CJEU consolidates functional approach to customs nomenclature interpretation (C-380/12)

In its Judgment of 23 January 2014 in case C-380/12 X, the Court of Justice of the European Union (CJEU) was presented with a request for a preliminary reference on the proper interpretation of certain headings of the applicable customs nomenclature.
 
The case is riddled with technical (biochemical) complications but, in my best understanding of it, the key issues focussed on whether certain washing processes altered or not the molecular structure of a specific type of earth used to decolour edible oils. In the end, the dispute was concerned with a reclassification of that type of (washed) decolourising earth from a heading applicable to natural clays [which included those that had been washed (even with chemical substances eliminating the impurities, without changing the structure of the product)] to a heading applicable to activated natural mineral products (such as activated carbons, which structure has been altered). The impact of such a reclassification based on the alteration of the natural molecular structure of the product was the application of a higher tariff of 5.7% in customs duties. And, consequently, it was litigated.
 
In its Judgment, the CJEU follows its standard approach to this type of (fiendish) issue and makes it clear that it is for domestic courts to reach the final decision on nomenclature classification, but it aims to provide some general criteria to guide their decision.
 
In my view, the indication towards the need for a functional approach, based on the intended use of the products (rather than simply following a strict consideration of the production or treatment processes) seems worth highlighting. Indeed, in its Judgment, the CJEU indicated that:
39 [...] the intended use of a product may also constitute an objective criterion for classification if it is inherent to the product, and that inherent character must be capable of being assessed on the basis of the product’s objective characteristics and properties (see [Case C-183/06 RUMA [2007] ECR I‑1559], paragraph 36; Case C‑123/09 Roeckl Sporthandschuhe [2010] ECR I‑4065, paragraph 28; and [C-568/11 Agroferm [2013] ECR I-0000], paragraph 41).
40 It is apparent from the order for reference that the treatment applied to the products at issue in the main proceedings, batches of decolourising earth, consists in effecting a structural replacement of calcium ions with hydrogen ions in order to increase their adsorption capacity, which makes them suitable for purifying and decolourising edible oils. It is, furthermore, apparent from the observations put forward by the Commission at the hearing – without being contradicted on the point – that that treatment rules out the possibility of decolourising earth for purposes other than the purification and decolouration of edible oils (C-380/12, paras 39-40, emphasis added).
That does not mean that the issue of the actual change of the molecular structure of the product becomes irrelevant. As the CJEU also indicated:
46 [...] the treatment at issue in the main proceedings involves the use of chemical substances, more specifically sulphuric acid, which it is nevertheless for the referring court to verify. Accordingly, assuming that treatment does entail the elimination of impurities, which it is also for the national court to verify in the light of the answer to the first question referred, the decisive criterion for determining whether, under Note 1 to Chapter 25 of the CN, the products at issue must remain classified under CN tariff heading 2508, is whether their structure is changed.
48 The [International Convention on the Harmonised Commodity Description and Coding System, concluded at Brussels on 14 June 1983] Explanatory Notes, [...] despite their lack of binding force, are an important means of ensuring the uniform application of the Common Customs Tariff and, as such, may be regarded as useful aids to its interpretation (Case C‑173/08 Kloosterboer Services [2009] ECR I-5347, paragraph 25, and Agroferm, paragraph 28).
49 In that regard, the HS Explanatory Notes relating to heading 3802 state that ‘[c]arbon and mineral substances are said to be activated when their superficial structure has been modified by appropriate treatment (with heat, chemicals, etc.) in order to make them suitable for certain purposes, such as decolourising, gas or moisture adsorption, catalysis, ion-exchange or filtering’. Those same notes state that heading 3802 does not cover ‘[n]aturally active mineral products (e.g., fuller’s earth), which have not undergone any treatment modifying their superficial structure (Chapter 25)’.
50 Consequently, as rightly pointed out by the Commission, Note 1 to Chapter 25 of the CN, interpreted in the light of the HS Explanatory Notes relating to heading 3802, rules out the possibility that products which have undergone treatment modifying their superficial structure may be classified under CN tariff heading 2508, with the result that they must be classified under CN tariff heading 3802 (C-380/12, paras 46-50, emphasis added).
 
In my view, and if I understood the (technical) reasoning properly, the emphasis on the functional (i.e. intended-use) approach can help overcome truly difficult technical considerations (such as to what extent has the structure actually been modified or not), because the ultimate objective of the treatment given to the decolourising earths was to increase their decolourising properties and made them useless otherwise. Consequently, the CJEU seems to be advocating (in rather convoluted and implicit terms) for an application of the same nomenclature classification to products which are aimed at the same use (i.e., truly competing products).
 
If that is correct, this seems the right approach in order to minimise competitive distortions resulting from the interpretation and application of customs rules. Hence, I think that the functional approach that the CJEU has continued to consolidate in its Judgment in X (decolourising earths) should be welcome, unless I have gotten lost at molecular level disquisitions...

Principle of competition finally consolidated into public procurement directives

The provisional text of the new public procurement Directives has been made available by the European Parliament. In the final version of 15 of January, the principle of competition is finally consolidated in article 18 of the new general Directive in the following terms:
Article 18 - Principles of procurement
1. Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators.
The explicit inclusion of the principle must be welcome, even if its drafting creates some interpretative uncertainties--particularly in regards to the intentional element ("with the intention of  [...] artificially narrowing competition") or the way in which the presumption linking (intended) discrimination with an actual distortion of competition.
 
In my view, these interpretative uncertainties deserve some clarification and there are sufficient interpretative criteria in the "pre-consolidated" case law concerned with competition in public procurement as to drive the clarification process [Sanchez Graells (2009) 'The Principle of Competition Embedded in EC Public Procurement Directives'). The teleological and functional interpretation of the principle still has to go in the direction of acknowledging that it requires that: public procurement rules have to be interpreted and applied in a pro-competitive way, so that they do not hinder, limit, or distort competition. Contracting entities must refrain from implementing any procurement practices that prevent, restrict or distort competition.
 
At any rate, the explicit consolidation of the principle seems likely to strengthen the use of pro-competitive arguments in public procurement litigation and, hopefully, will drive legal changes. It will be an interesting process to follow closely.

Free movement (of gold) meets consumer protection (C-481/12)

In its Judgment of 16 January 2014 in case C-481/12 Juvelta, the Court of Justice of the EU has issued an interesting decision concerned with the delicate balance between free movement of goods under Article 34 TFEU and the protection of consumers.

In the case at hand, gold jewellery was imported into Lithuania. The golden products had been stamped with the Polish hallmark to indicate their quality and fineness. The Polish and Lithuanian hallmarks differed in that Lithuanian rules require the express indication of the per thousand purity of the gold, whereas the Polish hallmark functions on a scale basis. Aware of such a divergence, the importer of the jewellery had complemented the Polish 'official' hallmark with a 'private mark' that expressly indicated the additional information necessary for Lithuanian consumers to understand the quality of the products. However, Lithuanian authorities were not willing to accept the validity of such 'private' second hallmark and required the products to be 'officially' marked again to comply with Lithuanian standards. The importer considered this an unjustified restriction of its free movement of goods rights and challenged the decision.

The CJEU framed the case within the standard Dassonville formula for the assessment of measures of equivalent effect to quantitative restrictions and offered some interesting insights into the limitations that consumer protection may introduce in that analytical framework. It is worth noting that, according to the CJEU,
23 In order to determine whether an indication of a standard of fineness not provided for by legislation of a Member State provides consumers with equivalent and intelligible information, the Court must take into account the presumed expectations of an average consumer who is reasonably well-informed and reasonably observant and circumspect (see, to that effect, Commission v Ireland, paragraph 32).

24 With regard to the proceedings [...] it should be noted that [...] the articles at issue in the main proceedings were stamped with hallmarks by an independent assay office authorised by the Republic of Poland, in accordance with that State’s legislation.

25 Likewise, [...] it is not disputed that the hallmark stamped on those articles shows their standard of fineness by means of the mark consisting of the numeral ‘3’ and that, in Poland, that mark is intended to denote articles of precious metals whose standard of fineness, expressed as the number of parts by weight of the precious metal in 1 000 parts by weight of the alloy, is 585.

26 It follows that the information provided by that mark is, as far as the articles of precious metal stamped with a hallmark in Poland are concerned, equivalent to that provided by the numerals ‘585’ on a hallmark stamped by an independent assay office authorised in Lithuania, in accordance with that State’s legislation.

27 That said, consideration must also be given to whether the marking of the numeral ‘3’ on the hallmarks stamped on the articles at issue in the main proceedings provides information intelligible to an average Lithuanian consumer who is reasonably well-informed and reasonably observant and circumspect.

28 In that regard, it must be held that it is probable that that mark is not intelligible to such a consumer, since such a person is not, in principle, deemed to know the Polish system of indicating standards of fineness for articles of precious metal.
29 However, although the restrictive effects of the legislation at issue can thus be justified by the objective of ensuring effective protection for Lithuanian consumers, and providing them with information relating to standards of fineness for articles of precious metal imported into Lithuania which are intelligible to them, such justification can be accepted only if that legislation is proportionate to the objective pursued, that is to say if, while appropriate in order to fulfil that objective, it does not go beyond what is necessary to attain it (C-481/12 at paras 23-29, emphasis added).
 
In Juvelta, then, the CJEU seems to have inserted an intermediate test of adequacy for consumer protection purposes that may need to be applied before the rule of reason analysis of the restrictive measure and in a cumulative manner. Hence, it seems that in situations where the application of free movement rules may leave consumers unprotected, the CJEU may be willing to set a limitation on the standard criteria of mutual recognition.
 
In general, then, it seems that the additional consideration of consumer protection/expectations comes to consolidate a 'suitability check' applied to the free movement rules (not to the measure having equivalent effect, which is still subjected to the traditional proportionality analysis) and, in that regard, seems fit for the purpose of ensuring overall consistency of the EU internal market rules--which, ultimately, should aim to protect consumers as well as allowing them to benefit from the increased efficiency that market competition brings about.
 
It may be that Juvelta does not create a revolution in the way free movement rules are applied (as such considerations had already occasionally been taken into account by the CJEU to a certain extent), but it may have spelled out more clearly the analytical path through which measures having equivalent effect against free movement of goods need to be assessed. In my view, this is a positive (incremental) development.

"National brands" and State aid: AG Whatelet on investing in "State branding" (C-533 & 536/12)

In his Opinion of 15 January 2014 in joined cases C-533/12 P and C-536/12 P SNCM v Corsica Ferries France, Advocate General Whatelet has addressed an interesting (and creative) argument concerning the protection of a "national brand" as a justification for the granting of public support that would otherwise constitute illegal State aid under Article 107 TFEU.

In the case at hand, and as part of a privatisation process, the French Republic had allegedly agreed to assume the costs of payment of excessive compensations for termination of employment and retirement of certain employees of a public undertaking. Regardless of the fact that the existence of such excessive compensations was also challenged, the French Republic claimed the protection of the national brand (ie, the reputation of French business conglomerates) as a justification for such public support to the privatised undertaking (or, rectius, its new owners). France considered that any social unrest derived from severance and pension payments within the context of the privatisation process would trigger significant strikes that would, in turn, create the image that the French State and its industrial conglomerates are not a reliable trading partner. As the argument goes, the protection of future business by French companies (or companies more closely linked to the French State) would justify such a (reputational) investment under the private investor test and, consequently, would exclude the existence of illegal State aid under Article 107 TFEU. More specifically, the French arguments were as follows:
72 . Furthermore, the French Republic considers that the payment of additional compensations is necessary to protect the brand image of the state. In support of his thesis, it refers to the risk that sympathy strikes would spread throughout the public sector and would have the effect of paralyzing the economic activity of enterprises in this sector.
73 . In this context, the French Republic claims that an epidemic of strikes would generate serious economic losses to the state. It refers to the abrupt disruption of contractual relationships between the companies at strike and their suppliers and customers, as well as to payment and supply difficulties that would force non-professional clients of public companies to switch to competing private companies.
74 . The French Republic therefore claims to have considered the avoidance of these dire economic consequences as the indirect material benefit that the state wished to obtain from the payment of additional compensations (Opinion in C-533 & 536/12 P, own translation from Spanish).
AG Whatelet disagrees with this argument very clearly and presents a set of very interesting remarks in paragraphs 76 to 96 of his Opinion. In short summary, I think that the most remarkable points of AG Whatelet's wrap-up of the (limited) existing case law concerned with the existence and protection (through investment) of a "national brand" are the following: 
  1. In the absence of specific circumstances and a specially compelling motivation, protecting the brand image of the state as a global investor in the economy cannot be a sufficient justification to demonstrate the long-term economic rationality of the assumption of additional costs such as additional employment and retirement-related compensation (para 78).
  2. As AG Jacobs and CJEU made clear in joined cases C-278/92, C-279/92 and C-280/92 Spain v Commission, it is difficult to accept that a state holding would worry so much about the damage that its global image would suffer as a result of the failure of one of its companies (or as a result of social unrest related to its winding up or bankruptcy) so as to offer, just for that reason, huge sums as an incentive for a private company to take charge of it (paras 83-86).
  3. The same position was held by the GC in joined cases T-129/95 Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission, where it also considered that "It is not credible that Bavaria have been obligated to pay a sum of money to a private company [...] to entice it to restructure [the company in question] in order to prevent that the bankruptcy of the latter could harm severely the reputation of the Land" (paras 87-90).
Hence, AG Whatelet concludes that, in the case at hand,
the General Court did not commit any error of law in concluding that "in the absence of special circumstances and without a particularly compelling motivation, the protection of the brand image of a Member State as a global investor in a market economy cannot constitute sufficient justification to demonstrate the long-term economic rationality of the assumption of additional costs such as additional severance pay" (Opinion in C-533 & 536/12 P, at para 91, own translation from Spanish).
And, as a matter of general principle, clearly indicates that 
I find it highly unlikely that the considerations made so far by the States on their brand image as global investors in a market economy can eventually circumvent the qualification of their decisions as State aid in light of the private investor test [...] the concerns raised by the Member States in relation to their brand image as global investors in a market economy, however noble they may be for other reasons, are far from those of a private investor, whether they relate to 'political costs' (in addition to the economic and social costs) of closing a business, "trade union or political pressure", the location of the failing firm in "in an area in social crisis" or, as in this case, the risk of sympathy strikes that would spread throughout the public sector. These considerations are absent of any prospect of profitability, even in the long term (Opinion in C-533 & 536/12 P, at paras 92 and 94, footnotes omitted and own translation from Spanish).
Ultimately, the rationale for this line of thought is that State aid rules' effectiveness would be significantly impaired if Member States can justify their public support decisions on the basis of the construction of their own "national brand". In my view, this is a very interesting Opinion and it is to be hoped that the CJEU will follow it and consolidate a very restrictive approach towards this type of justifications in the field of EU State aid law.

What's left of the 'new limb' of Art 263(4) TFEU after Inuit and Telefonica? (C-274/12 P)

In its Judgment of 19 December in case C-274/12 P Telefonica v Commission, the CJEU has continued to define (and minimise) the scope of Article 263(4) TFEU and, particularly, the 'new' third limb introduced by the Treaty of Lisbon according to which 'Any natural or legal person may [...] institute proceedings against [...] a regulatory act which is of direct concern to them and does not entail implementing measures.'
 
The restrictive approach adopted in the interpretation of this provision is largely based on the (substitutive) potential reliance on requests for a preliminary ruling under Article 267 TFEU against the measures not susceptible of a direct challenge by 'non-qualified' applicants. Therefore, the CJEU has now (almost) completed the reinterpretation of the post-Lisbon mechanisms for judicial review, where it seems clear that Article 263(4) TFEU, and particularly its last limb, is bound to have (or continue having) a marginal role.
 
In Inuit, the CJEU made it clear that legislative measures are not covered by the concept of 'regulatory act'. However, that negative approach to the definition of 'regulatory act' left some questions unanswered (are those only legislative measures derived from the ordinary legislative procedure as the GC had found, or are there all legislative measures, independently from their ultimate legal basis?). It was also not considered what 'implenting measures' meant. This has now been addressed in Telefonica.
 
The arguments provided by the CJEU are worth reading carefully:
27 As the Advocate General has observed in points 40 and 41 of her Opinion, the concept of a ‘regulatory act which … does not entail implementing measures’, within the meaning of the final limb of the fourth paragraph of Article 263 TFEU, is to be interpreted in the light of that provision’s objective, which, as is clear from its origin, consists in preventing an individual from being obliged to infringe the law in order to have access to a court. Where a regulatory act directly affects the legal situation of a natural or legal person without requiring implementing measures, that person could be denied effective judicial protection if he did not have a direct legal remedy before the European Union judicature for the purpose of challenging the legality of the regulatory act. In the absence of implementing measures, natural or legal persons, although directly concerned by the act in question, would be able to obtain a judicial review of that act only after having infringed its provisions, by pleading that those provisions are unlawful in proceedings initiated against them before the national courts.
28 It should be explained in this regard, first, that where a regulatory act entails implementing measures, judicial review of compliance with the European Union legal order is ensured irrespective of whether those measures are adopted by the European Union or the Member States. Natural or legal persons who are unable, because of the conditions governing admissibility laid down in the fourth paragraph of Article 263 TFEU, to challenge a regulatory act of the European Union directly before the European Union judicature are protected against the application to them of such an act by the ability to challenge the implementing measures which the act entails.
29 Where responsibility for the implementation of such acts lies with the institutions, bodies, offices or agencies of the European Union, natural or legal persons are entitled to bring a direct action before the European Union judicature against the implementing acts under the conditions stated in the fourth paragraph of Article 263 TFEU, and to plead in support of that action, pursuant to Article 277 TFEU, the illegality of the basic act at issue. Where that implementation is a matter for the Member States, those persons may plead the invalidity of the basic act at issue before the national courts and tribunals and cause the latter to request a preliminary ruling from the Court of Justice, pursuant to Article 267 TFEU (Case C-583/11 P Inuit Tapiriit Kanatami and Others v Parliament and Council [2013] ECR I-0000, paragraph 93).
30 Second, as the Advocate General has observed in point 48 of her Opinion, the question whether a regulatory act entails implementing measures should be assessed by reference to the position of the person pleading the right to bring proceedings under the final limb of the fourth paragraph of Article 263 TFEU. It is therefore irrelevant whether the act in question entails implementing measures with regard to other persons.
31 Third, in order to determine whether the measure being challenged entails implementing measures, reference should be made exclusively to the subject-matter of the action and, where an applicant seeks only the partial annulment of an act, it is solely any implementing measures which that part of the act may entail that must, as the case may be, be taken into consideration (C-274/12 P at paras 27 to 31, emphasis added).
The Judgment could be criticised in view of the fact that it includes implementing measures to be adopted by the Member States within the definition of 'regulatory acts...' in Article 263(4) TFEU--which (under a more generous approach) could have been limited to acts that require implementing measures by the European Institutions, but not those that require implementation by the Member States. However, the logic of the Judgment is clear and the strong push to 'redirect' litigation towards Article 267 TFEU is clear and consistent.
 
It is also clear from the Inuit and Telefonica Judgments that the CJEU is keeping the 'Plaumann test' alive and kicking when it comes to the interpretation of 'direct and individual concern' under the second limb of Article 263(4) TFEU.
 
Finally, it is also cleat that the CJEU sees no violation of Articles 6 and 13 of the European Convention on Human Rights or Article 47 of the Charter of Fundamental Rights of the EU as a result of its restrictive interpretation of the locus standi criteria in Article 263(4) TFEU (see paras 56 to 61, where the CJEU stresses once again that 'Judicial review of compliance with the European Union legal order is ensured, as can be seen from Article 19(1) TEU, by the Court of Justice and the courts and tribunals of the Member States. To that end, the FEU Treaty has established, by Articles 263 TFEU and 277 TFEU, on the one hand, and Article 267 TFEU, on the other, a complete system of legal remedies and procedures designed to ensure judicial review of the legality of European Union acts, and has entrusted such review to the European Union judicature', at 57).
 
Bottom line, the CJEU is clearly stressing that domestic courts of the Member States are EU courts for all purposes. In my view, from the perspective of the design and manageability of the system, this is certainly the only sensible and viable strategy.

CJEU follows AG Jääskinen in revisiting PreussenElektra and minimising Doux Elevages' requirements for State imputability of aid measures (C-262/12)


In its Judgment of 19 December 2013 in case C-262/12 Vent De Colère and Others, the Court of Justice of the EU has largely followed AG Jääskinen's Opinion (commented here) and confirmed that, under Article 107(1) TFEU, a mechanism for offsetting in full the additional costs imposed on undertakings because of an obligation to purchase wind-generated electricity at a price higher than the market price that is financed by all final consumers of electricity in the national territory constitutes an intervention through State resources and, consequently, is under the general prohibition of State aid.
 
This Judgment must be welcomed, particularly because the CJEU follows the submission made by the AG, who considered that consumer contributions amounted to the existence of 'State resources', due to 'the fact that these resources constantly remain under public control and, therefore, are available to the competent national authorities, [which] suffices to qualify them as State funds to finance the measure, which then falls within the scope of Article 107(1) TFEU' (para 34 of his Opinion, own translation from Spanish).
 
Indeed, the CJEU has reviewed the characteristics of the body administering the funds paid by consumers (a public body under effective State supervision) and has stressed that
33 […] the sums thus managed by the Caisse des dépôts et consignations must be regarded as remaining under public control.
34 All those factors taken together serve to distinguish the present case from that which gave rise to the judgment in PreussenElektra, in which the Court held that an obligation imposed on private electricity supply undertakings to purchase electricity produced from renewable sources at fixed minimum prices could not be regarded as an intervention through State resources where it does not lead to any direct or indirect transfer of State resources to the undertakings producing that type of electricity (see, to that effect, PreussenElektra, paragraph 59).
35 As the Court has already had occasion to point out – in paragraph 74 of the judgment in Essent Netwerk Noord and Others – in the case which gave rise to the judgment in PreussenElektra, the private undertakings had not been appointed by the Member State concerned to manage a State resource, but were bound by an obligation to purchase by means of their own financial resources.
36 Consequently, the funds at issue [in PreussenElektra] could not be considered a State resource since they were not at any time under public control and there was no mechanism, such as the one at issue in the main proceedings in the present case, established and regulated by the Member State, for offsetting the additional costs arising from that obligation to purchase and through which the State offered those private operators the certain prospect that the additional costs would be covered in full.
37 Accordingly, Article 107(1) TFEU must be interpreted as meaning that a mechanism for offsetting in full the additional costs imposed on undertakings because of an obligation to purchase wind-generated electricity at a price higher than the market price that is financed by all final consumers of electricity in the national territory, such as that resulting from Law No 2000-108, constitutes an intervention through State resources (C-262/12 at paras 33 to 37, emphasis added).
In my view, the Vent De Colère Judgment advances in the functional approach to State aid and consolidates a general criterion of State control that should reduce the uncertainty surrounding the imputability to the State of (indirect) support measures through consumer contributions. The distinction with PreussenElektra is also rather clear now.
 
The only hurdle that remains in the way of such truly functional approach is the issue of imputability as addressed in Doux Élevages particularly in relation with (pseudo)fiscal measures (something that AG Jääskinen had addressed in  paras 50-54 of his Opinion but the CJEU felt no need to discuss in Vent De Colère). Hopefully, the CJEU will also minimise Vent De Colère on that point some time soon.
 

CJEU: vertical effect of Directives goes both ways (C-425/12)


The Judgment of the CJEU of 12 December 2013 in case C-425/12 Portgás may appear to be of interest only for public procurement aficionados (and, even then, only for hardcore ones), as it deals with the potential applicability of the old 1993 utilities procurement Directive (no longer current) to a company entrusted with a gas distribution concession in Portugal. Hardly a topic bound to spur heated debates. Hence, it seems a case doomed to receive very little attention amongst EU lawyers...
 
However, it contains one of the very few potential (r)evolutions in the theory of Directives' direct effect since Mangold and Kücükdeveci by holding that their vertical direct effect goes both ways (i.e. both up and down). In my view, Portgás should become the new Foster and claim a main spot in general EU law (text)books.
 
I think that the Portgás Judgment indeed develops the existing law on Directives' vertical effect. Implicitly, that theory was always concerned with upwards vertical effect, in the sense of allowing particulars to claim EU law protection against the infringing Member State. The theory has clearly been conceptualised on the basis of an (implicit) bottom up claim.
 
However, it is not at all clear whether a downwards application of the theory is at all possible. In general terms, however, the canon (as an extension of the no-horizontal direct effect declared in Marshall) would dictate that such a vertical direct effect cannot go down because the infringing Member State cannot rely on the (non-transposed or deffectively transposed) Directive to affect the legal position of particulars (just as one particular cannot do it against another one).
 
The Foster line of extension of the "standard" upwards vertical direct effect of Directives started to tackle what we may now call 'mezzanine' situations, where a particular did not want to claim protection against the State itself, but against one of its 'emanations' (as a way to circumvent the harshness of the no-horizontal direct effect dogma). In that case, the CJEU was clear to stress that the upwards dimension of Directives' direct effect reaches such a mezzanine situation and declared, as is well known, that particulars can rely on EU law protection under certain circumstances.
 
In Portgás the situation is the opposite. The CJEU was asked to determine whether in a comparable 'mezzanine' situation, the State could claim downwards direct effect of a non-transposed Directive against one of its Foster-emanations. The first bet may be that the principle of legitimate expectations may prevent such an extension of the doctrine. However, such a position has now been rejected by the CJEU.
 
In the passages that deserve more attention in the Portgás Judgment, the CJEU analyses the possibility for the Portuguese government to claim financial recovery of amounts paid to Portgás to finance the acquisition of equipment (gas meters) due to the fact that the undertaking did not tender the contract in accordance with the requirements of the 1993 utilities procurement Directive. However, at the time of the purchase of the equipment, Portugal had not implemented the Directive. Consequently, Portgás raised the defence that Portugal cannot require compliance with a set of rules it had not itself transposed. The CJEU, however, takes a different approach based on the effet utile of EU law and argues that:
33 [...] although the Court has held that unconditional and sufficiently precise provisions of a directive may be relied on by individuals against a body which has been given responsibility, under the control of the State, for a public-interest service and which has, for that purpose, special powers (see, to that effect, Foster and Others, paragraphs 18 and 20, and Dominguez, paragraphs 38 and 39 and the case-law cited), the case in the main proceedings has arisen in a context different from the context of that case-law.
34 In the context of the present case, it should be recalled that, according to the case-law of the Court, the obligation on a Member State to take all the measures necessary to achieve the result prescribed by a directive is a binding obligation imposed by the third paragraph of Article 288 TFEU and by the directive itself. That duty to take all appropriate measures, whether general or particular, is binding on all the authorities of the Member States (see Case C‑129/96 Inter-Environnement Wallonie [1997] ECR I‑7411, paragraph 40 and the case-law cited) as well as on bodies which, under the control of those authorities, have been given responsibility for a public-interest service and which have, for that purpose, special powers. It follows that the authorities of the Member States must be in a position to ensure that such bodies comply with the provisions of Directive 93/38.
35 It would be contradictory to rule that State authorities and bodies satisfying the conditions set out in paragraph 24 of the present judgment [Foster conditions] are required to apply Directive 93/38, while denying those authorities the possibility to ensure compliance, if necessary before national courts, with the provisions of that directive by a body satisfying those conditions when that body must itself also comply with Directive 93/38.
36 Furthermore, the Member States would be able to take advantage of their own failure to comply with European Union law in failing correctly to transpose a directive into national law if compliance with the provisions of Directive 93/38 by such bodies could not be ensured on the initiative of a State authority.
37 Lastly, that approach would make it possible for a private competitor to rely on the provisions of Directive 93/38 against a contracting entity which satisfies the criteria set out in paragraph 24 of the present judgment [Foster conditions], whereas State authorities could not rely on the obligations flowing from that directive against such an entity. Consequently, whether or not such a contracting entity would be required to comply with the provisions of Directive 93/38 would depend on the nature of the persons or bodies relying on Directive 93/38. In those circumstances, Directive 93/38 would no longer be applied in a uniform manner in the domestic legal system of the Member State concerned.
38 It follows that a private undertaking, which has been given responsibility, pursuant to a measure adopted by the State, for providing, under the control of the State, a public-interest service and which has, for that purpose, special powers going beyond those which result from the normal rules applicable in relations between individuals, is obliged to comply with the provisions of Directive 93/38 and the authorities of a Member State may therefore rely on those provisions against it (C-425/12 at paras 33-38, emphasis added).
I think that it is plain to see that Portgás is somehow the mirror image of Foster. Its practical implications may seem small in that the number of Foster-emanations that Member States hold is probably relatively small. However, in the area of public procurement and, more generally, of EU economic law, it is not hard to imagine a relatively important number of potential 'Portgás' entities that can see their rights and (financial) interests compromised as a result of the 'sandwich' situation that this latest CJEU Judgment creates. And this may be a situation that triggers litigation on the basis of the protection of legitimate expectations, rights to property or other fundamental rights by those companies (which stresses the relevance of rethinking the current trends of granting of 'corporate human rights'--see some discussion here).
 
What may be more controversial is to claim, as I would, that this is the last frontier before the full recognition of Directives' direct effect. All in all, as the law currently stands, there is a very limited field where Directives are not directly effective (after their period of transposition) and that, by itself, may justify a simplification (repeal?) of the no-horizontal direct effect dogma. It remains to be seen if the CJEU will ever be willing to cross that bridge.

CJEU rubber stamps Italian minimum tariffs for certification in public procurement, subject to proportionality (C-327/12)


In its Judgment of 12 December 2013 in case C-327/12 Soa Nazionale Costruttori, the Court of Justice of the EU has followed rather closely AG Cruz Villalon's Opinion (commented here) and declared that a scheme of compulsory minimum tariffs for certification services supplied to undertakings seeking to participate in procedures for the award of public contracts is not per se contrary to EU competition and free movement rules, always provided that it is not disproportionate (which determination it referred back to the domestic courts).
 
One of the remarkable features of the Judgment is the level of detail in which the CJEU has summarised its State action doctrine. In this useful reminder, the CJEU has stressed that
37 [...] although it is true that Articles 101 TFEU and 102 TFEU are concerned solely with the conduct of undertakings and not with laws or regulations emanating from Member States, those articles, read in conjunction with Article 4(3) TEU, which lays down a duty of cooperation between the European Union and the Member States, none the less require the latter not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings (see Joined Cases C‑94/04 and C‑202/94 Cipolla and Others [2006] ECR I‑11421, paragraph 46, and Case C‑393/08 Sbarigia [2010] ECR I‑6337, paragraph 31).

38 Articles 101 TFEU or 102 TFEU, read in conjunction with Article 4(3) TEU, are infringed where a Member State requires or encourages the adoption of agreements, decisions or concerted practices contrary to Article 101 TFEU or reinforces their effects, or where it divests its own rules of the character of legislation by delegating to private economic operators responsibility for taking decisions affecting the economic sphere, or requires or encourages abuses of a dominant position (see, to that effect, Cipolla and Others, paragraph 47) [C-327/12 at paras 37-38, emphasis added].
Further than this, and after dismissing the applicability of the State action doctrine on the basis of a lack of evidence of the existence of such effects--which is at least questionable where we are in presence of a de facto agreement on minimum prices between certification entities--the CJEU rejects the application of Art 106 TFEU on the basis that the authorisation given by the Italian State to the certification entities is not an exclusive or special right because there is no numerus clausus of authorisations. On this point, the CJEU must be praised for sticking to its stated case law in Ambulanz Glockner and not accepting the rather counterintuitive remarks made by the AG in his Opinion (criticised here).
 
Finally, and looking at the compatibility with freedom of establishment rules (art 49 TFEU), in the Soa Nazionale Construttori Judgment, the CJEU has followed very closely the Opinion of the Advocate General and accepted some premises for the existence of mandatory public procurement certification schemes subject to (non-disproportionate) minimum tariffs that I find objectionable. In particular, I think that the CJEU should have avoided declaring such a system adequate to protect a public interest in the following terms:
59 A restriction on the freedom of establishment may be justified where it serves overriding requirements relating to the public interest, is suitable for securing the attainment of the objective which it pursues and does not go beyond what is necessary in order to attain it (see DKV Belgium, paragraph 38).
60 Unionsoa and the Italian Government consider that the national legislation at issue in the main proceedings seeks to ensure the independence of SOAs and the quality of the certification services which they supply. Competition between SOAs at the level of tariffs negotiated with their customers and the possibility of fixing those tariffs at a very low level would risk compromising their independence with respect to those customers and having a negative impact on the quality of the certification services.
61 In that regard, it must be observed that the public interest in the protection of recipients of services can justify a restriction on the freedom of establishment (see Case C‑451/03 Servizi Ausiliari Dottori Commercialisti [2006] ECR I‑2941, paragraph 38).
62 In this case, first, SOAs are entrusted with certification of undertakings, receipt of an appropriate certificate being a necessary condition in order for the undertakings concerned to participate in public works contracts. In that context, the Italian legislation seeks to ensure the lack of any commercial or financial interest such as to result in unimpartial or discriminatory behaviour on the part of SOAs with regard to those undertakings.
63 Secondly, as is apparent from the order for reference, SOAs may only carry out certification activities. Moreover, they are required, in accordance with national legislation, to have resources and procedures suitable for ensuring that their services are carried out effectively and in good faith.
64 It is with a view to protecting the recipients of the services that the independence of SOAs vis-à-vis the specific interests of their customers is particularly important. A certain restriction of the possibility to negotiate the prices of services with those customers is likely to strengthen their independence.
65 In those circumstances, it must be held, as the Advocate General essentially stated in point 58 of his Opinion, that the setting of minimum tariffs for the supply of such services is intended, in principle, to ensure the quality of those services and it is suitable for attaining the objective of protecting the recipients of those services [C-327/12 at paras 59-65, emphasis added].
In my view, the CJEU's position is exceedingly lenient. Particularly if one takes into consideration that the ultimate "beneficiaries" of the certification services (i.e.the Italian contracting authorities) cannot impose the provision of those certificates to all entities willing to participate in their tenders for public contracts. Under Art 52(5) of Directive 2004/18 (the same provision that allows for the creation of certification entities such as the Italian SOAs) it is clearly stated that 'economic operators from other Member States may not be obliged to undergo such registration or certification in order to participate in a public contract. The contracting authorities shall recognise equivalent certificates from bodies established in other Member States. They shall also accept other equivalent means of proof' (emphasis added). So, even if only in relation to non-national undertakings, it is clear that contracting authorities need to retain independent capacity to assess alternative methods of proof of suitability of tenderers. Moreover, under Art 52(4), contracting authorities can challenge the certifications (or the information derived therefrom) as long as they have a sufficient reason to distrust it. Therefore, their reliance on the certificates (of domestic) tenderers is not intended to be acritical or necessarily automatic if there are reasons that justify a request for further information.
 
Consequently, the creation of systems of mandatory certification seem to protect a weak public interest inasmuch as they are simply a mechanism of administrative simplification (or red tape reduction). If this is borne in mind, the reasoning based on the independence of the certifying entities and the need to set minimum prices in order to preserve it so that contracting authorities' interests are sufficiently protected seems to fade away rather quickly.
 
Moreover, the CJEU's lukewarm approach to the proportionality of the Italian minimum certification tariffs (which is limited to indicate that 'It is for the referring court to determine whether, in the light of, inter alia, the method of calculating the minimum tariffs, particularly in the light of the number of categories of work for which the certificate is drawn up, that national legislation goes beyond what is necessary to attain that objective', para 69) does not establish a sufficiently clear indication of the lack of proportionality of a system that, effectively, forces (!) certification entities to charge larger sums for exactly the same amount of work depending on the number of contracts the certified undertaking wants to tender for. In this regard, the Opinon of Advocate General Cruz Villalon is much more detailed and convincing.
 
All in all, in my view, this is a formally correct and substantially very deficient Judgment of the CJEU, and one that keeps a very formal approach to restrictions on free movement (as the CJEU has only looked at restrictions on the freedom of establishment, forgetting completely about the implications of the system on the free movement of goods and free provision of services subjected to the EU public procurement rules). A more holistic and funcional approach would have been preferable.

Is the CJEU engaging in 'Judicial Abstinence'? Or, where do we go from here?


The CJEU has released the ebook of the May 2013 conference that celebrated 50 years of its Van Gend en Loos Judgment. The book contains many interesting contributions and, in my view, one of the most thought-provoking is Prof Catherine Barnard's 'Van Gend en Loos to(t) the future'.
 
Prof Barnard reflects about the future role of the CJEU in a changed and changing EU and identifies a trend of 'Judicial Abstinence' that 'leaves the uncomfortable impression that the Court is reneging on its key function, first articulated in Van Gend en Loos, that EU law must be effective' (p. 122).
 
Her analysis is relevant and expands well beyond the area of labour law, where she focusses. In my view, recent Judgments in other (even more fundamental?) areas such as the legal position and effectiveness of the Charter of Fundamental Rights of the EU also show the judicial abstinence the CJEU is (selectively) engaging in (for instance, in case C-313/12). And that leaves us with the difficult question of why is the CJEU (suddenly) so averse to (continuying to) act as constitutional court at EU level?
 
Pessimists could say that we are witnessing a deflation of the EU law supremacy balloon, and that the 'golden age' of the CJEU lasted 50 years and is already over. However, Prof Barnard offers a positive outlook as long as the CJEU departs from 'hardcore' judicial abstinence and opts for a medium-ground strategy (which she terms 'Old-Rules Lite'). As she stresses,
The EU of 2013 is infinitely more complex and any solutions will have to reflect that. There will be no Van Gend en Loos II. However, this does not mean the end of the Court of Justice and its influence. Quite the contrary. It means a repositioning of the Court from standard bearer of EU integration to ensuring that the EU is able to function in its new, more fragmented reality. This paves the way for the Court to develop a new kind of doctrine of effectiveness, one that might mean endorsing the devolution of more decision-making power to the Member States or other actors (p. 122, emphasis added).
The next few years will show if the CJEU is up to the task.

CJEU strengthens Commission's enforcement monopoly in State aid (C-111/10) and jeopardises its consistent enforcement with other EU policies (C-272/12)

In two recent Judgments of 4 December 2013 (C-111/10, Commission v Council) and 10 December 2013 (C-272/12, Commission v Ireland and Others), the CJEU has ruled on the distribution of powers between the Council and the Commission in the area of State aid enforcement. In one of the cases (C-111/10), the CJEU made a substantive finding and upheld the Council authorisation of State aid for agricultural support in Lithuania. In the other case (C-272/12) the CJEU refused to engage in an analysis of the distribution of competences between the institutions due to a procedural flaw (the GC had raised the issue of its own motion, in breach of art 21 of the Statute of the Court of Justice of the European Union), but stressed the same underlying principles.
 
It is worth highlighting that, in both Judgments, the CJEU clearly stressed the exceptional powers that the Council holds in the area of State aid enforcement--which, in my view, comes to further strengthen, consolidate and perpetuate the monopoly of State aid enforcement held by the Commission.
 
This is particularly clear in certain passages of the reasoning followed by the CJEU, which:
39 [...] held, after recalling the central role which the FEU Treaty reserves for the Commission in determining whether aid is incompatible with the internal market, that the third subparagraph of Article 108(2) TFEU covers an exceptional and specific case, meaning that the power conferred upon the Council by that provision is clearly exceptional in character (see, to that effect, Case C‑110/02 Commission v Council [2004] ECR I‑6333, paragraphs 29 to 31) and, accordingly, that the third subparagraph of Article 108(2) TFEU must necessarily be interpreted strictly (see, by analogy, Case C‑510/08 Mattner [2010] ECR I‑3553, paragraph 32, and Case C‑419/11 Česká spořitelna [2013] ECR I‑0000, paragraph 26)
72 [...] the power granted to the Council under the third subparagraph of Article 108(2) TFEU applies only within the limits indicated by that provision, namely where exceptional circumstances exist (see, to that effect, Case C‑122/94 Commission v Council [1996] ECR I‑881, paragraph 13) [C-111/10 at paras 39 and 72, emphasis added].
And further stressed that:
48 As the Court held in paragraphs 29 to 31 of Case C‑110/02 Commission v Council [2004] ECR I‑6333, the intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and monitored by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the General Court and the Court of Justice, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible. The power conferred upon the Council in the area of State aid by the third subparagraph of Article 88(2) EC is exceptional in character, which means that it must necessarily be interpreted strictly (see also, to that effect, the judgment of 4 December 2013 in Case C‑111/10 Commission v Council [2013] ECR I‑0000, paragraph 39) [C-272/12 at para 48, emphasis added].
This renewed emphasis on the (almost) exclusive powers of the European Commission in the area of State aid policy and enforcement is probably a necessity in terms of ensuring institutional balance and the proper working of the EU institutions (as the CJUE stresses in para 47 of C-111/10: 'That interpretation seeks to maintain the coherence and effectiveness of European Union action'), but it can also create difficulties when it comes to ensure the proper integration of State aid enforcement with policy in other areas of EU economic law where the balance of powers between EU Institutions, or between the EU and Member States, is different.
 
This is something that case C-272/12 clearly brings to light. In that case, there was a tension between the Decisions adopted by the Council in the area of national fiscal legislation and the Commission's powers in State aid enforcement. The tension derived from the circumstance that the Council could authorise Member States to provide tax exemptions from the excise duty for mineral oils used for the production of alumina. Such exemptions could (at least theoretically, although this was challenged in C-272/12 but the CJEU declined to provide an answer on the basis of the ultra petita argument mentioned before) constitute State aid. In order to try to sort out that potential conflict, recital 5 of the relevant instrument (Council Decision 2001/224) indicated that
that decision was without prejudice ‘to the outcome of any procedures relating to distortions of the operation of the single market that may be undertaken, in particular under Articles [107 TFEU] and [108 TFEU]’, and that it did not override ‘the requirement for Member States to notify instances of potential State aid to the Commission under Article [108 TFEU]’.
Such 'coordination' provision was bound to create difficulties, despite the fact that the European Commission was involved in the assessment of the Member States' requests for authorisation to provide exemptions. The GC had sought to create a functional balance that could overcome the difficulties of subjecting the Council authorisation (and, consequently, the Member States' exemptions) to a second analysis by the European Commission under the State aid rules (despite the wording in recital 5 of Decision 2001/224). Indeed,
the General Court held, first, that, in the light of the fact that the rules governing the harmonisation of national fiscal legislation and the rules on State aid have a shared objective, namely to promote the proper functioning of the internal market, by combating, inter alia, distortions of competition, the concept of distortion of competition had to be regarded as having the same scope and the same meaning in both those areas, in order to ensure the consistent implementation of those rules. The General Court stated, in that regard, that Article 8(4) and (5) of Directive 92/81 confers in particular on the Commission, which submits a proposal, and the Council, which enacts a measure, the responsibility for assessing whether there is any distortion of competition, in order to decide whether or not to authorise a Member State to apply or continue to apply an exemption from the harmonised excise duty and that, if the assessments differ, the Commission has the option of bringing an action for annulment of the Council’s decision [C-272/12 at para 39, emphasis added].
The implications of this reasoning would be, rather clearly, that the European Commission should not have a second bite of the cherry under the State aid rules because it would have already expressed its views on the (absence of a) distortion of competition derived from the excise duty exemption within the fiscal harmonisation mechanism. However, the CJEU had none of this and declared that
46 It must be borne in mind that Directive 92/81 was adopted on the basis of Article 99 of the EEC Treaty (which became Article 99 of the EC Treaty, which itself became Article 93 EC [and is now art 113 TFEU]) which conferred on the Council the power to adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that that harmonisation was necessary to ensure the establishment and functioning of the internal market.

47 The authorisation decisions were adopted pursuant to Article 8(4) of Directive 92/81, which granted to the Council, acting unanimously on a proposal from the Commission, the power to authorise any Member State to introduce exemptions or reductions other than those laid down by that directive ‘for specific policy considerations’. The purpose and the scope of the procedure laid down in that article differ from those of the rules established in Article 88 EC.

48 As the Court held in paragraphs 29 to 31 of Case C‑110/02 Commission v Council [2004] ECR I‑6333, the intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and monitored by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the General Court and the Court of Justice, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible. The power conferred upon the Council in the area of State aid by the third subparagraph of Article 88(2) EC is exceptional in character, which means that it must necessarily be interpreted strictly (see also, to that effect, the judgment of 4 December 2013 in Case C‑111/10 Commission v Council [2013] ECR I‑0000, paragraph 39).

49 Consequently, a Council decision authorising a Member State, in accordance with Article 8(4) of Directive 92/81, to introduce an exemption of excise duties could not have the effect of preventing the Commission from exercising the powers conferred on it by the Treaty and, consequently, setting in motion the procedure laid down in Article 88 EC in order to review whether that exemption constituted State aid and on the conclusion of that procedure, if appropriate, to adopt a decision such as the contested decision [C-272/12 at paras 46 to 49, emphasis added].
Moreover, the CJEU went as far as to expressly exclude any estoppel-like argument by stressing that
53 [...] the concept of State aid corresponds to an objective situation and cannot depend on the conduct or statements of the institutions (Commission v Ireland and Others, paragraph 72). Consequently, the fact that the authorisation decisions were adopted on a proposal from the Commission could not preclude those exemptions being classified as State aid, within the meaning of Article 87(1) EC, if the conditions governing the existence of State aid were met. That fact however had to be taken into consideration in relation to the obligation to recover the incompatible aid, in the light of the principles of protection of legitimate expectations and legal certainty, as was done by the Commission in the contested decision when it declined to order the recovery of aid granted before the date of publication in the Official Journal of the European Communities of the decisions to initiate the procedure laid down in Article 88(2) EC [C-272/12 at para 53, emphasis added].
In my view, the final caveat clearly indicates that the problems derived from the extreme protection of Commission's powers in which the CJEU has engaged are intractable. The requirements of the principles of protection of legitimate expectations and legal certainty will almost always deactivate any legal effects of the Commission's second analysis of the situation under the State aid rules--so one can wonder if it would not be preferable to create a framework where the powers of the Commission under State aid rules could be restricted in order to promote a better integration of different EU/Member States economic policies and different areas of EU economic law.
 
Otherwise, the 'dominance' of State aid enforcement could significantly diminish the effectiveness of other policies and, as long as those policies are designed and implemented with due regard for the competitive distortions they can create (as was clearly the case in C-272/12, where the Commission was itself entrusted with that analysis), that would be a superior working framework. This is not to say that State aid (or competition) should rank as a secondary consideration. To the contrary, this advocates for an integration of competition concerns at the phase of policy design and implementation, rather than as an ex post (re)analysis of the situation that can create significant disruptive effects--eventually (luckily) barred by the principles of protection of legitimate expectations and legal certainty.
 
All these considerations are clearly relevant in the area of integration of State aid and public procurement rules, particularly in the financing of Services of General Economic Interest (SGEI), where the Almunia package creates a dual relationship between procurement and State aid rules by stressing that only certain procurement procedures will be acceptable under State aid rules and, at the same time, stressing that State aid exemptions do not alter the obligations created by public procurement rules themselves in the first place. If no clear criterion is established to prefer State aid analysis over procurement enforcement, or otherwise, the enforcement landscape looks rather complicated [for further discussion, see my "The Commission’s Modernization Agenda for Procurement and SGEI"].

CJEU on renegotiation of mandatory technical conditions in negotiated procedures: A good case? (C-561/12)

In its Judgment of 5 December 2013 in case C-561/12 Nordecon and Ramboll Eesti, the CJEU has ruled on the interpretation of Article 30(2) of Directive 2004/18 as regards the negotiation of technical elements between a contracting authority and the tenderers participating in a negotiated procedure.
 
The case is complicated by the fact that a more general issue concerning the (potential) obligation to exclude technically non-compliant tenders in a negotiated procedure is entangled with the limits of the negotiation authorisation provided for in Article 30(2) Directive 2004/18. In my view, by not clearly distinguishing both issues, the CJEU may have provided unnecessarily limiting guidance on the proper interpretation of Article 30(2) Directive 2004/18.
 
In the case at hand, the contracting authority launched a negotiated procedure for the construction of a new road. The road had to have certain technical characteristics (including, amongst others, specific width in different parts of the road) and the technical specifications did not allow for the submission of variants, which (implicitly) means that  all technical requirements were mandatory (art 24 dir 2004/18) and, consequently, tenders that failed to meet the technical specifications (in full) should had to be rejected by the contracting authority.
 
However, the contracting authority engaged in negotiations with all tenderers, including one that had submitted a tender that did not meet the technical description of the road (it was narrower in some points). Even if, eventually, that tenderer was not awarded the contract, there were several challenges against the award decision and the case ended up before the CJEU on grounds of a potential infringement of Art 30(2) Directive 2004/18. The Court addressed it as follows:
33 [...] the referring court asks whether Article 30(2) of Directive 2004/18 allows the contracting authority to negotiate with tenderers tenders that do not comply with the mandatory requirements laid down in the technical specifications of the contract.

34 In that regard, it must be recalled that, in certain cases, Article 30(2) of Directive 2004/18 allows the negotiated procedure to be used in order to adapt the tenders submitted by the tenderers to the requirements set in the contract notice, the specifications and additional documents, if any, and to seek out the best tender.

35 According to Article 2 of Directive 2004/18, contracting authorities are to treat economic operators equally and in a non-discriminatory manner and are to act in a transparent way.

36 The Court has stated that the obligation of transparency is essentially intended to preclude any risk of favouritism or arbitrariness on the part of the contracting authority (Case C‑599/10 SAG ELV Slovensko and Others [2012] ECR I‑0000, paragraph 25).

37 Accordingly, even though the contracting authority has the power to negotiate in the context of a negotiated procedure, it is still bound to see to it that those requirements of the contract that it has made mandatory are complied with. Were that not the case, the principle that contracting authorities are to act transparently would be breached and the aim mentioned in paragraph 36 above could not be attained.

38 Moreover, allowing a tender that does not comply with the mandatory requirements to be admissible with a view to negotiations would entail the fixing of mandatory conditions in the call for tenders being deprived of useful effect and would not allow the contracting authority to negotiate with the tenderers on a basis, made up of those conditions, common to those tenderers and would not, therefore, allow it to treat them equally.

39 In the light of the foregoing considerations, the answer to the first question is that Article 30(2) of Directive 2004/18 does not allow the contracting authority to negotiate with tenderers tenders that do not comply with the mandatory requirements laid down in the technical specifications of the contract (C-561/12 at paras 33-39, emphasis added).
In my view, this is a problematic interpretation, as Article 30(2) Directive 2004/18 covers a range of cases and, at least in some of them, the interpretation provided by the CJEU nullifies Art 30(1) Directive. To be more specific, under Art 30(1)(a) Directive 2004/18, contracting authorities are allowed to resort to negotiated procedures "in the event of irregular tenders or the submission of tenders which are unacceptable [...] in response to an open or restricted procedure or a competitive dialogue insofar as the original terms of the contract are not substantially altered".
 
The interpretation provided by the CJEU would imply that the lack of compliance or the reason that made the tenders unacceptable could not have been of a technical nature (or, at least, could not affect a mandatory technical specification) because, in that case, even if the procedure would be formally available under Art 30(1)(a), the contracting authority could not engage in any meaningful negotiation oriented towards adapting the tenders to the requirements set in the (technical)  specifications--which is precisely the purpose of Art 30(2) dir 2004/18, or one of them at least. Moreover, risks of excessive deviation from the original conditions are controllable by the last caveat in Art 30(1)(a), where it is expressly required that the original (technical?) terms of the contract are not substantially altered.
 
The interpretation provided by the CJEU could work when Article 30(2) is triggered by other grounds for resorting to the negotiated procedure under Art 30(1), but not for Art 30(1)(a). In my view, this derives from an excessive reliance on the principle of non-discrimination and a too rigid understanding of the need and purpose for a negotiated procedure triggered by a fundamental flaw of the initial competitive procedure (be it due to a fundamental technical flaw, excessive requirements, or any other reasons).
 
In my view, the CJEU could have found two alternative routes to sort out the case. Well, possibly three.
 
The first one, by accepting the criticisms raised as to the inadequacy of Art 30(2) Dir 2004/18 to solve this specific case--which should have led it to declare the question inadmissible and leave it at that.
 
The second one, to consider that the case was actually concerned with an illicit acceptance of technical variants and, consequently, a breach of Art 24 Directive 2004/18--hence sending out the clear message that, in negotiated procedures, contracting authorities still need to indicate that variants are acceptable if they want to engage in technical dialogue [except in the case of art 30(1)(a) where the tenders are inadmissible or unacceptable on technical grounds].
 
There would be a potential third option, ie to set out a differential interpretation of Art 30(2) depending on the ground in Art 30(1) which triggers the availability of the negotiated procedure--something that we can only do speculatively now by stressing the factual conditions that surrounded the cases [although it is not explained why the contracting authority resorted to a negotiated procedure and why it was acceptable under art 30(1) dir 2004/18, which seems duboius in the circumstances].
 
As a conclusion, I think that the Nordecon Judgment would actually create a very significant problem if technical negotiations were completely excluded in all cases and under all circumstances in negotiated procedures--and, particularly, where negotiations are triggered by the technical unsuitability of all the tenders received. However, this is something that may be avoided under the new Directives if an uncritical reading of Art 30(2) as interpreted in Nordecon is not carried forward to future Art 27 of the new Directive on the (rebranded) competitive procedure with negotiation.

Some comments on Robinson (2013) "Social Public Procurement: Corporate Responsibility Without Regulation"

In a recent paper entitled "Social Public Procurement: Corporate Responsibility Without Regulation",  John Robinson Jr., a student at the University of Utah College of Law, 'explores the EU’s framework for achieving [...] social goals and suggests that the US should undertake many of the same policies. In the US, public procurement accounts for over 10% of GDP. Therefore, using the marketplace rather than regulation to achieve positive change offers a powerful tool: the upside of social good without the downside of increased regulatory burden' (emphasis added). 
 
Even more specifically, the paper claims that 'EU’s position on CSR, specifically that expenditure of public funds provides a powerful mechanism with which to drive corporate responsibility. Essentially, this reflects a collective EU decision (sic) that market forces are superior (eg., more efficient) to regulation in terms of promoting socially responsible business practice' (emphasis added). However, the superiority or efficiency of the mechanism is not an issue that can simply be agreed upon or opted for, but an empirical question. And, difficult as it may be to measure, economic theory does not support the premise that exercising buyer power is a more efficient mechanism than (adequate) regulation when it comes to the pursuit of social (or any other) regulatory goals.

In my view, the whole argument in the paper and the final policy recommendation (as, more generally, the use of public procurement to pursue secondary considerations) is problematic because it does not duly take into account the short-term, static competitive distortions and the (implicit) higher costs of procurement based on non-economic considerations, nor the undesirable dynamic distortions that can be created by the public buyer. Readers may be bored already with my argument, but I cannot help stressing that using public buyer power to achieve regulatory goals is an inefficient strategy [for further discussion, see my Distortions of Competition Generated by the Public (Power) Buyer].
 
Nonetheless, Robinson completely ignores the fact that imposing regulatory requirements through the backdoor of public procurement decisions significantly muddles the working of the market. Such ommission is clear in the argument that 'Using their already-existent presence in the market, governments may encourage corporate social responsibility through favoring those corporations, goods, and services that produce better social outcomes. The EU terms this as socially responsible public procurement, and has actively engaged in SRPP for some time'. In passing, it is worth stressing that the CJEU has created some important limitations as to what can be done in terms of pursuing CSR objectives through procurement (see case C-368/10 and my comment, in Spanish, though).

In my view, the foundations of the logic behind the proposals to 'use' the market (ie buyer power) to achieve regulatory objectives (which Robinson borrows from McCrudden's 'Buying Social Justice') are essentially flawed. Remarkably, it can hardly be supported that 'Although not perfect, markets constitute the best method yet found for “optimizing the use and distribution of scarce resources.” Traditionally, society placed social justice and equality outside of the market, but within the sphere of government influence. However, the movement towards [socially responsible public procurement], particularly within Europe, signals a recombination of the two—integration of social justice into the marketplace'. In my view, such a recombination is simply not possible, as the preference for social (or other) regulatory requirements distorts the market mechanism and, consequently, there can be no guarantee that it can still optimize the use and distribution of scarce resources.
 
Contracting authorities are clearly in a position to decide what to buy and to require that the products or services they purchase or hire meet certain technical specifications that include environmental or social requirements. They will be able to do so as long as there is a market for such products or services. Equally, they are free to decide to what social or environmental projects they give preference and where the money should be spent. And, once they do that, they should aim to take full advantage of the undistorted market mechanism to maximise the value of their expenditure or investment to achieve those goals. However, they are in a very bad position to attempt to regulate the market through purchasing decisions, and they should refrain from doing so. Otherwise, they may see how their own efforts are in vain as a result of their unforeseen impact in the market.
 
The boundaries of what can and what cannot be done in terms of promoting social and environmental goals through procurement still require some further clarification (particularly in light of the novelties in the new public procurement directives), but it should come with some sound understanding of the economics underpinning procurement mechanisms. Bottom line: public procurement needs to take place in properly functioning markets and any (pseudo-regulatory) strategies that distort the market will be inefficient, however appealing it may seem to exploit buying power in the short term.

Of lost emails, the duty to state reasons and a dimming light in the horizon of eProcurement (T-424/12)



In its Judgment of 28 November 2013 in case T-424/12 UAB Gaumina v Institut européen pour l’égalité entre les hommes et les femmes (EIGE), the General Court has ruled once more on the boundaries of the duty to state reasons in decisions addressed to tenderers whose offers are rejected in public procurement procedures. In my view, despite not advancing the law, this case is relevant because it deals with a fact that is bound to gain relevance as eProcurement (and the use of electronic means of communication in procurement) advances: emails may get lost (sometimes). 

In the case at hand, the contracting authority claims to have sent a disappointed tenderer an email detailing the reasons for the rejection of its offer (ie a detailed evaluation report showing that the offer did not reach the minimum 80% of technical points required to proceed to financial evaluation). The tenderer claims to never have received the email. The authority submitted evidence proving the email was sent from its server. However, there was no (clear) evidence supporting reception of the email by the tenderer. In these circumstances (slightly complicated due to the fact that the parties introduced or offered to submit evidence at different procedural phases), the legal issue at stake basically required determining whether the contracting authority had satisfactorily discharged its duty to state reasons by sending an email for which it had no proof of receipt.
The GC has assessed this issue on the basis of the requirements derived from Article 100(2) of the Financial Regulation applicable to the procurement activities of the EU bodies and institutions [Reg 1605/2002, now repealed by Reg 966/2012, which art 113 imposes the same substantive requirements], according to which
The contracting authority shall notify all candidates or tenderers whose applications or tenders are rejected of the grounds on which the decision was taken, and all tenderers whose tenders are admissible and who make a request in writing of the characteristics and relative advantages of the successful tender and the name of the tenderer to whom the contract is awarded.
With this background, the GC has considered that:
46 [...] in this case, the log of server connection history relied upon by EIGE is not susceptible of establishing receipt of the email of 13 August 2012 by the applicant. Indeed, [...] it is likely that this document was generated solely by EIGE's computer system and it is only capable of showing sent status for the email of 13 August 2012 to the applicant, but not of its receipt by the latter. EIGE could not demonstrate that the applicant's computer system guaranteed the delivery of the email of 13 August 2012, which was challenged by the applicant [...]

48 [ ...] contrary to what EIGE has essentially argued at the hearing, the fact that, during the proceedings before the Court, it presented several pieces of evidence that it had actually sent the email of 13 August 2012 to the applicant does not create the presumption that the latter also received this email, and so that it is for the applicant to prove the contrary. Indeed , for such a reversal of the burden of proof to eventually take place, EIGE should not only provide indicia that it had sent the email of 13 August 2012 to the applicant, but also that the applicant had received said email. However, in this case, the fact that EIGE sent the email to the correct email address and the document entitled "detail record" are only clues that EIGE sent the email of 13 August 2012 to the applicant, but not of the fact that the latter received it.

49 It follows from the foregoing that EIGE has failed to demonstrate that the applicant had received the email of 13 August 2012. It must therefore be held to have infringed the obligation to state reasons imposed on it by Article 100, paragraph 2 of the Financial Regulation [...]

54 [...] as EIGE failed to prove that the email of 13 August 2012 had been received by the applicant, it is clear that EIGE should be considered as not having responded to the request of the applicant to obtain additional information about the rejection of its bid in a timely manner (T424/12 at paras 46 to 54, own translation from French, emphasis added).
In my view, the Judgment can hardly be criticised for adhering to high standards of evidence submission and for upholding the burden of proof against the contracting authority (although some relaxation or a reversal of the burden of proof could have been created on the basis of the server log + use of the correct email address argument).
However, in practical terms, its implications can be very troubling and effectively put a brake on the take-off of eProcurement and the massive extension of the use of electronic means of communication intended by the European Commission as a development fostered by the impending adoption of new procurement Directives.
If authorities cannot invest in secure eProcurement technology and they have to create a paper trail when they use electronic means of communication (ie email), the advantages of the digital revolution can be doubted. Hence, it remains to be seen how technological developments can actually be used to their full extent in an area where traditional administrative law principles and guarantees are so deeply rooted.

It's for the GC to decide, but it's not ok: CJEU rules on 'excessive duration' of competition law litigation (C-40/12 P)


In a batch of impatiently expected Judgments of 26 November 2012, the CJEU has ruled on the procedural and substantial rules applicable to a claim that (competition law) litigation before the General Court was of an 'excessive duration' and, consequently, breached Article 47 of the Charter of Fundamental Rights of the EU. In my view, this is another instance of a rather convoluted legal construction by the CJEU whereby it rejects its jurisdiction (on formal points), but actually addresses the substantial points in a way that leaves no room whatsoever for the GC when the matter is presented before it for a fresh consideraton--and, consequently, raises the question whether the system is sensibly designed to begin with...
 
In its Judgment in case C-40/12 P Gascogne Sack Deutschland (anciennement Sachsa Verpackung) v Commission, the CJEU has clearly indicated that
89 [...] the sanction for a breach, by a Court of the European Union, of its obligation under the second paragraph of Article 47 of the Charter to adjudicate on the cases before it within a reasonable time must be an action for damages brought before the General Court, since such an action constitutes an effective remedy.

90 It follows that a claim for compensation for the damage caused by the failure by the General Court to adjudicate within a reasonable time may not be made directly to the Court of Justice in the context of an appeal, but must be brought before the General Court itself.

91 As regards the criteria for assessing whether the General Court has observed the reasonable time principle, it must be borne in mind that the reasonableness of the period for delivering judgment is to be appraised in the light of the circumstances specific to each case, such as the complexity of the case and the conduct of the parties (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 181 and the case-law cited).

92 The Court has held in that regard that the list of relevant criteria is not exhaustive and that the assessment of the reasonableness of a period does not require a systematic examination of the circumstances of the case in the light of each of them, where the duration of the proceedings appears justified in the light of one of them. Thus, the complexity of the case or the dilatory conduct of the applicant may be deemed to justify a duration which is prima facie too long (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 182 and the case-law cited).

93 In examining those criteria, it must be borne in mind that, in the case of proceedings concerning infringement of competition rules, the fundamental requirement of legal certainty on which economic operators must be able to rely and the aim of ensuring that competition is not distorted in the internal market are of considerable importance not only for an applicant itself and its competitors but also for third parties, in view of the large number of persons concerned and the financial interests involved (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 186 and the case-law cited).

94 It will also be for the General Court to assess both the actual existence of the harm alleged and the causal connection between that harm and the excessive length of the legal proceedings in dispute by examining the evidence submitted for that purpose.

95 In that regard, it should be noted that, in an action for damages based on a breach by the General Court of the second paragraph of Article 47 of the Charter, in so far as it failed to have regard to the requirement that the case be dealt with within a reasonable time, the General Court must, in accordance with the second paragraph of Article 340 TFEU, take into consideration the general principles applicable in the legal systems of the Member States for actions based on similar breaches. In that context, the General Court must, in particular, ascertain whether it is possible to identify, in addition to any material loss, any other type of harm sustained by the party affected by the excessive period, which should, where appropriate, be suitably compensated.

96 It is therefore for the General Court, which has jurisdiction under Article 256(1) TFEU, to determine such claims for damages, sitting in a different composition from that which heard the dispute giving rise to the procedure whose duration is criticised and applying the criteria set out in paragraphs 91 to 95 above (C-40/12 P at paras 89-96, emphasis added).
So far, the general framework depicted by the CJEU makes sense and, even if it creates a potential problem of conflict of interest derived from the 'self-assessment' required from the GC (despite its seating in a different composition), the remedy is clearly outlined and the material or substantive conditions that should be taken into account are also spelled out in a relatively easy to apply test (although some deference towards lengthy competition litigation seems to be readable between the lines).
 
However, the temptation ends up being too strong and the CJEU, maybe aware of the intractability of that conflict of interest, cannot refrain itself from actually settling the matter (despite concluding it has to reject the ground for appeal!). Hence, the CJEU carries on to make clear that

97 That said, it must be stated that the length of the proceedings before the General Court, which amounted to approximately 5 years and 9 months, cannot be justified by any of the particular circumstances of the present case.

98 It is apparent, in particular, that the period between the end of the written procedure, when the Commission’s rejoinder was lodged in February 2007, and the opening, in December 2010, of the oral procedure lasted for approximately 3 years and 10 months. The length of that period cannot be explained by the circumstances of the case, whether it be the complexity of the dispute, the conduct of the parties or supervening procedural matters.

99 As regards the complexity of the dispute, it is apparent from examining the action brought by the appellant, as summarised in paragraphs 12 and 13 above, that, while requiring a detailed examination, the pleas relied on did not present any particular difficulties. Although it is true that around 15 addressees of the contested decision brought actions for its annulment before the General Court, that fact could not prevent it from scrutinising the documents in the case and preparing for the oral procedure within a period of less than 3 years and 10 months.

100 It must be pointed out that, during that period, the procedure was not interrupted or delayed by the adoption of any measures of organisation of procedure by the General Court.

101 As regards the conduct of the parties and supervening procedural matters, the fact that the appellant requested, in October 2010, the reopening of the written procedure cannot justify the period of 3 years and 8 months which had already elapsed since it was closed. In addition, as the Advocate General observed in point 134 of her Opinion, the fact that the appellant was notified in December 2010 that there would be a hearing in February 2011 shows that that procedural matter had only a minimal effect on the overall length of proceedings, or even no effect at all.

102 In the light of the foregoing, it must be found that the procedure in the General Court breached the second paragraph of Article 47 of the Charter in that it failed to comply with the requirement that it adjudicate within a reasonable time, which constitutes a sufficiently serious breach of a rule of law that is intended to confer rights on individuals (Case C-352/98 P Bergaderm and Goupil v Commission [2000] ECR I-5291, paragraph 42).

103 It is, however, clear from the considerations set out at paragraphs 81 to 90 above that the fourth ground of appeal must be rejected (sic) (C-40/12 P at paras 97-103, emphasis added). 
In my view, even if there is no question that the formal treatment of the claim for damages (ie the ground for appeal) is correct, the fact that the CJEU felt the urge to settle the matter from a substantive perspective shows that the attribution of the competence to hear cases concerned with the excessive duration of litigation before the GC to the GC itself (albeit in a different seating) makes poor sense and is likely to result in almost 100% of cases in a further appeal before the CJEU.
 
To be fair, if the CJEU assumed the competence from the beginning, other problems derived from a single-step or one-shot system where the claims would be shielded from potential appeals would also arise. So, it looks like we may be facing one of those areas where a clear limitation of the institutional design of the EU Courts seems apparent and where pressure for the future potential referral of the cases to the Strasbourg Court may be felt.
 
However, as indicated yesterday when commenting a timely editorial opinion of Advocate General Sharpston (here), it may well be that the granting of excessive procedural rights to competition law defendants end up in an unmanageable workload for the EU Courts (as well as for the European Court of Human Rights) and, consequently, a deeper revision of the system seems necessary [see my further developed aruments in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?].

"You have been warned": AG Sharpston's concerns should be sorted out differently


In an interesting and provocative editorial comment entitled 'Effective Judicial Protection through Adequate Judicial Scrutiny—Some Reflections' [Journal of European Competition Law & Practice (2013) 4(6): 453-454], Advocate General Eleanor Sharpston comments on the difficulties that the Court of Justice of the EU faces in its endeavor to uphold the right to effective judicial protection enshrined both in the European Convention of Human Rights (art 13) and in the Charter of Fundamental Rights of the European Union (art 47)--which, in competition law enforcement, also involves some due process guarantees of Article 6 ECHR.
 
Basically, AG Sharpston is concerned with whatever can be done to ensure that effective judicial review of competition law sanctions does not produce unreasonable delay and thus defeats the purpose of the exercise.
 
By reference to recent cases in which the review conducted by the General Court has been challenged on the basis of the fundamental right to obtain judicial review within a reasonable time, AG Sharpston offers a rather detailed account of the practical difficulties and burdens derived from the way the EU Courts work and explores potential avenues of (institutional) reform that could alleviate those constraints. Maybe not surprinsingly, after considering that incremental change (or change by means of internal reform) has clear limits, AG Sharpston suggests that the EU Courts (particularly the General Court) should grow in terms of available judicial manpower and that the members of the EU Courts should be given more continuity and stability in their appointments. A political economy analysis of these proposals may be interesting (is it not in the essence of any institution to aim to grow and perpetuate itself?), but is not what I consider more interesting after reading the editorial. I think that there are two elements in AG Sharpston's reflections that deserve some emphasis.
 
On the one hand, I think that this is a case that shows the need for some clear boundaries in what active members of the judiciary in its highest ranks, such as an Advocate General, may say and publish. There is a clear need for them to thread lightly and think carefully about the (personal) opinions that they decide to make public. I say this because, in a very provocative passage, AG Sharpston advances a 'creative' solution to the problem of the excessive workload of the EU Courts in the following terms:
the advocate pleading competition cases before the EU courts, or the in-house adviser analysing the merits of challenging a Commission decision or lodging an appeal—can also make a major contribution towards ensuring that the courts function effectively and smoothly and can deliver effective judicial review. Please (I beg you) consolidate your arguments and only run with the points that have some real substance to them. Don't put in an application with six grounds of appeal, each divided into several sub-points (you know, and I know, that not all are of equal merit!). Please plead succinctly and clearly (think of translation!) and please don't throw in an additional 600 pages of annexes in case something there might help to swing the case your way. And, by the way: please don't appeal a clearly hopeless case to the Court of Justice just to show the client that you've tried everything you can. We too are worried about our workload—particularly the part of that workload that consists of wholly unmeritorious or manifestly inadmissible appeals—and we are looking at ways to streamline how we deal with such cases. You have been warned.
This half friendly, half jokingly-made warning may not be totally void of an underlying truth (in some cases at least), but many (myself for one) may see it as rather confrontational and such undercover criticisms of the bar may not sit well with non-UK practitioners. Moreover, it may put the Advocate General in a difficult situation when she has to intervene in cases where she may want to consider the claims unmeritorius (surely, if everybody is warned, she may feel more at ease to hand down rather blunt opinions, won't she?).
 
But, more importantly, I think that AG Sharpston is caught in the 'thinking inside the box' approach that she somehow criticises when she dismisses the potential for incremental change (or change by means of internal reform) to contribute to alleviate the current (permanent?) excessive workload of the EU Courts. Most of her views, and those expressed more generally by the CJEU when it comes to the interpretation and application of Articles 6 & 13 ECHR or 47 CFREU derive from the premise that
'[These rights are] increasingly frequently invoked by individuals claiming individual rights under EU law. [They are], however, no less a right for ‘undertakings’ (ordinary businesses) who fall foul of the competition rules and who find themselves on the receiving end of adverse decisions' (emphasis added).
I beg to fundamentally disagree with AG Sharpston on this crucial point. As I submitted in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?, undertakings (or companies) deserve a relatively more limited protection than individuals under the ECHR and, more specifically, under Article 6(1) ECHR—at least as regards non-core due process guarantees, such as the standard of review applicable to the revision of competition law decisions. In my opinion, only by acknowledging this and redimensioning the procedural guarantees granted to undertakings can the system be made manageable and the workload of the EU Courts rationalised and focused in areas of EU Law that require more effort and investment in terms of (human capital, judicial) resources. By following in the path dependence of granting undertakings full protection (ie implicitly, by making them beneficiaries of 'corporate human rights'), the problems can only become more and more intractable.
 
This is an issue on which I am conducting further research (which I hope to be able to publish soon) but, for the time being, suffice it to say that I consider AG Sharpston's editorial comment a clear indication of the fact that the CJEU does not seem to be aware that it is putting a nose around its neck by part-taking in the inflation of 'corporate human rights'--just as it is doing by favouring the hypertrophy of the preliminary reference mechanism, as already criticised here. If it wants to be part of the solution, maybe it could well start by minimising the problem.

CJEU toys with the one stop shop approach and muddies the waters of State Aid analysis (C-284/12)


In its Judgment of 21 November 2013 in case C-284/12 Deutsche Lufthansa, the Court of Justice of the EU has further defined the role of domestic courts hearing State aid cases and has clarified the legal effects that result from an Article 108(2) TFEU Decision whereby the European Commission decides to open a formal investigation and expresses a preliminary opinion on the incompatibility of certain State aid measures with Article 107(1) TFEU.
 
In the case at hand, Lufthansa intended to avail itself of a Commission's Article 108(2) TFEU Decision that opened an in-depth investigation on certain types of aid received by Ryanair for its activities at Frankfurt Hahn Civil Airport (operated by FFH). Prior to the Commission's investigation, Lufthansa initiated private litigation and sought an order for the recovery of certain payments made to Ryanair and an additional order that there be no future aid for the benefit of Ryanair. The initial dismissal of Lufthansa's action was under appeal when the Commission formally decided to investigate the case.
 
After learning that the Commission had opened an in-depth investigation, Lufthansa contended that the domestic courts were barred from conducting their separate assessment under Articles 107 and 108 TFEU and were bound to follow the preliminary assessment of the Commission--which indicated that 'each of the measures in question was selective and constituted State aid within the meaning of Article 107(1) TFEU, unless it satisfied the private investor principle. As regards that principle, the Commission noted that, on the basis of the information available to it at the time of the adoption of the [Decision], the airport fees paid by Ryanair were not enough to cover the costs incurred by FFH'.
 
The German courts were not satisfied and asked the Commission for its opinion under the relevant provisions in the Notice on the enforcement of State aid law by national courts. Unsurprisingly,  the Commission supported Lufthansa and replied that the domestic court itself was not required to assess whether the measures in question could or could not be classified as State aid as it could take the Commission's Decision as a basis for drawing all the necessary inferences from the infringement of Article 108(3) TFEU. The German court was still not persuaded and made a preliminary reference.
 
In its Lufthansa Judgment, the CJEU has ruled that:
37 While the assessments carried out in the decision to initiate the formal examination procedure are indeed preliminary in nature, that does not mean that the decision lacks legal effects.

38 It must be pointed out in that regard that, if national courts were able to hold that a measure does not constitute aid within the meaning of Article 107(1) TFEU and, therefore, not to suspend its implementation, even though the Commission had just stated in its decision to initiate the formal examination procedure that that measure was capable of presenting aid elements, the effectiveness of Article 108(3) TFEU would be frustrated.

39 On the one hand, if the preliminary assessment in the decision to initiate the formal examination procedure is that the measure at issue constitutes aid and that assessment is subsequently confirmed in the final decision of the Commission, the national courts would have failed to observe their obligation under Article 108(3) TFEU [...] to suspend the implementation of any aid proposal until the adoption of the Commission’s decision on the compatibility of that proposal with the internal market.

40 On the other hand, even if in its final decision the Commission were to conclude that there were no aid elements, the preventive aim of the State aid control system established by the TFEU [...] requires that, following the doubt raised in the decision to initiate the formal examination procedure as to the aid character of that measure and its compatibility with the internal market, its implementation should be deferred until that doubt is resolved by the Commission’s final decision.

41 It is also important to note that the application of the European Union rules on State aid is based on an obligation of sincere cooperation between the national courts, on the one hand, and the Commission and the Courts of the European Union, on the other, in the context of which each acts on the basis of the role assigned to it by the Treaty. In the context of that cooperation, national courts must take all the necessary measures, whether general or specific, to ensure fulfilment of the obligations under European Union law and refrain from those which may jeopardise the attainment of the objectives of the Treaty, as follows from Article 4(3) TEU. Therefore, national courts must, in particular, refrain from taking decisions which conflict with a decision of the Commission, even if it is provisional.

42 Consequently, where the Commission has initiated the formal examination procedure with regard to a measure which is being implemented, national courts are required to adopt all the necessary measures with a view to drawing the appropriate conclusions from an infringement of the obligation to suspend the implementation of that measure (C-284/12, paras 37-42, emphasis added).
So far, the solution is clear cut and seems to impose a very clear preference for Commission (preliminary) assessment over any other assessment independently carried out by domestic courts. This would strengthen the one stop shop approach derived from the Commission's monopoly over the enforcement of Article 107 and 108 [except for the direct effect of 108(3) TFEU] and would strengthen the current centralised enforcement system.
 
However, in the two followning paragraphs, the CJEU muddies the waters by further ellaborating and indicating that:
43 To that end [ie to draw the appropriate conclusions from an infringement of the obligation to suspend the implementation of that measure] national courts may decide to suspend the implementation of the measure in question and order the recovery of payments already made. They may also decide to order provisional measures in order to safeguard both the interests of the parties concerned and the effectiveness of the Commission’s decision to initiate the formal examination procedure.

44 Where they entertain doubts as to whether the measure at issue constitutes State aid within the meaning of Article 107(1) TFEU or as to the validity or interpretation of the decision to initiate the formal examination procedure, national courts may seek clarification from the Commission and, in accordance with the second and third paragraphs of Article 267 TFEU, as interpreted by the Court, they may or must refer a question to the Court for a preliminary ruling (see, to that effect, as regards requests for preliminary rulings on the validity of State aid, Case C-222/04 Cassa di Risparmio di Firenze and Others [2006] ECR I-289, paragraphs 72 to 74) (C-284/12, paras 43-44, emphasis added).
In my view, this reopens the question and destroys the one stop shop approach (or, in more clear terms, the approach in para 44 basically deactivates all the reasoning in paras 39-40 and introduces a level of uncertainty and procedural complication that seems unnecessary). And I wonder where are the concerns about the effectiveness of Article 108(3) TFEU that had previously been alluded to in para 38, particularly if the preliminary reference is made before any interim measures are adopted (and what would be the use for it otherwise?). 
 
As I already indicated when I criticised the Advocate General's Opinion in this case (here), this can create significant complications by way of parallel procedures (before the Commission, the national courts and the CJEU) in one and the same case. Such duplication of procedures can only result in a waste of resources and, most likely, in legal uncertainty and potentially contradictory outcomes.
 
Leaving the door open for a reference for a preliminary ruling (of validity) against a provisional assessment of the European Commission is excessively deferential towards domestic courts and can have significant undesirable effects. This is not satisfactory and it starts to be evident that there is a need for the adoption of a more streamlined procedural system where (in the absence of a decentralised enforcement system for State aid, which may well be superior), national courts would have to suspend their powers of interpretation of the concept of aid and limit their role to the adoption of effective interim measures when the Commission is still completing its investigation on a given measure.

In my view, this could be easily achieved by simply applying Article 4(3) of the Treaty on European Union, since the need for sincere cooperation in this type of matters seems out of the question (an argument the CJEU has used differently in Lufthansa). Nonetheless, it is now clear that the CJEU is not willing to go very far in striking a more sustainable balance between the sphere of jurisdiction/competence of domestic courts and ensuring a manageable procedural system in State aid law. In my view, domestic courts should resort to the possibilities outlined in para 44 of the Lufthansa Judgment only in very extreme cases (if ever).

GPS' strategy and planning framework agreement could have been fatally flawed (or the joys of copy & paste)


The Government Procurement Service (GPS) has recently announced the entry into force of a new framework agreement for strategy & planning services that gives all public sector organisations access to 15 agencies providing strategic communications support including campaign strategy development, trend forecasting and target audience identification.  According to GPS,
The new framework makes the most of the public sector’s buying power and will deliver savings of up to £1 million a year for the taxpayer, whilst maximising the quality of innovative work offered by agencies. With 60% of suppliers on the framework being small and medium enterprises (SMEs), the new framework gives SMEs real opportunities to secure government contracts.
It is interesting to stress that the conclusion of this framework agreement could have been fatally flawed due to a significant oversight in the tender documentation--which originally failed to meet the fundamental requirement that 'multiparty' framework agreements must expressly indicate the contracting authorities that call-off work under the agreement.
 
Under Article 32(2)II of Directive 2004/18,
Contracts based on a framework agreement [...] may be applied only between the contracting authorities and the economic operators originally party to the framework agreement.
The European Commission has interpreted that requirement in the following terms:
in the case of a framework agreement concluded by a central purchasing body acting as an intermediary [...] it would not therefore be sufficient to indicate that the agreement can be used by “contracting authorities” established in the Member State in question. In fact, such an indication might not render it possible to identify the entities that are parties to the agreement due to the difficulties that may arise in determining whether an entity does or does not meet the definition of a body governed by public law. On the other hand, a description permitting immediate identification of the contracting authorities concerned — for example “the municipalities of x province or of y region” – renders it possible to verify that the provision of Article 32(2), second indent has been observed.
Such a requirement is well-know to GPS since, under its previous existence as the Office of Government Commerce (OGC), it published Guidance on Framework Agreements where it went beyond the interpretation of the European Commission and indicated that
When class descriptions do not allow ‘immediate identification of the contracting authorities concerned”, a reference to where details of the authorities covered can be obtained should be included in the notice. For example, if there is an accessible list of contracting authorities in a relevant “class”, or an organisation with responsibility for maintaining details of the members of a “class”, that list or organisation should be quoted in the Contract Notice and, where possible, a link to this information included.
In view of all such guidance as to the required level of precision of the scope of application of framework agreements, it seems rather clear that the initial tender documentation for GPS' strategy & planning services framework was indeed incomplete. The Schedule of Requirements for the tender indicated that
Full details of the Contracting Bodies eligible to access the Strategy and Planning Framework Agreement, can be found in the OJEU Contract Notice. Only those listed (including the organisations described on the appropriate webpage links) will be able to access the Framework Agreement.
However, in the notice sent to the Official Journal of the European Union (OJEU), there was no such list. GPS indicated that
Government Procurement Service as the Contracting Authority is putting in place a Pan Government Collaborative Framework Public Sector bodies have a need for a range of strategy & planning services within the communications / marketing sector. This requirement is not seeking market research, creative or mediabuying services. Agreement for use by the UK public sector bodies identified at VI.3 (and any future successors to these organisations), which include Central Government Departments and their Arm's Length Bodies and Agencies, Non Departmental Public Bodies, NHS bodies and Local Authorities.
And the, in the relevant part of the notice (VI.3), it is simply stated that:
Government Procurement Service wishes to establish a Framework Agreement for use by the following UK public sector bodies (and any future successors to these organisations): “Copy the latest version of the Customer List here” (emphasis added). 
Now, this may just seem too embarrassing to be true (where are the proof-readers?), but such a failure to include the list of contracting authorities that can resort to the framework agreement to call-off contracts for strategy & planning services would have rendered the whole framework agreement ineffective under EU public procurement rules.
 
Luckily, someone eventually spotted the mistake and GPS published an addition to the original OJEU notice, where a full list of 'classes' of contracting entities and public bodies (with weblinks to further developed lists) was included. GPS has not kept this additional publication in its publicly available file, so it took some digging to find it out. However, it is clear to me that the initial omission has been effectively corrected.
 
Nonetheless, I think that the case is still worth considering a bit further. In case the additional information had not been published and some litigation followed the conclusion of the framework agreement, it would all have boiled down to determining whether the ommission of the specific list of bodies covered by the framework agreement was cured or covered by the general description that the agreement would have been available to 'Government Departments and their Arm's Length Bodies and Agencies, Non Departmental Public Bodies, NHS bodies and Local Authorities.'
 
In my view, such a description would have been too vague to meet the requirements of current Article 32(2)II of Directive 2004/18. This conclusion may be slightly less clear under the future rules on framework agreements, as Article 31(2)II of the new public sector procurement Directive is bound to mandate that
Contracts based on a framework agreement [...] may be applied only between those contracting authorities clearly identified for this purpose in the call for competition or the invitation to confirm interest and those economic operators party to the framework agreement as concluded.
However, I would submit that the 'clearly identified' prong of the test still would need to follow the guidance provided by the European Commission and OGC (discussed above), so that at least a reference to where details of the authorities covered can be obtained should be included in the notice.

Isn't silence golden? A comment on Menager's "Communication in Procurement" (2013)

In a recent thought-provoking paper, Lucie Ménager questions one of the basic assumptions in competition law enforcement against bidding rings in public procurement: that pre-tender communication amongst bidders is prejudicial. In her working paper "Communication in procurement: silence is not golden", she claims that
Contrary to the conventional wisdom, the buyer's expected revenue and the surplus need not decrease with collusion, and the ex-ante surplus increases with the amount of information revealed in equilibrium. This is because when communication is cheap, bidders cannot directly collude on higher prices. Rather, communication leads to a competition between fewer, but more aggressive bidders, which entails more allocative efficiency and a decrease in the total wasteful entry cost (emphasis added).
The proposition indeed seems to challenge conventional wisdom about cartelization in public procurement markets and, consequently, the assumptions of the model deserve some close consideration. It is also relevant to stress that, throughout the paper, the author herself waters down this claim and its implications--which may have warranted a revision of the abstract (?).
 
In my view, the example used as the rationale for the paper (the well known Boeing-Airbus struggle over a $40bn USAF aircraft contract between 2008-11) might have primed the author in some of her considerations, which may downplay the relevance of the fact that reputation-based messages or threats are usually of scant significance in public procurement markets, unless very specific circumstances concur--which, mainly, boil down to the (pre-)existence of a very closed oligopoly, the presence of (very high) bidding costs, and a situation where all members of the colluding oligopoly communicate public messages before the tender [conditions that will be introduced slowly and progressively into the model, but which are not clearly spelled out from the beginning].
 
The paper eventually acknowledges these restrictions in its technical construction (where the preexistence of a cartel is clearly indicated as a condition for the 'cheap-talk' game; see pages 10 and 12), but it may not be equally clear in the narrative--where there is no clear indication as to the very rare occurrence of all of the conditions for the game equilibria to hold. 
 
Moreover, the author itself stresses that, even within the model,
Keeping participation secret from bidders could then be a way to prevent collusion. This is consistent with the competition authorities' recommendation according to which sellers should not be allowed to communicate about their intention to participate. Though, this solution is practically hard to implement in the case of public procurements, for which bid preparation may last several years (p. 17, emphasis added).
This also bears stressing, as only a very limited number of procurement projects require the preparation of bids over a number of years.
  
Also, it needs to be underlined that the 'cheap talk' strategy is only relevant if there are significant (discrete) participation costs that the bidder can (completely) avoid if (as a result of the signalling derived from the 'cheap talk phase') it decides to stay out of the procurement. However, and very relevant here, significant participation costs are incurred upfront where bidders are invited/accepted to complex procurement procedures (such as competitive dialogues in the EU) and which are necessary to even reach the phase where bidders have a relatively clear idea of the 'private' valuation or production costs--and that, in my view, would require incorporating the role of 'sunk costs' into the decision-making processes analysed in the game.
 
Finally, it is also worth emphasising that, despite the design of the model as a repeated game (or, at least, its requiring some prior experience by the bidders in tendering against each other), dynamic (welfare) effects are not taken into account. In that regard, it would still be required to assess whether the potential allocative efficiency derived from a decrease in total wasteful participation costs is not outweighed by negative dynamic effects, such as market exit, reduction of innovation or, eventually, the evolution of the 'soft cartel' necessary for the model to work into a full-fledged hard cartel (where cheap talk is no longer cheap, but an all encompassing bid rigging strategy--something that the author will reckon as a sort of an after-thought in her concluding remarks).
 
In my view, the very extreme (and sometimes artificial and disconnected from the way particularly complex procurement processes work) assumptions of the model may reduce the validity (or, rectius, the practical relevance) of some of the findings of the paper--or, at least, of the normative propositions that could be derived therefrom. To her merit, it should be stressed that the author herself acknowledges that by indicating that
We do not think [these] results advocate authorizing communication between sellers in public procurements, though. Clearly, if communication is not cheap, sellers can either collude on higher prices, which indeed increases public spending, or on bid rotation schemes which are generally inefficient. Rather, we think these results emphasize how di fferent can be the outcome implications of cheap-talk and binding communication(emphasis added).
After reading the paper, and particularly because cheap talk is twinned to high participation costs (which eventually force bidders to put their money where their mouth is), it is hard to actually appreciate the differences between such 'cheap talk' and other forms of 'binding' communication within cartel rings. It follows that it is also difficult to extract any normative recommendation from the paper (and this should be stressed, as a superficial reading of the title, abstract and introduction may provide the contrary impression). Its scope is much narrower than it could seem at first glance and no changes on the existing rules and enforcement priorities agains bid rigging should be derived from the findings of the paper. Much ado about nothing? Nonetheless, in purely intellectual terms, it is interesting to read, particularly for game theory scholars.