Sunday, 14 April 2013

Can advice from lawyers excuse a cartel?

Case C-681/11 Schenker and Co AG and others, opinion of AG Kokott of 28 February 2013, revolves centrally around the question of when an undertaking can rely on legal advice to protect it from being found guilty of infringements of competition law, something of great practical importance. The case involved an Austrian freight forwarding cartel which had agreed on prices between its members. The cartel was in existence before Austria joined the EEA in 1994 and the EU in 2004. To avoid the problems created by EU competition law on joining the EEA, the cartel members had restricted its operations to the territory of Austria. They also applied to the Austrian Cartel Court for approval of the cartel. The matter was referred to a Joint Committee for Cartel Matters, which provisionally thought that the cartel did not affect inter-state trade but ultimately ruled that the cartel was not suitable for registration because it was not justified from the perspective of the national economy. A subsequent application to the Cartel Court to get the cartel registered as a minor cartel was, however, successful. When a new Austrian law on cartels was due to come into force in 2005, legal advice was taken on the cartel which was to the effect that it was still a minor cartel if its market share was under 5%. Then in 2007, the European Commission took action against cartels in international freight forwarding and the Austrian cartel dissolved itself. This was not the end of the story because the Austrian competition authority took action against the cartel, arguing that it had been operating unlawfully between 1994 and 2007. The cartel members defended themselves on the grounds that they had sought legal advice and had been approved as a minor cartel.

AG Kokott took the view that everything turned on the question whether the undertakings participating in the cartel could assume, in good faith, that their price agreements did not affect trade between Member States and thus fell solely within the scope of Austrian national antitrust law, and not also within the scope of European competition law.

She starts her discussion by considering the general principles that ought to be applied in this area. She begins by emphasising the similarities in this context between competition law and criminal law and that, in criminal law, there is a general principle of no crime without culpability or fault (nulle poena sine culpa). Her interpretation of the case law is that this principle holds in EU law and is a fundamental right which is common to the constitutional traditions of the Member States and is implicit in Article 48(1) of the Charter of Fundamental Rights and Article 6(2) ECHR. According to this principle, you can only be convicted of a breach of competition law if, as well as meeting the objective conditions, the matter can be attributed to you subjectively, that is, there must be some form of fault or culpability. This means that there may be circumstances, although these will occur only very rarely, where it must be recognised that that an error of law committed by an undertaking, in evaluating the legality of its behaviour, must be considered to be excusable or unobjectionable. Not, apparently, an argument that would be recognised in English criminal law.

One of the questions in the present case was whether or not the legal advice that the undertaking had received ought to be taken into account when considering its culpability. There was fierce disagreement between the parties, with the undertakings arguing "yes" and the Commission, the Member States and the NCAs arguing the opposite. In relation to this argument, AG Kokott drew a distinction between the system pre 2004, when a notification system was in place, and post 2004 when notification of agreements was no longer available. Under the current system, undertakings are expected to make their own assessment of the legality of their behaviour. In that context, she said:

 "It is not acceptable, on the one hand, to encourage undertakings to obtain expert legal advice but, on the other, to attach absolutely no importance to that advice in assessing their fault in respect of an infringement of EU antitrust law. If an undertaking relies, in good faith, on – ultimately incorrect – advice provided by its legal adviser, this must have a bearing in cartel proceedings for the imposition of fines."

This was, however, not a free pass because AG Kokott laid down six minimum conditions that had to be met before an undertaking could rely on legal advice to protect it against liability:

  1. The advice must always be obtained from an independent external lawyer.
  2. The advice must be given by a specialist competition lawyer who regularly works for clients in this field.
  3. The legal advice must have been provided on the basis of a full and accurate description of the facts by the undertaking concerned.
  4. The opinion must deal comprehensively with the European Commission's administrative and decision making practice and with the case law of the EU courts.
  5. The legal advice must not be manifestly incorrect (a role for the in-house lawyer here). More diligence is expected of larger undertakings. In any event, every undertaking must be aware that certain anti-competitive practices are, by their nature, prohibited, and in particular that no one is permitted to participate in 'hardcore restrictions', for example in price agreements or in agreements or measures to share or partition markets.
  6. The undertaking acts at its own risk if the opinion shows that the law is unclear.

In order to rely on the decision of a national competition authority or court, there were five minimum conditions:

  1. The decision must be taken by an NCA with the powers to apply EU law or by a national court. So, for example, a decision of the Competition Commission would not meet this condition. The case does not need to have been referred to the CJEU for a preliminary ruling; a decision of a national court may generate a legitimate expectation.
  2. It is necessary that the undertaking concerned has previously informed the national authority comprehensively and truthfully of all relevant circumstances if it was already participating in the original administrative or judicial procedure.
  3. The administrative or judicial decision must concern exactly the same matters of fact and law in respect of which the undertaking concerned invokes an error of law precluding liability. This is not necessarily a straightforward issue, as experience with follow-on actions demonstrates.
  4. The decision of the NCA or the national court must not be manifestly incorrect. She emphasises, again, that undertakings are expected to be aware that certain anti-competitive practices are prohibited by their very nature.
  5. An undertaking's expectations created by an administrative or judicial decision are legitimate only if that undertaking acts in good faith.

As regards the application of these principles to the case in hand, AG Kokott was quite dismissive to the undertakings' arguments. Given that the cartel started under the old procedural system, the members of the cartel had the opportunity to apply to the Commission seeking an individual exemption, which they had not done. In addition, the legal advice on which the undertakings had relied was incomplete and did not deal with the substantive issue of the application of Article 101 TFEU. As regards the decision of the Cartel Court, this was based on Austrian, not EU law. Critically, the Cartel Court did not comment on the compatibility of the cartel with EU law.

There are a number of very interesting aspects to this opinion. AG Kokott very confidently draws a parallel between competition law and criminal law, something which would have been unlikely a number of years ago and is still contrary to the express statement of Article 23(5) of Regulation 1/2003 in relation to fines. From this parallel, she derives the application of a general principle that there is no liability without culpability, meaning fault. Although this can be taken as a general principle of criminal law it should not be pushed too far given the increasing reliance, at least in the UK, on crimes of strict liability. Furthermore, the Enterprise and Regulatory Reform Bill clause 47 amends the cartel offence in s. 188 Enterprise Act 2002 to remove the requirement of dishonesty. The new s. 188A provides circumstances when the cartel offence will not be committed, broadly when customers are told or the arrangements are published. In a formal sense this is not removing the idea of culpability, but it does reduce its content, from one focusing on the substance of the offence to one which focuses on procedural matters.

The analogy with criminal law should not be pushed too far. Competition law is not only about simply enforcing prohibitions. It is also about trying to ensure that markets function well. This is, after all, the entire point of the market investigation provisions of the Enterprise Act 2002 and the point is made explicitly by the Competition Commission in its new guidelines on market investigations. Sector investigations in EU law serve a similar function and subsequent enforcement actions by the European Commission have been presented as following up the findings of that enquiry: see . The increasing use of more informal procedures, such as settlements and commitment decisions, can be seen as the European Commission moving away from a classical view of competition law as a version of criminal enforcement towards a looser, more regulatory, approach. The closer competition law gets to criminal law, with the associated procedural protections, the stronger will be the incentive on the European Commission to try and escape these procedural protections.

The minimum conditions set out by AG Kokott for reliance on legal opinions seem sensible and reasonable. They are a bit like UEFA's financial fair play rules in that they will probably entrench the position of the leading specialist competition lawyers and partnerships given the emphasis on advice being given by an external specialist who deals comprehensively with the law and practice in the area.

A final point is the emphasis that AG Kokott places on how undertakings must be taken to be aware that certain agreements have, as their nature, the object of restricting competition. The implication, which is consistent with her views in previous cases, is that these sorts of agreements are very bad, with no redeeming characteristics. There is, however, an interesting ambiguity in the opinion because she says that no one is permitted to participate in "hardcore" restrictions. Although she refers to price fixing and market sharing within the text of Article 101 but directs readers to the European Commission's de minimis Notice in order to understand the idea of a hardcore restriction. The Notice of course has a more extensive definition of hardcore restraints which extends beyond what might be called obvious restrictions on competition to a variety of hardcore restrictions in relation to distribution agreements. The other problem is that this blurs the distinction between agreements with the object of restricting competition and hardcore restraints which is insisted upon by AG Mazak in Case C-430/09 Pierre Fabre Dermo-Cosmetique and Advocate General Cruz Villalon in Case C-32/11 Allianz Hungaria.

All of this would seem to undermine the idea that undertakings should know there are certain agreements which have as their nature the object of restricting competition given that there is no certain list of such agreements. Given the context of this case, it is perhaps understandable why the de minimis Guidelines are singled out, but does this mean that in other contexts, other Regulations and Guidelines are equally relevant? The pragmatic answer for an undertaking is, if you are uncertain about the status of an agreement, to seek legal advice from an expert competition law practitioner – which is good news for those lawyers who fall within that category!


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