The principle of nullity prevents parties from enforcing a contract that amounts to a breach of competition law. This is consistent with general principle in contract law, that where a contract cannot be performed without engaging in something illegal, it is void. In many jurisdictions, nullity is explicitly set out in the prohibition of anti-competitive agreements and applies regardless of whether the competition authority has delivered a prior decision relating to that agreement. For example, Article 101(2) TFEU states, ‘Any agreements or decisions prohibited pursuant to this Article shall be automatically void’. In the EU case of Courage v Crehan, the Court of Justice of the European Union established that any contracting party can invoke nullity in relation to a contract that breaches Article 101(1) TFEU. Nullity brought about by a breach of competition law does not necessarily render the contract void in its entirety. In Société Technique Minière it was held that nullity affects only the clauses in the agreement that are prohibited. The contract will only therefore be void as a whole if the remaining terms cannot be executed without the prohibited clauses, or if the two sets of terms are not severable.
This is generally the approach in competition law regimes around the world. The principle of severance is considered important because it means that an illegality affecting only a small or secondary obligation within the contract, does not result in the uncertainty and cost of complete contractual voidness. In Australia, severability is set out in the Competition and Consumer Act, s.4L, which requires remaining terms to be valid and enforceable to the greatest extent possible. This goes further than the common law severance principles that would otherwise apply and which simply permit severance.
How the principle of severability works in practice varies considerably between jurisdictions and is a question for national courts within the EU. Courts must decide, not only whether any parts of the agreement can be saved, but also any effect on closely related contracts that do not fall foul of competition law but whose function relies on the prohibited clauses (e.g. contracts between a business and its customers). Lamadrid de Pablo and L Oritz Blanco’s study Nullity/Voidness, found substantial divergence in how national courts within the EU implement severability, due to diverging approaches and the discretion enjoyed by the courts.
For example, UK courts tend to be quite permissive of severing remaining terms. In the case of Passmore v Morland (1999) it was held that nullity of contract under competition law was a transient principle, meaning that where a contract breached competition law when it was created but no longer does so (in this case, because a new landlord’s operations had no effect on trade within the EU), the contract was held to be valid and enforceable. Contrast this with the German Civil Code, s.139, which provides for a presumption of complete nullity, unless the parties would have agreed to the contract without the prohibited clauses. The courts in the Netherlands also take a conservative approach when the anticompetitive clauses are core to the overall agreement.
When it comes to contracts that are related to the anti-competitive conduct but do not amount to an infringement in themselves, courts will generally not interfere without good justification. In US Antitrust Law, for example, there is a reluctance to allow businesses to use the Sherman Act as a shield against contractual obligations, where they cannot be said to enforce the violation of the Act itself. Thus, in Kelly v Kosuga (1959), a completed purchase for 50 cars of onions between two parties to a cartel was not ruled null and void, despite the transaction being an instrument of a conspiracy to suppress their supply and drive-up prices. The court’s rationale for this approach was that the transaction amounted to “a completed sale of onions at a fair price”, that the contract itself did not breach the Sherman Act and that nullifying the agreement could encourage opportunistic behaviour that could allow parties to get “other people’s property for nothing when they purport to be buying it”.
Nullity can have a similar effect in relation to abuse of dominance, for example in rendering null and void terms that have an exclusionary effect, or in relation to an essential facility. However, it is not explicitly set out in prohibitions like Article 102 TFEU and its effect is not generally automatic, but will arise as part of a decision of the competition authority or court. In the UK case of English Welsh & Scottish Railway Ltd v E.On (2007) the English High Court ruled that the rules of severability for Article 101 applied equally to Article 102 TFEU for these purposes.
