Friday, 26 September 2014

Neighbouring the Uber conflicts: AG Wahl's Opinion on London's bus/taxi lanes as State aid (C-518/13)

The attention raised by recent complaints and strikes against Uber's intended revolution of the local ground transportation system in big cities has put the taxi sector on the spotlight. This is a sector where competition rules have always been difficult to enforce due to the heavy regulation to which it is subjected. Some claim that it is a sector ripe for proper deregulation and liberalisation. Others claim the opposite [for recent discussion, see L Eskenazi, 'The French Taxi Case: Where Competition Meets—and Overrides—Regulation' (2014) Journal of European Competition Law & Practice].
 
In the middle of this turmoil, there is now a new dimension to consider: whether any of the rules concerned with the taxi activities amount to State aid. With this background in mind, it is interesting to consider AG Wahl's Opinion in Eventech, C-518/13, EU:C:2014:2239, where the CJEU has been asked by the UK's Court of Appeal (England and Wales)
whether a contested London bus lane policy adopted by Transport for London comes within the concept of ‘aid’ under Article 107(1) TFEU. Under that policy, only black cabs (that is to say, London taxis) are allowed, during certain periods of the day, to use the lane reserved for public buses on public roads, to the exclusion of private hire vehicles (PHVs).
Given that this is a very common rule in many large cities (in Europe, and elsewhere), depending on the answer, the case is bound to create a new wave of shock in the taxi sector. Indeed, as AG Wahl consciously stresses, 'taxis and PHVs are engaged in fierce competition with each other across Europe, and London is not the only city where conflicts have arisen'. In my view, there are several points of AG Wahl's Eventech Opinion worth stressing.
 
(1) Firstly, even if it is probably common knowledge, AG Wahl stresses the fact that black cabs hold a partial monopoly on the provision of taxi services in the UK, which creates an assymetrical access to the market between them and PHVs. Indeed, 'black cabs have a partial legal monopoly. They alone may ‘ply for hire’, that is to say, be picked up at a cab rank or be hailed from the street. However, both black cabs and PHVs may provide their services in respect of pre-booked journeys. As to the extent to which black cabs operate on the market for pre-bookings, according to evidence submitted to the High Court of Justice, a 2009 survey showed that 8 % of black cab journeys were pre-booked' (para 19).
 
However, it is unclear how this can be relevant for the assessment from a State aid perspective (given the fact that everyone accepts that the 'bus lane' policy has a distortive effect on competition, see para 18), if not to tilt it towards a finding against the existence of State aid on the basis of a lack of selectivity based on the different 'legal standing' of both types of taxi undertakings. In my view, this is an important logic trap in AG Wahl's Opinion.
 
(2) Secondly, AG Wahl engages in a rather counterintuitive approach to the issue of the transfer of State resources. The AG decides to assess the question from the perspective of the regulatory powers of the Member State and fundamentally concludes that in the exercise of those regulatory powers, there is no obligation to impose a charge for access to public infrastructure (paras 24-35). However, in my view, this is a faulty approach for two reasons.
 
(a) Specifically, because the 'economic' argument that AG Wahl develops is truly unfocussed. Indeed, he considers that
If, for the sake of argument, the State aid rules were interpreted as generally requiring Member States to charge for access to public infrastructure or State-controlled resources, this might deter States from creating or opening up areas to which there has previously been no, or only limited access (sic). Equally, it might deter undertakings from participating in that process. For example, in the matter under consideration, if black cabs were required to pay for access to bus lanes, that might deter certain of them from requesting access, which might result in access being given only to the economically most resourceful, thus defeating the purpose of the policy (para 30, emphasis added).
The argument is not fully developed or particularly clear, but it goes against a consideration of economic efficiency (why wouldn't we generally prefer economically resourceful over other competitors, provided there is no predation?). More importantly, it also avoids the obvious issue that, given the limited number of black cab licences and the difficulty in obtaining one (not least, due to cost issues), a benefit is implicitly being recognised in favour of black cabs over PHVs, which can be exactly advantaging the economically most resourceful (ie, those that manage to have a black cab licence) over others. Hence, on top of the argument being economically flawed, it is also myopic and internally inconsistent.
 
(b) More generally, and perhaps more importantly, the test being applied by AG Wahl in Eventech deviates from the general test applicable under art 102 TFEU to access to essential facilities under private property. In my view, the CJEU's Judgment in IMS Health, C-418/01, EU:C:2004:257 must be taken into consideration. Importantly, under that line of case law, one of the paramount issues when assessing the withholding of access to an essential facility that results in the reserve of an activity to the owner of the facility is to consider whether there is (potential or unsatisfied) consumer demand for a service that is not being provided (or not in sufficient amounts) [see for instance, Geradin's remarks].
 
Moreover, under similar regulatory conditions (ie where there is a partial reserve of certain services but an open market for others), the CJEU's Judgment in Höfner and Elser v Macrotron, C-41/90, EU:C:1991:161 is also relevant. Here, the CJEU determined that it is unjustified to reserve the provision of a given service in favour of an undertaking (or an emanation of the State) that is unable to meet demand for that service--or, in the words of the Court, where the beneficiary of the reserved activity is 'manifestly incapable of satisfying demand prevailing on the market for such activities.'
 
In my view, the combined rationale of these lines of case law should have been taken into account in the Eventech Opinion. Given that only 8% of pre-booked taxi services are carried out by black cabs, it is plain to see that a rule that can potentially reserve to them a larger tranche of the market is bound to create problems of sufficient provision and consumer satisfaction. Moreover, at least as a matter of principle, consistency in the rules applicable to publicly and privately owned essential facilities should be pursued.
 
(3) Finally, it is clear that the whole of AG Wahl's Opinion is drafted in a way that intends to make it hinge on an assessment of 'equality' or 'comparability' of legal position between black cabs and PHVs--which basically kills the issue and passes the hot potato back to the Court of Appeal. AG Wahl makes this clear in his interim conclusion by stressing that 'I propose that the Court should answer Question 1 to the effect that, on a proper construction of Article 107(1) TFEU, where State authorities make a bus lane on a public road available to black cabs but not to PHVs during the hours of operation of that bus lane, that does not involve a transfer of ‘State resources’, provided that all comparable undertakings are granted access on equal terms, which falls to be verified by the referring court' (para 46, emphasis added). He then, at points reluctantly, goes on to sketch the conditions for that assessment of 'comparability' between black cabs and PHVs (remember the logic trap).
 
In order to delineate the framework for analysis, AG Wahl interprets (rectius, rephrases) the questions referred by the Court of Appeal and considers that it 'in reality wishes to know whether selectivity is to be assessed solely on the basis of the market on which both black cabs and PHVs compete (that is to say, the market for pre-bookings), or whether it ought to include the ‘ply for hire’ market. This is arguably a decisive issue in the case under consideration' (para 53). That is, AG Wahl restricts the issue to the relevance of the assymetrical competition between black cabs and PHVs.
 
Even if he will timidly stress the need for any differences of treatment to be justified and proportionate (paras 72-73, ie  the bus lane policy 'does not amount to ‘favouring certain undertakings’, provided that those authorities show (i) that taxis and private hire vehicles are not legally and factually comparable, owing to objective considerations relating to the safety and efficiency of the transport system, and (ii) that such a measure is suitable for achieving that objective and does not go beyond what is necessary in order to achieve it', para 74), the AG very easily accepts that 'although I consider black cabs to be comparable to PHVs on the market for pre-bookings, they are not comparable in all respects. I can therefore accept, as a matter of principle, that, on the combined relevant markets, the objective consisting in the creation of a safe and efficient transport system may mean that black cabs are not comparable to PHVs' (para 70, emphasis in the original).
 
However, in my view, this derives from a logically flawed argument that derives from the weight given to the pre-existing regulation of the taxi market. Indeed, it is worth stressing that AG Wahl accepts the lack of comparability in principle on the basis of the following:
61. [...] taxis provide a service which supplements the existing methods of public transportation and which, in some ways, can arguably be assimilated to a universal public service. At a time when methods of communication were less developed, being able to hail a taxi from the street or to pick one up from a cab rank was an essential alternative to the other methods of transportation available. This is the reason why black cabs traditionally have a monopoly on ‘ply for hire’ journeys, and the same reason why taxis in many cities across Europe enjoy similar privileges, including the right to use bus lanes.
62. Moreover [...] a mere 8 % of black cab journeys are pre-booked. Accordingly, I am not persuaded that the pre-booked market is the only significant market on which black cabs operate. In this connection, although it does not appear self-evident to me, it has not escaped my attention that the High Court in its judgment found that ‘[i]t would clearly not be possible to legislate that … black cabs could not use the bus lane when carrying a pre-booked passenger’. With that in mind, there appears to be no justification for limiting the assessment to the market for pre-bookings alone. (footnotes omitted and emphasis added).
What I think has escaped the AG's attention is that the relevant setting is not to determine where do black cabs operate, but where do they compete. If that is kept in mind, but for the anachronic and currently unjustified exclusive right to carry out 'ply for hire' journeys that black cabs retain, either all journeys would become pre-booked (if their right was simply erased and no taxi could be hailed on the streets, which is not plausible) or both black cabs and PHVs would compete for all services, which would erase the issue of comparability and assymetrical competition. Hence, making the whole analysis rely on the existence of a currently unjustified regulatory restriction makes the argument very weak and difficult to justify, particularly if a measure that distorts competition in the only market where PHVs can be present is being analysed, as is the case in Eventech.
 
(4) Consequently, for all the above, I would have preferred it if AG Wahl would have avoided the logic trap and more clearly emphasised that there is no good reason to provide discriminatory access to a public essential facility to black cabs over PHVs, which is plainly the conclusion that I think would derive from any other competition law assessment under a more general framework.
 
Implicitly, AG Wahl has been very deferential towards a sector that, as has been clear, is currently fighting to keep a monopoly that is increasingly difficult to justify (if possible at all). This is hardly a progressive Opinion. Consequently, I would like to see the CJEU deviate from his advice in Eventech and to finally rule that the State aid rules apply in this case and that the implicit extension of the reserved activities for black cabs that the bus lane rules create is contrary to the rules on State aid. I will most likely be disappointed, though.

Thursday, 25 September 2014

New Book: G Racca & C Yukins (eds) "Integrity and Efficiency in Sustainable Public Contracts" (Brussels, Bruylant, 2014).


The new book on "Integrity and Efficiency in Sustainable Public Contracts. Balancing Corruption Concerns in Public Procurement Internationally" edited by Profs. Racca and Yukins is now available.

As the editors indicate

Ensuring efficiency and integrity throughout the public procurement cycle is essential to a sound allocation of taxpayers’ money. Yet public contracts are plagued by corruption, collusion, favoritism and conflicts of interest. This book addresses these problems from sophisticated, academic, institutional and practical perspectives.
The book’s ambition is to shape the public debate in the procurement community by highlighting how corruption implies violations of fundamental rights and undermines the fiduciary relationship between citizens and public institutions. The analysis underlines how corruption may stem from - and yet be resolved - through the exercise of discretion in the public procurement system. Focusing on the effects of public corruption and private collusion on procurement integrity, the book marks the features of misconduct and suggests needed counter-measures. The work also emphasizes that the pursuit of efficiency and integrity in public contracts must be rooted in professional skills, and in ethical regulations and training for public officers.
The research reflected in these pieces comes from sources around the world, and offers an excellent foundation for further development of these topics. Expanding on prior research, this volume builds on a more active transnational academic cooperation and exchanges of ideas on integrity in public contracts for the benefit of citizens.
This book is intended as both a textbook and an edited collection and it is available as an e-book too. The authors of the chapters are all specialists in their respective fields, and their different geographical and professional perspectives represent a valuable contribution to the scientific literature.
I have contributed a chapter on “Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement”, which SSRN version is available here.

Friday, 19 September 2014

CJEU continues reducing the scope of minimum wage laws when public contracts are subcontracted (C‑549/13)

In its Judgment in Bundesdruckerei, C-549/13, EU:C:2014:2235, the CJEU continued the development of its case law on the interaction between public procurement and labour law. In this area that was revolutionised by the Viking and Laval cases (although Viking was not about procurement), and then expanded in Rüffert and Luxembourg (idem), every decision of the CJEU is highly sensitive and likely to be received with as much praise as criticism [see, eg, Zimmer, 'Labour Market Politics through Jurisprudence' (2011) 7(1) German Policy Studies 211-234, or Bücker and Warneck, 'Viking-Laval-Rüffert: Consequences and policy perspectives' (2010) 11 European trade union institute report].
 
The Bundesdruckerei Judgment will surely be no exception, given that the CJEU has ruled that if a tenderer intends to carry out a public contract by having recourse exclusively to workers employed by a subcontractor established in a Member State other than that to which the contracting authority belongs, article 56 TFEU precludes the application of legislation of the contracting authority's Member State that requires the subcontractor to pay a minimum wage to its workers.
 
It specifically determines the incompatibility with EU law of the Law of the Land of North Rhine-Westphalia on compliance with collective agreements, social norms and fair competition in the award of public contracts of 10 January 2012 and, particularly, its paragraph 4(3), which foresaw that:
Public service contracts which are not covered by [rules on posted workers, or on the public transportation of passengers by road and rail] may be awarded only to undertakings which, at the time of the submission of the tender, have agreed in writing, by means of a declaration made to the contracting authority, to pay their staff …, for the performance of the service, a minimum hourly wage of at least EUR 8.62. The undertakings shall, in their declarations, state the nature of the commitment adopted by their undertaking in the context of the collective agreement and the minimum hourly wage which will be paid to the staff engaged for the performance of the services. The amount of the minimum hourly wage may be adapted in accordance with Paragraph 21, by means of a regulation adopted by the Ministry of Labour.
 
Hence, Bundesdruckerei is different from previous cases because it does not involve posted workers, but exclusively the recourse to a fully-owned subsidiary in a different Member State by the main contractor. Hence, the relevant situation is that in which ‘the subcontractor is established in another EU Member State and the employees of the subcontractor carry out the services covered by the contract exclusively in the subcontractor’s home country’ (para 26).
 
Issues of abuse of internal market rules aside [for a very interesting discussion, see Sayde, Abuse of EU Law and Regulation of the Internal Market (Oxford, Hart Publishing, 2014)], the legal question was relatively straightforward: does 'Article 56 TFEU preclude the application of legislation of the Member State to which that contracting authority belongs which requires that subcontractor to pay those workers a minimum wage fixed by that legislation'? (para 29).
 
The CJEU had no doubt about the incompatibility of the minimum wage requirement, even if it could be considered a 'contract compliance clause' under article 26 of  Directive 2004/18, which foresaw that
Contracting authorities may lay down special conditions relating to the performance of a contract, provided that these are compatible with Community law and are indicated in the contract notice or in the specifications. The conditions governing the performance of a contract may, in particular, concern social and environmental considerations (emphasis added).
 
The CJEU hence focussed on the compatibility with EU law of the minimum wage requirement. In very clear terms, the CJEU has ruled that
By imposing, in such a situation, a fixed minimum wage corresponding to that required in order to ensure reasonable remuneration for employees in the Member State of the contracting authority in the light of the cost of living in that Member State, but which bears no relation to the cost of living in the Member State in which the services relating to the public contract at issue are performed and for that reason prevents subcontractors established in that Member State from deriving a competitive advantage from the differences between the respective rates of pay, that national legislation goes beyond what is necessary to ensure that the objective of employee protection is attained (C-549/13, at para 34, emphasis added).
 
This is bound to be a truly relevant case, as it can effectively deactivate all attempts by Member States to impose minimum wages being paid in public procurement settings, even under the revised rules for 'contract compliance clauses' in art 70 of Directive 2014/24. This provision has now substituted art 26 of dir 2004/18 and indicates that
Contracting authorities may lay down special conditions relating to the performance of a contract, provided that they are linked to the subject-matter of the contract within the meaning of Article 67(3) [ie linked to the specific process of production or a specific process in another stage of the life-cycle] and indicated in the call for competition or in the procurement documents. Those conditions may include economic, innovation-related, environmental, social or employment-related considerations (emphasis added).
There are two important changes to note in the Drafting of art 70 dir 2014/24 when compared to art 26 of dir 2004/18.
 
The first one is that art 70 dir 2014/24 attempts to swap the general criterion of compatibility with EU law with a requirement for the conditions to be linked to the subject-matter of the contract. Generally, this is simply laughable, as the general obligation to comply with EU law does not need to be written in a Directive, but derives generally from the supremacy of EU law and, in particular, of TFEU provisions (as art 56). However, in a more possibilistic reading, the requirement of link to object of the contract may be reinterpreted as establishing a tight proportionality test, in which case the change of drafting will not have any meaninguful legal consequences (either).
 
The second change is the explicit inclusion of employment-related considerations, as a specification of social issues. This change is also bound to be significantly ineffective, as the CJEU did not contend that employment-related considerations could be the object of contract compliance clauses.
 
Generally, I think that the case law of the CJEU is consistent and very clear in imposing restrictions to any deactivation of (labour) competitive advantages. And I think that it will be very difficult to avoid that approach under art 70 dir 2014/24, unless contracting authorities smarten up in the way they impose minimum wage conditions [for a general discussion on the likelihood of this, see Jaehrling, ‘The state as a “socially responsible customer”? Public procurement between market-making and market-embedding’ (2014) European Journal of Industrial Relations (forthc)]. More generally, this could put pressure on the development of a European minimum wage (see discussion here), but the analysis of the (undesirable) effects of such policy exceed our time and space.
 
However, as public procurement is concerned, the Judgment of the CJEU in Bundesdruckerei should be welcome, as it stresses that the main goal of public procurement rules are to ensure economic efficiency by a deepening of the internal market and a protection of undistorted competition (even by means of regulation). Some may like it (I do), and some may hate it (as Arrowsmith and, particularly, Kunzlik seem to do), but this is what it is.

Thursday, 4 September 2014

GC pushes for overcompliance with EU public procurement rules in the provision of public services (T-309/12)

In its Judgment in Zweckverband Tierkörperbeseitigung v Commission, T-309/12, EU:T:2014:676, the GC has assessed the compatibility with EU State aid rules of a system of financial support to the maintenance of reserve animal disposal capacity in the case of epizootic. It is a very long and complicated Judgment and its reading is not easy, as the only available versions are in French and German. However, it is a case that should not go unnoticed. In my view, it raises two very fundamental questions where the position of the GC (and the Commission) is at least highly contentious and it will be good to see if a further appeal to the CJEU opens a door to some clarification in this area of EU economic law.
 
The first contentious issue is the economic or non-economic character of the activity at stake. In para 86 of the Judgment [and relying by analogy on the reasoning in FENIN, C-205/03, EU:C:2006:453 at para 26 and in Mitteldeutsche Flughafen and Flughafen Leipzig-Halle v Commission, C-288/11 P, EU:C:2012:821 at para 44 (but quoting its own argument in T-443/08 at para 95, which the CJEU later endorsed)] the GC concludes that "even if it is true that the applicant was required to maintain a reserve capacity in the event of an epidemic (rectius, epizootic), it does not mean that the implementation of this obligation by the applicant was related to the exercise of the prerogatives of public power" (emphasis added). In my view, and for reasons that I still need to articulate fully, this does not make good sense. However, this is a point I would like to reserve for the near future.
 
The second contentious issue is that, in the overall assessment of the GC, the fact that the arrangement between the affected German lander (and a multiplicity of regional and local authorities) and the public undertaking providing the reserve animal disposal capacity in the case of epizootic was covered by exceptions to the EU public procurement rules (either under the Teckal in-house exception or the Hamburg public-public cooperation exception, which is not entirely clear in the case) did not have any effect on the application of the Altmark criteria to the case. I know that this is an issue riddled with nuances and jargon stemming from public procurement rules, but I will try to disentangle it in a way that shows the difficulty created by the GC finding, as I see it.
 
Under the Altmark criteria (4th condition), compliance with applicable public procurement rules is a requirement for State aid granted to the provider of services of economic interest (acknowledgely, an issue related with the first point) to be compatible with Articles 107(1) and 106(2) SGEI (rectius, for State aid not to exist due to the lack of economic advantage) [for discussion, see A Sánchez Graells (2013), "The Commission’s Modernization Agenda for Procurement and SGEI" in E  Szyszczak & J van de Gronden (eds.), Financing SGEIs: State Aid Reform and Modernisation, Series Legal Issues of Services of General Interest (TMC Asser Press/Springer) 161-181]. In the absence of procurement procedures for the selection of the provider, the level of economic support needs to be "determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with [material means] so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations". This is a fiendish exercise and, generally speaking, procurement is a much easier road. Hence, structurally, there is a clear pressure on public authorities to resort to procurement procedures in order to be on the safe side re compliance with State aid rules.
 
At the same time, however, it should be highlighted that public authorities have no obligation to resort to the market in order to discharge their (public service) missions and they are fundamentally free to either cooperate with other public authorities (Hamburg) or entrust the execution of those activities in-house (Teckal). This is an area where the clash between EU Institutions and Member States has been evident and the recently approved Directive 2014/24 tries to provide a compromise solution in Art 12 by recognising that in those cases a public procurement procedure is not required (and allowing for the instrumental entities used to even carry out market activities up to a 20% of their average total turnover). 
 
In my view, the fact that public procurement rules allow for the avoidance of public tenders in the award of public contracts [including those for the provision of public services (broadly defined)] to public undertakings or other contracting authorities, creates a difficulty from a State aid/procurement interaction perspective. The basic difficulty derives from the fact that a perfectly legal decision to keep certain activities within the public sector creates very significant difficulties for the funding of that activity as soon as there is any (potential) interaction with the market--which, at least under the new rules in Art 12 of Dir 2014/24, is also a perfectly legal situation. This is a structural problem of coordination of both sets of rules that comes to put pressure on the viability of keeping the Altmark criteria untouched.
 
Indeed, following the general reasoning of the GC in Zweckverband Tierkörperbeseitigung, the absence of a procurement procedure (despite the fact that it was not required) excludes the possibility to benefit from the presumption set out in the 4th Altmark condition and creates a significant risk of breach of EU State aid rules. From the perspective of the consistency of the procurement system and the effectiveness of the general consensus that the procurement rules "should [not] deal with the liberalisation of services of general economic interest, reserved to public or private entities, or with the privatisation of public entities providing services" [Rec (6) Dir 2014/24] , this is problematic. The increased risks of infringement of State aid rules brings a very important limitation on the contracting authorities' actual freedom to resort to schemes covered by Art 12 of Directive 2014/24 and creates a clear incentive for overcompliance with public procurement rules.
 
Regardless of the benefits that more compliance with procurement rules and public tenders could bring about, the clear limits that EU constitutional rules (and the principle of neutrality of ownership in Art 345 TFEU in particular) create need to be respected and duly acknowldeged. Hence the difficulty in coordinating all these sets of provisions in a manner that is respectful with both the split of competences between Member States and the EU, and the effectiveness of EU State aid rules.
 
In my view, the CJEU should use the opportunity to clarify these complicated issues in case the GC's Zweckverband Tierkörperbeseitigung Judgment is further appealed. In the meantime, there are lots of issues that require further thought and, in particular, how to exactly reach the adequate balance in the coordination of both sets of rules.

Wednesday, 3 September 2014

GC uses principle of equality of treatment as "fix-for-all", despite flagrant procedural irregularities (T-48/12)

In its Judgment in Euroscript - Polska v Parliament, T-48/12, EU:T:2014:680, the General Court addressed an interesting point on the application of the principle of equal treatment when the public buyer decides to reassess the offers received and, as a consequence of the reassessment, adjudicates the contract to a tenderer other than the one initially granted the highest score.

In the case at hand, a contract for translation services into Polish had been tendered by several EU Institutions under the lead of the Parliament. The first evaluation of the offers produced a shortlist were Euroscript Polska was ranked first and Agencja MAart second.

The Parliament proposed to award the contract to Euroscript, subject to its furnishing of sufficient proof of not being affected by any applicable exclusion ground. The decision was communicated to all tenderers and a 14-day period for the request of further particulars on this decision, including their own evaluation reports and the relative advantages of the selected offer, started.
 
Almost a month after the expiry of the 14-day deadline, and without having requested the suspension of the procedure, MAart requested that the Parliament reassessed its offer. The Parliament did so and granted sufficient additional points to MAart as to make its offer top the shortlist. The Parliament communicated this reassessment to all tenderers, including Euroscript, and proceeded to sign the contract with MAart.Euroscript's challenge was based on two grounds, and the GC decides only on the basis of the general principles of transparency and equal treatment. There are two aspects of the Judgment that deserve comments.
Firstly, the GC is willing to assess the case on its grounds despite the obvious procedural fault derived from the Parliament having accepted MAart's request for a reassessment outside the applicable 14-day period. The GC reaches that position on the basis of Art 103 of the applicable Financial Regulation, which would have allowed the Parliament to suspend the contract if there was evidence that the award procedure had been vitiated by substantial errors or irregularities or by fraud (para 58).
 
In my view, there was no evidence of a substantial error in the initial assessment (the reassessment merely granted MAart 3.58/100 extra points, which does not seem substantial), and the generosity of the GC is troubling, given that it may result in a permanent reopening of the assessment phase of the tenders for contracts with the EU Institutions--which the GC expressly argues against in para 55, with reference to the CJEU Judgment in Strabag, C-314/09, EU:C:2010:567, para 37. Hence, a more detailed assessment of fumus boni iuris at this point would have been desirable and, arguably, should have killed the case.
 
Secondly, on top of finding an infringement of the principle of transparency derived from the lack of communication to tenderers that a second evaluation was being carried out (para 60), the GC considers that the principle of equal treatment was breached because the reassessment only covered MAart's offer, but not Euroscript's or any other tenderers' (para 61). Here, again, the GC seems to be too generous by hinting at the fact that a reassessment of all offers would have sufficed to uphold the principle of equal treatment.
 

In my view, if the reassessment was due to a sense that there may have been 'substantial errors or irregularities', a mere reevaluation would not have sufficed and the Parliament would have needed to carry out a more detailed investigation and to offer all tenderers (and particularly Euroscript) the possibility to present their views on MAart's allegations. Conversely, if the reassessment was merely due to the fact that MAart had complained (despite being time-barred), the fact that all offers would have been reevaluated should have made no difference whatsoever and the procedural irregularity should have tainted the whole of the second award.
 
Generally, I think that reliance on the principle of equal treatment is excessive and that its use as a panacea in procurement review creates significant shortcomings in the case law. Hence, where there are good technical reasons to quash an award, I would like to see the courts refraining from ellaboration on equality terms, so that such a 'tool' can be used where discrimination is at the core of improper procurement decisions. Otherwise, we will keep on cracking nuts with a sledgehammer, which may end up breaking it...

Friday, 29 August 2014

(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!

Thursday, 28 August 2014

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.

Friday, 1 August 2014

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. 

Wednesday, 9 July 2014

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.
 

Tuesday, 8 July 2014

... 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...