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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

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