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26 September 2019
Bid-rigging cartel in construction industry
Conclusion of settlement agreements during investigation procedure
Fine-reducing indemnity payments
Strengthened civil antitrust law to the detriment of leniency programme?
On 3 September 2019 the Competition Commission (ComCo) closed its almost seven year-long investigations into bid rigging in the construction industry in the canton of Graubunden. Despite five leniency applicants, the case was not settled, but was decided in a standard proceeding. ComCo issued total fines of Sfr11 million, an amount that would have been much higher had ComCo not deducted the damages compensation paid by the cartelists to the victims (ie, the canton of Graubunden and the municipalities) from its calculation.
The cartel under consideration involved 12 construction companies which, between 2004 and 2010, regularly met at meetings in which they allocated cantonal and municipal road construction projects among themselves and jointly determined the level of their offer prices. These agreements were made based on pre-determined market share quotas and in light of their respective interests. The offer prices were often determined using a specific calculation method. ComCo found that the purpose of the agreements was to reduce competitive pressure and stabilise and increase road construction prices.
While the abovementioned investigations raised no fundamental questions about the antitrust assessment of bid-rigging agreements, they did introduce a novelty in the penalty regime.
After having issued its request for a decision (which is similar to the statement of objections in the European Union), ComCo's secretariat offered the parties the opportunity to settle with the cartel victims. The secretariat promised to request ComCo to reduce the antitrust fines due to such private damages settlements. As a result, nine of the 12 companies entered into settlement agreements with the government of the canton of Graubunden, in which they undertook to pay the canton and the municipalities approximately Sfr6 million in damages compensation. In its decision, ComCo followed the secretariat's request and reduced the fines of the respective nine companies by approximately Sfr3 million, taking into account 50% of the settlement payments made.
This is a novelty in ComCo's practice that is likely to continue in future cases, particularly in the construction industry. Unlike the European Union, Switzerland does not have any specific provisions dealing with this matter.
This new practice is a consequence of the difficulties victims experience when claiming antitrust damages against cartels in Switzerland.
Pursuant to Article 12(1)(b) of the Federal Act on Cartels and other Restraints of Competition (CartA), a person hindered by an unlawful restraint of competition from entering or competing in a market can request damages and satisfaction in accordance with the Code of Obligations. However, the barriers to claiming such damages based on this provision are high.
In most cases, it is difficult for victims to prove actual damages caused by a cartel, since cartelists can rely on the passing-on defence by claiming that unlawfully increased prices were passed on to the next market level.
However, the passing-on defence applies only if there is a next market level. With respect to end consumers, this is not the case. In the case at hand, the canton of Graubunden and the municipalities were end consumers. Nevertheless, pursuant to the prevailing doctrine, end consumers cannot claim damages pursuant to Article 12 of CartA, since this provision is directed only at companies within the meaning of Article 2(1)6bis of CartA. Hence, it would have been difficult for those entities to successfully claim for civil damages.
ComCo's novel approach attempts to foster civil damages claims despite these uncertainties. It gives alleged cartelists an incentive to compensate cartel victims even before ComCo has issued its decision.
However, this new practice raises significant concerns.
First, damages compensation must be agreed before ComCo formally decides a case (exposing companies to commercial pressure of a strong demand side, as the government is in the case at hand). Further, the practice puts the Swiss immunity application scheme at risk.
The leniency programme is dependent on immunity applicants having an incentive to blow the whistle. Any immunity applicant must factor into its equation potential damages claims. Thus far, this has not been a significant factor in Switzerland. However, with this new approach, ComCo will face a situation in which an immunity applicant cannot reduce its fine with any damages compensation paid, as its fine will be zero. This will be different for the typical leniency applicant (eg, with a 50% fine reduction) and for all other companies that have not filed a leniency application. Hence, the incentive to file for immunity will be reduced in the future.
It seems that by having introduced the possibility of compensating cartel victims for damages in antitrust proceedings, ComCo has chosen to advocate civil antitrust law to the detriment of its leniency programme, without which a cartel is rarely disclosed in the first place. It remains to be seen how ComCo will address this problem in the future and whether it will allow setting off damage payments with firms only if the government is involved.
For more information please contact Marcel Meinhardt or Simona Baselgia at Lenz & Staehelin by telephone (+41 58 450 80 00) or email (firstname.lastname@example.org or email@example.com). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.
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