COMMENT FROM SJ BERWIN

Community Week
A weekly summary of competition law and policy
Issue 445 • 30 October 2009

In this issue
EU developments
Commission adopts Communication on the functioning of the food supply chain
Commission approves proposed restructuring of Northern Rock

UK developments
Consultation on reform of credit and store card regulation

Spanish developments
ACOR ordered to pay compensation to nine agro-alimentary companies for damages arising from a sugar cartel: a new development in the
private enforcement of competition law in Spain

EU developments

Commission adopts Communication on the functioning of the food supply chain

This week the European Commission ("Commission") agreed a Communication that aims to improve the functioning of the food
supply chain in Europe, which is seen as an essential step to improving competition within the sector.

The Commission states that the recent sharp decline in agricultural commodity prices compared to the relatively high consumer
food prices has raised concerns as to the efficiency of this sector (consumer food prices have declined more slowly and to a
lesser extent than commodity prices).  The Commission has also observed a significant tension in contractual relations between
actors in the food supply chain stemming from their diversity and an imbalance in bargaining power, which is considered to have
had a negative impact on competitiveness.

The Commission has established the following three priority areas:

1. the promotion of sustainable and market-based relationships between stakeholders in the food supply chain;
2. an increase in transparency along the chain to encourage competition and improve its resilience to price volatility; and
3. fostering the integration and competitiveness of the European food supply chain across Member States (which is currently
considered to be highly fragmented). The Commission will, in particular, focus on territorial supply constraints.

The Commission is to report on the advancement of these proposals by the end of 2010.

More specifically, the Commission states that it will work with the European Competition Network (which is made up of the national
competition authorities of the EU member states) to develop a common approach to competition issues in the sector, including the
enhanced exchange of information.  It is hoped that this will lead to the better detection of endemic problems specific to food
markets and the prompt coordination of future actions.  The Commission also notes that the impact of vertical relationships
between operators in the chain on competition will come under the existing rules on vertical agreements (which are currently
under review by the Commission).

As well as competition issues the Commission will focus on potentially unfair contractual practices.  The Commission is proposing
to prepare standard form contracts for use by industry players (on a voluntary basis) as well as potentially adopting Community
measures to curb any unfair practices.

In response, certain trade bodies have stressed that bargaining power is "an intrinsic part of any market economy" and that there
is no evidence that imbalances in bargaining power are a common occurrence in the EU. 

The Commission has been following developments in food prices as part of a market monitoring exercise launched in the context
of the 2007 Single Market Review.

Commission approves proposed restructuring of Northern Rock

The European Commission ("Commission") has announced that UK state support for the restructuring of Northern Rock is
compatible with state aid rules, specifically Art 87(3)(b) of the EC Treaty. The Commission started a formal investigation into the
proposed restructuring plan in April 2008, with a revised plan being submitted by the UK Government in April 2009.

The Commission has concluded that the overall aid package, which includes recapitalisation measures of up to £3 billion, liquidity
measures of up to £27 billion and guarantees covering several billion of pounds of liabilities, has been kept to a necessary
minimum.

Under the approved restructuring plan Northern Rock will be split into two entities, a relatively small "good bank" and a "bad bank".
The good bank will contain all the good quality assets and will have limited exposure to Northern Rock's "risky past lending".  This
measure is considered by the Commission to be capable of restoring the long-term viability of the good bank so it can operate
without state support.  The good bank will be sold to a third party, with a view to recovering some of the state funding.

The opening balance sheet of the good bank will be around 20% of Northern Rock's pre-crisis balance sheet. To prevent the bank
from using state support for competitive advantage, the bank - and any group that wants to buy the bank - will have to keep new
lending and retail deposits below a certain threshold until the end of 2011 and ensure that its mortgage rates are not market
leading.

The "bad bank", a UK Government controlled asset management company, will hold the majority of the past loans.  These will be
run down over a longer period of time and the assets will eventually be liquidated.  

The sale of the good bank will be left to UK Financial Investments Limited, which manages the Government's stakes in bailed-out
banks. The Government announced in its white paper in July that one of the conditions for the eventual sale of the bank will be
that it must promote competition in the banking sector.

<<   back to top

UK developments

Consultation on reform of credit and store card regulation

The Department for Business, Innovation and Skills ("BIS") has published a consultation on its proposals to reform the laws
regulating credit and store cards.  The proposals aim to provide stronger regulation for the way that credit card companies
operate, with the ultimate benefit being passed to consumers. After the US, the UK has the highest number of credit cards per
head of population with 63 million cards in circulation.

BIS states that the complexity and opacity of credit and store cards not only risks consumers making poor choices (and incurring
greater debts and interest charges); but also has a detrimental effect on competition in the market, making it harder for
consumers to compare different cards effectively.

The new proposals consider:

options for changing the order in which credit card debts are paid off - so that a consumer's most expensive debts are
paid off first.  It is estimated that this would prevent interest accruing on larger debts and that consumers would save in the
region of £224 each year;
banning the practice of lenders increasing credit limits without a consumer's consent.  If these proposals are adopted,
consumers may have to "opt-in" to any such increase; 
introducing higher minimum monthly repayments to encourage consumers to pay off their debts more quickly; and
banning or restricting credit and store card companies from increasing interest rates on existing debts. 

Another proposal is to give consumers better information (such as an annual usage statement) about how they have used their
existing card.  This approach would complement recent commitments given to the Office of Fair Trading by banks and building
societies covering 95% of the UK personal current account market to provide a similar annual cost summary to current account
holders.  These commitments aim to help account holders focus on the value they are getting, in a similar way to annual car or
house insurance renewal quotes.

Concerns have however been voiced that the new proposals may have adverse affects for consumers if implemented.  In
particular, special introductory offers may disappear and lower-income applicants could be denied credit cards.  There is also the
concern that smaller credit card companies may be forced to depart from the sector, reducing competition in the industry.

The proposals follow a market investigation by the Competition Commission into store card credit services in 2006.  More recently,
the OFT has been developing Guidance on Irresponsible Lending Practices (which is due to be finalised in early 2010).

Interested parties have until 19 January 2010 to respond to the BIS consultation.

<<   back to top

Spanish developments

ACOR ordered to pay compensation to nine agro-alimentary companies for damages arising from a sugar cartel: a new
development in the private enforcement of competition law in Spain

The first decision in Spain awarding compensation for damages arising from a cartel
On 9 October 2009 the Provincial Court of Valladolid decided an appeal against the decision of the Court of First Instance of
Valladolid that denied a civil claim for compensation brought by nine agro-alimentary companies including Gullón, Nestle, Zahor,
Beautiful Easo and the Lacasa Group, against the Agricultural Cooperative, ACOR ("ACOR"). The Claimants submitted that ACOR
had taken part in a cartel agreement together with other Spanish sugar producers to raise prices of sugar between 1995 and
1996.

The Claimants began civil litigation against ACOR after the Spanish Competition Authority ("SCA") found, on 15 April 1999, that it
had participated in a horizontal price-fixing agreement with other Spanish sugar producers. The finding of the SCA was later
confirmed by the National Court and the Supreme Court. Even though the Court of First Instance rejected the demands of the
claimants, the Provincial Court has ordered the sugar producer ACOR to pay EUR 1.1 million plus interests to the Claimants, that
is, the entire amount demanded by the Claimants.

This is the first time a Spanish Court has ordered payment of damages to compensate for harm arising from an infringement of
Article 1 of the Law of Defence of the Competition ("LDC") and Article 81 of the EC Treaty which prohibit any agreement, decision
or collusive practices that decrease competition through horizontal agreements between competitors or through vertical
agreements between companies in different parts of the supply chain, e.g. between a manufacturer and a distributor.

In what is seen as a brave decision, the Provincial Court disagreed with the findings of the Court of First Instance that no damage
was caused to the nine claimants by the infringement and that there was no causal link between the damages suffered by the
Claimants and the infringing actions. The Provincial Court, in support of its findings, referred to the decision of the SCA which
declared that the "the damage caused is of serious gravity". The Provincial Court held that it was "its duty to determine the extent of
the damage and the harm caused ".

However, the Judgment of the Provincial Court may be considered as too brief, particularly as regards the degree of reasoning
establishing the legal basis for granting the entire amount demanded by the Claimants and the methodology used to calculate the
damages.

It is worth pointing out the important role played by the expert reports presented to the Court by the parties which helped to
demonstrate the existence of damage arising from the infringement, the causal link between the damage suffered and the
infringement and which also assisted the Court in quantifying the damage suffered. It is clear that in some cases an accurate and
persuasive expert report may have an important role to play in the outcome of the case.

It is interesting to note that this decision mentions the White Paper on Damages published by the European Commission (which
may possibly be published as a Directive if Commissioner Neelie Kroes is able to have it passed before the end of her tenure).
The White Paper seems to serve as a reference for the Court in confirming the existence of the damage arising from the
infringement in spite of the difficulties in quantifying damages in such cases.

It is, however, anticipated that ACOR will appeal the decision before the Supreme Court (the final court of appeal). 

Finally, it is anticipated that a number of decisions of the SCA with regard to horizontal agreements will be handed down before
the end of the year. These decisions will mostly be based on leniency applications. The CNC initiated a number of investigations
at the beginning of the year and the time limit for a decision relating to these investigations is 18 months. Hopefully, these
decisions of the CNC will help to facilitate more private competition claims and the decisions of the courts on these issues will help
to establish settled case-law for such cases. Even though most private claims will probably be settled between the parties it is
anticipated that such settlements shall be reached only after the case has been pursued before the courts.

The private implementation of competition law in Spain

Even though the LDC, which came into force two years ago, grants the victims of anticompetitive behaviour the right to claim
damages even without the existence of a previous decision of an administrative competition authority ('stand-alone' actions) only
few successful cases have been bought before the Spanish Courts.

It is worth noting that the majority of these cases involved claims for compensation for damage arising from anticompetitive
behaviour related to infringements of Article 2 LDC or Article 82 of the EC Treaty, that is, claims relating to the abuse of a
company's dominant position. Among the few cases in which damages have been granted, the majority relate to the sectors of
telecommunications and petrol service stations.  The ruling of the Provincial Court of Madrid of 8 March 2007 in the case 3C v.
Telefonica, the ruling of the Provincial Court of Madrid in Conduit v. Telefonica of 25 May 2006 and the ruling of the Supreme Court
in Canoven v. Shell of 30 June 2009 serve as examples of such cases.

In the majority of the cases in which a claim for compensation has been rejected, the Spanish courts have found that the causal
link between the damage suffered and the infringement had not been sufficiently demonstrated and the damage suffered had not
been properly quantified. The recent ruling of the Supreme Court in Antenna 3 v. La Liga Nacional de Fútbol Profesional on 14
April 2009 and the recent rulings in the cases brought by Euskaltel and Tenaria against Sogecable and Audiovisual Sport, on
which the AP ruled on 23 October 2008 and 6 February 2009 respectively, (both of which were stand-alone actions) serve as
examples of such cases. Even though an infringement of competition law was acknowledged in these cases, no damage was
found to have been suffered by the claimants from such infringement.

<<   back to top

 VIEW ARCHIVE  >> SJ BERWIN.COM  >>

WOULD YOU LIKE TO RECEIVE COMMUNITY WEEK?

SUBMIT YOUR DETAILS TO SUBSCRIBE

Warning! This bulletin is not intended to offer professional advice and you should not act upon the matters referred to in it without taking specific advice. These
regular bulletins provide a weekly summary of competition law and policy. The views expressed in this bulletin are those of its author and not necessarily those of SJ
Berwin LLP.

If you have any comments on the bulletin, or would like to receive further details on the subject matter, please send an email to Angela.Patricot@sjberwin.com or call
your usual point of contact at SJ Berwin. If you would like to republish this bulletin or link to it from your website, please contact Angela.Patricot@sjberwin.com.

SJ Berwin LLP is a limited liability partnership registered in England no OC313176. It is regulated by the Solicitors Regulation Authority. A list of the members of SJ
Berwin LLP and of the non -members who are designated as partners is open to inspection at 10 Queen Street Place, London EC4R 1BE, its principal place of
business and registered office. Any reference to a partner in relation to SJ Berwin LLP is to a member of SJ Berwin LLP or to an employee or consultant with
equivalent standing. SJ Berwin LLP or an affiliated undertaking has an office in Berlin, Brussels, Dubai, Frankfurt, Hong Kong, London, Madrid, Milan, Munich, Paris
and Turin. Although not authorised under the Financial Services and Markets Act 2000, SJ Berwin LLP can provide services relating to investments which are limited
to those incidental to its legal services or excluded from regulation under the Financial Services and Markets Act 2000.

While SJ Berwin LLP has taken steps to control the spread of viruses on its systems, it cannot guarantee that this email and any files transmitted with it are virus free.
No liability is accepted for any errors, omissions, interceptions, corrupted mail, lost communications or late delivery arising as a result of receiving this message via
the Internet or for any virus that may be contained in it.

© SJ Berwin LLP 2009. All rights reserved.

Berlin          Brussels          Dubai          Frankfurt           Hong Kong          London          Madrid          Milan          Munich          Paris          Turin