Austria: Update Elevator Cartel And The CJEU II – CJEU Advocate General Recommends Extending Private Enforcement To Public Funders

Last Updated: 8 August 2019
Article by Knoetzl  
Most Read Contributor in Austria, August 2019

Besides prosecution by anti-trust authorities and, potentially, criminal prosecution, cartel infringements may also lead to civil liability for damages claims in private enforcement proceedings. The European Court of Justice ("CJEU") is, in its recent case law, establishing an ever broader and more comprehensive EU-wide basis for such damages, including liability for umbrella pricing (Kone) and liability of the parent for breaches by subsidiaries (Skanksa).

In a pending case following on the EUR 990 million fine by the European Commission against the elevator cartel, it seems likely that the CJEU will also extend private enforcement weapons against violators to non-market participants such as public funders:

ELEVATOR CARTEL – AUSTRIA – PRIVATE ENFORCEMENT BY PUBLIC FUNDERS

Last summer we reported on the Austrian Supreme Court's request for a preliminary ruling from the CJEU in a further set of private enforcement proceedings stemming from the elevator cartel. The issue at stake: Does EU law require that public funders be entitled to recover damages (here: provision of inflated subsidized loans for residential building due to inflated elevator prices) from cartel infringers?

OPINION  ADVOCATE GENERAL

CJEU Advocate General Juliane Kokott published her Opinion on this case on 29 July 2019 (C-435/18, Otis et al).

Her recommendation is clear: Art. 101 of the Treaty on the Functioning of the European Union ("TFEU") requires that damages can also be claimed by entities who are not participants on the affected market; this includes public funders who provided subsidized low-interest loans to the customers of the cartel infringers. Since they provided low-interest loans based on a percentage of the production costs, the loans were higher than they would have been if the elevator prices had not been unlawfully inflated. Their damage consists of the loss of use of the inflated loan amounts during the loan period, since they were unable to use these amounts (investment at market conditions, payment of existing loans) during this time.

She bases her recommendation on the following arguments:

COMMENT

  1. EU law is applicable to all questions of the merits of the claims, ie. What person is entitled to which damages, including questions of causality. These issues require a consistent and EU-wide application and are subject to rulings by the CJEU. Local law, on the other hand, is relevant to how the claim is pursued, in particular questions of jurisdiction, procedural issues, deadlines, evidence etc.
  2. The purpose of Art 101 TFEU is to protect undistorted competition. This requires that all individuals and entities are entitled to damages claims against the infringers, regardless of whether they are market participants. Indeed, public funders are particularly important players, since they are likely more inclined to pursue their – substantial – damages than end users would be. Consequently, damages claims from public funders serve to provide a potent deterrent to infringements of the rules on cartels. In providing subsidized loans to the construction industry, public funders moreover played an essential part in creating demand on the affected market.
  3. Infringers are protected from unlimited liability for remote losses by the requirement that there is a sufficiently direct causal nexus between the wrongful conduct and the alleged damage. The public funder showed that the subsidized loans were based on the actual construction costs, including the inflated costs for the elevators, thus establishing the necessary causal link. The damage was also sufficiently foreseeable by the infringers: the infringers were aware that construction projects of this nature are regularly funded by public funders and of the underlying legal provisions for calculation of such subsidies.
  4. The public funders' damages consisted of the following:
    • impaired fulfilment of their public interest goals, as less funds were available for other projects, resulting in less residential building; this is a causal damage, since it would be unacceptable if "profits were privatized, and losses socialized";
    • had the subsidized loans been lower – absent the cartel infringement – the public funder would have gained proceeds from investing these funds at market conditions (interest gain) resp. would have been able to repay existing loans or indeed reduce the amount of loans taken out accordingly (damnum emergens, not lucrum cessans). The recoverable damage is the difference between the low interest paid under the subsidized loans and interest for government bonds issued by the public funder.

COMMENT

The main thrust of the Advocate General's opinion is in line with the CJEU's recent rulings and the declared goals of the EU competition instances: Private enforcement is to be encouraged in order to foster effective competition compliance regimes of market participants. Market participants will do well to heed this message.

If the court follows the General Advocate's recommendation, both regarding damages to non-market participants and the application of a simplified form of damages calculation, we can expect to see more public entities pursuing cartel infringers in the future. Since they are much more likely to pursue private enforcement claims against infringers than end users and will generally have sufficient funds to do so, public funders may well become central players in future private enforcement.  The total amount at stake in the underlying Austrian claim was UER 9 million. Where the subsidies entail not only low-interest loans, but direct grants, the amounts at stake will be exponentially higher.

Stakeholders who uncover cartel infringements within their company will need to take this additional risk into account when deciding whether to self-report to the appropriate authorities. Evidence and facts disclosed and/or uncovered in the course of the public/criminal anti-trust proceedings not only increase the risk of follow-on private enforcement proceedings, they may also be used against them in the civil proceedings, at least to some extent.

It will be interesting to follow whether the Austrian elevator cartel claim succeeds. Claims in Belgium and the Netherlands for damages against members of the elevator cartel have failed, absent sufficient proof of damage and/or clausal links.

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