We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
13 September 2018
The legality of consortium agreements under competition law has been widely debated in recent years. On 27 August 2018 the Maritime and Commercial High Court rendered a much-anticipated judgment on this subject. The court repealed the competition authorities' decisions from 2015 and 2016 in a case concerning a consortium agreement between two companies regarding their joint bid on a public tender for road marking work.
In 2014 the Danish Road Directorate conducted a public tender for road marking work to be conducted in three districts in Denmark. It was possible to bid on one, two or all three districts. The award criterion was the lowest combined price for all three districts.
Eurostar Danmark A/S and LKF Vejmarkering A/S (now GVCO A/S) were both active in the road marking business. Both companies had assessed that the actual competition concerned the entire tender (ie, all three districts) and not merely one or two districts. This was backed up by the fact that previous contracts had covered all districts put up for tender and that the tender allowed for a total discount if a bidder was awarded more than one district. Further, both companies had assessed that they did not have the capacity to bid on all three districts by themselves and that a consortium was thus necessary to have a chance to win the tender.
In accordance with their consortium agreement, the companies submitted a joint offer on each district and offered a total discount if two or three districts were won. The parties had agreed on the distribution of districts between them if they won the tender. They had also agreed on a joint bidding price. The consortium won the entire tender since it had offered the lowest price.
An unsuccessful bidder complained to the Competition and Consumer Authority.
In June 2015 the Competition Council found that Eurostar Danmark A/S and LKF Vejmarkering A/S had infringed Danish and EU competition law. The council found that the parties had been competitors in relation to individual districts, which each party had had the capacity to bid on separately, and in relation to all three districts together, where the council found that the parties had at least been potential competitors, among other things, because they could have increased their capacity by acquiring more machinery and hiring more personnel.
The Competition Council also found that the parties' consortium agreement was a 'by object' infringement since the parties had been competitors and the agreement entailed price coordination and market division. The council thus seems to have regarded the agreement as equivalent to a cartel agreement.
The parties appealed the decision to the Danish Competition Appeals Tribunal (DCAT). On 11 April 2016 the DCAT upheld the decision. It found that the parties had been actual competitors in relation to individual districts. Therefore, it was unnecessary to assess whether they had been actual or potential competitors in relation to the entire tender (ie, all three districts together). The DCAT also found that the consortium agreement was a 'by object' infringement because it was by its very nature capable of harming competition, although the DCAT noted that the agreement could not be considered a "classic cartel agreement".
The parties appealed the DCAT's decision to the Maritime and Commercial High Court, which issued its judgment on 27 August 2018. The court reached the opposite conclusion and repealed the Competition Council's decision. The court held in particular that:
The judgment will impact companies' ability to enter into consortium agreements in compliance with competition law. The legality of contemplated consortium agreements under competition law must still be assessed, but the judgment indicates that this assessment must be based upon a realistic (as opposed to hypothetical) assessment of market conditions and the companies' capacity. It also emphasises that the competition authorities have the burden of proof when challenging the parties' capacity assessments.
Approximately one month prior to the hearing of the above case, the Competition and Consumer Authority issued new guidelines on joint bidding under competition law. The authority started working on the new guidelines in continuation of the 2015 and 2016 decisions, which had led to much public debate in Denmark regarding the legality of consortium agreements under competition law. The new guidelines are based largely on the 2015 and 2016 decisions and, according to the authority's webpage, are currently under revision.
The competition authorities have announced that they will appeal the Maritime and Commercial High Court's judgment.
For further information on this topic please contact Erik Kjær-Hansen or Josephine Alsing at Gorrissen Federspiel by telephone (+45 33 41 41 41) or email (email@example.com or firstname.lastname@example.org). The Gorrissen Federspiel website can be accessed at www.gorrissenfederspiel.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.