Single Market Withdrawal: A New Challenge to BREXIT for the UK Government

The CMA Obtains Its First Disqualification Undertaking from a Director for Competition Law Infringement

Everything But the Kitchen Sink: Leading French Kitchen Installer Fined

German Dairy Sector Due for a Shake Up?

Your Number’s Up: Italian Competition Authority Investigates Alleged Abuse of Dominance in Telecommunications Sector

The Italian Competition Authority Whips into Shape the Fashion Sector


Single Market Withdrawal: A New Challenge to Brexit for the UK Government

By Robert Bell

Should Parliament have a say over whether Britain could remain in the European Economic Area?

Introduction

The UK Government faces yet another challenge over its determination to take the UK out of the EU and the EEA Single Market without Parliamentary approval which could further complicate Brexit.

The British people on 23rd June 2016 confirmed through the EU referendum result they wanted to leave the European Union. However the big question the EU referendum result did not address was what trading arrangement with our European neighbours should we put in its place. This latest challenge, if successful, is particularly awkward for the UK Government because it gives Parliament an opportunity to vote on whether to stay in the Single Market – an issue the UK Government has been desperate to avoid.

Background

British Influence (“BI”) a Think Tank organisation, which strongly advocates the UK staying within the Single Market, has written to David Davis, the Secretary of State for Exiting the EU to contend that the UK Government has to seek Parliamentary approval to leave the European Economic Area Agreement, an agreement to extend the scope of the EU Single Market to non- EU members, Norway Iceland and Liechtenstein and made between those states and the countries of the European Union. In default of the UK Government agreeing to its demands BI has threatened to seek judicial review of the Government’s position before the Courts.

They argue a further vote is needed, in addition to seeking the approval of Parliament to issue an Article 50 notice triggering EU withdrawal, which is already the subject of a high profile case before the UK Supreme Court set to be heard in early December.

The EEA Case

This latest example of “legal constitutional gymnastics” which have recently been pre-occupying the UK Courts, is based on the premise that Britain will remain a member of the EEA after leaving the EU. BI contends that as the UK entered into the EEA Agreement as an individual Contracting Party in 1993, and not under the auspices of the EU, the UK Government has to give separate notice to withdraw from the EEA pursuant to Article 127 EEA.

Article 127 of the EEA Agreement states:

“Each Contracting Party may withdraw from this agreement provided it gives at least twelve months’ notice in writing to the other Contracting Parties.

Immediately after the notification of the intended withdrawal, the other Contracting Parties shall convene a diplomatic conference in order to envisage the necessary modifications to bring to the Agreement.”

Given that Article 127 gives an express mechanism for withdrawal, it implies the exclusion of other mechanisms for withdrawal such as leaving the EU.

Similar to the successful arguments advanced before the English High Court in the R(Miller) v. Secretary of State For Exiting the European Union, BI strongly believe that the UK Government cannot use the prerogative to issue an Article 127 notice and must seek legislative approval of Parliament to withdraw from the EEA Agreement. This would give MPs a specific vote on whether to leave the Single Market – something the Government is anxious at all costs to avoid.

The Article 127 argument appears on its face to be “clutching at straws” It is an attempt to produce a result which sits very uncomfortably with the wording of the rest of the EEA Agreement. There are fundamental difficulties with the concept that the UK can stay in the EEA Agreement having withdrawn from the European Union.

While there are indications that an EFTA Member State can be a member of the EEA without becoming a member of the EU (see Article 128 EEA) it does not follow that a member who has been an EU Member but withdrawn can stay an EFTA member on the current terms.

An example of this is Article 126(1)EEA. This states that the territorial scope of the EEA Agreement is limited to territories to which the EU treaties apply plus Norway, Liechtenstein and Iceland. Therefore if the UK withdraws from the EU but stays party to the EEA Agreement it could find itself in the paradoxical situation of being party to an international trade treaty which does not cover the UK.

So in this context the way the EEA Treaty is drafted leads to a number of nonsensical interpretations. Therefore if there remains some uncertainty about the interpretation, operation or meaning of the EEA Agreement it is likely that any Court seized of the matter would feel compelled to refer the matter to the Court of Justice of the EU in Luxembourg for a preliminary reference on a point of law.

The UK Government conversely argues that if you withdraw from the EU you withdraw automatically from the EEA. It elaborates upon its stance by arguing that to be an EEA member, each state has either to be an EU member or an EFTA member. Non-EU countries had created the European Free Trade Association to promote economic and trade links. Current member are Norway, Liechtenstein, Switzerland, and Iceland. UK was a founding member of this organisation but left to join the EU in 1973.

Significance

So what is the significance of all this? Surely if BI succeed it will only complicate and delay the Brexit process and will not derail it?

Dependent upon the outcome of UK Supreme Court case Parliamentarians are likely to have vote on whether to approve the triggering of Article 50. It is highly likely that they will feel duty bound to respect the result of the June referendum to leave the EU.

However if there is a separate vote on the giving of an Article 127 notice to leave the EEA the result is more difficult to call as the merits are much more nuanced. The big question the EU referendum result did not address was; what trading arrangement with our European neighbours should we put in its place? Many Members of Parliament feel they should have a vote on this. 
Voting to stay in the EEA Single Market would not be undermining the UK referendum result but merely a clarification of the terms of leaving the EU.

 

The CMA Obtains Its First Disqualification Undertaking from a Director for Competition Law Infringement

By: Robert Bell

Businesses that breach competition law can face serious financial and reputational consequences. Certain serious breaches of competition law may also put individuals at risk of criminal prosecution. In addition, the CMA may apply to Court for a director disqualification order against directors of a companies engaged in anti-competitive behaviour.

For the first time, the CMA sought to use its power under the Company Directors Disqualification Act 1986. On 1st December 2016, Daniel Aston, managing director of the online poster supplier Trod Ltd, gave a disqualification undertaking to the CMA not to act as a director of any UK company for 5 years.

The disqualification follows the CMA’s decision of 12 August 2016 that Trod breached competition law by agreeing with GB eye Ltd (trading as ‘GB Posters’) one of its competing online sellers that they would not undercut each other’s prices for posters and frames sold on Amazon’s UK website. Both parties used automated re-pricing software to establish the cartel. Trod, based in Birmingham, and GB eye, based in Sheffield, sold licensed sport and entertainment merchandise and related products.

The arrangement applied to posters and frames sold by both parties on online market places from 24 March 2011 (at the latest) to 1 July 2015 (at the earliest). GB eye reported the cartel to the Competition and Markets Authority (CMA) under the CMA’s leniency policy. Accordingly, it will not be fined providing it continues to cooperate and complies with the conditions of the leniency policy. The £163,371 penalty imposed on Trod (in administration) included a 20 per cent discount for Trod’s admission and cooperation with the CMA investigation.

As Daniel Aston was the managing director of Trod at the relevant time and because he personally contributed to the breach of competition law, the CMA considered that he was unfit to be a company director for a specified period.

The Competition and Markets Authority (CMA) may, under the Company Directors Disqualification Act 1986, seek the disqualification of an individual, either by court order or accept legally binding undertaking, from holding company directorships or performing certain roles in relation to a company for up to 15 years, where that individual has been director of a company which has breached competition law.

Undertakings can agree to give an undertaking not to act as a company director to avoid a Court hearing. A disqualification undertaking has the same legal effect as a disqualification order. The Company Directors Disqualification Act 1986 states:

(1)The court must make a disqualification order against a person if the following two conditions are satisfied in relation to him.

(2)The first condition is that an undertaking which is a company of which he is a director commits a breach of competition law.

(3)The second condition is that the court considers that his conduct as a director makes him unfit to be concerned in the management of a company.

This is the first used of this prerogative for competition law infringement since it came on the statute book.

This decision is a salutary reminder that all directors have a responsibility to ensure that companies do not engage in unlawful anti-competitive practices, and if they do and directors knowingly participate in them, they are likely to be disqualify from acting as a company directors in addition to other criminal penalties.

 

Everything But the Kitchen Sink: Leading French Kitchen Installer Fined

By Kathie Claret and Francois-Xavier Mirza

On November 24, 2016 the French Competition Authority (“FCA”) imposed a € 400,000 fine on a leading group of French professional kitchen equipment installers (le Groupement des Installateurs Français - ”GIF”), for having implemented since 1994 a horizontal agreement among its 80 members aiming at a territorial market division in breach of Article L. 420-1 of the French Commercial Code. The fine imposed on GIF was accompanied by an injunction ordering the group to remove the clauses of its internal rules, which were mandatory for the members of the group, as these were deemed anti-competitive.

Since 1994, the GIF internal rules attributed to each of the members of the group, a limited geographic area for their activity, while retaining freedom of activity in non-affected "free" sectors. This organization, combined with the fact that adherents were obliged to repay a part of their profit when they intervened outside their sector, was found by the FCA to imply that adherents should refrain from selling on the sectors of others without prior agreement.

This practice was held to be prohibited by Article L 420-1 of the Commercial Code, which provides (translation):

“Agreements and concerted practices, which aim at or may have the effect of preventing, restricting or distorting competition on a market are prohibited, even directly or indirectly through a group company located outside France, in particular when they tend to:

(1) restrict market access or the free exercise of competition by other undertakings, (2) hinder the setting of prices by free market forces by artificially promoting their increase or decrease, or (3) limit or control production, outlets, investments or technical progress, or (4) allocate markets or supply sources” (emphasis added).

In its decision of November 24, the FCA cited the recent case law of the European Union and in particular the Toshiba judgment of 20 January 2016, which considered that a territorial distribution of the market is presumed to constitute a restriction of competition by object when the operators among whom this distribution is organized are at least potential competitors.

Thus, the provisions of the GIF internal rules organizing a sectorization of the activity of its members by discouraging them from providing services in areas allocated to others was deemed by the FCA to be intended to reduce competition among the members of the group.

 

German Dairy Sector Due for a Shake Up?

By Eckart Budelmann

Recently, the German Federal Cartel Office (FCO) introduced an administrative proceeding to take a look at the supply terms set by dairies for farmers. In a test proceeding, the FCO will first inspect the supply terms of the northern German diary giant DMK Deutsches Milchkontor GmbH, as well as its parent company Deutsches Milchkontor eG.

While state quantity control over milk ceased to exist last year, this change has had little effect on the contracts between the producers and the dairies. Long-term contracts, the duty to deliver all of the milk production, and a very transparent pricing system limit the maneuvering room of the farmers and also impacts the food retail industry as a whole. Eventually, these measures may limit competition among dairies for raw milk as well as effective quantity control over the market, ultimately at the expense of the dairy farmers.

The primary focus of FCO’s investigation will be on the long-term contracts as well as any contract provisions that oblige the producers to deliver all of the milk production to “their” dairies, the so-called duty to tender delivery. The reference pricing system—the price change at one dairy immediately after the corresponding price change at another dairy—will also be examined. Such a scheme could eliminate business negotiations altogether, which normally take into consideration the individual added value and the sales power of the dairy as well as the payment practices to the producers. Officials are acting on the suspicion that the agricultural producers and their competitive course of action are constrained by the nationwide chain of long-duration contracts, while the raw milk market is also insulated against the entry of new dairies.

In its final report regarding the inspection of dairy industry in 2012, the FCO already referred to the antitrust issues regarding the delivery terms for raw milk collection. While this newly-introduced proceeding will not solve all of the problems in the dairy market, antitrust-compliant supply terms can contribute to the better functioning of the dairy market in the intermediate term.

Beyond the issue at hand, the case shows that the FCO has a sharp eye on market segments in which a state quantity control or similar policy steering measures, ceased to exist. The FCO is
willing to take measures to ensure that market participants and consumers can benefit from the advantages of a free pricing system.

 

Your Number’s Up: Italian Competition Authority Investigates Alleged Abuse of Dominance in Telecommunications Sector

By Luigi Zumbo and Mr. Arturo Battista

On 16 November 2016, the Italian Competition Authority (the “ICA”) opened an in-depth investigation into Vodafone Italia S.p.A. and Telecom Italia S.p.A. (the “Accused Companies”), two leading Italian companies providing services for SMS bulk sending.

The ICA alleged that the conduct of the Accused Companies could amount to an abuse of dominance in contravention of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).

In particular, the ICA stated that the Accused Companies -- which enjoy a dominant market position into the telecommunications sector -- were using this monopolistic power to gain the same market power in the downstream market of services for sending bulk SMS messages.

The ICA believes that the Accused Companies would disadvantage their competitors by applying high prices in the upstream market for the use of their network, so that in the SMS bulk market, the margin of profit of the other competitors would be not sufficient to cover the costs necessary to provide the SMS bulk services to the final clients.

 The alleged wrongdoing has yet to be proven at this stage and the investigation continues. However, the ICA has opined that such conduct, if proven, would amount to an infringement of Article 102 TFEU on the grounds that it would adversely affect both trade within the EU and the development of the downstream market by creating a margin squeeze for the competing operators.

 

 

The Italian Competition Authority Whips into Shape the Fashion Sector

By Luigi Zumbo and Mr. Arturo Battista

 On 11 November 2016, the Italian Competition Authority (the “ICA”) applied a € 4,5 million fine on nine companies (the “Companies”) operating in model agency services along with the Italian association who represents them (“Assem”) for infringements of Article 101 TFEU, the prohibition of anti-competitive agreements.

The ICA found that the Companies shared constantly from 2010 to 2014, commercial data regarding the prices charged to businesses requiring the services, as well as discounts applied to single clients and the status of the negotiation related to specific tenders. The Companies shared such information during the frequent meetings held by Assem in order to coordinate and promote the professional interests of all the affiliated companies.

Through this behaviour the Companies sustained much lower costs than if they would have been actively competing, and imposed costs on their clients (model and businesses).

It is worth mentioning that the ICA decided to apply Article 101 of TFEU and not the equivalent Italian legislative provision because Italy is an important part of the European Union market which thus can be affected by the abovementioned conduct.

The ICA has increased its focus on the fashion sector following investigations started by other National Competition Authorities like the Competition and Markets Authorities in the United Kingdom.