Decision of the Senate of the Supreme Court of 8 February 2011 in case No SKA–157 (LSF Holdings and Amberholdings / Ostas flote and PKL Flote) about the right to contest a merger clearance issued to another undertaking
The Senate of the Supreme Court has clarified in what situations a merger clearance can be contested by a third party.
In November 2008, Ostas flote SIA acquired PKL Flote AS. Contrary to the requirements of the Competition Act, the transaction was not notified to the Competition Council. As reported in our competition law news of April 2010, the Competition Council, having received a complaint about the unnotified acquisition, fined the parties but also eventually cleared the concentration.
LSF Holdings SIA, which had filed the complaint and is a minority shareholder of Ostas flote, as well as Amberholdings SIA, which along with the merging parties is in the of business tugboat services, contested the clearance before a court. The Senate ruled that neither of the applicants was “directly and individually concerned”, therefore they did not have standing to contest the Competition Council’s decision.
As regards LSF Holdings, the Senate noted that involvement in the administrative proceedings at the Competition Council may be taken into account, yet it is neither necessary nor decisive when determining whether an undertaking may appeal a merger clearance issued to a third party.
Senate’s reasoning is particularly noteworthy insofar as it concerns the application filed by Amberholdings. At the time of acquisition the applicant provided services only at the port of Liepaja, whereas the merging undertakings worked at the ports of Riga and Ventspils. At the date of clearance Amberholdings was present in the port of Riga, but ended its business there within a few months.
According to the inadmissibility decision, “in such circumstances the Senate cannot identify any actual or potential individual encroachment upon the rights of Amberholdings SIA caused by the merger clearance”.
It follows from the court’s decision that the right to contest a merger clearance addressed to another undertaking is enjoyed only by actual competitors. Denial of this right to potential competitors is somewhat surprising. In addition, the Senate’s ruling once more demonstrates how procedural rules of EU competition law are transposed by analogy into Latvian competition law: “direct and individual concern” is an admissibility criterion at EU courts, whilst the Latvian Administrative Procedure Act treats standing more liberally.
Decisions of the Competition Council
Decision of 8 April 2011 in case No 1809/10/03.01.–01./14 (Rimi / Marno J) about exclusive lease as a restriction of competition
The Competition Council has adopted a decision whereby a lessor’s undertaking not to lease property to lessee’s competitors has been found to infringe competition law. The decision significantly reduces the legal certainty available to undertakings.
Supermarket chain Rimi leases floor space in several shopping malls from SIA “Marno J”, the owner. Rental agreements either explicitly prohibit the landlord to lease floor space to tenant’s competitors or authorise the tenant to pay a reduced rent in case a competitor has been allowed into the respective shopping centre. The Competition Council characterised these exclusivity arrangements as a distortion of competition, and imposed a fine on Rimi group.
The reasoning contained in the decision is peculiar. Firstly, Rimi group was not accused of having abused a dominant position. Secondly, the exclusive lease provisions were not found to be incompatible with competition rules on account of “parallel networks of vertical agreements”. Yet, the decision does not articulate any other conceivable theory of harm.
In case Rimi group enjoyed a dominant position in the market of floor space lease in shopping malls, the authority could have investigated whether there has been abuse of this position. However, the Competition Council did not find the retailer to be dominant. It follows, therefore, that Rimi group is unable to foreclose the lease market to the disadvantage of other food stores, unless access to most other substitutable premises is precluded by similar exclusive lease arrangements.
Yet, although the discussion by the Competition Council of Rimi group’s arguments contains an assertion that “[a]ccording to evidence obtained during the investigation, similar restraints do indeed cover a majority of shopping malls,” such evidence is not presented in the decision. Therefore the Competition Council has not established anti–competitive effects attributable to “parallel networks of vertical agreements”; the passing and unsubstantiated assertion does not amount to an adequate statement of reasons.
Presumably, inadequate reasoning can be explained by the Competition Council’s undisclosed but perceptible dislike of the market power possessed by Rimi and MAXIMA supermarket chains. Footnotes contain references to a decision establishing that Rimi group holds dominant position in retail (DPR), although in the present case the authority explicitly emphasised that the prohibition of anti–competitive agreements rather than DPR rules were being applied.
The decision presents undertakings with two difficulties. Firstly, – bearing in mind that DPR is characterised by a lower degree of market power than the “usual” dominant position, – one can hardly understand how much market power in a downstream market may be enough to imperil vertical agreements in an upstream market. Secondly, if the legality of an undertaking’s conduct is affected by the agreements concluded by its competitors, it is not clear how to discover the content of such agreements and avoid infringing competition rules.
Decision of 3 May 2011 in case No P/09/05/4 (“MIF case”) about multilateral interchange fees
The Competition Council has joined the growing number of competition authorities which have fined banks for agreeing on multilateral interchange fees (MIF). In Latvia, fines totalling almost 5.5 million LVL (approx. 7.8 million EUR) have been imposed on 22 banks.Top
MIF are payments received by the “issuing bank” from the “acquiring bank” or vice versa. Issuing bank is the institution which has issued a payment card, and acquiring bank is the institution which services the merchant that has accepted payment with the respective card, or which owns the ATM used by the cardholder.
The purpose of MIF is to balance issuing and acquiring costs. When goods and services are bought, the costs are usually higher on the issuing side, whereas in ATM transactions more costs are incurred on the acquiring side.
The multilateral agreements concluded in 2002 have now been characterised by the Competition Council as distortions of competition and therefore illegal. It was precisely the form of the agreements which the authority deplored – distortions were said to have been caused by the multilateral nature of the covenant, whereas bilateral interchange fees would have been lawful. This finding was not affected by the expressly preserved and, as regards ATM transactions, frequently exercised option for any two or more banks to agree on different interchange fees.
According to the Competition Council, the principal negative effect of MIF was appearance of a “floor” beneath merchant service charges. The authority did not attach much weight to evidence that in an appreciable number of cases the banks had in fact set merchant service charges below MIF. Merchants were said to have included the costs into prices, thus mediating consumer harm. The Competition Council was equally unimpressed by demonstration that in the absence of domestic MIF the generally higher regional cross–border MIF would have been applicable, and that costs of handling banknotes and coins well exceed the costs of electronic payment processing.
This voluminous case which was investigated for two years is one more example of how competition authorities of EU member states are swayed by the European Commission: sectors which have attracted the attention of the latter, are eventually – and frequently with exceeding harshness – pursued by national authorities.
Decision No 14 of 3 March 2011 (Rebes sistemas / Stendes nami) about the inapplicability of the Competition Act to economic activity of the state
The Competition Council has decided that the execution by a public entity of functions entrusted to it by law is not subject to the Competition Act. Thereby an uncomfortable discrepancy with court practice and the authority’s previous case law has been caused.
In the town of Sabile centralised heating services were provided by two companies: Rebes sistemas SIA and Stendes nami SIA. Both companies lease boilers and heat transmission infrastructure from the municipality of Talsi. There is no connection between their networks, and each company serviced a separate part of the town.
In order to reduce heating costs in pursuit of social policy goals, the municipality decided to reduce substantially the rent charged from Stendes nami. Subsequently a similar reduction was sought by Rebes sistemas, but the municipality did not answer, i.e. it constructively refused the reduction request. Having failed to secure reduced rental costs, Rebes sistemas could no longer carry on the business, and operation of the heat supply infrastructure was taken over by the municipality itself. After this change, the tariff was reduced significantly, as rent could now be excluded from the costs.
Rebes sistemas complained to the Competition Council about abuse of the municipality’s dominant position.
Yet the Competition Council declined to open an investigation and examine the complaint on merits. Although the authority easily conceded that in the market of heat supply infrastructure lease the municipality was engaged in an economic activity, that it was an undertaking within the meaning of the Competition Act and that it enjoyed dominant position, the decisive fact was that, in accordance with the Act on Municipalities, organisation of heat supply is a public law function of a municipality:
Even if the Municipality’s conduct has been such as to have possibly caused the Applicant to leave the relevant market, the Competition Council is not competent to examine those actions of the Municipality which have been performed […] in the framework of municipalities’ independent functions.This outcome is surprising because it contradicts the authority’s previous practice and, presumably, the still valid case law of the Senate of the Supreme Court. As we reported in the competition law news of April 2009 [LAT only], the Competition Council had fined the Riga Free Port Authority for abuse of dominance in exercising the function of organising tugboat services, entrusted to it by the Act on Ports, although the port authority, just like a municipality, is a “secondary public law person”. Later this broad interpretation of the Competition Council’s competence was approved by the Senate:
The Competition Act governs all undertakings engaged in an economic activity, including public law persons if they are engaged in economic activity. […] Since, in the present case, the Competition Council examined the applicant’s conduct in concluding agreements for the provision of tugboat services, the assertion that the Competition Council is not competent to examine the compatibility of the applicant’s conduct with the Competition Act, is erroneous.The inconsistency invites a speculation that the Competition Council’s readiness to adopt a wide or a narrow interpretation of its own competence may depend on a preconceived willingness to find an infringement or not. Although one can sense why the authority’s officials may be “emotionally inclined” to treat a democratically elected municipal council and a scandal–prone port authority differently, failure to fully state the reasons for a decision is a very grave defect.
Laws and Regulations
Cabinet of Ministers regulation No 223 of 22 March 2011 on criteria of assessment whether the activities listed in the Act on Procurement for Providers of Public Services are directly exposed to competition, and about requests to the European Commission
Latvijas Vestnesis, 08.04.2011., No. 56 (4454) [LAT only]
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