Select Committee on European Union Fourth Report

National competition authorities

52. Under the Commission's proposal the national competition authorities in the Member States would take on an additional major role in the day to day enforcement of the Community Competition Rules. The Commission would assist by drawing up notices and guidelines to explain its policy and to provide guidance on the application of Community law by national authorities. The Commission envisaged a network of authorities operating on common principles and in close collaboration. National authorities would notify the Commission when it was dealing with a case. If the question arose as to which national authority should handle a case the documents should be passed on to the authority "best placed to deal with it". [13]

53. The CBI pointed out that few national competition authorities have direct experience in the application of the Competition Rules (p 12). Professor Whish said that the level of experience from one Member State to another was vastly different and only about half had taken powers to apply Community competition law (QQ 12, 20). Both France and Germany had done so. Since 1992 the French had applied the Community competition rules on average about two or three times a year. Proving the necessary effect on inter-State trade had sometimes been difficult (Q 205). The Germans had applied Articles 81 and 82 in 21 cases, four of which were before the introduction of Regulation 17 in 1962. Dr Wolf (BKA) explained that the German Federal Cartel Office had found it useful to apply the Community rules where they were more stringent than domestic German law and in particular sectors such as tourism and energy (QQ 165-6). There was very little experience in the UK. The UK had not empowered its competition authorities to apply Articles 81 and 82 directly other than for those sectors which fell to Member States under Article 84, ie international air transport and international tramp vessel services. UK authorities had only experience of one case, the proposed British Airways/American Airlines alliance (p 134, Q 296). The Commission saw a continuing role in supporting the weaker, less experienced brethren (Q 275). The Government accepted that there would be different levels of expertise and that the Commission might have to judge when they thought there was a significant problem in which they should intervene (Q 332).

54. The CBI said that expertise had to be consistently applied. The national authorities might not have the same experience/resources as the Commission. Mr Cowen said that competition law was not applied in a vacuum - "other industrial policy does need to be taken into account and is currently taken into account in a unified system within the European Commission". When the Commission took a decision the Competition Directorate General would co-ordinate its position internally and with other parts of the Commission having relevant knowledge of the industry concerned. The CBI questioned how a national competition authority would do that. The White Paper suggested that national competition authorities might be closer to national markets and industry. Mr Cowen said: "That is something which leaves me very cold". There was a need for a one-stop shop, where cases could be dealt with in a short time-frame (QQ 41, 46, 47, 62).

55. A further question was the relationship with national competition laws. Many Member States, including the UK, France and Germany, have adopted competition laws modelled on the EC rules. That added another layer of complexity. Each of these national "look alike" competition laws is slightly different. This raised (further) consistency issues. Mr Ogilvie Smals queried how, in the UK, the Competition Act would work - "we have just legislated onto the statute book a notification system at the very moment that the Commission is proposing to dump theirs. We have a bit of a legislative muddle". Mrs Martin Alegi said that the OFT had been stressing that it was more appropriate to notify the Commission rather than the OFT to secure the benefit of pan-European notification. The Commission's proposals carried the risk that there would be multiple national notifications where previously an agreement would have been notified only to Brussels. The CBI was extremely concerned at the possibility of straightforward commercial agreements being subject to layer upon layer of regulatory review (QQ 59-60). Mr Paulis, for the Commission, said that the direct applicability would have to be taken into account in relation to the application of domestic competition laws in all cases which affected trade between Member States (QQ 269-71). A Community Regulation would be enacted to prevent national legislation from prohibiting or varying the effects of agreements exempted by Community regulation.[14] The Government accepted that Community law would have to be applied by national authorities. There was in practice considerable overlap between Community law and national law. Mrs Bloom (OFT) foresaw that the OFT would want to apply Community law in future and hoped that other competition authorities, given the choice, would also elect to apply Community law. One of the potential benefits of the proposed reform was that, instead of having Community law and 15 different national regimes, national authorities would apply Community law. That would have advantages in developing consistency and giving industry some degree of legal certainty (Q 348).

56. As regards the particular position of UK competition laws, Professor Whish agreed that the Commission's proposal did not fit well with the Competition Act. The idea of notification was built into the new UK regime. That regime also envisaged a different role, more restricted as regards exemptions, for national courts - "So you have a rather curious wrinkle that a national judge could make decisions under Community law that he or she could not make under domestic law". There were other differences in the application of Community and domestic rules giving rise to "some rather peculiar cross-overs". Given the number of other Member States which have adopted look-alike competition laws the problems were unlikely to be restricted to the UK (QQ 18-19). Ms Anderson (DTI) accepted that some changes would have to be made to the Competition Act, though it was too early to say what they might be. Ministers' objective would remain that of having the two systems, Community and UK, working properly together (Q 303).

National courts

57. Far more controversial was the proposal to extend to national courts the ability to apply Article 81(3). In its Response to the Commission, the Government noted that national courts already were empowered to take decisions on Articles 81(1) and 82 and therefore had to weigh technical evidence including that relating to economic effects. Economic evidence related to consideration of Article 81(3) could be handled in the same way. The Government saw no problem in principle in UK courts applying Article 81 as a whole, though certain practicalities needed further consideration. It recognised, however, that mechanisms would have to be established for co-operation between national courts and national competition authorities, building possibly on existing arrangements in Member States (pp 132-4).

58. The CBI did not consider national courts to be suitable forums to apply Article 81(3). They were not equipped to deal with the kind of complex economic arguments which that involved. Giving national courts the power to apply Article 81(3) would not produce tangible benefits (p 12). Professor Whish pointed to what was required in applying Article 81(3). It was a very different analysis to that under Article 81(1) and involved a complex evaluation. "Did the joint venture between Ford and Volkswagen to build a multipurpose vehicle in Portugal contribute to technical progress? Commissioner van Miert said that one of the influential factors was that this was going to bring important new production to a part of the Community where local male unemployment was high. I do not immediately find it obvious that that is part of the judicial process". A national judge would not find it easy to evaluate the criteria of Article 81(3) and to give expression to the Community policy that might be relevant (QQ 12-13). Mr Lever and Mr Peretz also drew attention to the large margin of appreciation exercised in the complex assessment needed under Article 81(3). They said: "The training of the general judiciary, whether in this country or in the other member States simply does not equip the judges to engage in such an exercise" (p 159). The German Government said that it would be very difficult for private parties to show that the requirements of Article 81(3) were met (p 75). Mr Nagy (Hungarian Competition Office) also doubted the ability of national judges, not just in the applicant States but throughout the Union, to apply Article 81(3). That should be reserved for national competition authorities and for specialist administrative courts (Q 246).

59. That view was shared by Mr Justice Ferris and Mr Justice Laddie. They did not see judges and national courts as the appropriate forum for the application of Article 81(3). Mr Justice Ferris gave three reasons. First, a court was not a suitable tribunal. The "sort of feeling that judges can decide economic issues to my mind is wholly misplaced … They cannot make value judgements except in a very limited field, certainly not in relation to general economic questions". Secondly, there was a question whether the issues to be determined in application of Article 81(3) were justiciable. The criteria in Article 81(3) were insufficiently precise. Mr Justice Ferris said: "The court should not have any part to play, it seems to me, in deciding whether an agreement or a course of conduct contributes to improving the production or distribution of goods or promoting technical or economic progress". Thirdly, there were procedural considerations. The procedures of a court, as recent experience in the UK showed, may not be the most efficient way of handling these issues. They might be resolved more quickly and expeditiously by an administrative body (Q 133). A number of witnesses considered an administrative body, especially the Commission, was better placed to deal with such issues which might have an impact on people not represented before the court and companies and businesses which might not even yet be in existence (QQ 103-4, 134, 136). Mr Lever and Mr Peretz argued strongly that there should be an efficient system of administration of Articles 81 and 82 as public law so that, in hearing private law cases in which those Articles were relied on, the courts have the benefit of the findings of the competent authorities or of a specialist tribunal. In the field of competition law, private law was no substitute for public law (p 159). But Mr Justice Laddie recognised that national courts had to be there to deal with urgent matters, particularly to do rough justice by way of interlocutory relief. He said, "at least at the end you know that the final decision whether or not this is of public interest is to be decided by the people who are specialists in the subject and for that reason at some stage a proper result will be achieved. Importantly, in this field you are talking about a result which will almost inevitably affect people who are not parties to this litigation" (Q 141).

60. BEG said that national courts were already under a duty to examine Articles 81(1) and 82. That entailed a good deal of economic analysis. All that was being done in adding Article 81(3) was to provide a defence to a company to an agreement in respect of which a court finds there are some restrictions. Mr Green said: "good judges are well used to assessing facts and I do not think that they should really feel scared of that task or confront any real difficulties" (QQ 81, 102). Mr Roth (Competition Law Association) also thought that while there were difficulties in applying 81(3) these were often not as great as those in applying Article 81(1). Application of Article 82 (which national courts already faced, though not necessarily happily) was, in his view, the most difficult of all (Q 100). Mr Paulis, for the Commission, did not accept that Article 81(3) could not be applied by national courts. Applying Article 81(1) was probably equally or more difficult in practice. The four conditions in Article 81(3), which were not a substitute for public interest, were clear. The Commission's experience was that the views of the parties were difficult to second guess, though there was some room to question the applicability of Article 81(3) on the basis of the third condition, that the restrictions were not indispensable. But the "indispensability" condition was, in Mr Paulis' view, no more difficult for national courts to apply than the similar test in Article 86(2) (formerly 90(2)) and the application of the competition rules to undertakings entrusted with the operation of services of general interest (Q 287).

61. Mme. Montalcino (DGCCRF) did not believe that it would be more difficult for national courts to apply Article 81(3) than many other laws. She accepted, however, that there would need to be training and for the Commission to have an opportunity to be heard in front of the national court (Q 222). M. Chambu (DGCCRF) thought that if national courts could cope with applying Article 81(1) to selective distribution agreements they could cope with Article 81(3). But there would have to be training for national judges. The use of block exemption regulations to cover the bulk of agreements would also assist (Q 223). Mr Nagy (Hungarian Competition Office) was pleased that the Commission was prepared to treat national courts as "grown-ups" (Q 242).

62. The CCBE, while not being opposed in principle to the application of Article 81 as a whole by national courts and authorities, expressed concern whether those bodies had adequate resources and experience and would be able to cope with an increased workload in this field (p 152). Mr Paulis, for the Commission, thought that the real question was whether national judges were, like judges elsewhere in the world, capable of learning the subject matter. The Commission was taking a gamble on this, but one that was well worth taking if Community law was to be brought into real economic life (Q 276).

63. The CBI said that the Commission should be wary of creating a complaints-driven system that encouraged private litigation. This could open the floodgates and encourage frivolous or vexatious litigation aimed at frustrating legitimate business plans, potentially damaging investment (p 12, Q 53). Mr Justice Laddie thought that the proposal would give rise to more litigation. The more difficult it was for a court to decide an issue the more advantageous it would be for a party to plead the matter (Q 135). But the Joint Working Party had doubts about that. Mr Freeman said that the White Paper proposals did not substantially alter the basic balance of advantage, which favoured complaining to the authorities rather than going to the court (Q 107). Mrs Holmes added that giving national courts the ability to apply Article 81(3) should not open any more floodgates than the new Competition Act which gave individuals direct rights of civil action where they were victims of anti-competitive practices (Q 109).

64. Mr Paulis, for the Commission, did not think that the Commission's proposal, by encouraging private enforcement of the Competition Rules through the courts, would lead to a sudden increase in litigation. The competition rules were usually invoked as a defence. There were no treble damages in Europe, no punitive damages and very little in the way of contingency fees (Q 291). BEG took a similar view on the effect of Article 81(3). It should not produce extra litigation because the Article provided a shield rather than a sword: "if anything, it might mute cases because the other side will be able to raise a defence not presently available to them" (Q 106). The Competition Law Association thought that the White Paper proposals, by making it easier for national competition authorities to deal with complaints, might cause more complainants to go to them rather than the courts (Q 109).

65. Mrs Martin Alegi (CBI) pointed out that the vast majority of courts dealing with Article 81 and 82 issues would not be specialist competition courts but ordinary, commercial and administrative, courts up and down the Community. She did not think it would be practical, for example, to pass all cases in the UK to the Competition Appeal Tribunal (QQ 48, 52). Mr Green said that in the UK Article 81 and 82 points tended to arise by way of defence in a variety of disputes over contracts, patents etc. It was entirely fortuitous in which court the matter arose. The nature of the dispute (eg whether there had been a breach of contract in the last three years) meant that the court's approach would be a historical one. It would not, unlike an administrative authority, be looking at the matter prospectively (Q 104).

66. Witnesses drew attention to the fact that there were substantial differences in the procedures and approach of courts in the Member States. In Mr Justice Laddie's view, there would be very large differences in the way national courts did the job and in the speed with which it was done. "So long as that exists it is an invitation to forum shop, if only because one party will want to slow things down and another will want to speed them up". That was very unsatisfactory. The Brussels Convention, which might be thought to assist by providing rules determining jurisdiction, itself created problems. The Convention provided alternative bases of jurisdiction to deal with a variety of scenarios. The rules were differently interpreted in different Member States (QQ 131, 137, 145, 147). The CCBE said that rules with regard to procedure, methods of appeal, sanctions and confidential information varied widely across the EC. Without some form of harmonisation of these areas of law, and a clear definition of which courts and authorities have the right to hear a case, forum shopping was likely to become a significant problem. At the same time there might be no proper national means of redress in cases where forum shopping was not possible (e.g. in case of an abuse of a dominant position by a purely national player) (p 152).

67. The Government acknowledged that the risk of forum shopping was "an important point, although under the Commission's preferred approach there would be no possibility of binding exemption decisions in the new system, which would mitigate the effect of possible forum shopping" (p 134). Mr Paulis, for the Commission, accepted that there was a risk of forum shopping but thought it would be a transitional phenomenon for so long as the law was unclear and its application not sufficiently predictable (Q 290).

68. Mme. Montalcino accepted that application of Article 81(3) was not always a simple matter. There was a need for expertise. Under the French system, when applying the equivalent of Article 81(3) the courts could ask the DGCCRF to assist the court. The courts could also appoint experts to make assessment as to whether an agreement contributed to economic progress (Q 223). Mr Freeman (Joint Working Party) thought that the civil law system, with its inquisitorial approach and ability to seek a court appointed expert and to obtain expert evidence through the bench, might be better suited to the determination of Article 81(3) issues than the common law adversarial style of litigation (Q 103). Mrs Martin Alegi (CBI) also expressed concerns about the adequacy of procedures and powers of national courts when compared to the Commission. She said that national courts, whilst generally having very good powers to obtain evidence from the parties to a dispute before them, did not have good investigative powers by and large to obtain full information on the economics of the function of international markets. The CBI was also concerned that exemptions under Article 81(3) often involved the parties accepting or making some modifications. The majority of exemptions granted have involved some amendments to the original proposals. In some cases the parties entered into a virtual negotiation with the Commission. The adversarial procedure of UK courts was not designed to apply Article 81(3) in such a way (QQ 48, 49).

13   White Paper, paras 86, 91 and 96. Back

14   White Paper, para 85. Back

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