advised Mr Francis and Mr Short to put no more money into the company (Day 2, pages 92, 94 and 96 (evidence of Mr Fowles)).

(23) Departure of the management

Mr Jenkins and Mr Cook left 2 Travel in November or early December 2004 (Transcript Day 2, page 94 (evidence of Mr Fowles)). Mentor resigned as a director of 2 Travel on 24 November 2004. CFA resigned as nomad on 29 November 2004.

But the company still struggled on (Transcript Day 2, pages 94 to 95):

(24) The Assignment

On 22 December 2004, Mr Short agreed to advance £300,000 to 2 Travel in return for an assignment to him of any monies payable to 2 Travel under overage provisions of the Option (the "Assignment"). The Assignment recites that "[i]n order to facilitate the ongoing conduct of 2 Travel's existing business Mr Short has agreed to advance to 2 Travel the sum of £300,000 (part of which has been previously forwarded by Mr Short to 2 Travel and the balance of which is being advanced on the date hereof)."

The Assignment was signed by Mr Fowles on behalf of 2 Travel, but there was no shareholders' resolution to approve what was without doubt a related party transaction requiring a board resolution (Transcript Day 2, page 113 (evidence of Mr Fowles)). No-one, however, sought to suggest that the Assignment had been procured for an improper value, and Mr Francis positively asserted that the Assignment had been for a fair value: Day 3, page 50 (evidence of Mr Francis).

(25) 2 Travel's closure of its Cardiff operations

(26) Revocation of 2 Travel's operating licence

On 24 December 2004, the Traffic Commissioner revoked all of 2 Travel's operating licences on the grounds that it had failed to establish that it had sufficient capital. This decision arose out of the hearing on 2 Travel's financial standing, which the Traffic Commissioner had adjourned to a separate hearing which took place on 5 October 2004 (see paragraph 247 above).

Although the hearing took place in October 2004, the Traffic Commissioner took account of materials and information after this date, including information received from 2 Travel, as well as press reports noting the suspension of trading in 2 Travel's shares. The Traffic Commissioner's decision recorded (at paragraph 6) that on 7 December 2004 he was advised by solicitors retained by 2 Travel that the company was going to be wound up. However, on 20 December 2004, the Traffic Commissioner was advised that this course was not going to be followed, and that instead 2 Travel would reduce the number of licences it held from 110 to 50 (ie returning 60 licences) (paragraph 19) and that the company now intended to continue trading (paragraph 20).

The decision concluded:

This decision was suspended pending 2 Travel's appeal. That appeal was heard on 24 February 2005 by the Traffic Tribunal. The revocation was set aside in a decision dated 10 March 2005, and the matter remitted to the same Traffic Commissioner (at the request of 2 Travel) to consider whether, by dint of 2 Travel's factoring facility, the financial standing requirements might have been met. The matter did not, however, proceed any further, no doubt because of 2 Travel's insolvency.

(27) Final suspension of 2 Travel from AIM

This occurred on 30 December 2004 (Transcript Day 3, pages 55-56 (evidence of Mr Francis)).

(28) Offer to Mr Hoggan

On 27 January 2005, Mr Fowles – writing on behalf of a company called Jamfell Ltd – wrote to a Mr Walter Hoggan to offer £440,000 for his land and business in Swansea. Mr Fowles was asked about this in cross-examination (Transcript Day 2, pages 111 to 113):

(29) Cessation of the Cardiff Bus White Service

The Cardiff Bus White Service continued until 18 February 2005, when it ceased.

(30) Exercise of the option

On 16 March 2005, Mr Short and Mr Francis exercised the Option to purchase the Swansea Depot. The conditions that the Option could only be exercised when the planning condition had been satisfied and only then after 16 May 2008 were both waived by 2 Travel.

The manner in which the Option was exercised involved not a direct payment by Mr Francis and Mr Short of the £2,000,000 option price to 2 Travel, but rather an indirect payment in the form of their assumption of primary responsibility of 2 Travel's debts to the bank. That debt – which was rather in excess of £2,000,000 – was then taken off 2 Travel's balance sheet.

Mr Fowles was asked about this (Transcript Day 2, pages 114 to 116):

Mr Francis's evidence on the point was similar (Transcript Day 3, pages 57 to 61).

(31) 2 Travel's liquidation

On 6 May 2005, 2 Travel's contracts for subsidised routes between Llanelli and Carmarthen and for schools services in Llanelli were cancelled by Carmarthenshire County Council.

A winding up petition was presented on 20 May 2005 by Haydock Finance, one of the companies providing hire purchase finance to 2 Travel (Transcript Day 3, page 116), and 2 Travel went into liquidation on 20 May 2005. The company's debts were over £2.091 million.

VII. THE "COUNTER-FACTUAL" SCENARIO: WHAT WOULD HAVE HAPPENED BUT FOR THE INFRINGEMENT

As we have noted (see paragraph 18 above), the counter-factual scenario assumes that the Infringement did not take place.

Paragraphs 3.28 to 3.40 of 2 Travel's Claim for Damages plead what 2 Travel contended was the effect of the Infringement. As we noted in paragraphs 18 to 20 above, 2 Travel's pleading distinguishes between more-or-less immediate effects of the Infringement and longer term effects.

These immediate effects were said to have damaged operations at the Cardiff depot, but also (so 2 Travel contended) affected 2 Travel's other operations and had longer-term implications. As 2 Travel pleaded in paragraph 3.35 of its Claim for Damages, "[a]s a result of the direct disruption at the Cardiff depot, as well as the indirect disruption at 2 Travel's other depots, 2 Travel incurred further losses and its requirement for working capital increased as a result. Whilst working capital was made available, income began to fall more sharply than 2 Travel was able to reduce its cost base and service levels began to drop across all its depots". In consequence, instead of establishing its In-Fill Service in the Cardiff market, with the prospect of then expanding its operations in Cardiff (and, perhaps, more generally), 2 Travel's business was seriously disrupted, with the result that the business went into a circle of decline and failure, culminating in its liquidation on 20 May 2005 (see paragraphs 3.35 to 3.40 of 2 Travel's Claim for Damages).

Although there is some unhelpful difference in emphasis between the causation case pleaded in the Claim for Damages and the Causation Narrative, 2 Travel's case safely may be summarised as follows:

This leaves Claim 4: Wasted Staff and Management Time and Claim 5: Liquidation Costs, which we consider respectively in Section XIII and Section XIV below.

VIII. DRIVER SHORTAGES AND THE EFFECT OF DRIVER SHORTAGES

(1) Approach

There are many reasons why a driver may leave his employment, and the evidence before us was that recruiting and retaining drivers was a recurrent problem for bus companies in general, which some addressed through internal training programmes. Equally clearly, if a bus company suffers from a shortage of drivers, it may not be able to operate all of the services that it would like to operate.

The mere fact that 2 Travel suffered from driver shortages is not enough to enable 2 Travel to contend that its operations suffered as a result of the Infringement. Rather, it is incumbent upon 2 Travel to show:

We consider these questions in Section VIII(3) below. Before we do so, however, it is relevant to consider what driver shortages 2 Travel suffered from in the period up to April 2004. Clearly, if 2 Travel suffered from persistent driver shortages before it began its In-Fill Service, the inference that driver shortages occurring after the In-Fill Service commenced was due to the Infringement is diminished. This question is considered in Section VIII(2).

(2) Driver shortages suffered by 2 Travel prior to 19 April 2004

(i) 2 Travel's contentions and witness evidence

Mr Fowles described the position, as regards drivers, immediately before 2 Travel began its In-Fill Service in his first statement:

In his first statement, Mr Fowles went on to describe how, although there was a national shortage of drivers, 2 Travel used innovative measures for coping with this (see paragraph 94 of his first statement):

In paragraph 96 of his first statement, Mr Fowles stated that, prior to April 2004, "we managed to cope with the driver shortage and it didn't effect [ sic ] our services detrimentally over the long-run. I'd go out and drive to cover any shortages, as would anyone who held a Passenger Carrying Vehicle licence (PCV), which most of the non-driving staff did. Obviously, such staff would do the minimum amount of driving, but you'd go out and do a school drive. You would always have one or two other people like a coach cleaner or bus cleaner who would have a PCV who would cover for drivers who didn't come into work, or who were absent or if the company was experiencing driver shortages."

(ii) The contemporary documents

Cross-checking these statements with the contemporary documents, we consider that – before April 2004 – 2 Travel experienced driver shortages on more occasions than simply in 2001 in the Swansea area, and that these shortages were more serious than Mr Fowles described in evidence. We refer to the following:

Accordingly, we find that, in the years before 19 April 2004, 2 Travel suffered from significant and recurring driver shortages. These can have had nothing to do with the Infringement.

(3) Driver shortages in the period April to December 2004

(i) 2 Travel's contentions regarding driver shortages

Mr Fowles describes the driver position in Cardiff in April 2004 in paragraph 97 of his first statement:

According to 2 Travel's witnesses, thereafter, drivers left, and they left due to the Infringement. In paragraph 123 of his first statement, Mr Fowles states:

As we have noted, there are, of course, many reasons why a driver may leave his employment. As we have seen, the evidence before us showed that, historically, 2 Travel had suffered from driver shortages. Nevertheless, 2 Travel's witnesses gave a number of reasons as to why 2 Travel's loss of drivers, and its inability to recruit new drivers, was caused by the Infringement. These reasons were as follows:

(ii) Impact

In Appendix 2.4 of his Report, Mr Good has calculated the percentage of scheduled journeys in fact completed by 2 Travel over time as part of the In-Fill Service (based upon four services operating). These figures were as follows:

As we have noted on a number of occasions, 2 Travel's retention of documents was patchy, at best, and Mr Good's figures need to be treated with caution for this reason. For example, cross-checking Mr Good's figures with those of VOSA (although, as is noted in paragraph 215 above, these figures also need to be treated with caution) obtained over a 12 day period between 15 June and 16 July 2004 shows a completion rate of 32% (i.e. of 133 observations, 91 failed to operate, a failure rate of 68%: see paragraph 212 above). It may well be, therefore, that Mr Good's figures flatter, although it may also be that VOSA was applying stringent criteria to services that in fact operated, but just not very well.

Cardiff Bus was assiduous in monitoring 2 Travel's performance throughout the Infringement, and kept written reports. Thus, a memo to Mr Brown from Mr Heath mis-dated 17 April 2004 notes that "[a]s you are aware, we have been monitoring the operations of 2 Travel since the start of their services on 19 April and the following summarises the current situation with this operator's services in Cardiff". The memo then lists a series of failings on the part of 2 Travel. A Cardiff Bus engineering team brief dated May 2004 records that "[t]he competition arrived but has yet to make any real impact. It is now well know [ sic ] that they are running no more than 75% of their services at best...". A similar brief for June 2004 refers to "the competition running no more than 70% of their registered services" and the position for July was reported as being similar.

Mr Good's figures – broadly confirmed by Cardiff Bus's contemporary monitoring documents – show a progressive falling-off of performance, which may be indicative of services not operating due to driver shortage. We turn to the evidence on this point in the next section; but we must also observe that 2 Travel's performance on services other than the In-Fill Service in the period prior to 19 April 2004 was also poor. In this regard, we refer to:

Thus, we do not consider that the mere fact that 2 Travel's In-Fill Service deteriorated over time compels the conclusion that the Infringement was affecting 2 Travel's services, although it is of course consistent with that case.

(iii) The evidence of the contemporary documents regarding driver shortages

Cross-checking the recollections of 2 Travel's witnesses with the contemporary documents, a different picture emerges in relation to the post-19 April 2004 position.

In the first place, it is clear from these documents that 2 Travel's preparations, in the run-up to 19 April 2004, were poorly planned and inadequate. Mr Fowles Jnr's memos – which we have quoted in paragraphs 195 to 200 above – are telling evidence of this. One of the points made by Mr Fowles Jnr (in his memo of 9 March 2004) is that "[t]he depot needs approximately 8 drivers. Ghurkha's [ sic ] were promised but this has not yet materialised" (see paragraph 197 above). The Ghurkhas who had been recruited by 2 Travel were never deployed in Cardiff, albeit that Mr Fowles Jnr expected that they would be, and it is clear that – as at 9 March 2004 – Mr Fowles Jnr was short of eight drivers in Cardiff. This shortfall cannot have been caused by the Infringement.

It is clear from Mr Fowles Jnr's memo of 11 May 2004 (see paragraph 199 above) that the driver shortage persisted, and Mr Fowles Jnr continued to complain of the fact that the Ghurkhas had been diverted elsewhere. What is significant about this memo is that – some weeks after the 2 Travel In-Fill Service began – whilst many problems are listed, the effects of the Infringement are not mentioned.

On 23 June 2004, there was a management meeting of 2 Travel staff. The minutes record that coach and bus duties would be separated in August and that at this point "coach duties would not be covered at the expense of bus duties. AP [Mr Phillips] stated that driver shortage would need to be addressed". The minutes then went on to record:

Confirmation can also be found in 2 Travel's board minutes for 25 June 2004, which record (under "Staff"):

Just before this board meeting, in a memo dated 24 June 2004, Mr Fowles Jnr made the following report:

This is an important memo, for it highlights the problems that the Cardiff depot was suffering. Clearly, Mr Fowles Jnr was stressing that the depot was short of drivers, and this certainly appears to have impacted upon at least one school contract, and it seems a natural inference that the In-Fill Service was also being affected. But it is significant that Mr Fowles does not blame the Infringement for this shortage, but is rather reiterating his earlier complaints that the Cardiff depot was not being adequately resourced.

Mr Fowles Jnr's memo also highlights two other areas of difficulty which, in themselves, could cause buses not to operate:

A memo by Mr Spooner, dated 2 July 2004 noted that "18 new bus routes are due to come on stream shortly" and that "[t]he 21 (former) Gurkhas recruited from Nepal (which has resulted in considerable media coverage) will facilitate the roll-out of the additional bus routes (see above)". A memo by Mr Waters dated 12 July 2004 also noted the need for 10 additional staff and 8 additional vehicles in order to run a further 8 services in Cardiff".

Both of these memos suggest that 2 Travel's demand for drivers was increasing in the period after April 2004, in particular in July. If drivers could not be recruited, then the existing pool of drivers would, self-evidently, have to be spread more thinly amongst ever increasing operations.

In a memo dated 30 July 2004, Mr Cartwright analysed the "variations in the personnel establishment figures" since March 2004, identifying (across the whole of the company) 10 resignations, one termination due to ill-health and five employees who were interviewed for jobs, but who failed to report. The total loss of drivers (i.e. drivers employed who left, as opposed to drivers who failed to take up offers of employment) was thus 11. The memo concluded:

Finally, a memo dated 28 September 2004 by Mr Fowles Jnr commented on the problems caused by a poorly trained driver:

This, of course, highlights just how mechanical problems can de-rail operations.

(iv) Analysis

Decline in 2 Travel's operations

We accept that the number of In-Fill Service journeys in fact completed by 2 Travel over time fell, and (although we have some concerns about the figures) we accept as the best available the data adduced by Mr Good (see paragraph 303 above).

Pressures on drivers to leave/recruitment difficulties

We also accept that the Infringement would have generated additional pressures on 2 Travel's drivers (so creating an inducement to leave), and made recruitment more difficult. We summarised 2 Travel's contentions in this regard in paragraphs 300 to 302 above. In particular:

We do not accept that there was wide-spread intimidation. No doubt – in any area where rival services operate – tempers may boil over in an individual case, but we do not accept that Cardiff Bus instructed its drivers to intimidate, nor that any such intimidation took place in any widespread form. We reject 2 Travel's evidence in this regard, in part because the contemporary documents from Cardiff Bus suggest that Cardiff Bus's aim was to win over 2 Travel's drivers through friendliness, not alienate them through hostility (see for example paragraph 9 of the Competition Policy document cited at paragraph 522 below), but mainly because the Traffic Commissioner reviewed this evidence at the time, and rejected it (see paragraph 261 above).

We accept that there may well have been frustration at drivers being shipped around Wales due to a shortfall. However, we consider that the evidence shows that driver shortfall was caused by factors other than the Infringement.

Reason for the decline in services

We noted earlier that there are two broad reasons why a bus service may fail to operate:

We consider that the second reason certainly was a significant cause as to why 2 Travel's operations in Cardiff began to fail. It is clear that throughout 2004 – and particularly in the summer of 2004 – 2 Travel was suffering from major cash flow problems, which were getting worse, and not better. This affected 2 Travel's ability to purchase fuel for its buses (in the particular in the absence of any credit arrangements for fuel supply), but also it meant that the maintenance of the buses that 2 Travel did have in operation became increasingly difficult. Indeed, as is demonstrated by 2 Travel's memos, operations in Cardiff were never properly set up, and we find that they did not constitute a proper basis for the provision of an effective service. In short, we find that a major cause for the non-operation of certain In-Fill Service journeys was that fact that 2 Travel's infrastructure in Cardiff – in terms of bus repairs, maintenance and upkeep – was extremely poor.

That said, we do find too that a lack of drivers was also a problem. 2 Travel had historically suffered from a driver shortfall throughout its history, and this problem was only made worse by the fact that 2 Travel expanded its operations (in terms of the services it was trying to operate) without sufficiently expanding its driver base. Of course, the company was not wholly inactive – it recruited the Gurkhas – but (as Mr Fowles Jnr's memos demonstrate) a number of these were initially ear-marked for Cardiff, but then were diverted elsewhere. In short, we consider that 2 Travel was the author of its own misfortunes, in that it expanded too rapidly and too unthinkingly. It placed itself under too much pressure. It exercised inadequate financial discipline over its operations and accounting procedures.

We are sceptical that the driver position changed dramatically, in terms of shortage, after April 2004, when the Infringement began. Certainly, that is not borne out by the contemporary documents (see paragraphs 308 to 321 above), which, as we have noted, suggest that 2 Travel was coping in terms of driver numbers, and that to the extent that there were shortages, these arose out of 2 Travel's expanded services. Where there is some mention of driver shortages, most significantly there is very little mention of the deleterious effect of the Infringement.

In short, we do not accept that the impact of the Infringement on driver numbers was as suggested by 2 Travel's witnesses. Whilst we have no doubt that – years after the events they were seeking to describe – 2 Travel's witnesses were doing their best to recall events, we consider that they have, in their recollection, been over-emphatic, and have exaggerated the effect of the Infringement on 2 Travel's operations, in particular as regards driver shortages. Moreover, and quite understandably, there has been a reluctance to acknowledge the very real failings that existed within 2 Travel. 2 Travel was – and this is a point to which we will, unfortunately, have to revert – extremely badly managed.

Accordingly, we reject this part of 2 Travel's claim. On the balance of probabilities, we find that, although there was a falling off in terms of the number of In-Fill Service journeys operated by 2 Travel, the cause of that falling off was not the Infringement, but 2 Travel's basic operational failings combined with its too hasty expansion of services.

IX. MANAGEMENT TIME WOULD NOT HAVE BEEN DIVERTED

It was 2 Travel's case that staff and management time was diverted from profitable activity by the Infringement. In closing, it was emphasised by Mr Flynn QC, on behalf of Cardiff Bus, that the evidence in this regard was insubstantial. Although 2 Travel did not accept this in terms, neither did 2 Travel mount a particularly strong defence of this part of its claim. In paragraph 104 of its written closing submissions, 2 Travel stated:

Even this, we consider, overstates the position. The "evidence" in support of 2 Travel's contention amounted to no more than assertion. Typical is the evidence of Mr Francis (Transcript Day 4, page 21):

Apart from the assertions of 2 Travel's witnesses – to which, for the reasons given in paragraph 331 above – we attach little weight – there is nothing in the contemporary documents to support the suggestion that the Infringement caused much wastage of staff or management time. A few complaints were made – to the Traffic Commissioner, to the OFT, to Cardiff Bus itself – but these were insubstantial. A detailed submission to the OFT was only made in November 2004 (see paragraph 249 above).

The reality is that 2 Travel's management was, in large part, pre-occupied with managing an increasingly critical cash-flow and an increasing list of unpaid creditors. This is evidenced by the June 2004 PwC Report, the August 2004 action plan, the petition from the Inland Revenue, and the frequent calls for money from Mr Francis and Mr Short, which were (as we have described) secured by the Swansea Depot. We do not accept that the Infringement caused any abnormal diversion of management time or attention away from 2 Travel's proper business. The fact is that operating a bus service according to the stringent parameters as to timing requires a hand-on approach and an attention to detail all the time, without particular reference to competition. In a City such as Cardiff, where there is much traffic and (as we will see) many rival services in the form of the Cardiff Bus Liveried Service, inevitably there will be "bunching" of buses and difficulties in keeping "to pad". That is a normal incident of operating a bus service, and it is one (so we find) that 2 Travel had significant difficulty in dealing with throughout its operational history, and not simply in Cardiff during the operation of the Cardiff Bus White Service.

The joint expert statement agreed between Mr Good and Mr Haberman stated:

We have explained why we are sceptical of the after-the-event evidence of 2 Travel's witnesses (whilst in no way impugning their desire to assist the Tribunal), and we agree with the experts: there is no contemporary evidence to support 2 Travel's case. Accordingly, we reject the suggestion that the Infringement had any undue effect on staff or management, and we reject, therefore, that there was any effect on the company in this regard.

X. DIVERSION OF PASSENGERS, LOSS OF PASSENGER REVENUE AND 2 TRAVEL'S CLAIM 1: LOSS OF PROFITS

(1) Introduction

It was common ground between the parties that the relevant counter-factual scenario was to consider what 2 Travel's position would have been, had the White Service never been operated. In other words, what the position would be if the 2 Travel In-Fill Service would be competing only against the Cardiff Bus Liveried Service. This involves an assessment of (i) the passengers that were actually transported by Cardiff Bus and the revenue to Cardiff Bus that they generated and (ii) the number of these passengers that would have travelled on the In-Fill Service, had the White Service not operated, and the revenue to 2 Travel that these passengers would have generated.

We consider this revenue loss to 2 Travel in Section X(3) below, basing ourselves on the four services offered by Cardiff Bus operating in parallel with 2 Travel's four services up to the end of 2004. We should briefly explain why we have not used data relating to the fifth White Service and also why we have not used any of the 2005 passenger and revenue data:

Next – in Section X(4) – we consider whether 2 Travel would have (i) continued operations in Cardiff – and so continued generating revenue – from December 2004 until its actual insolvency and (ii) whether 2 Travel's services would have expanded beyond the four services operated by it until 19 December 2004. As we have noted, 2 Travel continued in business for some months after December 2004, and also had plans to operate a fifth service from November 2004. It is, therefore, necessary to consider whether and to what extent these factors would have generated additional revenue for 2 Travel had the Infringement not occurred.

Next, having reached a view as to what revenue 2 Travel may have lost, we consider – in Section X(5) – the additional costs that 2 Travel would have incurred in order to generate this revenue, in order to reach a figure for 2 Travel's lost profit.

We then consider – in Section X(6) – a legal submission made by Cardiff Bus that if the Infringement had, instead of causing 2 Travel to make lower profits than it otherwise would have done, caused 2 Travel to make greater losses than it otherwise would have done, such greater losses would, as a matter of law, be irrecoverable.

(2) The scope of 2 Travel's loss of profits claim

Plainly, the Tribunal must be astute to avoid double-recovery on the part of 2 Travel, and 2 Travel accepted that it could not recover for the loss of a capital asset as at 20 May 2005 (the date of 2 Travel's liquidation) and recover for loss of profits beyond this date. Conversely, if – even in the counter-factual scenario – 2 Travel would have gone into liquidation in around May 2005, it would be inappropriate to allow recovery for lost profits beyond this date.

Accordingly, it is our conclusion that we should – as part of Head 2: Loss of a Capital Asset – value 2 Travel as at the date of its liquidation but on the assumption that the Infringement had never taken place. This was the approach contended for by Cardiff Bus (see, for example, paragraphs 184 and 252 of Cardiff Bus's written opening submissions). This approach is supported by authority. In Crehan v Inntrepreneur Pub Company [2004] EWCA Civ 637 at [176], the Court of Appeal cited with approval the following statement of the law by His Honour Judge Jack QC in UYB Ltd v British Railways Board (16 April 1999, unreported):

We consider that the date on which it became clear that 2 Travel could not proceed was the date of its liquidation, namely 20 May 2005, and that is the date we use in order to assess – in the counter-factual scenario – the capital value of the company. That assessment is carried out in Section XI below.

In this section, we assess the loss of profit suffered by 2 Travel in the counter-factual scenario from 19 April 2004 (the date the Infringement commenced) to 20 May 2005 (the date of 2 Travel's liquidation).

(3) Lost revenue in the period to end 2004, on the basis of four operated services

(i) The counter-factual scenario

It was common ground between the parties that the relevant counter-factual scenario was to consider what 2 Travel's position would have been, had the White Services never operated. In other words, the 2 Travel In-Fill Service would be competing only against the Cardiff Bus Liveried Service.

It follows that those passengers that travelled on the White Service would not have been able to travel on the White Service. That is ex hypothesi . There are three possibilities:

We regard the first alternative as overwhelmingly unlikely, given the similarity between the 2 Travel In-Fill Service and the Cardiff Bus White Service. We discount it. We consider that the passengers who did travel on the Cardiff Bus White Service would – had that service never operated – have travelled on either a 2 Travel In-Fill Service or on a Cardiff Bus Liveried Service. The question is how many passengers would have travelled on which service, and what sort of revenue would thereby have been generated.

We consider that – so far as the four routes which were in fact operated by both 2 Travel and Cardiff Bus are concerned – the maximum number of additional passengers (i.e. in addition to those in fact carried by 2 Travel in the "real world") that 2 Travel could possibly have attracted is defined by those passengers who in fact travelled on the Cardiff Bus White Service. Given that the Cardiff Bus Liveried Service operated in both the factual and the counter-factual scenarios, we do not consider that any further passengers would, in the counter-factual scenario, have transferred from the Cardiff Bus Liveried Service to a 2 Travel In-Fill Service.

Accordingly, the additional revenue that 2 Travel could have expected is to be calculated by reference to the number of additional passengers that 2 Travel would have received had the Cardiff Bus White Service not operated.

(ii) Number of passengers in fact travelling on the Cardiff Bus White Service

The starting point must be the number of passengers who in fact travelled on the Cardiff Bus White Service. This data was provided to us by Cardiff Bus. Passengers travelling on the buses were classified under the following heads (which were described by Cardiff Bus's solicitors in a letter to the Tribunal dated 3 April 2012):

From this:

Accordingly, we use the following classifications, which are mutually exclusive:

Using these four classes of passenger, the numbers of passengers conveyed by White Service Route Nos 150, 144, 162 and 117 (which correspond to the 2 Travel Route Nos 250, 245, 262 and 217) was as follows:

These figures relate only to the four services described in paragraph 357 above (in other words, they omit passengers travelling on White Service Route No 258). Equally, these figures only go to the end of December 2004, even though Cardiff Bus operated the White Service in January and February 2005. We have explained why we have limited our consideration of the data in these two respects in paragraph 341 above.

Accordingly, for these reasons, we disregard the data relating to the fifth route and all of the data for 2005.

(iii) Revenue to Cardiff Bus

Unfortunately, the revenue to Cardiff Bus generated by these additional passengers cannot be broken down to the same extent as can the passenger data. Essentially, what we have are monthly revenue figures, broken down under the following heads:

The figures – which we set out below – are summarised in Table 5 of Mr Good's expert report (in paragraph 5.3.8) and set out in greater detail in Appendix 2.12 to Mr Good's report. As Mr Good's report makes clear, these data were supplied to 2 Travel by Cardiff Bus (see paragraph 5.3.7 of Mr Good's report).

Mr Good provided the following explanation of these five heads of revenue (Transcript Day 8, pages 71 to 72):

The advertising in question would be advertising on the White Service buses; and we consider that Mr Good was quite right to leave such revenue out of account. Although it is perfectly likely that passengers would transfer from the Cardiff Bus White Service to the 2 Travel In-Fill Service, that is not the case with advertising. We, too, leave it out of account.

That leaves four categories. As to these:

Using these three categories, it is possible to compute the revenue per month the four Cardiff Bus White Services generated. Taking the passenger numbers in the table at paragraph 357 above for the same month, and dividing the revenue by this number gives an average ticket price:

Over the period April 2004 to December 2004, this gives an average ticket price of 73p/ticket, the average price for adult and children tickets being 72p, the average price for season/multi-use tickets being 65p and average concessionary price being 78p.

The consistency of the average ticket price over time supports the analysis that we have adopted. The relationship between the average ticket price between the three classes supports this analysis. Thus, the average price for multi-ride tickets reflects the fact that they would normally be cheaper than full fare tickets. Concessionary tickets are higher than adult and child tickets combined , but that is because of the impact of children, whose fares were significantly lower. Ideally, we would have wanted to separate adult from child fares, but that was not possible, given the data provided by Cardiff Bus.

(iv) Maximum possible additional revenue to 2 Travel

Even assuming (contrary to what we consider to be the true position, for the reasons considered further below) that all passengers on the Cardiff Bus White Service would have moved to 2 Travel, it is clear that 2 Travel would not have generated the same revenue as Cardiff Bus. This is because 2 Travel's ticket prices were higher than those of Cardiff Bus. The prices charged by Cardiff Bus and 2 Travel are set out at Table 5 on page 22 of the OFT Decision:

Averaging all these prices, 2 Travel's average price was 94p (1510p/16), and Cardiff Bus's average price was 86p (1370p/16). On average, therefore, 2 Travel's prices were 8p or 9.3% higher than Cardiff Bus's.

Assuming (and we recognise the assumption is unrealistic, and adjust it below) that all passengers transferred from the Cardiff Bus White Service to the 2 Travel In-Fill Service, we find that 2 Travel's additional revenue would have been £110,624.92 (the revenue generated by Cardiff Bus) plus an uplift of 9.3% to reflect the higher ticket prices charged by 2 Travel, making £120,913.04 (i.e. £110,624.92/100 x 9.3% = £10,288.12).

(v) Realistic revenue assessment

The figure we have reached represents the maximum possible that 2 Travel could have hoped to have gained, based upon the assumption that all of the White Service passengers would have diverted to 2 Travel. It is not a realistic figure, for that reason, but only a starting point. We recognise that is not likely that each and every passenger who travelled on the Cardiff Bus White Service would (absent that service) have travelled on a 2 Travel In-Fill Service.

In a report dated 20 December 2011 entitled "Local bus services market investigation", to which we were referred by the parties, the Competition Commission considered the factors which affected a passenger's choice of alternative bus services. In paragraph 14.8 of the report, the Competition Commission noted:

This statement commanded a large measure of agreement from those who gave evidence before us. Essentially, the Competition Commission identify four factors relevant to a passenger's choice of bus service: (i) price; (ii) quality of service; (iii) bus frequency; (iv) pre-commitment of passengers. We consider this to be a helpful list, and we adopt it. In terms of which service the passengers who did in fact travel on the Cardiff Bus White Service would have chosen, had that service not operated, we consider the following factors in the following order:

Season/Multi-Use tickets

These are tickets that are purchased in advance of travel. Such tickets were usable on the White Service buses (see paragraph 4 of the Competition Policy document referred to at paragraph 522 below), but not on 2 Travel buses. Accordingly, the purchase of a season or multi-use ticket is strongly suggestive of an anterior decision to travel with Cardiff Bus and not 2 Travel. For this reason, it was common ground between the experts that passengers on a Cardiff Bus White Service who had purchased season tickets or multi-use tickets for Liveried (and so, White) Services would not have travelled on a 2 Travel In-Fill Service, but would have travelled on a Cardiff Bus Liveried Service had the White Service not operated.

We agree with the joint statement of Mr Good and Dr Niels: "The experts agree that 2 Travel would not have picked up any of the multi-journey or season ticket White Bus passengers".

It follows that these passengers – and the revenue that they generated – have to be left out of account. These passengers would not, in the counter-factual scenario, have travelled on a 2 Travel In-Fill Service.

Price

As we have noted, the Cardiff Bus White Service undercut 2 Travel on fares (see paragraphs 368 to 369 above). However, 2 Travel's fares were cheaper than those charged for travel on the Cardiff Bus Liveried Service. The prices charged by Cardiff Bus and 2 Travel are set out at Table 5 on page 22 of the OFT Decision:

In its report, the Competition Commission did not consider price to be a first order factor in terms of determining choice of service, but it is obviously a relevant factor. Indeed, we consider that the importance of price would vary according to individual passenger circumstance.

Thus, we consider that the price of an "on-board" ticket would be irrelevant (for the reasons given in paragraph 374 above) to persons purchasing season or multi-use tickets. Such passengers would – before boarding – already have made their choice to travel on a Cardiff Bus service.

Equally, price would not be relevant to concessionary passengers, who paid nothing for their travel.

Price would be relevant to those passengers who paid for their tickets on the bus. Mr Clayton Jones considered that price could be important (Transcript Day 1, page 98: "If you live in Ely and you're on a limited income, take it from me, it's your pocket you look at first, not which bus comes first"), as did Mr Fowles (Transcript Day 2, page 144) and Dr Niels (Transcript Day 8, pages 159 to 161).

We find that price was a relevant factor in passengers' minds and a significant differentiation between the 2 Travel In-Fill Service and the Cardiff Bus Liveried Service, operating in favour of 2 Travel. We were not provided with any evidence of how great the effect would be: but it is a factor that we take into account (together with a number of other factors) in the manner described in paragraph 398 below.

Quality of service

We heard some evidence that passengers would be attracted to the 2 Travel In-Fill Service by matters such as driver-friendliness and the willingness to give change and other such factors (see, for example, Transcript Day 1, pages 121 to 122 (evidence of Mr Clayton Jones); Transcript Day 2, pages 134 to 135 and 144 to 145 (evidence of Mr Fowles)).

We are sceptical as to the significance of quality of service as a factor favouring 2 Travel for three reasons.

For these reasons, we do not consider that quality of service would have been a factor driving passengers to choose 2 Travel over Cardiff Bus; but equally, given that these passengers all elected to travel on the White Service (a "no-frills" service), the additional qualities of the Liveried Service cannot have been particularly relevant. In short, we consider this factor to be neutral, and it is a factor that we leave out of account in our analysis below.

Frequency of service, timetable and reliability of service

A number of witnesses stressed the importance of the link between frequency of service and timetable. In the case of an infrequent service, passengers would pay considerable regard to the timetable, with a view to arriving at their bus stop in good time to catch the bus they were planning to catch. However, in the case of a frequent service, uncommitted passengers (i.e. those passengers who had not already purchased a ticket committing them to a particular carrier) would simply turn up and catch the next bus to arrive, irrespective of the service provider.

In short, the significance that a passenger attaches to a timetable depends upon frequency of service (see Transcript Day 1, page 121 (evidence of Mr Clayton Jones); Transcript Day 2, pages 47, 49 and 125 (evidence of Mr Fowles); Transcript Day 7, page 6 (evidence of Mr Brown)). We found the evidence of Mr Brown particularly helpful (Transcript Day 7, pages 15 to 18):

We consider in paragraph 391 below the frequency of services on the four routes operated by 2 Travel, and it is clear that all four of the routes operated by 2 Travel overlapped to a greater or lesser extent with Cardiff Bus Liveried Services. The overlap, quite naturally, increased, the closer the service got to the City Centre, but even in the outskirts, the number of services operated by 2 Travel and Cardiff Bus together would have fallen within Mr Brown's definition of "frequent".

This is important, because (as we have noted) the 2 Travel In-Fill Service was not reliable. All too often, buses did not operate at all or did not operate according to the timetable published by 2 Travel. In the case of infrequent services, this would be a significant deterrent to a passenger planning his journey: a passenger will only pay regard to a published timetable, if that timetable is kept to. But in the case of frequent services, timetable and reliability matter far less – the passenger will simply get on the next bus.

Accordingly, when considering which service a passenger would have chosen in the counter-factual scenario, we place considerable weight on bus frequency, and rather less on reliability and timetable.

Dr Niels provided a helpful analysis of the frequencies of bus services on routes operated by the 2 Travel In-Fill Service. The table below sets out the frequency of 2 Travel's services on the various sections of the four routes operated by it (2 Travel Route Nos 250, 245, 262 and 217), as well as the frequency of the Liveried Services on these sections. Two points must be noted:

Cardiff Bus contended that, given this frequency of service, passengers indifferent to the bus company they used would take the first bus that arrived that was going to their stop and that – simply by virtue of force of numbers – this bus was more likely to be a Liveried Service than a 2 Travel In-Fill Service.

We consider that there is a great deal of force in this submission as regards passengers purchasing tickets other than season or multi-use tickets (who, as we have found, would in any event have used a Liveried Service). The problem is that the data showing where passengers got on and where they got off simply does not exist, and so the question needs to be approached in an altogether more broadbrush way. Dr Niels's approach was to apportion the passengers travelling on each route purely according to frequency.

We see no alternative but to effect this sort of mechanistic allocation, but we consider it needs to be adjusted to reflect that fact that:

Our approach

In closing, 2 Travel re-worked some aspects of Dr Niels's calculations. Mr Flynn, on behalf of Cardiff Bus, objected to this (Transcript Day 10, page 23):

We address this point briefly, in case Cardiff Bus were minded to suggest that the Tribunal is fettered in this way.

Of course, it is absolutely right that the Tribunal can only determine this case on the evidence before it, and cannot have regard to factual material that was not adduced before it. Neither Mr Good, nor Dr Niels nor Mr Haberman adduced such factual material. They provided expert opinion evidence. In particular, Mr Good and Dr Niels sought to assist the Tribunal in what sort of revenue would have accrued to 2 Travel had the Infringement not taken place. We have found their work extremely helpful, and have taken it fully into account, but we certainly do not consider that the opinion evidence in their reports must be used on a "take it or leave it" basis. It is for the Tribunal – based upon the factual evidence – to make an assessment of what would have happened in the counter-factual scenario, and this may very well involve re-working calculations done by the experts or adopting an approach which – although it draws on the work of both experts – adopts neither approach completely. That is what has occurred in this case. Our approach is neither that of Mr Good nor that of Dr Niels but – based upon the factual evidence we have heard – represents our concluded view as to what would have occurred in the counter-factual scenario.

Our approach is as follows:

Using this approach, we find that, in the counter-factual scenario, 2 Travel would have gained the following number of passengers:

We thus find that, in the counter-factual scenario, 2 Travel would – on the four services here considered – have transported an additional 41,255 passengers.

The data does not enable us to determine the split of passengers, for the purpose of determining what this amounts to in terms of revenue. Our approach to calculating 2 Travel's lost revenue is as follows:

(vi) Conclusion

We conclude that the Infringement cost 2 Travel 41,255 passengers in the period April to December 2004.

Translating these numbers into revenue, we find that these additional 41,255 passengers would have generated revenue to 2 Travel of £33,818.79.

(4) Duration and expansion of services by 2 Travel

(i) Introduction

It was 2 Travel's case that – but for the Infringement – it would have carried on with its In-Fill Services, instead of ceasing operations in Cardiff on 17 December 2004 (see paragraph 271 above), and would have expanded those services, at the very least to begin operating the fifth In-Fill Service, 2 Travel Route No 258.

Clearly, if this is right, this would have resulted in additional revenue to 2 Travel. We consider each of these matters in turn below.

(ii) Would the service have continued beyond December 2004?

So far, we have concluded that the effect of the Infringement was to deprive 2 Travel of revenue of £33,818.79. We have considered – and rejected – 2 Travel's contentions that the Infringement caused a shortage of drivers and caused a diversion of staff and management time. In short, 2 Travel's situation in the counter-factual scenario would not have been very different from what it actually was in the real world.

In the real world, the position was as follows. By mid-November 2004, £300,000 of bank lending unexpectedly became due (see paragraph 262 above), with the result that Grant Thornton were appointed as investigating accountants and 2 Travel shares were suspended (see paragraph 262 above). Grant Thornton found the company insolvent on a going-concern basis on 23 November 2004 (see paragraph 265 above). A number of directors resigned in late-November and early-December 2004 (see paragraph 267 above), and 2 Travel was de-listed from AIM at the end of December 2004 (see paragraph 276 above).

In these circumstances, the injection of a further £33,818.79 into the company would have been a drop in the ocean, and would have made absolutely no difference to the decisions the company took. We find that, in the counter-factual scenario, that 2 Travel would have done exactly as it did, and ceased operations in Cardiff on 17 December 2004.

(iii) Would a fifth service have been commenced?

We consider that the only question can be whether 2 Travel would have operated the fifth In-Fill Service i.e. 2 Travel Route No 258. There could have been no question of 2 Travel operating any further services beyond this because of the Traffic Commissioner's decision that (because of failures in service pre-dating the Infringement) 2 Travel should not be permitted, for a period of twelve months from the decision (i.e. twelve months from 25 August 2004) to use vehicles on any local services other than those registered as at the date of the decision (see paragraph 244 above).

According to Mr Fowles, the plan had been for a fifth service to be commenced in November 2004 (see paragraph 202 above). Given the financial difficulties that we have described, and the costs of setting up a new service (additional drivers, buses, etc) we consider it inconceivable that 2 Travel would have begun a fifth service in the counter-factual scenario.

Moreover, even if 2 Travel had been legally permitted to do so, we consider it inconceivable that 2 Travel would have been in an economic position to begin any other services.

(iv) Conclusion

We conclude that, as a result of the Infringement, 2 Travel lost revenue in the amount of £33,818.79.

(5) Costs

Revenue does not, of course, equate to profit. Normally, it would be necessary to assess what costs 2 Travel would have incurred in order to generate such revenue.

In this case, however, such an assessment is unnecessary. The revenue that we have found 2 Travel has lost would have been generated by buses that 2 Travel operated in any event (i.e. they operated in the "real world" and they operated in the counter-factual scenario) . The cost of running them was already incurred. It is simply that, in the counter-factual scenario, the buses that 2 Travel did in fact operate would have been fuller.

Accordingly, we find that there are no costs to be set against the revenue that 2 Travel has lost, and that the entire sum of £33,818.79 represents a loss of profit. On top of this sum, 2 Travel claims interest. We consider that 2 Travel is entitled to interest on the sum of £33,818.79 from 1 August 2004 (which is the mid-point of the period during which 2 Travel's In-Fill Service operated). 2 Travel sought interest at a (high) rate of 8%. In paragraph 125 of its written opening submissions, 2 Travel sought to justify this rate by suggesting that "the interest should be set at a high rate to reflect the need not only to compensate 2 Travel but also to mark the nature of Cardiff Bus' intentional breaches of competition law". We consider this to be an inappropriate approach in what is a purely compensatory award of damages, and find that the appropriate rate of interest is the Bank of England base rate at the relevant time plus 2%. We leave it to the parties to calculate the precise amount of interest that is due on this basis.

(6) Cardiff Bus's contention that additional losses caused by Cardiff Bus are irrecoverable by 2 Travel

It was Cardiff Bus's contention that the 2 Travel In-Fill Services would always have been loss-making. Based upon this contention, Cardiff Bus additionally contended that if the effect of the Infringement would have been to cause 2 Travel's losses on these services to increase , then such additional losses would, as a matter of law, be irrecoverable. Cardiff Bus put the point like this in paragraph 18 of its written opening submissions:

We reject this contention as unarguable. A claim for lost profits does not cease to be valid just because the venture by which those profits were to have been generated was itself loss making. A claimant can claim for lost profits if his profits would have been £110 rather £100 or if his losses would have been £90 rather than £100. Either way, the claimant has lost £10.

It may be – but, if so, the submission was remarkably well-disguised – that Cardiff Bus was contending that 2 Travel acted so unreasonably in commencing the In-Fill Services that this – rather than the Infringement – should be regarded as the cause of 2 Travel's losses. This contention, too, we consider to be bad. Even if – and we consider that the evidence was insufficient to make any findings on this point – it could confidently have been predicted that the In-Fill Services would have been loss-making at the start, that does not make the decision to enter the Cardiff market unreasonable.

XI. CLAIM 2: LOSS OF A CAPITAL ASSET (THE BUSINESS OF 2 TRAVEL AS A GOING CONCERN)

(1) Introduction

We approach this question in the following way:

(2) The February 2004 PwC Report

These, clearly, are healthy figures. Taking the profit per bus per week of £885, if the company was (as the February 2004 PwC Report projected) operating 20 buses, then the annual profit ( not the revenue) would be £920,000.

The projections in the February 2004 PwC Report were based not upon an independent analysis of 2 Travel's business by a respected management consultant, but came from 2 Travel itself (see paragraphs 177 and 184 above). The projections that we are particularly concerned with – the revenue and profits flowing from the In-Fill Services – were provided, we find, by Mr Fowles. Although Mr Bowsher, in closing, sought to suggest that Mr Waters provided this information, we reject that contention. The point was never directly put to Mr Fowles, but we consider that the evidence we have described at paragraphs 176, 181 and 1822 above is consistent only with Mr Fowles having provided this information. It may well be that Mr Waters provided PwC with other information: as the company's finance director, that would be unsurprising. But we consider that information and projections relating to bus operations and their profitability would have come from Mr Fowles.

The fact that these figures came from 2 Travel rather than PwC would not be a problem, but for two things:

In short, we consider that the February 2004 PwC Report does not constitute any kind of sound prediction as to how In-Fill Services in Cardiff might perform – even if performed by a competently managed and run company. We now turn to the question of whether that is an appropriate description of 2 Travel.

(3) Inherent characteristics of 2 Travel

(i) Poorly managed

We find that 2 Travel was exceptionally poorly managed. We consider that an accurate picture of the company's affairs can be obtained from the contemporary memos written by Mr Waters, which we have described in paragraphs 93, 112, 121, 123, 125, 126, 146, 158, 195 and 222 above, and which speak for themselves.

This poor management was demonstrated in:

(ii) Poor quality of service

Given 2 Travel's poor management, it is not surprising that 2 Travel provided poor service. We have referred – in paragraphs 136 to 157 above – to the many complaints made in respect of 2 Travel's services. These complaints pre-dated the Infringement, and simply show that 2 Travel was a very poor provider of transport services. The decision of the Traffic Commissioner, which considered 2 Travel's bus service reliability in periods again pre-dating the Infringement (see paragraph 245 above) is also a good illustration of the extremely poor service provided by 2 Travel.

(iii) Enormous financial difficulties

(4) What drove the company into insolvency?

We accept 2 Travel's point that Cardiff Bus must take 2 Travel as it found it. If – but for the Infringement – 2 Travel would have carried on in business, and it was the Infringement that caused a weak company to go under, then (on the but-for test) that is something for which Cardiff Bus is responsible.

We have found that 2 Travel was a badly run company, with enormous financial difficulties, even before it commenced the In-Fill Services, and providing poor transport services. This is why the company failed.

But for extremely large injections of cash – from the flotation and from the bank (guaranteed by Mr Francis and Mr Short) – the company would have gone under long before May 2005. It could only have survived beyond May 2005 had Mr Francis and Mr Short continued to support the company, which they did not do (a question we consider further below).

We have found that the Infringement would have resulted in additional revenue to the company of £33,818.79. This was a drop in the ocean, and could not have saved the company. We consider the Infringement to be causally irrelevant to 2 Travel's demise.

It is worth noting at the outset that the Cardiff market was not necessarily "rich pickings" for new entrants into this market. In October 2009, Mr Clayton Jones's company, the Heart of Wales Bus Company, began running commercial services in Cardiff, using six buses, and with an intention to expand. Mr Clayton Jones's operation was not the subject of the sort of unlawful response from Cardiff Bus that 2 Travel faced in 2004. Yet, the Heart of Wales Bus Company's services were reduced from six buses to four, and then withdrawn altogether (Day 1, pages 90 to 91). In his evidence to us, Mr Clayton Jones blamed the concessionary fare reimbursement scheme (whereby bus operators carrying concessionary passengers received 73.69% of the average adult fare) operated in Cardiff. Be that as it may, precisely the same scheme pertained when 2 Travel was operating its In-Fill Services in 2004 (Day 1, page 91).

(5) Could the company have been saved?

(i) The lost additional revenue

For the reasons we have given, the lost revenue resulting from the Infringement was nothing like enough to enable 2 Travel to stave-off insolvency.

(ii) Additional funding from Mr Francis and Mr Short

We reject this contention for two reasons. In the first place, we do not accept the basic factual premiss on which this contention is predicated. In order for the contention to have any credibility, 2 Travel must show that the Infringement was seriously impairing 2 Travel's operations. For the reasons we have given, the Infringement did not have this effect. Its effect, as we have found, was de minimis (i.e. it deprived the company of revenue of £33,818.79), which could have had no effect on 2 Travel's business or future.

Mr Francis and Mr Short were experienced businessmen. We consider that they would have had a very clear understanding of 2 Travel's financial predicament, and would have appreciated that as a transport business, the company was going to fail. For example, we consider that the fact that – in the summer of 2004 – 2 Travel was suffering (again) from major cash-flow problems, in circumstances where it had only just received a substantial capital injection of £600,000 as a result of the recommendations in the February 2004 PwC Report, would have spoken volumes to them. We consider – as Mr Waters stated in his summer 2003 memo (paragraph 123 above) – that they would have appreciated that 2 Travel's only real asset was not its transport business, but the Swansea Depot's development potential.

In short, if it was the state of the company that deterred Mr Francis and Mr Short from further investment, then the company's state would have been just the same in the counter-factual scenario, and it follows that even if the Infringement had never occurred, Mr Francis and Mr Short would not have invested any more money in the company.

We reject 2 Travel's contention for a second reason, also. We find that Mr Francis and Mr Short would only have financed 2 Travel to the extent that security was available to ensure that their lending was repaid. We do not accept that either Mr Francis (notwithstanding his family connection with Mr Fowles) or Mr Short were in the business of gifting money to 2 Travel. They were willing to guarantee the company's borrowing, but only on terms, and those terms involved first a security interest in the Swansea Depot (see paragraph 194 above), subsequently the Option and after that the Assignment.

Mr Francis and Mr Short lent, or secured borrowing, of a total of £1,925,000, comprising:

This, we consider, is probably what the land was worth, given its undeveloped state. Although King Sturge had valued the property in that state at £1 million, that ignored the development potential, and with planning permission clearly the value of the land was much higher. But that, of course, is just the point: there was development potential , which had yet to be achieved, and might not be achieved. Given the development potential , we consider that the price identified in the Option was a fair price, (which, given the fact that 2 Travel, Mr Francis and Mr Short were related parties, is perhaps just as well for all concerned). It is entirely natural that Mr Francis and Mr Short should have stopped supporting the company when their exposure neared the £2 million mark. We find that the reason they stopped supporting the company was because any further lending or support would be unsecured, given the value of the Swansea Depot, and not because of the Infringement. Accordingly, we reject Claim 2: Loss of a Capital Asset.

XII. CLAIM 3: LOSS OF A COMMERCIAL OPPORTUNITY (THE SWANSEA DEPOT DEVELOPMENT)

The essence of 2 Travel's Claim 3 is that the Infringement forced the company to mortgage and (through the Option and the Assignment) divest itself of its interest in the Swansea Depot. But for the Infringement – so 2 Travel contends – the company would have held, unencumbered save for the bank's first charge, property that was extremely valuable.

Given the findings that we have made in relation to the causal effect of the Infringement, this claim must inevitably fail. For the reasons we have given, we consider that 2 Travel's need to use the Swansea Depot to raise funds had nothing to do with the Infringement: in the counter-factual scenario, we find that 2 Travel would have had to act exactly as it did with regard to the Swansea Depot, or it would have gone into liquidation much sooner (probably in April 2004, when further "working capital" was raised with the assistance of Mr Francis and Mr Short).

For the reasons given in paragraph 442, we should also say that we are satisfied that 2 Travel divested itself of the Swansea Depot properly, and not at an undervalue. Mr Francis and Mr Short gave fair value – possibly paying more, and certainly no less, than a third party would have done. 2 Travel received a fair value for the property.

XIII. CLAIM 4: WASTED STAFF AND MANAGEMENT TIME

For the reasons we have given in paragraphs 333 to 338 above, we find that the Infringement did not cause any abnormal waste of staff or management time, and that 2 Travel can recover nothing in respect of this head of loss.

XIV. CLAIM 5: LIQUIDATION COSTS

Since we have concluded that 2 Travel would, in the counter-factual scenario, have ended up in liquidation at the same time as it in fact did, it follows that, even if the Infringement had never occurred, the liquidation costs would have been incurred exactly as they have been incurred. We find that 2 Travel can recover nothing in respect of this head of loss.

XV. CLAIM 6: EXEMPLARY DAMAGES

(1) Introduction

While the purpose of an award of damages is to compensate a claimant's loss, the object of the exemplary damages is "to punish and deter": Rookes v Barnard [1964] 1 AC 1129 at 1221; Kuddus v Chief Constable of Leicestershire Constabulary [2002] 2 AC 122 at [51]. It is for this reason that they have been described as an "undesirable anomaly" ( Broome v Cassell & Co Ltd [1972] 1 AC 1027 at 1086 to 1087 ( per Lord Reid)). Exemplary damages are awarded in addition to compensatory damages for the purpose of "vindicating the strength of the law" ( Rookes v Barnard at 1226 per Lord Devlin; Kuddus at [62] per Lord Nicholls) and "to teach a wrongdoer that tort does not pay" ( Rookes v Barnard at 1227 per Lord Devlin and Broome v Cassell at 1130 per Lord Diplock), thus justifying the admission into civil law of "a principle which ought logically to belong to the criminal" ( Rookes v Barnard at 1226 per Lord Devlin). The courts have emphasised that exemplary damages are a "remedy of last resort" ( Kuddus at [63] per Lord Nicholls), which are not to be encouraged ( Watkins v Home Secretary [2006] 2 AC 395 at 409 per Lord Bingham), and that the court's inherent discretion to award exemplary damages must be "cautiously exercised" ( Devenish Nutrition v Sanofi-Aventis SA [2009] 1 Ch 390 at [56] per Lewison J).

It has been held that exemplary damages should only be awarded if compensatory damages are insufficient alone to punish the defendant. Thus, Lord Devlin in Rookes v Barnard stated that exemplary damages should be awarded (at 1228):

It is with these general precepts in mind that we approach the question of exemplary damages.

In Rookes v Barnard , Lord Devlin identified (at 1226) the following three categories of case where an award of exemplary damages may be appropriate:

(2) Oppressive, arbitrary or unconstitutional conduct by servants of the government

(i) The relevant law

In Broome v Cassell , the House of Lords expressed the view ( obiter ) that the term "servants of the government" was not to be strictly construed. Lord Hailsham LC, for example, considered that the category would extend to the police and "almost as certainly to local and other officials" (at 1077 to 1078). Lord Reid considered that the contrast being drawn was "between "the government" and private individuals. Local government is as much government as national government, and the police and many other persons are exercising governmental functions" (at 1088). Lord Diplock considered that the category could not be confined "to torts committed by servants of central government alone. It would embrace all persons purporting to exercise powers of government, central or local, conferred upon them by statute or at common law by virtue of the official status or employment which they held" (at 1130).

AB & Ors v South West Water Services Ltd [1993] 1 QB 507 was a case where a number of a water authority's customers brought claims in tort against the water authority's successor in title alleging – amongst other things – nuisance, negligence and breach of statutory duty. The claimants sought exemplary damages under the first head of exemplary damages. In rejecting this claim, Stuart-Smith LJ stated (at 525):

Bingham MR also regarded the case as well outside the first category (at 531 to 532):

The Court of Appeal rejected the suggestion that the notion of a defendant exercising government power was the same as whether that body was an emanation of the state for the purposes of EU law (at 525 to 526 per Stuart-Smith LJ) or whether it was susceptible of judicial review (at 531 per Bingham MR).

We note that, in Kuddus , Lord Nicholls said this about Lord Devlin's first category at paragraph 66:

We consider that it is not for this Tribunal to question the ambit of Lord Devlin's first category, and that if the soundness of the distinction he draws is to be questioned, that is a matter for the Supreme Court. For our purposes, we consider the law to have been correctly stated in AB v South West Water Services Ltd .

(ii) Application in the present case

Mr Brown described the management and operation of Cardiff Bus in his first witness statement, and that evidence was not challenged by 2 Travel. In particular, Mr Brown made clear:

We accept this evidence. Our conclusion, in the light of this evidence, is that it cannot be said that Cardiff Bus was, when operating the White Services, exercising governmental functions of any sort, and we hold that – for this reason – Cardiff Bus cannot fall within Lord Devlin's first category.

(3) Conduct calculated to make a profit which may well exceed the compensation payable

(i) The law

In Rookes v Barnard , Lord Devlin defined his second category in the following way (at 1227):

In the early cases the awards of exemplary damages in Lord Devlin's second category arose mainly in the context of claims for libel. Thus in Manson Associated Newspapers Ltd [1965] 1 WLR 1038, (a case which, although not cited to us, was considered and relied upon by the House of Lords in Broome v Cassell , which was cited to us) Widgery J in his summing up stated that a situation falling within Lord Devlin's second category would arise where the defendant published a defamatory statement (at 1043):

This formulation is quite different from Lord Devlin's wording, replacing as it does the concept of cynical disregard with the concept of recklessness. The House of Lords in Broome v Cassell (another libel claim) was at pains to explain that Lord Devlin's formulation was not to be rigidly adhered to, like statute, for his categories were intended to be descriptive only: Broome v Cassell at 1068 and 1077 ( per Lord Hailsham) and 1129 ( per Lord Diplock).

Thus, regarding the element of "calculation" present in both Lord Devlin's and Widgery J's formulation, it was explained that Lord Devlin's second category was not limited to the "kind of mathematical calculation to be found on the balance sheet": Broome v Cassell at 1078 to 1079 ( per Lord Hailsham), 1101 ( per Lord Dilhorne) and 1130 ( per Lord Diplock). Rather "the situation contemplated is where someone faces up to the possibility of having to pay damages for doing something which may be held to have been wrong but where nevertheless he deliberately carries out his plan because he thinks it will work out satisfactorily for him": Broome v Cassell at 1094 ( per Lord Morris).

In other words, the cynical calculation required by Lord Devlin can be inferred from the deliberate conduct of the defendant in committing the tortious act.

Both Lord Morris and Lord Dilhorne held that exemplary damages could be awarded where someone "wilfully or knowingly or recklessly peddles untruths for profit" (at 1094 and 1101).

Similarly, Lord Diplock held that to bring a case within a second category the claimant must prove that (at 1130):

Lord Hailsham held that exemplary damages could be awarded for "outrageous behaviour" (at 1077) and that what was necessary to bring a case within Lord Devlin's second category was commission of a tortious act with "guilty knowledge" and for a "motive" of making a profit, in other words (at 1079):

Lord Reid re-formulated Lord Devlin's second category as follows (at 1088):

For Lord Reid, exemplary damages could not be awarded unless the publisher sued for libel either "knew that passages in the book were libellous and could not be justified or at least deliberately shut their eyes to the truth" (at 1089).

In John v MGN [1997] 1 QB 586, the Court of Appeal revisited the various re-formulations of Lord Devlin's second category in the context of libel claims. Bingham MR noted (at 618) that in cases where actual knowledge is not in issue, the formulation of the state of knowledge of the publisher as "reckless" can be misleading. Instead, he thought that the jury should be directed to be satisfied that the defendant "had no genuine belief in the truth of what he published", i.e. he "must have suspected that the words were untrue and have deliberately refrained from taking obvious steps which, if taken, would have turned suspicion into certainty" (using Lord Diplock's formulation in Cassell v Broome ).

As to the second requirement of a profit motive, it was held that simply publishing a newspaper for profit was not enough. The defendant's unlawful conduct must have been motivated by mercenary considerations (at 618 to 619) and an inference of a cynical calculation of mercenary advantage should not be lightly drawn (at 619).

More recently, in Kuddus , in the different context of a tort of misfeasance in public office, Lord Nicholls identified the circumstances in which an award of exemplary damages would be appropriate pursuant to Lord Devlin's second category as follows (at [63]):

For Lord Nicholls, exemplary damages were a "remedy of last resort" awarded only when the conscious wrongdoing by the defendant was "outrageous" (at [68]):

In a Privy Council appeal from New Zealand, A v Bottrill [2003] 1 AC 44 at [23], Lord Nicholls had an opportunity to clarify what features make conduct "outrageous" when he explained that "cases satisfying this test of outrageousness [in Rookes v Barnard ] will usually involve intentional wrongdoing with, additionally, an element of flagrancy or cynicism or oppression or the like: something additional rendering the wrongdoing or the manner or circumstances in which it was committed particularly appalling." This decision was not cited to us. Given the citation of Kuddus , it should have been, as it elucidates Lord Nicholls' thinking in that case.

Notably, the test set out by Lord Nicholls in Kuddus at [63] was also recently applied by the Supreme Court in Lumba v Secretary of State for the Home Department [2012] 1 AC 245 at [150] when it refused to award exemplary damages against the Secretary of State for unlawful imprisonment in a case falling within Lord Devlin's first category.

Lord Nicholls' speech with its focus on "conscious" and "outrageous" conduct appears to have been heavily influenced by the Law Commission report on Aggravated, Exemplary and Restitutionary Damages (1997) (Law Com No 247), to which Lord Nicholls made particular reference. In this report, it was proposed that exemplary damages should be awarded where, in committing a wrong (or in conduct subsequent to the wrong [7] ), the defendant "deliberately and outrageously disregarded the plaintiff's rights" (Part V, para 1.44(18)). In explaining what is meant by this test, the Law Commission merely stated as follows (Part V, para 1.47):

(ii) Exemplary damages in the context of the Infringement

In the light of these statements of the law, two points need to be considered in greater detail:

We consider these two points in turn below.

Exemplary damages where the Chapter II prohibition is infringed

Devenish Nutrition Ltd v Sanofi-Aventis SA [2007] EWHC 2394 is the only decided case dealing with the award of exemplary damages for breaches of competition law. This was not a case concerning the Chapter II prohibition, but an infringement of Article 101 TFEU. In that case, it was accepted that on the facts the case fell within Lord Devlin's second category (although, ultimately, and for reasons which we will explore later, exemplary damages were not in fact awarded in this case). This was because of the European Commission's findings that the defendants had participated in price-fixing cartels "with full knowledge of the illegality of their actions" (at [9] and [44]).

Because these findings so clearly brought the matter within Lord Devlin's second category, it was not necessary for Lewison J to consider the second category in any great detail.

The reason that complaints of breaches of the Chapter II prohibition present a particular problem is that often a company will be unable to predict with certainty whether or not a proposed measure would amount to an infringement. This is because it can be extremely difficult to determine which unilateral acts by a dominant undertaking are pro-competitive and which are anti-competitive. As is noted in Whish & Bailey, Competition Law , 7 th ed (2012) at page 192, "the application of [the Chapter II prohibition] involves a competition authority or a court having to decide whether that behaviour deviates from 'normal' or 'fair' or 'undistorted' competition, or from 'competition on the merits', none of which expressions is free from difficulty".

This being the case, it follows that many business decisions taken by a dominant undertaking will be taken in the knowledge that there is a risk that the company's actions will be found to breach competition rules.

On the face of it, Lord Devlin's second category is specifically aimed at the punishment and deterrence of such calculated risks. Yet we consider that – unless we are compelled to by higher authority – to impose on undertakings an exposure to exemplary damages in all cases where a company proceeds with conduct despite there being a known risk of an infringement of the Chapter II prohibition would be wrong. It would have the effect of deterring actions that might well have a pro-competitive effect.

Obviously – as Devenish shows – exemplary damages can in theory be awarded where there is an intentional breach of the law i.e. the defendant acts knowing that what he does constitutes an infringement of competition law and intending that infringement. It is equally clear – from the case-law we have cited – that the jurisdiction to award exemplary damages extends beyond this core case, and that cases which may be termed cases of "recklessness" can be sufficiently outrageous so as to fall within Lord Devlin's second category (see, in particular, paragraphs 466, 468, 470 and 471 above).

In R v G [2004] 1 AC 1034 at [32], Lord Bingham defined recklessness in the context of the criminal law as the "knowing disregard of an appreciated and unacceptable risk of causing an injurious result or a deliberate closing of the mind to such risk" (emphasis added). The key word – for present purposes – is "unacceptable". It is only when a risk is "unacceptable", but is nevertheless consciously disregarded, that conduct becomes "reckless". The conscious disregard of an acceptable risk is not recklessness.

What, then, is an "unacceptable" risk? We consider that an unacceptable risk is one capable of being characterised as:

We consider that where there is only a small risk that the Chapter II prohibition will be infringed no question of exemplary damages should arise. In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 390, Lord Nicholls considered the sometimes difficult question of a company carrying out a transaction for someone whilst nevertheless being aware of a risk that the transaction is unauthorised:

We consider this appreciation that matters are rarely black-and-white to be a particularly helpful insight. Applying it analogously, in the context of infringements of the Chapter II prohibition, an undertaking may be aware that its proposed conduct is (i) clearly lawful, (ii) probably lawful, (iii) possibly lawful, (iv) wholly unclear, (v) probably unlawful or (vi) clearly unlawful.

We consider that it will only be in those cases where an undertaking is aware that its proposed conduct is either probably unlawful or clearly unlawful that a risk can be classed as "unacceptable". Whether the risk is, in fact, "unacceptable" will in addition depend upon all the facts of the case, including (for example):

Punishment in parallel

In Devenish , Lewison J held (at [48]) that "the imposition of fines and an award of exemplary damages serve the same aim: namely to punish and deter anti-competitive behaviour". He also held that "the principle of non bis in idem [trans: not twice for the same thing] precludes the award of exemplary damages in a case in which the defendants have already been fined (or had fines imposed and then reduced or commuted) by the commission".

That was a case where some of the defendants, against whom exemplary damages were sought, had had their fines commuted to zero as a result of the application of a leniency notice. It was contended that these companies – at least – had not been sanctioned for the unlawful conduct at all, and that exemplary damages should, at least, be imposed here. Lewison J rejected this submission (at [51]):

In the present case, the OFT found that Cardiff Bus had infringed the Chapter II prohibition. It was open to the OFT to fine Cardiff Bus in accordance with section 36(2) of the 1998 Act. However, as is noted in the OFT Decision:

The questions of policy arising in this case are thus very different from those arising in Devenish . In Devenish , the Commission had found facts sufficient to bring the case within Lord Devlin's second category, but because the defendants in question were whistleblowers, and so benefited from leniency, the Commission commuted the punishment it would otherwise have imposed, and Lewison J (rightly in our view, given the importance of whistleblowing, both from the policy perspective of deterring cartels and from a practical perspective of uncovering cartels) declined to impose a penalty that would discourage whistleblowing.

Here, there was no question of whistleblowing. The OFT did not make any findings bringing Cardiff Bus within Lord Devlin's second category and simply stated that it did not propose to withdraw the immunity in this case (paragraph 8.7 of the OFT Decision). It is not for us to speculate what the OFT would have done in light of the evidence we have heard, but we do note that the small undertaking immunity can only be disapplied where section 40(4) applies, and it is by no means clear whether – even if the OFT had found this to be a case within Lord Devlin's second category – it could have withdrawn the immunity and applied a penalty to Cardiff Bus.

Were we to find facts sufficient to bring this case within Lord Devlin's second category, then we can see no reason of policy why, in the present case, exemplary damages should not be imposed. Whilst we accept that in the general scheme of competition enforcement, punishment and deterrence are matters for the public authorities, this does not preclude an award of exemplary damages under section 47A in an appropriate case. Clearly, the 1998 Act has a policy of conferring a limited immunity from penalties on small undertakings. However, this policy operates in a context where the OFT is not considering, as this Tribunal is, the specific harm caused by infringing conduct to a specific claimant. No-one would suggest that – where a small undertaking has caused loss or damage to such a claimant – an award of damages should not follow. The proposition only has to be stated, to be rejected. Equally, if such a small undertaking were to have behaved in so outrageous a manner as to trigger an award of exemplary damages, we fail to see why (as a matter of policy) such an undertaking should be immune. Section 47A of the 1998 Act applies to "any claim for damages" or "any other claim for a sum of money" which "a person who has suffered loss or damage as a result of the infringement of a relevant provision may make in civil proceedings brought in any part of the United Kingdom": section 47A(1). Section 47A does not specify the rules by which the Tribunal is to determine what loss or damage has been sustained by a claimant, but it is obvious that, in a claim made in England and Wales, that claim is governed by the law of England and Wales. That law allows for the recovery of exemplary damages in the limited cases we have described. If a claimant advances a well-founded claim to exemplary damages, then we consider that such a claim cannot be rejected simply because (in an altogether different sphere) the defendant would have had an immunity from a penalty because it was a small undertaking. If the limits on the OFT's ability to fine were intended by Parliament to have been read across to section 47A, then we consider that that section would have been very differently worded.

Cardiff Bus advanced other policy reasons as to why exemplary damages were inappropriate in this case. It is convenient to deal with these points here. Cardiff Bus contended that exemplary damages were inappropriate in this case because of:

Whether this is a case within Lord Devlin's second category is a question to which we now turn. We begin with a consideration of the facts.

(iii) The facts

Prior alleged anti-competitive behaviour on the part of Cardiff Bus

It was 2 Travel's contention that the anti-competitive behaviour that the OFT has found existed in Cardiff Bus's conduct towards 2 Travel in 2004 and 2005 also manifested itself in Cardiff Bus's conduct prior to 2 Travel's entry into the Cardiff market. In particular, 2 Travel alleged that another company, Cardiff Bluebird Limited, which operated in Cardiff between 1993 and 1996, was driven from the market by anti-competitive practices on the part of Cardiff Bus; and, in 1998, a firm trading under the name of Alister's Coaches was similarly driven from the market.

Both these episodes pre-date 2 Travel's entry into the Cardiff market, and so cannot possibly be relevant to 2 Travel's section 47A claim against Cardiff Bus, except to the extent that these episodes shed light on an "anti-competitive" intention or "similar fact" conduct on the part of Cardiff Bus relevant to 2 Travel's claim for exemplary damages.

We derive no assistance from these episodes and we leave them out of account for these reasons:

Cardiff Bus's preparations for competition from 2 Travel

Well before the 2 Travel In-Fill Service began on 19 April 2004, Cardiff Bus took steps to ensure that (if necessary) it would be in a position to commence its own, rival, operation at the same time. Thus, Cardiff Bus's board minutes for a meeting on 9 September 2003 (at which both Mr Kreppel and Mr Brown were present) record at Item 768(iv):

In January 2004, Mr Brown was paying close attention to the accounts and financial position of 2 Travel (see his email to Ms Price of First Group, dated 14 January 2004).

In February 2004, when 2 Travel had registered its new Cardiff routes, Cardiff Bus considered them with some care (email dated 25 February 2004). This email, written by Mr Heath, noted the advantage of registering routes as "frequent" services:

At about this time, Cardiff Bus began internal advertising for drivers. We were shown two forms of staff notice, the first of which stated :

On 31 March 2004, Mr Heath had noticed that 2 Travel were revising their services in Neath, and wrote "[f]or obvious reasons we are now interested to know what they are doing!".

Legal advice obtained by Cardiff Bus

On 3 March 2004, Mr Kreppel wrote to Mr Peter Woodhouse of the firm of solicitors Bond Pearce. The letter stated:

The proposed article itself stated:

Mr David Harrison (also of Bond Pearce and not Mr Woodhouse) responded in an email dated 8 March 2004. This email stated:

This letter was followed up by a telephone call by Mr Harrison to Mr Kreppel, which was recorded in an attendance note kept by Mr Woodhouse. This recorded:

The case summary was sent to Cardiff Bus under cover of a letter the same day. This letter must have been seen by Mr Kreppel – as it was addressed to him – but also was probably seen by Mr Brown, Mr Kreppel's successor, as the letter has (in manuscript) his initials on it, and they are crossed out in a manner that suggests the letter was seen by him.

There are several things to note about this response from Bond Pearce:

There was a further email from Mr Harrison regarding the press release on 12 March 2004, which stated that "I don't think the press release creates any problems from a competition law point of view. You have, I think wisely, not raised anything threatening retaliation." The email went on to consider the risk of an action in defamation based upon what was said in the article. Mr Kreppel – to whom this email was addressed – forwarded it to Mr Brown, with the comment "I suggest we go for it", to which Mr Brown responded "I agree!".

Again, it is worth noting that Mr Harrison was – en passant – making the point that retaliatory behaviour was something that might bring Cardiff Bus closer to a competition law infringement.

In fact, this press release was not used. An email from Mr Brown dated 13 April 2004 makes clear that:

Board meeting of Cardiff Bus on 9 March 2004

On 9 March 2004, there was a meeting of the Cardiff Bus board.

It is clear from the documents before us and Mr Brown's evidence that board meetings had a formal agenda, and that documents were circulated beforehand in a "pack". These documents would typically comprise the minutes of the previous meeting and reports from (amongst others) the finance and administration director (Mr Brown) and the managing director (Mr Kreppel).

On this occasion, the managing director's report (Board Working Paper No. 405) noted at Item 4, under "Competition":

The meeting of 9 March 2004 was itself minuted, and the minutes record that (amongst others) both Mr Kreppel and Mr Brown were present. Item 789 (the items in the minutes are numbered sequentially) recorded the fact that Mr Brown had been appointed to succeed Mr Kreppel as managing director.

Mr Brown then gave his report (minuted at Item 790), followed by Mr Kreppel (minuted at Item 791). Item 791 records:

Meeting of Cardiff Bus management on 16 March 2004

On 16 March 2004, various meetings took place between Cardiff Bus's senior management. There was a "Project Group Leaders Meeting" – which involved Mr Kreppel, Mr Brown and Mr Heath, amongst others – at 9am; a "Senior Management Meeting" at 10am; and a "Full Management Team Meeting" at 12pm. Unfortunately, although this meeting appears to have been minuted, the minutes have not survived. (We should note that the document in the trial bundles, which on the face of it looks like notes of the meeting, actually are of a meeting a year later.) An agenda has, however, survived and it records that Mr Kreppel addressed both the Senior Management Meeting and the Full Management Team Meeting on the subject of "Competition".

Cardiff Bus's "Competition Policy" dated 24 March 2004

At about this time, Cardiff Bus produced a "Strictly Private & Confidential" Competition Policy document.

The Cardiff Bus board meeting on 26 March 2004

As agreed at the 9 March 2004 Cardiff Bus board meeting, a further meeting of the board took place on 26 March 2004. Again, this was minuted. (One can see from the Item numbers, that there was no board meeting between this meeting and the earlier, 9 March 2004, meeting.) Mr Kreppel and Mr Brown were both recorded as being present.

Item 795 records that the meeting agreed to "consider the plan on a section by section basis", and for the most part the discussion at the meeting is recorded in some considerable detail.

As regards Section 2 of the Business Plan ("Business Plan Criteria") the minutes record that:

This is all that the minutes say about the so-called "competitive services" about to be operated by Cardiff Bus. The Business Plan itself, which was dated March 2004, says nothing about the "competitive services".

Mr Brown succeeds Mr Kreppel as managing director of Cardiff Bus

On 1 April 2004, Mr Brown was appointed managing director designate in succession to Mr Kreppel. There was then a two month handover period, until Mr Kreppel left the company on 31 May 2004, whereupon Mr Brown became managing director proper.

Prior to this, Mr Brown had acted as Cardiff Bus's finance director, a role which was taken over by Ms Cynthia Ogbonna in September 2004.

Shortly after his appointment, on 13 April 2004, Mr Brown wrote to a Mr Godsell, AMICUS Regional Officer. Most of the letter is irrelevant for present purposes, but one paragraph is worth quoting:

Steps taken in preparation for the commencement of "competitive services"

In early April 2004, Cardiff Bus told drivers who had applied for work on "Competitive Passenger Routes" that their applications had been successful (see, e.g. the letter to Mr Roberts dated 5 April 2004). Also, on 6 April 2004, Mr Kreppel wrote to inform a Mr Davidson that he would be working with the new managing director, Mr Brown, commencing 7 June 2004. The letter stated:

In addition to recruitment, Cardiff Bus notified the Welsh Traffic Area Office of the new services it would be operating. In a letter dated 16 April 2004, Mr Heath stated:

Bond Pearce's email of 13 April 2004

On 13 April 2004, Mr Harrison emailed Mr Kreppel:

Ms Kemp, the PA to the directors, responded to say that Mr Kreppel was in Australia until 4 May 2004. It is therefore no surprise that Mr Harrison's next email – dated 29 April 2004 (see paragraph 541 below) – should have been sent to Ms Kemp.

The "Competitive Services Guidelines"

On 15 April 2004, Mr Heath circulated by email to (amongst others, Mr Kreppel and Mr Brown) "guidelines for the operation of the competitive services being introduced in response to 2 Travel operations". The email stressed that "[y]ou may wish to discuss aspects of these with your staff, but it is important to remember that this information is commercially sensitive and must not be divulged to persons outside Cardiff Bus".

The "Competitive Services – Guidelines" identified the routes for the competitive services, and the fares that would initially apply. However, the guidelines went on to say:

Separate driver notes – "Competitive Services – Driver Notes" – and supervisor notes – "Competitive Services – Supervisor Notes" – were also issued.

Mr Brown's concern with the press

On 16 April 2004, Mr Brown emailed regarding inquiries likely to come from a Mr Nifield of "The Echo":

Cardiff Bus's monitoring of 2 Travel's services and reactions to it

It is clear that Cardiff Bus intended to monitor 2 Travel's services extremely closely. The Guidelines referred to at paragraph 535 above stated that "Each 2 Travel departure must be observed and time, passenger load on departure, vehicle registration number, and (if known) driver's name recorded on the log sheet. Any departures not operating must be logged. Any observations of irregular operation, unfit vehicles (including vehicles not displaying an O licence) must be recorded". This is what in fact occurred, as the log sheets in the documents before us demonstrated. It is also clear that Cardiff Bus intended to adjust its prices according to 2 Travel's prices.

What is more, when it became clear that 2 Travel was not operating its fifth service – "2 Travel Route No 258" between Pentwyn and Cardiff City Centre – Cardiff Bus scaled back its own operations on this route. On 22 April 2004, Mr Heath emailed Mr Dexter and Mr Cole to say:

Mr Dexter responded:

Bond Pearce's email of 29 April 2004

On 29 April 2004, Mr Harrison emailed Ms Kemp:

Mr Brown's email of 30 April 2004

It is evident that Mr Brown saw this email, for on 30 April 2004 he emailed Mr Harrison to say:

Bond Pearce's email of 30 April 2004

On 30 April 3004, Mr Harrison emailed Mr Brown in the following terms:

Again, it is clear that Mr Brown saw and read this email. On 4 May 2004, he emailed a response: "Many thanks. I look forward to seeing the details when they become available."

Cardiff Bus board meeting of 4 May 2004

The next board meeting of Cardiff Bus was on 4 May 2004. A managing director's report was produced for this meeting. This was written by Mr Brown, as is evident from the opening words under Section 10, "New Management Structure", which read: "Following my appointment as Managing Director (Designate) I met with…".

The report stated:

The minutes of the meeting itself – which both Mr Kreppel and Mr Brown attended – recorded:

On 10 May 2004, Mr Brown wrote to Mr Woodhouse regarding 2 Travel:

Debate regarding operation of the Cardiff Bus White Service

On 24 May 2004, Mr Kreppel emailed various persons in Cardiff Bus – including Mr Brown – regarding the operation of the Cardiff Bus White Service:

Mr Brown responded:

On 25 May 2004, the issue cropped up again, this time from the drivers' union representative, expressing concern that the rules according to which drivers were operating were constantly changing. An email to Mr Dexter copied to Mr Kreppel and Mr Brown stated:

Mr Kreppel did not respond, but made his views known in an email to Mr Brown and Mr Dexter:

It was Mr Brown who responded to the TGWU later on the same day:

Although this email exchange does show a difference between Mr Kreppel and Mr Brown – which Mr Brown stressed in his evidence to us (see, e.g. Transcript Day 7, pages 73 to 74) – it is important not to overstate this difference. Part of Cardiff Bus's strategy against 2 Travel was to identify and highlight to the appropriate authorities technical legal shortcomings in 2 Travel's services: this was one of the reasons why Cardiff Bus devoted considerable resource to monitoring 2 Travel's operations (see, e.g. paragraph 538 above; Transcript Day 7, page 114). Of course, the price of such a strategy is that the accuser has to be "whiter than white" and that, we consider, is the thrust of what Mr Brown is saying in his email to the TGWU.

What Mr Brown was not saying was that Cardiff Bus was averse to running buses just ahead of 2 Travel's buses: it is just that he – unlike Mr Kreppel – wanted to alter the pad timings first, whereas Mr Kreppel would have let the White Service operate on a more ad hoc basis. In this regard, we note that it was Cardiff Bus's policy – as stated in the "Competition Policy" document described in paragraph 522 above – that "[w]hen the competitor departs from scheduled time our times will vary to remain in front of the competitor's vehicle".

Mr Harrison's email of 9 June 2004

On 9 June 2004, Mr Harrison emailed Mr Brown:

Again, this is a document which Mr Brown received, for he responded ("Many thanks for the information. I will get back to you if we need to follow up on this") on 9 June 2004.

(iv) Analysis

Cardiff Bus's intention

It is obviously the case that Cardiff Bus intended to operate the White Services. Cardiff Bus's decision to implement its White Services was, in this very limited sense, a deliberate one. It required careful and detailed planning, the recruitment of staff, and the retention of buses, all over a considerable period of time. It involved significant expenditure.

That sort of intention – an intention to do something subsequently found to be anti-competitive – will be common in most, if not all, infringements of the Chapter II prohibition. Establishing an intention of this sort is no more than a necessary, and certainly not a sufficient, condition for the imposition of exemplary damages.

The key question is whether Cardiff Bus knew that this conduct was unlawful in the sense we have described at paragraphs 489 to 490 above i.e. did Cardiff Bus know that its "competitive services" either were probably unlawful or clearly unlawful?

This requires the existence – at the time of the infringement – of a subjective state of mind. Since Cardiff Bus is a legal and not a natural person, the first question that arises is whose knowledge, within Cardiff Bus, is to be attributed to the organisation? The next question is then as to the nature of that knowledge.

Whose knowledge is attributable?

In the case of a company, it is possible to attribute to that company the knowledge of one of its servants or agents. Although it is said that it is the knowledge of the person who is the company's "directing mind and will" that is attributed, it is clear since the decision of the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 1 QB 716 that this is a dangerous over-simplification. Although both parties made submissions on the "directing mind" of Cardiff Bus, neither cited this fundamental authority, but it is appropriate to reference it. In Meridian , Lord Hoffmann made it clear that whether the knowledge of an agent/employee/servant of a company was to be attributed to that company for a particular purpose, depended upon the true interpretation of the substantive rule that was in play (at 506 to 507):

Whether a person's knowledge can be attributed is thus acutely dependent on context. In this case, as we have found, the day-to-day management and control of Cardiff Bus lay in the hands of the executive directors. It was they who initiated the Cardiff Bus White Service, and they who determined how those services should operate. They were responsible for the legality of the White Service operation. We have no doubt that Mr Kreppel and Mr Brown constituted the controlling mind of Cardiff Bus.

The extent of Mr Brown's involvement

In his first statement, Mr Brown states:

Mr Brown said the same in his oral testimony (Transcript Day 7, page 25):

Mr Kreppel was not called as a witness before us, although we do not understand it to have been impossible for him to give evidence before us. The only version of events that we heard came from Mr Brown himself.

We consider that Mr Brown consistently understated his involvement. As he acknowledged, he was present at a number of board meetings at which Cardiff Bus's "competitive response" was discussed or considered, in particular the board meetings of 9 September 2003 (paragraph 502 above), 9 March 2004 (paragraph 519 above), and 26 March 2004 (paragraph 523 above).

But that was not the full extent of Mr Brown's involvement. As we have noted, in January 2004, Mr Brown was paying attention to the accounts and financial position of 2 Travel (see paragraph 503 above), and it was Mr Brown, and not Mr Kreppel, that featured in the "Your Company Needs YOU" advertisements for drivers (see paragraph 505 above): it is difficult to imagine this occurring without Mr Brown's knowledge and participation. Equally, there is evidence that Mr Brown had at least some involvement in the exchanges between Mr Kreppel and Bond Pearce in March 2004 (see paragraph 511 above), and in the press release that Mr Kreppel was discussing with Bond Pearce (see paragraph 513 above). Mr Brown was also one of the attendees at all three meetings that took place on 16 March 2004 (see paragraph 521 above). The minutes of this meeting have not survived, but it is clear from the agenda that "Competition" was discussed. There is thus a good deal of documentary evidence suggesting significant involvement on the part of Mr Brown prior to 1 April 2004.

We also consider that the seamless way in which Mr Brown stepped into Mr Kreppel's shoes is strongly suggestive of his full participation on the White Service project before 1 April 2004. Thus, on 13 April 2004, Mr Brown was writing to AMICUS (see paragraph 529 above) making points about the potential deleterious effects of 2 Travel's competition on Cardiff Bus. Whilst there may have been an element of exaggeration in this letter – so as to procure a more co-operative response from AMICUS (Transcript, Day 6, pages 153-155 (evidence of Mr Brown)) – the fact remains that this letter shows a sure grip of Cardiff Bus's affairs, including the White Service.

What is more, it is clear that between (at least) 13 April 2004 and 4 May 2004, Mr Kreppel was in Australia (see paragraph 533 above), at the very time the White Service was being planned to commence. Who, it may be asked, was holding the reins at that time? The answer must be Mr Brown: and it is impossible to imagine that Mr Kreppel could leave the company for a period of weeks, at an important time for the White Service, without having a fully-briefed stand-in. That stand-in was Mr Brown.

At the board meeting of 4 May 2004, it was Mr Brown and not Mr Kreppel (who had, however, returned, and was in attendance at the meeting) who wrote the report briefing the board on "Competition" (see paragraph 546 above). This was perfectly natural: Mr Brown was managing director designate, and Mr Kreppel had been away for some weeks. But we find – in the report – Mr Brown telling the board that although 2 Travel had complained to both the Traffic Commissioner and the OFT about the Cardiff Bus White Service, "what has been alleged to be uncompetitive", "our view remains that our response is reasonable, appropriate and legal". This is Mr Brown's assurance to the board: and we consider that it shows him to have been fully involved in the planning and preparations for the White Service.

We reject altogether the suggestion that Cardiff Bus was so compartmentalised that Mr Brown could have been insulated from these preparations. Cardiff Bus in fact had few executive directors. After all, it was recognised that 2 Travel's competitive emergence in Cardiff, and Cardiff Bus's planned response, would likely make a significant difference to Cardiff Bus's financial position. Thus, for example, the board minutes for 9 March 2004 note that "the recent advent of competition had effectively invalidated the budget as it stood". Mr Brown was the finance and administration director: it is inconceivable that he was not fully involved in a matter having these financial and budgetary implications.

Equally, although there is no documentary evidence one way or the other, we do not accept that documents such as the 24 March 2004 "Competition Policy" (paragraph 522 above) and the "Competitive Service Guidelines" were written with no input at all from Mr Brown.

For these reasons, we reject as untruthful Mr Brown's evidence that he was not involved in the preparations for the Cardiff Bus White Service. We find that he was fully involved, together with Mr Kreppel (and others: notably Mr Heath), and that this involvement did not begin with his appointment as managing director or even managing director designate: he was in from the beginning.

Was there contemporaneous knowledge of unlawfulness?

In considering this question, we must be careful to avoid taking advantage of the benefit of hindsight. We now know – because the OFT Decision tells us so – that Cardiff Bus's conduct was unlawful. But that says nothing about Cardiff Bus's state of mind at the time it decided to begin its competitive services.

Equally, we cannot attach any weight to the fact that Cardiff Bus has now accepted the findings of the OFT, and accepted that it was acting with exclusionary intent. In doing so, Cardiff Bus is simply accepting the inevitable implications of the findings in the OFT Decision. But that says nothing about Cardiff Bus's contemporaneous state of mind.

Until it accepted the implications of the OFT Decision (which occurred, at the earliest, when Cardiff Bus decided not to appeal that decision), Cardiff Bus contended that the reason it introduced the White Service was because it was testing the market to see if there was demand for a "no frills" service. Thus, in response to inquiries from Mr Nifield of The Echo, Mr Brown crafted the following press release:

Until the OFT Decision was published, Cardiff Bus continued to assert that it was "market-testing the no-frills concept, having been alerted to the possibility that it might be a viable business model by 2 Travel's entry" (paragraph 7.35 of the OFT Decision).

Mr Brown said much the same before us. His evidence was that whilst Cardiff Bus now accepted that it had acted with exclusionary intent, at the time its intention was simply to compete with 2 Travel in the "no-frills" market (Transcript Day 7, pages 52 to 54):

Similarly, at Transcript Day 7, page 51:

Thus, it was Mr Brown's position that Cardiff Bus simply wanted to offer an alternative service to its Liveried Services, a no-frills service, and that this decision was prompted by 2 Travel's arrival in the Cardiff market. Clearly, if it was Cardiff Bus's intention simply to operate a "differentiated" no-frills service, then it would appear to be unlikely that Cardiff Bus knew that its conduct was probably unlawful or clearly unlawful.

Having seen the evidence, we reject this description of Cardiff Bus's intention (i.e. that the reason it introduced the White Service was because it was testing the market to see if there was demand for a "no frills" service) as untrue. At times Mr Brown's evidence was more controlled and evasive than frank, and it was particularly so on this point. Although Cardiff Bus consistently told outsiders questioning the rationale for the White Service – both at the time, and thereafter – that Cardiff Bus's decision to implement the White Services was taken because it considered it desirable, for Cardiff Bus, to provide these alternative services, this was not the truth. Cardiff Bus implemented the White Services for no reason other than to exclude 2 Travel from the Cardiff market. Cardiff Bus's intent – and the conduct that resulted from it – was retaliatory for precisely that reason: until 2 Travel entered the market, there was nothing for Cardiff Bus to counter. When 2 Travel had entered the market, the objective was to make the company leave as quickly as possible, and the White Service was the weapon that Cardiff Bus fashioned to achieve that end. The evidence in this regard is overwhelming:

There is something inherently repugnant in a service being commenced by a dominant undertaking for the sole reason of excluding another. We do not go so far as to say that it was Cardiff Bus's intention to drive 2 Travel out of business: that was, we consider, a matter of indifference to Cardiff Bus. But, it was Cardiff Bus's intention to exclude 2 Travel from the Cardiff market. On 21 July 2004, Mr Cole, the assistant operations manager at Cardiff Bus, wrote this email:

Mr Brown was asked about this email by Mr Bowsher (Transcript Day 6, page 158):

It follows that Cardiff Bus's description of its intention to test the market was no more than a deliberate smoke-screen, designed to make palatable to the outside world extremely unpalatable conduct. They were, not to put too fine a point on it, lies. From this conclusion follows the clear inference that Cardiff Bus knew that it was doing something illegal.

This subjective awareness is demonstrated by two other aspects of Cardiff Bus's conduct, which are otherwise hard to understand. First, there is Cardiff Bus's failure to take legal advice as regards its White Services. Cardiff Bus was not slow to avail itself of legal advice when it felt that such advice was needed. The Bond Pearce time sheets we have seen demonstrate very clearly that, for example, on employment and transport questions, Cardiff Bus regularly sought legal advice. Closer to the launch of the White Services, Mr Kreppel took legal advice regarding the article it was proposed to publish about 2 Travel.

But no-one – neither Mr Kreppel, nor Mr Brown – sought legal advice in relation to the legality of the White Service itself. In any case where there is doubt about the legality of a particular course of conduct, the solution is to articulate precisely what that conduct is, and to seek legal advice in relation to that conduct. Here, one would have expected Mr Kreppel and Mr Brown to have laid before Cardiff Bus's solicitors exactly what was intended: showing the solicitors the "Competition Policy" and the "Competitive Services Guidelines" would have been a very good start. Certainly, one would expect them to have done so before informing the company's board that their proposed course of conduct complied with competition law (see paragraphs 520, 525 and 546 above).

We know – both because of Mr Brown's evidence (see, for example, paragraph 96 of Mr Brown's first statement; [9] Transcript Day 7, pages 30 and 33), and the exhaustive manner in which Mr Bowsher, quite properly, explored what legal advice Cardiff Bus did receive – that Cardiff Bus neither sought nor obtained legal advice specifically directed to the legality (or otherwise) of the White Service. The Bond Pearce time-sheets – which Cardiff Bus eventually disclosed – are clear on this point. The "advice" which Cardiff Bus received, was limited to the communications described in paragraphs 507 to 511 (which arose out of Mr Kreppel's request that the draft article for Cardiff Bus's in-house magazine be reviewed for defamation purposes), 532 to 533 (where Mr Harrison was simply asking if "all is well"), 541 to 544 (where Mr Brown was supplied with details, and a copy, of the Lothian decision). Granted, these communications related to competition law (and Mr Brown was cross-examined extensively about them on Day 10), but they in no way amounted to legal advice in relation to the legality of the White Service itself.

A failure to seek legal advice on a particular proposed course of action is suggestive of one of three states of mind:

We consider that this case involves the last of these three states of mind. We consider that both Mr Kreppel and Mr Brown deliberately failed to put the matter of the Cardiff Bus White Service before Cardiff Bus's lawyers, because they knew what the answer would be, and were minded to commence the White Service no matter what. We have reached this conclusion for the following reasons:

Finally, there is the curiously stilted, undetailed and euphemistic manner in which the "competitive services" are discussed within Cardiff Bus. In general, Cardiff Bus's minutes are quite full and provide a fairly detailed picture of discussions. That is not so as regards the "competitive services". Equally, the rather detailed business plan – which was considered at the 24 March 2004 board meeting (see paragraph 523 above) – contains no reference, not even a mention, of the White Service. The inference that we draw is that Cardiff Bus was concerned to avoid an excessive paper trail as regards the White Services.

(v) Conclusion

We find that Cardiff Bus's behaviour is only consistent with that of an organisation that had deliberately decided to disregard the law, and that this conduct was done in cynical disregard of 2 Travel's rights. Inevitably, this involves rejecting much of the evidence given by Mr Brown as untrue (in particular as regards the extent of his involvement in the development and operation of the White Service, and in his appreciation of why Cardiff Bus decided to begin operating this service), and that is the conclusion we have reached.

There were no pro-competitive effects to Cardiff Bus's conduct, serious anti-competitive effects, and there was an exclusionary intent. We find that Cardiff Bus acted in knowing disregard of an appreciated and unacceptable risk that the Chapter II prohibition was either probably or clearly being breached or it deliberately closed its mind to that risk. We find that this (at least) reckless state of mind was held by both Mr Kreppel and Mr Brown.

As we noted in paragraphs 448 to 450, an award of exemplary damages should be made cautiously, where compensation is inadequate to punish the defendant for his outrageous conduct. This is a case where Cardiff Bus's conduct has been outrageous and where, absent an award of exemplary damages, a compensatory award would be insufficient. We consider that this is a case clearly falling within Lord Devlin's second category where it is appropriate to award exemplary damages.

For the reasons we have given in paragraphs 491 to 496 above, we hold that there are no reasons of policy why exemplary damages may not be awarded in this case. Cardiff Bus urged us to measure any award of exemplary damages by reference to the sort of penalty that the OFT has jurisdiction to impose for breaches of the Chapter II prohibition. We decline to assess the level of exemplary damages in this way: the OFT has a statutory jurisdiction to punish and deter in this way, and although exemplary damages also have as their object punishment and deterrence (see paragraph 448 above), our jurisdiction derives from section 47A of the 1998 Act and the line of cases beginning with Rookes v Barnard . We are also very conscious that – contrary to fines imposed by the OFT – exemplary damages are paid to the claimant. We consider that:

Having regard to these factors, we award exemplary damages to 2 Travel in the amount of £60,000. We do not consider it appropriate to make any award of interest on this sum. An award of interest is intended to compensate a claimant from being kept out of his money, and is obviously appropriate in the case of compensatory damages, and not exemplary damages.

We are under no illusions but that this Judgment is likely to incentivise the bringing of claims for exemplary damages in competition cases. That is a matter for future Tribunals. We would only emphasise that the mere fact that an infringement of the competition rules has been found is insufficient to justify the pleading of such a claim. In any case where exemplary damages are sought, it will be necessary to plead, and to plead with specificity, facts and matters alleging that the competition law infringement in question was executed either intentionally in breach of the law or recklessly so as to be regarded as sufficiently outrageous as to fall within Lord Devlin's second category. Otherwise, we consider, the claim will fall to be struck out.

XVI. CONCLUSIONS

For the reasons we have given in this Judgment:

The effect of this Judgment will be set out in a formal order, once the parties have assisted us on the correct calculation of interest.

Finally, the Chairman and Mr Freeman wish to acknowledge the leading part played by our colleague Mr Smith in the drafting of this Judgment, which is unanimous.

Note 1 Annex 1 to this Judgment lists the various terms defined in the Judgment, and identifies the paragraph in the Judgment in which the term is first used. [Back]

Note 2 We prefer the term “immediate” to “short-term”, simply because “short-term” can mean that the effect was short-lived. This was not 2 Travel’s case: 2 Travel contended that these effects followed quite quickly from the Infringement. Although “immediate” is, perhaps, an over-emphatic term, we consider it best captures the case that 2 Travel put forward. [Back]

Note 3 This case was not cited to us by either of the parties, although the substance of Lord Goff’s observation was raised with both parties during the course of oral closing submissions. During the course of this Judgment, we cite a number of other cases which were not cited by the parties to the Tribunal. These cases reflect points that were fully debated before the Tribunal, and do not give rise to new points or matters which, in fairness to the parties, they ought to be called upon to address. We did not, therefore, consider it necessary to invite further submissions from the parties on any of these cases. [Back]

Note 4 In dealing with 2 Travel’s financial issues, the Commissioner heard evidence in camera . However, we have seen the entire transcript of the proceedings. [Back]

Note 5 The Option contained provisions relating to other land close to the Swansea Depot. Although, therefore, the term “Swansea Depot” is a little inapt, nothing turns on this, and we continue to use the term for ease of reference. [Back]

Note 6 The periods used by Cardiff Bus did not precisely correlate to months, but did so as nearly as possible. Thus, for instance, the figures for April 2004 were in fact for the period 1 April 2004 to 2 May 2004 and the figures for July 2004 were in fact for the period 27 June 2004 to 1 August 2004. We consider that nothing turns on this, and have (for simplicity’s sake) referenced the month. [Back]

Note 7 Note that this extension to the circumstances in which exemplary damages could be awarded was limited by the Supreme Court in Lumba where at [165] Lord Dyson pointed out that the role of exemplary damages is to punish the commission of the underlying tort and not the subsequent conduct of the litigation as any disapproval of the conduct of the litigation can be marked by an appropriate order for costs or by an increased award of (compensatory) aggravated damages (citing Thompson v Comr of Police of the Metropolis [1998] QB 498 , 517D, per Lord Woolf MR). [Back]

Note 8 We are satisfied that, by the conclusion of the trial, we had seen all of the privileged communications between Cardiff Bus and its lawyers as regards the White Service. Privilege in these communications was waived by Cardiff Bus. It is worth noting that this material would not have been available to the OFT. [Back]

Note 9 In this paragraph, Mr Brown states: “I can confirm that Cardiff Bus did not seek or obtain any legal advice in respect of the launch and running of the White Services”. That paragraph was corrected by Mr Brown’s third statement, where Mr Brown makes clear that Cardiff Bus did, in fact, obtain “limited legal advice before the commencement of the White Services”. We have described that limited legal advice fully in this Judgment, but the fact remains that Mr Brown’s first statement remains correct as regards legal advice specifically directed to the legality of the Cardiff Bus White Service. [Back]