Concerted withdrawal of bids for legal aid work: a cartel in public procurement. Could it be justified?

I just found out yesterday (thanks @Detig) about the London Criminal Courts Solicitors' Association (LCCSA) campaign to boycott on-going legal aid reforms (ie cuts to legal aid). In a nutshell, the LCCSA is asking its members to exchange information about their willingness to withdraw the bids they submitted to the Legal aid crime tender 2015. 

The LCCSA intends to use the information to inform their ongoing engagement with the Ministry of Justice (ie, put pressure and stop the cuts). Generally, this could be seen as a worthwhile act of protest against a policy that will deepen inequality in access to justice. However, the way they are implementing it is deeply concerning from a competition and public procurement perspective.

Similarly to past action from the Bar (see @AngusMacCulloch's good piece here), this is a textbook cartel (see also @PublicProcure additional remarks here). Independent firms are exchanging confidential commercial information in a way that is not required by their activity in the market. This is prohibited by the relevant UK and EU rules, as interpreted by the Court of Justice of the EU (CJEU) in several cases. Most recently, in MasterCard (C-382/12, EU:C:2014:2201, para 62), the CJEU stressed that

Without prejudice to the right of economic operators to adapt themselves intelligently, but independently, to the existing or anticipated conduct of their competitors (see judgments in Suiker Unie and Others v Commission, 40/73 to 48/73, 50/73, 54/73 to 56/73, 111/73, 113/73 and 114/73, EU:C:1975:174, paragraph 174; Ahlström Osakeyhtiö and Others v Commission, C‑89/85, C‑104/85, C‑114/85, C‑116/85, C‑117/85 and C‑125/85 to C‑129/85, EU:C:1993:120, paragraph 71; and Asnef-Equifax and Administración del Estado, C‑238/05, EU:C:2006:734, paragraph 53 and the case-law cited), Article [101 TFEU] catches all forms of cooperation and of collusion between undertakings, including by means of a collective structure or a common body, such as an association, which are calculated to produce the results which that provision aims to suppress (see, to that effect, judgments in Nederlandse Vereniging voor de fruit en groentenimporthandel and Frubo v Commission, 71/74, EU:C:1975:61, paragraph 30; van Landewyck and Others v Commission, 209/78 to 215/78 and 218/78, EU:C:1980:248, paragraph 88; and Eurofer v Commission, C‑179/99 P, EU:C:2003:525, paragraph 23).

Regarding the prohibition to exchange information in itself, in Asnef-Equifax (C-238/05, EU:C:2006:734, paras 51-52), the Court very clearly stressed that

According to the case-law on agreements on the exchange of information, such agreements are incompatible with the rules on competition if they reduce or remove the degree of uncertainty as to the operation of the market in question with the result that competition between undertakings is restricted (John Deere v Commission, paragraph 90, and Case C-194/99 P Thyssen Stahl v Commission [2003] ECR I-10821, paragraph 81).

In effect, it is inherent in the Treaty provisions on competition that every economic operator must determine autonomously the policy which it intends to pursue on the common market. Thus, according to that case-law, such a requirement of autonomy precludes any direct or indirect contact between economic operators of such a kind as either to influence the conduct on the market of an actual or potential competitor or to reveal to such a competitor the conduct which an operator has decided to follow itself or contemplates adopting on the market, where the object or effect of those contacts is to give rise to conditions of competition which do not correspond to the normal conditions of the market in question, taking into account the nature of the products or the services provided, the size and number of the undertakings and also the volume of the market (see Commission v Anic Partecipazioni, paragraphs 116 and 117, as well as the case-law cited).

Thus, there is no doubt that LCCSA's activity is in contravention of the applicable competition law provisions. It is true that the LCCSA is trying to create some safeguards on the circulation of that information.  According to their 'invitation to indicate a willingness to de-tender':

This information will be held on a confidential basis, with responses sent to and collated by one named solicitor member of the LCCSA committee who will not disclose the names of the firms submitting information to anyone including officers and any other committee members of the LCCSA unless and until that firm’s consent has been obtained for their name to be released to the LCCSA officers and committee.
The solicitor holding the information (who is from a firm not submitting any tender) would be able to provide to the President and the Vice President of the LCCSA committee the number of responses received, the numbers bidding, the numbers not bidding, the numbers indicating a willingness to refuse an offer if made or withdrawing a bid and the areas involved. 

However, these safeguards are insufficient to ensure that (with the consent of the participating firms), the information will not end up in the hands of their competitors. Moreover, the aim of the exchange of information is to boycott the Legal aid crime tender 2015, which in my view is a clear anti-competitive agreement prohibited because its object is to restrict or distort competition, so the actual effects of the exchange of information need not be proved. 

Moreover, it is taking place in a public procurement scenario, which can have further implications in terms of future debarment of these firms if found guilty [for discussion, see here and A Sanchez Graells, "Exclusion, Qualitative Selection and Short-listing in the New Public Sector Procurement Directive 2014/24" in F Lichere, R Caranta and S Treumer (ed) Novelties in the 2014 Directive on Public Procurement, vol. 6 European Procurement Law Series, (Copenhagen, Djøf Publishing, 2014)].

Photograph: Sean Smith for the Guardian Sean Smith/Guardian

Could it be justified?

Despite the clear prohibition of the conduct in which LCCSA has engaged, given that it pursues a declared worthwhile objective and, in any case, could be seen as a manifestation of (informal) collective labour action and/or a right to demonstrate against the government, it is relevant to assess whether the invitation to indicate a willingness to de-tender campaign could be justified.

In my view, the possibility to justify it under Art 101(3) TFEU is very slim, if there is any. As stressed in Asnef-Equifax (para 65),

The applicability of the exemption provided for in Article [101(3) TFEU is subject to the four cumulative conditions laid down in that provision. First, the arrangement concerned must contribute to improving the production or distribution of the goods or services in question, or to promoting technical or economic progress; secondly, consumers must be allowed a fair share of the resulting benefit; thirdly, it must not impose any non-essential restrictions on the participating undertakings; and, fourthly, it must not afford them the possibility of eliminating competition in respect of a substantial part of the products or services in question (see, to that effect, Joined Cases 43/82 and 63/82 VBVB and VBBB v Commission [1984] ECR 19, paragraph 61, as well as Remia and Others v Commission, paragraph 38).  

And the application of the second condition requires that 'objective economic advantages might be such as to offset the disadvantages of such a possible restriction' (para 67), which is a very difficult test to apply in this case, particularly in view of the undertain outcome of LCCSA's campaign and the ensuing regulatory response by the Ministry of Justice, if any.

A longer shot would be to try to apply the doctrine of the CJEU regarding infringements of EU law based on the exercise of fundamental rights--as discussed in Schmidberger (C-112/00, EU:C:2003:333, paras 80 and ff). In that situation, which concerned a restriction of free movement of goods and not a competition infringement (and this, in itself, creates significant uncertainty as to the possibility of extrapolating the argument without more), 

neither the freedom of expression nor the freedom of assembly ... appears to be absolute but must be viewed in relation to its social purpose. Consequently, the exercise of those rights may be restricted, provided that the restrictions in fact correspond to objectives of general interest and do not, taking account of the aim of the restrictions, constitute disproportionate and unacceptable interference, impairing the very substance of the rights guaranteed (see, to that effect, Case C-62/90 Commission v Germany [1992] ECR I-2575, paragraph 23, and Case C-404/92 P X v Commission [1994] ECR I-4737, paragraph 18).

In those circumstances, the interests involved must be weighed having regard to all the circumstances of the case in order to determine whether a fair balance was struck between those interests.

The competent authorities enjoy a wide margin of discretion in that regard. Nevertheless, it is necessary to determine whether the restrictions placed upon intra-Community trade are proportionate in the light of the legitimate objective pursued, namely, in the present case, the protection of fundamental rights.

In a case involving similar acts of demonstration (albeti with use of force) for the purpose of forcing engagement with negotiations (Laval un Partneri, C-341/05, EU:C:2007:809), the assessment of proportionality of the boycott was strict and the CJEU determined that EU law prevented 'a trade union ... from attempting, by means of collective action in the form of a blockade (‘blockad’) of sites ... to force a provider of services ... to enter into negotiations with it'. Thus, this potential justification also seems unlikely to cover LCCSA's campaign.

What then?

Given that LCCSA's 'invitation to indicate a willingness to de-tender' and, generally, its attempts to boycott the MoJ's Legal aid crime tender 2015 run against competition law and they cannot be justified or exempted from the prohibition, the association may want to desist from this course of action and think about more creative (legal) ways of opposing the policy of cuts in this area. Otherwise, their efforts will be in vain and their main goal of positively influencing a system that ensures access to justice will be further diminished in case the LCCSA is found in breach of competition law and forced to pay penalties.

UK's Competition Commission findings on private healthcare markets unfair, says UK CAT

The UK's Competition Appeals Tribunal has disapproved the Competition Commission's provisional findings on private healthcare markets published at the end of August 2013 (see CPI press release here). 

 

In its Judgment of 2 October 2013, the UK CAT found that "the Commission’s rules governing the disclosure room were not fit for the purpose of allowing a proper and informed response to be made to the Commission’s provisional findings. Accordingly, the decision was in breach of the Commission’s statutory duty in section 169 of the Enterprise Act 2002 and in breach of the rules of natural justice". In my view, the path through which the UK CAT reaches this decision deserves some attention.

 

Generally, the UK CAT finds no fault in the design of the access to confidential information by means of a data room: "We do not consider that the decision of the Commission, in this case, to protect the Confidential Information by way of a data room instead of one or more of the other ways contemplated in paragraph 9.14 of the CC7 Guidance, to be susceptible of criticism. We accept the Commission’s view that the confidential material in this case was extremely sensitive and, in all the circumstances, the decision to protect the "specified information" in this case by way of a data room is unchallengeable on a judicial review basis." (para 49).

 

However, the UK CAT takes issue with the specific rules on access to the data room that the Commission imposed, which restricted access to the legal and economic advisers of the undertakings concerned and which prevented them from taking copies of the information (and only notes, subjected to scrutinity and redaction by the Commission could be retained). In the UK CAt's view:

62. The short conclusion is that consideration by the Applicants of the Confidential Information is the starting point for examining what fairness requires. It will be the Applicants who will be affected by any adverse decision of the Commission, not their advisers. Implicit in this starting point is the fact that it is for the Applicants to decide how they wish to respond. In cases like the present, doubtless that will involve the retention of an expert legal team, and expert economists and accountants. But, at the end of the day, what the "interested person" (we shall use this term as shorthand to refer to parties like the Applicants, who may be affected a decision, and who are entitled to be consulted on it) chooses to do to respond is a matter for that person, and not for that person’s legal or advisory team, still less for the body whose provisional decision is being responded to. [...]

63. This starting point may be modified and derogated from to take account of the confidential nature of the information in question. We recognise that market investigations involve – as here – considerable amounts of very confidential material, and that if that material is not appropriately safeguarded, confidence in Commission investigations will be eroded and – quite possibly – damage done to the operation of markets because of the market sensitivity of the information involved. But it must always be borne in mind that derogations from the starting point that we have identified must be such as to enable the party affected to respond.

67. A data room operates very differently from a confidentiality ring. Not only is access to the room limited to a defined class of person (in this, data rooms are similar to confidentiality rings), but also the confidential information is retained at a secure location – in the data room. This prevents the sort of accidental disclosure of confidential information that can occur in the case of confidentiality rings.

68. Use of a data room will certainly involve additional inconvenience to an interested party and its advisers. It may well mean more than this: it may mean that the drafting of a response is made materially more difficult. But this additional burden can be justified provided:

(i) the sensitivity of the material in question warrants it; and (ii) the interested person is still – despite the additional difficulties – able to make worthwhile representations [...]

69. This means that where a data room is deployed to protect sensitive information, there must be facilities available in the data room so as to enable a proper and informed (or "worthwhile") response.

After setting this background, the UK CAT considers that the rules governing the Competition Commission were faulty in three main aspects. First, "confining the Advisers to recording in their notes only Own Client Data or information derived solely from Own Client Data and/or from data in the public domain is wrong in principle" (para. 71), despite the fact that, informally, the Commission decided to oversee breaches consisting of the taking of notes concerned with other confidential information and to treat them as further disclosures of evidence (para. 58). Secondly, the UK CAT criticises the fact, that while at the data room, advisors were not provided with means to draft a response to the confidential information they could not take away (para. 72). Finally, the UK CAT considers that "the period of time in which the Advisers were allowed access to the Disclosure Room [ie 2 working days] was unreasonably short" (para. 73).

Interestingly, the UK CAT also expressly dismissed the Commission's argument that the applications against its (process leading to its) provisional findings were premature and rejected the contention that the Commission could cure any shortcomings in the access to confidential information during the remainder of the procedure (or, indeed, even after releasing the provisional findings, as they are still under review and the Commission has until April 2014 to publish its final findings and recommendations). The UK CAT considered that an initial restriction to the amount of information and the conditions for access to that information by counsel of some of the main players involved in the market investigation suffices to taint the procedure with unfairness. However, the UK CAT made no finding as to the appropriate relief and waits for the parties to request a hearing, if needed.

 

In my view, this is a case where 'due process' rights have been upheld to the highest possible level (maybe even to excess), and even in a setting that is not properly leading to the imposition of fines, but more of a regulatory exercise. Instances such as these may become even more common after the EU accedes the EU Convention on Human Rights and, if not properly weighed, may create a significant burden for competition law investigation and enforcement [for general discussion, see my "The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?"].

 

Therefore, it will be interesting to see whether the Competition Commission's investigation in this sector can proceed after this significant blow by the UK CAT and, if so, whether the UK Competition Commission amends significantly its rules on access to evidence. The knock-on effect of this case on 'proper' competition law investigations in infringement procedures by the new Competition and Markets Authority (or the European Commission, as a spillover and due to the anglosaxon influence in Luxembourg) seems hard to predict, but I would submit that it will not be neutral.