Two related comments on the Fosen-Linjen saga

**This post is only for enthusiasts of the regulation of procurement damages out there**

You may have missed it (though being an enthusiast, you probably didn’t) but, in the middle of the summer, the EFTA Court U-turned in its Fosen-Linjen II Judgment by stressing that ‘Article 2(1)(c) of the Remedies Directive does not require that any breach of the rules governing public procurement in itself is sufficient to award damages’ (see here).

Notoriously, this was a 180° move away from its earlier Fosen-Linjen I Judgment, where it had controversially stated that ‘A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority … pursuant to Article 2(1)(c) of Directive 89/665/EEC‘ (see here and here and, for extended discussion, A Sanchez-Graells, ‘You Can’t Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law after the EFTA Court’s Fosen-Linjen Opinion’ (2018) 1(1) Nordic Journal of European Law 1-23).

The Fosen-Linjen saga deserves careful analysis and we are putting together a special issue of the European Procurement & Public Private Partnership Law Review that will provide complementary perspectives from EEA, Norwegian, EU, comparative and fundamental rights law. I have also prepared a longer case note for another law review. In case they are of interest, I have made drafts of both of those available on SSRN. Some overlap was unavoidable, so please read selectively!

• Sanchez-Graells, Albert, Liability threshold for damages in public procurement: The EFTA Court’s Fosen-Linjen Saga (September 17, 2019). Available at SSRN: https://ssrn.com/abstract=3455222.

• Sanchez-Graells, Albert, The EFTA Court’s Fosen-Linjen saga on the liability threshold for damages claims for breach of EU public procurement law: a there and back again walk (September 16, 2019). To be published in a forthcoming special issue of the European Procurement & Public Private Partnership Law Review. Available at SSRN: https://ssrn.com/abstract=3455213.

More discussion of damages for breach of EU procurement rules

Dr Ignacio Herrera Anchistegui has organised a greatly interesting BECCLE seminar on "Damages for breach of Public Procurement Law – Fosen-Linjen AS v AtB AS and its implications". It will take place this Thursday 1 March 2018 in Bergen. I have the pleasure and honour of presenting my views on the EFTA Court's Fosen-Linjen Judgment and to provide a comparative view with the UK Supreme Court's decision in Nuclear Decommissioning Authority. These are issues I had already addressed in the blog (see here and here) and, in trying to provide a more comprehensive critique of the case at the seminar, I have now tried to restructure my initial ideas and develop them in some more detail in a new SSRN working paper.

I hope the discussion will provide plenty additional ideas and food for thought, and I will try to improve the paper after the BECCLE seminar in view of that. Any additional comments or feedback on how to get it ready for publication would also be most welcome: a.sanchez-graells@bristol.ac.uk. Thank you for reading.

The abstract is as follows:

This paper offers some reflections on the position advanced by the EFTA Court that a simple breach of EU public procurement law is in itself sufficient to trigger the contracting authority's liability in damages (Fosen-Linjen). I argue that this position is flawed because it deviates from previous case law of the Court of Justice of the European Union (Spijker), and because it is based on interpretive errors and internal contradictions in the EFTA Court's reasoning. In criticising the EFTA Court's Judgment from the perspective of the harmonisation of EU law, I rely on the better view of the UK Supreme Court. The latter held that the liability of a contracting authority for the breach of EU public procurement rules under the remedies directive is assimilated to that of the State under the general EU law doctrine of State liability and thus requires a sufficiently serious breach (Nuclear Decommissioning Authority). My reflections are based on the need to keep procurement damages litigation constrained to its main function and limited to justified cases. I use this normative position to argue against the expansion of private enforcement of EU public procurement law as a correction of the shortcomings in its public enforcement.

The full reference of the paper is: A Sanchez-Graells, 'You Can't Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law' (February 24, 2018). Presented at the BECCLE seminar on 'Public Procurement and Damages,' University of Bergen, 1 March 2018. Available at SSRN: https://ssrn.com/abstract=3129430.

Interesting Lithuanian case on contracting authorities' liability for false statements in tender documentation [Guest post* by Dr Deividas Soloveičik]

This new guest post by Dr Deividas Soloveičik provides interesting discussion of a recent Judgment of the Lithuanian Supreme Court concerning the liability of the contracting authority for the content of tender documentation. The case may be particularly relevant in the context of tenders for public service contracts or concessions, for example, concerning third-party estimates of demand. However, in the context of concessions, any liability of the type discussed by Dr Soloveičik could be problematic if it was seen as reducing or neutralising the transfer of risk to the concessionaire. So, indeed, a very interesting case.

What about some true statements while
drafting the procurement documents?

The Supreme Court of Lithuania has recently decided on the public buyers' obligation to be accurate and precise while drafting the procurement documentation, as well as on the liability of the contracting authorities failing to act so. A couple of things to be noted before the starting point. First, indeed, the ruling of the Court deals with domestic issues and has mainly (maybe solely) only a local impact. On the other hand, and secondly, it is a good example to learn from and, I believe, easily replicable elsewhere, despite the jurisdiction or a legal system. In other words, I believe, the conclusions the Court reflect a concept which should turn into a legal trend and a good example, applicable in a procurement practice worldwide. Thirdly, albeit the case-law of the Court of Justice of the EU and the national courts of Member States regarding the principle of transparency is voluminous, namely, that this principle includes the requirement to draft the procurement documents in a clear manner, the further discussed case has a different angle. Namely, it deals with the situation when the originally clear and precise statement provided in the procurement documents later, during the contract execution phase, appears to be a false statement, leading to the financial loss of the tenderer, now the contractor.

Hence, the Energijos parkas case dealt with the facts where the public buyer organised an open tender for the procurement of landfill gas extraction and utilization services. It has to be mentioned that the procurement was not organised under the EU public procurement directives and neither the Law on Public Procurement. However, the Court explicitly stated that the ruling it gave is also applicable to the realm of the public procurement law.

The facts of the case were the following. The public buyer drafted the tender documentation regarding the purchase of the above-mentioned services. To have the technical specification more explicit, it made a reference to the report of the engineers, a third party. The latter report outlined the parameters regarding the possible minimum gas extraction quantity with the clear reference that this evaluation was rock solid. It appeared during the execution of the contract that the possible quantity of the extracted gas was far from even the minimum the report mentioned and upon which reference the winner of the tender made its calculations and the whole business case. Therefore, the winner of the tender claimed that the false statements of the procurement documents, which were not possible to verify during the procurement procedure, led the claimant to the financial loss of more than 3 mil. EUR.

The Court started its reasoning from the reference to two main legal aspects. First, it stated that the situation at hand is very similar to the one of pre-contractual arrangement. By telling so, the Court continued that in such cases the general obligation universally acknowledged by contract law to act bona fide and to disclose the essential information to the other party before entering into any agreement must be obeyed. Secondly, the Supreme Court stated that neither authority is obliged to give such exact details of the subject of the procurement as it was done in the case at issue. However, the Court went on to say, if the contracting authority decides to include the very specific details of the subject matter, it must do it in a cautious way and providing accurate and correct information, so that the suppliers could make their proper calculations and prepare a business case.

After stating so, the Court decided that there is no difference in situations when the public buyer uses the material prepared by the third party. The Supreme Court noted that in such cases the contracting authority must take the risk if it later appears that the basic information it used in the procurement documentation was inaccurate or even false. The Court created a legal precedent by stating that if the authority, arranging the open tender, decides to include the specific details related to the subject matter of the procured object, such details become an inseparable part of the procurement documentation and the public authority is responsible for the certainty of the given details. This rule is applicable to cases where the contracting authority makes references to the information provided by the third parties.

The rationale of the Court is important in many practical aspects. First, no doubt that this is the extension of the principle of transparency, which requires the tender documentation to be precise and accurate, to the situations where the contracting authority refers to information given by the third party. In other words, the one who gives the information, must guarantee that it is correct, genuine and actual, especially if it relates to the circumstances upon which the market players design their economic decisions and business plans. Third, the precedent made by the Lithuanian Supreme Court upholds the ecosystem of legitimate expectations in open tenders and procurement. It is important for the tenderers to know that they must not verify every piece of information given by the contracting authority in the procurement documentation and that they can take the essential information for granted without being misguided. And if it appears later, during the execution of the public contract, that the whole business case was built of false assumptions, they will be entitled to a fair compensation of damages. Finally, I believe that such approach is very adaptive and might have a cross-border impact elsewhere in different jurisdictions, when the similar cases are heard.

Dr. Deividas Soloveičik, LL.M

Dr Deividas Soloveičik is a Partner and Head of Public Procurement practice at COBALT Lithuania. He represents clients before national courts at all instances and arbitral institutions in civil and administrative cases, provides legal advice to Lithuanian and foreign private clients and contracting authorities, including the European Commission , on the legal aspects of public procurement and pre-commercial procurement.

Dr Soloveičik is an Associate Professor and researcher in commercial law at Vilnius University and a contributor to legal publications. He also closely cooperates with globally recognized academic members of the legal profession. Since 2011, MCIArb. Dr Soloveičik is a member of the Chartered Institute of Arbitrators; since 2016, he is a member of the European Assistance for Innovation Procurement – EAFIP initiative promoted by the European Commission and a recommended arbitrator at Vilnius Court of Commercial Arbitration.

* Guest blogging at HTCAN: If you would like to contribute a blog post for How to Crack a Nut, please feel free to get in touch at a.sanchez-graells@bristol.ac.uk. Your proposals and contributions will be most warmly welcomed!

CJEU rejected AG Wathelet's proposal for vicarious liability for agent's behaviour in competition law: a more stringent test, but how stringent? (C-542/14)

In its Judgment of 21 July 2016 in VM Remonts and Others, C-542/14, EU:C:2016:578, the Court of Justice of the European Union (CJEU) issued an important clarification of the rules applicable to the attribution of (vicarious) liability for infringements of EU competition law, thus expanding its case law on the subjective elements (ie mens rea-like requirements) of the prohibition of anticompetitive behaviour in Art 101(1) TFEU.

In doing so, the CJEU rejected the proposal for stringent vicarious liability formulated by AG Wathelet (see my criticism here) and formulated a more stringent test for the attribution of anticompetitive behaviour of an independent agent. The test formulated by the CJEU raises some interpretative issues, though, and it deserves some comment.

It is worth reminding that the case addressed issues concerning the imputability of anticompetitive practices in which a third party services provider is engaged to the 'client' undertaking that hired those services (ie how to make the 'client' undertaking liable for the anticompetitive behaviour of one of its services providers). 

The case was quite convoluted because it concerned the imputability of a bid rigging offence to a supplying company that engaged a consultant to help it formulate a bid in a tender for a public contract. After the fact, it became apparent that the consultant engaged in collusion with other tenderers in the same bid. The question was, thus, to what extent the bidder should be liable for the collusion that resulted from the allegedly independent activity of the consultant (third party services supplier) and, in any case, what level of proof of anticompetitive intent would be necessary to impose liability on the 'client' undertaking.

In addressing this issue, the CJEU rejected a parallelism between the rules applicable to an undertaking's employees to its agents, and determined that 'where a service provider offers, in return for payment, services on a given market on an independent basis, that provider must be regarded, for the purpose of applying rules aimed at penalising anti-competitive conduct, as a separate undertaking from those to which it provides services and the acts of such a provider cannot automatically be attributed to one of those undertakings' (C-542/14, para 25, emphasis added).

However, the CJEU stressed that this different treatment is based on the independence of market activity of the service provider and, consequently, it would not be justified where the client undertaking exerted significant control over the apparently independent service provider. To that effect, the CJEU determined that

Article 101(1) TFEU must be interpreted as meaning that an undertaking may, in principle, be held liable for a concerted practice on account of the acts of an independent service provider supplying it with services only if one of the following conditions is met:

–  the service provider was in fact acting under the direction or control of the undertaking concerned, or
– that undertaking was aware of the anti-competitive objectives pursued by its competitors and the service provider and intended to contribute to them by its own conduct, or
–  that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which they entailed (C-542/14, para 33, emphasis added).

Of particular relevance in the field of public procurement, the CJEU also provided some clarification regarding the unauthorised disclosure of commercially sensitive information by the agent, by stressing that

Whilst it is true that [an undertaking is liable for a competition infringement] when that undertaking intended, through the intermediary of its service provider, to disclose commercially sensitive information to its competitors, or when it expressly or tacitly consented to the provider sharing that commercially sensitive information with them ... the condition is not met when that service provider has, without informing the undertaking using its services, used the undertaking’s commercially sensitive information to complete those competitors’ tenders (C-542/14, para 32, emphasis added).

In my view, the VM Remonts Judgment should be welcome for what it does not do. That is, for its rejection of AG Wathelet's proposal for a reversal of the burden of proof, to the effect that the 'client' undertaking would have been considered liable unless it could adduce sufficiently convincing evidence (i) relating to the fact that the agent (services provider) had acted outside the scope of the functions that had been entrusted to it, (ii) regarding the precautionary measures taken by the ‘client’ undertaking at the time of designation of the agent and during the monitoring of the implementation of the functions in question, and (iii) regarding the ‘client’ undertaking's conduct upon becoming aware of prohibited behaviour--so as to demand a public distancing and positive reporting, under the analogous rules of Dansk Rørindustri and Others v Commission, C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P, EU:C:2005:408.

However, regarding the positive test that it sets for the assessment of whether anti-competitive activity by an agent can be imputed to the client undertaking, the VM Remonts Judgment seems less satisfactory, in particular due to the last condition of the test in its paragraph [33], whereby 'an undertaking may, in principle, be held liable for a concerted practice on account of the acts of an independent service provider supplying it with services ... if  ... that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which they entailed' (emphasis added).

This seems to be an adaptation of the test developed in Commission v Anic Partecipazioni, C-49/92 P, EU:C:1999:356, paragraph [87], to which the CJEU refers in VM Remonts to stress that 'an undertaking may be held liable for agreements or concerted practices having an anti-competitive object when it intended to contribute by its own conduct to the common objectives pursued by all the participants and was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and was prepared to accept the risk' (C-542/14, para 29, emphasis added).

The adaptation of this test to cases of anticompetitive behaviour by an agent seems problematic because it stretches its last part concerning the acceptance of a risk of occurrence of anticompetitive behaviour by third parties (in that case, co-conspirators). In Anic, the undertaking concerned had been attending meetings with other undertakings that formed part of a cartel. Therefore, the assessment of whether the undertaking could reasonably foresee specific types of anti-competitive conduct by its co-conspirators (formally, third parties) derives from its own participation in meetings--that is, derives from its own observation of the behaviour of other entities that participate in the anti-competitive practice.

This cannot be the case in a scenario such as that presented by VM Remonts, where the client undertaking does not participate in any meetings and where it has no (proven) knowledge of the activity of the agent. In these cases, it would seem that the first two prongs of the VM Remonts test would suffice: ie the client undertaking is liable for the anticompetitive behaviour of the agent if (a) it controls the agent or (b) is aware of the anti-competitive behaviour between the agent and third parties, and aims to contribute to it. Introducing the third condition, according to which the client undertaking can also be liable if (c) it could have reasonably foreseen anticompetitive behaviour between its agent and third parties and was prepared to accept the risk which they entailed, seems to far fetched. 

Whereas in an Anic-like scenario the reasonable prediction of anticompetitive behaviour by co-conspirators derives from information directly acquired in the meetings in which the undertaking participates--that is, can be presumed under logical rules--in a VM Remonts-like scenario, any claim as to the undertaking's duty to foresee anticompetitive behaviour would be pure speculation.

If the client undertaking has no positive knowledge of the anticompetitive behaviour in which the agent [otherwise, the prong (b) of the test would apply], how is it ever going to be possible to determine that it ought to have foreseen it? If this is on the basis of its relationship with the agent, this dangerously reopens the door to a test like the one developed by AG Wathelet or, worse, creates a sort of culpa in eligendo of its agent that is equally troublesome.

If (factual) speculation is to be avoided and the imposition of vicarious liability is rejected by the CJEU in VM Remonts (para 26, although see para 27, which makes it less clear-cut), the only reasonable interpretation of the prong (c) of the test developed in paragraph [33] of VM Remonts is that it can simply never be applied. In which case, one can be forgiven for wondering if the CJEU did not pay sufficient consideration to the adaptation of the Anic test to a situation involving an independent service provider.

CJEU pushes for flexibility for teaming agreements under EU public procurement rules: what implications for the interpretation of Arts 19 & 63 Dir 2014/24? (C-234/14)

In its Judgment of 14 January 2016 in Ostas celtnieks, C-234/14, EU:C:2016:6, the Court of Justice of the European Union (CJEU) stressed the flexibility that the EU public procurement rules on teaming and reliance on third party capacity impose on contracting authorities. 

In the case at hand, the Latvian municipality of Talsi had approved tender documents requiring tenderers relying on the capacities of other contractors to 'mention all those contractors and provide evidence that it has the necessary resources at its disposal. If that tenderer is to be awarded the contract, it must have concluded a cooperation agreement with the contractors concerned before the award and forwarded this to the contracting authority'. One of the main obligations under such agreement would have been to include 'a clause stipulating that each party is to be jointly and severally liable for the performance of the contract'.  The requirement for a pre-award agreement was challenged.

In an unsurprising decision, the CJEU stressed that the relevant rules (then Arts 47 and 48 Dir 2004/18), precluded a contracting authority from imposing on a tenderer which relies on the capacities of other entities the obligation, before the contract is awarded, to conclude a cooperation agreement with those entities or to form a partnership with them. Indeed, the CJEU recalled that it is settled case law that 'Articles 47(2) and 48(3) of Directive 2004/18 recognise the right of every economic operator to rely, for a particular contract, upon the capacities of other entities, "regardless of the nature of the links which it has with them", provided that it proves to the contracting authority that it will have at its disposal the resources necessary for the performance of the contract' (para 23, with reference to Swm Construzioni, C-94/12, EU:C:2013:646; see here). The CJEU stressed that such 'interpretation ... is consistent with the aim of the widest possible opening-up of public contracts to competition pursued by the relevant directives to the benefit not only of economic operators but also of contracting authorities. In addition, that interpretation also facilitates the involvement of small- and medium-sized undertakings in the contracts procurement market' (para 24).

This was clearly set out in the pre-existing case law of the CJEU and therefore, hardly deserves any comment. However, in proceeding with its reasoning, the Court engaged in a clarification that can raise significant doubts as to the interpretation of the new rules on teaming and group bidding in Arts 19 and 63 of Dir 2014/24. The CJEU stressed that 'the tenderer is free to choose ...the legal nature of the links it intends to establish with the other entities on whose capacities it relies in order to perform a particular contract and, on the other, the type of proof of the existence of those links' (para 28, emphasis added). 

On the basis of this freedom of organisation recognised by the CJEU (which rings of the freedom to conduct a business under Art 16 of the EUCFR, even if it is not mentioned), the CJEU determined that '[i]n the present case, ... the contracting authority requires a tenderer ... which relies on the capacities of other entities for the performance of the contract concerned, to establish links of a precise legal nature with those entities, so that only those particular links are capable, in the eyes of the contracting authority, of proving that the contract does in fact have the resources necessary to perform that contract ... a rule such as that ... of the tender specifications manifestly deprives the provisions of Articles 47(2) and 48(3) of Directive 2004/28 of their effectiveness' (paras 30 and 33, emphasis added).

The reason I find the Judgment in Ostas celtnieks troubling for the interpretation of Arts 19  and 63 of Dir 2014/24 is that, going beyond the requirements and limits of Arts 47 and 48 Dir 2004/18, a new provision in Art 63 Dir 2014/24 now establishes that despite the fact that groups of economic operators, including temporary associations, may participate in procurement procedures and they shall not be required by contracting authorities to have a specific legal form in order to submit a tender or a request to participate [Art 19(2)],  and that contracting authorities may require groups of economic operators to assume a specific legal form only once they have been awarded the contract, and to the extent that such a change is necessary for the satisfactory performance of the contract [Art 19(3)], Art 63(1) in fine Dir 2014/24 foresees that '[w]here an economic operator relies on the capacities of other entities with regard to criteria relating to economic and financial standing, the contracting authority may require that the economic operator and those entities be jointly liable for the execution of the contract.'

In view of the Judgment in Ostas celtnieks, it seems clear that either the enforcement of Art 63 Dir 2014/24 will require a change of tack in the development of the flexible case law applicable to teaming agreements, or Art 63 Dir 2014/24 will trigger a potential nightmare of legal discussion about the limits of the possibility to request assurances to guarantee that the economic operator and those entities on which financial and economic capacities it relies be jointly liable for the execution of the contract, while not forcing it to 'establish links of a precise legal nature with those entities, so that only those particular links are capable, in the eyes of the contracting authority, of proving that the contract does in fact have the resources necessary to perform that contract'.

This builds up on my previous criticism of the liability requirement created by Art 63 Dir 2014/24, which was along different lines:

... the ... requirement of joint liability for the execution of the contract can make it very difficult to reach subcontracting agreements or similar arrangements for the reliance on third parties for the partial execution of a minor part of the contract. Moreover, it can result in complicated structures of side letters of indemnity that raise the legal costs linked to participation. In my opinion, in relation to both requirements, the contracting entity should be satisfied with the liability of the main contractor and, if need be, ‘self-protect’ through requirements for adequate professional risk indemnity insurance under article 58(3) of Directive 2014/24. Therefore, a pro-competitive interpretation of these rules requires subjecting their use to very strict proportionality tests in order to avoid unnecessary restrictions of the ability of tenderers to rely on third party capacities in ways that fall short of teaming and bidding jointly for contracts [ A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 317-18].

In my view, the Judgment in Ostas celtnieks strengthens the argument for a very exceptional use of Art 63(1) in fine Dir 2014/24 by contracting authorities.

GC imposes liability on the European Commission for obvious breach of equal treatment in public procurement (T-199/14)

In its Judgment of 29 October 2015 in Vanbreda Risk & Benefits v Commission, T-199/14, EU:T:2015:820 (not available in English), the General Court (GC) annulled a procurement award decision for several breaches of the principle of equal treatment and condemned the European Commission to compensate the complainant for the damages resulting from the award of the contract to a competing undertaking. 

This is the second instance of imposition of liability on EU Institutions for breach of the applicable public procurement rules in less than a month (see European Dynamics Luxembourg v OHIM). However, this case differs from previous findings of liability of EU Institutions because it is not concerned with formal aspects of the procurement process (namely, debriefing obligations and the duty to state reasons), but with substantial issues concerning the equal treatment of tenderers. 

In fact, as the analysis below will show, the case indicates very poor procurement practice by the European Commission, which is surprising and may diminish the credibility of the institution that is aiming to foster a culture of compliance with public procurement rules as a key aspect of the new strategy for a deeper and fairer internal market (see comments here). Indeed, the Commission would be well advised to tighten up its own procurement processes and to lead by example in such change of mentality regarding compliance with  substantive standards and good procurement practices.

In the case at hand, the European Commission had tendered a contract for insurance services. Amongst the tender conditions, the Commission imposed that 'in the case of awarding the contract to a consortium of economic operators, all members of this group had to have " joint responsibility [...] in executing the contract"'. This requirement triggered a significant volume of documentary obligations in case tenderers intended to submit joint offers as part of a consortium (see T-199/14, paras 7-12). 

The Commission received two offers: one from Vanbreda Risk & Benefits (Vanbreda) and one from Marsh. Marsh's offer was made in consortium with others, and this included the participation of AIG Europe Limited (AIG). In view of this, Vanbreda indicated to the European Commission that, in its ownexperience,

AIG, who participated in the Marsh consortium, refused on principle to jointly undertake liability and therefore [Vanbreda] was almost certain that [Marsh's] could not comply with the substantive and formal requirements of the tender specifications (T-199/14, para 14, own translation from French).

The European Commission did not respond to this claim by Vanbreda. First, on the basis that the evaluation of the tenders was on-going (para 15) and, upon communicating its decision to award the contract to the Marsh consortium and Vanbreda's insistence that the offer could not possibly meet the requirement of joint liability, on the pretext that at this debriefing stage, it could not provide information other that 'the characteristics and relative advantages of the successful tender and the name of the successful tenderer' (para 21). After repeated requests from Vanbreda, the Commission eventually replied that

the issues at the root of the applicant's concern had been duly analyzed throughout the tender evaluation stage, that all offers were found compliant and, therefore, the contract was awarded to the bid with the lowest price. The Commission did not forward any of the requested documents to the applicant (T-199/14, para 24, own translation from French).

Unsurprisingly, Vanbreda challenged the award decision. Its main contention was that by allowing Marsh to offer a joint bid for the performance of the contract with a consortium of non-jointly and severally liable insurers, the Commission would have allowed this operator to offer a much lower price (see paras 42-43, where the impact of joint liability on pricing is further discussed).

Upon review of the file in the context of the challenge, Vanbreda discovered that its interpretation of the offer submitted by Marsh did not reflect the reality of the offer submitted by Marsh in cooperation with other insurers. As the GC summarises

Marsh would have in fact filed its offer as a broker sole tenderer and the Commission and Marsh would have corresponded extensively after the opening of tenders about the solidarity condition. The Commission never reported these facts to [Vanbreda], despite repeated questioning of the latter (T-199/14, para 45, own translation from French).

In view of these additional facts, Vanbreda adjusted its arguments to oppose the possibility that an insurance company such as Marsh could have submitted an offer as a 'broker sole tenderer' because, in its view, this would have infringed the requirement of joint liability in the execution of the contract. The Commission opposed this argument on the basis that it relied on an erroneous and restrictive interpretation of both the tender documentation and Belgian law (see details in paras 54-55).

In view of these arguments, and after reminding that the principle of equal treatment of tenderers aims to promote the development of healthy and effective competition between companies participating in a public tender and requires that all tenderers have the same chances in formulating the terms of their offers and are subject to the same conditions of competition (para 64), the GC found that

93 It appears from the foregoing that the admission of a broker to participate in the tender as the sole tenderer is contrary both to the provisions of the tender and the economy of the system set up thereby. The arguments put forward by the Commission concerning the goal it would have pursued of trying to maintain a high level of competition by the participants in the contested tender, are not likely to justify non-compliance with the tender documentation.

94 Furthermore, it appears from the evidence that one of the essential conditions of the tender consisted in the commitment, by the insurer or insurers, to ensure that the contracting authority would benefit from a 100% coverage of the risks set out in the specifications.

95 According to the Commission, in the hypothesis ... of a broker sole tenderer, it would have been incumbent upon the latter to organize the practicalities of the execution of the contract. This approach would have meant for the Commission to check whether the 100% coverage condition described in paragraph 94 above was fulfilled by focusing solely on the results and not on how it was obtained.

96 In this case, when submitting his tender, Marsh presented a distribution of risks between the participating insurance companies in order to reach the goal of 100% coverage. By letter of 14 February 2014, Marsh informed the Commission that one of the insurers to take part in its offering, AIG, had refused to sign the contract. Following this defection, Marsh proposed a new allocation of these risks, without changing the total price of the successful tender, which implied that the coverage of the share of AIG's participation would firstly be achieved by increasing the participation quotas of the remaining insurance companies and, secondly, by allocating a portion of that share to two new insurance companies  that were not among those originally specified in the Marsh's tender.

97 Accordingly, when Marsh had to, firstly, renegotiate increasing the shares of the insurance companies which had initially mandated it as a broker and, secondly, negotiate the participation of two new insurers, not only the competing offer [by Vanbreda] was known, but the certainty of the award to Marsh was acquired. Conversely, if at the time of the formation of the initial offer, and therefore without knowing that the contract would be awarded to them, the insurance companies mandating Marsh had had to assume higher quotas of participation, which implied greater risks for them, it is likely that, in all economic probability, they would have demanded an increase in their remuneration. This could, therefore, have lead to an increase in the tender price. Similarly, the negotiation of a stake by two new insurers in the offer, at a time when neither the price of the competing offer nor the certainty of obtaining the contract would have been known, was also likely to lead to a different result, potentially affecting the total price of the offer proposed by Marsh upwards. Rather, in this case, the two new insurance companies could know exactly the maximum remuneration they could get at the time when they entered into an agreement with Marsh.

98 Therefore, even if the total price of the successful tender has actually not changed for the Commission, the conditions negotiated between the broker sole contractor and the rest of the insurance companies have undoubtedly been changed.

99 It follows from the above that the admission of a broker to participate in the call as a sole tenderer mandated by insurance companies, first, makes illusory the verification by the evaluation committee of the merits of the offer against the conditions imposed by the specifications; secondly, allows said broker to benefit, in this case, of a competitive advantage over other bidders; and thirdly, causes unequal treatment in favour of the broker sole tenderer relative, in particular, to a competitor submitting a joint bid with one or more insurers (T-199/14, paras 93-99, own translation from French and emphasis added).

The GC then goes on to assess to what extent the mere fact of the Commission's engagement with Marsh in pushing for a substitution of AIG after having found out that such insurance company had not accepted the clause on joint liability (as suggested by Vanbreda) amounted to a violation of the principle of equal treatment and the prohibition of negotiations immediately prior to award of the contract, and finds that it is indeed the case (paras 102-133) [for discussion on how such pre-award negotiations can affect competition, and arguments supporting the position followed by the GC, see A Sanchez Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 418-421].

The GC also assesses to what extent the post-evaluation authorisation of a change in the composition of the consortium on which Marsh actually relied also amounts, in itself, to a breach of the principle of equal treatment and, once more, it finds that such a breach took place (paras 134-158). 

Once these infringements are settled, the GC then goes one to assess to what extent the Commission needs to indemnify Vanbreda and finds that the damage derived from the loss of a chance of being awarded the contract and to obtain the corresponding market references in terms of experience is recoverable, but that the rest of claims on the basis of expected benefits and moral damage are not (paras 160-217).

As mentioned at the beginning, in my view, this is a case that shows that the European Commission may not be itself prepared to comply with the very same principles it expects Member States to adhere to. It seems just too obvious that the Commission was willing to engage in very significant procedural irregularities in order to secure a saving of about €0.25mn/year, which was the difference between the offers submitted by Marsh and Vanbreda. 

Under certain lenses, this is an understandable situation, but this is precisely why the rules on the award of public contracts need to prevent these situations of financial conflict of interest in the assessment of non-compliant bids. It seems like there is a very long and winding road ahead in terms of trying to avoid these problems down the rout of fostering a culture of compliance... In the meantime, this type of hard enforcement decisions such as the GC Judgment in Vanbreda Risk & Benefits v Commission must be most welcome.

A very expensive slip of the pen? GC takes hard line in assessment of debriefing letter and awards compensation for loss of opportunity (T-299/11)

In its Judgment of 7 October 2015 in European Dynamics Luxembourg and Others v OHIM, T-299/11, EU:T:2015:757, the General Court of the Court of Justice of the European Union (GC) has once again revised the conclusion of framework agreements that include a cascade mechanism for the allocation of call-off contracts within the framework (see previous case Evropaïki Dynamiki v EASA, T-297/09, EU:T:2015:184 and comments here).

On this occasion, the GC considered that OHIM infringed the applicable procurement rules and determined that European Dynamics is entitled to compensation for the loss of an opportunity to be awarded the framework contract as the contractor ranked first in the cascade. Looking at the reasoning of the GC can be of interest.

In the Judgment, the GC finds that OHIM incurred in several substantive and formal errors in the evaluation of tenders leading up to the eventually quashed award decision. In my view, some of the substantive claims result from the not very careful drafting of the debriefing letter sent by OHIM to European Dynamics, which is very unfortunate. The point that I consider more troublesome from a practical perspective is as follows.

In the tender documentation, and amongst (very!) many other technical issues, tenderers were informed that part of the evaluation would rely on their project management strategy. As the GC explains (T-299/11, para 6), this was formulated in award criterion 1, according to which

[Award] Criterion 1: based on its methodology and experience, the tenderer must present the tasks and activities he/she would perform in terms of project management. This includes in particular (but not exclusively):

a. Progress control [that is to say checking the progress of the work];

b. Issue management process;

c. Change management process;

d. Escalations;

e. Lessons learnt programme;

f. Communications plan;

g. Deliverable acceptance procedures

(maximum 40 points with a minimum threshold of 20 points);

European Dynamics did not receive the highest score under this criterion. When it requested further details of the evaluation under criterion 1 from OHIM, it received a letter whereby it was explained that "the offers with very good or excellent criterion 1 ... “Identified change management and communication as the two most essential tasks for the success of the project”" (T-299/11, paras 23 and 41).

On this particular point, and in view of this (possibly less than careful) drafting of the debriefing letter, European Dynamics complained that it was not clear "from the tender specifications that the two sub-criteria ‘change management’ and ‘communication’ were, in OHIM’s view, the ‘most essential’. Accordingly, the contracting authority introduced, a posteriori, a new criterion and gave a new weighting to those sub-criteria" (T-299/11, para 42, emphasis added).

The GC upheld this complaint of European Dynamics with the following reasoning:

48 ... the Court finds that the applicants rightly argue that the contracting authority indeed gave to the sub-criteria ‘change management’ and ‘communication’ a more significant weight than the other criteria set out in the first award criterion. The reasons unambiguously set out in OHIM’s letter ... according to which the bids from the other successful tenderers ‘identified change management and communication as the two most essential tasks for the success of the project’, cannot be understood otherwise. It demonstrates that the contracting authority endorsed the approach proposed by the other successful tenderers on the basis of a weighting of those sub-criteria which is not clear from the wording of the first award criterion ... the contracting authority cannot apply a weighting of sub-criteria which it has not previously brought to the tenderers’ attention (see, to that effect, judgment of 24 January 2008 in Lianakis and Others, C-532/06, ECR, EU:C:2008:40, paragraph 38).

49 In that regard, first, it should be noted that the ‘change management’ and ‘communications plan’ comprised only two sub-criteria among a set of seven sub-criteria which were listed at the same level and on a non-exclusive basis under the first award criterion, namely, progress control, issue management process, change management process, escalations, lessons learnt programme, communications plan and deliverable acceptance procedures, and in respect of which the contracting authority intended to award a maximum number of 40 points ... Nor is it apparent from the wording of that criterion or other relevant parts of the tender specifications that the contracting authority intended, where appropriate and for specific undisclosed reasons, to afford a different weight to those sub-criteria for the presentation of the project presented in Work Hypothesis No 1, or even to assign, when evaluating the bids submitted in the light of the first award criterion, higher or lower scores depending on whether those bids focused on either one or the other of those sub-criteria. That is particularly so, in respect of the sub-criteria ‘change management’ and ‘communications plan’, in respect of which it was not stated in the tender specifications that the contracting authority considered that they represented ‘the two most essential tasks for the success of the project’.

50 Second, in accordance with the general explanations, in the tender specifications, of the requirements which have to be fulfilled by the tenderers, those tenderers were invited to present ‘the tasks and activities to be executed to manage and successfully achieve the project presented in Work Hypothesis No 1’ which were set out in Annex 18 to the tender specifications and covered the establishment by OHIM of a ‘project to build an information system’. As a result, the description in the bids submitted of the tasks and the activities related to the various sub-criteria under the first award criterion referred necessarily to that project which was by definition the same for all tenderers.

51 In those circumstances, the phrase ‘identified change management and communication as the two most essential tasks for the success of the project’ can be understood only as comprising an absolute and general value judgment on the particular importance of the sub-criteria ‘change management’ and ‘communications plan’ (‘the most essential’) as part of the project envisaged by OHIM under Work Hypothesis No 1 (‘for the success of the project’), of which the bids of the other successful tenderers would have taken account, and, conversely, as a criticism of the first applicant’s bid for failing to have followed an approach similar to that proposed by those successful tenderers to that end.

52 In that regard, OHIM is not justified in claiming, in essence, that the reasoning referred to above should be understood as a value judgment on the sufficient quality of the bids of the other successful tenderers which was based on the identification of two specific sub-criteria, namely ‘change management’ and ‘communications’, since that judgment is not severable from a specifically abstract and preliminary upgrading of the sub-criteria as compared to the other five sub-criteria listed in the first award criterion. Moreover, if only for the reasons set out in paragraphs 48 to 51 above, it does not appear credible that the contracting authority failed to assign a specific number of points from the total of 40 points available to the various sub-criteria which were referred to therein ...

53 Thus, it must be concluded that the negative comparative judgment made by the contracting authority on the first applicant’s bid on that point has no support in the wording of the first award criterion. In particular, the weighting underlying that judgment did not appear to be sufficiently clear, precise and unequivocal from that criterion to enable all reasonably well-informed and normally diligent tenderers to understand their precise scope and to interpret them in the same manner. By applying, contrary to the requirements arising from the case-law ... a weighting of the various sub-criteria within that award criterion which was not provided for by the tender specifications or communicated in advance to the tenderers, OHIM therefore breached, to the detriment of the applicants, the principles of equal opportunities and transparency (T-299/11, paras 48-53, emphasis added).

Technically, the GC's argument is rather solid and, at least at a conceptual level, not much can be criticised. However, given its strong reliance on the specific wording of the letter and arguments concerning implicit underlying sub-criteria and their presumed weightings, it does not seem very persuasive because a more careful and nuanced drafting of the debriefing letter would have completely changed the assessment. 

Indeed, a worrying potential implication of the European Dynamics v OHIM Judgment is that it creates a very powerful incentive for contracting authorities to be disingenuous in their debriefing letters and, where several sub-criteria are listed in the tender documentation, to include references to all of them in the qualitative explanations of the superiority of the tenders chosen for award. 

Such 'holistic' approach to debriefing letter drafting would reduce the quality of the information disclosed--both for the tenderer (who is in any case probably not really seeking to understand the actual superiority of competing bids, but simply a way to litigate) and  also for the reviewing court (which will be receiving more general statements).

As an example, under the circumstances of the case, a debriefing letter with a statement such as ''the offers with very good or excellent criterion 1 ... [struck an appropriate balance between competing implementation needs and provided realistic strategies regarding] most essential tasks for the success of the project [including in particular (but not exclusively): progress control; issue management; change management; escalations; lessons learnt programme; communications plan; and deliverable acceptance procedures]”, would probably have sufficed to nullify European Dynamics' claim and, in my view, would not necessarily infringe the duty to provide reasons as it relates to qualitative technical assessments were technical discretion is rather wide (unless a disproportionately high burden of motivation was imposed, which cannot be completely discarded in view of previous decisions of the GC). In any case, this is just a rough and fast drafting and more considerate wording would probably strike a better balance between provision of reasons and avoidance of litigation.

However, such a debriefing letter would not be as good as the one provided by OHIM in the case at hand, where it naively (?) indicated the actual reasons it had considered to provide better quality management strategies, as it tried to explain to an unimpressed GC (para 52 above)--or, more simply, did not put a great deal of thought on the specific wording of the contentious paragraph of the debriefing letter, which it merely intended to provide qualitative feedback of a general nature. Thus, the European Dynamics v OHIM Judgment puts even more pressure on contracting authorities to be extremely careful in their debriefing (see here and here) and makes this task a nightmarish phase of the procurement process.

Given that such situations carry significant financial consequences (in this case, of an uncertain magnitude because the GC ordered OHIM and European Dynamics to agree between themselves the proper amount of compensation; see paras 149-157), this is an area of procurement practice where contracting authorities would be well advised to start investing more resources. 

At the same time, it is necessary to promote a change of mentality in courts and review bodies dealing with this type of cases, as decisions such as the GC Judgment in European Dynamics v OHIM clearly establish strong financial incentives to litigate and the position of the contracting authorities dealing with complex technical issues requiring qualitative/subjective assessments may be excessively weakened by taking such a hard line in the assessment of debriefing documentation.

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.

#CJEU confirms that #IPlaw violations belong to the sphere of the outstanding contractual relationship (Systran, C-103/11-P)

In its Judgment of 18 April 2013 in case C-103/11-P Commission v Systran SA, Systran Luxembourg SA (Systran), the CJEU has broadly followed the Opinion of AG Cruz Villalon and confirmed that, when confronted with liability claims, EU Courts must first determine whether there exists a genuine contractual context, linked to the subject-matter of the dispute, between the claimant and the defending EU institution. In that regard, according to the CJEU, if a preliminary analysis of those matters shows that it is necessary to interpret the content of one or more contracts concluded between the parties in question in order to establish whether the applicant’s claims are well founded, EU Courts are required at that point to halt their examination of the dispute and declare that they have no jurisdiction (press release). 

As anticipated here, this finding seems to have deep implications in the debate concerning the vis atractiva of contractual relationships when one of the parties subsequently engages in tortious behavior (in the case, for breach of IP rigths) and, consequently, the Systran Judgment deserves some careful thought. 

As the CJEU has clearly set out in Systran:

63 [...] when hearing an action for compensation, the Community Courts must, before ruling on the substance of the dispute, as a preliminary issue determine their jurisdiction by carrying out an analysis to establish the character of the liability invoked and thus the very nature of the dispute in question.

64 In doing that, those Courts cannot base their reasoning simply on the rules alleged by the parties.

65 In that regard, [...] the Court of Justice has already held that the mere invocation of legal rules not flowing from a contract relevant in the case, but which are binding on the parties, cannot have the consequence of altering the contractual nature of the dispute and thus removing it from the jurisdiction of the competent court. If it were otherwise, the nature of the dispute and, consequently, the competent court, could be changed at the whim of the rules invoked by the parties, which would go against the rules on the jurisdiction of the various courts ratione materiae (Guigard v Commission, paragraph 43).

66 However, the Community Courts are required to verify whether the action for compensation before them has as its subject-matter a claim for damages based objectively and overall on rights and obligations of a contractual nature or of a non-contractual nature. For those purposes, as the Advocate General has pointed out in points 49 and 50 of his Opinion, those Courts must examine, on an analysis of the various matters in the file, such as, for example, the rule of law allegedly infringed, the nature of the damage claimed, the conduct complained of and the legal relations between the parties in question, whether there exists between them a genuine contractual context, linked to the subject-matter of the dispute, the in-depth examination of which proves to be indispensable for the resolution of the said action.

67 If a preliminary analysis of those matters shows that it is necessary to interpret the content of one or more contracts concluded between the parties in question in order to establish whether the applicant’s claims are well founded, those courts are required at that point to halt their examination of the dispute and declare that they have no jurisdiction to rule thereon in the absence of an arbitration clause in the said contracts. In such circumstances, examination of the action for compensation directed against the Community would imply the assessment of rights and obligations of a contractual nature which, pursuant to Article 240 EC, cannot be removed from the jurisdiction of the national courts (C-103/11-P, paras 63 to 67, emphasis added).

More specifically, when analyzing the application of these principles by the General Court in the appealed decision, the CJEU stressed that

It is true [...] that it is not sufficient to allege simply any contractual relationship with the applicant or obligations of contractual origin not envisaging the conduct in dispute in order to be able to change the nature of the dispute by giving it a contractual basis. However, the fact remains that where, having regard to the content of the action for compensation against the Community, the interpretation of one or more contracts concluded between the parties in question appears to be indispensable in order to establish the legality or otherwise of the conduct by the institutions which is complained of, the dispute falls outside the jurisdiction of the Community Courts (C-103/11-P, para 80, emphasis added).

A summary reading of Systran indicates that, when the parties hold a previous or ongoing contractual relationship (which merits interpretation), claims for damages (due to breach of IPR-rights, or otherwise) should in principle be analysed within the sphere of those contracts and, only if no sufficient connection is found to the prior contractual bound, a 'purely' tortious claim will be allowed. Such a principle, which is developed in view of jurisdictional concerns, may have very significant substantive implications for contract and tort law in the EU (which precise delimitation seems to be permanently under debate)--unless the Systran Judgment is confined to a matter of procedural law (which, in my opinion, would be the wrong thing to do).

The general approach in Systran would imply that EU Courts retain jurisdiction for damages claims only in the absence of any (meaningful, sufficiently close) contractual relationship between the claimant and the defending EU institution (which, for instance, would leave them completely lacking of jurisdiction in the area of damages resulting from public procurement and the execution of the ensuing public contracts). 

It would also imply, more generally, that as a matter of EU Law, there is a principle of contractual absorption (vis atractiva contractus) that would extend the sphere of the contract, ie its scope (and, possibly, its effectiveness), to the damages inflicted by one party to the other due to tortious behaviour that may exceed the specific provisions of the contract (ie beyond strict breaches of contractual obligations). As a result of such vis atractiva--and given the different regulation of contractual and non-contractual claims in each of the Member States--different rules can apply to issues such as limitation periods, liquidated damages, penalty clauses, arbitration agreements, etc. 

And, in any case, given the difficulty in drawing a clear dividing line between contract and other areas of private law, the issue seems far from being finally sorted out, despite the creation of this type of rules of priority of contract law over non-contractual obligations, such as the one expressly included in the Draft Common Frame of Reference (VI.–1:103):

Should it, however, in fact come to a conflict between the values of contract law and non-contractual liability law in any particular case, whereby contract law denies liability which would subsist according to the provisions on noncontractual liability, then it is for the rules of contract law to assert priority if that is to be claimed in accord with the objective of the contract law rules. That is again the case if an application of the law on non-contractual liability in parallel with the corresponding contract law provision would deprive the latter of its effect. The contract law rule has priority so far as contract law actually claims it, whether expressly or merely by implication from the nature of things. Where contract law makes no such demand for the subsidiarity of non-contractual liability law, sub-paragraph (c) has no application and the principle of free concurrence of actions governs.

Therefore, the recognition (or not) of a general principle of the vis atractiva of contracts as a matter of EU law (in Systran) seems most relevant and deserves some further work in the future--particularly in view of the interrelationship between issues of substance and procedure (jurisdiction), which the CJEU has, as a matter of principle, prioritised in favour of contract law (and which also seems the default preferred option in the DCFR 2008).

Not worth the paper it is written on? ~ AG on the expectations created by legal advice in #competition (C-681/11) #EULaw

In her Opinion in case C-681/11 Schenker and Others, Advocate General Kokott has addressed a very relevant question regarding the possibility to avoid competition sanctions on the basis of the (legitimate) expectations created by professional legal advice. In her Opinion, she expressly addresses the question 'Is an error with regard to the lawfulness of conduct 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?'. In my view, as clearly emphasised by the AG, this is of major relevance in the 'self-assessment' paradigm created by Regulation 1/2003.

According to the AG, the framework for the analysis must be the following:

Apparently, the members of the [cartel] wrongly considered that they had stayed ‘on the safe side’, as far as European Union law was concerned, by restricting the geographical scope of their cartel to Austria alone. In the light of the case-law of the European Union courts and the administrative practice of the European Commission, there is no doubt that that legal opinion was objectively incorrect. However, it is unclear whether the infringement of the prohibition of cartels under EU law can also be attributed subjectively to the undertakings concerned. In other words, it must be examined whether the undertakings participating in the [cartel] culpably infringed the prohibition of cartels under EU law (Opinion in C-681/11, at para 36, emphasis in the original, footnotes omitted).

In that regard, and after clearly indicating that the principle of nulla poena sine culpa applies in the field of EU Competition law as an implicit requirement of Articles 6(2) of the European Convention on Human Rights and 48(1) of the European Charter of Fundamental Rights [for general discussion on human rights in this area, see A Sanchez Graells, '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 (Hart Publishing, 2014), available at http://ssrn.com/abstract=2156904], AG Kokott goes on to explain that:

44. According to the principle of nulla poena sine culpa, an undertaking may be held responsible for a cartel offence which it has committed on a purely objective basis only where that offence can also be attributed to it subjectively. If, on the other hand, the undertaking commits an error of law precluding liability, an infringement cannot be found against it nor can it form the basis for the imposition of penalties such as fines.

45. It should be stressed that not every error of law is capable of precluding completely the liability of the undertaking participating in the cartel and thus the existence of a punishable infringement. Only where the error committed by the undertaking regarding the lawfulness of its market behaviour was unavoidable – sometimes also called an excusable error or an unobjectionable error – has the undertaking acted without fault and it cannot be held liable for the cartel offence in question.

46. Such an unavoidable error of law would appear to occur only very rarely. It can be taken to exist only where the undertaking concerned took all possible and reasonable steps to avoid its alleged infringement of EU antitrust law.

47. If the undertaking concerned could have avoided its error regarding the lawfulness of its market behaviour – as is often the case – by taking adequate precautions, it cannot escape any penalty for the cartel offence committed by it. Rather it will be liable at least for a negligent infringement, which, depending on the seriousness of the questions of competition law involved, may (but not must) lead to a reduced fine.

48. It is necessary to assess whether the error of law committed by an undertaking participating in a cartel was avoidable or unavoidable (objectionable or non-objectionable) on the basis of uniform criteria laid down in EU law, so that uniform conditions in respect of EU substantive competition law apply to all undertakings operating in the internal market (‘level playing field’) (Opinion in C-681/11, at paras 44 to 48, bold emphasis in the original,  underlined added, footnotes omitted).

After briefly referring to the old Miller case law on the suitability of the (legitimate) expectations created by legal advise as a competition defence, the AG enters an interesting revision of this issue in the new paradigm created by Regulation 1/2003 and she considers that

57. [...] obtaining expert legal advice has a completely different importance in the system under Regulation No 1/2003 than was the case in the system under Regulation No 17. Consulting a legal adviser is now often the only way for undertakings to obtain detailed information about the legal situation under antitrust law.

58. It is not acceptable, on the one hand, to encourage undertakings to obtain expert legal advice but, on the other, to attach absolutely no importance to that advice in assessing their fault in respect of an infringement of EU antitrust law. If an undertaking relies, in good faith, on – ultimately incorrect – advice provided by its legal adviser, this must have a bearing in cartel proceedings for the imposition of fines.

59. In particular, the purely civil liability of a lawyer for incorrect legal advice given by him does not, contrary to the view taken by the European Commission, constitute adequate compensation in itself. Civil recourse by a client against his lawyer is generally subject to considerable uncertainty and, moreover, cannot dispel the condemnation (‘stigma’) associated with the imposition of cartel – i.e. quasi-criminal – penalties against the undertaking.

60. Of course, obtaining legal advice cannot exempt an undertaking from all individual responsibility for its market behaviour and for any infringements of European competition law. The opinion of a lawyer can never give carte blanche. Otherwise, this would open the way to the production of opinions tailored to the interests of the undertaking and the power to give official negative clearance abolished by Regulation No 1/2003 would be transferred de facto to private legal advisers, who do not have any legitimacy in that regard.

61. In accordance with the fundamental objective of the effective enforcement of European competition rules, any expectations on the part of an undertaking created by legal advice may be recognised as the basis for an error of law precluding liability only where, in obtaining that legal advice, certain minimum requirements were complied with, which I will describe briefly below.

Minimum requirements in obtaining legal advice

62. The basic condition for taking into consideration the legal advice obtained by an undertaking is that the undertaking relied in good faith on that advice. Protection of legitimate expectations and good faith are closely related. If the facts justify the assumption that the undertaking relied on a legal opinion against its better judgment or that the report was tailored to the interests of the undertaking, the legal advice given is irrelevant from the very outset in assessing fault for an infringement of the rules of European competition law.

63. Furthermore, the following minimum requirements apply to obtaining legal advice, in respect of which the undertaking concerned itself bears the risk and responsibility for compliance.

64. First of all, the advice must always be obtained from an independent external lawyer. [...]

65. Second, the advice must be given by a specialist lawyer, which means that the lawyer must be specialised in competition law, including European antitrust law, and must also regularly work for clients in this field of law.

66. Third, the legal advice must have been provided on the basis of a full and accurate description of the facts by the undertaking concerned. If an undertaking has given only incomplete or even false information to the lawyer consulted by it regarding circumstances which originate from the area of responsibility of the undertaking, the opinion of that lawyer cannot have an exculpating effect in cartel proceedings in relation to any error of law.

67. Fourth, the opinion of the consulted lawyer must deal comprehensively with the European Commission’s administrative and decision-making practice and with the case-law of the European Union courts and give detailed comments on all legally relevant aspects of the case at issue. An element which is not expressly the subject-matter of the legal advice but may possibly be inferred implicitly from it cannot form the basis for recognition of an error of law precluding liability.

68. Fifth, the legal advice given may not be manifestly incorrect. No undertaking may rely blindly on legal advice. Rather, any undertaking which consults a lawyer must at least review the plausibility of the information provided by him.

69. Of course, the diligence expected of an undertaking in this regard depends on its size and its experience in competition matters. The larger the undertaking and the more experience it has with competition law, the more it is required to review the substance of the legal advice obtained, especially if it has its own legal department with relevant expertise.

70. In any event, every undertaking must be aware that certain anti-competitive practices are, by their nature, prohibited, and in particular that no one is permitted to participate in ‘hardcore restrictions’, for example in price agreements or in agreements or measures to share or partition markets. Furthermore, large, experienced undertakings can be expected to have taken note of the relevant statements made by the European Commission in its notices and guidelines in the field of competition law.

71. Sixth, the undertaking concerned acts at its own risk if the legal opinion obtained by it shows that the legal situation is unclear. In that case, the undertaking is at least negligent in accepting that by its market behaviour it infringes the rules of European competition law.

72. Admittedly, in the light of the minimum requirements I have just proposed, the value of legal opinions given by lawyers is slightly diminished for the undertakings concerned. However, this is inherent in the system created by Regulation No 1/2003 and is also no different in conventional criminal law; in the final analysis, any undertaking is itself responsible for its market behaviour and bears the risk for infringements of the law it commits. Absolute legal certainty cannot be secured by obtaining legal advice from a lawyer. However, if all the abovementioned minimum requirements are satisfied, an error of law precluding liability can be taken to exist where the undertaking concerned has relied in good faith on an opinion from its legal adviser.

73. It should be added that a lawyer who, by delivering opinions tailored to the interests of an undertaking, becomes an accomplice in the undertaking’s anti‑competitive practices will have to contend with not only consequences under the rules of civil law and of professional conduct, but may possibly also himself be subject to penalties imposed in cartel proceedings (Opinion in C-681/11, at paras 57 to 73, underlined added, footnotes omitted).

In my view, the very high minimum requirements suggested by AG Kokott may seem desirable from a theoretical perspective but, in practice, 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 would 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. 

On the other hand, building a strong in-house competition team may even be self-defeating, as it comes to raise the threshold of diligence applicable to the undertaking. Therefore, companies may even consider whether they are better off simply omitting competition legal advice.

Given the complexity of the assessments required in certain cases, as well as the standard practice of introducing caveats and limitations in legal opinions (not only in this field of legal practice), coupled with the (not-so) residual duty of the requesting undertakings to double-check the accuracy of the legal advise obtained; successfully relying in a defence based on the legitimate expectations created by the advice of the legal expert seems very hard to achieve.

In that regard, I think that the CJEU should depart from the Opinion of AG Kokott in one of two possible ways: a) either the CJEU avoids endorsing her analysis and confirms the full applicability of Miller in the post- Regulation 1/2003 paradigm (which would generate simplicity and avoid litigation), or b) it adopts a more flexible approach and sets a less demanding standard for this defence (and,consequently, creates some room for an effective  'serious legal advice' defence). 

In my view, route b) would be 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.