The European Court of Justice (ECJ) has decided in Crehan v Courage Ltd and others that an 'innocent' party to an anti-competitive agreement is entitled to recover damages from the other party to the agreement.

Under English law, parties cannot claim damages under illegal agreements, even when they were not responsible for the illegality.

In the context of English competition law, this meant there was an absolute bar against recovery of damages by parties to anti-competitive -- and therefore illegal -- agreements.The ECJ has disapplied the English rule where the illegal agreement is an anti-competitive agreement.

The court has decided that parties to anti-competitive agreements are now able to claim damages in line with US anti-trust law in circumstances where the claimant was not significantly responsible for the distortion of competition.Facts of the caseMr Crehan -- and several hundred other Inntrepreneur tenants whose cases are stayed behind the test case -- is alleging that the beer tie in his lease is in breach of article 81 of the EC treaty.

Article 81 prohibits agreements which have 'as their object or effect the prevention, restriction or distortion of competition within the common market'.In 1990, Courage, a brewery holding a 19% share of the UK beer market, and Grand Metropolitan agreed to merge their leased public houses.

Their respective pubs were transferred to Inntrepreneur Estates, which was owned in equal shares by Courage and Grand Met.

The Inntrepreneur tenants were obliged to buy their beer exclusively from Courage.Mr Crehan and the other tenants contend that Courage sold its beers to independent publicans at substantially lower prices than those in the price list imposed on the tied Inntrepreneur tenants.

They argue that the price difference reduced their profitability and drove many of them out of business.The main issuesEnglish law does not allow a party to an illegal agreement to claim damages from the other party (Tinsley v Milligan [1994] 1 AC 340).

Moreover, the Court of Appeal had held in a previous case concerning beer ties (Gibbs Mew [1998] EuLR 588) that article 81 was intended to protect third parties and not the parties to the prohibited agreement.

The Court of Appeal considered that the parties were the cause, not the victims, of the restriction of competition.The English courts' approach differed from that of the US courts.

The US Supreme Court has held that, where a party to an anti-competitive agreement is 'innocent' -- for example, where he is in an economically weaker position -- he may sue the other contracting party for damages (Perma Life Mufflers Inc v International Parts Corp 392 US 134 (1986)).The questions on which a preliminary ruling from the ECJ was sought were (in broad terms):-- Can a party to an anti-competitive agreement obtain relief from the other contracting party?-- If so, are damages recoverable?-- If damages are recoverable, what factors should be taken into consideration in assessing whether to award damages?The ECJ's rulingThe first point that the ECJ made was that the EC treaty applies not only to member states, but also their nationals.

Community law is intended to give rights to individuals 'which become part of their legal assets'.

Secondly, article 81 is essential to the accomplishment of the tasks entrusted to the community, particularly relating to the functioning of the internal market.

This is the reason why the EC treaty provides expressly that any agreements or decisions prohibited by article 81 are automatically void.

Thirdly, as previously held by the ECJ, article 81 (and article 82) produces direct effects in relations between individuals and creates rights for the individuals concerned which the national courts must safeguard.

The ECJ decided for these reasons that any individual has rights under article 81 even when he is a party to the anti-competitive agreement.DamagesNational courts must ensure that community law takes full effect and must protect the rights which such law confers on individuals.

The ECJ found that the full effectiveness of the competition provisions of the EC treaty would be put at risk if it were not open to any individual to claim damages for loss caused to him by anti-competitive agreements or conduct.The existence of such a right strengthens the working of the community competition rules and discourages anti-competitive agreements or practices.

The ECJ considered that actions for damages before the national courts could make a significant contribution to the maintenance of effective competition in the EU.

The ECJ decided that there should not be any absolute bar to a claim for damages by a party to an agreement which had been held to violate the competition rules.

Previous English law on this point has therefore been wrongly decided.Merits of damages claimThe ECJ decided that community law does not preclude national law from denying a party who was found to bear significant responsibility for the distortion of competition the right to obtain damages from the other contracting party.

A litigant should not profit from his own unlawful conduct, where this is proven.

The converse to this is that, if the party does not bear significant responsibility, he is entitled to recover damages.The matters to be taken into account by the national courts in assessing the merits of a claim for damages include the economic and legal context in which the parties find themselves and the respective bargaining power and conduct of the two parties to the contract.The ECJ agreed with the European Commission and the UK government -- both having intervened in the case -- that an agreement might prove to be in breach of article 81 for the sole reason that it is part of a network of similar contracts which have a cumulative effect on competition.

In such a case, the ECJ held that the party contracting with the person controlling the network cannot bear significant responsibility for the breach of article 81, particularly where in practice the terms of the agreement were imposed on him by the party controlling the network.The ECJ's decision will, at the very least, impact on all cases where there are anti-competitive agreements.

Parties to anti-competitive agreements will now be entitled to recover damages from the other party in circumstances where they were not significantly responsible for the distortion of competition.

This will be so whether the claim is made under EC law or under the Competition Act 1988 since the UK Act is required to be consistent with the equivalent EC law.The case may also have wider implications by further weakening the rule under English contract law which automatically prevents a party to an illegal agreement claiming damages under that agreement.