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The preliminary reference procedure has represented a powerful tool for maintaining the unity and consistency of EU law in cases in which domestic courts were called upon to interpret and apply the Treaties and other union rules.  Thanks to this procedure, the Court of Justice of the EU has been successful in construing an egalitarian relation of cooperation with the domestic judiciaries, by assisting them in the day to day administration of justice and at the same time seeking to empowering them to apply EU law rules autonomously and confidently.  However, how to strike a balance between the demands of unity and consistency in the interpretation of Union law and respecting the independence of the judiciary has been a constant question for the Court as well as for the domestic judges: how far should they “trust their expertise” and therefore, by relying on the EU precedent, decide cases involving EU law questions on theor own? And what cases are instead best being dealt with only after the EU Court of Justice has had the opportunity to “have its say” and advise the domestic courts?

The doctrine of acte clair, which was enunciated by the EU Court in the CILFIT case, represents a clear example of how difficult it can be to answer this question,  in light of the “peculiar features” of EU law, of its “multi-lingualism” and, paramount, of the need to maintain its inner coherence and consistency.

Equally complex questions arise for domestic courts, whenever they are asked to raise a reference to the EU court in Luxembourg: the dictum of Lord Denning in Bulmer v Bollinger may sound like the expression of 1970s scepticism vis-a-vis the “Common Market”, which could be breathed in many circles afte the UK had acceded to the European Economic Community.  however, it seems to harbour deeper concerns for the independence of the judiciary, the demands of delivering justice to claimants quickly and within acceptable financial limits and the corresponding need to allow the EU Court of Justice to discharge its”cooperative function” in respect of the most relevant and “novel”questions of Union law.

The recent decision of Lord Doherty on the challenge brought by the Scotch Whisky Association against the Scottish legislation introducing minimum pricing on alcohol sales represents another example of this carefully crafted, yet still relatively nuanced relationship.  AS is well known, the legislation in issue was challenged via judicial review on the ground that, inter alia, it had infringed Articles 34 and 36 TFEU, concerning the freedom of movement of goods and laying down strict requirements according to which Member States could interfere with this principle.  In a landmark decision for the compatibility of public-health related constraints on the freedom of traders to set their prices according to their cost structure, Lord Doherty, for the Court of Session,was asked, among other questions, to make a reference to the EU Court of Justice on the question of whether the challenged measures represented a “proportionate” restriction on the freedom of movement, in light of Article 36.  He was consequently faced with an alternative: should he act as a “Union judge” and therefore rely on the existing and rather copious precedent on these questions to decide the case? or should he resort to the assistance of the EU Court?

Lord Doherty went for the former: in a terse couple of paragraphs he explained why he felt able to  address the question and respond to it “with complete confidence; he expressed the view that “there [was] no issue of legal interpretation of [Article 36] which required elucidation”.  In that respect Lord Doherty emphasised that domestic courts were “better placed” vis-a-vis the Court in Luxembourg when it came to examining “all the circumstances bearing upon proportionality” and emphasised that, due to the “supervisory nature” of the EU Court’s jurisdiction, it fell on the domestic judge, in accordance with the requirements of article 36 TFEU, to identify the goals of the legislation, the “appropriateness” of the measures being enacted and the “proportionality” vis-a-vis the goals being pursued.

On that basis, Lord Doherty rejected the petitioners’ plea for a preliminary reference: he held that, in accordance with the lond-standing approach adopted in inter alia ex p. Else (R v International Stock Exchange of the Uk and Ireland LTd ex p. Else, [1993] QB 534 at 545-546), a domestic court should only make a reference to Luxembourg if it felt unable to decide on the case “with complete confidence”, after having found all the facts and identified a “question of EU law” that was “critical” to the outcome of the case, in light of factors such as “(…) the differences between national and Community legislation, the pitfalls which face a national court venturing into what may be an unfamiliar field, the need for uniform interpretation throughout the Community and the great advantages enjoyed by the Court of Justice in construing Community instruments” (per Lord Bingham, p. 545).

However, as the Court of Session’s decision shows, none of the issues at stake in the challenge to the Minimum Pricing legislation were such that the domestic court could not decide “with complete confidence”:it should be emphasised that already at the start of his decision, Lord Doherty made clear that the task of a domestic court charged with dealing with a question of EU law was in all similar to the “supervisory jurisdiction” enjoyed by the EU Court of Justice and in that context held that it should be primarily for the domestic court to consider whether the challenge brought against the domestic measure was “well-founded”.  He also emphasised the importance of respecting the “margin of discretion” recognised to the national authorities (see para. 48-49) and especially to defer to the parliamentary deliberations in this area (see para. 79).  On that basis, and relying on the EU Court of Justice’s precedent on these issues, Lord Doherty felt “sufficiently confident” to assess the legislation under challenge and to provide an answer to the EU law questions before him.

By looking at this judgment, one cannot help but think that this is an aspect of the “acte clair” doctrine in action: it may be recalled that in CILFIT the EU Court of Justice had affirmed that the domestic courts before which a “question of EU law” was pending, which was “relevant” for the decision of a specific case, could refrain from making a reference if it thought that the “answer was so obvious as to leave no reasonable doubt” as regards what its solution should be; in that context, the court emphasised that this would be the case if the same question had been dealt with in an earlier case (although the facts or the nature of the proceedings were not exactly identical).  Against this background, it is suggested that the challenge of alcohol minimum pricing legislation constitutes one such case: the Court of Session, acting like a proper “Union court, relied on the existing acquis in order to address a sensitive question, after having dealt with all the questions of fact and taking into account the “margin of discretion” to be accorded to the domestic authorities responsible for judgments that were “policy-laden” in their essence. As paragraphs 106 and 107 indicate, had the Court of Session been unable to give “its own answer”, a reference may have been justified.  However, as Lord Doherty’s careful consideration of the issues shows, petitioning the Court in Luxembourg when the domestic judge could clearly adopt his own conclusions, in light of established principles and of a clear factual picture, was not necessary.

Over the years, the Scottish Courts have been criticised for the paucity of the references they made to the EU Court of Justice: however, in light of this recent decision, one may perhaps be forgiven for thinking that this is the consequence of “Euro scepticism” among Scottish judges! To the contrary, if Lord Doherty’s careful assessment of the compatibility of the Alcohol (Minimum Pricing) (Scotland) Act is anything to go by, it could be argued that the small number of references made so far can be explained as a consequence of the willingness of the Court of Session (and perhaps of the Scottish Courts generally) to engage actively with the EU law acquis and to apply complex principles to the cases pending before it before seeking guidance from the Luxembourg court.  Could this be a sign of things to come for the future-in other words, greater confidence on the part of domestic courts to act as “Union courts” in the course of their day-to-day administration of justice? Surely it seems that Scotland could “blaze a trail” in this area.

Today has seen the Court of Session rule on the legality of the Alcohol (minimum Pricing) (Scotland) Act 2012( see:  http://www.scotland-judiciary.org.uk/9/1040/Petition-for-Judicial-Review-by-Scotch-Whisky-Association-And-Others); while the final judgment will be published in a few hours, the Court of Session press release has already been published… and it makes for very pleasing reading for the Scottish Government and in particular for Alex Neil, the Health Secretary (see: http://www.bbc.co.uk/news/uk-scotland-scotland-politics-22394438).

Lord Doherty rejected both challenges brought by the SWA against the Bill, i.e. the plea that the Act in question was outwith the competences of the Scottish Parliament under the Scotland Act and the argument that the Act itself represented an unlawful restriction on the freedom of movement of goods under Article 34 TFEU, one which could not have been justified in light of the requirements laid out in Article 36 of the Treaty.  Finally, Lord Doherty also refused to entertain any plea that the measure had infringed the limits of the UK competence to regulate the area of trade in wine and other alcoholic or fermented beverages, on the ground that, as the SWA had argued, this area had already been subjected to a degree of harmonisation.  Importantly, Lord Doherty refused to make a preliminary reference to the EU Court of Justice-as it is within his powers of doing so under Article 267(3) TFEU.

While the reasoning of the Court of Session was eagerly awaited, many of the conclusions anticipated in the press released could have been expected in light of recent developments in other cases, also concerning challenges to Scottish Parliament legislation under the Act of Union and the Scotland Act.  One can, for example, recall the judgment of the UK Supreme Court upholding the validity of Scottish measures outlawing the display of tobacco products and the sale of cigarettes via vending machines in public places.  In that case the applicant, Imperial Tobacco, had argued that Holyrood had acted ultra vires in as much as these measures were designed to alter the conditions of "sale or supply of goods" to consumers,  an area which was still "reserved" to Westminster.  The Supreme Court, however, had thought otherwise; it took the view that the ultimate purpose of the Act was to uphold goals of public health by discouraging the purchase of tobacco products via limiting its "visibility" in shops and its availability to "vulnerable" categories (such as children).  Thus, it concluded that since the goal of the measure fell squarely within one of the "key" competence areas of the Scottish Parliament, they had been adopted well within the limits of the Scotland Act (see a previous blog post: http://www.law.ed.ac.uk/clie/blogentry.aspx?blogentryref=9086).

It should be reminded that after this decision the SWA had withdrawn part of its arguments concerning the compatibility of the said legislation with the Act of Union.  The decision of Lord Doherty confirms the conclusion that just as the "legislative competence" pleas made in the Imperial Tobacco case, the Act of Union's rules governing freedom to trade within the UK did not require that conditions of trade be "identical" across the UK; in particular, he refused to accept that minimum prices could be seen as equivalent to "excise duties", and as such contrary to Article 6 of the Act of Union.  He held therefore that the Act remained within the boundaries of the Act of Union in as much as it was of general application and therefore did not discourage traders from other parts of the UK vis-a-vis traders established in Scotland.

It should also be noted that Lord Doherty dealt rather swiftly with the argument that the Scottish minimum pricing legislation encroached upon the EU competence to act in the field of agricultural policy and in particular to adopt measures designed to harmonise the market for specific products, such as wine and other fermented beverages.  He took the view that this area was one of "shared competence" between the Union and the Member States and that, while domestic measures could not be enacted which jeopardised the effet utile of EU action, Member States could intervene to regulate aspects of the area that had not been subject to specific Union measures.  On this point, Lord Doherty noted that Regulation 1234/2007, which dealt with the "common organisation" of the wine and spirits market did not cover the issue of price or of protection of health and in general, it was not a "fully harmonising" measure; accordingly, he held that the Scottish Ministers and the Parliament were fully entitled to enact the 2012 Act, subject only to the general limits set out by Articles 34 and 36.  Importantly, it was held that none of the rules concerning the harmonisation of the agricultural market prevented Member States from introducing measures governing prices and from pursuing, through them, objectives of public health.

It is however the reasoning on the compatibility of the Act with the EU Treaty rules on free movement of goods that makes for more interesting reading.  On this point, one may recall that in June 2012  the Scottish Ministers had notified the draft measures implementing the Act to the Commission, in accordance with the relevant EU measures on technical standards; following that notification, the EU Commission had issued an opinion in September 2012, noting its concern as to the possibility that the proposed minimum pricing rules, whilst being justified in the public interest, could have been "disproportionate". However, Lord Doherty emphasised how the Commission's opinion, just as the views of the other Member States that had chosen to contribute to the notification procedure, were "of interest; but not more than that"and should therefore not bind the Court.

Moving on to the substantive question of the compliance of the minimum pricing legislation with Articles 34 and 36, Lord Doherty refused to entertain the petitioners' argument that similar measures could NEVER be justified: he argued that, unlike in the "tobacco cases" concerning the setting by individual member states of minimu prices for cigarettes (see e.g. case C-221/08, Commission v Ireland, [2010] ECR I-1699), the area of alcohol sales had not been subjected to any degree of harmonisation; thus, unlike in those cases, the 2012 Act and the implementing Order had to be assessed exclusively in light of the general provisions of Articles 34 and 36 of the Treaty.  

Lord Doherty emphasised that domestic authorities had been allowed a margin of appreciation in enacting measures affecting rights and freedoms granted by EU law; thus, the domestic court should scrutinise these measures just as the Court of Justice would do, by asking whether an "objective justification" existed for them.  In this context, Lord Doherty held that under Article 36 TFEU this assessment should encompass the question of whether the measure in issue was "appropriate for securing the attaintment of the objective pursued" and did not "go beyond what is necessary in order to attain it".   This notion should instead be interpreted as requiring that the proposed measure be both "appropriate", in the sense of "genuinely reflecting a concern to attain an objective in a consistent and systematic manner", and "necessary"; the latter criterion should be read as meaning that the measure be "proportionate", i.e. that no other alternative exists to it that is less restrictive of interstate trade.  Thus, it was held that the Treaty could not be read as obliging the domestic authorities "to prove, positively, that no other conceivable measure could enable that objective to be attained under the same conditions".

On that basis, Lord Doherty reviewed the minimum price legislation: in respect to the question of which "public interest goal" the legislation pursued, he observed that the Act was aimed not at "eradicating alcohol consumption" in full, but only at "striking at alcohol misuse and overconsumption", by targeting sales of "cheap alcohol" to mainly "hazardous drinkers".  Thus, in his view this goal represented a "legitimate aim" within the meaning of Article 36, and was being pursued by measures adopted in "good faith and with the best of intentions" in order to stamp out alcohol-related harm caused by dangerous drinking patterns.  The imposition of minimum prices was regarded as "appropriate" to achieve these aims, on the ground that it would result in the diminution of consumption of "cheaper" beverages across the most vulnerable groups who tended to spend more of their income in alcohol purchases and were, consequently, more sensitive to price changes.  Seen in this light, and considering the level of health harm suffered by those in lower income groups, the measures in question were regarded as being "suitable" to the attainment of their public interest goal.  Finally Lord Doherty approached the central question, i.e. the issue of whether the imposition of minimum prices was "proportionate", i.e. whether an alternative measure existed that was "just as effective as minimum pricing" in securing these public health gains.   He first compared minimum pricing with the most "obvious alternative", namely the increase of excise duties on alcoholic beverages: after observing that unlike minimum pricing, an increase in excise was less "easy to understand, measure and enforce"and encouraged traders to absorb it in their sales structure (e.g. by cross-subsidising it against the revenues from the sale of more expensive alcohol).  Perhaps most importantly, it was emphasised that increasing the percentage of excise would not be "sensitive" to the different alcohol content of each beverage and consequently would be both "disproportionate" vis-a-vis the demands of preventing alcohol related harm resulting from lesser strenght products and less suitable to achieve the public health objectives being pursued; on this specific point, Lord Doherty accepted that, unlike with minimum pricing, the excise structure could not be adjusted to target "hazardous drinkers" only or mainly, by increasing the price of cheaper alcohol and therefore could not be used to "displace" demand from the most vulnerable consumers by depriving them in essence of the option of "trading down".

Thus, Lord Doherty concluded that the measures introduced by the 2012 Act were "objectively justified" wtihin the meaning of Article 36 TFEU: in his view, the Scottish Government and the Parliament had, in choosing to enact minmum pricing measures, struck a balance between the level of public health that they considered to be a desirable goal and the interests of those affected by the measure.  he observed that in doing so it was legitimate to take into account such factors as the socio economic considerations arising from the impact of the Act on "mild" drinkers: however, since the target of the Act was to diminish consumption among "hazardous drinkers", who were likely to trade down on "cheaper" alcohol,  as opposed to "stamping out" alcohol consumption altogether, minimum pricing, in view of its "differentiated impact" on sale prices, was the least "restrictive" of the options available to attain the "desired degree of protection of health and life" in light of all circumstances.

The ruling in the case of Scotch Whisky Association v Scottish Ministers represents a true landmark case for a number of reasons: leaving aside the political sensitivities of this case, both for the Scottish Government (whose leading party had been strongly pursuing this agenda since its first foray in power) and for the UK Government-which had tried a consultation on similar measures, albeit on the basis of public order concerns-the judgment represents a clear and cogent analysis of the compatibility of measures restraining the freedom to set prices (which is perhaps the most important manifestation of a "free" and competitive market) for the purpose of serving "higher goals" and the good of society.  It also reflects the complex, multi-layered and nuanced relationship between the EU and its Treaties and the Member States' policy agendas, interests and choices since it relies on the concept of "necessity" and of "proportionality" in order to identify which measures, among a set of alternatives that can all in principle fulfil the same public interest, are the "least restrictive" for the internal market and, it could be argued, also for free competition.  More generally, it could be argued that the choice of Lord Doherty to engage actively with the relevant case law in order to deal with these complex questions speaks of the willingness of the Court of Session to act as a "true European Union court" (see http://www.law.ed.ac.uk/clie/blogentry.aspx?blogentryref=9169).  At this stage, it is difficult to predict what the next steps of this fascinating story will be: it may be wondered, for instance, whether the SWA will appeal the judgment and whether, in that case, the UK Supreme Court will make a reference to Luxembourg.  What is clear however is that the Court of Session seems to have embraced the central role played by the public health and human welfare (or, in the words of the Treaty, "health and the life of humans") within the framework of Article 36 TFEU.  More generally, the ruling suggests that, within the general framework of the EU treaties,  "the needs of the single market" may have to give way in favour of these objectives, subject to the assessment made by those authorities that are "closer" to the demands of a specific society in a given moment of time: however, it is equally clear that the "outer boundaries" of this margin of discretion are once again those principles of "necessity" and of "proportionality" that the EU Court of Justice has painstakingly built over the years and to which the Court of Session has showed a strong commitment.

 

 

2013 has started in earnest for the Scotch Whisky Association and the Scottish Health Minister: the challenge against the Scottish Parliament's legislation imposing a minimum price on alcohol beverage is due to be heard on 15 January for seven days.  However, according to court sources, the applicants have dropped their claim that the act infringes the Scotland Act, having allegedly been enacted beyond the scope of the powers conferred to the Holyrood Parliament by the devolution legislation.  Their arguments will therefore seek to convince the Court of Session that the measure in question represents an unwarranted restriction on the freedom of movement principles and an infringement of the competition rules, enshrined in the EU treaties.  How is one to read the change of heart of the SWA? And what is this going to mean for the complaint lodged by the SWA and other bodies before the EU Commission and alleging an infringement of the Treaty by the UK in respect to the Alcohol Minimum Pricing (Scotland) Act?

In respect to the former question, it could be suggested that the recent UK Supreme Court judgment confirming the legality of Scottish legislation banning the presence of vending machines of tobacco products in publc places may have convinced the applicants against pursuing their pleas based on the Scotland Act.  In December 2012 the Supreme Court upheld the validity of Sections 1 and 9 of the Tobacco and Primary Medical Services (Scotland) Act 2010: these provisions had banned, respectively, the display of tobacco products in placed where the latter were on offer for sale and the presence of vending machines for the sale of the same goods.  Imperial Tobacco had sought to have the measure declared incompatible with the Scotland Act on the ground that, being allegedly related to "product safety" and to "the sale or rupply of goods to consumers" they affected areas reserved to the Westminster Parliament.  In addition, the appellant argued that, in as much as they provided sanctions for the infringement of these prohibitions, they had created "new offences", and were therefore also incompatible with the 1998 Act.

The UK Supreme Court, however, held that the purpose of sections 1 and 9 was not to regulate either the conditions of sale and supply of goods to consumers or the safety of specific products.  Instead, it was stated that the act should have been read with a view to identifying its purpose and, thereafter, to examining whether, in light of the scheme of the 1998 Act, the Scottish Parliament had overstepped the limits of its powers in this specific case.  The Court unanimously found against the appellant.  It took the view that the objective of Sections 1 and 9 of the 2010 Act had been, respectively, to limit the "visibility" of tobacco products, with a view to reducing consumption and smoking and to make cigarettes less available to the public, especially to children and young people.  At the core of both provisions, therefore, was a concern for discouraging the consumption of tobacco, in order to, ultimately, secure health protection objectives.  The UK Supreme Court, therefore, rejected the appellant's claim that these provisions affected the Westminster Parliament's power to legislate for either the purpose of regulating the sale or supply of goods or indeed of enforcing appropriate product safety standards.  In particular, the Court sought to read the latter objective carefully and expressed the view that its scope should be limited to the remit of section 11 of the Consumer Protection Act, i.e.devising and upholding appropriate safety standards especially so as to prevent that "dangerous" or "unsafe" goods do not end up in the hands of specific categories of individuals (or indeed of the public at large).

On tha basis, the Supreme Court rejected the applicant's challenge on the ground that the 2010 Act had not sought to prohibit outright the sale of tobacco products and was therefore incapable of "unbalancing" trading in these goods.  Thus, it was held that, since the purpose of Sections 1 and 9 of the 2010 was to promote public health by reducing the attractiveness and the availability of the tobacco products and esopecially to put it beyond the reach of persons that are not "old enough" to purchase them, they could be rightly adopted by the Scottish Parliament.  Having regard especially to its provisions imposing criminal sanctions for the infringement of Section 9, the Court explained that these too should be read having in mind the public health concerns at the basis of the 2010 Act: in its view, these sanctions were geared at reinforcing the deterrent effect on consumption of the ban on display of tobacco products or on the installation of vending machines, i.e. public health, and not at securing the "safe" supply of specific goods.

Against this background, and given especially the broad similarities between the arguments laid out by, respectively, the SWA and the pleas rejected by the Supreme Court in the November judgment,  it is not surprising that the Whiskey producers' trade body decided to drop the 'devolution arguments' in advance of next week's hearing: in the appeal, the SWA had argued that the minimum pricing legislation affected matters reserved to the Westminster parliament, i.e. the regulation of the sale and supply of goods and services to consumers (see: http://www.bbc.co.uk/news/uk-scotland-20028728). As a result, and in consideration of the public health rationale underpinning the 2012 Act, it may be foreseen that this argument would be unlikely to succeed in the Court of Session.  

It shoud be added that  the decision adopted by the Court of Session to allow Alcohol Focus Scotland to intervene in the public interest in support of the introduction of alcohol MPUs may stoke up the chances of the Scottish Goverment succeeding on this ground:  according to  Lord Hodge the court would be likely to derive assistance from the submissions made by the petitioner, on the ground of its expertise and its role of "independent voice" in Scotland for the public health concerns raised in the face of alcohol abuse.  Thus, it could be argued that ACS's participation seems to confirm the 'public health-centric' nature of the Sottish Parliament's statute.

So, the SWA's pleas are now focused exclusively on the EU law-based arguments that the 2012 Act would infringe the competition and single market rules enshrined in the Founding Treaties.   This development, however, opens up a number of interesting scenarios: the Court of Session could decide to rule on these questions straightaway.  It is in fact not a 'court of last resort' and it is open to the parties to challenge its decision and thereby seek to have the Court of Justice involved at a later stage of the proceedings via Article 267 TFEU, i.e. the preliminary reference procedure.  If this was the case, however, and the case proceeded all the way to the UK Supreme Court, it may take a considerable time for these questions to arrive in Luxembourg.  Or the Court of Session may decide to suspend proceedings and refer one or more questions to the Court of Justice already at this stage: seeking a reference at this point in time may appear more favourable to both parties, since it would secure a more timely resolution of the dispute and increase legal certainty in a cloudy area of free movement and competition law.

However, if this was the preferred solution of the Court of Session, what would happen to the complaint lodged by the SWA with the EU Commission? It is reminded that in December 2012 the Daily Mail had leaked a memorandum of the Secretary General of the Commission (see http://www.bbc.co.uk/news/uk-scotland-scotland-politics-20533189) in which it had been stated that, while the objectives pursued by the 2012 act could be "made to fit" within the broader framework of the goals pursued by the EU in the field of public health, the "proportionality" of the restrictions carved by the introduction of compulsort MPUs was under considerable doubt.  However, it is to this day not clear whether and when the Commission will take action in court against the UK-as is well known this is very much the gift of the Commission itself and its discretionality in this area remains unfettered.  Seen in this light, it may be argued that the way in which the Court of Session will deal with the EU law questions before it may have an impact on the Commission's decision in this area: it is in fact well known that, at least in the area of competition enforcement, the fact that a specific case is pending before a domestic court may constitute sufficient ground for the Commission to "drop a complaint" concerning the same set of facts.  Consequently, it may legitimately be argued that a possible decision of the Court of Session to either examine the legislation's validity by itself or, perhaps most importantly, to refer the matter to the Court of Justice could prompt the Commission to dismiss the complaint on the basis of the same approach.

Detractors of the Scottish Parliament's legislation in this area may argue that the Commission should in any event push ahead with the infringement proceedings against the UK, on the grounds of the "novelty" and importance of the question and of the "Union interest" in upholding free movement and competition principles against a statutory attempt to set a "floor price", albeit for prima facie meritorious reasons.  However, there are equally weighty reasons for cautioning against the Commission taking any "rushed decisions" on this issue: the fact that the Court of Justice may at some point be called upon to decide on these questions, and consequently the risk of the Commission itself adopting decisions that may be incompatible with a future preliminary ruling, should be regarded as sufficient ground for, at the very least, sitting it out until the Court of Session has at least heard the SWA's challenge.

In light of the above, it is clear that next week's hearing will not ring the "time, gentlemen, time" bell for (off license purchasing) drinkers… surely not, but it is equally certain that the 2012 Act imposing minimum price per alcohol unit still hangs in the balance of a very politically charged and economically weighty dispute.

Just when we thought that Russian/European energy adventures could be left to simmer away in Brussels… here comes the announcement that BP has disposed of its 50% interest in TNK/BP in exchange for Rosneft shares.

http://www.bbc.co.uk/news/business-20030610

Given the importance of the oil reserves existing in Russia and, consequently, of the rather convincing justification for BP (just as, it could be evisaged, for any other energy company) to keep a strong foothold in the region, one could be forgiven for thinking that BP's move may actually be a "good idea".  It would pretty much guarantee a continuous source of oil supply for a company who's been through mixed fortunes lately: starting from the oil spill in the gulf of Mexico to its fitful, to say the least, relationship with its own partners in TNK, BP's recent history can easily be defined as chequered to say the least.

However, the picture is not as clear or straightforward as it looks like.  Rosneft is a company controlled by the Russian State and Mr Putin has made no mystery of his wish to remain closely involved in its management, to the point of being briefed ahead of the TNK/BP deal.  BP's life as a partner in the joint venture has not been the happiest or quietest either: in 2008, its chairman (now at BP) Bob Dudley, had to leave the country following a number of run-ins with Russian authorities as well as with its own partners in TNK. To cap it all, the joint efforts made by TNK/BP and Rosneft itself to start drilling in the Arctic region faced intense opposition by other Russian oil producers, and were eventually abandoned.

So, what can be gained from a similar merger? And what does this mean for competition in the energy industries and especially for rivalry on the oil marker? There is little doubt that energy supply in Continental Europe, despite growing capacity in the gas segment, remains significantly dependent on oil. Oil is especially important in other economic sectors, such as transport: consequently, it could be argued that BP's move toward greater corporate and ownership-based integration with Rosneft represents a rational response to an ever changing and deeply challenging industry.  As was reported by the Financial Times on 22 October, this concentration is likely to harbor significant" benefits for BP shareholders, in terms of exposure to one of the world largest oil companies", productive sinergies and the ability to tap in extremely extensive and thus valuable oil reserves (see: http://www.ft.com/cms/s/0/9776a77a-1c39-11e2-a14a-00144feabdc0.html#axzz2AOdVeWmx).   However, it is legitimately questionable whether similar enthusiasm can be expressed when one looks at the potential consequences for the accessiblity of the oil market in vast areas of continental Europe.

It appears in fact from the details available as to the deal that the merged entity will maintain a hold on the supplies directed to numerous Member States, starting from the three Baltic Republic; in addition, it will own or enjoy exclusive rights to use key infrastructure (such as that allowing for the exploitation of rich Arctic oil fields).  The merger is also very likely to boost the battered reputation of BP, especially after its poor dealing with the consequences of the Gulf of Mexico oil spill.   However, it is equally clear that any rival wishing to threaten the leading position of Rosneft after the concentration will have, at the very least, significant difficulties in accessing much of the Continental market.  On 22 October 2012 Businessweek reported (see: http://www.businessweek.com/articles/2012-10-22/bps-good-deal-with-rosneft) that as a result of its takeover of BP/TNK, Rosneft will pull neck-and-neck with Exxon Mobil, which to date has been the most significant competitor when it came to access of the Russian reserves, on the one hand, and of European customers, on the other hand.  As a result, not just Exxon, but also other key rivals will be more and more sidelined when it comes to attempting an entry into the rich Russian oilfields: for instance, deals such as the Arctic/Black Sea drilling jointventure that exxon itself negotiated with Rosneft in late 2011 are to become less and less likely, due to the fact that, given the sinergies created with the BP-co-owned company, Rosneft will see lesser and lesser convenience in seeking out other partners.  As was aptly put by  Pavel Molchanov, a US based analyst, as a result of this deal, BP has been "officially endorsed" as the preferred partner" for Rosneft, which means, in practice, that it will retain a very privileged position, vis-a-vis other potential entrants, in securing both access to Russian oil and rights to exploit the oilfields with a view to exporting oil to countries in Europe. See: http://www.businessweek.com/news/2012-10-22/russia-off-limits-to-big-oil-after-bp-wins-putin-s-approval

As a result of this merger, the oil market in Continental Europe, whose dynamics affect oil availability and oil prices across the EU, appears more and more concentrated.  Due to the dependency on Russian-held resources, the consequences of the merger are likely to be felt in many Member States, with non-Russian companies in a position of increasing disadvantage vis-a-vis BP when it comes to securing supplies and to channeling them to other areas of the Continent.  The merger also raises significant questions concerning governance: it is in fact well known that Rosneft, in its position of state-run oil company, is very exposed to the political influence of the Russian Government and Presidency.  Consequently, a number of concerns were raised that BP's own internal governance may also be exposed to similar influences or threats thereof.  more generally, it may legitimately be questioned whether the merger could remain consistent with another objective, which has been at the core of among others the EU's policy agenda on energy, namely the attainment of "real" privatisation and of greater, easier access to the energy markets (see e.g. http://ec.europa.eu/energy/infrastructure/strategy/2020_en.htm). 

In the aftermath of this merger, several analysts have suggested that the Kremlin seems to be poised toward the "re-nationalisation" of the extraction industry.  Ostensibly out of a concern for keeping oil and gas "Russian" and "Moscow-centric", this deal seems to confirm the intention of the Russian State to tighten its hold on strategic oilfields while at the same time continuing to trade with foreign customers via a "trusted" ally, such as BP.  Gone are the days, it would seem, of the Russian "oligarchs" who, in the wake of the fall of the USSR were poised to become the free-market heroes of modern, post-Communist Russia (see e.g. http://news.bbc.co.uk/1/hi/business/3218515.stm).  Leaving aside the "historical" background, it may be genuiney questioned whether the merger between BP/TNK and Rosneft is going to herald an era of less expensive, more easily available oil to be sold in vigorously competitive markets.  Certainly, BP stands to benefit from his "special position" in the eyes of the Kremlin… but whether this will lead to a more contestable market in Europe in the long run, at least as far as onshore drilling and extraction go, it is highly doubted.

The energy sector has represented a key target for the competition enforcement activities of the EU Commission for a considerable time.  This activity has accompanied and in some cases followed the enactment of legislation designed to liberalise the markets for the supply of gas and electricity, through the imposition of unbundling and infrastructure sharing obligations on incumbents (often former state monopolists).  While sector specific regulation has undoubtedly been effective in removing barriers to entry and in creating the conditions for a more contestable market in many member states, it has not been wholly successful in curtailing the ability of incumbents to seek to shape the conditions of competition on the retail markets in a way that could be detrimental to newcomers, for instance by downgrading the conditions of access to the infrastructure or by seeking to tie customers via long-term arrangements, not just on the retail market, but also at wholesale level.  Competition decisions adopted since 2006 and addressed to major European former monopolists such as Distrigas in Belgium, RWE and E.ON in Germany and EdF in France show that ex post competition enforcement is an indispensable complement to sector regulation since it prevents the old monopolists, which invariably, at least for a time, are dominant on their respective relevant markets, from countervail, via their commercial practices, many of the positive effects of the liberalisation measures.

Yet, it appears that the road toward realising efficient, competitive markets in which energy is affordable as well as secure is rather uphill.  The recent statement of objections issued bythe Commission against the Russian energy company Gazprom (see http: //europa.eu/rapid/pressReleasesAction.do?reference=IP/12/937), alleging a number of infringements of Article 102 TFEU, especially to the detriment of customers in Central and Eastern European Member States, represents a good example of how "national champions", whether established within the Union or, as is the case with Gazprom, in non-Member States, can act in such a way as to foreclose the energy markets vis-a-vis rivals and thereby engender situations of dependency as regards supply in sizeable areas of the single market.  

A very extensive and exhaustive run through the Gazprom investigation and related matters is provided by a recent paper authored by Alan Riley, Professor of Law at City University and Fellow of CEPS at: http://www.ceps.eu/book/commission-v-gazprom-antitrust-clash-decade.  As is well known, Gazprom stands accused of partitioning markets, of applying "unfair prices" and of "preventing the diversification of the consumption of gas", to the detriment of EU consumers, viaa number of prima facie illegitimate practices, such as restricted access to the infrastructure (namely, the well known pipelines carrying gas from Central Russia and the Caucasus to more Western parts of Europe); dowgraded levels of service in transporting gas to Central and Eastern Europe; the practice of concluding long-term contracts of supply with a number of companies established in several member states in this and other areas.

These allegations present a number of difficulties, especially in terms of evidence, for the Commission: taking the allegation of "unfair pricing", this is admittedly fraught with problems.  For instance, how should an "equally efficient" rival be identified? And how high (or low) should a price be to be "unfair"? As to the other allegation of market partitioning this may admittedly be slightly easier to support with evidence: a careful analysis of pricing trends across the Member States concerned, for instance, could give the Commission clues as to whether a similar accusation is well founded.  But, assuming that the Commission is successful in gathering evidence and making a convincing case as to the existence of an infringement, could a prohibition decision, backed by fines, be the most appropriate way of terminating the infringements? As may be easily recalled, Gazprom, given its economic strength and, let's face it, its political adherences with the Putin regime, is admittedly notorious for the threats to interrupt or restrict supply of gas.  This has already occurred a few years ago against a number of its key customers (see e.g. http://www.bbc.co.uk/news/10362731). Accordingly, it could legitimately be questioned whether taking such a "heavy handed" strategy may be helpful, especially since (as the example of Lithuania shows-the country is 100% supplied by Gazprom) it would still be essential to maintain ties with the company in question, at least until such time as alternative sources of energy, especially renewable, are found and developed and thereby brought in a position of being capable of withstanding demand. 

As the experience emerging from the energy market study showed, commitments decisions, designed to put an end to the anti-competitive practices under a degree of supervision, may represent an equally efficient response to the consequences of unlawful behaviour.  However, this response presents inevitable risks, the first being the fact that it would not be based on a conclusive finding of infringement and the second, and perhaps the most significant, from a practical standpoint, being the fact that the efficacy of commitments decision relies heavily on the ability of the competition authorities to monitor compliance with them.  Perhaps it could be wondered whether the Commission would be better advised in "chancing" its way through a full-blown investigation procedure, culminating with a "real" response to Gazprom's suspected unlawful practices. It is suggested that taking this course of action would allow the Commission to exercise not just its detection powers, thus being able to reach a definitive decision that an infringement has actually taken place.  It would also enjoy the power to impose remedies on the investigated company, which would allow it to address the concerns identified already at this preliminary stage, along with imposing financial penalties.  As Microsoft has demonstrated, Article 7 can be deployed both flexibly and effectively to terminate the infringement as well as to allow rivals, who would otherwise be foreclosed from the market as a result of the dominant undertaking's misdemeanours, to be put on a more even footing in attempting to enter that market. Accordingly, it would definitely represent a more effective response to the consequences of Gazprom's behaviour in particular as well as being consistent, more generally, with the concerns for improving on openness and rivalry of the energy markets, goals in the realisation of which the Commission has invested significant resources as well as political capital.

But alas, the woes for policy makers arising from the energy industry are not limited to the action of the European Commission.  It appears that the UK Government, ostensibly out of a concern for growing gas and electricity prices, is preparing to legislate in order to "force" energy suppliers to apply their "lowest" tariffs to their customers' bills. At PM questions on 17 October the Prime Minister said: ""I can announce… that we will be legislating so that energy companies have to give the lowest tariff to their customers, something that Labour didn't do in 13 years, even though the leader of the Labour Party could have done because he had the job." (see: http://www.bbc.co.uk/news/uk-19986929) 

However laudable the objectives of the PM may be (especially given the ongoing difficulties that many families face in payihng their utility bills and the rising numbers of households in "fuel poverty"), this announcement rings many alarm bells in the ears of any competition lawyer.  What is meant by "lowest tariffs"? According to which benchmarks can this assessment be made? And secondly, how can it be ensured that, purportedly in order to fulfil their obligation under the proposed Energy Bill, suppliers will not conspire in their determination of what is the "lowest tariff"?

In respect to the first question, it is surely indispensable that suppliers should be "transparent" as to how their tariffs are calculated so that customers can compare each offer and thereby make an informed choice as to which firm to choose.  However, how in actual fact each tariff is determined remains very much within the gift of each supplier and is therefore determined on the basis of confidential information.  Against this background, it is clear that what appear to be "lowest tariffs"may not actually coincide with "competitive" tariffs, that is with the lowest prices that can be set having regard to the actual conditions of competition, of the size and number of rivals and of any other relevant factor characterising the industry at a given time.  It could be added that such a scenatio brings back to memory one of the most famous problems in competition law, namely the so-called "cellophane fallacy", which, it was alleged, had marred the US Supreme Court decision in the DuPont case. Be as it may, it is surely questioned whether imposing such a generalised obligation on suppliers, in the context of a market that is already subjected to significant regulatio, is really likely to benefit consumers, as well as being objectively feasible.  To the contrary, and coming to the second question highlighted above, the concern may well be raised that imposing such a blanket obligation woul restrict competition between suppliers considerably, as well as pushing smaller ones into a potentially unsustainable position of having to "meet competition" on the part of the major energy companies by, in substance, ending up pricing almost at a loss. 

In a very recent blog post (see: http://competitionpolicy.wordpress.com/2012/10/19/the-likely-effects-of-compelling-energy-firms-to-give-customers-the-lowest-tariff/#more-790), Catherine Waddams, of the Centre for Competition Policy at UEA, said: "Since any offer which a company made to try and encourage switching would oblige them to lower all the charges they make to their established customers, we would not expect to see very many offers.(…) A  small new competitor, with perhaps 100,000 consumers (less than half a percent of the market), would face a cost of £2million from lost revenue with existing accounts if it offered a twenty pound discount to attract new customers." Consequently, it could be argued that the obligation to bring all customers on the "lowest" tariffs would not only repress competition on the retail market, by producing a "bird-mirror effect" and thereby encouraging all energy suppliers on to a nigh to uniform price to their end users.  It would also be detrimental to the commitment to encouraging new entrants in the industry: it may legitimately be expected that any benefits arising from attracting new customers would be more than compensated with losses in revenue which may be very difficult to offset, especially given the high fixed and wholesale supply costs associated with energy production. 

In light of the above, it may be argued that the PM's announcement is at odds with the Government's commitment to both a more diversified energy supply side and a wider pool of energy sellers more generally.  If this position, with all the difficulties it is fraught with, is compounded with the Chancellor's retrenchment from the Exchequer's financial support toward "green" energy, it is easy to see how some commentators may have been justified in branding this latest Prime Ministerial announcement as"confused" (see for example, in the Guardian, http://www.guardian.co.uk/environment/2012/oct/18/coalition-energy-policy-lowest-tariff?intcmp=239).

Thankfully for Mr Cameron, his Energy Minister was ready to "take it on the chin" and issue a rather more anodyne statement on these issues (see http://www.guardian.co.uk/business/video/2012/oct/18/energy-secretary-lowest-tariff-video?intcmp=239).  Ed Davey emphasised the pivotal role of competition among suppliers and easier switching, the latter backed up by fuller information as to the competing offers available to consumers and by safeguards against "abusive commercial practices" (such as those emerged from door-to-door selling in the past), as the lynchpin of the energy market for the UK in the future.  However, he was silent as to the obligation to bring all consumers on the lowest tariffs-something that could potentially be interpreted as a sign that the PM's declaration had not formed the subject matter of deep cabinet discussion.  To all this the OFGEM response, issued at 7am on 19 October, adds further colour (for a good sum up, one can refer to, inter alia, http://www.guardian.co.uk/money/2012/oct/19/energy-firms-customers-cheapest-tariff).  In a key that was not verty different from that characterising the Minister's views, the sector regulator emphasised the need to have a clearer, much more linear and easier to compare set of tariffs. The Office seeks to put an end to an excessively wide variety of prices and to move toward simpler bills and up to 4 only tariff tiers.  OFGEM also plans to oblige suppliers to inform customers as to the available tariffs and to bring to their attention any more advantageous deal.  However, as is clear from its announcement (see http://www.ofgem.gov.uk/markets/retmkts/rmr/consumers/pages/index.aspx?&utm_source=homepage&utm_medium=banner&utm_campaign=simpler_clearer_fairer), it stops short of obliging suppliers, tout court, to "move" customers on to the lowest available rate-unless in the rather exceptional case of a "vulnerable" client whose tariff was "dead", i.e. no longer on offer.

So, too much ado about nothing? It could be argued that Ofgem's announcement, together with the urgent answer given by the junior Minister for Energy, John Hayes, to the Commons yesterday, confirm the existing commitment to securing more effective competition on the energy market, via provision for simpler tariffs and easier switching for individual users (see http://www.guardian.co.uk/politics/2012/oct/18/energy-minister-cameron-hot-air?INTCMP=SRCH).   however, arguably this debate raises deeper questions for the existing Government's energy policy: it would appear that energy is fast becoming another thug of war for the Cabinet, i.e. another instrument for "grabbing headlines" and try to win over "easily" consensus via well-sounding but not very thought through announcements, which require quick backtracks from other Ministers and, as is the case in respect to energy prices, the energy regulator.  It is suggested that this view seems confirmed by the fact that earlier today Mr Cameron, speaking from Brussels, far from either glossing over or indeed correcting his views on this issue, chose to renew his commitment to the "switch to lowest tariff" solution, but only as part of the debate concerning the new Energy Bill (see: http://www.guardian.co.uk/money/2012/oct/18/david-cameron-energy-bill-tariff-plan).  Admittedly, this does not promise very much for a debate that would require much clearer direction and, more to the point, far stronger grounding in competition principles and evidence based policy- and law-making.

 

If it was a TV series, we could safely say that we are watching the second instalment of the "story" of Scottish legislation introducing minmum prices on alcoholic beverages.  The end of September saw the EU Commission stating that "it had a problem" with these measures: in line with established case law the Commission expressed the view that setting a minimum prices for alcoholic beverages would not comply with the free trade and competition principles enshrined in the EU treaties (see http://www.bbc.co.uk/news/uk-scotland-scotland-politics-19757149). The Commission's letter, which also takes stock of concerns expressed by a number of wine-producing Member States, is still confidential: however, many of its possible concerns and arguments can be guessed. The 'by object' illegality traditionally attached to minimum pricing; the concern for making the Scottish market "less appealing" to foreign vintners and  therefore for hampering imports into a sizeable part of the UK; and, perhaps more interestingly, the perception of these measures as "going beyond the pale" compared with other measures, such as the adoption of indirect taxation measures affecting alcohol trade are all likely to feature prominently in it.

So, what happens next? The Health Secretary for Health, Alex Neale, who has replaced Nicola Sturgeon in the last reshuffle, has confirmed the Scottish Government's commitment to these measures; He has also reiterated that the Government would "respond" to the Commission's letter within the next 3 months.  After that deadline of 27 December, the ball will be once again in the Commission's court: will the Commission bring an action for infringement in respect to this piece of legislation? Or will it take the view that it's discretion is best engaged in pursuing other alleged infringements of equally weighty EU law rules?

The Scottish Whisky Association certainly hopes that the Commission, if it is not able to "negotiate" the repeal of the legislation with the Scottish Government in the period of time intervening between now and 27 December, will indeed take the United Kingdom to Court, in respect to the prima facie infringement of the Treaty arising from the conduct of one of its regions.  And it is equally clear that the UK, as the Advocate General, Lord Wallace of Tankerness, has said today, will "stand shoulder to shoulder" to the Scottish Ministers in defending their actions before the EU judiciary (see: http://www.bbc.co.uk/news/uk-scotland-scotland-politics-19779696).  But it simply not clear how easy it will be for the UK to do so. 

There is little doubt that the measures enacted by the Scottish Parliament are problematic: minimum pricing has traditionally been regarded as something akin to "vertical" minimum pricing. Especially if these restraints on the freedom of determining prices are applied in specific areas of the Union, they have also been considered a major obstacle to the realisation of the objective of market integration.  As was held by the Court of Justice of the EU in a number of judgments, any limitation on the freedom of individual firms to set their own prices, especially in the form of a "floor price", automatically hinders their ability to pass on efficiencies to their customers, in the form of lower prices (see e.g. case C-221/08, Commission v Ireland, [2010] ECR I-1699).  As a result, in the Court's view it is likely to prevent "efficient traders" from doing business in areas where similar measures are imposed by domestic legislatures, and this regardless of the policy objectives pursued by them.  This much the Court of Justice has reiterated in cases relating for instance the trade in tobacco products. 

The SWA and the "wine producing" member states that have so far submitted papers to the EU Commission take heart from the traditional position on  geographic minimum pricing and also on the principles enshrined in the "tobacco" litigation, in which the "common market goals" seem to weigh more than the concerns for public health.  However, one key factor  at stake in the tobacco cases was the existence of extensive harmonising EU legislation in the area, legislation which had been enacted after taking into careful account the public health concerns arising from this type of trade.  Similar measures have not however been adopted by the EU legislature in the field of trade of wine, spirits, beer and other alcoholic drinks.  It is also clear from the history of the Scottish legislation that the latter envisages a system of pricing that takes into account the different strength of individual types of beverages, thus giving rise to differentiated prices; it is also based on sound health evidence (i.e. the Sheffield study, see: http://www.scottish.parliament.uk/parliamentarybusiness/28862.aspx?r=6852&i=62104&c=1284513) as to the social and medical harm caused by excessive alcohol consumption an to its economic costs.  

Against this background, could the system of minimum pricing provided in the Scottish legislation be regarded as a "disproportionate" restraint on competition and on free trade, as alleged by the SWA? In an earlier post on this Blog, I recognised that price competition is so important that it can never be eliminated (see: http://www.law.ed.ac.uk/clie/blogentry.aspx?blogentryref=8929).  However, could the legislation in question be viewed as a framework within which a different type of competition-one arising, perhaps, between different types of drinks or between beverages of a similar nature but having different alcoholic strengths-can arise?

Perhaps more importantly, the question that should be addressed is whether we should be protecting the "cut price" sellers of, for instance, high strength lager or cider, who can market these products for less per pint than mineral water: it may be queried whether these are the "efficient" undertakings that should always and at all costs be allowed to "pass on" their alleged efficiencies (which could be suspected to originate from cross subsidisation with income coming from sales of different products) to their customers, regardless of the social and economic harm arising from the impact of these sales.  In this specific respect, one dictum of the "tobacco judgments" that are much trusted by the SWA but that the Association seems to have overlooked is the following: "(…) it is (..) open to [the Member States], while allowing those producers and importers to make effective use of the competitive advantage resulting from any lower cost prices, to prohibit the sale of manufactured tobacco products at a price below the sum of the cost price and all taxes (…)" [emphasis added] (case C-198/08, Commission v Austria, [2010] ECRI-1645, para. 43).

Against this background, it could be wondered whether the "differentiated pricing scheme" de facto enshrined in the Scottish legislation could allow such "advantage" to be effectively used by "efficient" vintners and brewers while at the same time allowing Scottish authorities to prevent the sales at below-cost prices that are not only damaging public health and public order (not to mention the economy!) but also undercutting the public purse, by resulting in the tax authorities being unable to reap their revenues (see e.g. C-197/08, Commission v France, [2010] ECR I-1599, para. 43) on the sale of ultra-cheap products.  It is submitted that, if the Commission decides to take the UK to court on account of these measures, this question may well be one of the issues on which the Court of Justice could decide to focus on, in addition to considerations relating to how to balance the public health gains pursued by the Scottish Parliament against the demands of genuine competition which, it could be argued, may well arise between different products and therefore ensure that rivalry is not irremediably impaired on the market.

Finally, and to go back to the main story… where does this leave the complainant, i.e. the Scottish Whisky Association? Could they be actually regarded as potential "victims" of the cut price sales of alcoholic beverages that seem to be the target of the recent minimum price legislation? Admittedly, this is a question that needs to be answered in the circumstances-what beverage can be regarded as substitutable to whisky? And how easy or difficult is it for spirit producers coming from other member states to enter and establish themselves on the Scottish whisky market? More generally, could an "efficient distiller" be prevented from "passing on" his or her efficiency gains to consumers by the minimum price level calculated on the basis of the method established by the Scottish legislation?  It is uncontestable that setting minimum prices is liable to raise concerns for the genuinity of the rivalry in any market.  However, it is admittedly difficult to find as unlikely a substitute to single malt whisky as the beverages that are commonly sold at the "slashed" prices that can currently be seen in some off-licenses. 

Banks are, once again, topping the news sheets, if they had ever stopped… And now it is for allegations of rigging the Libor exchange rate.  It is already rather disconcerting that such an important element in the determination of banking rates-whose value affects the lives of so many people-is, at least in its face, set up relatively informally (the Beeb have a good piece on it: http://www.bbc.co.uk/news/business-18613988). What is even more worrying is that, it is alleged, a number of traders have used this mechanism to manipulate these offer rates, in other words, to artificially alter their value. 

Determining artificially the value of Libor by declaring , however, is not a victimless crime, as the US authorities who have exacted an admission of liability from Barclays and other major banks, including the taxpayer owned RBS, have pointed out. Libor is the benchmarks for rates throughout the banking industry, affecting anything from mortgage to personal loan rates.

Apart from these considerations, the way in which these rates is set raises a number of potentially significant competition law questions: every day at 11am GMT, the "panel banks" communicate their offer rates to Thomson Reuters which collect these data on behalf of the BBA, for the purpose of setting an average rate of reference, which is then made public at 11:45am GMT (For an agile and easy to understand explanation of how the rate is determined see http://www.global-rates.com/interest-rates/libor/libor-information.aspx). So, nothing particularly "scientific", right?  However, what is problematic is that this is a mechanism through which sensitive, "fresh" and commercially significant information are pooled: while the identity of each of the bank giving details of their interchage rate is only known to ThomsonReuters, who the "panel banks" actually are is openly known.  It is therefore undeniable that the LIBOR calculation mechanism is the outcome of an information exchange arrangement among competitors, leading to the determination of a "reference rate" affecting a widespread variety and number of financial transactions and, therefore, impacting considerably on the trading conditions applied by key players on the banking market.

The legality ofinformation exchange agreements is a vexed issue in competition law, which has been examined by the EU courts in a number of cases.  In the banking market a parallel can be drawn with the credit rating information register at issue in the Asnef Equifax preliminary ruling (case C238/05, [2006] ECR I-11125), for instance.  As is well known, in that case  the Court of Justice took the view that an agreement for the exchange among banks of information relating to the "creditworthiness" of their clients, for the purpose of facilitating future decisions on whether to, inter alia, granting loans or other banking services to them, would not infringe Article 101 TFEU if a number of conditions were satisfied-in light of the domestic court's appreciation of each scheme (para. 54-56).  Access to the register had to be granted in a non-discriminatory fashion, in the sense of being open to any bank of financial institution that may be interested in obtaining these services; the information concerned customers and not the members of the scheme-in other words, lenders should not be identified or identifiable; and perhaps most importantly, the market must not be excessively concentrated, for, if that was the case, enhancing its transparency could allow the existing competitors to reciprocally align their behaviour, thus distorting any remaining competition (see para. 57-60).

It is acknowledged that the LIBOR mechanism presents several distinguishing features from those of a "credit rating register", such as the one in issue in Asnef: it concerns a "hypothetical" offer rate for borrowing from which banks can derogate.  Also, the circumstance that, at least in its face, the identity of each bank is unknown to the others, thus not allowing them to "match" rates to institutions, should prevent tacit coordination from arising.  However, it is undeniable that there are a number of significant similarities: just as with credit registers the identity of those to which the data refers (i.e the "panel banks") is openly known; also, the final figure is the result of an average calculation that takes into account each of the rates submitted to the data pooling organisation. Perhaps most importantly, LIBOR is a "key reference rate"-a  bit of a peg on which pretty much any other "significant" rate hangs.  On this point, it should be reiterated that according to the Court of Justice in Asnef, information exchange arrangements do not, at least in principle, infringe Article 101 TFEu by reason of their 'object' and that regard should be had to their actual context. Thus, this analysis could well reveal that these agreements may escape being caught by Article 101 TFEU on the ground that they are likely to facilitate the provision of banking and financial system and therefore represent a "reasonable" restraint on the freedom of trade of the parties (see Ausbanc, mutatis mutandis, para.  47-49). 

However, two further aspects merit consideration: the first concerns the state of the banking market.  According to the Asnef preliminary ruling, one of the conditions for the lawfulness of the credit rating register arrangement was that the market not be "excessively concentrated", for, if that was the case, any further exchange of "sensitive information" could make coordination among competitors more likely and thereby render the agreement capable of appreciably distorting any remaining competition.  On this point, it is accepted that the banking and financial markets are regarded as being worlwide: however, when regard is had to the state of the industry in the UK, one cannot deny that the British "domestic" segment of this market is characterised (for one reason or another) by the presence of a relatively small number of big players vis-a-vis which smaller banks can only represent a relatively limited countervailing factor when it comes to exerting competitive pressure.  Against this background, it could be questioned whether reducing the uncertainty as to the fixing of key rates via the Libor mechanism could further limit the "space of manuevre" left to rivals on this market to the point that the arrangement may no longer represent a "reasonable" restraint on competition for the purpose of securing "meritorious" objectives of stablity and good management in the provision of credit and other services.

The second consideration relates more closely to the alleged "rigging" of Libor rates, i.e. to the uncovered evidence that some banks had released artificial rates, i.e. rates that did not reflect the reality of their practices.  In a recent post, my colleague Andreas Stephan expressed doubts that this practice could amount to, and should therefore be treated as a cartel, with all the consequences (especially criminal) that this carries (see: http://competitionpolicy.wordpress.com/2012/07/11/should-libor-rigging-be-treated-like-price-fixing/): he emphasised among other features the fact that these figures "(…) are taken collectively as an indicator of how healthy those banks are individually and as a group. (…)"  It  may be agreed with Andreas that "(…) in this setting, some level of manipulation and tacit collusion seem inevitable (…)" due to the nature of the arrangement; nonetheless, it may wondered whether, given the centrality of Libor within the baking industry and, perhaps most importantly, the artificial nature of the Libor value determined as a result of the alleged "rigging", the implementation of the scheme could have led to conditions of competition on the credit market that did not correspond to the actual nature and to the features of the market itself.

Against this background, the "big" question is whether, despite being in principle a "reasonable" restraint on the freedom to trade of banks and financial institution, the Libor arrangement may represent, due to the manner in which it was implemented, a unlawful restriction on competition'by effect'.  While it is acknowledged that (as Andreas does in the blog post I previously referred to) the "criminal response" may not be appropriate, due to the regulated nature of the industry and to the "systemic" concerns characterising its functioning, this is a central question in respect to the "civil" responses to the Libor scandal: could bank customers for instance seek compensation for damages allegedly suffered as a result of an "artificially high" interest rate, by reason of their bank having taken Libor as its "benchmark"? This is admittedly a scenario that is taking shape in the US; however, as the BIS Consultation document seems to harbour a "new age" for standalone competition claims, it may not be excluded that the Libor scandal could lead to litigation in the UK courts as well.

It is however beyond doubt that the most concerning aspect of the Libor scandal lies in the perceived inability of regulators to constrain and discipline the behaviour of a relatively small and supposedly "well-educated" group of undertakings that act in a prima facie tightly surveilled market: it is acknowledged that "rough traders" are to blame for many of these practices.  However, it is equally clear that whoever was supposed to did not "see" or "hear" what was happening on the trading floor, thus revealing quite significant gaps in the internal governance as well as in the regulatory structure of an industry which should support the economy at this critical moment, just as the taxpayer did to it when banks really needed help.

The Intel appeal is among the major and best known cases pending before the General Court so far: lodged in 2009 to challenge a decision in which the Commission had fined the applicant for allegedly abusing its dominant position, this case is likely to give more headache to DG Competition, since it is likely to reignite the discussion as to the extent to which its investigative proceedings comply with basic tenets of due process, equality of arms and rights of defence.

To date the Commission has sought to rebut criticism largely on the ground that in its view the overall "fairness" of its enforcement mechanisms would ultimately be guaranteed by the powers, conferred to the General Court and, on appeal on points of law, to the Court of Justice, to scrutinise its decisions, in accordance with Article 263 TFEU.  At the same time, the Commission has sought to refine its procedures, by adopting new Best Practices Guidelines and in general by aiming at making its procedures more transparent and with greater opportunities for dialogue with the investigating parties. In this context, the disclosure of evidence on which the Commission has relied to establish an infringement, contained in the case file, has represented a long standing bone of contention.  It may be argued that it is legitimate to limit, if not altogether to deny, access to evidence on grounds of confidentiality of business secrecy; this may be especially important when dominant companies are under investigation, as the disclosure of, e.g. evidence originating from a rival or downstream business partner, may expose the informant to the risk of retaliation.  However, how far can this justification be relied on?  The Court of Justice has repeatedly said to the Commission, in short, that "if you don't disclose it, you can not then rely on a specific piece of evidence".  Against this background, it is perhaps not surprising that the Intel appeal, currently being heard in Luxembourg, hinges more on issues of procedure than on questions of substance.

It is in fact well-established that dominant companies cannot engage in "loyalty inducing" practices, such as tying arrangements, albeit at advantageous prices for the buyer, discounts and rebates, even at the request of the counterpart; it was often held that these practices would result in competition being irremediably impaired by locking in customers in a long relationship with the market leader.  

This is not central, it seems, to Intel's case.  Bloomberg reports today (see: http://www.bloomberg.com/news/2012-07-02/intel-to-say-eu-withheld-evidence-mitigating-1-34-billion-fine.html) that before the General Court counsel for Intel (Nicholas Green QC) has argued that "the EU [Commission] failed to use mitigating evidence or to allow it respond to all of the allegations."  Intel has also contexted the complex legal assessment of the allegedly unlawful practices in light of Article 102 TFEU, on the ground that the Commission's case would be "simplistic", "static" and unable to capture the features of competition on the IT market.  It could eb argued that these pleas are surely not unconvincing: after all, the Commission's "short term" view of competition in new economy industries has been repeatedly criticised, as was the case in relation to, e.g., the Microsoft case, on the ground that it would not be able to gauge in full the implications of operating in a market characterised by network effects and where, as a result, industry leaders are likely to emerge and "rule the roost" for a limited temporal horizon (see e.g. the brilliant piece by Pierre Larouche-available at: http://socrates.berkeley.edu/~scotch/DigitalAntitrust/Larouche.pdf)  

However, it would appear that the applicant may have more luck in litigating the case on procedural grounds.  These arguments were at the core of the original appeal-see my interview with Charles Forelle on the WSJ, among other more important pieces… http://online.wsj.com/article/SB124826913522171933.html).  However, since then it has been uncovered that the Commission has been responsible for repeated procedural shortcomings in the course of the 8 year investigation against Intel-according to the EU Ombudsman, for instance, the failure to keep regular, full and accurate minutes of the meetings with Intel executives accounted to "maladministration" (see http://www.ombudsman.europa.eu/cases/summary.faces/en/4399/html.bookmark); the Ombudsman also highlighted the circumstance that complainants in the case, i.e. AMD, were allowed unusually ample access to the case file, thus raising suspicions of further procedural infringements (this time of the Commission's duty of confidentiality) to the detriment of Intel itself. 

Against this background, it is legitimate to ask if Intel's pleas will be upheld by the Court: surely, this will depend on a number of factors, although it is undeniable that the EU Ombudsman report could have a significant weightin assessing whethr these arguments are well-founded.  However, what is also certain is that, should Intel be successful, this would represent an indictment, to some degree, of the procedures before the EU Commission, who, as a result, may no longer be able to "duck these issues in the water" in public, by reiterating the overall soundness of its due process standards, and then quietly address any perceived shortcomings by the back door of its administrative practice.

The hearing is expected to last for another 4 days, according to Bloomberg and to the EU Courts' calendar (see http://curia.europa.eu/jcms/jcms/Jo1_6581/?tri=juridiction&dateDebut=4/07/2012&dateFin=4/07/2012).   Nonetheless, it is perhaps already justifiable to wonder whether Intel will be the decisive factor in prompting a root and branch reassessment of the DG Competition investigative and decision-making practices, with a view to secure effective, true and full compliance with principles of equality of arms, due process and fairness that are now an essential part of the fundamental rights' catalogue of the EU itself.

The Business Secretary, Vince Cable MP, announced today that Clive Maxwell is to replace John Fingleton as Chief Executive Officer of the Office of Fair Trading.

Clive Maxwell is currently an Executive Director and Member of the Board of the Office and has in the past held a number of posts in the Treasury from 2000 to 2009.

See:

http://news.bis.gov.uk/Press-Releases/New-OFT-chief-executive-announced-67b40.aspx

for more information about the handover.

His appointment comes at a critical time for the OFT, as he will be deeply involved in the transition to the new Competition and Markets Authority.  The CMA will replace the current framework for the enforcement of the competition rules in the UK, which is characterised by a division of responsibilities between the OFT and the Competition Commission; this is especially apparent in respect to the control of mergers and to market inquiries, and has been widely approved of for its thoroughness and for its efficiency.

The move to a unified agency is therefore not entirely uncontroversial: it may be wondered whether, rather than looking at the merits of such a transition the Government may have been influenced by the perceived need to implement budgetary cuts.  Surely, it is in many ways regrettable that, if that was indeed the case, the OFT and the CC could be innocent victims of the "bonfire" of many governmental and quasi-governmental agencies.

 

The Competition Law Scholars Forum (CLaSF) is delighted to announce that the programme for the XXth workshop is now public.  The theme of the workshop will be "Competition Law and the Economic Crisis".

We are very honoured to have Prof Luis Morais, currently at the helm of the Portuguese Competition Authority, as the keynote speaker for the day.  The line up of contributors is truly impressive and the papers will cover a range of hot topics and issues-this day is sure to inform discussion on a raft of important and topical questions.

Anyone interested in attending (you must be a member of CLaSF- see www.clasf.org re membership) should contact Dr Arianna Andreangeli in the first instance-places for the audience are limited.

The programme will be shortly live at www.clasf.org, but for a taster… 

Draft Programme

 

9-9:30am: registration and coffee

 

9:30-9:45am: Welcome and Introduction—Prof. Barry Rodger (University of Strathclyde, Vice-Chair, CLaSF) and Dr Arianna Andreangeli (University of Edinburgh)

 

9:45am-10:30am: Keynote speaker—Prof. Luis Morais, Universidade de Lisboa and Portuguese Competition Authority. 

 

10:30am-10:50am: Questions and discussion

 

10:50am-11:10am: coffee break

 

11:10am-11:50am—Panel I: Competition law and the economic crisis—general themes.

Chair: Prof. Alan Riley, City Law School, Chair, CLaSF

 

Mr Pat Massey and Mr Moore McDowell (COMPECON, Dublin, Ireland): “Competition Law: an unaffordable luxury in times of crisis?”

 

Ms Beata Slominska (College of Europe): “Should crisis justify the functioning of crisis cartels?  Lessons from the history in the context of the current financial crisis”

 

11:50am-12:30pm—Panel II: the goals of competition law in the current economic turmoil

Chair: Dr Arianna Andreangeli, University of Edinburgh

 

Ms Gul Sirin Gok (University of Strathclyde): “The Interplay between the ‘Welfare of Consumers’ and ‘Economic Growth’ as Objectives of Competition Law: Overrated?”

Dr Anne-Christine Witt (University of Leicester): “Can the more economic approach survive the economic crisis?”

 

12:30pm-1pm: Q&A for all speakers

 

1pm-2pm: Lunch break

 

2pm-3:20pm—Panel III: State aid and the crisis of the banking and automotive industries.

Chair: Mr James Killick, White & Case, Brussels

Mr Gianni Lo Schiavo (College of Europe): “Towards a reshaping of the rules for State aids in the aftermath of the financial crisis?”

Dr Michele Giannino (Desogus, Cagliari, Italy):“Too big to fail banks: what can merger control do? An European perspective”

Dr Jonathan Galloway and Prof Joanna Gray (University of Newcastle): “Reforming the UK banking sector: Weighting Financial Stability and Competitiveness”

Mr Conor Talbot (European University Institute): “Competition Law and Policy in times of Economic Crisis: A Case study of the application of EU competition rules to consolidation in the automobile manufacturing sector”

 

3:20pm-3:45pm: Q&A

 

3:45pm-4pm: coffee break.

 

4pm-4:40pm—Panel IV: the crisis and the EU economic and social model

Chair: Mr Angus MacCulloch, University of Lancaster

 

Prof Erica Szyzsczak (University of Leicester): “Putting the ‘market’ into the ‘social’”

Prof Johan Van Den Gronden (Radboud University, Nijmegen): “The Transformation of EU Competition and Internal market law by the Stability and Growth Pact: competence creep into the national welfare states?”

 

4:40pm-5:10pm: Q&A

 

5:10pm-5:20pm: closing remarks