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The legality of consortium agreements under competition law has been widely debated in recent years. On 27 November 2019 the Supreme Court rendered a much-anticipated judgment on this subject. The court repealed a Maritime and Commercial High Court decision from 2018 in a case concerning a consortium agreement between two companies regarding their joint bid on a public tender for road marking work.

Facts

In 2014 the Danish Road Directorate conducted a public tender for road marking work to be conducted in three districts in Denmark. It was possible to bid on one, two or all three districts. The award criterion was the lowest combined price for all three districts.

Eurostar Danmark A/S and LKF Vejmarkering A/S (now GVCO A/S) were both active in the road marking business. Both companies had assessed that the actual competition concerned the entire tender (ie, all three districts) and not merely one or two districts. This was backed up by the fact that previous contracts had covered all districts put up for tender and that the tender allowed for a total discount if a bidder was awarded more than one district. Further, both companies had assessed that they did not have the capacity to bid on all three districts by themselves and that a consortium was thus necessary to have a chance to win the tender.

In accordance with their consortium agreement, the companies submitted a joint offer on each district and offered a total discount if two or three districts were won. The parties had agreed on the distribution of districts between them if they won the tender. They had also agreed on a joint bidding price. The consortium won the entire tender since it had offered the lowest price.

An unsuccessful bidder complained to the Competition and Consumer Authority.(1)

Decision

On 27 November 2019 the Supreme Court rendered a landmark ruling and determined that the consortium infringed competition law. According to the court, it was unfounded when the parties viewed the competition to be for the entire tender (ie, all three districts). Therefore, the court found the parties to be competitors, as they had capacity to bid on the individual districts. The court noted that other bidders had bid on one or two districts.

Hereafter, the Supreme Court found that the agreement had the object of restricting competition. The court reasoned that the agreement between the parties had been arranged to deliver a joint bid. According to the court, the agreement neither had the characteristics of a production agreement nor did the agreement promote cooperation between the parties on the actual performance of the road marking tasks, as the parties had divided the districts between themselves in advance. Therefore, the court found that the agreement had the characteristics of an agreement on sale through joint bidding and price fixing. On this basis, the court determined that the consortium constituted an agreement that had the object of restricting competition and thus violated competition law.

The Supreme Court attached no importance to the fact that:

  • according to the evidence presented, the object of the agreement was to offer a competitive price;
  • the consortium was publicly engaged; or
  • one of the parties in the consortium had obtained an assessment on the legality of the consortium from a law firm prior to engaging in the consortium.

Comment

This judgment will affect companies' ability to enter into consortium agreements in accordance with competition law. The consortium agreement between the two road marking companies was judged by four bodies – from the Competition Council all the way to the Supreme Court. Each body gave different reasoning when judging the agreement and (partly) reached different results.

The Supreme Court ruling establishes a restrictive interpretation for companies' chances of engaging in consortia and bidding jointly. Going forward, companies should, as a starting point, avoid consortia agreements if they are in the same industry. Consortia should only be considered if it is clear that each party cannot take on the assignment individually. In such cases, the parties should consider whether they can expand their capacity and whether there are alternatives to forming a consortium, which may interfere less with the competition.

In principle, cooperation which infringes competition law can be exempted due to efficiency gains that result in benefits for consumers. However, in practice these exemptions from the serious 'by object' infringements are rare, and consortia participants cannot obtain assurance on whether they fulfil conditions for exemptions in advance. Therefore, this option is not relevant for consortia between competitors.

From a competition law perspective, the possibility of engaging in actual cooperation in production where the assignments in practice are solved together is better. It follows from the Supreme Court ruling that the parties' prospect of accessing each other's resources during completion of assignments and the reduction of risks as a result of such prospect is insufficient for consortia agreements to be legal. Whether collaboration is possible and relevant will depend on the facts of the case in relation to the market and the companies.

The Supreme Court ruling marks an increasingly restrictive practice, which may affect forms for cooperation other than consortia. Companies in the same industry that wish to cooperate on (for example) purchases, distributions or sales should consider if cooperation would affect competition between them and whether the cooperation is necessary for the parties to carry out the function in question.

Endnotes

(1) For details on the decisions by the Competition Council, the Competition Appeals Tribunal and the Maritime and Commercial High Court please see "Maritime and Commercial High Court judgment on legality of consortium agreement".