Knoetzl

THE ELEVATOR CARTEL AND THE ECJ II: CASTING A WIDER NET OF PRIVATE ENFORCEMENT

Private Enforcement
The Elevator Cartel – Recoverability of State-Aid against Cartel Members

How far-reaching is the concept that “any person” who suffered cartel-related damages is entitled to claim compensation? Can public institutions who subsidized market participants also recover their losses from the cartel members? The Austrian Supreme Court asks the European Court of Justice (ECJ) for clarification.

ELEVATOR CARTEL

Civil liability cases stemming from the so-called elevator cartel (Aufzugskartell), arising out of bid rigging by Kone, Schindler, Otis and Thyssenkrupp, have been occupying the Austrian courts since 2007, when the European Commission levied a EUR 990 million fine against the cartel members.

2014 KONE DECISION ON UMBRELLA PRICING – FEDERAL RAILWAYS

In 2012, the Austrian Supreme Court requested a first preliminary ruling from the European Court of Justice in this context The Austrian Federal Railways (ÖBB) had requested damages in a follow-on private enforcement case against the members of the elevator cartel (KONE C-557/12), claiming that the prices they had paid to non-cartel suppliers had been distorted and such distorition was directly attributable to the operation of the cartel (umbrella pricing).

According to the case-law of the Austrian courts, a person who makes a claim for damages based on non-contractual liability must establish i) an adequate causal link and ii) a link of unlawfulness, i.e. the infringement of a “protective provision” (Schutznorm within the meaning of Sec 1311 ABGB), in this case of the anti-cartel laws.

The Austrian Supreme Court held that these criteria were not met in the event the loss stems from umbrella pricing and requested the ECJ’s ruling whether EU law requires that such losses are recoverable.

The ECJ’s response: If such losses were objectively and subjectively foreseeable, effective private enforcement as provided in Art 101 TFEU requires that such “umbrella pricing” losses can be recovered from the participants in the cartel. This judgement was widely criticized, both for being interventionist and for providing insufficient guidance.

2018 REQUEST FOR PRELIMINARY RULING – LOSSES SUFFERED ON SUBSIDIZED LOANS

The Austrian Supreme Court has recently requested further clarification in the context of the elevator cartel (9 Ob 44/17m):

The relevant claimant in the current case is an Austrian province that is required by law to give state-aid in the form of subsidized low interest loans. Such loans were used to finance the elevators that were provided by the members of the cartel. The public funder claimed cartel-related losses: Had it invested the funds used to provide the loans for the overpriced elevators elsewhere, it would have obtained market-rate profits, rather than the minimal interest obtained under the subsidized loan program.

The court held that under Austrian law, the scope of the protective provisions only covers suppliers and buyers in the relevant market: While the state-aid provided by public institutions may significantly influence the activity on that market, the public institutions themselves are not direct market participants. The public funder only suffers losses because the direct participants were obliged to take out higher subsidized loans to cover the artificially inflated price for the elevators. Consequently, under Austrian case law the public funder’s losses would be deemed a side-effect that is not covered by the scope of the relevant protective provisions.

The essence of the question submitted to the European Court of Justice: Does Art 101 TFEU allow that such losses can nevertheless be claimed from the cartel infringers?

It will be interesting to see whether the ECJ is willing to extend civil liability claims to non-market participants.

COMMENT

The EU Commission’s drive to promote private enforcement as well as public enforcement against illegal cartels has given rise questions as to the scope of the cartel members’ civil liability, among them:

  • Are indirect (“passed-on”) damages suffered by subsequent market levels recoverable, e.g. by persons buying from the cartel member’s customers?
  • Are losses covered that are suffered by a buyer from a non-participant in the cartel whose pricing is affected as a consequence of artificially-inflated market price for the relevant goods resulting from the cartel (umbrella pricing)?
  • And now: Are losses suffered as a side effect by entities not even participating in the relevant market, in this case by public funders, also covered?

While the intention of the EU institutions is clear – to stop anti-competitive behavior – the trade-off between public and private enforcement is proving increasingly difficult.  The wider the ECJ casts the net of private enforcement, the greater the “chilling effect”, i.e. the deterrent to the cartel members coming forward as “crown witnesses” to co-operate with the competition authorities. Since public enforcement benefits largely from such co-operation, this is a very considerable downside.

Once a cartel has been uncovered, the risks to the cartel participants are becoming progressively higher.

For more information on appropriate compliance measures and on internal investigations, please contact Katrin Hanschitz or your customary KNOETZL relationship professional at our firm.