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...

Monday, 7 July 2014

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,
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...

Friday, 27 June 2014

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

In its Judgment in Quimité 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.

Thursday, 19 June 2014

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.

Wednesday, 18 June 2014

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...

Tuesday, 17 June 2014

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...

Thursday, 12 June 2014

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...