New fines imposed in demolition cartel proceedings

Decisions in the actions against members of the demolition cartel, active from 2011 to 2013, are beginning to come in. The latest development is the Danish Eastern High Court's affirmation of a fine for DKK 100,000 and the district court’s imposing of fines for DKK 300,000 each on two employees of the participating enterprises.

Eastern High Court decision of 21 December 2018 and the Court in Hillerød’s decision of 11 January 2019

By assistant attorney Simon Christensen

Background

The cases concern the so-called demolition cartel, where a number of demolition companies were charged with price coordination in the period from May 2011 to October 2013.

An employee of Midtsjællands Nedrivning was recently fined DKK 100,000 by the Court in Holbæk for illegal coordination of offers. The employee had received a competitor’s offer on a demolition contract before Midtsjællands Nedrivning decided to submit an offer of its own. There was no prison sentence imposed (read our previous news article on the case). The Eastern High Court has now heard the appeal.

The Court in Hillerød also heard parts of the case. It involved two former employees of a company (now dissolved) charged with exchanging prices with competitors on no less than 24 subcontracts.

Eastern High Court did not grant claim for custodial sentence

The prosecution had argued for a prison sentence, but its claim to that effect was denied by the Court in Holbæk. The prosecution brought the same claim in the appeals proceedings. The High Court, however, sided with the district court and handed no prison sentence. The defendant’s claim for dismissal or a reduction of the fine did not succeed, either, though.

The High Court referred to the district court’s decision and reasons. The district court had assessed the gravity of the violation to see if it was serious enough to warrant a custodial sentence. In that regard, the court noted that the coordination had been capable of misleading consumers about the market situation, restricting competition, and causing a risk of excessive pricing. However, it being a one-off instance and one that had brought no financial gain to the defendant, and considering also that the defendants had not played a leading part in it, the district court was unwilling to grant imprisonment – and now the High Court has concurred.

Read the High Court judgment (in Danish).

Senior employees found to have assisted in price coordination on 24 subcontracts

In the case heard by the Court in Hillerød, the defendants were two senior employees (one of them the manager) of a company now dissolved. They were charged with participation in the demolition cartel for having exchanged information with competitors on no less than 24 different subcontracts.

Allegedly, the exchange had taken place between the now dissolved company and Søndergaard Nedrivning A/S and, in one case, Brandis A/S. The defendants explained that the exchange was made in those cases where, for lack of time, the company was unable to prepare an offer of its own, or where the company had no bonafide interest in the subcontract but wanted to submit an offer nevertheless, so as to not be cut out on future tenders.

The court found that the mode of operation applied was that the party who borrowed an offer would submit an offer of its own with a higher price. The court found, therefore, that it was a precondition for the exchange that the borrower would overbid the lender and that the borrower’s offer was strictly proforma.

Since there had been an exchange of prices on the contracts, the court found it to be a case of coordinated offers and found that the arrangement was one of mutual understanding between the undertakings involved. The behaviour thus amounted to a concerted practice for the coordination of offers, the purpose of which was to restrict competition since the businesses - who were normally competitors - did not, in fact, compete for the 24 subcontracts.

On three of the subcontracts, the prosecution had requested a prison sentence. But, again, the court was not satisfied that the severity of the transgressions was such as to warrant imprisonment. The court, in its assessment, attached importance to the facts that:

the conduct had taken place for a limited period of time only;
the conduct affected only a limited part of the market;
the defendants always received the offer from the lender only after the lender had submitted its own, independently calculated offer;
the defendants had borrowed the offers only when unable, for lack of time, to calculate an offer of their own but still wanting to ‘put in an appearance’;
the companies involved had not been shown to have obtained any economic gain from the practice.

The court’s decision is quite consistent with statutory rules and the legislative history behind the introduction of custodial sentences for cartel infringements. The rules and legislative history provide that custodial sentences are reserved for offences that are wilful and aggravated, especially in terms of extent and potential damage. This is an additional requirement, beyond the existence of the cartel infringement per se.

The defendants were, however, each fined DKK 300,000 – the highest-ever personal fines in a Danish competition case. In assessing the fines, the court attached particular importance to the following elements:

the number of infringements;
the temporal scope of the infringements (nearly two years);
the values involved; and
the wilfulness with which the infringements were made.

The court also made an overall assessment, recognising that ten of the offences had taken place before 1 March 2013 when the levels of competition-law fines were increased, whereas 14 of them occurred after. Further, the court referred specifically to the High Court judgment referred to above, in which a single violation triggered a personal fine of DKK 100,000.

Read the judgment of the Court in Hillerød (in Danish).