Public procurement & competition law : to what extent related undertakings may submit separate bids in the same tendering procedure?

Judgment
C‑144/17
08.02.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingLloyd’s of London
v
Agenzia Regionale per la Protezione dell’Ambiente della Calabria (Aparcal)
Court of Justice Sixth ChamberE. ReganE. TanchevPublic procurement - Competition law
KeywordsReference for a preliminary ruling — Public procurement — Articles 49 and 56 TFEU — Directive 2004/18/EC — Reasons for exclusion from a tendering procedure — Insurance services — Participation of several Lloyd’s of London syndicates in the same tendering procedure — Signature of tenders by the Lloyd’s of London General Representative for the country concerned — Principles of transparency, equal treatment and non-discrimination — Proportionality
Significant pointsThe General Court has annulled a decision of This preliminary ruling relates to a tendering procedure launched by an Italian public authority, Arpacal, for the award for a public service contract for insurance. Two Lloyd’s ‘syndicates’ participated in the call for tenders. Their tenders were both signed by an agent of Lloyd’s General Representative for Italy. However, Arpacal excluded those syndicates from the tender due to the fact that the submissions were signed by the same person. It considered that a single decision-making centre would infringe the principles of confidentiality of tenders, equal treatment, fair and free competition, protected under EU law by Articles 49 and 56 TFEU and Directive 2004/18 on public procurement procedures (“Public Procurement Directive”). Lloyd’s argued, however, that those principles were respected because the members, whilst acting through syndicates, did operate independently and in competition with one another despite coming under the same legal entity. Moreover, the syndicates may only act through their sole representative for each Member State. The referring court observed that the Italian legislation did not forbid submissions to public tenders being signed by the same person and asked the Court clarification in this regard.
In its judgment, the Court recalled, first, that the legal grounds for exclusion from public procurement procedures set out in Article 45 of the Public Procurement Directive relate to the professional qualities of the persons concerned only. Nonetheless, the case-law of the Court has interpreted that this does not preclude the option for Member States to maintain or establish, in addition to those grounds for exclusion, substantive rules intended, in particular, to ensure, with regard to public procurement, observance of the principles of equal treatment of all tenderers and of transparency, which constitute the basis of the EU directives on public procurement procedures, provided that the principle of proportionality is observed.
In that regard, the Court firstly observed that the national legislation at issue, which is intended to prevent any potential collusion between participants in the same procedure for the award of a public contract, seeks to safeguard the equal treatment of candidates and the transparency of the procedure. Consequently, the principle of proportionality requires that such legislation must not go beyond what is necessary to achieve the intended objective.
The Court judged that the automatic exclusion of tenderers that are in a relationship of association with other competitors would go beyond what is necessary to prevent collusive behavior and to ensure equal treatment and transparency. An automatic exclusion would constitute an irrebuttable presumption of mutual interference and would not grant the possibility for the candidates of demonstrating that their tenders are in fact independent. Yet previous case law provides that it is of EU interest to ensure the widest possible participation by tenderers in a call for tenders.
The Court concluded, therefore, that the principle of proportionality requires that the contracting authority be required to examine and assess the facts, in order to determine whether the relationship between two entities has actually influenced the respective content of the tenders submitted in the same tendering procedure, a finding of such influence, in any form, being sufficient for those undertakings to be excluded from the procedure.
The Court also stated that the mere fact that tenders have been signed by the same person cannot justify their automatic exclusion from the tendering procedure. It noted in this regard that EU law applicable to insurance activities expressly allows Lloyd’s to be represented vis-à-vis third parties by a single representative for each Member State. Even though Lloyd’s may exercise its insurance activities in Member States only through the competent General Representative, the referring court must still verify that the tenders were determined and submitted independently by each syndicate.
Therefore, the Court considered that the national legislation at issue was compatible with EU law, given that it does not allow an automatic exclusion, but nonetheless allows the contracting authority to exclude tenderers where it finds, on the basis of unambiguous evidence, that their tenders were not drawn up independently.
NoteworthyIn this judgment completely in line with the Assitur case-law (C-538/07), the Court of Justice has again emphasized the importance of the principles of transparency, equal treatment and free competition in public procurement. Any exclusions from the right to tender are to be interpreted strictly and based on a factual analysis, this respecting the principle of proportionality.
The Court explained in length that the bids of undertakings linked by a relationship of control or of association should not be presumed collusive for the purpose of the EU public procurement rules and that a contracting authority had to look at the facts before any exclusion of linked undertakings. It is up to the contracting authority to establish whether the relationship between two entities has actually influenced the respective content of the tenders submitted in the same tendering procedure.
It can be interesting to compare this judgement with competition law, where it is possible for undertakings which share legal or financial links but enjoy commercial autonomy to submit separate and competing tenders, provided that they do not consult each other prior to the submission of their bids, such exchanges having an anti-competitive object (see for example, in French competition law, Paris Court of Appeal, 28 October 2010, n° 2010/03405). Accordingly, it seems that a violation of competition law would be more easily retained, given that the mere false autonomy of the bids allows the existence of a cartel to be presumed, whereas an actual influence on the content of the bids seems to be required to find a violation of EU public procurement law. Further explanations regarding this apparently partial convergence might be provided by the Specializuotas transportas upcoming judgment (C‑531/16).
Of particular importance to the insurance sector is the fact that Lloyd’s syndicates have the right to participate in the same tendering procedure and be represented by the same representative. This does not constitute a ground for exclusion from the procedure so long as the syndicates act independently in the formulation of their submissions.

A three party card scheme involving a co-branding partner is subject to the same restrictions as those applicable to four party schemes with respect to interchange fees. However, the mere fact that a three party payment card scheme uses a co-branding partner does not necessarily mean that it is subject to the access obligation in favour of payment services providers.

Judgment
C-643/16
07.02.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Non-contractual liabilityAmerican Express Company v The Lords Commissioners of Her Majesty’s Treasury Court of Justice1st ChamberE. ReganM. Campos Sánchez-BordonaPayment services in the internal market
KeywordsReference for a preliminary ruling — Directive (EU) 2015/2366 — Payment services in the internal market — Article 35(1) — Obligation to provide authorised or registered payment service providers with access to payment systems — Point (b) of the first subparagraph of Article 35(2) — Inapplicability of that obligation to payment systems composed exclusively of payment service providers belonging to a group — Applicability of that obligation to three party payment card schemes that have entered into co-branding or agency arrangements — Validity
Significant pointsIn this request for a preliminary ruling, the High Court of Justice of England and Wales refer a question to the Court of Justice concerning the interpretation of Article 35 of the Directive (EU) 2015/2366 on payment services in the internal market (the “Directive”) and the conditions for the application to three party payment card schemes of the rules governing the access of authorized or registered payment service providers to payment systems.

American Express, an international undertaking of payment, travel exchange and loyalty rewards platforms services, also carries out activities relating to the issuing and acquisition of cards worldwide, including in the European Union.

American Express operates, with its subsidiaries, the American Express payment cards scheme (‘Amex’), which is a three party payment card scheme. Amex has entered into co-branding and service provision arrangements within the European Union.

According to the Court, the participation of payment service providers or of another third party the role of which can be treated as equivalent to that of such a provider (agent) that do not belong to the same group in one and the same payment system deprives that system of the benefit of the exception laid down in Article 35(2) (b) of the Directive, which is applicable only to three party or closed schemes (schemes where there is no other financial institution than the very card-issuing scheme). Consequently, the system is subject to the access obligation, laid down in Article 35(1) of the Directive, which is, in principle, applicable to four party or open schemes (schemes where there are the issuing bank and the acquiring bank in addition to the entity managing the payment scheme), and aims at enabling any payment service provider to access to such payment systems.

A payment service provider can be namely credit institutions, electronic money institutions, post office giro institutions (entitled under national law to provide payment services), payment institutions, the ECB and national central banks (not acting as a monetary authority) and Member States or regional or local authorities. The Court found that it cannot be inferred from the terms “Co-branding partner” (as defined by Article 2(32) of regulation 2015/751) or “agent” (as defined by Article 4(38) of the Directive), that they should be considered as “payment service provider”.

The Court judged that a three party payment card scheme, such as Amex, is composed exclusively of payment service providers belonging to a group, and are not subject to the access obligation laid down in Article 35(1), unless a third party takes part in its operation in such a way that it can no longer be considered to be composed exclusively of payment service providers belonging to the same group (as meant in Article 35(2) of the Directive).

However, where a three party payment card scheme decides to open up, making use of a payment service provider or an agent that are outside the group, its operation becomes similar to that of a classic four party payment system, with the result that the need to stimulate the competition created in the market no longer justifies the exemption from the access obligation.

The Court also stated that it was clear that such an obligation was applicable to a three party payment card scheme that has entered into a co-branding agreement where the co-branding partner concerned is a payment service provider, even though that partner does not itself provide, within the framework of that agreement, any payment service with respect to the co-branded products. By contrast, a three party payment card scheme that has entered into a co-branding agreement with a co-branding partner does not lose the benefit of the exception proved for by the provision and, therefore, is not subject to the obligation laid down in Article 35(1) of that directive in a situation where that co-branding partner is not a payment service provider and does not provide payment services within that scheme with respect to the co-branded products. It also stated that where a three party payment card scheme has entered into an agreement with an agent, such an obligation was necessarily applicable, due to the role of an agent, which is to act on the behalf of a payment institution in providing payment services.

In addition, the Court recalled that the aim of Article 35 is to ensure that all payment service providers can have access to the services of the technical infrastructures of payment systems in order to ensure, throughout the European Union, equal treatment of the various categories of payment service providers and, thereby, to maintain effective competition in payment markets. The Court found that the EU legislature was not required to set out in the Directive specifically, the reasons why in each of the situations concerned, a three party payment card scheme should be subject to the access obligation. The Directive was not vitiated by a failure to state reasons in that regard, nor rendered invalid.
NoteworthyIn this case, the Court has specified the conditions in which the obligation to provide authorised or registered payment service providers with access to payment systems applies. The Court recalled the definition of the notion of “group” and affirmed that a three party payment card scheme that is composed exclusively of payment service providers belonging to a group is not subject to the obligation laid down in Article 35(1) of the Directive 2015/2366. The sole exceptions are if the scheme makes use of an agent or a co-branding partner for the purposes of supplying payment services. In the first case, it will lose the benefit of the exception as granted to a classic three party payment card scheme and become, therefore, subject to the obligation laid down in Article 35(1) of the Directive. In the second case, the same solution will prevail, unless the co-branding partner is neither a payment service provider nor provides actually payment services.

The idea underlying such a distinction seems to be logical. The typical three party schemes with a co-branding partner or agency extensions are those concluded with undertakings which do not provide financial services. Those extensions constitute a joint marketing exercise by means of which the two entities share their customer bases with each other and encourage the consumption of the goods and services they provide. However, in light of such an assumption, perhaps for fear of any risk of bypassing the obligation laid down in Article 35(1) of the Directive, the Court has retained a fairly restrictive interpretation of the exemption set in Article 35(2).

A three party card scheme involving a co-branding partner is subject to the same restrictions as those applicable to four party schemes with respect to interchange fees. However, the mere fact that a three party payment card scheme uses a co-branding partner does not necessarily mean that it is subject to the access obligation in favour of payment services providers.

Judgment
C-304/16
07.02.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Non-contractual liabilityAmerican Express Company v The Lords Commissioners of Her Majesty’s TreasuryCourt of Justice1st ChamberE. ReganM. Campos Sánchez-BordonaPayment services in the internal market
KeywordsReference for a preliminary ruling — Regulation (EU) 2015/751 — Interchange fees for card-based payment transactions — Article 1(5) — Three party payment card scheme treated as equivalent to a four party payment card scheme — Conditions — Issuance by a three party payment card scheme of card-based payment instruments ‘with a co-branding partner or through an agent’ — Article 2(18) — Concept of ‘three party payment card scheme’ — Validity
Significant pointsThis preliminary ruling related to a question asked by the High Court of Justice of England and Wales concerning the respect of the obligations laid down in Regulation (EU) 2015/751 on interchange fees for card-based payment transactions (the “Regulation”). This Regulation aims to regulate interchange fees, notably by imposing maximum interchange fees for debit and credit card transactions.

American Express, an international undertaking of payment, travel exchange and loyalty rewards platforms services, also carries out activities relating to the issuing and acquisition of cards worldwide, including in the European Union.

American Express operates, with its subsidiaries, the American Express payment cards scheme (‘Amex’), which is a three party payment card scheme. Amex has entered into co-branding and service provision arrangements within the European Union and the question in this case raised was whether or not these arrangements fell under the scope of the Regulation.

The Court recalled that, as a general rule, a three party payment card scheme is not subject to the obligations stemming from Articles 3 to 5 and 7 of the Regulation, unless it falls under one of the three situations described in Article 1(5) of the Regulation, namely: (i) if it has licensed another payment service provider for the issuance and/or acquiring of card-based payment instruments, (ii) if it has issued a card-based payment instruments with a co-branding partner, or (iii) if it has issued payment instruments through an agent.

The Court stated that in interpreting a provision of EU law, it is necessary to consider not only the precise wording involved but also the context in which it occurs and the objectives pursued by the rules of which it is part. Thus, having regard to the relevant definition of “co-branding” partner (defined at Article 2(32) of the Regulation) and “agent” (defined in Article 4(38) of Directive 2015/2366), the Court judged that such a co-branding partner or agent does not necessarily act within that scheme as an “issuer”, as defined in Article 2(2) of the Regulation.

Moreover, the Court referred to the objectives of the Regulation as stated in the recitals of the Regulation, which are to lay down uniform requirements for card-based payment transactions and internet and mobile payments based on cards, improve the functioning of the internal market and contribute to reducing transaction costs for consumers. In particular, recital 28 stipulates that, in order to acknowledge the existence of ‘implicit interchange fees’ and to contribute to the creation of ‘a level playing field’, it is necessary that, in certain circumstances, three party payment card schemes should be considered as four party payment card schemes and be subject to the same rules as the latter.

Considering this, the Court judged that it was not inconceivable that some types of consideration or benefit might be identified as constituting an implicit interchange fee, even though the co-branding partner or agent with which the three party payment card scheme concludes an arrangement is not necessarily involved in the issuing activity of that scheme.
The Court found, therefore, that it might prove difficult to achieve the objectives of the Regulation, in particular that of Article 1(5), of ensuring a level playing field in the market, if situations where a co-branding partner or agent does not act as an issuer, within the meaning of Article 2(2) of that regulation, were to be exempted from the rules laid down in Articles 3 to 5 and 7 of the Regulation.

Consequently, where a three party payment card scheme enters into a co-branding arrangement within the meaning of Article 2(32) of the Regulation, or an arrangement with an agent within the meaning of Article 4(38) of Directive 2015/2366, that scheme must be considered to be a four party payment card scheme, pursuant to Article 1(5) of that Regulation. The result of this classification is that the obligations stemming from Articles 3 to 5 and 7 of that regulation are applicable to it.

In light of the foregoing, the answer to the first question is that Article 1(5) of Regulation 2015/751 must be interpreted as meaning that, in the context of an arrangement between a co-branding partner or an agent, on the one hand, and a three party payment card scheme, on the other, it is not a prerequisite of that scheme being regarded as issuing card-based payment instruments with a co-branding partner or through an agent and therefore being considered to be a four party payment card scheme, within the meaning of Article 1(5) of Regulation 2015/751, that that co-branding partner or agent act as an issuer, within the meaning of Article 2(2) of that regulation.

Lastly, in response to the second question raised by the referring court, the Court considered that the Regulation is not vitiated by any failure to state reasons, neither a manifest error of assessment, nor a breach of the principle of proportionality.
NoteworthyThis is the first Court of Justice judgment dealing with Regulation 2015/571 on interchange fees between banks for debit and credit card payments. This regulation followed European Commission investigations into Visa and Mastercard interchange fees whereby the Commission found that the arrangements restricted competition between banks.

The Court’s judgment is a logical interpretation of EU legislation by the Court in which it has strived to look at the objectives of the Regulation on Interchange Fees and give it practical effect. The Court emphasised that one must look at the circumstances in which a three party payment card scheme operates in order to see whether it should be considered to be a four party payment card schemes.

Application of State aid and Competition law rules to the health sector reinforced by the General Court

Judgment
T‑216/15
05.02.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Non-contractual liabilityDôvera zdravotná poist'ovňa et al v European CommissionGeneral CourtSecond ChamberM. J. Costeira-State aid - Health insurance bodies
KeywordsState aid — Health insurance bodies — Capital increase, debt repayment, subsidies and Risk Equalisation Scheme — Decision finding no State aid — Concept of State aid — Concept of undertaking and economic activity — Principle of solidarity — State supervision — Activity that is economic in nature — Competition on quality — Presence of operators seeking to make a profit — Pursuit, use and distribution of profits — Error of law — Error of assessment
Significant pointsThe General Court has annulled a decision of the EU Commission finding no state aid because the recipient of the measure, a Slovak health insurance body was not an undertaking.

According to the General Court, a health insurance body has to be considered an undertaking and is therefore susceptible to benefit from State aid where it offers goods and services on a market and is in competition as regards the quality and scope of services with operators seeking to make a profit and has the ability to make, use and distribute part of its profits, notwithstanding the social and solidarity nature of certain other features of the health system.

The General Court reached this conclusion after having checked first whether the health insurance body met three cumulative criteria which would mean that it should be considered as not pursuing an economic activity. These are: the existence of a social aim of a health insurance scheme, the implementation of the principle of solidarity by this scheme and the supervision by the State.

In this respect, the General Court found that the second criterion was not fulfilled.

On the one hand, health insurance companies’ ability to seek and make a profit showed that, regardless of the performance of their public health insurance task and of State supervision, they were pursuing financial gains and, consequently, their activities in the sector fell within the economic sphere. Therefore, the strict conditions framing the subsequent use and distribution of profit which may result from those activities does not call into question the economic nature of such activities.

On the other hand, the existence of a certain amount of competition as to the quality and scope of services provided by the various bodies within the Slovak compulsory health insurance scheme also had a bearing on the economic nature of the activity. Indeed, the companies could freely supplement the compulsory statutory services with related free services, such as better coverage for certain complementary and preventive treatment in the context of the basic compulsory services or an enhanced assistance service for insured persons. They compete through the ‘value for money’ over the cover they offer and, therefore, on the quality and efficiency of the purchasing process.

Second, the General Court added that, assuming that some health insurance bodies were not seeking to make a profit, they amount to undertakings all the same, provided that the offer exists in competition with that of other operators that are seeking to make a profit. Where other operators on the market in question are seeking to make a profit, the entities involved would have to be considered undertakings too ‘by contagion’.
NoteworthyThere are several lessons to be learnt from this judgment.

First, the delineation between the economic activity of health insurance and social security schemes, which do not fall within the ambit of Competition and State aid law, was once again at stake, (cf caselaw Poucet & Pistre, C-159/91; FFSA and Others, C-244/94; Cisal, C-218/00; AOK Bundesverband and Others, C-355/00; AG2R Prévoyance, C-437/09) and, In accordance with well-established case law, the General Court resorted to the body of evidence technique to reach the overall conclusion that the entity at stake behaves like an undertaking. Key elements were the commercial and managerial autonomy and the competition with profit-driven operators.

Second, after the Iris Judgment (T-137/10), where a decision of the EU Commission not to open formal proceeding against public hospitals in relation with alleged over-compensation was annulled, the General Court confirms its principle in favour of the full application of State aid law to the health sector. By contrast, the EU Commission appears more inclined to close its eyes to and ignore distortions of competition in light of social considerations.

The stringent approach of the General Court is likely based on the belief that social and solidarity goals should not be a blanket for excessive expenses, unnecessary competition distortions, hurdles to innovation and, at the end of the day, stagnation and a poor level of services. In its view, the Commission may not purely abstain from monitoring whether a public financing to health insurance bodies (like in the case at hand) or hospitals is indeed necessary, justified and limited to what is required.

Third, the judgment appears unclear, however, as to the respective weight of the criteria taken into account by the General Court and notably the one on the existence on the concerned market of profit-driven operators. It cannot be ruled out that the General Court paid attention to strengthen the reasoning of its decision to minimize the risk of appeal and possible annulment by the ECJ.

Certainly, the existence on the concerned market of profit-driven operators makes the other operators become undertakings ‘by contagion’. However, the judgment leaves unanswered the question to what extent operators are undertakings when on the contrary none of them is profit driven.

In this respect, the General Court seems to have been ill at ease in rebutting arguments raised from the AOK judgment (referred to above). According to this judgment, where bodies have a degree of freedom to compete to a certain extent in order to attract persons seeking insurance, that competition does not automatically call into question the non-economic nature of their activity, particularly where that element of competition was introduced in order to encourage the sickness funds to operate in accordance with principles of sound management. In our opinion, the General Court has overstated the scope of the AOK case law. In this case, the sickness funds were not competitors since there was a system of neutralisation and compensation between each other so that they were deprived of financial autonomy and were part of a single system of sickness funds. In addition, they did not compete with private operators. Put in other words, they did not form separate entities enjoying autonomy (one of the constituting elements of an undertaking) and there was not a market for services open to competition.

In our opinion, it would have been more appropriate for the General Court to rule that, as soon as bodies have some freedom to compete, for example as regards the offer of services and/or the quality of the services and form distinct and autonomous entities, they amount to undertakings, no matter whether they or some of them are able to seek and make a profit or not.

Fourth, on a more general level, it cannot ruled out that the rather extensive notion of undertaking developed by the General Court in this judgment could have an impact going beyond the matter of health insurance. It might be of relevance to other areas where entities are assigned tasks of general interest while providing goods or services on a market where other independent operators are active.