Road marking case judgment is a setback for competition

By partner Christina Heiberg-Grevy and attorney Charlotte Fornø, Accura

The Supreme Court judgment in the so-called road marking case is important and a landmark decision. Regrettably, the Court ruled in favour of the Danish Competition Council which will have a serious and detrimental impact on Danish businesses and competition.

Many people have awaited the Supreme Court judgment. Unfortunately, the judgment is sad news for Danish businesses and free competition. It means that many businesses will abstain from joining forces, for instance, to tender for private and public tenders due to their fear of being charged with cartel behavior. This will affect all businesses – both small and large – and all industries. It is bad for competition.

Now, the Supreme Court judgment has established that consortia between competitors must be treated as cartels and, accordingly, as the most serious violations of the competition rules which, if carried to the extreme, are punishable by fines of up to 10% of the consolidated revenue and imprisonment of up to six years. The competition authorities are not required to prove that such agreements actually restrict competition.

The case in brief
In 2014, the Danish Road Directorate invited tenders for a large amount of road marking works. Tenders could be submitted for individual regions, but also for several regions with a discount. Two businesses joined forces to tender as they assessed that they could only win if they submitted a joint tender for all regions with a discount. They won the contract with the lowest price, but the Danish competition authorities determined that the joining of forces was unlawful as both businesses could tender for individual regions and, therefore, were competitors. The Danish Public Prosecutor for Serious Economic and International Crime charged the businesses and executive employees. In 2018, the Maritime and Commercial High Court determined that it had not been proved that the businesses were competitors in the specific tender and that a proper assessment had not been made of the object of the agreement. The case was brought before the Danish Supreme Court which has now reached the opposite result.

According to the Danish competition authorities, the judgment does not change the fact that there is still a great potential for concluding consortium agreements which will benefit customers, and also for competitors if they are able to prove that the joining of forces will result in substantial efficiencies. However, this is an illusion and it is also a dangerous message.

If there is the slightest risk that businesses may be deemed to be competitors in respect of a specific contract, which this case shows does not require that much, the joining of forces will be placed on the same footing as a cartel. And, unfortunately, it is not realistic or advisable to rely on being able to prove that the joining of forces will result in such substantial efficiencies that the joining of forces is lawful after all. It is established case law that for this category of serious violations it is hardly possible to demonstrate substantial efficiencies, which the Danish Competition Council also emphasised in its decision of the case. The case shows that not even advantages in the form of being able to rely on each other’s resources, increased supply certainty, reduced risk of breach of contract and penalties and, accordingly, the possibility of offering a lower price constitute efficiencies justifying such joining of forces.

As a result of the Supreme Court judgment, there cannot be many advisors which will dare to give the seal of approval to join forces in consortia and the like (e.g. sub-supplier collaborations) if it cannot be ruled out that the businesses may be deemed to be competitors. This also applies if it cannot be ruled out that the businesses are able to perform the contract on their own if, for instance, they engage more employees and invest in new equipment. That was the experience many of us advisors made up to the Maritime and Commercial High Court’s acquittal in 2018.

An unfortunate setback
A cartel will not become lawful simply because it is camouflaged as a consortium agreement. But there may be many valid reasons for joining forces, for instance, that the financial risks of performing a contract alone are too substantial. In such situations, it is crucial that the businesses are ensured a fair and proper assessment of whether their joining of forces actually benefits and does not harm competition. Unfortunately, this was not the course taken by the Danish Supreme Court and, consequently, the judgment will prevent and deter many businesses from joining forces which could otherwise be beneficial to competition. Most businesses will not dare to join forces when they risk fines, imprisonment, exclusion from public tenders, and lengthy and costly legal consequences. This is an unfortunate setback for competition.

Partner in Accura’s EU and Competition Team Christina Heiberg-Grevy represented Eurostar Danmark A/S.

Read the Supreme Court judgment here (in Danish).

Find the debate in Børsen here (in Danish).