UK: SJ Berwin´s Community Week: A Weekly Summary Of Competition Law And Policy Developments

Last Updated: 3 July 2009
Article by SJ Berwin's EU & Competition Team


Procurement Update

Advocate General Ruiz-Jarabo Colomer delivered an opinion on the legal regime governing public-private partnership arrangements ("PPPs") on 2 June 2009, concluding that it is legitimate for regional public authorities to establish legal entities to enter into partnerships with private participants (institutionalised PPPs or IPPPs).

The Advocate General confirmed the Commission's conclusion that a "double tendering procedure - one for selecting the private partner to the IPPP and another one for awarding contracts or concessions to the public-private entity" is not necessary. Rejecting the Commission's justification of "pragmatism", he explained that "the use of a double tendering procedure is not compatible with the reduction of procedural formalities which underlies IPPPs", via the use of a single procedure to select the private sector partner and to award the public contract or concession to the public-private partnership vehicle. On this basis, the EC Treaty and Procurement Directives do not prohibit the direct award of a public services contract to a PPP formed for that purpose where:

  • the company maintains that single corporate purpose throughout its existence;
  • the private sector participant is selected through a public tendering procedure, after verification of its skill and ability to perform the contract in question and consideration of its tender;
  • the regional public authority informed all tenderers in the contract notice of its plan to form a PPP to which a public contract or concession would be awarded;
  • the private participant assumes responsibility for the provision of the services and execution of the works; and
  • the tendering procedure is consistent with the principles of free competition, transparency and equal treatment as required under Community law for concessions or with the rules on the publicity and the award of public contracts.

The second recent procurement development concerns the decision of the Court of First Instance ("CFI") on 20 May 2009. The CFI annulled a decision of the European Parliament not to award a contract for car transport services to the claimant.  Despite the Parliament's broad discretion to determine the award criteria, the CFI found that the Parliament had breached the obligation to provide reasons for its decision and had failed to provide details of the successful bidder's price, which was especially important in this case as the criterion was weighted at 55% in the evaluation of bids. Refusal to provide details of the price by the successful bidder could not be justified on the grounds of confidentiality. However, the CFI concluded that the claimant's claim for damages was inadmissible in the absence of details in relation to the nature and character of the loss and having failed to demonstrate a causal link between the actions of the Parliament and the alleged loss.


CC Chairman Speaks On Competition Policy And Enforcement In Economic Downturn

On 2 June the Competition Commission ("CC") published a speech by its Chairman, Mr Peter Freeman.  Mr Freeman discussed how the current economic downturn is influencing competition policy and its enforcement, examining what lessons can be learnt.

Mr Freeman stated that in the current climate there is, more than ever, a balancing act to be played out between competition policy and wider public interest needs, such as financial stability concerns.  Although he discussed whether competition rules should be altered in light of the economic crisis, he concluded that the basic principles of competition law remain just as pertinent and relevant today - claiming that they are in no way a luxury policy.  However he did concede that competition policy may not always meet all public interest needs, and as a result, government must try to strike a balance between competition policy and other policy objectives.  For example if the state needs a particular vaccine to ward off a flu pandemic, he acknowledged that it may not be sufficient to simply sit back and wait for competition to provide the solution.

Regarding the financial sector, Mr Freeman discussed what he described as the regulatory failure.  Although his view is that competition in banking is to some extent "special", he considered it would be an error to exempt the banking sector from the competition regime entirely, or to lay the blame for the financial crisis on an excess of competition.  He took the view that there should be more focus on 'careful regulation' in the sector having regard to the special features of banking such as an imbalance of information and systemic risk. This however should not be to the abandonment of competition which generally brings benefits. 

Mr Freeman further took the view that the lessons learnt from encouraging bank mergers in the interests of stability are at best ambiguous and noted that having a merged bank that is 'too big to be allowed to fail' creates its own set of problems - in addition to any adverse effect on competition. He specifically warned against consolidation as an automatic solution.

It was noted however that competition enforcement is continuing worldwide notwithstanding the economic crisis.  The US Department of Justice for example has recently promised a more active approach to anti-trust enforcement (particularly on single firm conduct), and the European Commission has imposed a record fine on Intel for abuse of its dominant position (of over € 1 billion).  Furthermore in the last year the OFT obtained the first convictions under the criminal cartel provisions of the Enterprise Act.  

Court Of Session Rules On Application Of Waiver Of Legal Privilege

On 27 May 2009 the Scottish Court of Session issued a ruling dismissing an application for disclosure of legal advice and other documents prepared in the context of an Office of Fair Trading ("OFT") investigation into a breach of the Competition Act 1998 ("CA98"). 

The action arose out of a share purchase agreement which completed in September 2004.  BSA International SA ("BSA") acquired shares in A McLelland & Son Ltd ("McLelland") from the defenders. Under the share purchase agreement, the defenders warranted that there were no circumstances that might give rise to any form of communication from the OFT or the European Commission.

In 2005 the OFT sent a statutory request for information to McLelland, and in September 2007 issued a statement of objections alleging price fixing by McLelland and others in the dairy product market between 2002 and 2003.  Following negotiations with the OFT and having taken advice from counsel, an early resolution agreement was reached in February 2008, under which McLelland  admitted it had breached the CA98 and agreed to pay a reduced penalty. 

BSA then brought an action for damages against the defenders (for the amount of the penalty imposed by the OFT as well as their costs arising from the OFT's investigation) on the basis of negligent misrepresentation and/or breach of warranty.   

In defending the claim, the defenders applied, amongst other things, for the disclosure of the instructions and related documents that were provided to counsel by BSA in relation to an opinion on the relative advantages of entering into the early resolution agreement together with other legal advice on the issue.

It was accepted by BSA that privilege had been waived in relation to counsel's opinion itself - which BSA had lodged at court and sought to rely on.  BSA argued however that counsel's opinion was self-contained and that no further disclosure was required whether by way of legal advice or instructions.   

Examining the application Lord Glennie noted that, on the issue of substance, the approach to legal privilege is consistent in both England and Scotland.  The court examined how far the waiver of privilege extended in this case.  He noted that once a party has waived privilege on a certain document or chain of documents, there is a presumption that privilege on all documents relating to the same 'issue' or 'transaction' should be similarly waived on the basis that partial waiver may not give the full picture. 

However the use of otherwise privileged material does not itself immediately waive privilege in the whole of the legal advice obtained by a party in relation to a case.  He considered that the crux is to identify the 'issue' in question and looked to the purpose for which partial disclosure of the privileged material had been made. 

In this case, the key issue that counsel's opinion addresses is why steps were taken by BSA and McLelland when they did to seek early resolution and enter an agreement with the OFT.  This was held to be the extent of the 'transaction' to which the waiver of privilege relates in this instance.  There were no wider issues, such as whether the early resolution agreement should have been entered into.  On this basis it was found that previous advice forms no part of this transaction.  The request for further disclosure was therefore denied.  


Japan Brings Competition Law In Line With Other Jurisdictions

On the 3 June Japan's Diet approved sweeping changes to the Japanese competition regime. The Japanese Fair Trade Commission ("JFTC") and practitioners had been demanding that the country's 2005 Antimonopoly Act be brought in line with international standards for some time. The changes may take effect as early as January 2010.

The main change to the cartel regime is that companies that are part of the same group may now jointly apply for leniency. Under the old regime if a member of a corporate group applied for leniency this would prevent other members of the same group from receiving the 100% reduction in fines - as only one can claim complete immunity. However it is now possible for groups to apply as a single entity, which should have the effect of increasing leniency applications from entities previously concerned about their application resulting in fines on their sister or parent companies.

The number of potential leniency beneficiaries per cartel has also been raised from three to five (provided the applications are made before the JFTC begins an investigation), with the first applicant receiving a full reduction in fines, the second 50% and the remainder 30% each. Further the fines that can be levied on cartel ringleaders have been raised to 15% of affected sales and the maximum prison sentences for cartel offenders extended from three to five years.

The merger regime has also seen an overhaul with a major change to the notification system. Rather than qualifying share transactions having to be filed with the JFTC within 30 days of completion they must now be filed pre-completion.  Such notifications require to be notified to the JFTC no later than 30 days before completion. 

The threshold test has also changed from an asset based test to a turnover based test which is expected to result in more mergers being caught by the regulations. Further the JFTC will look at mergers by groups rather than by individual company meaning that inter-group acquisitions should not now require notification.

As a result of the substantial changes, the JFTC has been warned to expect an increase in its workload. Guidance is expected to be issued by the JFTC before the new provisions take effect.

Sweden: Record Fines For Asphalt Cartel

Sweden's Market Court has imposed the largest ever fines in a Swedish cartel case, on a cartel operating in the asphalt market. Hardest hit was asphalt company NCC, which incurred a fine of 200 million Swedish kronor (€18.4 million) having been found to have played a leading role.  Other operators shared the burden of a further SEK 77 million, while Svenska Väg (another asphalt company) escaped without a fine as the court was not satisfied that they had participated in the cartel. 

The decision came as a result of an appeal from the district court, in which NCC had originally incurred a fine of SEK 150 million (its fine being increased by SEK 50 million in the final Court of Appeal). Several firms who were found to have participated in the cartel chose not to appeal the ruling. 

Sweden's competition authority reacted well to the news, its Director General calling the ruling a "victory for both central and local government, and ultimately for the taxpayers, who have had to pay excessively high prices for asphalt work". 

The case stems from cartel operations dating from 1994 onwards, and much of the evidence was gathered when the Swedish competition authority conducted a series of dawn raids in 2001.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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