Danish Supreme Court: Road marking consortium was illegal

By assistant attorneys Simon Christensen and Christina de Beets Sindahl Karstensen

Events leading to the Supreme Court decision

In 2014, the Danish Road Directorate invited tenders for repainting of road lines on national roads in three Danish districts. The contract covered the years 2014-2017, and a tenderer could tender for one or more districts and, if applicable, offer a discount if it was awarded more than one contract. In this way, the Directorate would be sure to obtain the lowest price for the three districts.

The companies Eurostar Danmark A/S and LKF Vejmarkering A/S, which were among the largest Danish road marking contractors, entered into a consortium at the Directorate’s request and made a joint bid for the three subcontracts. The consortium offered the lowest overall price for all three districts and was awarded the contract.

Following a complaint to the Competition and Consumer Authority by one of the other tenderers, the Competition Council held on 24 June 2015 that Eurostar and GVCO, by entering into the consortium, had breached the prohibition of anti-competitive agreements in section 6(1) of the Competition Act and Article 101(1) TFEU. The Council found it decisive - and the Competition Appeal Tribunal subsequently agreed - that the companies were to be regarded as competitors. The reason is that both companies - based on their own capacity calculations - could have submitted individual bids for at least one of the subcontracts for each district. Incidentally, the Council set aside the capacity calculations, arguing i.a. that the companies could increase their capacity and could not reserve capacity for other work.

Eurostar and GVCO appealed the decision to the Maritime and Commercial High Court, which annulled the decisions by the Council and the Tribunal, noting that there had been no breach of section 6 of the Competition Act, since:

I. the Council had not proved that the parties’ own capacity calculations did not give a true and fair view, and

II. the companies did not have sufficient capacity to tender individually for the whole contract and, accordingly, they could not be regarded as competitors for the purpose of the tender.

Addressing the question whether Eurostar and GVCO were competitors, the Maritime and Commercial High Court noted that the fact that the two parties were able to tender individually for parts of the contract - but not the whole contract - would not prevent them from entering into a consortium for the purpose of tendering for the whole contract; such obstacle would not necessarily increase competition.

The Court also found that Eurostar and GVCO were unable to tender individually for the whole contract, and that they had no business incentive to increase their capacity for that purpose. In these circumstances, the Maritime and Commercial High Court concluded that Eurostar and GVCO could not be regarded as competitors in the relevant tendering process.

Read our previous newsletter of the Maritime and Commercial High Court judgment

The Supreme Court judgment

As in the previous decisions in the case, the Supreme Court addressed the question whether Eurostar and GVCO were competitors, whether the consortium agreement had as its object to restrict competition and, if so, whether the consortium could be exempted under section 8 of the Competition Act and Article 101(3) TFEU. The Supreme Court also discussed the implications of the principle in section 20 of the Competition Act.

The Supreme Court found:

Eurostar and GVCO were competitors

Initially, the Supreme Court established that the question whether Eurostar and GVCO are competitors should be deter-mined on an objective basis, having regard to the terms of the tender documents. If the companies were unable to tender individually, they would not be regarded as competitors. Thus, it was decisive whether an overall bid for all three subcontracts was required according to the tender documents, or whether the tenderers could tender for one subcontract only.

The Supreme Court found that the tender documents allowed the tenderers to tender for one, two or all three districts (subcontracts). Further, nothing indicated that the tender related to the whole contract only, notwithstanding that the tender documents provided for a special discount arrangement for tenderers bidding for all three districts. In support of its interpretation of the tender documents, the Supreme Court noted that the two other tenderers had only tendered for one and two districts, respectively.

In these circumstances - and since Eurostar and GVCO could have tendered individually for one or more of the districts - the Supreme Court concluded that Eurostar and GVCO were to be deemed competitors for the purpose of the tender.

The consortium agreement had as its object to restrict competition

At the parties’ request, the Supreme Court made its decision looking only at the object of the consortium agreement without analysing if it had any anti-competitive effects (a “by object” analysis). In terms of what it takes for an agreement to have as its object to restrict competition, the Supreme Court established:
"... must be sufficiently certain that the measure, based on its nature in the relevant market context, from an objective point of view, has such anti-competitive potential that it is not necessary to prove the existence of actual anti-competitive effects."

The decisive question was then whether Eurostar’s and GVCO’s consortium agreement was clearly so detrimental to competition that an analysis of its effects on the market and on competition would be superfluous.

The Supreme Court held that the agreement was not in the nature of a production cooperation or other type of cooperation, but the parties had essentially made their joint consortium bid on the basis of a prior division of the works in relation to the three districts, thus eliminating competition between them. In these circumstances, the Supreme Court found that the consortium agreement had as its object to restrict competition in the market. Incidentally, the Supreme Court noted that the road marking market did not justify a finding that the joint bidding and distribution of the work did not have as its object to restrict competition. The fact that the consortium agreement was entered into for the purpose of making a competitive bid and performing the works in public does not change the illegal nature of it.

Further, it had not been proved that the requirements for being granted an exemption under section 8 of the Competition Act and Article 101(3) TFEU were satisfied.

Section 20 of the Competition Act

As a comment of principle, the Supreme Court noted that while the courts can review the facts of the case and the question of applicable law without limitations, they must have a solid basis for setting aside findings that are mainly discretionary from a competition law point of view. The Supreme Court further noted that section 20 of the Competition Act does not prevent the courts from ruling on issues that have been considered by the Competition Council, even if the issue has not subsequently been considered by the Competition Appeals Tribunal.

Our comments

The Supreme Court judgment has made it clear that the question whether two operators are to be deemed competitors in a consortium context is subject to a specific assessment, having regard to the tender documents. 

The judgment sets a relatively low threshold for determining whether a joint bid for a contract will give rise to problems. The judgment also shows that the courts do not hesitate to categorise an illegal consortium agreement as a “by object” infringement. The Supreme Court noted in this respect that the agreement "was not in the nature of a production cooperation, nor did the agreement provide for any cooperation between the parties in connection with the sale of the services". The scope of this statement and the question when a consortium meets the “exemption requirements” remain unclear.

It will therefore be necessary in connection with future consortiums to consider whether a party is able to perform the work alone (wholly or partly), and whether the consortium will lead to verifiable efficiency gains, thus making it possible to reject a possible complaint.

Finally, the Supreme Court's - very brief - comment that the principle in section 20 of the Competition Act does not prevent judicial review shows that a full judicial review of all decisions by the competition authorities is possible, even if the disputed issue has not first been heard by the Competition Appeals Tribunal.

The Competition and Consumer Authority is expected to update its consortium guidelines to reflect the Supreme Court judgment.