Another excessively formalistic Judgment on conflicts of interest in public procurement (T-403/12)

Following its incipient line of public procurement case law that sets the burden of proof of conflicts of interest too high (see here), the General Court (GC) of the Court of Justice of the European Union has once more taken a very formalistic approach to the assessment of situations were certain bidders should be presumed to hold an unfair competitive advantage. In its Judgment of 13 October 2015 in Intrasoft International v Commission, T-403/12, EU:T:2015:774, the GC has adopted a  very formalistic approach to the 'objective' assessment of an unfair competitive advantage derived from prior involvement of a tenderer in the preparation of documentation used in a specific tender. Once more, the case involves procurement by the EU Institutions, but the legal arguments and the reasoning of the GC is relevant for procurement under the general EU rules.

In Intrasoft International v Commission, the excluded tenderer had been involved in the preparation of tender documents in an indirect way or as a result of relative happenstance. Indeed, the tenderer had not drafted documents specifically for the tender at hand, but it had been involved in the drafting of tender documentation for a previous project that ended up being 'reused' by the contracting authority. This situation was assessed in conflicting ways between the contracting authority (the European Commission) and the excluded tenderer.

According to the Commission, the (indirect) previous involvement sufficed to provide the tenderer with an undue competitive advantage that required its exclusion from the tender process as the only remedy to that conflict of interest. As summarised by the GC

the Commission argues that ... a certain number of documents drafted by the applicant under the previous contract were joined to the terms of reference for the new tendering procedure. These documents ‘constitute[d] the basis for an important portion of the activities due under the ongoing tender’. The Commission does not dispute, as the applicant observes, that the documents were made available to all potential candidates. However, it contends that the applicant had access to them before the other tenderers and thus enjoyed a competitive advantage, in particular, in searching for qualified experts. Furthermore, while not claiming that this was actually the situation in the present case, the Commission suggests that, having participated in their drafting, the applicant would have been in a position to draft the documents in a way that gave it a competitive advantage for the procurement contract at issue (T-403/12, para 65).

Not surprisingly, the excluded tenderer disagrees and has an opposite assessment of the advantage derived from the previous (indirect) involvement in the drafting of the tender documentation

the applicant states that it was not involved in drafting the terms of reference or the project-related requirements for [the specific tender]. The applicant states, in addition, that it did not have in its possession any more information than that available to all the tenderers. Consequently, according to the applicant, the fact that it had taken part in drawing up a number of technical documents in connection with another tendering procedure could not, in itself, constitute a sufficient reason to draw the unfavourable inference that the applicant was subject to a conflict of interest. Further, it considers that it is apparent from the Court’s case-law (judgment of 3 March 2005 in Fabricom, C-21/03 and C-34/03, ECR, EU:C:2005:127) that the experience acquired under a previous contract is not capable of distorting competition, because if that were the case most tenderers would have to be excluded from new tendering procedures on that ground (T-403/12, para 63).

In addressing these diverging assessments of the situation of conflict of interest potentially affecting the excluded tenderer, the GC adopts a very formalistic approach, which builds up as follows:

76 The awarding authorities are under no absolute obligation to exclude systematically tenderers in a situation of a conflict of interests, such exclusion not being justified in cases in which it is possible to show that that situation had no impact on their conduct in the context of the tender procedure and that it entails no actual risk of practices liable to distort competition between tenderers. On the other hand, the exclusion of a tenderer where there is a conflict of interests is essential where there is no more appropriate remedy to avoid any breach of the principles of equal treatment of tenderers and transparency (judgment in Nexans France v Entreprise commune Fusion for Energy, [T-415/10], EU:T:2013:141, paragraphs 116 and 117).

79 It is apparent from the case-law ... that the reasoning in terms of risk of conflict of interests requires a concrete assessment, first, of the tender and, second, of the situation of the tenderer concerned, and that the exclusion of that tenderer is a remedy designed to ensure respect for the principles of transparency and equality of opportunity for tenderers.

80 In order to determine whether, in the present case, there has been an infringement ... it is, therefore, necessary to examine, in the context of an objective analysis without taking into account the applicant’s intentions, whether the risk of a conflict of interests stems from the applicant’s situation and from a concrete assessment of its tender.

81 In the first place, it should be noted that, according to the Commission, the exclusion of the applicant because of a conflict of interests has the purpose of ensuring observance of the principle of equal treatment of tenderers. It argues that the applicant had access, before the others, to certain documents used as the basis for some of the activities connected with the call for tenders at issue, on the ground that the applicant was part of the consortium which drafted the documents in question for another call for tenders. It is apparent from the letter of 10 August 2012 that that access would have made available to the applicant ‘privileged information’ ... The Commission therefore takes the view, in accordance with what appears in the letter in question, that that access, before the other tenderers, would have given the applicant a competitive advantage in relation to those tenderers.

82 However, it cannot be accepted that the risk of a conflict of interests can be based on the mere fact that the applicant had access, before the other tenderers, to the documents specific to another call for tenders because it belonged to the consortium which prepared those documents which, subsequently, were retained to be used as a reference for the activities associated with the call for tenders at issue in the present case (T-403/12, paras 76 and 79-82, emphasis added).

This first part of the argument seems to follow the general Fabricom approach against instances of automatic exclusion of tenderers previously involved in the design of tender procedures. However, the specific application of this approach to the circumstances of the case becomes very quickly very formal and restrictive by putting what I see as excessive reliance on the fact that the tender documents 'originally belonged' to a different procedure or, in other words, were not exclusive for the tender procedure at hand. That part of the GC's argument goes as follows:

84 Within the meaning of the case-law ... the risk of a conflict of interests exists for the person responsible for the preparatory work for a public contract who participates in that same contract. In this respect it should be noted that, when the Court of Justice used the expression ‘preparatory work’ at paragraph 29 of the judgment in Fabricom, cited in paragraph 63 above (EU:C:2005:127), it was referring to work carried out in the context of one and the same call for tenders.

85 Therefore, the Commission was not entitled to treat the preparation of documents drafted in the course of another call for tenders in the same way as preparatory works under the tendering procedure at issue, within the meaning of the case-law mentioned at paragraph 63 above, unless to show objectively and specifically, first, that those documents had been prepared in the light of the tendering procedure at issue and, secondly, that they had given the applicant a real advantage. If this is not demonstrated, the documents prepared in the course of another tendering procedure, and chosen subsequently by the contracting authority as a reference for part of the activities in a different tendering procedure, are not considered ‘preparatory works’ within the meaning of the case-law previously cited ...

86 In the present case it must be stated that the applicant’s exclusion from the award of the contract was based on the mere fact that it was part of a consortium which drafted the documents under a previous tendering procedure, whereas it has not been argued that the other tenderers did not have access to those same documents in sufficient time. Furthermore, the preparation of those documents did not involve the applicant’s participation in the preparation of the tendering specifications in the call for tenders at issue. Therefore, it has not been established that the applicant was in possession of more information than the other tenderers, which would have amounted to a breach of the principles of equal treatment and of transparency.

87 It follows that the documents at issue do not constitute ‘privileged information’ ... The exclusion of the applicant, contrary to what is claimed by the Commission, is not therefore covered ... and is thus not justified by an infringement of the principles of equal treatment and transparency.

88 Moreover, to classify the documents prepared in the context of another tendering procedure as ‘preparatory work’, on the basis that they have been retained by the contracting authority as a reference for the activities connected to a subsequent tendering procedure, would lead, as the applicant rightly maintains, to it being automatically considered that the experience acquired through participation in an earlier call for tenders is liable to distort competition (T-403/12, paras 84-88, emphasis added).

The specific decision in the case at hand resulted in an annulment of the exclusion decision, but primarily on the basis of lack of evidence of the actual advantage enjoyed by the tenderer previously (indirectly) involved in the preparation of tender documentation. 

Beyond the specific case, the formal approach taken by the GC can create difficulties in actually excluding tenderers with a previous indirect involvement in the preparation of documents used in a specific tender process, particularly because the test created in para 85 of Intrasoft International v Commission comes to set a very high burden of proof that will be hard to discharge: the contracting authority cannot 'treat the preparation of documents drafted in the course of another call for tenders in the same way as preparatory works under the tendering procedure at issue, unless to show objectively and specifically, first, that those documents had been prepared in the light of the tendering procedure at issue and, secondly, that they had given the applicant a real advantage'. Such element of 'linkage' to the specific tender will definitely be very problematic. In my opinion, it can also infringe the general requirement that the assessment of conflicts of interest be totally objective, as stressed by the GC itself in this same case: 

The concept of a conflict of interests is objective in nature and, in order to establish it, it is appropriate to disregard the intentions of those concerned, in particular whether they acted in good faith (see judgment of 20 March 2013 in Nexans France v Entreprise commune Fusion for Energy, T-415/10, ECR, EU:T:2013:141, paragraph 115 and the case-law cited) (T-403/12, para 75, emphasis added).

If the expression 'prepared in the light of the tendering procedure at issue' is constructed to require (positive, recorded) knowledge by the tenderer preparing the documentation that it would be used in more than one tender procedure, then the GC may have just created a requirement of probatio diabolica where it is hard to see how that could be proved in cases where the 'reuse' of the documentation is decided subsequently to the involvement of the tenderer or, more importantly, where it is decided from the beginning but that decision is informal or never recorded (and regardless of it actually being disclosed to the tenderer participating in its preparation). 

Once more, thus, the development of the case law on conflicts of interest in public procurement under a strict and formalistic approach seems to leave a number of questions open. It will be interesting to see how the Court of Justice itself addresses them if they ever reach its docket.

CJEU implicitly rejects GC's views on subjective assessment of two-part State aid measures under Art 107(1) TFEU (C-15/14)

In its Judgment in Commission v MOL, C-15/14, EU:C:2015:362, the CJEU upheld the previous Judgment of the GC where the selectivity of two-part State aid measures was assessed with very generous deference towards the State's exercise of regulatory powers (which I criticised here). 

 

The CJEU assessed the criticism by the Commission of the GC's position (T-499/10, paras 64 and 65) that the presence of a selective advantage cannot be deduced from the mere fact that the operator is left better off than other operators when the Member State concerned justifiably confined itself to exercising its regulatory power following a change on the market. 

 

Remarkably, the Commission took issue with the fact that the General Court linked "the assessment of the selective nature of the ... agreement, and therefore the measure at issue, to whether or not the Member State concerned had the intention, at the time of concluding that agreement, of protecting one or more operators from the application of a new fee regime" (C-15/14, para 85, emphasis added). As the CJEU stresses

According to the Commission, the General Court thus disregarded the settled case-law of the Court of Justice to the effect that Article 107(1) TFEU defines State interventions on the basis of their effects, and independently of the techniques used by the Member States to implement their interventions (see, inter alia, judgments in Belgium v Commission, C‑56/93, EU:C:1996:64, paragraph 79; Belgium v Commission, C‑75/97, EU:C:1999:311, paragraph 25; British Aggregates v Commission, C‑487/06 P, EU:C:2008:757, paragraph 89; and Commission v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraphs 91, 92 and 98) (C-15/14, para 86).

I had also criticised the GC for the inclusion of the element of "intention" in its previous Judgment. However, I also expressed doubts as to the CJEU's willingness to side by the GC. In my view back then,

If Article 107(1) TFEU is meant to avoid distortions of competition in the internal market, when confronted with sequential, two-part or complex aid measures, the fact that they all formed part of a 'master plan' from the outset or are the 'random or supervening' result of discrete interventions should be irrelevant. Otherwise, the burden of proving 'distortive intent' from the outset may simply make it impossible to pursue these cases. However, it may well be that the remarks made by the GC in para 67 of MOL v Commission will remain a 'mere' obiter dictum and that the assessment of two-part or complex measures will remain much more objective in the future.

Consequently, I was hoping that the CJEU would quash this part of the Judgment in T-499/10. However, the CJEU rejected the argument of the Commission and determined that the GC's argumentation in paras 64 to 67 and 82 of the Judgment in T-499/10 was not vitiated by any error of law. I disagree with the CJEU's arguments to support the GC's position, which deserve close scrutiny (below). However, given that the CJEU has managed to uphold the GC's reasoning and at the same time stress that two-part or complex State aid measures must be assessed without any reference to the "intention" of the Member State, I agree with the outcome of the case.

 

According to the CJEU,

92 ... the General Court stated, in paragraph 67 of the judgment under appeal, that [under] the case-law of the Court of Justice, ... for the purposes of Article 107(1) TFEU, a single aid measure may consist of combined elements on condition that, having regard to their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, they are so closely linked to each other that they are inseparable from one another (judgment in Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others, C‑399/10 P and C‑401/10 P, EU:C:2013:175, paragraphs 103 and 104 and the case-law cited).

93 In that context, the General Court emphasised, in paragraph 67 of the judgment under appeal, that a combination of elements such as that relied upon by the Commission in the decision at issue may be categorised as State aid when the State acts in such a way as to protect one or more operators already present on the market, by concluding with them an agreement granting them fee rates guaranteed for the entire duration of that agreement, while having the intention at that time of subsequently exercising its regulatory power, by increasing the fee rate so that other market operators are placed at a disadvantage, be they operators already present on the market on the date on which that agreement was concluded or new operators.

94 It was in the light of those considerations that the General Court, in paragraph 68 of the judgment under appeal, decided that it was necessary to examine whether, in those proceedings, the Commission was entitled to consider that the contested measure was selective.

95 It follows from the foregoing that, as MOL contends, paragraphs 64 to 67 of the judgment under appeal do not, as such, concern the examination of the selectivity of the 2005 agreement, but are preliminary explanations aimed at introducing the relevant framework in relation to which the General Court examined whether the Commission was correct in finding that the measure at issue was selective (sic).

96 As the Advocate General stated in points 107 and 114 of his Opinion, by those preliminary explanations, the General Court in fact sought to deal with the issue of the links existing between the 2005 agreement and the 2008 amendment, which the Commission had not specifically addressed in the decision at issue, and more particularly, to underline the fact that, given that there is no chronological and/or functional link between those two elements, they cannot be interpreted as constituting a single aid measure.

97 By those preliminary explanations, the General Court merely applied the case-law laid down by the Court of Justice in the judgment in Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others (C‑399/10 P and C‑401/10 P, EU:C:2013:175), to which the General Court also expressly referred in paragraph 67 of the judgment under appeal, and according to which, since State interventions take various forms and have to be assessed in relation to their effects, it cannot be excluded that several consecutive measures of State intervention must, for the purposes of Article 107(1) TFEU, be regarded as a single intervention. That could be the case, in particular when consecutive interventions, having regard to their chronology, their purpose and the circumstances of the undertaking at the time of those interventions, are so closely related to each other that they are inseparable from one another (C-15/14, paras 92 to 97, emphasis added).

I find the reasoning of the CJEU very poor. By artificially breaking up paragraph 67 of the GC's Judgment in paras 92 and 93 of its own Judgment, the CJEU attempts to limit the requirement of the element of "intention" to some mysterious "preliminary explanations" excluded from the selectivity assessment, and this is very unsatisfactory and unconvincing.

In my view, the CJEU should have plain and simply said that the GC would have been wrong to include an element of "intention" in the test applicable to two-part or complex State aid measures, which assessment needs to be carried out in view of objective factors such as 'their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, [or whether] they are so closely linked to each other that they are inseparable from one another' as per Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others.

Allowing the GC to save face by limiting its erroneous interpretation of that case law in para 67 of T-499/10, or failing to stress the fact that it was an unfortunate expression made obiter dictum (if they wanted to remain deferential) pays lip service to legal certainty. In my view, the CJEU could have decided otherwise because the element of "intention" is actually not assessed at any point of the GC's Judgment and the CJEU was ready to accept the selectivity analysis carried out by the GC. Consequently, there was no need for the strange and convoluted analysis in paras 92 to 97 of the Judgment in C-15/14. 

Be it as it may, the silver lining is in the fact that the CJEU has clearly rejected that the test it progressively laid down for the analysis of two-part or complex State aid measures encompasses any subjective element of "intention" on the part of the granting Member State. Consequently, the analysis of the selectivity of measures closely connected will continue to have to be carried out on the basis of purely objective factors, such as 'their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, [or whether] they are so closely linked to each other that they are inseparable from one another. All is well that ends well.

Could Intel challenge its 1bn Euro fine on grounds of 'corporate human rights'?

After last week's General Court Judgment in Intel v Commission, T-286/09, EU:T:2014:475, the 2 month period for Intel to appeal the confirmation of its 1bn Euro fine before the Court of Justice of the EU on points of law is ticking. I guess that few doubts can be harboured as to the likelihood of such an appeal, given the very significant financial implications for the company. However, the more interesting question is whether Intel will eventually appeal the fine before the European Court of Human Rights on the basis that its 'corporate human rights' have been violated.

 

At first thought, the claims could be two-fold. On the one hand, Intel could argue procedural issues related to the enforcement and decision-making processes at the European Commission (art 6 ECHR, on fair trial). On the other hand, Intel could try to challenge the volume of the fine on the basis of the protection of its right to private property (art 1 protocol 1 ECHR, on property).

 

In my view, such an appeal would be undesirable, but it would at least offer the ultimate test case for the jurisdiction and actual ability of the Strasbourg court to deal with highly-complex (third) competition reviews. I have been arguing that due process rights in competition law enforcement against corporate defendants should be limited [“The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?”, in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR, Oxford, Hart Publishing, 2014, forthcoming] and, more generally, together with Francisco Marcos, that 'corporate human rights' should be limited if not totally abolished ["'Human Rights' Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?" (February 2, 2014). University of Leicester School of Law Research Paper No. 14-04]. For previous entries in this blog, see here and here.

 

In a very timely fashion, the June 14(1) Antitrust Chronicle of Competition Policy International [Spring 2014, Volume 6 Number 1] "highlights a number of recent developments adding fuel to the fire: the ECtHR's ruling in Menarini and other cases, whether the concept of a "corporate human rights" principle should be applicable [... and] conclude(s) with an insightful discussion of impartiality" (including a summary of our thoughts, for which Francisco and myself are honoured and grateful).

 

Also in good time, these issues will be soon discussed at ASCOLA's conference on "Procedural fairness in competition proceedings", where Francisco will be presenting our paper. Hopefully, these discussions will shed light on the problems that the (excessive) protection of 'corporate human rights' can create. In our view, a reduction in the effectiveness of both competition law enforcement and human rights protection (for humans) itself.

 

In my personal view, all these debates (and the eventual Intel case before Strasbourg) should result in a significant restriction of corporate human rights protection, if not their abolition. I know that this is not a 'popular' position, so I expect heated debate in the coming months...

Recent CJEU and GC views on the "economic advantage" element in State aid cases (C-559/12 and T-150/12)

In two recent cases, the Court of Justice of the EU (CJEU) and the General Court (GC) have reassessed the element of "economic advantage" required in the prohibition of State aid in Art 107(1) TFEU in connection with State guarantees in France and Greece. The element of advantage has ranked rather high in the list of issues recently submitted to public consultation by the European Commission as part of the forthcoming new Notice on the concept of State aid. Hence, it seems interesting to have a look at these cases.


Firstly, in its Judgment of 3 April 2014 in case C-559/12 France v Commission (La Poste), the CJEU assessed the Commission's previous findings regarding the existence of an unlimited guarantee granted by the French State to its postal operator (La Poste) as part of its status as an establishment of an industrial and commercial character (établissement public à caractère industriel et commercial, ‘EPIC’)--which entails a number of legal consequences, including the inapplicability of insolvency and bankruptcy procedures under ordinary law--and which ultimately constituted State aid within the meaning of Article 107(1) TFEU. The Commission's assessment had been endorsed by the GC (see comment here). The CJEU concurs with the substantive assessment of both the Commission and the GC in an interesting reasoning (and after having addressed a number of issues concerning the burden of proof that, in the end, remain largely marginal in view of the consolidation of a presumption of advantage in the case of unlimited State guarantees):

94 [...] it must be borne in mind that the concept of aid embraces [...] measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, therefore, without being subsidies in the strict sense of the word, are similar in character and have the same effect [...] Also, State measures which, whatever their form, are likely directly or indirectly to favour certain undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions, are regarded as aid [...].
95 Since State measures take diverse forms and must be analysed in terms of their effects, it cannot be ruled out that advantages given in the form of a State guarantee can entail an additional burden on the State [...].
96 As the Court has already held, a borrower who has subscribed to a loan guaranteed by the public authorities of a Member State normally obtains an advantage inasmuch as the financial cost that it bears is less than that which it would have borne if it had had to obtain that same financing and that same guarantee at market prices [...].
97 From that point of view, moreover, the Commission Notice on the application of Articles [107 and 108 TFEU] to State aid in the form of guarantees specifically provides[...] that an unlimited State guarantee in favour of an undertaking whose legal form rules out bankruptcy or other insolvency procedures grants an immediate advantage to that undertaking and constitutes State aid, in that it is granted without the recipient thereof paying the appropriate fee for taking the risk supported by the State and also allows better financial terms for a loan to be obtained than those normally available on the financial markets.
98 It is apparent, [...] a simple presumption exists that the grant of an implied and unlimited State guarantee in favour of an undertaking which is not subject to the ordinary compulsory administration and winding-up procedures results in an improvement in its financial position through a reduction of charges which would normally encumber its budget.
99 Consequently, in the context of the procedure relating to existing schemes of aid, to prove the advantage obtained by such a guarantee to the recipient undertaking, it is sufficient for the Commission to establish the mere existence of that guarantee, without having to show the actual effects produced by it from the time that it is granted (C-559/12 at paras 94 to 99, emphasis added). 

Secondly, in its Judgment of 9 April 2014 in case T-150/12 Greece v Commission (aid to cereal production), the GC has also assessed a Greek guarantee scheme to cereal producers and has upheld the Commission's view whereby the conditions attached to such guarantee--i.e. initially, the acceptance of crops as collateral (although the existence of the guarantee rights and the conditions for their execution were not automatic) and later the potential charge of a 2% premium (again, which charge was not automatic)--did not dissipate the existence of an economic advantage for the beneficiaries of the guarantee scheme. The reasoning of the GC (in French) in paras 82 to 97 is interesting to grasp the unconditionality required of any measures intended to eliminate the (presumed) advantage that State guarantee schemes provide.

In my view, both Judgments are in line with the content of the Commission's Draft Notice on the concept of State aid (and, in particular, paras 111 to 117) and it seems now clear that unlimited State guarantees or State guarantees without actual (automatic) conditions (such as collateral and premia to be paid by the beneficiaries) will be ruled as being against Art 107(1) TFEU as a result of the iuris et de iure presumption of their conferral of an advantage.

GC rules on two-part State aid measures and selectivity under Art 107(1) TFEU (T-499/10)

In its Judgment of 12 November 2013 in case T-499/10 MOL v Commission, the General Court has found that an authorisation agreement that froze the mining fees payable for the explotaition of hydrocarbon reserves and that exempted the beneficiary from complying with a posterior law that increased the applicable mining fees does not constitute State aid incompatible with the internal market. In my view, the Judgment is interesting for the guidance it provides regarding the analysis of two-part or complex State aid measures.

 

In the case, MOL and the Hungarian State entered into an authorisation agreement in 2005 whereby the mining rights assigned to MOL were extended and the mining fees payable in return were determined on a non-revisable basis for the period 2005-2020. Later, a 2008 law reform significantly increased the mining fees that would have been payable for the exploitation of those same fields. However, in view of the 2005 agreement, MOL was exempted from topping up the mining fees it was liable to pay. Competitiors and potential new entrants were subject to the revised (higher) fees.

 

The Commission took the view that, given the way the 2005 agreement and the provisions of the 2008 amendment had been designed, they should be regarded as part of the same measure and it concluded that their combined effect conferred an unfair advantage to MOL.

 

According to the Commission, even if the 2005 agreement was concluded in accordance with the Mining Act then in force and even if it was up to the Member State to set the mining fees, the effects produced were not necessarily compatible with the State aid rules of the Treaty, although, taken in isolation, neither the 2005 agreement nor the 2008 amendment was contrary to these rules.

 

It is important to stress that MOL was the only operator in the hydrocarbons sector to have obtained an extension of its mining rights, since other extension agreements concerned undertakings extracting solid minerals, for which mining fees were not amended.  The Commission considered that the measure fulfilled the criteria enshrined in Article 107(1) TFEU and should be considered as State aid, and that there was nothing to indicate that it could be compatible with the internal market.

 

The Hungarian authorities challenged the Commission's position arguing that the measure did not constitute State aid, since the 2005 agreement conferred MOL no advantage and was not selective, as the company received no preferential treatment resulting from that agreement. Hungary further stressed that undertakings making large investments in mining projects require long‑term certainty in respect of the applicable mining fees and charges and that, consequently, mining fees subject to agreement should be fixed and stable for the entire duration of the respective agreement.

  

 

The GC has reviewed the Commission's decision and, mainly on the basis of the 'selectivity' requirement under Article 107(1) TFEU, has found that:

46 [...] although the Commission considered that the contested measure had, in those two constituent elements, favoured the applicant, it drew attention to the fact that the extension agreement was, by itself, selective, on account of the manner in which it had been negotiated and concluded [...]. In stating that the 2005 agreement and the 2008 amendment had resulted in the applicant’s benefiting from lower mining fees than those of the other operators until 2020, the Commission drew attention to the selective nature of the 2005 agreement vis-à-vis the applicant only [...], since the benefit of such mining fees stems solely from the agreement, which sets the rate of the increased mining fee for each of the fifteen years of duration of the agreement, and which provides that the rates thus set will be determined solely in accordance with its provisions and that those rates will stay unchanged [...]. Moreover, by concluding that the applicant was subject to a specific regime shielding it from any increase in mining fees [...], the Commission necessarily took the view that the criterion of selectivity of the contested measure had been met, on the ground that, in the light of its characteristics mentioned above, the 2005 agreement was selective. [...]

54 With respect to the selective nature of the aid measure, it must also be observed that Article 107(1) TFEU does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects (Case C‑409/00 Spain v Commission [2003] ECR I‑1487, paragraph 46). It follows that the application of that provision only requires it to be determined whether under a particular statutory scheme a State measure is such as to favour ‘certain undertakings or the production of certain goods’ over others which are in a legal and factual situation that is comparable in the light of the objective pursued by the measure in question (see Spain v Commission, paragraph 47 and the case-law cited). If so, the aid measure satisfies the condition of selectivity which defines State aid as laid down by that provision. [...]

62 As a preliminary point, it should be recalled that the contested measure consists of two elements, namely the 2005 agreement, which sets mining fee rates for all the applicant’s fields, whether in production or the subject of extension, for each of the fifteen years of duration thereof, and the 2008 amendment, which increases mining fee rates for all hydrocarbon fields under authorisation, but does not contain any provisions relating to fields that have already been the subject of an extension agreement.

63 In that regard, it should be noted at the outset that the Commission was right to state [...] that the 2005 agreement is not contrary to the State aid rules. Since the fees stipulated by the 2005 agreement, which were applicable to both fields already in production and fields concerned by extension of authorisation, were higher than the statutory fees applicable at the time of its conclusion, that agreement did not involve any State aid element for the purposes of Article 107 TFEU.

64 Next, the Court considers that, where a Member State concludes with an economic operator an agreement which does not involve any State aid element for the purposes of Article 107 TFEU, the fact that, subsequently, conditions external to such an agreement change in such a way that the operator in question is in an advantageous position vis‑à‑vis other operators that have not concluded a similar agreement is not a sufficient basis on which to conclude that, together, the agreement and the subsequent modification of the conditions external to that agreement can be regarded as constituting State aid.

65 In the absence of such a principle, any agreement that an economic operator might conclude with a State which does not involve any State aid element for the purposes of Article 107 TFEU would always be open to challenge, where the situation on the market on which the operator party to the agreement is active evolves in such a way that an advantage is conferred on it [...] or where the State exercises its regulatory power in an objectively justified manner following a market evolution whilst observing the rights and obligations resulting from such an agreement.

66 However, a combination of elements such as that observed by the Commission in the contested decision may be categorised as State aid where the terms of the agreement concluded were proposed selectively by the State to one or more operators rather than on the basis of objective criteria laid down by a text of general application that are applicable to any operator. In that regard, it must be pointed out that the fact that only one operator has concluded an agreement of that type is not sufficient to establish the selective nature of the agreement, since that may result inter alia from an absence of interest by any other operator.

67 Moreover, it should be recalled that, for the purposes of Article 107(1) TFEU, a single aid measure may consist of combined elements on condition that, having regard to their chronology, their purpose and the circumstances of the undertaking at the time of their intervention, they are so closely linked to each other that they are inseparable from one another (see, to that effect, Joined Cases C‑399/10 P and C‑401/10 P Bouygues and Bouygues Télécom v Commission and Others and Commission v France and Others [2013] ECR I‑0000, paragraphs 103 and 104). In that context, a combination of elements such as that relied upon by the Commission in the contested decision may be categorised as State aid where the State acts in such a way as to protect one or more operators already present on the market, by concluding with them an agreement granting them fee rates guaranteed for the entire duration thereof, whilst having the intention at that time of subsequently exercising its regulatory power, by increasing the fee rate so that other market operators are placed at a disadvantage, be they operators already present on the market on the date on which the agreement was concluded or new operators.

68 It is in the light of those considerations that it is necessary to examine whether, in the present case, the Commission was entitled to consider that the contested measure was selective, on the ground that, in so far as the 2005 agreement sets the rate of the increased mining fee for each of the fifteen years of its duration and provides that the rates thus set would remain unchanged, it was selective (T-499/10 at paras 46-68, emphasis added).

On the basis of the very specific circumstances of the case, the GC finds that the 2005 agreement was not selective that its combination with the 2008 amendment does not alter this finding and, consequently, annuls the Commission's incompatibility Decision.

 

Beyond the specific circumstances of the case, I think that the analytical framework sketched by the GC includes some useful guidance [such as the stress on the close chronological requirement, or the selectivity element (implicitly) required in all the components of a two-stage or complex State aid measure] but also some troubling hints at a less than objective assessment.

 

In that respect, regardless of the emphasis put on the standard legal position that 'Article 107(1) TFEU does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects' (para 54), the GC goes on to stress that 'a combination of elements such as that relied upon by the Commission in the contested decision may be categorised as State aid where the State acts in such a way as to protect one or more operators already present on the market, by concluding with them an agreement granting them fee rates guaranteed for the entire duration thereof, whilst having the intention at that time of subsequently exercising its regulatory power, by increasing the fee rate so that other market operators are placed at a disadvantage' (para 67). Therefore, the GC does build in an element of (reverse) causality or, probably more accurately, of volition or intention that seems extraneous to the State aid control system.

 

If Article 107(1) TFEU is meant to avoid distortions of competition in the internal market, when confronted with sequential, two-part or complex aid measures, the fact that they all formed part of a 'master plan' from the outset or are the 'random or supervening' result of discrete interventions should be irrelevant. Otherwise, the burden of proving 'distortive intent' from the outset may simply make it impossible to pursue these cases. However, it may well be that the remarks made by the GC in para 67 of MOL v Commission will remain a 'mere' obiter dictum and that the assessment of two-part or complex measures will remain much more objective in the future (as indeed, is the case with the rest of the Judgment).

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].

GC (T-668/11): 'mere' non-compliance with formal #publicprocurement rules does not trigger liability for loss of profits

In its Judgment of 6 June 2013 in case T-668/11 VIP Car Solutions v Parliament II, the General Court of the European Union (EU) has addressed the issue whether non-compliance with the duties of transparency and motivation by a contracting authority can generate a right to claim damages for disappointed bidders and, more specifically, whether they would be entitled to claim loss of profit compensation.

In this clear Judgment, the GC does not exclude that possibility as a matter of principle, but it sets a very clear line of analysis of the causality required between the lack of motivation or failure to disclose certain information and the damages claimed by disappointed bidders--which makes this type of claims very difficult to succeed. 

In the Judgment, the GC has stressed that:

In this regard, it should be noted that it is true that the Court held that the [contested] decision should be annulled on the grounds, first, that the Parliament had violated the obligation to disclose the price proposed by the successful bidder and, secondly, that the decision was vitiated by an inadequate statement of reasons. However, it is clear that the non-disclosure of the price and the lack of motivation do not establish that the award of the contract to another tenderer was a fault, or that there is a causal link between this fact and the loss claimed by the applicant (see, to that effect, the Judgment of 25 February 2003, Renco / Council T-4/01, Rec. p. II-171, paragraph 89, and of 20 October 2011, Alfastar Benelux / Council T-57/09, not published in the ECR, paragraph 49). Indeed, there is nothing to suggest that the Parliament should award the contract in question to the applicant if the original decision had been sufficiently motivated or if the Parliament had disclosed the price of the successful bidder. It follows that the claim for compensation for the alleged damage suffered as a result of the first decision must be rejected as unfounded in so far as it is based on inadequate reasoning of that decision and the non-disclosure of the price proposed by the winning bidder (T-668/11 at para 38, own translation from French, emphasis added).

In view of this analysis of strict causality, which is appropriate, it seems clear that disappointed bidders that succeed in challenging public procurement decisions exclusively on the grounds of lack of compliance with transparency obligations and the duty to provide reasons are likely to only be entitled to claim legal costs and any other expenses related to the challenge of the award procedure. 

This should be welcome, despite the fact that it may reduce the incentives for disappointed bidders to challenge procedurally incorrect public procurement decisions because, unless they can prove that there has been a material (in terms of substantive) breach and that, but for that illegality they should have been awarded the contract, it is very unlikely that they can obtain any compensation for their efforts. 

This may (marginally?) diminish the effectiveness of challenge procedures (at least where no material rule has been breached), but an excessively generous rule that awarded damages exclusively due to 'mere' procedural shortcomings would generate a perverse incentive towards excessive litigation. This may justify the need for stronger mechanisms of public oversight, as it seems clear that the incentives for disappointed bidders to act 'in the public interest' have just been delimited in a proper, but narrow, manner.

If you fine me, I have the right to appeal ~ even if someone else foots the bill (C-652/11)

In its Judgment of 11 April 2013 in case C-652/11 Mindo, the Court of Justice of the EU (CJEU) has reversed a prior Judgment of the General Court (GC) whereby it denied active standing to appeal a competition fine to an undertaking that was jointly and severally liable for its payment, on the basis that the other jointly liable party had already paid the fine in full and had not seeked recovery of any amounts for a period of 5 years.

The CJEU Judgment is interesting because it comes to set the general principle that, as long as there is a possibility of being made to pay the amount of the fine (fundamentally, because the claim is not time-barred and there are no specific indemnity agreements between the jointly liable parties), there is always a residual benefit for the undertaking to appeal the fine.

I think that the Mindo Judgment must be welcome and the CJEU has rightly quashed the prior GC ruling, which was basically relying on a set of 'factual' assumptions that were too far fetched. As the CJEU clearly emphasises, the GC erred in law in assuming that, by simply waiting to claim, Mindo's co-debtor had waived its right to seek reimbursement of the fine (particularly in a scenario where there was a pending appeal and, on top of that, Mindo had filed for bankruptcy and was under administration in accordance with Italian law--which justify the 'wait and see' strategy adopted).

However, I think that the CJEU could have even gone one step further and set the broader principle that the addressee of a fine is always entitled to appeal it if there are sufficient legal grounds, regardless of who ends up paying the fine. Otherwise, in cases where there is a dissociation between the fined undertaking and the payee of the fine (not necessarily due to their joint liability), it could be that no one has standing to appeal. 

The CJEU ducked this issue by not addressing the second ground of appeal, submitted in the alternative, where it was alleged that denial of active standing to appeal would infringement Mindo’s right to a fair trial. The fact that the CJEU did not address this issue derives probably only from the fact that it was presented in the alternative. However, given that the CJEU made no reference to the right of a fair trial, this can also be read as an exercise of certain self-restraint on the part of the Court, and as an attempt to open that Pandora's box only when necessary (since, indeed, the extension of fair trial rights to companies in the setting of EU competition law is not without problems, as I have discussed in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?). Be it as it may, in general terms, the referral of the case back to the GC should be welcome.

Who is an interested undertaking in procurement and State aid cases? (T-182/10)

The recent Judgment of the General Court of 15 January 2013 in case T-182/10 Aiscat v Commission (not available in English) raises a relevant question for the EU system of oversight of public procurement procedures that may have State aid implications--in the case at hand, due to the direct award of a works concession contract, as well as in view of the terms of the remuneration paid to the works concessionaire. 

In particular, the Aiscat Judgment establishes who is to be considered an "interested undertaking" and, consequently, who can act as complainant before the Commission and, eventually, challenge its Decisions in a State aid procedure based on Regulation 659/1999. In my view, a detailed analysis of the position of the GC in Aiscat shows certain inconsistencies between the (broad) concept of "disappointed bidder" under the EU public procurement regime and the concept of "affected undertaking" under State aid rules--which can diminish the effectiveness of a coordinated enforcement of both sets of rules.

In Aiscat, the Italian association of road concessionaires challenged the direct award of a works concession in the Padua region. The complaint submitted to the European Commission had a dual set of legal grounds. On the one hand, a "pure" public procurement claim that challenged the legality of the direct award of the contract under the in-house provision doctrine (which the Commission dismissed by considering that the awardee was in fact a "Teckal" entity controlled by the Italian contracting authorities). And, on the other hand, a State aid claim whereby the (illegal) direct award of the works concession contract and its terms of remuneration were considered an undue economic advantage in breach of Article 107 TFEU (which was also dismissed by the European Commission on the basis of the previously declared legality of the award and the absence of "direct" public funding).

Aiscat challenged the State aid decision of the Commission before the GC, which the Commission opposed on the basis of lack of active standing on the part of the association. In my view, the analysis conducted by the GC regarding the standing of the association to challenge the direct award of the contract is particularly relevant:

61 [...] with respect to the area of ​​State aid, persons other than the recipients who question the merits of the decision appraising the aid are considered individually concerned by that decision if their market position is substantially affected by the aid analysed in the decision in question (see, to that effect, Cofaz/ Commission [169/84, ECR p. 391] paragraphs 22 to 25, and Commission / Aktionsgemeinschaft Recht und Eigentum, [C-78/03, ECR I-10737] paragraphs 37 and 70).
62 This issue should be examined separately with respect to each of the two measures challenged by the applicant before the General Court, namely the award of the concession contract of the Passante without competitive bidding and increasing toll on the Tangenziale [which was the undue advantage identified by the appellant].
- The award without competitive bidding for the concession on the Passante

63 In the absence of any indication of the parties on the relevant market, it must be identified as that of motorway concessions in Italy, a market in which the 23 members of the applicant association that operate toll roads represent the demand, while the the State, represented by ANAS, which awards grants, represents the offer. According to statistics presented by the applicant, in November 2009, the toll road network in Italy extended over about 5,500 km.

64 As regards the determination of a substantial impairment of the market position, the Court of Justice has observed that the mere fact that an act such as the contested decision could influence the competitive relationships existing in market in question, and that the affected undertaking is in a competitive relationship of any kind with the beneficiary of that act does not suffice to conclude that it is of concern to that undertaking (see, to that effect, Case Justice of 10 December 1969, Eridania and others / Commission, 10/68 and 18/68, ECR p. 459, paragraph 7, the order of the Court of Justice of 21 February 2006, Deutsche Post and DHL Express / Commission, C-367/04 P, not published in the ECR, paragraph 40, and the judgment of the Court of 22 November 2007, Spain / Lenzing, C-525/04 P, ECR p. I-9947 , paragraph 32).

65 Therefore, an undertaking cannot rely solely on its status as a competitor of the beneficiary, but must also prove that it is in a factual situation that individualises it just as much as the beneficiary (judgment of the Court of May 23, 2000, Comité d'entreprise de la Société française de production and others / Commission, C-106/98 P, ECR p. I-3659, paragraph 41; Deutsche Post and DHL Express / Commission, cited in paragraph 64 above, paragraph 41, and judgment in Spain / Lenzing, cited in paragraph 64 above, paragraph 33).

66 However, the evidence that the position of a competitor in the market was significantly affected cannot be limited to the presence of certain elements indicating a worsening of its commercial or financial results, but may result from demonstrating the existence of a loss of revenue or less favorable business evolution than would have taken place had such aid not been granted (judgment in Spain / Lenzing, cited in paragraph 64 above, paragraph 35).

67 In the present case, in what respects the substantial affectation of the market position of the members of the applicant association due to the award of the concession on the Passante without competitive bidding, it should be noted that the applicant states in the claim the reasons why it considers that such direct award constitutes a breach of the principle of prohibition of State aid. As part of its observations on the objection of inadmissibility, the applicant claims an interest of its 23 members, as they were allegedly deprived from the opportunity to participate in a public tender for the award of the contract for the management and exploitation of the Passante.

68 However, in a market that consists of 5,500 km of toll roads, although the award without competitive bidding for the concession on a stretch of highway of about 32 km may have some impact on competition because other operators have not had the opportunity to increase the length of the networks that each exploits, it cannot be regarded that as such, this constitutes a substantial impairment of the competitive position of those other operators. Therefore, the applicant association has not demonstrated that the contested decision affected its members differently than all other operators wishing to exploit the concession on the Passante.

69 Consequently, the Court concludes that, with respect to the award of the concession on the Passante without competitive bidding, the contested decision did not affect the individual members of the applicant association. Consequently, they are not entitled to bring an action themselves to that effect and the applicant association also lacks standing to bring an action on behalf of those interests. (T-182/10, paras 61 to 69, own translation, emphasis added).

This is a very narrow analysis of the actual interest of potential bidders to participate in a tender and it follows a "de minimis-like approach" that does not match (easily) the requirements of Art 1(3) of Directive 2007/66/EC on public procurement remedies, which requires that "Member States shall ensure that the review procedures are available, under detailed rules which the Member States may establish, at least to 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". In my view [Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 354], this means that

Directive 2007/66 requires Member States to adopt a broad approach to the setting of detailed rules regulating active standing to access bid protests and review procedures (as clearly indicated by the requirement of making these procedures available ‘at least’ to potentially affected parties—which seems to be oriented towards not excluding systems granting universal standing); and to do so attending both to the criterion of participation in the tender, and to the criterion of the effects generated or potentially generated by the alleged infringement.

To be sure, an alternative reading could suggest a more restrictive approach, requiring a potential challenger to meet simultaneously participation and harm requirements in order to have standing in bid protest and review procedures. However, from a logical perspective, configuring both requirements in a cumulative manner seems superfluous—since it would be very difficult to envisage a situation where a person having had an interest in obtaining a particular contract would not risk being harmed by an alleged infringement of public procurement rules. Moreover, it would seem an overly restrictive measure—particularly in cases where compliance with the first criterion is factually impossible, eg because a given contract was awarded without tender. Along the same lines, a systematic interpretation of Directive 2007/66 seems to exclude the possibility of restricting the standing for review to the candidates and tenderers that have participated in the tender, which are defined as ‘tenderers and candidates concerned’ [art 2a(2) dir 89/665 and art 2a(2) dir 92/13 (both as amended by dir 2007/66)]. The use of a much broader wording as regards the rule on standing [art 1(3) dir 89/665 and art 1(3) dir 92/13 (both as amended by dir 2007/66)] seems to clearly depart from its narrow construction. Moreover, it is submitted that such a restrictive approach would be undesirable from the perspective of guaranteeing the effectiveness of EU public procurement directives in general—and the embedded principle of competition in particular—and, therefore, would be contrary to the main goal of Directive 2007/66. Therefore, as anticipated, in our view, 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.

Therefore, by requiring a "singular" negative effect of the direct award on a complainant to allow it to raise a challenge on the basis of State aid rules generates frictions in the system. In some scenarios, it is not hard to see how an undertaking may be unable to challenge a direct award of a contract both under "pure" public procurement and State aid rules. And, certainly, this is not a situation that leads to effective enforcement of either of these important sets of EU economic law.

 

In my view, a revision of the Aiscat Judgment by the CJEU would be desirable in order to broaden the active standing of "disappointed bidders" (broadly conceived), and would also give the CJEU an opportunity to clarify its unclear decision in case C-496/99 Succhi di Frutta [2004] ECR I-3801 (where it seemed to adopt a similarly restrictive approach to active standing contrary to the posterior criteria of Directive 2007/66/EC).

Bankruptcy-proofness as a (new) source of (illegal) State aid: GC backs the Commission in T-154/10

In its Judgment of 20 September 2012 in case T‑154/10 French Republic vs. European Commission, the General Court of the EU (GC) has established a new test of "bankruptcy-proofness" as an advantage contrary to Article 107(1) TFEU that may generate a significant shake up in the control of State aid granted (implicitly) to establishments of an industrial and commercial character (EICC, or EPIC in their French acronym)--ie legal entities governed by public law which have distinct legal personality from the State, financial independence and certain special powers, including the performance of one or more public service tasks.

In a nutshell, the controversy concerned the Commission's position that there is (illegal) State aid where the legal form and status of EICCs shield them from general rules on bankruptcy and winding up under the relevant national legislation (in the case, French law). Indeed, in the view of the Commission as summarised by the GC,

[the EICC concerned (La Poste)] was not subject to the ordinary law rules governing the administration and winding-up of firms in difficulty and that, according to point 1.2, second paragraph, fourth indent of the 2008 Notice [on the application of Articles 87 [EC] and 88 [EC] to State aid in the form of guarantees (OJ 2008 C 155, p. 10)], there is aid in the form of a guarantee where more favourable credit terms are obtained by undertakings whose legal status rules out bankruptcy or other insolvency procedures (T-154/10, at para. 23, emphasis added).

In short, the GC concurred with the Commission and found that, where a given entity is shielded from general bankruptcy procedures, there is an (implicit advantage) that can constitute State aid. Therefore, a new test of bankruptcy-proofness has been instituted by the GC and this may have deep and far-reaching implications in the control of State aid control to EICCs.

However, the detail of the reasoning is worth reading, since there is a number of elements to take into consideration in the analysis whether a given entity is subjected or excluded from the scope of 'regular' bankruptcy and winding up procedures. In the reasoning of the GC:

79 The French Republic considers that, contrary to the view put forward by the Commission, the inapplicability of insolvency and bankruptcy procedures under ordinary law [...] does not mean that La Poste cannot go bankrupt or find itself in a situation of insolvency. The French Republic observes that specific procedures, which do not give creditors any guarantee that they will recover all of their claims, are applicable to [EICCs] [...] the primary objective of which was to regulate situations in which public entities, although solvent, refused to honour certain debts, established a scheme of enforcement remedies, which give the governing body the power to substitute itself for the executive of a publicly-owned establishment so as to release the ‘necessary credits’ – and not State resources – in that establishment’s budget, with a view to satisfying potential creditors. That law, however, confers no authority and even less the obligation on the State, whose role can be compared to that of an ad hoc legal representative, to release State resources for the benefit of potential creditors of publicly-owned establishments. [...] Lastly, the existence of the programmes [...] allowing advances to be made to organisations distinct from the State that manage public services, do not mean that an implied guarantee mechanism has been established.

80 In that regard, the Court observes that the parties agree that [French bankruptcy law] excluded from its scope all public entities, in particular [EICCs]. Under [...] that law [...] ‘[r]ecovery and judicial winding-up shall be applicable to all traders, all persons registered in the business directory, all farmers and all legal entities governed by private law’. The corresponding provision in force on the date of adoption of the contested decision provides, in the same vein, that ‘[t]he safeguard procedure shall be applicable to all persons pursuing commercial activities or crafts, all farmers, all other natural persons pursuing independent professional activity, including the liberal professions subject to legislative or regulatory status or whose title is protected, and also to all legal entities governed by private law’. Moreover, it is apparent from the case-law [...] that the legislation indicated ‘that property not belonging to private persons shall be administered and alienated according to the specific rules applicable to them; that, in respect of property belonging to public entities, even those pursuing industrial and commercial activities, the principle of non-seizability of that property precludes recourse to private-law enforcement remedies; that only the creditor who has obtained an enforceable favourable judicial decision having acquired the force of res judicata and ordering a public entity to pay, even provisionally, an amount of money, may have enforced the specific rules [applicable].

81 The parties disagree, however, as the inferences to be drawn from the inapplicability of ordinary law rules governing compulsory administration or winding-up to [EICCs] with a view to determining whether there is a State guarantee in favour of La Poste.

82 It should be noted at the outset that [...] the Commission took the view that, in order to establish whether there was a guarantee for individual claims, it was appropriate, after examining the national legislation and case-law (see first part of the second plea above), to begin by considering whether, in order to determine whether the procedure followed by a creditor of [the EICC] in order to settle its claim in the event of [the EICC] being in financial difficulty was comparable to that followed by the creditor of an undertaking subject to commercial law. Contrary to the impression the French Republic’s line of argument might give, the Commission’s approach was not aimed at finding that an [EICC], by virtue of the fact that it was subject to the application of ordinary law rules governing compulsory administration or winding-up, could not go bankrupt.

83 In the event, the Commission reached the conclusion that the creditors of [EICCs] were in a more favourable situation than private creditors on the ground that, contrary to what happened under the application of ordinary law rules governing compulsory administration or winding-up, the creditor of a publicly-owned establishment did not run the risk of seeing his claim cancelled because of a judicial winding-up procedure being triggered (see recital 150 of the contested decision).

84 This conclusion is to be endorsed. [French bankruptcy law] provides for a mechanism that is different from that established under ordinary law procedures governing compulsory administration or winding-up. That law and the legislation adopted to give it effect implement a claims recovery procedure which, unlike a winding-up procedure under ordinary law, does not, when triggered, extinguish claims but at the most postpones the payment of them. Thus, the creditors of publicly-owned establishments are necessarily in a more favourable situation than creditors of persons coming within the scope of  [general French bankruptcy law] which, in the event of insufficient assets on the part of the debtor person or entity, may see their claim cancelled.

85 As shown by the description of the procedures applicable to [EICCs] [...] in the event of an [EICC] having insufficient assets, the payment of claims will be postponed or the competent governing body will release resources in order to honour the claims. It follows that creditors of publicly-owned establishments are necessarily in a more favourable situation than creditors of persons governed by private law.

86 Moreover, although [French bankruptcy law] does not provide explicitly that the State is bound to release State resources in order to enforce a judicial decision [...] the Commission made no error in asserting that, once a defaulting publicly-owned establishment’s own resources have been exhausted, State funds will in all likelihood be used to honour the debts of the publicly-owned establishment debtor.

87 Nor did the Commission make an error of assessment in referring [...] to certain financial tasks and programmes with a view to highlighting the existence of State resources which might be used in the event of an [EICC] defaulting and, therefore, an indication of the effectiveness of the implied State guarantee in favour of [EICCs].

88 In the light of the foregoing, the conclusions [...] as to the consequences [... of] indicia of the existence of an unlimited State guarantee in favour of [EICCs], must be endorsed. (T-154/10, at paras. 79 to 87, emphasis added).

It will be interesting to see the reaction of Member States to this Judgment of the GC, but it seems difficult to anticipate a general submission of EICCs (whichever the specific legal configuration in any given Member State) to general bankruptcy procedures, or the disregard of the (general) principle of non-seizability of public assests. most likely, the discussion will continue before the CJEU, where the hight of the interests at stake will be easier to measure.