Not a gold pot: Free allocation of greenhouse gas emission allowances in Spain (C-566/11)

In its Judgment of 17 October 2013 in Joined cases C-566/11, C-567/11, C-580/11, C-591/11, C-620/11 and C-640/11 Iberdrola and Gas Natural, the Court of Justice of the EU has analysed and upheld a Spanish system whereby the remuneration of electricity production was reduced by an amount equivalent to the value of the emission allowances allocated free of charge to electricity producers in accordance with the 2005-2007 National Allocation Plan.

 

The rationale of the system (which actually manipulates/adjusts downwards the energy prices resulting from the Spanish wholesale electricity market) had been clearly spelled out by the Spanish executive, which clearly indicated that, given the fact that electricity producers opted for the incorporation as an additional production cost of the value of the emission allowances allocated free of charge, those prices needed to be adjusted to prevent an unfair enrichment or double whammy by energy producers.

 

In terms of Royal Decree-Law 3/2006, it was indeed justified to

[take] into account of the value of the [emission allowances] in the formation of prices in the wholesale electricity market is intended to reflect [that integration] by reducing, by equivalent amounts, the remuneration payable to the generating units concerned. Furthermore, the sharp increase in tariff deficit during 2006 makes it advisable to deduct the value of the emission allowances for the purposes of determining the amount of that deficit. The existing risk of high prices in the electricity-generation market, with their immediate and irreversible negative effects on end-consumers, justifies the urgent adoption of the provisions laid down in the present measure and the exceptional nature of those provisions (C-566/11 at para 17).

It is clear to see that, ultimately, the decision was aimed at avoiding a double transfer of resources to energy producers from the general budget and from consumers through tariff deficit compensation charges: first, by allocating emission allowances for free [which could then be immediately traded in the corresponding market or used as collaterial in financial deals; see Martín Baumeister & Sánchez Graells, (2012) "Algunas Reflexiones en Torno a Las Garantías Pignoraticias Sobre Derechos de Emisión de Gases de Efecto Invernadero y Su Ejecución" Revista de Derecho Bancario y Bursátil 127: 191-210] and, secondly, by also compensating higher tariff deficits (inflated) by the integration of the (non-zero, commercial) value of those emission rights in the wholesale energy prices.

 

 

 

However, the Spanish Supreme Court harboured doubts on the compatibility of this mechanism with Directive 2003/87. Indeed, according to the Tribunal Supremo, those measures could have the effect of neutralising the ‘free of charge’ nature of the initial allocation of emission allowances and undermining the very purpose of the scheme established by Directive 2003/87, which is to reduce greenhouse gas emissions by means of an economic incentive mechanism (C-566/11 at para 23).

 

In my view, the analysis that the CJEU carries out in order to analyse this complicated situation must be praised, both for its clarity and brevity:

33 The Spanish electricity producers in question have incorporated, in the selling prices that they offer on the wholesale electricity market, the value of the emission allowances, in the same way as any other production cost, even though those allowances had been allocated to them free of charge.

34 As the referring court explains, that practice is undoubtedly cogent from an economic point of view, in so far as an undertaking’s use of emission allowances allocated to it represents an implied cost, known as an ‘opportunity cost’, which consists in the income that the undertaking has forgone by not selling those allowances on the emission allowances market. However, the combination of that practice with the pricing system on the electricity generation market in Spain results in windfall profits for electricity producers.

 35 It should be noted that the on-the-day electricity trading market in Spain is a ‘marginalist’ market in which all producers whose offers have been accepted receive the same price, that is, the price offered by the operator of the last production unit to be admitted to the system. Since, during the period concerned, that marginal price was determined by the offers from operators of combined gas and steam power plants – technology attracting free emission allowances – the incorporation of the value of the allowances into the selling prices offered is passed on in the overall market price for electricity.

 36 Accordingly, the reduction in remuneration provided for in Ministerial Order ITC/3315/2007 applies not only to undertakings that have received emission allowances free of charge, but also to power plants that do not need allowances, such as hydroelectric and nuclear power plants, as the emission allowance value incorporated in the costs structure is passed on in the price for electricity, which is received by every producer active on the wholesale electricity market in Spain.

 37 Furthermore, as can be seen from the documents before the Court, the rules at issue in the main proceedings take into account factors other than the quantity of allowances allocated: in particular, the type of power plant and its emission factor. The reduction in remuneration for electricity production provided for under those rules is calculated in such a way that it absorbs only the extra charged as a result of the opportunity costs relating to emission allowances being incorporated in the price. This is confirmed by the fact that the levy is not incurred where power plant operators sell allowances allocated free of charge on the secondary market.

 38 Accordingly, the aim of the rules at issue in the main proceedings is not subsequently to impose a fee for the allocation of emission allowances, but to mitigate the effects of the windfall profits accrued through the allocation of emission allowances free of charge on the Spanish electricity market.

 39 It should be noted, in that regard, that the allocation of emission allowances free of charge under Article 10 of Directive 2003/87 was not intended as a way of granting subsidies to the producers concerned, but of reducing the economic impact of the immediate and unilateral introduction by the European Union of an emission allowances market, by preventing a loss of competitiveness in certain production sectors covered by that directive (C-566/11 at paras 33-39, emphasis added).

The CJEU recognises that, somehow, the Spanish price adjustment mechanism anticipates a correction which introduction was necessary in the revision of Directive 2003/87/EC:

insufficient competitive pressure to limit the extent to which the value of emission allowances is passed on in electricity prices has led electricity producers to make windfall profits. As can be seen from recitals 15 and 19 to Directive 2009/29, it is in order to eliminate windfall profits that, with effect from 2013, emission allowances are to be allocated by means of a full auctioning mechanism (C-566/11 at para 40).

 

Moreover, the CJEU stresses what, indeed, is the key to this case and, ultimately, indicates the problem of using 'free market' arguments in regulated industries such as energy production, where (wholesale) markets are actually a mere fiction:

since, on the Spanish electricity generation market, a single price is paid to all producers and the end consumer has no knowledge of the technology used to generate the electricity that he consumes and the tariff for which is set by the State, the extent to which electricity producers may pass on in prices the costs associated with the use of emission allowances has no impact on the reduction of emissions (C-566/11 at para 57, emphasis added).

 

 

Finally, in a very congruent manner, the CJEU has ruled that

Article 10 of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC must be interpreted as not precluding application of national legislative measures, such as those at issue in the main proceedings, the purpose and effect of which are to reduce remuneration for electricity production by an amount equal to the increase in such remuneration brought about through the incorporation, in the selling prices offered on the wholesale electricity market, of the value of the emission allowances allocated free of charge( C-566/11 at para 59).

In my view, this a valuable Judgment and one that stresses the new rationality of the allocation scheme implemented by Directive 2009/29. Moreover, it makes clear (indirectly) that Member States must avoid granting unfair advantages and subsidies (ie State aid) to energy producers as a result of the the way they operate their greenhouse gas emission allowances allocation mechanims.

Public procurement and competition: a Swedish perspective

In a recent paper, Robert Moldén offers an interesting overview of a wide array of issues concerned with the intersection of public procurement and competition law from a Swedish perspective (ie, in their treatment by Swedish Courts).**

 

The paper is only available on a subscription basis (http://www.ert.se/content.asp?id=60#) but it offers an interesting summary of several cases where the Swedish courts have attempted an interpretation of the principle of competition that may be relevant (and influential) for the future construction of the soon to be enacted Article 15 of the new EU public sector procurement Directive.

 

It is interesting to note, for example, the Judgment of the Stockholm Administrative Court of Appeal of 2 February 2011 in case 6528-10m where it clearly spelled out that

The main purpose of EU public procurement law is freedom of movement for goods and services and that the area shall be opened for non-distorted competition. Both [the Swedish Public Procurement Act] and the EU Directives aim at public procurement proceedings to be conducted by utilizing existing competition in the best way. The provisions aim both at making use of competition in a given procurement proceeding and developing effective competition (para 4, Moldén's translation at p. 598 of his paper).

 

Robert Moldén extensively quotes some of my thoughts in Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011), particularly as the principle of competition in procurement is concerned--which obviously implies that we see things in a very similar manner. Indeed, I fully subscribe his submission that

The competition principle embodied in the Classical Sector Directive imposes an active obligation to ensure that the way they conduct public procurement proceedings is pro-competitive and not anti-competitive. Swedish administrative courts should therefore not treat the Directive's pro-competition provisions as soft law but as hard law, in the sense that infringements of the principle of competition should be considered as infringements of the Swedish Public Procurement Act, in the same way as infringements of, e.g. the principles of proportionality and equality (p. 602).

 

Despite such commonality of views, I do not think it is biased for me to recommend reading his piece, particularly to any academic or practitioner interested in trying to anticipate the implications of the abovementioned (emerging) general principle of EU public procurement law: ie the principle of competition, as formulated in  Article 15 of the new Directive

Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement was made with the intention of unduly favouring or disadvantaging certain economic operators.

 

** I am thankful to Ignacio Herrera Anchustegui for bringing this paper to my attention.

3 more instalments in the Evropaïki Dynamiki saga: one successful appeal (T-638/11)

Today, the General Court has issued three Judgments that add to the 'Evropaïki Dynamiki saga'. In two of them (T-474/10 and T-457/10), the famous challenger of EU Institutions' procurement decisions has lost the appeals and been condemned to bear the costs. Generally, none of this two cases raises signifcantly new issues (although one touches upon a complicated aspect of the prevention of fraud and corruption where a holding company of one of the members of the consortium was involved) and the GC is concerned once (actually, twice) more with the duties to state reasons and the contours of the manifest error of assessment of contracting authorities when they assess tenders and award contracts. However, in a third case (T-638/11 European Dynamics Belgium and Others v EMA), the appellant has been successful.

 

In the 'successful' case, the GC quashes EMA's decision on the basis of the poor explanations provided in the debriefing following the assessment of the tenders from a technical perspective. The GC finds that the reasons provided do not allow participating tenderers to understand the marks obtained for their technical proposals and make them unable to compare their assessment against that of the awardee (since the feedback received was vague and of a general nature).

 

Moreover, and maybe more interestingly, the GC engages in an analysis of the degree of disclosure that contracting authorities must ensure where there have been doubts as to the existence of an abnormally low tender. In the case at hand, the winning consortium had been requested to provide additional explanations and to justify that its tender was not abnormally low. The contracting authority was satisfied with those clarifications and proceeded to award the contract in those (not abnormally low) terms. The appellant sought to have access to those explanations and justifications in order to challenge the decision to finally award the contract to that particular consortium. However, the contracting authority had declined to disclose that information on the basis that it constituted a business secret of the winning tenderer.

The GC threads quite lightly and tries to establish an intermediate solution by stressing that:

In addition, EMA argues that by providing detailed information on compliance with the regulations for the protection of workers and working conditions or about the particular economy of the services offered by the consortium S., it would damage the legitimate commercial interests of the latter. However, to require the contracting authority to disclose the grounds upon which it has decided that an offer should not be considered abnormally low does not require it to disclose detailed information on the technical and financial aspects of the offer, such as the prices offered, the resources available to the contractor or the ways in which the successful bidder proposes to provide the services it offers. In order to provide sufficient motivation for this aspect of the tender, the contracting authority shall state the reasoning which led it to conclude that, on the one hand , given its main financial characteristics, such offer is in compliance with the laws of the country in which the services should be performed for staff salaries, contribution to social security and standards of safety and health at work; and, secondly, that it was verified that the proposed prices integrated all the costs generated by the technical aspects of the successful tender (T-638/11 at para 68, own translation from French).

Therefore, the GC does require some kind of 'high level' explanation as to why the contracting authority has been finally satisfied that the offer retained is not abnormally low, but always provided that it protects the confidentiality of the specific details that should remain under business secrecy. Surely, the test envisaged by the GC is not very clearly delineated and requires some further precision, but it is yet another push for the disclosure of information that may make tenderers reluctant to provide very specific information when they are being investigated for having submitted an apparently abnormally low offer (given that, even at some high level, certain information may still be commercial sensitive). I hope that future case law will offer more specific guidance as to how to strike this difficult balance.

A jigsaw of qualifications or a procurement puzzle?: CJEU launches a depth charge against certification systems (C-94/12)

In its Judgment of 10 October 2013 in case C-94/12 Swm Costruzioni 2 and Mannocchi Luigino, the Court of Justice of the EU has followed the Opinion of AG Jääskinen (which I praised and supported here) and expanded its antiformalistic case law on the interpretation of the rules controlling participation and selection requirements in public procurement covered by the EU Directives. In my view, this Judgment is a (well-aimed?) depth charge against certification systems based on Article 52 of Directive 2004/18.

 

More specifically, the CJEU was presented with a request for a preliminary reference concerning the compatibility with EU law of an Italian provision applicable to all works contracts with a value in excess of 150,000 Euro, whereby undertakings that needed to 'team up' and rely on the abilities of other undertakings in order to tender for public works contracts could only do so on a one-to-one basis (ie main contractors were not allowed to build up a 'jigsaw' of qualifications provided by several subcontractors, but had to rely exclusively on the abilities of one subcontractor that was able to deliver the whole of the performance for that given category of works concerned).

 

Under the controversial Italian rule, "For works contracts, the tenderer may rely on the capacities of only one auxiliary undertaking for each qualification category. The invitation to tender may permit reliance on the capacity of more than one auxiliary undertaking having regard to the value of the contract or the special nature of the services to be provided" (emphasis added).

 

The CJEU rephrased the question referred by the Italian court and understood that, in essence, it had to rule wheter Articles 47(2) and 48(3) of Directive 2004/18 must be interpreted as precluding a national provision which prohibits, as a general rule, economic operators participating in a tendering procedure for a public works contract from relying on the capacities of more than one undertaking for the same qualification/certification category.

 

Interestingly, the CJEU spells out that its analysis is based on the final goal of maximising competition (in particular, by means of facilitating SME participation) and finds that:

33 […] it must be held that Directive 2004/18 permits the combining of the capacities of more than one economic operator for the purpose of satisfying the minimum capacity requirements set by the contracting authority, provided that the candidate or tenderer relying on the capacities of one or more other entities proves to that authority that it will actually have at its disposal the resources of those entities necessary for the execution of the contract.
34 Such an interpretation is consistent with the objective pursued by the directives in this area of attaining the widest possible opening-up of public contracts to competition to the benefit not only of economic operators but also contracting authorities (see, to that effect, Case C‑305/08 CoNISMa [2009] ECR I‑12129, paragraph 37 and the case-law cited). In addition, as the Advocate General noted at points 33 and 37 of his Opinion, that interpretation also facilitates the involvement of small- and medium-sized undertakings in the contracts procurement market, an aim also pursued by Directive 2004/18, as stated in recital 32 thereof.
35 It is true that there may be works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator, which, individually, would be inadequate. In such circumstances, the contracting authority would be justified in requiring that the minimum capacity level concerned be achieved by a single economic operator or, where appropriate, by relying on a limited number of economic operators, in accordance with the second subparagraph of Article 44(2) of Directive 2004/18, as long as that requirement is related and proportionate to the subject-matter of the contract at issue.
36 However, since those circumstances constitute an exception, Directive 2004/18 precludes that requirement being made a general rule under national law, which is the effect of a provision such as [the controversial Italian provision] (C-94/12, paras 33-36, emphasis added).

 

In my view, the Swm Costruzioni Judgment should be welcome as it concerns the anti-formalistic and possibilistic interpretation of the rules on selection of contractors in Directive 2004/18--which are about to be modernised in the new procurement directive, also as 'teaming up' provisions are concerned (see my recent paper: "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive").

 

Moreover, it is worth noting that the Judgment does (inadvertently? and) implicitly throw a depth charge against national certification systems. Taking the logic behind the Swm Costruzioni Judgment to its logical extremes, those certification systems should only be in place to cover those contracts where objective circumstances justify the need for the contracting authority to make sure that a single undertaking carry out a specific contract.

 

Certification systems, then, should only cover "works with special requirements necessitating a certain capacity which cannot be obtained by combining the capacities of more than one operator" as, otherwise, the whole certification system is completely superficial if the contracting authority must (as indeed it shall) accept any 'jigsaw' of (partial) certifications presented by a group of undertakings (or by an uncapable main contractor that enters into subcontract agreements) in order to prove that they have sufficient (aggregate) economic, technical and financial standing [something I advocated for in Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 266-268].

 

Therefore, in my view, the Swm Costruzioni Judgment is actually raising a red flag and stressing that such requirements to be certified or included in the list of pre-approved contractors will ultimately only be compliant with EU law if the specific characteristics of the works to be tendered do justify the need for a single (or very limited number) of undertakings to carry out the project.

 

Now, this will be puzzling in many jurisdictions that strongly rely on certification systems and pre-approved lists of contractors fro all types (and almost all values) of works contracts, but the (implicit) message seems clear. Therefore, procurement authorities may be better off dismantling those existing systems altogether and bracing themselves (ie getting training and staffing themselves properly) for the revolution that the European Single Procurement Document (ESPD, effectively a set of self-declarations) is about to bring upon.

CJEU flexibilises treatment of formally non-compliant bids in public procurement (C-336/12)

In its Judgment of 10 October 2013 in case C-336/12 Manova, the Court of Justice of the EU (CJEU) has  followed its own approach in Slovensko and created some room for the flexible interpretation of the rules on formal compliance of bids submitted in public procurement procedures.

 

In Manova, the contracting authority had requested some of the tenderers to provide financial statements that had not been included in their bids after the deadline for their submission had ellapsed. Given that this decision was challenged on the grounds of a potential breach of the principle of equal treatment, the referring court decided to request a preliminary ruling from the CJEU, which was asked "whether the principle of equal treatment is to be interpreted as precluding a contracting authority from asking a candidate, after the deadline for applying to take part in a tendering procedure, to provide documents describing that candidate’s situation – such as a copy of its published balance sheet – which were called for in the contract notice, but were not included with that candidate’s application".

 

In rather clear terms (although some caveats may have been dispensed with, in my opinion), the CJEU ruled that:

the principle of equal treatment must be interpreted as not precluding a contracting authority from asking a candidate, after the deadline for applying to take part in a tendering procedure, to provide documents describing that candidate’s situation – such as a copy of its published balance sheet – which can be objectively shown to pre-date that deadline, so long as it was not expressly laid down in the contract documents that, unless such documents were provided, the application would be rejected. That request must not unduly favour or disadvantage the candidate or candidates to which it is addressed (C-336/12 at para 42).

In my view, the Manova Judgment must be welcome, both for its functional approach and for its alignment with domestic practices in a significant number of EU Member States--as discussed in Sánchez Graells, A, "Rejection of Abnormally Low and Non-Compliant Tenders in EU Public Procurement: A Comparative View on Selected Jurisdictions", in S Treumer and M Comba (eds), Award of Public Contracts under EU Procurement Law, vol. 5 European Procurement Law Series, (Copenhagen, DJØF, 2013) 267-302. This seems a good step in the direction of avoiding that overly strict formal requirements get in the way of actual good public procurement practices.

Interesting EFTA case on 'expert evaluations' and 'bidding procedures' and State aid (E-9/12)

In its Judgment of 22 July 2013 in case E-9/12 - Iceland v EFTA Surveillance Authority**, the EFTA Court analysed two interesting issues concernig the use of 'bidding procedures' and 'expert evaluations' for State aid purposes--and, more specifically, concerning the sale of public real estate (for general discussion and a review of CJEU case law, see Nicolaides' piece here).

 

Firstly, the EFTA Court analysed whether on-line property listings can be cosidered well-publicised bidding procedures comparable to auctions. This is relevant in light of Decision No 275/99/COL of 17 November 1999 (equivalent to the 1997 Communication on State aid elements in sales of land and buildings by public authorities), whereby

A sale of land … following a sufficiently well-publicised, open and unconditional bidding procedure, comparable to an auction, accepting the best or only bid is by definition at market value and consequently does not contain State aid (para 2.1).

Secondly, the EFTA Court assessed if, where the on-line listings were not sufficiently publicised, a tax evaluation of the properties to be sold constitutes an adequate benchmark (ie an independent expert evaluation) to determine the 'State aid-free' price of transfer of the real estate. That was relevant because the EFTA authority based the existence of State aid in the discrepancies between tax evaluation and price paid for the real estate concerned.

 

In relation to the first issue, ie whether on-line listings can be assimilated to auctions, according to the EFTA Court

67 Pursuant to subparagraph (a) of point 2.1 of the Land Sale Guidelines, an offer is regarded as sufficiently well-publicised when it is repeatedly advertised over two months or more in the national press, estate gazettes or other appropriate publications and through real estate agents addressing a broad range of potential buyers, so that it can come to the notice of all potential buyers.
68 The criterion of an offer being well-publicised must be interpreted such that where two or more properties are offered on sale together, but not necessarily only as one single unit, specific advertisements must be made for the individual properties. A general call for interest cannot suffice, as such a method cannot reasonably be expected to reach all potential buyers of specific properties.
69 As regards the publication format, the wording of the Land Sale Guidelines does not in principle exclude adequate publication on the internet. However, advertisements must be placed in a publication, be it printed or digital, which is appropriate for reaching all potential buyers. The seller’s own website can only exceptionally be regarded as such a publication.
70 In the present case, four of the five buildings in question were specifically advertised solely on KADECO’s website. There is nothing to suggest that this website was appropriate for reaching all potential buyers. It must therefore be held that ESA did not err in finding itself unable to conclude that a sufficiently well-publicised bidding procedure, or a procedure comparable to that, was followed (E-9/12, paras 67-70, emphasis added).  

In my view, the EFTA Court is correct in that mere calls for interest are too far away from auction procedures to be considered sufficient for the purposes of excluding the existence of an economic advantage for the purposes of State aid control. However, the EFTA Court could have ellaborated on the minimum requirements that on-line listings should meet for them to be considered susceptible of reaching 'all potential buyers'. Nonetheless, the restraint of the Court is fully understandable and this basically opens the door for a revision / upgrade of the 1997 guidance to include on-line advertising and bidding methods (both at EFTA and EU level).

 

In relation to the second issue, the EFTA Court found that an evaluation conducted for tax purposes may serve as the adequate criterion to determine the 'State aid-free' price of the real estate, as long as it was deemed to reflect market value. Indeed,

90 Iceland has a system established by law to evaluate the market price of properties. Pursuant to Article 1 of Act No 6/2001, all real property in the country shall be registered in the Real Property Register, operated by Registers Iceland. According to Article 27 of Act No 6/2001, Registers Iceland is obliged to evaluate and register the market price of properties in Iceland.
91 The applicant argues, first, that the purpose of the valuation carried out by Registers Iceland is to determine the likely value of a property for tax purposes, and that the private investor test cannot rely solely on that valuation.
92 It is true that valuation in the context of a tax audit does not necessarily show the market value of land (see, for comparison, Case C-290/07 P Commission v Scott [2010] ECR I-7763, paragraph 97). However, in an email of 13 May 2012, the Icelandic authorities themselves confirmed that, as a matter of Icelandic practice, the valuation for taxation purposes is generally understood to reflect the market rate (E-9/12, paras 90-92, emphasis added).

In my view, this finding is potentially problematic, particularly in countries where the evaluations carried out for registration and/or tax purposes tend to be well below market value and seldomly updated. Therefore, the finding of the EFTA Court needs to be taken with a pinch of salt and read in the very circumstance-specific Icelandic background. This too seems to be an area for development / upgrade of the existing guidance on State aid in the sale of land and property.

 
** I am thankful to Kristjan Birgisson for bringing this case to my attention.

AG Cruz Villalon on access to leniency applications: A stringent test. Really? (C-365/12)

In his Opinion of 3 October 2013 in case C-365/12 EnBW Energie, Advocate General Cruz Villalon has proposed a holistic interpretation of the regulatory schemes relating to access to documents of the institutions and, more specifically, of access to the European Commission's files in the context of its leniency programme. In my view, the holistic approach advocated for still leaves some important issues unresolved and, consequently, the Judgment of the CJEU in this case will be highly relevant.

 

According to AG Cruz Villalon, when access to the file in cartel investigations is concerned,

63. In short, the presumption [that access should be refused] must operate in relation to documents the disclosure of which is either ruled out or – in the case of Regulation No 1/2003, as compared with Regulation No 1049/2001– possible only on certain conditions. In other words, the presumption should be fully effective vis-à-vis parties who, in accordance with Regulation No 1/2003 and Regulation No 773/2004, have no right, in principle, to access the documents in cartel proceedings, as in the case of EnBW here; and this must also be the case vis-à-vis parties who have only a limited right of access or a right which is recognised solely for the purposes of safeguarding the right of defence.

64. That conclusion must carry a qualification, however. The abovementioned presumption ‘does not exclude the possibility of demonstrating that a given document, of which disclosure is sought, is not covered by that presumption or that there is a higher public interest justifying the disclosure of that document under Article 4(2) of Regulation No 1049/2001 (Commission v Technische Glaswerke Ilmenau, paragraph 62)’. Consequently, the fact that Regulation No 1/2003 does not provide for access by persons who are not parties to the proceedings means only that, in the event that such persons request access, their requests must be dealt with in accordance with Regulation No 1049/2001 (as the general legislation in the area of transparency), interpreted in the light of the general presumption that disclosure of the documents may undermine the purpose of the proceedings under Regulation No 1/2003. This presumption does not in any way rule out access pursuant to Regulation No 1049/2001: it merely imposes more stringent conditions on the access granted under that regulation (emphasis added).

In his Opinion, AG Cruz Villalon takes a very different approach, but basically supports a stringent test that would lead to the same restrictive outcome supported by AG Jaaskinen some months ago in C-536/11 Donau Chemie and others, where he considered that: 

in my opinion a legislative rule would be more appropriate that provided absolute protection for the participants in a leniency programme, but which required the interests of other participants to a restrictive practice to be balanced against the interests of the alleged victims. [...] Furthermore, in my view and except for undertakings benefiting from leniency (sic!), participation in and of itself in an unlawful restriction on competition does not constitute a business secret that merits protection by EU law (para 64, emphasis added).

It is worth stressing that such a radical approach (which I criticised) was rejected by the CJEU in the final Donau Chemie Judgment:

as regards the public interest of having effective leniency programmes [...] it should be observed that, given the importance of actions for damages brought before national courts in ensuring the maintenance of effective competition in the European Union (see Courage and Crehan, paragraph 27), the argument that there is a risk that access to evidence contained in a file in competition proceedings which is necessary as a basis for those actions may undermine the effectiveness of a leniency programme in which those documents were disclosed to the competent competition authority cannot justify a refusal to grant access to that evidence (para 46, emphasis added).

AG Cruz Villalon is aware of the position of the CJEU in Donau Chemie and, consequently (but implicilty), seeks to clarify his proposal for a stringent test on access to the file (and, more specifically, to leniency applications) by stressing that:

the effectiveness of leniency programmes can be safeguarded only (sic!) if it is guaranteed that, as a general rule, the documentation provided will be used by the Commission alone. This would, of course, be the ultimate safeguard. However, other safeguards should also be considered that are less extensive but still attractive for those wanting to take advantage of those programmes. In the final analysis, the rationale underlying leniency programmes is a calculation as to the extent of the harm that might arise from an infringement of competition law. Considered in those terms, to guarantee that the information provided to the Commission can be passed on to third parties only if they can adequately prove that they need it in order to bring an action for damages could constitute a sufficient safeguard, particularly considering that the alternative might be a penalty higher than that which might ensue were the action for damages to be successful. Admittedly, it is possible that a safeguard of that kind might result in fewer parties deciding to take advantage of leniency programmes. However, the objective of maximum effectiveness for that mechanism should not be regarded as justification for a complete sacrifice of the rights of those concerned to be compensated and, more generally, for an impairment of their rights to an effective remedy under Article 47 of the Charter of Fundamental Rights of the European Union (para 78, emphasis added).

In my opinion, the carve out that AG Cruz Villalon creates against his own proposal for a general presumption of non-disclosure (which waiver should be subjected to a stringent test) is not terribly consistent in logical terms, but seeks to accomodate the Donau Chemie Judgment. Nonetheless, the safeguard/test is not clearly presented and the AG's Opinion in EnBW Energie does not really clarify this (increasingly?) grey area of EU competition law. In fact, in view of his concern with the protection of the commercial interests of leniency applicants, it seems that he is actually de facto advocating for the strongest (absolute) safeguard presented above (which, in those terms, would basically amount to the absolute protection advocated for by Jaaskinen and rejected by the CJEU in Donau Chemie).

 

Indeed, AG Cruz Villalon weakly criticises the finding of the GC in paras 147-148 of the appealed EnBW Energie Judgment (‘the interests of the undertakings that had participated in the cartel … in non-disclosure of the documents requested cannot be regarded as commercial interests in the true sense of those words. Indeed, [...] the interest which those companies might have in non-disclosure of the documents requested seems to reside not in a concern to maintain their competitive position on the [...] market [...] but, instead, in a desire to avoid actions for damages being brought against them before the national courts’. In any event, that would not constitute ‘an interest deserving of protection, having regard, in particular, to the fact that any individual has the right to claim damages for loss caused to him by conduct which is liable to restrict or distort competition’), by indicating that, in his opinion, 

the possibility that disclosure of the information provided by the undertakings in question might objectively undermine their commercial interests cannot be ruled out. The fact that the information was provided voluntarily and with a view to avoiding or minimising a penalty is, in my opinion, no basis for regarding the commercial interests involved as unworthy of protection. Otherwise, undertakings that have cooperated with the Commission would suffer a further penalty, in addition to whatever penalty is ultimately considered appropriate, in the form of the damage caused to their commercial interests (para 93).

Therefore, in my view, AG Cruz Villalon's EnBW Energie Opinion (because of its different technical approach) does put some pressure on the CJEU to finally and explicitly take a position on the compatibility with EU law of the protection of leniency applications that the European Commission and the National Competition Authorities within the European Competition Network are pursuing (see Resolution of 23 May 2012 on the protection of leniency material in the context of civil damages actions)--beyond the general remarks made in Donau Chemie.

 

Indeed, the CJEU failed to close that door in Donau Chemie by indicating that:

47 By contrast, the fact that such a refusal is liable to prevent those actions from being brought, by giving the undertakings concerned, who may have already benefited from immunity, at the very least partial, from pecuniary penalties, an opportunity also to circumvent their obligation to compensate for the harm resulting from the infringement of Article 101 TFEU, to the detriment of the injured parties, requires that refusal to be based on overriding reasons relating to the protection of the interest relied on and applicable to each document to which access is refused.

48 It is only if there is a risk that a given document may actually undermine the public interest relating to the effectiveness of the national leniency programme that non-disclosure of that document may be justified.

Hence, the debate is alive and kicking (on the CJEU's door) and a more definite answer is needed. Personally, I would support a very clear indication by the CJEU that leniency applications do not merit special treatment and, consequently, need to be disclosed to (credible) potential damages claimants and always under the supervision and within the context of judicial procedures. Otherwise, the leniency policy will kill damages actions and, even if it is very hard to trade-off the advantages and disadvantages of both policies, it seems clear that allowing for private redress and effective compensation is a requirement under EU law (as the CJEU has been so keen to consistently emphasise since Courage).

 

In the end, I would submit that the CJEU should bring his reasoning a step beyond and determine that "giving the undertakings concerned, who may have already benefited from immunity, at the very least partial, from pecuniary penalties, an opportunity also to circumvent their obligation to compensate for the harm resulting from the infringement of Article 101 TFEU, to the detriment of the injured parties" goes beyond the scope of the leniency programme--which advantages need to be contained within the sphere of the administrative effects (or, put otherwise, within the sphere of public enforcement).

 

Otherwise, the Commission and the NCAs will continue in their schizophrenic quest against cartels, where they try to have their cake (numerous leniency applications leading to resounding fines for the rest of the cartelists) and eat it too [by fostering a system for effective (collective) private reddress that, simply, cannot coexist peacefully with (or at least, cannot blossom under) full-blown leniency protection].

UK's Competition Commission findings on private healthcare markets unfair, says UK CAT

The UK's Competition Appeals Tribunal has disapproved the Competition Commission's provisional findings on private healthcare markets published at the end of August 2013 (see CPI press release here). 

 

In its Judgment of 2 October 2013, the UK CAT found that "the Commission’s rules governing the disclosure room were not fit for the purpose of allowing a proper and informed response to be made to the Commission’s provisional findings. Accordingly, the decision was in breach of the Commission’s statutory duty in section 169 of the Enterprise Act 2002 and in breach of the rules of natural justice". In my view, the path through which the UK CAT reaches this decision deserves some attention.

 

Generally, the UK CAT finds no fault in the design of the access to confidential information by means of a data room: "We do not consider that the decision of the Commission, in this case, to protect the Confidential Information by way of a data room instead of one or more of the other ways contemplated in paragraph 9.14 of the CC7 Guidance, to be susceptible of criticism. We accept the Commission’s view that the confidential material in this case was extremely sensitive and, in all the circumstances, the decision to protect the "specified information" in this case by way of a data room is unchallengeable on a judicial review basis." (para 49).

 

However, the UK CAT takes issue with the specific rules on access to the data room that the Commission imposed, which restricted access to the legal and economic advisers of the undertakings concerned and which prevented them from taking copies of the information (and only notes, subjected to scrutinity and redaction by the Commission could be retained). In the UK CAt's view:

62. The short conclusion is that consideration by the Applicants of the Confidential Information is the starting point for examining what fairness requires. It will be the Applicants who will be affected by any adverse decision of the Commission, not their advisers. Implicit in this starting point is the fact that it is for the Applicants to decide how they wish to respond. In cases like the present, doubtless that will involve the retention of an expert legal team, and expert economists and accountants. But, at the end of the day, what the "interested person" (we shall use this term as shorthand to refer to parties like the Applicants, who may be affected a decision, and who are entitled to be consulted on it) chooses to do to respond is a matter for that person, and not for that person’s legal or advisory team, still less for the body whose provisional decision is being responded to. [...]

63. This starting point may be modified and derogated from to take account of the confidential nature of the information in question. We recognise that market investigations involve – as here – considerable amounts of very confidential material, and that if that material is not appropriately safeguarded, confidence in Commission investigations will be eroded and – quite possibly – damage done to the operation of markets because of the market sensitivity of the information involved. But it must always be borne in mind that derogations from the starting point that we have identified must be such as to enable the party affected to respond.

67. A data room operates very differently from a confidentiality ring. Not only is access to the room limited to a defined class of person (in this, data rooms are similar to confidentiality rings), but also the confidential information is retained at a secure location – in the data room. This prevents the sort of accidental disclosure of confidential information that can occur in the case of confidentiality rings.

68. Use of a data room will certainly involve additional inconvenience to an interested party and its advisers. It may well mean more than this: it may mean that the drafting of a response is made materially more difficult. But this additional burden can be justified provided:

(i) the sensitivity of the material in question warrants it; and (ii) the interested person is still – despite the additional difficulties – able to make worthwhile representations [...]

69. This means that where a data room is deployed to protect sensitive information, there must be facilities available in the data room so as to enable a proper and informed (or "worthwhile") response.

After setting this background, the UK CAT considers that the rules governing the Competition Commission were faulty in three main aspects. First, "confining the Advisers to recording in their notes only Own Client Data or information derived solely from Own Client Data and/or from data in the public domain is wrong in principle" (para. 71), despite the fact that, informally, the Commission decided to oversee breaches consisting of the taking of notes concerned with other confidential information and to treat them as further disclosures of evidence (para. 58). Secondly, the UK CAT criticises the fact, that while at the data room, advisors were not provided with means to draft a response to the confidential information they could not take away (para. 72). Finally, the UK CAT considers that "the period of time in which the Advisers were allowed access to the Disclosure Room [ie 2 working days] was unreasonably short" (para. 73).

Interestingly, the UK CAT also expressly dismissed the Commission's argument that the applications against its (process leading to its) provisional findings were premature and rejected the contention that the Commission could cure any shortcomings in the access to confidential information during the remainder of the procedure (or, indeed, even after releasing the provisional findings, as they are still under review and the Commission has until April 2014 to publish its final findings and recommendations). The UK CAT considered that an initial restriction to the amount of information and the conditions for access to that information by counsel of some of the main players involved in the market investigation suffices to taint the procedure with unfairness. However, the UK CAT made no finding as to the appropriate relief and waits for the parties to request a hearing, if needed.

 

In my view, this is a case where 'due process' rights have been upheld to the highest possible level (maybe even to excess), and even in a setting that is not properly leading to the imposition of fines, but more of a regulatory exercise. Instances such as these may become even more common after the EU accedes the EU Convention on Human Rights and, if not properly weighed, may create a significant burden for competition law investigation and enforcement [for general discussion, see my "The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?"].

 

Therefore, it will be interesting to see whether the Competition Commission's investigation in this sector can proceed after this significant blow by the UK CAT and, if so, whether the UK Competition Commission amends significantly its rules on access to evidence. The knock-on effect of this case on 'proper' competition law investigations in infringement procedures by the new Competition and Markets Authority (or the European Commission, as a spillover and due to the anglosaxon influence in Luxembourg) seems hard to predict, but I would submit that it will not be neutral.

AG Cruz Villalon opposes Italian minimum #tariffs for #publicprocurement #certification (C-327/12)

In his Opinion of 5 September 2013 in case C-327/12 Soa Nazionale Costruttori (not available in English), AG Cruz Villalon analyses the compatibility with EU free movement (ie freedom of establishment as per art 49 TFEU) and competition rules (arts 101, 102 and 106 TFEU) of the Italian system of tenderers' certification whereby private certification bodies are legally required to charge minimum mandatory tariffs to the companies seeking to obtain certificates of viability in order to participate in public tenders (as foreseen in art 52 dir 2004/18). 

The most controversial aspect of the system is that it includes a tariff calculation formula that automatically multiplies the rate payable for the certification activities according to the number of tenders for public works for which the applicant company seeks verification. This system was challenged under both competition and free movement rules.

Under the competition analysis, AG Cruz Villalon considers that art 106 TFEU is inapplicable, given that the private certification bodies are not entrusted with 'special or exclusive rights', as defined in Ambulanz Glockner (C-475/99). According to the AG, in Italy, private certification bodies

operate in a market strongly limited, in the sense that there is no cross competition with similar services. That is, the certification of public works companies is a service that, as such, does not compete directly or indirectly with any other, since there are no similar services that a company can use in order to compete in a tender for Italian public works. In such a context, that of a market that could be qualified as "captive", the fact that all [private certification bodies] exercise the special powers that the legislature has decided to entrust the private sector with, excludes any risk of competitive advantage over another market operator. There is no sector that is harmed by allotting ex lege to the [private certification bodies] the power to issue certifications as raised here. Thus, it is not possible to conclude that the Italian State has attributed to [private certification bodies] "special or exclusive rights" within the meaning of Article 106 TFEU. This conclusion implies, obviously, that  that provision is inapplicable to the present case (para 35, own translation from Spanish).

In my view, the argument is rather counterintuitive (since, precisely only private certification bodies can carry out these activities and, consequently, the system does have an element of protection granted to a limited? number of companies that can substantially affect the ability of other undertakings to perform the economic activity in question in the same territory in conditions essentially equivalent, as required in Ambulanz Glockner) but it makes sense (only) on the working condition that any undertaking can request and obtain authorisation to act as a private certification body (as is indeed the case, see para 57 of the Opinion). 

In this scenario, it is the absence of a numerus clausus, rather than the inexistence of an impact on potential competition (which can be highly doubted, as the inexistence of substitutive services is a mere artificial result of the reserve of activity to the benefit of the private certification bodies), that would justify the non-existence of an exclusive or special right under Article 106 TFEU. In my view, hence, the analysis carried out by the AG is blurred and should have been limited to the fact that there is no predetermined (limited) number of authorisations to act as a private certification body and, as a consequence, that market can be considered open and (somehow) competitive.

The AG equally dismisses that the setting of minimum tariffs runs contrary to the State action doctrine on the basis of Articles 4(3) TEU and 101, 102 and 106 TFEU (as described in Arduino C-35/99, and Cipolla C-94/04), given that there is no trace of active involvement of the private certification bodies in the setting of those tariffs (which, in my view, tends to perpetuate the lack of teeth of this theory and continues to significantly restrict the ability of the CJEU to set limits on anticompetitive market behaviour imposed by public authorities--such as setting floors to price competition by way of minimum tariffs...).

In any case, the AG moves past the analysis from the competition law perspective and engages in an assessment of the Italian rules on minimum tariffs for public procurement certification purposes under Article 49 TFEU. After dismissing that private certification bodies exercise public powers (or public authority, which would activate the derogation in art 51 TFEU, but is excluded on the basis of the case law in Commission v Portugal C-438/08, and Commission v Germany C-404/05), the AG clearly considers the minimum tariff system as a restriction of the freedom of establishment and assesses its compatibility with the internal market on the basis of its potential justification on grounds of general public interest (which is accepted) and its proportionality. It is interesting to note that the AG takes into consideration the specific circumstances of the market in order to accept the suitability of the tariffs

the adequacy of mandatory minimum rates must be determined, in this case, in the context of a small size market and in which it is necessary to safeguard the [private certification bodies'] decisional autonomy against possible requirements or interests of their clients. Seen this way, the imposition of a binding mandatory minimum tariff regime by the State is a measure consistent with the purpose of ensuring the quality of the service and the independence of the companies responsible for the certification (para 58, own translation from Spanish).

The analysis of necessity and proportionality of the minimum tariffs as measures designed to ensure the quality and independence of the certification service is then carried out in somehow surprising terms. The AG considers (at paras 61 and 62) that the requirement of independence of the private certification bodies is of such a nature that it justifies the coexistence of a very strict oversight and disciplinary regime enforced by the public contracts authority (Autorità per la vigilanza sui contratti pubblici di lavori, servizi e forniture) AND the minimum tariffs--which, in my view, is clearly excessive, because the element of price negotiation should not affect the regulatory controls in any relevant manner. In my view, the considerations of the AG would justify the existence of minimum tariffs in a multiplicity of markets (such as audit services, for instance), and this should not be accepted as a matter of principle.

However, the AG does take issue with the proportionality of the tariffs and, more specifically, with the fact that they are automatically multiplied (i.e. collected) every time the undertaking seeks to participate in a public contract. According to the AG

65. [...] this system raises serious questions concerning the need of the measure, where certification is requested for various public work tenders. As I said, it is justified that bidders pay a minimum fee required at the time of undergoing certification [...] What does not seem to have enough explanation [...] is that [a private certification body] can automatically multiply the amount of its fees simply because a firm aims to participate in different tenders. The structure, activities, staff, physical, and other features of the company are usually the same, and it is normal that a company with sufficient resources is able to perform various public works at a time, either of low or high values.

66. It is true that in the event that a company aims to participate in several public works the [private certification body] should appreciate its individual situation in the light of the several contracts. Logically the workload of the [private certification body] is increased and it is acceptable that in such circumstances the required minimum rate reflects this increased responsibility. However, a system that automatically multiplies the amount of the required minimum rate depending on the number of works for which undertakings are competing does not respond objectively to the greater burden borne by the [private certification bodies]. On the contrary, the [...] system allows for an evaluation of a single company but applying a mandatory minimum rate much higher than required in the event that it had aimed to submit a single bid.

67. Therefore, and in view of the above, a calculation formula as presented, which in the case of an application for certification for various public works automatically multiplies the amount of the fee depending by the number of intended bids, goes beyond what would be necessary to achieve the pursued objectives of quality and independence. Consequently, I understand that in this specific point the mandatory minimum tariff regime applicable to [private certification bodies], and in particular the calculation formula applicable in case of seeking certification for various public work tenders is not justified by overriding reasons of general interest and therefore not compatible with Article 49 TFEU (paras 65 to 67, own translation from Spanish).

In my view, the conclusion that the AG reaches is appropriate. However, I would rather have the CJEU determining that, in the presence of a sound oversight and disciplinary regime, no minimum tariffs are justifiable, regardless of the proportionality or lack thereof in their calculation.

Risk of 'sweet deals' for public sector #mutuals under the new #EU #publicprocurement rules leading to #monopolisation of social services

Article 76a of the final compromise text for a new Directive on public procurement creates a significant risk of abuse in the award of contracts for social services that may be of particular concern when read side by side with the UK Government's public sector mutualisation strategy.

Article 76a allows contracting authorities to reserve for the participation of given types of organisations (such as ‘public sector mutuals’, for instance) the award of contracts for certain services included in specific categories of the Common Procurement Vocabulary[1] in the areas of health, social and cultural services[2]—which basically comprise all or the most relevant medical services, personal services, educational and training services (including eLearning), sports and cultural services. 

In such cases, the contracting authority will need to make sure that the (type of) organisation chosen to be awarded the contract meets the following requirements: (a) its objective is the pursuit of a public service mission linked to the delivery of the services to be contracted; (b) its profits are reinvested with a view to achieving the organisation’s objective (and where profits are distributed or redistributed, this should be based on participatory considerations); (c) the structures of management or ownership of the organisation performing the contract shall be based on employee ownership or participatory principles, or shall require the active participation of employees, users or stakeholders; and (d) the organisation shall not have been awarded a contract for the services concerned by the contracting authority concerned pursuant to this Article within the past three years. Moreover, the maximum duration of the contract shall not be longer than three years and the call for competition shall make reference to this Article. There is no (maximum) value threshold for this exclusion to be effective.

Given that the Mutuals Taskforce has clearly recommended that the UK Government use the (direct) award of contracts as a tool to support, foster and consolidate the creation of public sector mutuals (Recomm 9), there is a risk that the carve-out (negotiated?) in the new EU public procurement rules leaves the award of such 'start-up contracts' fundamentally unchecked, since there will basically be no EU rules applicable in this case, regardless of the value of the contracts [which is also valid in relation to the EU rules on the control of State aid, which exclude health care and other social services from their scope of application; see art 2 of Decision 2012/21/EU].

Therefore, there is a clear risk that the public sector reform strategy ends up creating (3-year long, local) monopolies for the provision of those services in the hands of the newly spun-off public sector mutuals, which may extend their dominance beyond that point in time as incumbency advantages pile up. That would result in distortions of competition similar to those just identified by the Competition Commission in the market enquiry on private health care services and, in my view, is an undesirable prospect. 

In that regard, then, the OFT (and, soon enough, the CMA) seems to have a mounting amount of pressure to uphold its commitment in the 2013-14 Annual Plan to "focus on IT and local government issues in particular and work with government partners on a range of issues relating to the public sector reform agenda to ensure that government interventions maintain competitive markets. In addition to advocacy and influencing, [the OFT] will consider using the full range of tools at our disposal to tackle any breaches of competition law identified in public service markets" (emphasis added).

Otherwise, the structural changes that non-competitive mutualisation under the umbrella of Article 76a of the new EU public procurement rules can create may be difficult (if not impossible) to revert in the future. At any rate, however, the difficulty derived from the blurred application of competition rules in the health care sector after the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 were approved may require some creative enforcement efforts on the part of the OFT (and the European Commission).

---

[1] See the consolidated version available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2002R2195:20090807:EN:PDF, last accessed 2 September 2013.

[2] The specific references are 75121000-0 (Administrative educational services), 75122000-7 (Administrative healthcare services), 75123000-4 (Administrative housing services), 79622000-0 (Supply services of domestic help personnel), 79624000-4 (Supply services of nursing personnel), 79625000-1 (Supply services of medical personnel), 80110000-8 (Pre-school education services), 80300000-7 (Higher education services), 80420000-4 (E-learning services), 80430000-7 (Adult-education services at university level), 80511000-9 (Staff training services), 80520000-5 (Training facilities), 80590000-6 (Tutorial services), from 85000000-9 to 85323000-9 (fundamentally, all types of medical services), 92500000-6 (Library, archives, museums and other cultural services), 92600000-7 (Sporting services), 98133000-4 (Services furnished by social membership organisations), and 98133110-8 (Services provided by youth associations). 

Principle of #competition to be recognised in new #EU #PublicProcurement Rules

In the final compromise text of 12 July 2013 for a new Directive on Public Procurement (available here), the principle of competition is clearly reinstated (see my advocacy for this here) and bound to be clearly and expressly recognised in Article 15 on 'Principles of Procurement'. 

In the very clear drafting, the new rules are bound to clarify that:

The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement was made with the intention of unduly favouring or disadvantaging certain economic operators (emphasis added).

It will now be without doubt that market integration in procurement must go hand in hand with promoting and protecting effective competition for public contracts, and that the new rules are ultimately based on this general principle of EU Law already explicitly recognised in the public procurement case law and, more timidly, in its regulation [Sanchez Graells (2009) 'The Principle of Competition Embedded in EC Public Procurement Directives').

This will strengthen the push towards a more competition-oriented public procurement system and, in my view, will boost some of the interpretative proposals that seek to maximise participation in procurement and to minimise the anticompetitive effects of the activities of the public buyer [for my fully-detailed proposals, see Sanchez Graells (2011), Public Procurement and the EU Competition Rules, Hart Publishing].

It is definitely a most welcome development in EU public procurement rules!

UK's Competition Commission issues provisional findings on private healthcare markets

The UK's Competition Commission (CC) has published today its provisional findings and remedies to improve competition in private healthcare markets. All relevant documents can be accessed here.

The CC's provisional findings show a situation where hospitals hold a significant degree of market power derived from a lack of local competition (particularly in the case of companies that own clusters of hospitals in a given region), which is not compensated by the countervailing power of (even the largest) private medical insurance companies. The CC is consequently envisaging to recommend some structural remedies that may include the divestiture of up to 20 hospitals in different areas of the UK.

In my view, the analysis of this sector is difficult to understand because it is conducted in isolation. My impression is that public and private healthcare markets should be analysed together--or that, at least, their connections should receive more attention--since public healthcare seems an obvious constraint on the offer and demand of private healthcare. If that was correct, then, the proposed structural changes in this sector should take into consideration the significant reform of the National Health System (NHS) that is taking place and the effects that the recently adopted National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 may generate in the provision of (public) healthcare in the UK in the near future.

In any case, it seems clear that the competitive landscape of the healthcare sector in the UK is about to suffer a significant change (in both its public and private dimensions) and that this is an area that deserves some careful policy-making for its immediate impact on the welfare of citizens and the costs (for private and public entities) of continuing to offer them satisfactory standards of healthcare. In that regard, it will be interesting to see what are the final remedies and recommendations due to be adopted by the CC in April 2014.

CJEU 'warns' against tax breaks based on employment goals: State aid rules (may) oppose them (C-6/12)

In its Judgment of 18 July 2013 in case C-6/12 P Oy, the Court of Justice of the EU (CJEU) assessed the compatibility with EU State aid rules of the Finnish regime of deduction of tax losses by undertakings subjected to corporate control changes (see a Finnish comment here). 

In my view, the most interesting part of the CJEU Judgment in the case lies not with the "boilerplate" analysis of the Finnish tax law provisions but, remarkably, with the not so concealed warning it has sent out to Member States that may be tempted to create 'too soft' tax regimes for companies which activities may have a "particular impact on employment".

Basically, Finnish tax rules allow companies to carry their losses forward up to 10 years after incurring them for the purposes of compensating their benefits and diminishing their tax burden. However, in order to prevent strategic acquisitions of 'bags of losses' within the shields of inactive companies, the Finnish tax code establishes a special regime in case of changes of corporate control. According to the relevant provisions, "losses sustained by a company are not deductible if, during the year in which they arise or thereafter, more than half of the company’s shares have changed ownership otherwise than by way of inheritance or will, or more than half of its members are replaced." However, "the competent tax office may, for special reasons, where it is necessary for the continuation of the activities of the company, authorise the deduction of losses when such an application is made" (emphasis added). 

By way of a guidance letter, the Finnish Tax Directorate interpreted the concept of "special reasons" and considered that, inter alia, could include the fact that the company requesting permission to carry fiscal losses forward despite a change of corporate control had "particular impact on employment". Indirectly, this raised the issue whether the granting of such an authorisation based on (non-strictly) tax reasons would meet the selectivity requirement of Article 107(1) TFEU and, consequently, could be challenged under the EU State aid rules.

In a very clear manner (despite the non-binding general tone of the Judgment, where the CJEU claims not to have sufficient information to reach a final position), the CJEU has indicated that:

26 […] the application of an authorisation system which enables losses to be carried forward to later tax years, such as that in question in the present case, cannot, in principle, be considered to be selective if the competent authorities have, when deciding on an application for authorisation, only a degree of latitude limited by objective criteria which are not unrelated to the tax system established by the legislation in question, such as the objective of avoiding trade in losses.

27 On the other hand, if the competent authorities have a broad discretion to determine the beneficiaries or the conditions under which the financial assistance is provided on the basis of criteria unrelated to the tax system, such as maintaining employment, the exercise of that discretion must then be regarded as favouring ‘certain undertakings or the production of certain goods’ in comparison with others which, in the light of the objective pursued, are in a comparable factual and legal situation (see, to that effect, C‑107/09 P Commission and Spain v Government of Gibraltar and United Kingdom [2011] ECR I‑0000,  paragraph 75). […]

30 […] if the competent authorities were to be able to determine the beneficiaries of the deduction of losses on the basis of criteria unrelated to the tax system, such as maintaining employment, such an exercise of that power should then be regarded as favouring ‘certain undertakings or the production of certain goods’ in comparison with others which, in the light of the objective pursued, are in a comparable factual and legal situation (C-6/12 at paras 26 to 30, emphasis added).

In my view, the CJEU has gone out of its way in this case (where it could have simply declined to provide an answer on the basis of the lack of information submitted by the referring court) with the aim of sending out a clear message to the governments of all Member States: if they intend to use (selective) tax measures to prevent negative impacts on employment, they need to obtain approval by the European Commission first.

This is not a revolution and may even have a second order of importance but, in my view, the CJEU has clearly backed the European Commission's efforts to control Member States' measures to (continue trying to) react to the economic crisis and has clearly indicated that corporate taxation cannot be used as a tool for these purposes. We shall see if the message reaches the intended ears...

Happy Summer Time

http://youtu.be/ppIp0y0_GsE

Happy Holidays Everyone! How to Crack a Nut will be back in mid-August.

AG Jääskinen revisits PreussenElektra and minimises implications of Doux Elevages (C-262/12)

As a continuation of the Judgment of the Court of Justice of the EU of 30 May 2013 in case C-677/11 Doux Élevages and Coopérative agricole UKL-AREE, where the CJEU (re)analysed the concept of 'State aid' and stressed that aid cannot exist if the economic advantage under analysis is not funded by 'State resources' and there is no 'imputability to the State' (commented here); in his Opinion of 11 July 2013 in case C-262/12 Vent De Colère and Others, Advocate General Jääskinen has assessed a French scheme of support to electric distribution companies and revisited the well-known PreussenElektra criteria.

In his analysis, AG Jääskinen uses the two main criteria of 'imputability' and existence of 'State resources' in order to determine whether some contributions paid by final customers of electricity--which are then used to compensate for the costs of the mandatory purchase of wind energy by electricity distributors at above the market prices--amount to State aid.

Very briefly, under the controverted scheme, producers of wind energy benefit from an obligation of mandatory purchase of their electricity by energy distributors at prices above the market. Distribution companies can then claim full compensation for those additional costs (which are classed as costs derived from public service obligations) from CDC (Caisse des Dépôts group, which is a "public group serving general interest and economic development"). CDC's compensation is ultimately financed by the final consumers of electricity, who pay that compensation as part of their electricity bill.

According to AG Jääskinen, the scheme constitutes State aid because there is both State imputability and the measure is financed by State resources. As to the first element, the AG considers that the fact the contribution to be paid by consumers is directly determined in a law implies that the adoption of such a measure is imputable to the public powers of the French State (para 32 of hi Opinion). 

It is interesting to stress that the AG distinguishes this case from the very recent Doux Elevages Judgment by stressing that the intervention of the State in this case was not of a 'merely instrumental' nature, but that the French State took full ownership of the compensation scheme for producers of wind electricity (para 40).

As to the more controversial issue of the consumer contributions amounting to the existence of 'State resources', the AG stresses that 'the fact that these resources constantly remain under public control and, therefore, are available to the competent national authorities, suffices to qualify them as State funds to finance the measure, which then falls within the scope of Article 107(1) TFEU' (para 34, own translation from Spanish). AG Jääskinen confirms this positive finding in view of the control that the French State exercises over CDC, the status of CDC as the organism that intervenes in the transmission of the funds between consumers and distributors of energy, and the nature of the controverted funds.

In my view, it is worth noting that AG Jääskinen advocates for a rather streamlined test of 'origin/absorption' of private funds once they are managed by a public entity by clearly submitting that he does 'not agree with the general statement that the public nature of an organism does not entail that the resources available to it  are to be regarded as State funds' (para 46, own translation from Spanish). I think that this is an appropriate approach that would overcome a formalistic assessment of the avenues that financial support follows and, in the end, would broaden the definition of State aid under a more functional approach.

Also, and once more, AG Jääskinen distinguishes this case from the Doux Elevages Judgment by stressing the fact that all consumers are indiscriminately affected by the compensation scheme (regardless of their use of wind energy or not) and, consequently, the scheme is of a (quasi)fiscal nature (at least, this is my understading of his considerations in paras 50-54 of his Opinion). I think that this should also be welcome, as such an approach would contribute to limit the possibilities for States to effectively create (disguised) aid schemes by means of (pseudo)fiscal interventions.

In general, in my opinion, AG Jääskinen's Opinion in Vent de Colere should be welcome, not least because of his clear and well-thought proposals to distinguish (and restrict) the implications of the Doux Elevages Judgment. 

Let's hope that the CJEU follows him and also adopts a clear position towards limiting the potentially far-fetched implications of Doux Elevages.

CJEU protects right to challenge public procurement decisions by non-compliant tenderers (C-100/12)

In its Judgment of 4 July 2013 in case C-100/12 Fastweb, the Court of Justice of the European Union (CJEU) has strengthened the effectiveness of the public procurement remedies system by protecting the right to challenge (illegal) award decisions by tenderers that do not comply with all the (technical) requirements imposed by the tender documentation themselves.

In the case at hand, a disappointed tenderer challenged the award decision on the basis that none of the two awardees in a framework agreement complied with the technical specifications set by the contracting authority. The awardees of the contract intervened in the procedure and raised a counterclaim stating that the challenger did not comply with the technical specifications (either). Under Italian law, the counterclaim had to be analysed first and, if successful, would bar the challenge on the basis of a lack of locus standi of the disappointed tenderer (who could not have been awarded the contract anyway and, consequently, would be prevented from challenging the outcome of the procedure).

The CJEU found such an interpretation of the rules on active standing contrary to the EU public procurement remedies directives (as amended by dir 2007/66), inasmuch as 'the aim of [those directives] is to ensure that decisions made by contracting authorities in breach of European Union law can be effectively reviewed' (C-100/12 at para 25). Following a functional approach that deserves praise, the CJEU found that:

a counterclaim filed by the successful tenderer cannot bring about the dismissal of an action for review brought by a tenderer where the validity of the bid submitted by each of the operators is challenged in the course of the same proceedings and on identical grounds. In such a situation, each competitor can claim a legitimate interest in the exclusion of the bid submitted by the other, which may lead to a finding that the contracting authority is unable to select a lawful bid (C-100/12 at para 33).

Consequently, the CJEU has determined that the counterclaim concerning the locus standi of a tenderer that should have been excluded (or whose tender should have been rejected) cannot preempt the analysis of the legality of the award decision adopted by the contracting authority. 

By (implicitly) adopting such a broad interpretation of the concept of 'any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement' [art 1(3) dir 2007/66], the CJEU has increased the chances of attaining effective and substantive review of the award decisions adopted by contracting authorities, regardless of the specific procedural rules within each of the EU Member States (as mandated by the principle of effectiveness of EU law) and seems to point clearly towards a principle or criterion of 'favor revisionis', so that review bodies and courts tend to assess the material conditions of award decisions, despite the presence of apparent procedural difficulties to carry out such an assessment. 

In my opinion, this is a favourable development of EU public procurement law and one that is conducive to ensuring an absence (or correction at review stage) of distortions of competition. As argued elsewhere [A Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart, 2011) pp. 353-355], my view is coincidental with the approach adopted by the CJEU in that 

the best reading of the standing requirements imposed by Directive 2007/66 is that Member States have to adopt a broad approach to the setting of detailed rules regulating active standing to access bid protests and review procedures, and that they have to do so attending both to the criterion of participation in the tender, and to the criterion of the effects actually or potentially generated by the alleged infringement—so that bid protest and review procedures are open to any party that has taken part in the tender or that can otherwise prove that it has been harmed or risks being harmed as a result of the alleged infringement, regardless of its actual participation (or lack of it) in the specific tender that gave rise to it.

AG (dangerously) stresses possibility to indirectly challenge State Aid decisions via Art 267 TFEU

In his Opinion of 27 June 2013 in case C-284/12 Deutsche Lufthansa, Advocate General Mengozzi stressed that (provisional) Decisions of the European Commission in State Aid cases are open to (indirect) challenges via a reference for a preliminary ruling on their validity under Article 267 of the Treaty on the Functioning of the European Union. 

In the case at hand, the complainant before the Commission seeked interim measures against the beneficiary of a measure that the Commission qualified as State aid in its decision to open a formal investigation. The domestic court competent in the matter remained unconvinced by the Commission's preliminary assessment and seeked ways not to adopt interim measures on the basis of such an assessment. It referred the following question to the CJEU:

Does the uncontested decision of the Commission to initiate the formal investigation procedure under Article 108 paragraph 3, second sentence, result in the national court seised of a procedure which aims to recover payments already made and the prohibition of future payments being bound by the legal assessment expressed by the Commission in that decision on the state aid character of the measure in question?

In paragraph 42 of his Opinion, AG Mengozzi indicates that:

under the combined effect of Article 108 paragraph 3, last sentence, and the qualification as a new aid of the controverted measure [in the provisional decision of the Commission], the opening of the formal investigation procedure generates the obligation of the Member State concerned to suspend its execution from the date of adoption of the decision to open the investigation and until a final decision is reached, regardless of the objective nature of the controverted measure [...]. National courts will therefore be obliged to take all necessary measures to ensure compliance with this requirement and to eliminate the consequences of any breach thereof, regardless of any previous assessment of the measure under Article 107, paragraph 1. In case national courts harbour doubts about whether the requirements to qualify the measure as aid are met in the given case, which justify the initiation of the formal investigation procedure, national courts may refer a question of validity under Article 267 TFEU, first paragraph, letter b) (Opinion in C-284/12 at para 42, own translation from Spanish).

This comes to stress the (procedural) difficulties derived from the joint competence of domestic courts and the Commission to interpret and apply the notion of aid under Article 107(1) TFEU--as stressed in paragraph 10 of the Commission Notice on the enforcement of State Aid law by national courts, which also metions the possibility for a preliminary reference in paragraph 90, but (impliedly) in a context where no concurrent Commission investigation is in place--and can create significant complications by way of parallel procedures (before the Commission, the national courts and the CJEU) in one and the same case. Such duplication of procedures can only result in a waste of resources and, most likely, in legal uncertainty and potentially contradictory outcomes.

In my view, leaving the door open for a reference for a preliminary ruling (of validity) against a provisional assessment of the European Commission is excessively deferential towards domestic courts and can have significant undesirable effects. This is not satisfactory and would justify the adoption of a more streamlined procedural system whereby national courts would have to suspend their powers of interpretation of the concept of aid and limit their role to the adoption of effective interim measures when the Commission is still completing its investigation on a given measure. 

In my view, this could be easily achieved by simply applying Article 4(3) of the Treaty on European Union, since the need for sincere cooperation in this type of matters seems out of the question. It will be interesting to see how far the CJEU is willing to go in the balance between the sphere of jurisdiction/competence of domestic courts and ensuring a mangeable procedural system in State aid law.

CJEU gives blow to competition lawyers: Your (legal) opinion is worthless (C-681/11)

In its Judgment of 18 June 2013 in case C-681/11 Schenker and Others, the Court of Justice of the European Union has settled the difficult issue of whether an error with regard to the lawfulness of market conduct is unobjectionable in the case where the undertaking acts in accordance with advice given by a legal adviser experienced in matters of competition law and the erroneous nature of the advice was neither obvious nor capable of being identified through the scrutiny which the undertaking could be expected to exercise.

The CJEU has gone beyond the very strict test proposed by Advocate General Kokott (see comments here) and has very bluntly determined that

38 […] the fact that the undertaking concerned has characterised wrongly in law its conduct upon which the finding of the infringement is based cannot have the effect of exempting it from imposition of a fine in so far as it could not be unaware of the anti-competitive nature of that conduct. 
40 […] the national competition authorities may exceptionally decide not to impose a fine although an undertaking has infringed Article 101 TFEU intentionally or negligently. That may in particular be the case where a general principle of European Union law, such as the principle of the protection of legitimate expectations, precludes imposition of a fine. 
41 However, a person may not plead breach of the principle of the protection of legitimate expectations unless he has been given precise assurances by the competent authority (see Case C‑221/09 AJD Tuna [2011] ECR I‑1655, paragraph 72, and Case C‑545/11 Agrargenossenschaft Neuzelle [2013] ECR I‑0000, paragraph 25). It follows that legal advice given by a lawyer cannot, in any event, form the basis of a legitimate expectation on the part of an undertaking that its conduct does not infringe Article 101 TFEU or will not give rise to the imposition of a fine. 
43 Consequently, the answer to the first question is that Article 101 TFEU must be interpreted as meaning that an undertaking which has infringed that provision may not escape imposition of a fine where the infringement has resulted from that undertaking erring as to the lawfulness of its conduct on account of the terms of legal advice given by a lawyer or of the terms of a decision of a national competition authority (C-681/11at paras 38 to 43, emphasis added).

As I said already, but particularly as a result of the very blunt approach to this matter by the CJUE, in my view, in practice, this approach may generate the result that (very expensive, specialised) legal advice in EU Competition law matters is not worth the paper it is written on--and, consequently, undertakings may not even bother seeking (and paying for) it. 

 
Moreover, the level of pressure under which competition specialists will now operate may make it impossible for them to effectively cover (ie insure) their potential liability at reasonable costs--thereby having a negative effect on the availability and affordability of good quality legal advice in this field.

I suggested that the CJEU should depart from the Opinion of AG Kokott by adopting a more flexible approach and setting a less demanding standard for this defence (and,consequently, creating some room for an effective 'serious legal advice' defence).

In my view, that would have been preferable because resort to 'sound legal advice' can be coupled with the requirements connected with the implementation of effective competition compliance programs for the purposes of giving undertakings a chance of ever succeeding in proving lack of intention or unobjectionable conduct. In that regard, there seems to be some need for further consistent developments of the rules applicable in the 'self-assessment' paradigm created by Regulation 1/2003. 

However, today's Judgment provides anything but consistency in that regard and gives a strong blow to everyone involved in legal advice in competition law matters. It seems unclear to me that the net outcome will be more (investment in) compliance with EU Competition Law.

Current Proposals on Exclusion, Qualitative Selection and Shortlisting in EU Public Procurement

I have just uploaded on SSRN a short new paper, which provides some initial thoughts on the new rules on exclusion, qualitative selection and short-listing in the 2011 proposal for a new public sector procurement Directive, as amended by the 30 November 2012 Compromise Text published by the Council. The assessment is based on a comparison with the equivalent rules under current Directive 2004/18/EC, as well as on the implementation difficulties that I envisage.

In the paper, I reach the following conclusions:

As this brief overview of the novelties and changes proposed by the Compromise Text on the rules concerning exclusion, qualitative selection and short-listing has shown, the Commission has presented (and the Council is willing to allow for) reform proposals that aim to generate some simplification and flexibilisation of the current rules. The Compromise Text has also tried to clarify and improve the drafting of the current Directives and to consolidate requirements and avoid duplication where possible.

The search for flexibility and simplification is particularly clear concerning the rules that aim to make exclusion of economic operators a dynamic activity (§2.2), that increase the scope and power for contracting authorities to seek clarifications and source additional information from tenderers (§2.4), that allow for an evaluation of the effectiveness of self-cleaning measures adopted by economic operators that should otherwise be excluded (§3.3), or that allow for a ‘certificate-less’ qualitative selection of candidates, subject to an ex post verification of the self-declarations submitted (§4.5). However, such flexibility does not come without risks and contracting authorities must tread lightly if they want to avoid challenges based on potential abuses of their (increased) administrative discretion. Moreover, the extent and weight of the obligations derived from the principle of good administration are expanding and this needs being duly taken into consideration.

There are also clear indications of a clearer integration of public procurement and competition rules (such as the possibility to exclude bid riggers, §3.2) and of the use of public procurement as a lever to ensure compliance with social, labour and environmental rules, in a classic example of pursuit of secondary (or horizontal) considerations in procurement (§2.3). This shows that, despite the search for simplification, the (asymmetrical) integration of public procurement and other economic and non-economic policies by necessity depicts a more complicated scenario that requires further professionalism and capacity building in the Member States, as well as more cooperation between contracting authorities and other competent authorities, such as national competition or environmental agencies.

All in all, in my view, EU public procurement regulation continues becoming more and more sophisticated (and complicated), the Compromise Text does not solve all problems and creates some new and, consequently, public procurement litigation will continue playing a key role in the clarification of the applicable rules.

 

Enforcement of State Aid Rules for SGEIs before Public Procurement Review Bodies and Courts

I just posted a new paper on SSRN: Enforcement of State Aid Rules for Services of General Economic Interest Before Public Procurement Review Bodies and Courts. 

I will be presenting it at the "Competition and State Aid Litigation – The Effect of Procedures on Substance", CLaSF/University of Luxembourg Conference, 19-20 September 2013.

ABSTRACT: One of the criticisms against the new rules applicable to the granting of State aid to finance the provision of services of general economic interest in the "Almunia package" is that enforcement is likely to be their weakest point. Similarly, in the more general setting of the "private" enforcement of State aid rules, the 2006 Study on the Enforcement of State Aid Law at National Level recommended that the European Commission created a common minimum standard of remedies applicable in all EU jurisdictions, stressing that "one possible means of creating such a standard would be to adopt a remedies directive for State aid cases, which could be modelled on the remedies directive for procurement cases".

Building up on these considerations, the extent to which the existing remedies within the system for the enforcement of EU public procurement rules provide an effective platform to enforce EU State aid rules (and, more specifically, those for the financing of SGEIs) before public procurement review bodies and courts is assessed. The paper describes the main groups of cases where public procurement litigation "phagocytises" State aid considerations. It then proceeds to explore the viability, from an EU law perspective, of configuring public procurement review bodies and courts as "State aid courts" for the purposes of the simultaneous enforcement of both sets of rules in a single setting of "private" litigation. It also submits that using the public procurement system in this way provides effective remedies for the enforcement of the Almunia Package for the financing of SGEIs.