A first reaction to AG Kokott's KONE Opinion (C-557/12)

AG Kokott's Opinion of 30 January 2014 in case C-557/12 KONE is generating significant debate (see the very interesting criticism in EUTopia) as it deals with a very complicated and controversial issue that could either spur or restrict the scope of damages actions following on from cartel violations (and, more generally, competition law infringements).

 

The case is concerned with the possibility to claim so called "umbrella damages"--that is, as per the description provided by the referring Austrian Supreme Court, whether "any person may claim from members of a cartel damages also for the loss which he has been caused by a person not party to the cartel who, benefiting from the protection of the increased market prices, raises his own prices for his products more than he would have done without the cartel (umbrella pricing)". In my view, the Opinion of AG Kokott deserves some criticism in its support for such claims.

 

As a preliminary point, I think that it is interesting to see how AG Kokott redrafted the issue, and considered that the case concerns "umbrella pricing [which takes place] when undertakings that are not themselves party to a cartel, benefiting from the protection of the cartel’s practices (operating ‘under the cartel’s umbrella’, so to speak), knowingly or unknowingly set their own prices higher than they would otherwise have been able to under competitive conditions. Does European Union law require that customers of undertakings not party to the cartel should be able to claim compensation for the inflated prices charged by those undertakings from the members of the cartel before the national courts? Or, conversely, may such an obligation to award compensation be excluded in national civil law on the ground that the loss suffered is indirect and too remote?" (emphasis added).

 

Already at this stage, I would submit that the framework for analysis is flawed. If the "outsider" to the cartel is fully innocent (i.e. is not aware of the existence of the cartel), its behaviour is indeed reflective of competitive conditions (distorted, but still competitive) and therefore that specific increase in prices should not be taken into account for the purposes of the design of competition law rules and their enforcement.

 

On the contrary, if the "outsider" is not innocent (i.e. knows about the cartel), then the increase in prices makes it guilty of at least a (unilateral?) concerted practice by adhering to the cartelised mechanics of the market and, consequently, the damages derived from the raise in prices should be borne by such "outsider" as the infringer of competition rules--and only by the "insiders" in the cartel if they then incorporate the "outsider's" behaviour as part of the distorted market mechanism.

 

In my view, any extension of this general framework would probably be too remote in terms of causality and the allowance for "umbrella damages" claims would create a system of excessive private antitrust enforcement which net contribution to aggregate welfare would be doubtful [more generally, on the doubtful desirability of an overgrowth of damages claims based on indirect or disperse competition damages, see Marcos and Sánchez Graells, "Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law Through the Back Door?": http://ssrn.com/abstract=1028963].

 

For these reasons, I generally disagree with her Opinion on its substance. However, more detailed criticism will require some further thoughts.

GC (T-668/11): 'mere' non-compliance with formal #publicprocurement rules does not trigger liability for loss of profits

In its Judgment of 6 June 2013 in case T-668/11 VIP Car Solutions v Parliament II, the General Court of the European Union (EU) has addressed the issue whether non-compliance with the duties of transparency and motivation by a contracting authority can generate a right to claim damages for disappointed bidders and, more specifically, whether they would be entitled to claim loss of profit compensation.

In this clear Judgment, the GC does not exclude that possibility as a matter of principle, but it sets a very clear line of analysis of the causality required between the lack of motivation or failure to disclose certain information and the damages claimed by disappointed bidders--which makes this type of claims very difficult to succeed. 

In the Judgment, the GC has stressed that:

In this regard, it should be noted that it is true that the Court held that the [contested] decision should be annulled on the grounds, first, that the Parliament had violated the obligation to disclose the price proposed by the successful bidder and, secondly, that the decision was vitiated by an inadequate statement of reasons. However, it is clear that the non-disclosure of the price and the lack of motivation do not establish that the award of the contract to another tenderer was a fault, or that there is a causal link between this fact and the loss claimed by the applicant (see, to that effect, the Judgment of 25 February 2003, Renco / Council T-4/01, Rec. p. II-171, paragraph 89, and of 20 October 2011, Alfastar Benelux / Council T-57/09, not published in the ECR, paragraph 49). Indeed, there is nothing to suggest that the Parliament should award the contract in question to the applicant if the original decision had been sufficiently motivated or if the Parliament had disclosed the price of the successful bidder. It follows that the claim for compensation for the alleged damage suffered as a result of the first decision must be rejected as unfounded in so far as it is based on inadequate reasoning of that decision and the non-disclosure of the price proposed by the winning bidder (T-668/11 at para 38, own translation from French, emphasis added).

In view of this analysis of strict causality, which is appropriate, it seems clear that disappointed bidders that succeed in challenging public procurement decisions exclusively on the grounds of lack of compliance with transparency obligations and the duty to provide reasons are likely to only be entitled to claim legal costs and any other expenses related to the challenge of the award procedure. 

This should be welcome, despite the fact that it may reduce the incentives for disappointed bidders to challenge procedurally incorrect public procurement decisions because, unless they can prove that there has been a material (in terms of substantive) breach and that, but for that illegality they should have been awarded the contract, it is very unlikely that they can obtain any compensation for their efforts. 

This may (marginally?) diminish the effectiveness of challenge procedures (at least where no material rule has been breached), but an excessively generous rule that awarded damages exclusively due to 'mere' procedural shortcomings would generate a perverse incentive towards excessive litigation. This may justify the need for stronger mechanisms of public oversight, as it seems clear that the incentives for disappointed bidders to act 'in the public interest' have just been delimited in a proper, but narrow, manner.