(Progressively formed) res iudicata all'italiana: or how EU law's supremacy can deactivate final judgments (C-213/13)

In its Judgment in Impresa Pizzarotti, C-213/13, EU:C:2014:2067 the CJEU followed the Opinion of AG Wahl (EU:C:2014:335, commented here) and determined that, on a proper construction of the applicable public procurement directives, where the main object of a contract is the execution of a work corresponding to the requirements expressed by the contracting authority (in the case at hand, the building of a new city of justice in Bari), that contract constitutes a public works contract and is not, therefore, covered by the exclusion applicable to public service contracts for the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or concerning rights thereon, even if it contains an undertaking to let the work in question.

 

From the strict perspective of procurement law, the Impresa Pizzarotti Judgment is straightforward and clarifies the fact that a decisive influence of the contracting authority in the design of the works to be carried out suffices to trigger the application of the procurement rules (paras 39-52). Hence, in the case at hand, the lack of tender for the contract which implementation Pizzarotti intended rendered it illegal and, under the applicable remedies Directives, excluded any legal value to such contract for the future lease of buildings still to be constructed.

 

In my view, however, the case raises a second issue that may be much more relevant. As part of the convoluted litigation that led to the referral to the CJEU, the Italian Consiglio di Stato had recognised certain rights to Pizzarotti under the applicable Italian administrative law provisions. However, giving effect to those rights would result in a situation contrary to EU law, given the (unfulfilled) obligation to tender the contract for the lease of the buildings to be constructed. The difficulty of avoiding the breach of EU law derived from the fact that the previous ruling of the Consiglio di Stato had become final and had the force of res iudicata. 

 

In those circumstances, however, the Consiglio di Stato indicated to the CJEU that its own case-law made provision for an exceptional "progressively formed res iudicata" that would allow it to "supplement the original operative part of one of its judgments by an implementation decision" (para 27 or, rectius, disregard its finality?) and asked whether it was appropriate to do so under the circumstances of the case.

 

The CJEU reacted in the only possible manner and, after stressing the importance of the principle of res iudicata and its belonging to the procedural autonomy of Member States, did not let the opportunity of relishing a capriccio all'italiana in the form of progressively formed res iudicata.

Given the relatively surrealist reasoning to which the CJEU is forced by the naivety of the Consiglio di Stato's referral, it is worth reproducing it almost in full:

53      [...] the referring court asks, in essence, whether it may decide that a ruling which it has made which has led to a situation which is incompatible with the EU legislation on public works contracts is ineffective.

54      [...] in the absence of EU legislation in this area, the rules implementing the principle of res judicata are a matter for the national legal order, in accordance with the principle of the procedural autonomy of the Member States, but must be consistent with the principles of equivalence and effectiveness (see, to that effect, the judgment in Fallimento Olimpiclub, C‑2/08, EU:C:2009:506, paragraph 24 and the case-law cited).

55 In its request for a preliminary ruling, the referring court indicates that, according to its case-law, it may, under certain conditions, supplement the original operative part of one of its judgments by implementation decisions, that possibility giving rise to what it terms ‘progressively formed res judicata’.

56 If — and it is for the referring court to ascertain whether this is the case — the conditions for applying that procedure are met in respect of the decision in Judgment No 4267/2007, a decision which is mentioned in paragraph 15 of this judgment and which — according to the order for reference — alone has the force of res judicata in the present case, it is for that court, having regard to the principle of equivalence, to make use of that procedure, favouring, from among ‘the numerous different possibilities of implementation’ which it states may be used in respect of that decision, the solution which, in accordance with the principle of effectiveness, ensures compliance with the EU legislation on public works contracts.

57      [...]

58 On the other hand, if the referring court is led to the view that the correct application of that legislation conflicts, having regard to the applicable domestic rules of procedure, with its Judgment No 4267/2007 or with its decisions of 15 April and 3 December 2010 implementing that judgment, attention should be drawn to the importance, both in the legal order of the European Union and in national legal systems, of the principle of res judicata. In order to ensure both stability of the law and legal relations and the sound administration of justice, it is important that judicial decisions which have become definitive after all rights of appeal have been exhausted or after expiry of the time-limits provided for in that connection can no longer be called into question (judgments in Kapferer, C‑234/04, EU:C:2006:178, paragraph 20; Commission v Luxembourg, C‑526/08, EU:C:2010:379, paragraph 26; and ThyssenKrupp Nirosta v Commission, C‑352/09 P, EU:C:2011:191, paragraph 123).

59 Therefore, EU law does not require a national court to disapply domestic rules of procedure conferring finality on a judgment, even if to do so would make it possible to remedy a domestic situation which is incompatible with EU law (see, to that effect, the judgments in Eco Swiss, C‑126/97, EU:C:1999:269, paragraphs 46 and 47; Kapferer, EU:C:2006:178, paragraphs 20 and 21; Fallimento Olimpiclub, EU:C:2009:506, paragraphs 22 and 23; Asturcom Telecomunicaciones, C‑40/08, EU:C:2009:615, paragraphs 35 to 37; and Commission v Slovakia, C‑507/08, EU:C:2010:802, paragraphs 59 and 60).

60 Accordingly, EU law does not require a judicial body automatically to go back on a judgment having the authority of res judicata in order to take into account the interpretation of a relevant provision of EU law adopted by the Court after delivery of that judgment.

61 That analysis cannot be undermined by the judgment in Lucchini (C‑199/05, EU:C:2007:434), cited by the referring court: it was in a highly specific situation, in which the matters at issue were principles governing the division of powers between the Member States and the European Union in the area of State aid, that the Court found, in essence, that EU law precludes the application of a provision of national law, such as Article 2909 of the Italian Civil Code, which seeks to lay down the principle of res judicata, in so far as the application of that provision would prevent the recovery of State aid which was granted in breach of EU law and which has been found to be incompatible with the common market in a decision of the European Commission which has become final (see, to that effect, the judgment in Fallimento Olimpiclub, EU:C:2009:506, paragraph 25). However, issues of that nature, relating to the division of powers, do not arise in the present case.

62 That said, if the applicable domestic rules of procedure provide the possibility, under certain conditions, for a national court to go back on a decision having the authority of res judicata in order to render the situation compatible with national law, that possibility must prevail if those conditions are met, in accordance with the principles of equivalence and effectiveness, so that the situation at issue in the main proceedings is brought back into line with the EU legislation on public works contracts.

63 In that regard, it should be emphasised that that legislation contains fundamental rules of EU law in that it is intended to ensure the application of the principles of equal treatment of tenderers and of transparency in order to open up undistorted competition in all the Member States (see, to that effect, the judgments in Commission v Portugal, C‑70/06, EU:C:2008:3, paragraph 40; Michaniki, C‑213/07, EU:C:2008:731, paragraph 55; Commission v Cyprus, C‑251/09, EU:C:2011:84, paragraphs 37 to 39; and Manova, C‑336/12, EU:C:2013:647, paragraph 28).

64 In the light of the foregoing, the answer to the second question is that, to the extent that it is authorised to do so by the applicable domestic rules of procedure, a national court — such as the referring court — which has given a ruling at last instance, without a reference having first been made to the Court of Justice under Article 267 TFEU, that has led to a situation which is incompatible with the EU legislation on public works contracts must either supplement or go back on that definitive ruling so as to take into account any interpretation of that legislation provided by the Court subsequently (C-213/13 at paras 53-64, emphasis added).

In my view, given the consequences that an infringement of EU law by the domestic courts can have and the ensuing potential for State liability claims (see Traghetti del Mediterraneo, C-173/03, EU:C:2006:391], Member States would be quite foolish not to adopt the concept of (progressively formed) res iudicata all'italiana, at least for instances of subsequent violation of EU law. Unless they take legal certainty and predicatability seriously, that is!

CJEU fuels joint application of Arts 102 & 106(1) TFEU to suppress unequal conditions of competition (C-553/12P)

In its Judgment in Commission v DEI, C-553/12 P, EU:C:2014:2083, the CJEU has (further) clarified the threshold of competitive distortion required in the application of Arts 102 and 106(1) TFEU to State measures concerned with public undertakings or undertakings with special or exclusive rights.

 

This Judgment goes beyond the precedent in MOTOE, C-49/07, EU:C:2008:376 (and others cited therein) in the trend of lowering the threshold of competitive distortion required in the declaration of incompatibility of State regulation with EU competition rules. The step forward fundamentally consists in decoupling the issue of "unequal conditions of competition" from the push of the State towards abuse of a dominant position through regulation, and in recognising (not as an obiter dictum) that the creation of "unequal conditions of competition" in favour of public undertakings or undertakings with special or exclusive rights suffices to find an infringement of Articles 106(1) and 102 TFEU [provided, of course, that the "public mission exception" of Article 106(2) TFEU is not applicable, which was not considered in the case].

 

Such decoupling is particularly clear in the plea submitted by the Commission (which the CJEU will accept, bit by bit, in its Judgment), whereby it argued that

35 [...] when Article [102 TFEU] is applied in conjunction with Article [106(1) TFEU] to situations where there is inequality of opportunity between economic operators, and thus distorted competition which stems from a State measure, that State measure in itself constitutes an infringement [...] It is therefore sufficient to prove that the measure indeed created inequality of opportunity by favouring the privileged public undertaking and thereby affected the structure of the market by allowing that undertaking to maintain, strengthen or extend its dominant position to another, neighbouring or downstream market, for example by preventing new competitors from entering that market (C-553/12 P, at para 35).

There are some passages in the Commission v DEI Judgment that are worth highlighting:

46 [...] infringement of Article [106(1) TFEU] in conjunction with Article [102 TFEU] may be established irrespective of whether any abuse actually exists. All that is necessary is for the Commission to identify a potential or actual anti‑competitive consequence liable to result from the State measure at issue. Such an infringement may thus be established where the State measures at issue affect the structure of the market by creating unequal conditions of competition between companies, by allowing the public undertaking or the undertaking which was granted special or exclusive rights to maintain (for example by hindering new entrants to the market), strengthen or extend its dominant position over another market, thereby restricting competition, without it being necessary to prove the existence of actual abuse.

47 In those circumstances, it follows that [...] it is sufficient to show that that potential or actual anti-competitive consequence is liable to result from the State measure at issue; it is not necessary to identify an abuse other than that which results from the situation brought about by the State measure at issue (C-553/12 P, at paras 46-47, emphasis added).

These very clear statements of the sufficiency of identifying the creation (or perpetuation) of "unequal conditions of competition" are further developed later in the Judgment:

57 [...] if inequality of opportunity between economic operators, and thus distorted competition, is the result of a State measure, such a measure, be it legislative, regulatory or administrative, constitutes an infringement of Article [106(1) TFEU] read in combination with Article [102 TFEU] (C-553/12 P, at para 57, emphasis added).

In my view, by switching from a language concerned with potential abuses of a dominant position by the public undertaking or undertaking with special or exclusive rights, to a more clearly-spelled (and simple) focus on "unequal conditions of competition", the CJEU has fuelled the enforcement of these provisions against State action that perpetuates the dominant position of former monopolies and/or twarts the effectiveness of liberalisation measures. Hence, it should be welcome. In my view, this case can trigger much stronger enforcement in areas such as public procurement, where the continued award of contracts to a former monopoly on the basis of pre-existing rights surely ressembles the factual background of Commission v DEI.

Something to feel proud of

I just came back from my holidays and found my copy of V Kosta, N Skoutaris and V P Tzevelekos (eds), The EU Accession to the ECHR (Oxford: Hart Publishing, 2014). The book is the reworked compilation of some of the papers presented at a conference in Brussels in November 2012, plus other interesting contributions. I also contribute a chapter on corporate fair trial rights  and competition law enforcement that was already available through SSRN. In the words of the editors:

Article 6 of the Treaty on European Union (TEU) provides that the EU will accede to the system of human rights protection of the European Convention on Human Rights (ECHR). Protocol No 9 in the Treaty of Lisbon opens the way for accession. This represents a major change in the relationship between two organisations that have co-operated closely in the past, though the ECHR has hitherto exercised only an indirect constitutional control over the EU legal order through scrutiny of EU Member States. The accession of the EU to the ECHR is expected to put an end to the informal dialogue, and allegedly also competition between the two regimes in Europe and to establish formal (both normative and institutional) hierarchies.

In this new era, some old problems will be solved and new ones will appear. Questions of autonomy and independence, of attribution and allocation of responsibility, of co-operation, and legal pluralism will all arise, with consequences for the protection of human rights in Europe.

This book seeks to understand how relations between the two organisations are likely to evolve after accession, and whether this new model will bring more coherence in European human rights protection. The book analyses from several different, yet interconnected, points of view and relevant practice the draft Accession Agreement, shedding light on future developments in the ECHR and beyond. Contributions in the book span classic public international law, EU law and the law of the ECHR, and are written by a mix of legal and non-legal experts from academia and practice.

Looking at the contents of the book, I am truly impressed. And it seems that I am not the only one:

"This book will be essential reading for all those interested in the future judicial and legal organisation of Europe. The editors, the contributors and the publishers are all to be warmly congratulated on a splendid achievement in legal scholarship" From the foreword by Francis G Jacobs.

This is definitely something to be proud of. I hope other research projects will be similarly succesful. 

Happy holidays!

I am closing the blog down for a while, as I am off for some holidays soon. Thank you for reading during this last semester and I hope you will stay in touch after the break. Happy Summer to everyone!

“Hanging Boy” (c) Robert Doisneau.

 

... and Cut! Lights Out for the €274mn Spanish "Ciudad de la Luz" Film Studios (T-319/12)

In its Judgment of 3 July 2014 in Spain v Commission (Ciudad de la Luz), joined cases T-319/12 and T-321/12, EU:T:2014:604 (not available in English), the General Court (GC) reviewed Commission's Decision (2012) 3025 final and assessed the compatibility of a Spanish support scheme for the development of the Ciudad de la Luz film studios (a project initially promoted by the late Luis Garcia Berlanga) with the rules on State aid in Articles 107-109 TFEU.

The GC found the aid to be incompatible with the internal market and confirmed the obligation of the Valencia Regional Government to divest its €274mn stake in the film studios, where it originally invested in 2000. The Judgment raises some interesting points on the application of the market investor test to the development of this sort of culture-related facilities.

 

Firstly, at paras 38 to 45, the GC rejects any obligation of the European Commission to take into consideration average returns in a given sector, particularly where they are affected by a lack of data or there are concerns about their reliability. The GC clarifies, following the Judgment in Westdeutsche Landesbank Girozentrale v Commission [joined cases T-228/99 and T-233/99, EU:T:2003:57] that the average return is one amongst many factors that the Commission may take into account when assessing the likelihood that a private investor would undertake a given publicly-sponsored project. 

 

Nonetheless, the Commission is not bound to use it and, in any case, its assessments could not be limited to such an average return analysis. Indeed, the "utilization of the average rate of return in the sector concerned does not relieve the Commission of the obligation to make a complete analysis of all relevant elements of the transaction and its context, including the situation of the company and the market, in trying to check whether the recipient undertaking has benefitted from an economic advantage which it would not have obtained under normal market conditions" (para 45, own translation from Spanish).

 

Secondly, at paras 48 to 50, the GC grants very low probative value to the existence of independent consulting studies and viability plans commissioned by the public authority prior to its investment. The GC acknowledges that the existence of independent reports may serve as an indication of the public investment having been made in comparable terms to those of a private transaction.

However, the GC also clarifies that the "jurisprudence does not in any way support that the existence of such reports is in itself sufficient to consider that the beneficiary of that measure has not benefited from an economic advantage within the meaning of Article 107, paragraph 1 (...) the Member State concerned can not rely on the findings of reports of independent consultancy firms without offering itself an adequate response to the issues that a prudent investor would have considered in the context of the case" (para 50, own translation from Spanish, emphasis added).

 

Thirdly, the GC clearly upholds the method followed by the European Commission to estimate the cost of capital and the expected internal rate of return. Strikingly, although maybe not suprising for a country and a region that undertook too many loss-making infrastructure projects in the last decade (shamefully, for instance, the Castellon Airport), the Commission rightly found that "the net present value was negative for any cost of capital of between 5% and 6%. For all costs of capital higher than 10%, the net present value was sharply negative and relatively stable. In view of the results [and the information available to the public authority], according to which the cost of capital was of 16.66% in 2000 and 14.9% in 2004, it could have effectively concluded with a high degree of certainty that the project was not profitable" (para 61, own translation from Spanish).

 

Fourthly and  in a rather colourful way, in paras 87 to 95, the GC engages in an assessment of the economic data included in the works of a Spanish university professor [not named by the GC, but the works are those of P Fernandez, and mainly its paper: The Equity Premium in 150 Textbooks (Date posted: September 14, 2009; Last revised: November 26, 2013)]. In my view, the detailed discussion that the GC entertains about the use of those equity premium estimates is an example of the degree of financial sofistication that the Court can reach--but, equally, of the possible excess in the detail of the review, if compared with the literal tenor of Art 263(2) TFEU.

 

Fifthly, the GC also engages in a largely useless exercise concerned with the incorporation or not of additional sources of revenue in the Commission's assessments. In its Decision, the Commission had only taken into account the revenue from film making activities. Spanish authorities wanted to add the expected revenue from hotel and commercial exploitation of the premises. The GC, in paras 125 to 139, sorts out the issue in a Solomonic way. First, it finds that the Commission should have incorporated the additional revenue in its assessment. However, it then rejects the arguments of the appellants on the basis that, even with those additional revenues, the project would not have been viable.

 

In my view, the important factual point to stress is that the public call for developers launched by the Spanish region in 2005 was deserted and the developments never took place (para 135). If listening to the market is of any value, it seems that the Commission made the right call by not including the expected additional revenue.

Anyway, the case law is now more open to the inclusion of alternative sources of revenue in the public investment in complex infrastructure projects as a result of the Ciudad de la Luz Judgment.

 

Finally, in paras 152 to 159, the GC assesses the requirements applicable to private investments and their continuity in order to make the infrastructure project that receives public finance susceptible of a declaration of compatibility under the applicable block exemption regulations. In short, the GC takes a pragmatic approach and clearly determines that an initial investment of 25% of the equity that, due to subsequent increases in capital in which the private investor does not participate, is reduced to around 1.6% in under a year falls short from the requirement of substantial private investment in the project (paras 155-156). In my view, this is a strong point in the Judgment and definitely one oriented to prevent circumvention strategies such as the one clearly seen in the Ciudad de la Luz case.

 

All in all, the case is interesting (or depressing...) if one reads it from the perspective of the massive legal and financial arguments that can be created to cover a simple and worrying truth: that certain infrastructure projects are anti-economical and a brutal waste of public resources, probably only driven by politicans' interests. In that regard, the insights of the study by Flyvbjerg, Garbuio and Lovallo "Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster" (2009) California Management Review 51(2): 170-193 will be worth re-reading (over and over). Now, in the short-term, the difficulty will be in trying to find a private buyer for such inviable film studios...

CJEU protects discriminatory green energy schemes and keeps inconsistency in EU free movement of goods law (C-573/12)

In its Judgment of 1 July 2014 in Ålands Vindkraft, C-573/12, EU:C:2014:2037, the Court of Justice of the EU (CJEU) departed from the previous Opinion of Advocate General Bot [EU:C:2014:37] and considered that the Swedish system of support of green energy is compatible with Article 34 TFEU despite the fact that it includes restrictions to trade in energy (and green electricity certificates) on the basis of nationality (rectius, on the basis of the place of production of that energy).

 

In my opinion, the case is important because: 1) the CJEU did not follow the more honest and transparent approach advocated for by AG Bot and has now perpetuated the doubts concerning the compatibility of environmental protection and internal market policies [particularly due to the conflation of Art 36 TFEU and 'Cassis de Dijon' mandatory requirements, as grounds for the exemption of restrictions to free movement], 2) it relies on economic assessments and the principle of legitimate investor expectations to a point that, in my view, exceeds the traditional balance or concern with pure economic aspects in the design of trade-restrictive policies (as well as only taking into consideration the economic burdens of some of the economic agents involved), and 3) the apparently pragmatic approach adopted by the CJEU actually restricts the potential ability of the EU as a whole to achieve its environmental protection commitments under the Kyoto Protocol. Each of these points deserves some further comments.

 

0. Background

From the perspective of EU law on free movement of goods (art 34 TFEU), the Ålands Vindkraft Judgment is concerned with one of the classical 'conundrums' derived from every clash of policies and, more especifically, with the difficulties derived from the two-tier approach to the exemption of legislative measures that restrict trade in the pursuit of other goals.

The TFEU deals with those situations in a limited manner under Art 36 TFEU, which contains a restricted and exhaustive number of exceptions (numerus clausus) to the general prohibition of measures that restrict trade. The CJEU expanded the possibility to exempt other measures under the so-called 'mandatory requirements' theory as first established in Cassis de Dijon [Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein, 120/78, EU:C:1979:42].

 

The main difference between the Art 36 TFEU exemptions and those based on Cassis mandatory requirements was, according to the canon, that the former applied to both directly and indirectly discriminatory measures, whereas the latter could only exempt non-discriminatory (or equally applicable) measures. In the specific case of environmental protection, given its non-inclusion in the exhaustive list of Art 36 TFEU, the canon implied that it could only be used to exempt non-discriminatory measures. However, ever since the 2003 Judgment in EVN and Wienstrom [C-448/01, EU:C:2003:651], there has been intense debate as to whether environmental protection could be subsumed or conflated with one of Art 36 TFEU heads of exemption (ie 'the protection of health and life of humans, animals or plants') and, consequently, also be used to exempt directly discriminatory measures [for discussion, see E Engle, 'Environmental Protection as an Obstacle to Free Movement of Goods: Realist Jurisprudence in Articles 28 and 30 of the E.C. Treaty' (2008) Journal of Law and Commerce 37: 113]. This was precisely the legal point to be addressed in Ålands Vindkraft.

 

1. An obscure departure from the clear and honest approach advocated by AG Bot

In his Opinion of 28 January 2014, and building on the more detailed proposal that he submitted in the Opinion in Essent Belgium [C-204/12 to C-208/12, EU:C:2013:294, not available in English] AG Bot took a bold step and suggested that "national legislation constituting a measure having equivalent effect to quantitative restrictions may be justified by the objective of environmental protection even if it is discriminatory, provided, however, that it undergoes a particularly rigorous proportionality test, one which I have referred to as ‘reinforced’" (para 79, emphasis added).

 

His proposal was basically aimed at overcoming the problematic conflation of environmental protection as a Cassis mandatory requirement and an (indirect) measure for the protection of health and life of humans, animals or plants. Moreover, the reinforced proportionality test (with all its problems), intended to reduce the margin of regulatory discretion that can be assigned to Member States under the Cassis doctrine.

 

However, the CJEU did not follow this bold, transparent and clear approach advocated for by AG Bot and, on the contrary and in an obscure manner, perpetuated the conflation in Ålands Vindkraft. Indeed, the CJEU considered that

77 According to settled case-law, national measures that are capable of hindering intra-Community trade may inter alia be justified by overriding requirements relating to protection of the environment (see, to that effect, Commission v Austria, EU:C:2008:717, paragraph 57 and the case-law cited).

78 In that regard, it should be noted that the use of renewable energy sources for the production of electricity, which legislation such as that at issue in the main proceedings seeks to promote, is useful for the protection of the environment inasmuch as it contributes to the reduction in greenhouse gas emissions, which are amongst the main causes of climate change that the European Union and its Member States have pledged to combat (see, to that effect, PreussenElektra, EU:C:2001:160, paragraph 73).

79 That being so, the increase in the use of renewable energy sources constitutes — as is explained, in particular, in recital 1 to Directive 2009/28 — one of the important components of the package of measures needed to reduce greenhouse gas emissions and to comply with the Kyoto Protocol to the United Nations Framework Convention on Climate Change, and with other Community and international greenhouse gas emission reduction commitments beyond the year 2012.

80 As the Court has pointed out, such an increase is also designed to protect the health and life of humans, animals and plants, which are among the public interest grounds listed in Article 36 TFEU (see, to that effect, PreussenElektra, EU:C:2001:160, paragraph 75). (C-573/12, paras 77 to 80, emphasis added).

From that point onwards, it is impossible to determine whether the CJEU bases its legal arguments in Art 36 TFEU as the protection of the health and life of humans, animals and plants is concerned or on the more general doctrine of mandatory or overriding requirements relating to the protection of the environment, or both. In my view, this is a lost opportunity for the clarification of this relevant point of EU law on free movement of goods. However, it may seem clear that (as Barnard justifies in The Substantive Law of the EU. The Four Freedoms, 4th edn, p. 172 and ff) the CJEU is not concerned with the legal basis used and that, currently, exemptions are fundamentally regulated under the principle of proportionality (but not necessarily under the 'reinforced' proportionality test advocated for by AG Bot). In itself, the perpetuation of this legal unclarity deserves some strong criticism. Not least, because of the flaws in the assessment of proportionality when it comes down to economic matters.

 

2. Unbalanced economic assessment and excessive reliance in (certain) legitimate expectations

The economic assessment of the measures that the CJEU carries out jeopardises the soundness of the proportionality test that it carries out in paras. 83 to 119 of the Ålands Vindkraft Judgment.

 

On the one hand, the CJEU follows recital 25 to Directive 2009/28 and stresses that "it is essential, in order to ensure the proper functioning of the national support schemes, that Member States be able to ‘control the effect and costs of their national support schemes according to their different potentials’, while maintaining investor confidence" (para. 99). Even further, it indicates that "the effectiveness of such a scheme requires by definition a measure of continuity sufficient, in particular, to ensure the fulfilment of the legitimate expectations of investors who have committed themselves to such projects, and the continued operation of those installations" (para. 103). In that regard, the CJEU adopts an approach to the protection of the budgetary planning and constraints that Member States unavoidably face (particularly in terms of avoiding claims for compensation) that ressembles, but goes further than its approach in the restrictions to free movement of persons when the viability of the healthcare system is concerned. However, this approach fails to take into consideration that the incentives to investors are not unidirectional when it comes to environmental protection.

 

In the case at hand, energy producers based in Sweden may well have a clear need for an avoidance of changes in the regulatory regime on the basis of which they invested in the creation of renewal energy production facilities. However, those same investors may also have a very strong financial interest in being able to benefit from lower production prices or lower prives for green energy certificates in other Member States (eg, by acquiring cheaper green energy (certificates) in cheaper markets and selling theirs is highly-priced markets, if they identify opportunities for arbitrage). Moreover, some of those investors may wish to follow EU-wide or, at least, regional policies. That was the case of the appellant, Ålands Vindkraft when it was seeking to have green energy produced in Finland recognised under the Swedish scheme. Hence, by imposing absolute territorial protection to the schemes in support of green energy, Member States and the CJEU may actually be crowding out investors that do not wish to remain purely local. And that is not taken into consideration in the Ålands Vindkraft Judgment.

 

The reasoning in para. 118 also seems economically faulty to me. The CJEU considers that

provided that there is a market for green certificates which meets the conditions set out in paragraphs 113 and 114 above [ie proper functioning market mechanisms that are capable of enabling traders (...) to obtain certificates effectively and under fair terms] and on which traders who have imported electricity from other Member States are genuinely able to obtain certificates under fair terms, the fact that the national legislation at issue in the main proceedings does not prohibit producers of green electricity from selling (...) both the electricity and the certificates does not mean that the legislation goes beyond what is necessary to attain the objective of increasing the production of green electricity. The fact that such a possibility remains open appears to be an additional incentive for producers to increase their production of green electricity (emphasis added).

 

Effectively, what the CJEU affirms is that an importer that has already paid higher prices for green energy prices at origin (say, Finland) and that cannot use third country green certificates in Sweden, who then has to acquire (in fair terms, sic) additional green energy certificates in Sweden, has an increased incentive to produce green energy in Sweden. But that makes no sense unless this is complemented with the fact that such importer would have no incentive whatsoever to continue importing green energy into Sweden--hence reducing its production or demand for green energy elsewhere (say, Finland).

 

In my view, the proper considerations of these alternative (additional) economic effects may well have tilted the proportionality assessment in the other direction and forced the CJEU to conclude that the Swedish measure was not proportionate (as AG Bot proposed in his Opinion Ålands Vindkraft, para. 110).

 

3. A perpetuation of the difficulties that the EU faces to meet collective commitments under the Kyoto Protocol

As a final, functional point, it is worth stressing that the CJEU position in Ålands Vindkraft is squarely contrary to the fact that, as stressed by AG Bot in his Essent Belgium Opinion, the reduction of greenhouse gas emissions is just as effectively achieved through the use of foreign green electricity as domestic green electricity--which comes to undermine the global effectiveness of the EU's fight against climate change at the altar of the protection of domestic regulatory regimes and national budgets. The deference given by the CJEU to the political compromise achieved by the Member States in the passing of Directive 2009/28 (see paras. 53, 92, 94) can be actually self-defeating, given that the CJEU has completely given up on its role to push for a dynamic development of the internal market and for a clear support in the discharge of the EU's obligations vis-a-vis international partners. Indeed, it seems to me that the CJEU has sacrificed Art 194(1)(c) TFEU and, particularly, its "spirit of solidarity between Member States" in the altar of Member State finances. This may be a realist approach to the issue, but it definitely perpetuates the difficulties that the EU (as an international actor with separate legal personality) faces to act as one in the international arena and, particularly, to meet collective commitments under the Kyoto Protocol.

 

4. Conclusion

Overall, the Ålands Vindkraft Judgment deserves criticism from a strict legal perspective (due to the muddled situation in which it keeps environmental protection justifications to restrictions on free movement of goods), from an economic perspective (due to the partial and biased assessment of economic charges and incentives), and from a functional/political (international) perspective (as it diminishes the possibilities for the EU as a whole to comply with the Kyoto Protocol). Only Member States' Ministers of Finance can celebrate this situation...

Competition infringer: You don't want the EU Commission as your banker (T-564/10)

In its Judgment in Quimitécnica.com and de Mello v Commission, T-564/10, EU:T:2014:583, the General Court has addressed a rather strange issue concerning the interest rates applicable by the European Commission when undertakings that have breached competition law choose to (partially) defer the payment of their fines.

The main dispute derives from the fact that, under the 2002 Financial Regulation, unsecured outstanding amounts are subject to an interest rate of ECB+3.5%, whereas secured debts go down to ECB+1.5%. It is a rather important point to note that the Financial Regulation indicates that the deferral of payments is subject to the condition that "the debtor lodges a financial guarantee covering the debt outstanding in both the principal sum and the interest, which is accepted by the institution's accounting officer" (emphasis added).

 

In the case at hand, Quimitecnica and JMS requested their fine to be payable in three annual instalments and offered to provide a bank guarantee by a given Portuguese bank. The Commission's accounting officer agreed to the deferred payment plan, subject to them providing a guarantee  issued "by a bank rated as long-term AA", which the proposed guarantor was not.

 

The undertakings failed to obtain such guarantee and challenged the "long-term AA" requirement before the GC (in the case that has now been decided). They did not provide any other bank guarantee. However, during the procedure, the undertakings met all deadlines in the agreed (but unsecured) financial plan and eventually settled all their debt with the Commission. However, at this stage, the Commission requested the payment of  additional interest in view of their failure to provide satisfactory guarantees for the credit (now effectively extinct).

 

There are may interesting passages in the Judgment, such as the attitude displayed by the Commission in its argument that the appeal had now become void of content (due to the debt having been paid in full) despite the dispute of over 36,000 Euro in interest being on the table. The arguments against the standing of the undertakings to challenge the measure on the basis that it could not change their legal situation simply do not hold water, regardless of the technicalities in which the Commission and the GC engage.

 

More importantly, the way in which the GC accepts the position of the Commission and does not engage in any significant assessment of the proportionality of the "long-term AA" rating is troubling. Indeed, the arguments raised by the undertakings on the inconsistency incurred by the Commission should have been given more weight. It is definitely irrational for the Commission to be criticising rating agencies and proposing their regulation, while at the same time stubbornly relying on their ratings and not being willing to negotiate the conditions of acceptability of guarantees issued by other banking institutions.

 

Furthermore, from a functional perspective, the case does not make much sense and there is an element of estoppel that I am finding difficult to pin down, but puzzles me. If the furniture of the bank guarantee was a condition for the acceptance of the payment plan, absent the guarantee, the Commission should have insisted on payment of the debt immediately and in full.

Reversely, by accepting partial payments according to the plan, and leaving its credit completely unsecured during the proceedings before the GC (could an interim measure not have been requested?), the behaviour of the European Commission could be seen as amounting to a waiver of the guarantee requirement. Somehow, I think that the Commission is having its cake and eating it too. And I am not sure that the same behaviour by a private creditor would be tolerable, which makes the findings of the GC all the more troubling.

 

In any case, it is very likely that the cost of this procedure far exceeds the 36,000 Euro at stake, which makes me wonder if this is the best possible use of the Commission's and the GC's resources.

It Won't Last Long? CJEU takes a functional, competition-based approach to in-house provision that questoins the criteria in the new EU procurement directives (C-574/12)

In its Judgment in Centro Hospitalar de Setúbal and SUCH, C-574/12, EU:C:2014:2004, the Court of Justice of the EU (CJEU) has issued a new decision concerned with the in-house exception to the application of the EU public procurement rules (for a previous summary of the doctrine, see here). The Judgment is concerned with Directive 2004/18, but the findings are already relevant for the interpretation of the revised in-house exception in Directive 2014/24.

 

In the case at hand, a Portuguese hospital awarded a services contract for the provision of meals to patients and staff to a non-profit organisation (SUCH) which membership included public entities (such as other hospitals) as well as private social solidarity institutions carrying out non-profit activities. The hospital considered it an in-house provision situation and, relying in the Teckal doctrine (recently revisited and affirmed by the CJEU, see here), did not comply with the transparency obligations of Directive 2004/18.

However, a competitor of SUCH challenged the award on the basis that the Hospital did not exercise a control over the non-profit organisation that qualified for such an exemption, particularly according to the requirements of Stadt Halle and RPL Lochau, C-26/03, EU:C:2005:5, according to which "the investment, however small, of a private undertaking in the capital of an undertaking of which the awarding authority also forms part prevents, in any event, the awarding authority from being able to exercise a control over it similar to that which it exercises over its own departments" (C-574/12, at para 13).

 

The main point of law for the CJEU to interpret was, consequently, whether only participation of private for profit undertakings excluded the in-house exception or if, on the contrary, participation of any other sort of non-profit entities triggered the same effect. Following a commendable functional approach to the in-house exception based on the avoidance of distortions of competition, the CJEU opted for the second solution. Indeed, according to the C. H. de Setúbal and SUCH Judgment,

35 […] it must be pointed out that the exception concerning the in-house awards is based on an approach according to which, in such cases, the awarding public authority can be regarded as using its own resources in order to accomplish its tasks in the public interest.

36 One of the reasons which led the Court to the findings established in the judgment in Stadt Halle [...] was based not on the legal form of the private entities forming part of the contractor or on their commercial purpose, but on the fact that those entities obeyed considerations particular to their private interests, which were different in nature from that of the objectives of public interest pursued by the awarding authority. For that reason, that authority could not exercise control over the contractor similar to that which it exercised over its own services (see, to that effect, Stadt Halle [...] paragraphs 49 and 50).

37 Having regard to the fact, pointed out by the referring court, that SUCH is a non-profit association and the private partners which formed part of that association at the time of the award of the contract at issue in the main proceedings were private social solidarity institutions, all of them also non-profit, it must be noted that the fact that the Court referred, in the judgment in Stadt Halle [...], to concepts such as that of ‘undertaking’ or ‘share capital’ is due to the specific facts of the case which gave rise to that judgment and does not mean that the Court intended to restrict its findings to those cases alone where commercial for-profit undertakings form part of the contractor.

38 Another reason which led the Court to the findings in the judgment in Stadt Halle [...] is that the direct award of a contract would offer a private undertaking with a capital presence in that contractor an advantage over its competitors (see, to that effect, Stadt Halle [...] paragraph 51).

39 In the main proceedings, SUCH’s private partners pursue interests and objectives which, however positive they may be from a social point of view, are different in nature from the public interest objectives pursued by the awarding authorities which are at the same time partners of SUCH.

40 In addition, as the Advocate General noted in point 37 of his Opinion, the private partners of SUCH, despite their status as social solidarity institutions carrying out non-profit activities, are not barred from engaging in economic activity in competition with other economic operators. In consequence, the direct award of a contract to SUCH is likely to offer an advantage for the private partners over their competitors (C-574/12, at paras 35-40, emphasis added).

In my view, the CJEU has applied good logic and has incorporated the likely distortions of competition in the market for the provision of meals that could result from non-profit partners of SUCH having preferential (direct) access to the supply to the public sector. This functional approach is economically sound and deserves all praise.

The only difficulty that the C. H. de Setúbal and SUCH Judgment creates is its compatibility/coordination with the new rules under Art 12(1)(c) and 12(3)(c) of Directive 2014/24, which recast the in-house provision exception but modify the Teckal/Stadt Halle doctrine by relaxing the requirement that there is no private participation whatsoever--so that, in the future, the in-house exception can be applied provided "there is no direct private capital participation in the controlled legal person with the exception of non-controlling and non-blocking forms of private capital participation required by national legislative provisions, in conformity with the Treaties, which do not exert a decisive influence on the controlled legal person" (emphasis added).

 

The explanation provided for such a change in recital (32) of Directive 2014/24 is as follows:

The exemption should not extend to situations where there is direct participation by a private economic operator in the capital of the controlled legal person since, in such circumstances, the award of a public contract without a competitive procedure would provide the private economic operator with a capital participation in the controlled legal person an undue advantage over its competitors. However, in view of the particular characteristics of public bodies with compulsory membership, such as organisations responsible for the management or exercise of certain public services, this should not apply in cases where the participation of specific private economic operators in the capital of the controlled legal person is made compulsory by a national legislative provision in conformity with the Treaties, provided that such participation is non-controlling and non-blocking and does not confer a decisive influence on the decisions of the controlled legal person. It should further be clarified that the decisive element is only the direct private participation in the controlled legal person. Therefore, where there is private capital participation in the controlling contracting authority or in the controlling contracting authorities, this does not preclude the award of public contracts to the controlled legal person, without applying the procedures provided for by this Directive as such participations do not adversely affect competition between private economic operators (emphasis added).

These two justifications for the relaxation of the Teckal/Stadt Halle/SUCH  absolute prohibition of private participation will prove controversial, given that they can give rise to situations where an effective market advantage is derived from the (apparent) in-house award. Indeed, the drafting of the condition in Art 12(1)(c) and 12(3)(c) of Directive 2014/24 seems quite open and it is possible to anticipate the need to conduct an assessment of proportionality between the objectives pursued by the national law imposing private participation and the carve-out that it creates in the application of the EU procurement rules. It will then be for the CJEU to either stick to its functional, competition-based approach to the in-house doctrine, or to defer to the quite express will of the EU legislator (fundamentally, in this case, the Member States). I would personally want it to tilt the balance in favour of the first option, but I can see the difficulties now that the text of the Directive is so clear.

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

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

 

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

 

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

 

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

 

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

 

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

GC sets burden of proof of conflicts of interest in procurement too high (T-4/13)

In its Judgment in Communicaid Group v Commission, T-4/13, EU:T:2014:431, the General Court (GC) decided another appeal against EU Institution's public procurement decisions. In this case, the procurement was for language training services for staff of the institutions, bodies and agencies of the European Union in Brussels, and the appellant challenged the rejection of its tender on several grounds, including violations of the principles of transparency and equal treatment.

 

The case raises a number of issues, but I think that it can be particularly interesting from the perspective of conflicts of interest in the evaluation of tenders, since the appellant submitted that "one of the seconded national experts who had been employed by the Commission in its Directorate-General (DG) for human resources (‘Commission unit B.3’) in the months prior to publication of the contract notice at issue and who had sat on a tender evaluation committee in a similar award procedure was now employed by the successful tenderer, and had played a role in the preparation of the latter’s tenders." In the appellants view, this situation resulted in a breach of the principle of equal treatment and, in the end, should be sufficient grounds for the annulment of the negotiated procedure for language training services framework contracts.

The GC framed the analysis of this situation in the following way:

53 [...] according to the case-law, the fact that a tenderer, even though he has no intention of doing so, is capable of influencing the conditions of a call for tenders in a manner favourable to himself constitutes a situation of a conflict of interests. In that regard, the conflict of interests constitutes a breach of the equal treatment of candidates and of equal opportunities for tenderers (Joined Cases C‑21/03 and C‑34/03 Fabricom [2005] ECR I‑1559, paragraphs 29 and 30, and Case T‑160/03 AFCon Management Consultants and Others v Commission [2005] ECR II‑981, paragraph 74).

 However, that situation is slightly different from the one at hand in Communicaid, given that the advantage that the tenderer would have had would not derive from the ability to influence the terms of the call (as was the issue in Fabricom), but from the fact that it had access to 'privileged'/'insider' information about how to respond to the tender. Hence, this creates a factually different scenario, which analysis will be interesting.

 

Before looking at the analysis that the GC carried out, and further to the precedent concerned with the prior involvement of consultants that then become tenderers in Fabricom, Joined cases C-21/03 and C-34/03, EU:C:2005:127 [for discussion see S Treumer, "Technical Dialogue and the Principle of Equal Treatment: Dealing with conflicts of Interests after Fabricom" (2007) Public Procurement Law Review, No. 2, 99-115]; it is worth noting that conflicts of interest are now regulated in Art 24 of Directive 2014/24 (not directly applicable to EU institutions procurement, but with a clear potential to work as guidance for the EU courts in the future). According to this new provision:

Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators.
The concept of conflicts of interest shall at least cover any situation where staff members of the contracting authority or of a procurement service provider acting on behalf of the contracting authority who are involved in the conduct of the procurement procedure or may influence the outcome of that procedure have, directly or indirectly, a financial, economic or other personal interest which might be perceived to compromise their impartiality and independence in the context of the procurement procedure.

The new rules, then, seem to set out a rather demanding obligation to avoid conflicts of interest in the members of evaluation teams. Under the 'minimum' definition in the second paragraph of Art 24 dir 2014/24, it is clear that contracting authorities must avoid Fabricom-like conflicts of interest. However, the case of Communicaid was concerned with a 'bordeline' situation of potential conflict of interest, which subsumption under the 'minimum' definition of conflicts of interest will need to be tested. I would argue that they are caught by the general mandate of the first paragraph, but I am sure that there is scope for much discussion on the interpretation of this provision [and recital (16) dir 2014/24 does not shed any bright light: "Contracting authorities should make use of all possible means at their disposal under national law in order to prevent distortions in public procurement procedures stemming from conflicts of interest. This could include procedures to identify, prevent and remedy conflicts of interests."].

 

In my view, however, given the permissive treatment applied by the GC in Communicaid, these situations are unlikely to be effectively covered by Article 24 of Directive 2014/24--unless the CJEU develops a more stringent approach when it interprets that provision. Indeed, the GC considered that:

57 The applicant also argues that the successful tenderer enjoyed an unfair advantage because of the former seconded national expert’s participation in a previous call for tenders as a member of the evaluation committee.

58 In that respect, it must be pointed out that, according to the Commission, the applicant has not proved that the former seconded national expert participated in the drafting of the successful tenders for Lots 1 to 9. In order to prove that he did, the applicant has produced statements prepared by three of its employees, describing conversations they had with the former seconded national expert at the dinner on 13 November 2012 [...]. However, it must be noted that those statements do not show conclusively that the former seconded national expert participated in the drafting of the successful tenders for Lots 1 to 9, since the impressions of the applicant’s employees as to whether that was the case have been expressly contradicted by the person concerned himself. In any event, even if those statements did prove such participation by the former seconded national expert, it must be noted that their probative value is weak since they were made by the applicant’s employees, who have a particular interest in the contract being awarded to the applicant.

59 In the present case, even supposing that the former seconded national expert did participate in the drafting of the successful tenders, it must be pointed out that the applicant, by the evidence which it has submitted, has proved neither the participation of the former seconded national expert in the preparation of the call for tenders at issue, nor the unfair advantage that the successful tenderer allegedly enjoyed because its new employee was a member of a tender evaluation committee in a previous, similar procurement procedure. Furthermore, as the Commission rightly points out, the applicant has provided language training services to the EU institutions since 2008 and collaborated with the Commission in the context of the contract previous to the call for tenders at issue, with the result that it had information on the needs and requirements of the European institutions, notwithstanding the fact that the contract previous to the call for tenders at issue, contrary to the present call for tenders, did not include blended learning.

60 It follows from all the foregoing that the applicant has not proved that the fact that one of the successful tenderer’s employees worked at the Commission as a seconded national expert gave it an unfair advantage in the procurement procedure at issue of such a kind as to infringe the principles of non-discrimination and of equal treatment. Nor, moreover, has the applicant proved the infringement of the principle of transparency (T-4/13 at paras 57-60, emphasis added).

In my view, the GC has applied an excessively demanding burden of proof of not only the existence of a conflict of interest, but of its effects (ie of the existence of an actual de facto advantage derived from the existence of the conflict of interest). Such a high burden will result in a very weak effectiveness of the rules on conflicts of interest, given that they tend to involve the need to resort to indirect methods of proof and to indicia of advantage. Hence, this should not be welcome as a functional approach to adjudication of instances of (evident) conflict of interest and, at some point, it would have been necessary to resort to the techniques of presumption of advantage or, at least, reversal of the burden of proof. When conflicts of interest are concerned, it is worth remembering that Caesar's wife must be above suspicion...

Pervasive Legal Instrumentalism and Scholarly Herd Behaviour in Law: A Short Reflection on van Gestel & Micklitz (2014)

In their interesting paper "Why Methods Matter in European Legal Scholarship" (2014) European Law Journal 20(3): 292-316, which I read following Steven Vaughan's recommendation on twitter (@lawvaughan), Rob van Gestel and Hans-Wolfgang Micklitz write a compelling criticism against the instrumentalisation of law and legal research (ie the excessively policy-driven approach to legal research that mixes up normative and empirical questions), not least because:

"[it] decreases the attention for methodology, for theory building, and for keeping enough professional distance to one’s object of research. This threatens to result in a creeping process of herd behaviour, in copy pasting the methodology of judicial lawmaking to legal scholarship and in a lack of transparency and methodological justification in scholarly legal publications".

 

Indeed, the part of their paper that I find really interesting (and brave) is the discussion on the risk of herd behaviour in legal research, where they warn about the risks of uncritically focussing legal research on 'hot topics' and the items in the agenda of policymakers/regulators (such as the European Commission) or financing/sponsoring bodies, instead of pursuing an independent ranking of relevant topics with intrinsic research/doctrinal value (pp. 305-307)--and which I remain convinced definitely supports their argument in favour of raising the methodological awareness in European doctrinal legal research.

 

In short, they submit that "the best response to growing heterogeneity of legal sources should be matched with a strengthening of theoretical and methodological components, where possible drawn from the common European heritage in legal theory and spurred by transnational scholarly legal communities" (p. 312). Moreover, they formulate some broad implications of their proposal and launch some open questions, which they intend to focus future debates about (the specifics of legal methods), particularly in view of the Europeanisation of legal education (see some related comments here).

 

I agree with them in that methodological discussions about legal research are becoming of paramount importance and that it is fundamental to base any piece of legal research on a methodology that is not limited to the very narrow confines of (classical) black-letter legal analysis. This is particularly important if one is to embark into any sort of normative recommendation, which requires a benchmark of underlying values and evidence that law cannot provide.

 

Personally, I find the interaction between law and economics particularly important and I have some specific views as to what sort of methodology should be used in the study of European economic law [see A Sánchez Graells, "A Short Note on Methodology: An Eclectic and Heuristic Multi-Disciplinary and Functional Approach to EU Law" (2011)]. Ultimately, I praise and share the words of O Wendell Holmes in "The Path of the Law" (1897) 10 Harvard Law Review 457:

"I look forward to a time when the part played by history in the explanation of dogma shall be very small, and instead of ingenious research we shall spend our energy on a study of the ends sought to be attained and the reasons for desiring them. As a step toward that ideal it seems to me that every lawyer ought to seek an understanding of economics".

This is not to say that economics should drive, control or even dictate the objectives of legal research, nor that efficiency must necessarily be accepted as the ultimate normative value. However, legal research that disregards economic theory and its insights and (willingly or inadvertently) runs against them will have a very limited (if any) value. Moreover, the same is equally applicable to other social sciences and, as van Gestel & Micklitz stress

"this should not imply that we want to turn law students [or law scholars, for that matter] into amateur social or political scientists or economists, but they should at least be able to understand (some of) the language and methods that other (social) sciences apply in order to learn more about the value, validity and reliability of non-doctrinal research methods and techniques" (p. 315).

In any case, beyond the specifics of the methodology employed and the field of (other) science considered more relevant in order to achieve informed and sound outcomes-- which surely needs to be tailored to the specific research question that one attempts to answer--I could not stress enough the importance of having A sound  methodology when one undertakes legal research. In that regard, I fully share and welcome van Gestel & Micklitz's call for further discussion. As they say in their paper, to be continued...

State aid and (university) software licensing: who's interested? (T-488/11)

In its Judgment of 12 June 2014 in case Sarc v Commission, T-488/11, EU:T:2014:441, the General Court of the EU (GC) has assessed an interesting case concerned with the licensing of software developed at a Dutch university from a State aid perspective.

 

In the case at hand, staff of the Delft University had developed source code usable in the development of software for ship design and ship loading (a highly commercial application). Those members of staff then left university and created a start-up company 'Delftship' that entered into a licensing agreement with the Delft University. According to competitor Scheepsbouwkundig Advies- en Rekencentrum BV ('Sarc'), the terms of the licensing agreement where too advantageous and implied State aid. Crucially, Sarc claimed that the royalty payable by Delftship to the University was lower than the market price, which allowed it to offer software at a low rate.

 

However, after a preliminary examination under Article 108(2) TFEU, the Commission decided that the licence agreement for the use of the software source code did not constitute State aid, as the level of the royalties payable to the University had been negotiated intensely and ended up reflecting market prices--so that the licensing agreement did not grant Delftship an advantage within the meaning of Article 107(1) TFEU. Sarc appealed the decision before the GC.

 

The appeal has been opposed by both the University and the Dutch state on several grounds. Remarkably, the active standing of Sarc to bring proceedings has been challenged. In its analysis of the applicant’s standing to bring proceedings, the GC focussed on the competitive position of the applicant--following the settled case-law under art 263(4) TFEU that an applicant can only challenge a (State aid) Decision addressed to another party if it is of direct and individual concern, which requires proof that its market position is significantly affected, see paras 31-35 [for discussion, see F Pastor Merchante, "On the Rules of Standing to Challenge State Aid Decisions Adopted at the End of the Preliminary Phase" (2012) European State Aid Law Quarterly 3: 601-610].

 

These considerations are extremely important, as they indicate a very restrictive test and impose a substantial burden of proof on any challengers of State aid decisions not addressed to them. In my view, it is worth stressing that the GC and has found that

43 [...] it should be noted, first, that the applicant has not provided the Court with the main information relating to the structure of the relevant market establishing its competitive position in that market. In particular, the applicant has not provided information about the relevant geographic market, its share of that market and the share of its competitors and any shift in market shares since the measure at issue was granted.

44 It should be pointed out, secondly, that the applicant has not provided the Court with any evidence which could lead to the conclusion that the grant of the measure at issue had significantly affected its competitive position given, in particular, the specific nature of that measure, the length of the period for which it was granted and any circumstances making it impossible to circumvent the adverse effects of that measure.

45 In those circumstances, it is to be found that the applicant has not established that its competitive position was significantly affected within the meaning of the case-law set out in paragraph 33 above.

46 The six arguments which the applicant raises in that regard cannot invalidate the finding set out in paragraph 45 above.

The GC then goes on to discard each of the arguments, which were concerned with: 1) the lack of need to define the relevant market and the sufficiency to focus on competitive constraints, 2) the existence of a very close competitive relationship, given that the beneficiary of the aid and the claimant sell the same products/services to the same clients, 3)the fact that the applicant held 80% of the market share in the Netherlands (and, consequently, was bound to be affected by the entry of a new competitor that could undercut prices), 4) the fact that the value of the measure at issue was between 6 and 12 times above the de minimis threshold, 5) the specific loss of customers to the beneficiary of the aid, which was argued as proof of loss of market share, and 6) a price comparison that showed that the beneficiary was able to offer very low prices due to it not being required to recoup the costs of software development (which had been financed by the University prior to entering into the licensing agreement). 

 

In my view, most of the arguments and information supplied by the applicant and, if nothing else, taking them all into global consideration, should have led the GC to conclude that its competitive position was bound to be significantly affected by the measure at issue. However, adopting such a strict approach and imposing such a high (almost impossible to discharge) burden of proof of significant alteration of its competitive position, the GC only recognises the applicant's standing to protect its procedural rights, which fundamentally limits the possibility for competitors to challenge State aid decisions unless they were involved in the procedure leading to the Commission's Decision.

 

Hence, this is a decision bound to disincetivise competitors from challenging State aid decisions, unless they were involved in the procedure from the beginning--and always conditional upon any of their procedural rights having been breached. In my view, not a positive interpretation of the rules on active standing under Art 263(4) TFEU and one that is definitely difficult to square with the over-enthusiastic approach of the CJEU to the effectiveness of EU competition law rules in other areas (such as cartels...).

When the CJEU opens the umbrella, lawyers and economists get ready for a warm shower of damages claims (C-557/12)

In its Judgment in Kone, C-557/12, EU:C:2014:917, the Court of Justice of the European Union (CJEU) has followed the highly controversial proposal of AG Kokott (see my criticism here) and has bought into the theory of 'umbrella damages', hence determining that "Article 101 TFEU must be interpreted as meaning that it precludes the interpretation and application of domestic legislation enacted by a Member State which categorically excludes, for legal reasons, any civil liability of undertakings belonging to a cartel for loss resulting from the fact that an undertaking not party to the cartel, having regard to the practices of the cartel, set its prices higher than would otherwise have been expected under competitive conditions."

In my opinion, this Judgment must be strongly criticised and shows a very dangerous path of judicial activism that the CJEU is for some reason willing to engage with in the area of private law, but that it avoids in the area of public law and fundamental rights (see my remarks on the CJEU's total lack of will to effectively become EU's constitutional court here). Only on this asymmety of approach towards the development of EU rights in the public law / private law area (or, more bluntly, in the fundamental rights/economic rights divide) should give us all some food for thought about the role of the CJEU.
 
Further than the general criticism already spelled out against AG Kokott's Opinion, I think that the Judgment gives rise to even more specific arguments against the findings of the CJEU on the basis of the 'umbrella damages' theory of harm. I am lucky to have colleagues such as Dr Sebastian Peyer with whom to discuss these issues and, on this occassion, we clearly  coincide in our negative reading of the case. In this post, we put together our thoughts. Mine are slightly more general, so they will come first. Sebastian will then follow on with more specific and ellaborate points on the basis of his expertise in private enforcement of EU competition law.

My own criticism

From a general perspective of EU law and its effectiveness, the Kone Judgment really makes no sense and potentially impinges on the Member States' competences to regulate non-contractual liability and tort remedies [this point is common to previous criticisms against the EU's competence to regulate in the area of damages actions, as Francisco Marcos and myself stressed in “Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law through the Back Door?” (2008) 16(3) European Review Private Law 469-488].

 

 

Quite simply, in my view, Kone has carried the application of the principle of supremacy and effectiveness of EU law too far and the contrast between the findings in Kone and its original application to the competition law damages field in Courage and Crehan [C-453/99 EU:C:2001:465, paras. 23 and ff] is simply abysmal. Courage 'just' made the point clear that damages actions should not be impossible and that they were governed by the general principles of equivalence and effectiveness of remedies (para. 29). This general mantra has been repeated over and over but, in its repetition, the effectiveness part has been gaining relevance and, at least in Kone, the CJEU has completely disregarded the principle of equivalence (despite mentioning it in para. 25).

 

Given the split of competences between the EU and the Member States in many areas of the law and, in particular, in many areas that govern the remedies available for breaches of EU (and domestic) rules, the principle of equivalence needs to be understood as a functional tool to provide effectiveness to EU rights without altering the Member States' competences. In that regard, it seems uncontroversial that, as even an undergraduate student of law can clearly express in an effective way: "The principle of equivalence ensures that EU rights receive the same protection as domestic ones" [David Murray, "EU law rights and national remedies: an uneasy partnership?" (2010) Diffusion 6(1)]. There is no reason to suggest that, in the absence of EU regulatory competences or specific EU remedies, EU rights should receive more intense protection than domestic ones.

 

However, the CJEU disregards this plain understanding of the general requirements of EU law and its supremacy and goes on to state that:

32 [...] it is, in principle, for the domestic legal system of each Member State to lay down the detailed rules governing the application of the concept of the ‘causal link’. However,  [...] national legislation must ensure that European Union competition law is fully effective (see, to that effect, VEBIC EU:C:2010:739, paragraph 63). Those rules must therefore specifically take into account the objective pursued by Article 101 TFEU, which aims to guarantee effective and undistorted competition in the internal market, and, accordingly, prices set on the basis of free competition. In those circumstances [...] national legislation must recognise the right of any individual to claim compensation for loss sustained.
33 The full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected by national law, categorically and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel, but with an undertaking not party thereto, whose pricing policy, however, is a result of the cartel that contributed to the distortion of price formation mechanisms governing competitive markets.

In my view, this is truly far away from a pondered and acceptable balancing of the competing demands of the principles of equivalence and effectiveness and amounts to a suppression of the equivalence element that is essential to the test for compliance by Member States with their duty to ensure the effet utile of EU law under Article 4(3) TFEU and the existing case law.

Moreover, it prevents Member States from adopting clear and streamlined rules that avoid the need to engage in very complicated and costly case by case assessments of every claim, regardless of any indication of remoteness or weakness of basic causality links. Hence, the Kone Judgment should clearly be rejected and its implications limited (ie undone) by the CJEU itself at the closest opportunity.

What Sebastian has to say
The Court's judgement does not only show some dangerous judicial activism, as my colleague and host Dr Albert Sanchez Graells has pointed out, it also raises more questions than it answers.

What do we talk about when we talk about umbrella pricing? In a standard cartel case the damages claimant, typically a direct customer of the cartel, has to show that the defendant overcharged him. For umbrella pricing the situation is different. The claimant has not purchased from the cartelist but from another firm in the affected market. Consequently, the claimant should demonstrate that the market price was inflated due to the cartel and that he suffered harm due to the higher market price. In European jurisdictions this is basically a question of causation and a question of the proof that is required by the courts whereas US courts deal with these issues under ‘antitrust injury’. In Kone, the Court has stated that national courts cannot categorically reject a causal link between the cartel and inflated market prices charged by non-cartelists (para. 34):

“Consequently, the victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel […] where it is established that the cartel at issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently, and that those circumstances and specific aspects could not be ignored by the members of that cartel.”

The Court addresses the two issues related to umbrella pricing (Was there an effect on the market? Did the market effect cause damage to the claimant?) in one sentence and merges them into one “be liable” test. It is left to the Member States to establish the rules and standards for proving these effects. The Court also seems to introduce some element of knowledge on part of the cartelist ("could not be ignored"). This may turn out to be impossible to prove.

 

Sadly, the ruling fits into the line of recent cases that appear to be claimant-friendly but may not contribute much to the effectiveness of enforcement. On the face of it, cases such as Pfleiderer [C-360/09, EU:C:2011:389] or Donau Chemie [C-536/11, EU:C:2013:366] have opened the gates to private damages claims, allegedly improving the effectiveness of competition law enforcement through access to documents. But I think this does not hold true. In those rulings the court replaced categorical rules with a case by case approach. So far, this has not really helped claimants but forced courts to justify why they have decided to, for example, deny access to leniency material (Pfleiderer). With regards to umbrella pricing, the CJEU has followed this approach replacing a 'fixed rule' with a case by case approach. We shall see if the claimants can get anything out of this apart from more complicated litigation.

 

Overall, the CJEU’s decision is extremely short for a ruling that could turn out to be expensive for both claimants and defendants. The cost associated with proving and calculating umbrella pricing could be prohibitive and adds to the generally high litigation costs of follow-on damages actions. I would expect most umbrella claimants to fail at the quantification stage, even if they have actually managed to master the causation hurdles.

The implications of this judgement for national causation rules are also worrying. Member States are supposedly able to govern causation and remoteness of damages under the procedural autonomy principle the Court stressed in the Kone ruling but also in Courage, Manfredi, Pfleiderer and Donau Chemie. However, in AG Kokott (see her opinion in Kone) and the Court disregard earlier statements that it is for the domestic legal system to regulate a causal relationship. So, what does this mean for the domestic legal systems?

 

Regarding the UK, I could imagine that the autonomous decision of a third party not to undercut the cartel is an intervening event breaking the chain of causation. It could also become a struggle to show that damages were foreseeable because they depend on the buyer's decision to contract with a non-cartelist and on the non-cartelist’s decision to charge an inflated price in the shadow of the cartel. However, the TheWagon Mound (No1) holds that only the kind of damage has to be foreseeable, not the extent of it. The CJEU’s decision in Kone has certainly created many more questions. Now, the ball is in the national courts.

Directive 2014/23 on concessions and the 'Frankenstein effect'

The more one analyses the content of Directive 2014/23 on concessions (the Concessions  Directive), the more one realises that it is full of unnecessary complexities and that it is (unfortunately) a horrible example of the 'Frankenstein effect' that the EU legislative procedure sometimes generates.

 

I am in particular puzzled by Arts 1(2), 6 and 7 of the Concessions Directive, which aim to determine its (personal) scope of application. The difficult exercise attempted in the Concessions Directive is to combine or merge the scope of application of both the Public Sector Directive (2014/24) and the Utilities Directive (2014/25) and, at first sight, looking at Article 1(2), it seems like it achieves that goal (as Richard Craven concludes in his piece on the Concessions Directive about to be published in the Public Procurement Law Review).

 

A cursory look at that provision indeed confirms that both 'contracting authorities' subjected to the Public Sector Directive and the 'contracting entities' covered by the Utilities Directive are within the scope of the Concessions Directive, as its Article 1(2) determines that: "This Directive applies to the award of works or services concessions, to economic operators by: (a) Contracting authorities; or (b) Contracting entities, provided that the works or services are intended for the pursuit of one of the activities referred to in Annex II".

 

However, that is not the end of the story, as Articles 6 and 7 define contracting authorities and contracting entities respectively and create an unnecessary split of the category of contracting authorities that I find unnecessary. The following is a draft comment on Article 6 of the Concessions Directive on which I am working and, as it will probably be evident, this keeps me quite confused...

 

On Article 6

6. Contracting authorities

01. With the exception of the excluded contracting authorities mentioned at the end of paragraph 1, this provision is identical to the Public Sector Directive Article 2(1) subparagraphs 1 and 4 and Article 2(2). For a commentary, see those provisions.

 

6.1. Excluded contracting authorities, which become contracting entities

01. One of the elements of the definition of the personal scope of application of the Concessions Directive with which it is difficult to come to terms is the treatment of certain contracting authorities (as per their classic definition in the Public Sector Directive) as contracting entities. More specifically, the exclusion is triggered when entities that would otherwise be contracting authorities engage in activities listed in Annex II (ie utilities activities except those related to water, see Article 12 and commentary to Article 1) and award a concession for the pursuit of one of those activities. The exclusion refers to the treatment of those ‘contracting authorities’ (by nature) as ‘contracting entities’ (by reason of their activity) under Article 7, which comes to mean that the carrying out of one of the activities in Annex II by means of a concession will only be subjected to the regime applicable to contracting entities, whereas the carrying out of any other concession-related activity (unless excluded from the Directive or subjected to a special regime) will be subjected to the rules applicable to contracting authorities. In case the contracting authority/contracting entity carries out both types of activities and awards a concession that covers both types of activities, the rules to determine the applicable legal regime will be those in Article 22 and, generally, will imply that the concession is subject to the rules applicable to the activity for which it is principally intended [Article 22(2)]. However, if it is objectively impossible to determine for which activity the contract is principally intended, the obscure provision in Article 22(3)(a) of the Concessions Directive will be applicable, which indicates that “the concession shall be awarded in accordance with the provisions of this Directive applicable to concessions awarded by contracting authorities, if one of the activities for which the contract is intended is subject to the provisions of this Directive applicable to concessions awarded by contracting authorities and the other is subject to the provisions of this Directive applicable to concessions awarded by contracting entities”. Hence, in case of significant difficulty (rectius, objective impossibility) in determining the applicable legal regime, the one corresponding to contracting authorities will be preferred.

02. However, the exclusion in Article 6 and inclusion in Article 7 are superfluous in connection with most of the specific obligations and duties regulated in the Concessions Directive, which establishes a regime that is fundamentally homogeneous to concessions awarded by contracting authorities and those awarded by contracting entities. At least in the case of contracting authorities ‘by nature’, the justification for the creation of the dual legal regime on the basis of the activity they pursue is difficult to understand and is likely to have a very limited effect in practice that can hardly justify the complexity it brings about (think exclusively of the convoluted drafting that the Concessions Directive has adopted in order to accommodate such minimal nuances). Indeed, comparing both regimes, it is only possible to identify a very limited number of discrepancies in legal regime (which are almost exclusively concerned with the potential exclusions of coverage from the directive) and primarily include the following rules:

·        Recital 66: only mentions contracting authorities when it indicates the possibility of including social requirements that directly characterise the product or service affected by a concession in the technical specifications. However, the omission of contracting entities seems to be an error, as there is no reason to prevent contracting entities from doing so, as long as they comply with the requirements imposed in the case law of the ECJ.

·         Article 10(1): covering an exclusion for concessions awarded to a contracting authority on the basis of an exclusive right, although the exclusion is extended to a contracting entity as referred to in point (a) of Article 7(1), which effectively nullifies the different in treatment for these purposes.

·         Article 11: covering a specific exclusion in the field of electronic communications whereby the Concessions Directive shall not apply to concessions for the principal purpose of permitting the contracting authorities to provide or exploit public communications networks, or to provide to the public one or more electronic communications services. However, the restriction of this exclusion to contracting authorities may have very limited effects in view of the alternative exclusion available for contracting entities when their activities are subject to competition (Article 16 below), given that most electronic communications exploited commercially are actually exposed to competition as a requirement of sectorial regulation.

·         Articles 13 and 14, and Article 17, which set out different rules for (quasi) in-house exclusions depending on whether they relate to contracting authorities or contracting entities. However, the functional requirements are rather similar, so there is no significant difference in the rules allowing for the award of concessions without compliance with competitive tendering requirements (effective control, 80% of turnover generated in the in-house sphere, etc; see commentary below).

·         Article 15, which creates an additional duty of information on contracting entities in favour of the Commission in case certain exclusions under Articles 13 and 14 apply.

·         Article 16: which restricts the exclusion available for activities directly exposed to competition to contracting entities—and that, in any case, would be very difficult to apply to contracting authorities because they do not tend to participate directly in the provision of services subjected to effective competition.

·         Article 23: on concessions including activities subjected to diverse legal regimes and that set out a preference for the regime applicable to contracting authorities over the one applicable to contracting entities as a residual rule.

·         Article 38(4) in fine: which sets higher evidentiary standards for contracting entities that are not (improper) contracting authorities wishing to exclude from participation any economic operators affected by the grounds of mandatory exclusion foreseen in Article 38(4) of the Concessions Directive (see that provision for commentary). This also applies to other aspects of Article 38, where the degree of compliance with rules on mandatory or discretionary compliance can be modulated differently by Member States depending on whether the concession is awarded by a contracting authority (or an improper contracting entity) or by a (proper) contracting entity. However, given the discretion left to Member States in this area, it is hard to foresee whether this will generate any meaningful differences in practice.

03. Moreover, the inclusion of contracting authorities as contracting entities by virtue of the activities in which they engage creates significant difficulty in the treatment of contracting entities in the Concessions Directive, as some provisions are addressed to all contracting entities and others are only addressed to ‘proper’ contracting entities (ie those that are not contracting authorities ‘by nature’) which forces the drafting to resort to convoluted expressions such as “contracting authorities and contracting entities as referred to in point (a) of Article 7(1)” or “contracting entities other than those referred to in point (a) of Article 7(1)”. Indeed, in most cases where there is any meaningful difference, contracting entities as referred to in point (a) of Article 7(1) receive the same legal treatment as contracting authorities under Article 6 (which seems like the logical thing to do). All in all, then, given the (very) minor differences in legal regime (which are almost non-existent other than in terms of coverage of the directive), a much more simplified regime for contracting authorities would definitely have been preferable.

* * * * *   More than ever, I wish that the 'Sanity clause' scene of the Marx Bros' A Night at the Opera was just a figment of a crazy imagination...

The elusiveness of academic integrity and its value: some musings against any relaxation of standards

One of the most complicated and elusive elements in the day to day of a professional academic have to do with some form of academic integrity and, particularly, with the keeping of academic standards. This is a fundamental part of our role in two main dimensions: peer review and student assessment.

In the peer review area, this relates to editorial functions (such as the blind review of manuscripts before publication in academic journals, or the publication of book reviews) as well as to the active participation in research debates (such as conferences, seminars or, these days, twitter and blog platforms).

In student assessment, the array of activities is even broader, from marking (and second marking) of undergraduate work, to external examining in other institutions, to supervision of postgraduate students and, maybe with the highest significance, the examination of PhD theses. The indivisible connection between assessment and academic standards can hardly be overstated (see The Quality Assurance Agency for Higher Education's position here).

 

In my view and (still limited) experience, all these processes feed into each other and the only sensible strategy for a professional academic concerned with academic integrity and the keeping of academic standards (which are the only value that universities should really protect above any other) is to try to remain actively involved in both dimensions (ie peer review and assessment) and to resist the permanent pressures to lower standards here and there. It may sound slightly self-important, but I think that professional academic need to perceive ourselfs as a gatekeepers and resist calls to open the doors too often or too easily.

 

 

It is also very important for us, as a community, to be able to communicate to society that this is the core, most fundamental function that we develop and the most significant value we add in return for the (always too limited, always too insecure) funding of our activities. Hence, when there are debates about the purpose and function of higher education institutions and their (core) employees, we should always make sure to stress that we uphold academic integrity and enforce academic standards. It may sound too vague, but this is the most important function we can possibly perform. And it is also the most distinctive.

 

Otherwise, if we fail to keep academic integrity, the ensuing dillution of academic standards will end up resulting in a scenario where academic qualifications are completely irrelevant because they no longer tell anyone how much of an expert somebody is, or how qualified to develop activities in a field that requires scientific knowledge. It will also be impossible to distinguish one university from another on the basis of any valuable merits-based metric and, in the end, academic excellency will fade away.

 

Of course, keeping academic integrity is difficult to do and usually comes (sooner or later) at a personal cost. Nobody likes to tell someone else that their work/research is not up to the applicable standard and we all tend to get upset when we hear it. Nobody likes rejection or failure. However, professional academics need to be able to swallow that bitter pill every now and then, and make sure that standards are kept despite colleagues, peers or students getting upset or frustrated. Hopefully, their (academic) maturity will make those feelings go away and the objectiveness of the academic assessment will be recognised sooner or later.

 

In this time of the year, with so many assessments going on and so many pressures coming from rakings based on student satisfaction as yesterday's Guardian 2015 University Guide tables, it is worth reminding ourselves of the value and long-term relevance of what we do. We cannot always please everyone if that means that academic integrity is jeopardised. And, most importantly, we must not do it. If we sacrifice academic standards in the altar of satisfaction, the importance and long-term viability of higher education institutions will be doomed. Clearly, a bitter pill to swallow.

 

http://youtu.be/7S94ohyErSw

Why are NHS Commissioners 'undertakings' and, consequently, subject to competition law?

Some months ago, I held an interesting email exchange with some readers of my paper New Rules For Health Care Procurement in the UK. A Critical Assessment from the Perspective of EU Economic Law. They basically challenged my understanding of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 on the basis that NHS Commissioners could not be considered undertakings and, hence, their decisions should remain outside the scope of application of competition rules.

 

However, I thought and still think that NHS Commissioners are 'undertakings' for the purposes of (EU) competition law enforcement. These are the main reasons why I think so (apologies to non-competition law readers for the amount of 'slang' in this post, which reproduces parts of the email exchange.

 

* * * * *

 

Regarding the treatment of NHS commissioners as undertakings, I think that the FENIN/Selex exemption is inapplicable and probably I should have made this clear in my paper (I simply assumed that this would not be controversial). As you probably know better that myself, the reason for that is basically that (most) GPs are engaged in economic activity as self-employed providers of services to the NHS (http://www.nhscareers.nhs.uk/explore-by-career/doctors/pay-for-doctors/) under the so-called General Medical Services Contract (http://www.nhsemployers.org/PayAndContracts/GeneralMedicalServicesContract/Pages/Contract.aspx). Indeed, they hold contracts for the provision of those services and, consequently, everything that they procure or commission needs to be assessed in light of such ‘downstream’ or parallel economic activity (which, in my view, immediately deactivates the FENIN/Selex exemption). Moreover, GPs located in a given area are in competition between themselves in order to attract patients and retain them, and that has an impact on their level of remuneration by the NHS. All this indicates that they do engage in economic activity ‘downstream’ or in parallel to the services and goods that they commission and purchase in their public procurement (‘upstream’?) activities. That is enough to justify the direct applicability of competition law (EU and domestic) to their activities.

In my view, this conclusion is robust even if those services are generally not directly paid for by the end users in most of the cases, since that should not affect either: 1) their inclusion within the scope of application of EU internal market law (C-372/04 Watts, dealing particularly with the NHS, although with hospital care provision), or 2) the fact that GPs are undertakings, as the requirement of provision of services in the market for remuneration does not require direct payments; under the classic formulation of the concept of an undertaking, it encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed. So, I guess that the largest point of disagreement between us is that you may consider that GPs (individually or collectively as part of a Clinical Commissioning Group, CCG) are not engaged in economic activity. However, as self-employed providers of services, I think that that assessment would not be in line with the generally functional approach to the concept of undertaking and that it is not covered by the FENIN/Selex case law. I do not think that GPs would be covered by the ‘social’ exclusion for systems based on solidarity either, given that the system in the UK promotes choice and competition and, by itself, that goes against the requirements of mandatory participation that the CJEU has included in its sickness funds-relate case law.

Finally, I also think that there would be a possibility of circumventing any possible exclusion of the (direct) applicability of the rules to the GPs and CCGs as undertakings (or groupings/associations of undertakings) via a State action doctrine approach (basically, on the basis of Cipolla) given that the UK as a State has delegated economic decisions on a type of organs (CCGs) that are in a structural (mild?) conflict of interest when they adopt commissioning (economic) decisions and, consequently, liability (of the UK) could be found on the basis of Art 4(3) + 101 TFEU. That would clearly justify the consideration and application of EU competition rules by Monitor as the ultimate watchdog in charge of ensuring compliance with (EU and UK) competition rules—as it is indeed co-competent with the new CMA in the healthcare sector. Again, you may consider this a weak legal basis, but I would disagree with that.

An Opportunity for a 21st Century Spanish Republic? The King has abdicated, long live the Republic!

Today's news that King Juan Carlos I is stepping down and abdicating the Spanish Crown in compliance with Art 57.5 of the Spanish Constitution is bound to prompt significant speculation about the future of Spain as a State.

With all (regional) nationalist tensions on the rise and a massive loss of support of the royal family in recent years, it should come as no surprise that many Spaniards would like to have a referendum on the basic structure of the State. I am certainly one of them.

 

In my view, only a Republic can seriously ensure that we are all equal under the law (in the Spanish case, this would suppress the aberration in Art 56.3 of the Constitution, whereby "The person of the King is inviolable and shall not be held accountable"). In the 21st Century, this simply makes no sense and undermines the basic principle of equality (recognised in Art 14 of the Spanish Constitution). As put in a rather extreme and poetic manner by Diderot, “Men will never be free until the last king is strangled with the entrails of the last priest.” This remains true, particularly in Spain. But there is a pacific way out now.

 

Moreover, a referedum on the structure of the State would most certainly allow for a deep discussion of the internal organization of the Spanish State and strengthen the importance of its belonging to the European Union (two points not addressed in the current Constitution: the first one, due to the delicate balances that were necessary to overcome the dictatorship and, the second one, due to a lack of maturity of the political system when Spain joined the EU). Most internal unbalances could be settled and the structure of the State could be adapted to the needs of the 21st Century, with much more local devolution, a streamlined and simplified federal government, and a clarification of the regional inclusion in the European puzzle.

 

Some will say that Spain is not ready for such type of debate and that it would only bring a risk of fracture of the State. If they manage to persuade the citizenship that continuying in the status quo and welcoming Felipe VI is the adequate way forward, then Spain will have a King it will deserve... but this will mean that Spanish society keeps rooted in a value base that does not really encompass modernity and is definitely not in sink with the advanced country it aims to be.  However, I hope this will not be the case and that there will be debate, a referedum, and a significant reform of the State. The King has abdicated, long live the Republic!

A new European Dynamics challenge rejected: let's focus on admissibility of claims (T-553/11)

In its Judgment of 23 May 2014 in case T-553/11 European Dynamics Luxembourg v ECB, the General Court (GC) has ruled on yet another challenge filed by European Dynamics (ED) against procurement decisions of the EU Institutions and, in this case, the European Central Bank (for previous episodes in the appeals saga, see here).

In this case, the legal framework applicable to the procurement is basically contained in Decision ECB/2007/5 of the ECB of 3 July 2007 laying down the rules on procurement. However, the issues discussed are fundamentally common to those under the EU procurement Directives, which makes the case generally relevant.

 

Generally, the challenges brought by ED concern the duty to state reasons and potential abuses of power by the contracting authorities and, with some small differences based on the specific content of the procurement decision appealed, they tend to be subjected to exactly the same legal tests (which tend to result in the dismissal of their appeals). In my view, this case is not materially different from the previous ones as those issues are concerned.

 

However, there is an element in this saga of cases that is often overlooked because it is purely procedural, which relates to the admissibility of the challenges themselves (as, oftentimes, ED is rather 'non-selective' or not sufficiently precise in the identification of the procurement decision subjected to appeal). In that regard, the Judgment in T-553/11 is interesting (?) in that it assesses two points: a) the admissibility of (independent) challenges against confirmatory decisions in internal appeal procedures, and b) the admissibility of claims requesting the annulment of all decisions related to the 'core' procurement decision subject to challenge.

 

(Independent) appeals against internal review confirmatory decisions In the first part of the Judgment, the GC engages in a rather lengthy discussion on the admissibility of a challenge against both the initial decision not to invite ED (as leading undertaking in a grouping) to submit an offer in a negotiated procedure and the subsequent decision of the procurement review body (PRB) to dismiss the internal appeal and confirm the initial decision. The GC clearly indicates that those are two separate decisions and that both are open to challenge. However, it immediately stresses that:

there is no need to specifically examine the legality of the decision of [the PRB], but [...] it is appropriate to conduct a review of the legality of the rejection of the consortium’s application taking into account all the reasons relied on during the procedure, bearing in mind that in public procurement, the obligation to state reasons pertaining to a decision may be fulfilled in several stages (see, to that effect and by analogy, Case T‑50/05 Evropaïki Dynamiki v Commission [2010] ECR II‑1071, paragraph 133 and the case-law cited, and judgment of 22 May 2012 in Case T‑6/10 Sviluppo Globale v Commission, not published in the ECR, paragraph 29), and must be assessed in the light of information available to the applicant at the time of bringing the action (Case T‑183/00 Strabag Benelux v Council [2003] ECR II‑135, paragraph 58, and Case T‑4/01 Renco v Council [2003] ECR II‑171, paragraph 96) (T-553/11 at para 49, emphasis added).

Both parts of the reasoning on admissibility seem functionally contradictory, given that the individualisation or distinction between the decisions should make them amenable to different grounds for a challenge. However, the 'holistic' approach adopted by the GC comes to institute de facto a full review of the (content) of all decisions involved in a procurement process prior to the application for judicial review. 

 

Hence, the valuable message derived from this lengthy discussion is, in my view, that regardless of the number of formal decisions adopted in a procurement procedure and the possibility to challenge them separately, the reviewing court must take the content of all of them (ie the full procurement file, at least as regards that candidate or tenderer) into account when a challenge is actioned against a decision adopted at any stage of the process. However, this may not be particularly new and should not have been controversial, as it seems to derive rather plainly from the power to conduct full reviews of the findings in fact and in law in which a procurement decision is based.

 

Appeals against 'all decisions related' to the main challenged decisionIn my opinion, this discussion is very formalistic and, to a certain extent, unnecessary. It revolves around whether the claimant submits a valid challenge if it requests the annulment of 'all decisions related' to the main procurement decision object of the appeal. The argument against the admissibility of such (secondary) claim is that it is inespecific and, consequently, does not meet the requirements of precision that are common to most judicial review systems. In the reasoning of the GC

54 Heads of claim [...] that seek the annulment of acts related to challenged acts which are not identified must be declared inadmissible as a result of the lack of precision of their subject-matter (see, to that effect, order in Case T‑166/98 Cantina sociale di Dolianova and Others v Commission [2004] ECR II‑3991, paragraph 79).

55 That finding is not undermined by the fact that it has been held, first, that the identification of the contested act could be implicitly inferred from the indications contained in the application and from the argument therein as a whole and, secondly, that an action formally brought against an act that is part of a series of acts forming a whole could be regarded as directed also, so far as necessary, against the others (order in Case T‑320/09 Planet v Commission [2011] ECR II‑1673, paragraph 23). Indeed, such a deduction is impossible specifically when the arguments contained in the application manifestly lack clarity and precision (order in Case T‑64/96 Jorio v Council [1997] ECR II‑127, paragraph 35), as is the case in the present case (T-553/11 at paras 54-55, emphasis added).

Hence, in the case at hand, the GC dismisses the claim for annulment of  'all related decisions of the ECB'. However, materially, this may not have any effect on the final outcome of the process if the appeal is upheld. In this regard, it must be taken into consideration that, (possibly) differently from other areas of (contract) law, the remedies against the illegal conclusion of a public contract may or may not involve the annulment of the contract depending on the grounds on which the illegality is founded, and irrespective of the specific claims brought forward by the applicant.

 

In the specific case of the review of EU institutional procurement, this discussion may have some purpose, as Article 263 TFEU  does not expressly regulate the remedies available. However, more generally, outside the scope of the review of the procurement decisions of the EU Institutions, the Remedies Directive allows Member States to restrict the ineffectiveness (ie voidability?) of public contracts to certain very grave cases (see art 2d) so, other than in those cases (where ineffectiveness must be declared, even if it was not expressly required by the appellant, as a matter of direct effect and supremacy of the Remedies Directive itself), the ineffectiveness of those decisions may be barred by domestic rules, regardless of the content of the action exercised by the appellant.

 

In my view, given the possibility for Member States to balance public and private interests in their domestic rules concerned with the effectiveness of illegally awarded public contracts, in public procurement litigation, the annulment of 'all related decisions' or their preservation (with a consequent indemnification of damages and, if applicable, the imposition of fines) is a matter of determination of the adequate remedy by the review court and, consequently, the discussion on the admissibility of this head of claim remains fundamentally superfluous.

Parody and the protection of fundamental rights under EU law: No laughing matter? (C-201/13)

In his Opinion of 22 May 2014 in case C-201/13 Deckmyn and Vrijheidsfonds (once again, not available in English), AG Cruz Villalon has assessed the concept of 'parody' under Art 5(3)(k) of Directive 2001/29/CE on the harmonisation of certain aspects of copyright and related rights in the information society (Copyright Directive). 

The Opinion is interesting because it concerns the degree to which fundamental rights' protection needs to be taken into consideration (as a matter of EU law) when making the relevant determination of the extension of the 'parodic' exception to copyright in a civil procedure. 

This is one of the myriad of cases in which the Court of Justice of the EU (CJEU) will soon be concerned with the EU Charter of Fundamental Rights and, consequently, the proposals on the integration/coordination of these issues that the AG puts forward may be interesting beyond the scope of application of the Copyright Directive.

In the case at hand, a political party used a parody of a comic to criticise the then mayor of Ghent (Belgium). In the parodied copy, the name of the original author (Vandersteen) was included, with a reference that indicated that the current version was a "free adaptation" of the original work made by a second author (Fre) -- both designs are reproduced below, as they appear on AG Cruz Villalon's Opinion (original on the right).

 

The controversy basically derived from the fact that the parody had a discriminatory or racist content and, consequently, the heirs of the original author and the companies that currently hold the rights to the exploitation of his works tried to prevent such a use of Vandersteen's comic. The claim was technically framed as a challenge to the proper use of the materials as a parody, given that it was not the original work that was being parodied, but Ghent's mayor of the time. According to the claimants, that use would not be covered by the exception under Art 5(3)(k) of Directive 2001/29/CE.

AG Cruz Villalon, anticipating potential criticisms to his Opinion on the interpretation of the concept of parody, establishes important limitations to the scope of his arguments, where he makes clear that they do not include any elements regarding the moral rights of the author, the "three-step" test that Art 5(5) of the Copyright Directive establishes as a balancing requirement between the exceptions therein regulated and the protected rights, or the caveat that Belgian law introduced to the fact that parody is only acceptable provided it is conducted "in observance of good manners".

After confirming that, in his view, the concept of 'parody' (for the purposes of the Copyright Directive) is an autonomous concept of EU Law (paras 32-39), the AG goes on to consider that "Parody is [...] structurally, 'imitation' and, functionally, 'burlesque'" (or mocking, para 48, own translation from Spanish), and provides a significant amount of details as to his interpretation of both these structural (paras 49-58) and functional (paras 59-70) requirements. In my view, the most interesting part of his Opinion concerns paras 71-88, where he engages in a discussion on the incidence of the protection of fundamental rights on the (acceptable) content of the parody. The difficult question to be answered is, basically, "To what extent can the interpretation of the scope of the exception for parody given by the civil judge be determined by the protection of fundamental rights?" (para 76, own translation from Spanish).

The AG approaches the issue both as a matter of principle and introducing an exception. As a matter of principle, the AG submits that "always under the assumption that parody effectively meets the requirements already mentioned, an interpretation of the notion of parody by the civil court should, as a matter of principle, favor the exercise of freedom of expression through this unique medium" (para 81, own translation from Spanish). However, given that freedom of expression is never unlimited, 

Considering the "presence" to be recognized to fundamental rights in the legal system as a whole, I understand that, in principle and from the narrow perspective of the concept of parody, a certain image cannot be excluded from this notion for the simple fact that the message is not shared by the author of the original work, or by the rejection that it may deserve from much of the public. Still, those deformations of the original work that, in the form or substance, convey a message radically contrary to the deepest convictions of society, and in which the European public space is ultimately built, and ultimately exists, should not be accepted as a parody, and the authors of the parodied work are entitled to enforce that restriction as well (para 85, own translation from Spanish, emphasis added).

Nonetheless, the final test proposed by the AG is rather mild and, in my view, is unnecessarily inconclusive, as he proposes the CJEU to find that "When interpreting the term 'parody', the civil court must be guided by the fundamental rights proclaimed in the Charter of Fundamental Rights of the European Union and proceed to the necessary balancing between those rights when the circumstances of the case at hand require".

I consider that the (self)restraint that AG Cruz Villalon shows in the final part of his Opinion in Deckmyn and Vrijheidsfonds is a clear indicator of the pusillanimous approach that we can expect the CJEU to adopt in cases like this one. Given that the concept of parody is a concept of EU law (for the purposed of the Copyright Directive, anyway) and that the CJEU holds the ultimate competence for the interpretation of the EU Charter [as coordinated with the European Convention on Human Rights and the case law of the European Court of Human Rights per art 52(3) EUCFR] the AG could have been more aggressive.

In my view, the AG should have clearly proposed that the CJEU interpreted that the concept of parody does not include 'those deformations of the original work that, in the form or substance, convey a message radically contrary to the deepest convictions of society' and, in particular, those that are racist, xenophobic or, in any other way, attempt against cultural, religious and linguistic diversity as protected in Article 22 of the EU Charter. Such a finding would still require the domestic courts of the Member States to determine whether, on the basis of the facts and circumstances of a given case, the intended parody is or not covered by the EU concept. However, the message would be much stronger and the CJEU would be effectively acting as a constitutional court for Europe, at least as the protection of the rights recognised in the EU Charter is concerned.

On the contrary, by deferring all judgment and providing no clear indication as to the way the balance is likely to tilt, the AG (and the CJEU if they follow the 'soft, self-restrained' approach in Deckmyn and Vrijheidsfonds) would once more be refusing to exercise their function as a constitutional court and, in my view, would indicate that all the fuss and complicated negotiations of the (prior involvement mechanism in order to authorise) accession of the EU to the European Convention of Human Rights would have been unnecessary and superficial, given their lack of commitment to a substantive and effective enforcement of the necessary protections of fundamental rights in the EU (for a critical assessment of the process and mechanisms involved in the accession, see the various contributions to Tzevelekos et al, The EU Accession to the ECHR).

From this perspective, I will be eagerly awaiting the CJEU's final ruling in Deckmyn and Vrijheidsfonds, although I must say that I do not hold high expectations and I would bet that they will follow the approach suggested by the AG (maybe including one or two 'strong' obiter dicta but) refusing to provide a clear indication of the way the balance of fundamental rights should tilt. 

Let's hope the wait is over soon.

The "new" principle of competition in Directive 2014/24: a new set of presumptions?

The adoption of Directive 2014/24 of 26 February 2014 has resulted in the consolidation of the principle of competition in Article 18. According to the wording of this provision: "The design of the procurement shall not be made with the intention 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".

 

In my opinion, despite the positive aspects of the express recognition of the principle of competition in the new EU Directive, the inclusion of a subjective element and the reference to the prevention of corruption or the avoidance of conflicts of interest by establishing an irrebuttable presumption of competitive distorsion, raise many questions that are difficult to answer that may give rise to more litigation. In this post, I venture some further thoughts on this "new" principle of competition in Directive 2014/24 (for an initial reaction, see here; please bear in mind that this is a translation of a contribution to http://www.obcp.es/ soon to be published in Spanish, which justifies (?) the references to Spanish domestic law).

 

Explicit recognition of the principle of competition

 

Importantly, and unlike in Spanish national legislation on public procurement (art 1 of RDL 3/2011, of 14 November, approving the consolidated text of the Law on Public Sector Contracts: "This law aims to regulate public sector procurement in order to [...] ensure [...] an efficient use of funds [...] by [...] safeguarding free competition"); so far, the principle of competition in public procurement was only reflected somewhat partially and in a fractionated manner at EU law level, by means of both Directive2004/18 (and earlier versions of the procurement Directives that it consolidated) and the interpretative case law of the Court of Justice of the EU (CJEU) in cases such as Fracasso and Leitschutz (C-27/98, para 31 . "to meet the objective of developing effective competition in the area of public contracts"), Lombardini and Mantovani (C-285/99, para 76: "all the requirements imposed by Community law must unquestionably be complied with in the context of the various aspects of the national procedures for awarding public works contracts, which must moreover be applied in such a manner as to ensure compliance with the principles of free competition") and SECAP (Opinion of AG in C-147/06, para 29 "those directives pursue a limited direct aim, namely the coordination of procedures governed by the sectoral directives with a view to encouraging the development of effective competition in the field of public contracts", as endorsed by the CJEU in the Judgment in C-147/96, para 29: "assess tenders which are submitted to them under conditions of effective competition").

 

Additionally, the contours of the principle of competition were somewhat fuzzy and required a considerable interpretive effort to delineate the obligations derived therefrom (for further details, see A Sanchez Graells, "Competition and the Public Buyer Towards a More Competition - Oriented Procurement: The Principle of Competition Embedded in EC PublicProcurement Directives"). From this perspective, the explicit recognition of the principle of competition in the new EU directive is to be welcomed. However, the explicit formulation adopts the policy is problematic for at least two reasons.

 

Inclusion of a very problematic subjective element: can we "objectify" it?

As we have seen, Article 18 of Directive 2014/24 provides a formulation of the principle of competition in which the subjective or intentional element of any restriction of competition is emphasized: "The design of the procurement shall not be made with the intention of […] artificially narrowing competition" (emphasis added). This intentional element is common to different language versions of the Directive ("intención" in Spanish, "intention" in French, "intento" in Italian, "intuito" in Portuguese or "Absicht" in German), so it cannot be justified as a deficiency in translation or an error in the wording of the provision. However, the recitals of the directive do not provide any clarification and, ultimately, this provision opens the door to complex problems of identification and attribution of intentional elements in the field of public procurement—or, more generally, in administrative (economic) law.

In my opinion, this task is very complex, as it requires establishing the parameters by which a decision that often involves various individuals (and potentially several administrative bodies) is considered affected by an underpinning anticompetitive intent. In fact, I think that this task is virtually impossible, given that the traditional mechanisms of allocation of subjective factors in (administrative) disciplinary or criminal law are not applicable and very clearly require an "objectifying" reinterpretation of the intentional element in the provision.

The reasons for the "objectification" of the wording of Article 18 of Directive 2014/24 are multiple and derived mainly from the need for coordination of this new rule with some of its "functional neighbours". Firstly, such coordination should take into account the objective character of the restrictions of competition derived from the rules of the Treaty on the Functioning of the EU (TFEU) and its interpretation by the CJEU. Indeed, the prohibitions in Articles 101 and 102 TFEU (and their national counterparts, such as in Articles 1 and 2 of the Spanish Law 15/ 2007 of 3 July, on the defence of competition) apply in abstraction from any volitional element of the offending parties. A competitive restriction in the market automatically results in a violation of those prohibitive norms, irrespective of the intention with which market players have conducted the practice restrictive of competition.

 

Secondly, and in a more subtle but functionally relevant relationship, the objectification of the competition principle standard must be coordinated with the criminal law rules applicable to the criminal liability of legal entities—which establish (at least in Spain) a clearly objective and independent regime, disconnected from any subjective element of the specific individuals who have committed crimes or offences whose responsibility extends to legal persons (see Article 31bis.3 of the Spanish Criminal Code, as introduced by LO 5/2010, of June 22, amending the Organic Law 10/1995 of 23 November, on the Criminal Code).

Therefore, the objectification of Article 18 of Directive 2014/24 seems the most appropriate functional solution—but, acknowledgedly, it can be seen as lying somewhat far away from a literal interpretation of the provision. Broadly speaking, in my opinion, this objectification of the principle should be carried out by establishing a rebuttable presumption of restrictive intent in cases where, in fact, the tendering procedure has been designed in a manner that is restrictive of competition.

The disproval of this rebuttable presumption would require the contracting authority or entity to justify the existence of objective, legitimate and proportionate reasons for the adoption of the criteria restrictive of competition (ie, to provide a plausible justification for the imposition of restrictive conditions of competition in tendering the contract, so as to exclude the plain and simple explanation that it was intended to restrict competition therewith). In other words, if it could be justified that a "reasonable and disinterested contracting entity" (meaning free from any intent to restrict competition) would have taken the same decision on the design of the tender in a form restrictive of competition, the presumption of restrictive intent would not be applicable and, ultimately, the tender would be compliant with Article 18 of Directive 2014/24. Obviously, this test requires further development (and I will devote some time to developing a more refined proposal in the coming months).

 

Linking distortions of competition and favouritism or corruption: a bidirectional and biunivocal relationship?

 

The second problematic aspect in the wording of Article 18 of Directive 2014/24 is, in my opinion, the establishment of a iuris et de iure presumption of competitive distortion in: "Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly (sic) favouring or disadvantaging certain economic operators".

 

This assumption raises a potential problem of (logical) "capture" of the interpreters of this rule, as they may be tempted to consider that in the absence of (undue!) favouritism or corruption, no restrictions on competition are contrary to the precept—that is, they can be inclined to decide not to apply the "residual" part of the prohibition and limit it exclusively to cases covered by the presumption. Additionally, while it is true that most cases of favouritism or corruption will result in a restriction of competition, this is not always necessarily the case. For example, in cases where the beneficiary of favouritism could be awarded the contract under competitive conditions, or in cases in which corrupt practices are added to previous restrictions of competition created by the bidders active in the market; it could be argued that there is no (independent) restriction competition and, therefore, that the presumption is unnecessary or unjustified.

In any case, the instances of favouritism included in the irrebuttable presumption would (also) be covered by the new rules relating to conflicts of interest envisaged in Article 24 of Directive 2014/24: "Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators", and can even fit into one of the headings of mandatory exclusion of Article 57(1)(b) for corruption, as supplemented by the obligation to terminate the contract under Article 73(b).

Therefore, the establishment of the presumption of anticompetitive intent in cases of favouritism or discrimination is, in my opinion, unnecessary and may be counterproductive. Ultimately, I think that it will be necessary for the bodies responsible for the implementation of these provisions to clearly distinguish instances of corruption from those of (simple) restriction of competition and, in the latter scenario, apply the first part of the principle of competition in an "objectified" manner, as advocated above.

Conclusion

The consolidation of the principle of competition in Article 18 of Directive 2014/24 should be welcomed, but its wording requires two major adjustments designed to ensure functionality. On the one hand, it is necessary to objectify the interpretation and application of the provision and, in my opinion, this should be done by establishing a rebuttable presumption of competition restrictive intent. Moreover, the irrebuttable presumption of restriction of competition in cases of favouritism or corruption should be interpreted as not being exhaustive and should not prevent the widespread application of the (not necessarily residual) general test of competitive restraint in the absence of (clear) discrimination.

In any case, it should come as no surprise if the new Article 18 of Directive 2014/24 gives rise to a significant level of litigation.