EC Competition Law

Case Note: Crane Hire, Wire Netting and Ladbroke Racing

 

Jane Lambert

27 Mar 2003

By any standard, the Enterprise Act 20021 is a substantial piece of legislation. Consisting of 281 sections and 26 schedules, the Act
􀀀 establishes new competition institutions,
􀀀 reformulates the law relating to mergers and markets,
􀀀 criminalizes certain anti-competitive behaviour,
􀀀 penalizes with disqualification directors of companies engaged in anti-competitive practices,
􀀀 extends the collective protection of consumers; and
􀀀 makes substantial changes to personal and corporate insolvency law.
The Act received royal assent on 7 Nov 2002 and will come into force by stages over the next financial year.
According to the DTI website2 commencement orders for the competition and consumer protection
measures will be made during the summer of 2003, commencement orders for the corporate insolvency
provisions and the abolition of Crown preference early in the coming financial year, and the personal
insolvency provisions towards the end of that financial year.

Certification

In the Crane Hire Case art 7 of SCK's rules prohibited certified contractors from hiring cranes from  companies that they had not certified. As mobile cranes have an operational range of about 30 miles in each direction and contractors have to hire equipment from other companies if they are given work outside the area of operation of their own machines, the practical effect of this restriction was to dampen competition between hire companies. SCK tried to justify the restriction on the grounds that it "simply aimed at fully guaranteeing the quality of certified goods or services."  The ECJ rejected that submission on the ground that it was difficult for uncertified contractors to obtain accreditation and the prohibition applied even to contractors who could provide equivalent quality assurance guarantees. The minutes of the meeting at which SCK was formed indicated that the object was to raise prices rather than improve service standards. The question of certification arose again in the context of SCK's application to quash the Commission's refusal to exempt the prohibition on hiring. The Court found that SCK's accreditation added nothing of value to that resulting from the existing system of state regulation making it hard to resist the conclusion that the only purpose of accreditation was to limit the pool of potential contractors.

Publication of Recommended Rates
The Federatie van Nederlandse Kraanbedrijven ("the FNK") was formed in 1971 to defend the interests of crane hire businesses in the Netherlands. Its members owned just over half of the 3,000 cranes available for hire in that country. FNK members were encouraged to collaborate with each other. Art 3 of the association's statutes required its members to give priority to fellow members when letting equipment out on hire and to charge each other "reasonable rates".  Tariffs for hiring out equipment to other members were agreed regularly and the association published periodic rate recommendations and cost estimates. The Commission determined that those rules infringed art 85 (1) of the Treaty of Rome and fined FNK 11.5 million ECU. In its application to the ECJ to annul that decision, FNK contended that the publication of recommended rates was intended to guide negotiations and that members were not required to charge them and that  FNK was not involved in fixing rates for equipment hire between members. The ECJ rejected both contentions:

	it reminded itself that art 85 (1) of the Treaty specifically prohibits agreements, decisions or concerted practices "which directly or indirectly fix purchase or selling prices or any other trading conditions;
	as there was an obligation to charge reasonable rates it was implicit that those rates would not be less than the rates the members had agreed between themselves for the hire of equipment to each other;
	FNK had been set up to remedy instability in the market which had forced several companies out of business;
	although no sanctions had ever been applied on members who charged less than the recommended rates there was at least one instance when a member had been censored for diverging from the recommendation and the setting of rates for equipment hire between FNK members effectively limited the scope for rate competition; and
	the evidence before the Court was that hire rates between members were set at national and regional FNK meetings and published by FNK staff on FNK stationery.

ECSC Policy
One of the grounds of appeal in the Wire Netting Case was that the CFI had taken at face value the Commission's assertion that competition was still possible despite the regulation of the metal wire market and that it had not considered whether the impugned agreement or concerted practice could comply with art 85 in that it tended to stabilize prices for wire netting and hence metal wire. The applicant submitted that in that respect the object of the exercise was the same as the Commission's in regulating the wire market. Rejecting that submission, the Commission held that it was enough that there was a restriction of competition and it did not lie in the applicant's mouth to justify an anti-competitive practice on the ground that it was reinforcing an ECSC policy. Secondly, the applicant argued that a 320,000 ECU fine (that had been imposed on it for participating in a price-fixing arrangement) should be quashed or reduced because the impugned agreement or concerted practice was essential for the stabilization of metal wire prices.  It relied on Suiker Unie v Commission [1975] ECR 1663 where the ECJ had reduced fines imposed by the Commission because some kind of common organization of the sugar market was essential for a minimum price for sugar beet.   The ECJ upheld the decision of the CFI that the two cases were quite different. In Suiker Unie the relevant market concerned a product that was subject to the common agricultural policy in the framework of a system of national production quotas allocated among the main producers. That was not the case with the market for wire netting which was free and unregulated.   Finally, the applicant argued that its fines should be reduced on the ground that it was executing Community policy.    The ECJ saw no merit in that argument.

Liability for Anti-Competitive Practices  necessitated by National Law
An analogous argument that arose in Ladbroke was whether compliance with national betting and gaming legislation which might prevent, restrict or distort competition  or abuse a dominant position could infringe art 85 or  86 of the Treaty of Rome. The respondent had complained to the Commission that an economic interest group consisting of a number of French bookmakers called the Pari Mutuel Urbain ("PMU") which had been established and given a monopoly of off-course betting for races in and outside France under various French enactments infringed Community competition law.  When the Commission decided not to act against PMU Ladbroke sued the French government for breaching article 90 of the Treaty of Rome and the Commission for failing to act under art 90 (3). The CFI quashed the refusal to act on the ground that the Commission could not have determined whether a case lay against PMU until it had determined whether the French government was in breach of art 90. Both the Commission and France appealed against that decision to the ECJ. Allowing the appeal, the Court held that it was only necessary for the Commission to determine whether national legislation compelled undertakings to infringe Community law. An undertaking could not be liable under art 85 or 86 unless it was capable of independent action. If national law allowed undertakings to decide whether or not to engage in anti-competitive conduct the Commission would then consider whether those undertakings had participated in such conduct.

 

Important