The Danish Maritime and Commercial High Court repeals a decision by the Danish Competition Appeals Tribunal

The Maritime and Commercial High Court’s judgment of 27 August 2018

By assistant attorney Kristine Langgaard Stage

In 2014, the Danish Road Directorate published an invitation to bid for a contract for re-marking of the state roads in three Danish districts. The contract had been divided into three lots so that tenderers could bid for one or more of the lots and maybe grant a discount if they were awarded two or all of the lots. Eurostar Danmark A/S and GVCO A/S (formerly LKF Vejmarkering A/S) set up a consortium and submitted a consortium bid for all three lots. The consortium won the tender and was awarded the contract for all three districts. 

One of the other tenderers subsequently filed a complaint with the Danish Competition and Consumer Authority, and on 24 June 2015 the Danish Competition Council issued a decision in the case. The decision was upheld by the Danish Competition Appeals Tribunal on 11 April 2016. The Competition Council and the Competition Appeals Tribunal both held that, by bidding as a consortium, Eurostar and GVCO had entered into an anti-competitive agreement in breach of section 6(1) of the Competition Act; the Competition Council even went so far as to compare the agreement to an agreement on price co-ordination and market sharing. Decisive for the conclusion was that, in the opinion of the Competition Council and the Competition Appeals Tribunal, Eurostar and GVCO were competitors, because they could each have submitted individual bids for at least one of the lots. This has now been rejected by the Maritime and Commercial High Court.

THE MARITIME AND COMMERCIAL HIGH COURT’S JUDGMENT 

Contrary to the Competition Council and the Competition Appeals Tribunal, the Maritime and Commercial High Court concludes that Eurostar and GVCO did not breach section 6(1) of the Competition Act by bidding as a consortium. The background for the conclusion is that the parties were not individually able to bid for the total contract, and the fact that they could each have submitted an individual bid for one of the lots was not sufficient to regard them as competitors in the relevant tendering process. 

The Maritime and Commercial High Court's position on the question of what is required to regard two firms as competitors in a tendering process is the polar opposite of the Competition Appeals Tribunal's position on the same question. The Maritime and Commercial High Court states: 

"The fact that a company wishing to bid for the relevant road-marking work does not have sufficient capacity to bid for the total contract, but only for separate districts, cannot in the opinion of the Court prevent such company from entering into a consortium for the purpose of submitting an aggregate bid for all three districts, because such restriction would not necessarily increase competition."

The decisive question was, therefore, whether Eurostar and GVCO each had sufficient capacity to bid for the total contract without forming the consortium. The parties had prepared statements showing that their current machinery and personnel capacity was insufficient for any one of them to bid for the total contract. The Competition Council's answer to that was that, by hiring additional personnel and buying more machinery, the parties could have achieved the required capacity allowing them to submit individual bids. However, the Maritime and Commercial High Court did not agree with the Competition Council: 

"The assumption that each of the claimant companies could have performed the work alone is based on hypothetical theories about the possibility of hiring additional personnel and buying additional machinery, and there is no proof that this was possible or commercially viable."

In addition, it was the Competition Council's view that, in assessing their capacity, the companies were not allowed to reserve resources needed for assignments for their existing core customers, if there were no written contracts with those customers for the relevant period. This view was not supported by the Court either; the Court found that companies submitting bids are entitled to reserve capacity for customers that are expected to submit orders the refusal of which would be commercially irresponsible. 

The Maritime and Commercial High Court drew the general conclusion that the Competition Council had not discharged its burden of proving that the capacity calculations made by the parties did not give a true and fair view. It was therefore deemed to have been established that the parties did not have sufficient capacity to submit individual bids for the total contract, and that they could consequently not be regarded as competitors in the tendering process. Against that background, the Maritime and Commercial High Court concluded that section 6 of the Competition Act concerning anti-competitive agreements had not been breached.

THE SIGNIFICANCE OF THE JUDGMENT

Ever since the issue of the Competition Council decision in 2015, the road-line case has made it risky for companies to participate in consortia. Especially small companies have been restricted in their freedom of action, because regulatory practice has been preventing them from submitting joint bids if they were each able to submit an individual bid for a lot. In addition, prior to formation of a consortium, each company has had to consider whether, from an objective point of view, it would be possible for the company to expand its business in order to achieve the capacity required to bid for the contract. In the opinion of the competition authorities, the considerations taken by the company should not include the question whether the company had a commercial incentive to expand its business, but only the question whether it was possible from an objective point of view; consequently, certain companies have had to refrain from bidding for contracts if they were able to but did not want to expand their business. The Maritime and Commercial High Court has now put an end to that practice. 

The Competition and Consumer Authority's consortium guidelines from April 2018 must in future be read in the light of the judgment issued by the Maritime and Commercial High Court. The guidelines are in line with the Competition Council's views and are therefore inconsistent with the Maritime and Commercial High Court judgment. The Competition and Consumer Authority has not yet decided whether to appeal the judgment but, for the time being, the Maritime and Commercial High Court judgment is the supreme source of law within this field.