articles on swedish public procurement & competition law eem.pdf · 8/18/2013 11:46 am ©eem...

8/18/2013 11:46 AM ©EEM 2013

Articles on Swedish

Public

Procurement &

Competition Law

Emanuela Matei, LL. M

2012- 2013

Foreword

The present document contains a collection of seven

articles published during the period September 2012 –

August 2013. The articles were written under the form of

a case law summary presentation followed by a short

commentary. The following cases have been treated

here: Ishavet, Akademiska Hus Norr, PWC/KPMG, Grand

Hotel, Kalmar, TeliaSonera and Swedish Immigration

Office.

Sunday, 18 August 2013

Content

i. Ishavet – The Supreme Court establishes the liability of a contracting

authority to pay damages for the positive contractual interest to a

tenderer who would have won the tender procedure if the

procurement law had been correctly applied, 31 May 2007

ii. Akademiska Hus Norr – The Swedish Competition Authority issues a

decision concerning pecuniary sanctions imposed on a contracting

authority for infringements of public procurement law, 11 September

2012

iii. PWC v Västervik, KPMG v Västervik – The Administrative Court of

Appeal of Jönköping orders that the award procedure shall be

recommenced for violation of the transparency principle, 20

September 2012

iv. Agency for Economic and Regional Growth, New Grand Hotel – The

Swedish Competition Authority issues a decision concerning

pecuniary sanctions imposed on administrative agency for an illegal

award of a contract, 26 October 2012

v. Municipality of Kalmar – The Swedish Competition Authority

decides that the practice of excluding suppliers from ‘tax havens’ is

incompatible with EU law, 6 March 2013

vi. TeliaSonera – The Swedish Court of Appeal endorses the EU Court of

Justice’s finding of abuse of dominance in margin squeeze case, 12

April 2013

vii. Swedish Immigration Office – The Swedish Supreme Court holds

that the time when the contract implementing an illegal direct award

has been initiated should coincide with the time when the award

decision may be subject to legal review, 17 May 2013

e-CompetitionsNational Competition Laws Bulletin

May 2007

The Supreme Court establishes the liability of acontracting authority to pay damages for thepositive contractual interest to a tenderer whowould have won the tender procedure if theprocurement law had been correctly applied(Ishavet)Sweden, Public procurement, Damages, Remedies (antitrust), Rights ofDefence, Judicial review, Public undertaking, ServicesSwedish Supreme Court (Högsta Domstolen), 31 May 2007, Case T2883-04, Rederi AB Ishavet, Municipal Council ofGothenburg

Emanuela Matei, e-Competitions | N° 49471, www.concurrences.com

I. IntroductionA tenderer who otherwise would have won the procurement procedure, if the procurement law hadbeen correctly applied by the contracting authority shall be entitled to receive compensation for thepositive contractual interest. Moreover the liability to pay damages does not depend on thesubstantiation of either intent or negligence, if the failure is related to a manifest infringement of theEU law. Another important statement of this judgment is the one reminding that the EU law isapplicable both above and below the thresholds of the procurement directives [1].

II. The legal frameworkThe Government Bill 2006/07:128 affirms that the article 7(6) of Act (1992:1528) relies upon theDirective 89/665/EEC (’Remedies Directive’) [2]. The articles 1(3) and 2(1)(c) of the RemediesDirective require the Member States to ensure that the review procedures are available includingprovision for the powers to award damages at least to any person having or having had an interest inobtaining a particular public contract and who has been or risks being harmed by an allegedinfringement.

According to article 2(6) of the Remedies Directive the effects of the exercise of the powers on acontract concluded subsequent to its award shall be determined by national law. Unless a decision

This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document constitutes a violation of the publisher's rights and may be punished by

up to 3 years imprisonment and up to a € 300 000 fine (Art. L 335-2 CPI). Personal use of this document is authorised within the limits of Art. L 122-5 CPI and DRM protection.

Emanuela Matei | e-Competitions | N° 49471Page 1/1www.concurrences.com

must be set aside prior to the award of damages, a Member State may provide that, after theconclusion of a contract, the powers of the body responsible for the review procedures shall belimited to damages being awarded to any person harmed by an infringement.

Article 7(6) of the Act (1992:1528) the relevant law in the present case states that:

A contracting authority who has failed to comply with the provisions of the present Act shallcompensate the associated damage suffered by a supplier.

The relevant jurisprudence relies on the judgements in the following: Case T 1441-97 and Case T2417-98 issued by the Supreme Court of Sweden and Case T 2934-08 issued by the Court of Appealof Scania.

III. The factual framework and previous proceedingsRederi AB Virgo (’Virgo’) is the parent company of Rederi AB Origo (’Origo’) and Rederi AB Ishavet (’Ishavet’). The sister vessels M/S Origo and M/S Stockholm were owned by Origo, respectively byIshavet. During the period 1983-1998 the parent company has offered the vessel M/S Origo andmade it available to the municipality of Gothenburg to be used for educational purposes within themaritime navigation program. The high school ’Lindholmen’ was the beneficiary of the servicepurchased by the municipality of Gothenburg.

However for the school year 1998/1999 the municipality of Gothenburg decided to employ the vesselGunnfjaun owned by the municipality of Gotland for the same training purposes. Prior to school year1999/2000 the municipality of Gothenburg relying on a contractual option decided to prolong theuse of the vessel Gunnfjaun for one more year. Starting with year 2000 P.E., representing Virgo, hasacquired all the capital shares of Ishavet. On the 5th of April 2000 the municipality of Gothenburg onbehalf of its Education Department has published a list named ’Specification for procurement of atraining vessel for the school year 2000/2001’. The specification list contained six criteria ofassessment: 1. Documented experience and references 2. Vessel equipment 3. Operating costs 4. Delivery performance 5. Price 6. Environmental impact

The contractual period was framed between 11/09/2000 and 11/05/2001, comprising 72 days withthe possibility to extend it to 100 days. The possibility to prolong the contract for the next schoolyear, 15/09/2001-15/05/2002, was also mentioned. On the 8th of May 2000 Virgo submitted a tenderspecifying a price of SEK 684,000 for 72 days and an additional price per day of SEK 9,500representing an amount of SEK 950,000 for 100 days for the use of vessel M/S Stockholm. Themunicipality of Gotland also submitted a tender indicating the price of SEK 842,000 for 72 days andan additional price per day of SEK 9,700 representing an amount of SEK 1,000,000 for 100 days.

The Gotland’s tender has been deemed to be qualitatively superior and the provision of deck andengine training courses has been a determinant factor in choosing to award the contract to Gotland

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3 years imprisonment and up to a € 300 000 fine (Art. L 335-2 CPI). Personal use of this document is authorised within the limits of Art. L 122-5 CPI and DRM protection.


and employ the vessel Gunnfjaun for the school year 2000/2001. The parent company, Virgo broughtan action against the award procedure and Ishavet, Virgo’s subsidiary, has been assigned to presentthe claim for damages in the first instance.

The first claim of the applicant related to the alleged infringement of the public procurement lawand the associated damages of SEK 934,000 and the second claim asked for interest to be paidstarting with 2 December 2000 until the payment will be carried out [3] and respectively from the 18June 2001 until the payment will be carried out [4]. The defender has contested the claims, thoughadmitted that the tender price submitted by the applicant amounted to SEK 684,000 and the interestterms were reasonable per se.

The arguments supporting the alleged infringement of the public procurement rules are thefollowing: i. During the tender evaluation undue precedence has been given to Gotland’s bid despite the fact

that Virgo offered better or equivalent equipment; ii. The criterion (2) vessel equipment has been given more weight than mentioned in the

specifications; iii. The decision in favour of Gotland is based on a discretionary assessment of the criterion (2)

vessel equipment; iv. The assessment of the criterion (5) price has been based on a period of 100 days instead of 72

days; v. The assessment of the criterion (3) operating costs is incorrect since Virgo’s bid provided in fact

for lower costs and according to the evaluation result has been deemed as equivalent to Gotland’sbid; vi. The lack of rank order and clarity of the tender specification list had as a result the fact that

only two of the criteria were actually measurable: (5) price and (3) operating costs.

The calculation of the amount of damages relied on the deduction of SEK 16,000 from the total priceof SEK 950,000. The amount of SEK 16,000 represented the cost savings retained by Virgo in thecase of not performing the service. The contracting authority contested all the six argumentspresented by Ishavet in the support of their claim. It has been contested also the fact that Virgo triedactually to limit the harm. The compensation asked for the suffered harm was doubtfully reasonablein the view of the defender. Admitting that such damages were due in the first place, the amountshould be reasonable in function of the character of the infringement, the incurred costs and theplausibly estimated profit; according to the defender a reasonable calculation would lead to muchless than the amount claimed by Virgo.

The claimant, Ishavet developed its arguments and specified that the technical characteristics of thevessel M/S Stockholm were known to the contracting authority since the sister vessel, M/S Origohad been used for the same purpose during the period 1983-1998. M/S Stockholm had 10% lowerfuel consumption than the vessel Gunnfjaun, thus the operation costs must be at least 10% lower.Finally, Ishavet claimed that if the evaluation had been performed in a legally correct manner, thecontract would have been awarded to Virgo. Both Virgo by way of employing three agents and P.E.attempted in vain to find other assignments for M/S Stockholm.

The contracting authority has objected that the requested exploitation of the vessel for the schoolyear 2000/2001 was of 129 days. The lack of a class room on the training vessel M/S Stockholm was




also a decisive factor. The class room was a compulsory requirement and the setting of a class roomon the board of M/S Stockholm was not finalized at the date when the evaluation has beenperformed. The evaluation has employed an objective approach based on the contract awardcriterion ’most economically advantageous tender’ [5]. The testimonies of P.E., representative ofVirgo and experienced vessel commander and L.O., teacher and principal of the high school ’Lindholmen’ and sea captain have been brought before the Court.

The first instance has decided that the municipality of Gothenburg was liable to pay damages of SEK668,000. The second instance on the appeal brought by the contracting authority has increased thedue amount of damages to SEK 834,000. The difference of SEK 100,000 between the claimedamount and the one established by the Appeal Court depended on the number of days of actualexploitation.

The municipality of Gothenburg has applied for a review procedure before the Supreme Court andobtained a leave to appeal. The Swedish Board for Public Procurement has expert-witnessed beforethe Supreme Court [6].

IV. The Judgment of the Supreme Court of 31 May 2007The Supreme Court made a case law analysis thus clarifying the jurisprudence in this matter. Therelevant jurisprudence relies on the judgements in the following: Case T 1441-97 and Case T2417-98 issued by the Supreme Court of Sweden.

Case T 1441-97 concerned architectural services purchased by a municipal authority. In the tenderspecification the contracting authority mentioned that offering the lowest price may not constitutethe decisive factor for the award, though no other criterion could be deemed as relevant accordingto the assessment made by the public purchaser. If a contracting authority opts to adopt the mosteconomically advantageous tender as contract award criterion, the tenders shall be appraised inorder to determine which one offers the best value for money. On this pursuit the applicableeconomic and quality criteria shall be established in advance and in a transparent way. [7] Aquasi-contractual relation occurs between the contracting authority and the presumptive provider ofservice. This relation entitled the tenderer to obtain damages for the positive contractual interest.The Swedish law Professor Hellner criticised this judgment and disclosed the possibility that byfollowing this reasoning several presumptive suppliers could be entitled to damages for loss ofprofit. [8]

Case T 2417-98 concerned a direct award of cleaning services. The right to obtain damages for thepositive contractual interest has been reaffirmed, the burden of proof has been specificallyattributed to the claimant and a differentiation between contract law and public procurement lawhas been imposed. Among others, three criteria must be considered: the character of theinfringement, the incurred costs and estimated profit calculated at a reasonable amount. Thetheoretical objection of Professor Hellner in relation to the judgment decision in Case T 1441-97 hasbeen taken into consideration and discussed by the Supreme Court.

In the present case, the Supreme Court had the opportunity to clarify where the law stands in thismatter. However, the facts of the case reveal the participation of only two suppliers, thus the Hellnerobjection does not apply and the presumptive supplier becomes the actual supplier who would have




won the award, if the procurement rules had been correctly applied. The Supreme Court endorsedthe verdict of the Court of Appeal.

The Court maintained its reasoning that the role of the damages for public procurement was bothdissuasive and compensatory. The factors to be taken into consideration according to the Brasseriedu Pêcheur doctrine include the clarity and precision of the rule breached, the measure of discretionleft by that rule to the national authorities, whether the infringement and the damage caused wasintentional or involuntary, whether any error of law was excusable or inexcusable, and the adoptionor retention of national measures or practices contrary to Union law. [9] The breach in questionbeing manifest its intentional or involuntary character would become irrelevant. The liability fordamages for public procurement is hence strict, once a manifest infringement has been ascertained.

Virgo has the right to be placed in the financial position that it would otherwise have had, if thecontract had been correctly awarded. The requested period of employment was of 129 days, thoughthe applicant has calculated the damage claim based on a 100 days period and this will be thereference period. The actual period was of approximately 80 days, thus the price of SEK 850,000 asa basis for the calculation of damages has been upheld. The amount of SEK 16,000 saved variablecosts has also been endorsed. The verdict of the Court of Appeal has been upheld by the SupremeCourt.

V. Damages for the positive contractual interestRecital 17 of the Remedies Directive states that a review procedure should be available at least toany person having or having had an interest in obtaining a particular contract and who has been orrisks being harmed by an alleged infringement. The loss of profit i.e. the positive contractual interesthas not been explicitly included in the concept of ’an interest in obtaining a particular contract’. TheGovernment Bill 2006/07:128 explains that it might be understood that only the costs related totender preparation and participation, i.e. the negative contractual interest is included in the conceptof ’an interest in obtaining a particular contract’. [10]

Another Government Bill 1992/93:88 mentioned reasons for a complete compensation of the harmcaused by not obtaining the contract. [11] Not only the unnecessary ex-ante contractual costs shallbe included, but also the so-called positive contractual interest. The person who applies for damageshas the burden of proof and has to substantiate the harm. There must be a relation of causalitybetween the loss of opportunity to obtain the contract and the failure of the contracting authority tocomply with the provisions of procurement law. The only reason for not obtaining the contractshould have been this failure.

In T 2417-98 the Supreme Court established that the principles to be applied must be the same as inthe case of contractual liability. As a main rule the criteria to be used are i.a. the following: thecharacter of the infringement, the incurred costs and estimated profit calculated at a reasonableamount. The forecast that other suppliers, than the one who brought the action for damages, couldhave obtained the contract must be considered in any case. If such good prospects have existed, theapplicant will be only entitled to compensation for the negative contractual interest. [12]

In T 2883-04 the Supreme Court has established the law for the circumstances of the failure tocomply with procurement rules and denial of the possibility to submit a tender. Only one supplier




may be entitled to compensation for loss of profit and the claimant has the burden of proof that thecontract would have been awarded to him unless the failure to comply had occurred. Thecontracting authority must be able to contest the claim for positive contractual interest based on thefact that other suppliers had a good chance to have won the contract, no matter if these othersuppliers are or not parties in the trial.

In T 2417-98 the Supreme Court established that the possibility to pay damages for the positivecontractual interest to more than one supplier is excluded. However the possibility to obtaindamages for the loss of profit must be preserved. The first requisite is the failure of the contractingauthority to comply with the procurement rules. The second requisite is that the claimant has had anactual chance to win the contract and the third requisite is that this chance has been lost due to thefailure to comply with the procurement law. [13]

VI. ConclusionMember States shall ensure that the participation of a body governed by public law as a tenderer ina procedure for the award of a public contract does not cause any distortion of competition inrelation to private tenderers. [14] This is the actual situation in the present case where the winner ofthe contract incorrectly awarded has been a municipal council.

The rules on remedies for an illegal direct award are less ambiguous. Ineffectiveness is a regularremedy that must be imposed in order to restore competition and create new business opportunitiesfor those economic operators which have been deprived illegally of their opportunity to compete.The award of damages does not constitute an appropriate alternative penalty to be used as asubstitute of the ineffectiveness in accordance with Article 2e of the New Remedies Directive [15].

Since the construction of the article 7(6) LOU does not entitle an award of general damages, but therule has been meant to serve a mixed purpose, dissuasive and compensatory, the reparation for thepositive contractual interest must be applicable for the cases, where the supplier has lost thecontract because of a legally incorrect procedure. The compensation for the positive contractualinterest is fully compatible with the legislative motives. [16]

EU procurement law does not exclude the application of stricter sanctions in accordance withnational law. [17] According to the Swedish law the award of damages plays a double role,dissuasive and compensatory. [18] The imposition of fines on the contracting authority is consideredto be an effective and dissuasive remedy. [19] However the Swedish law has preferred the solutionto pursue the dissuasive effect via the award of damages in the circumstances of a faulty tenderprocedure. This solution has been criticised by Swedish scholars for its lack of effectiveness. [20]Several cases of contempt of court and unreasonably long procedures in relation to the infringementof provisions of public procurement law have been criticised by the Justice Ombudsman. [21]

In T 2934-08 the Court of Appeal of Scania the right to be awarded damages for the positivecontractual interest has been adjusted from SEK 13,325,760 to zero relying on the contributory faultof the claimant that consisted in disregarding the procedural terms; the claimant failed to challengethe decision of the contracting authority within the time limit imposed by law. [22] This negligenceimplied that de facto no remedies have been enforced against an infringement of procurement lawestablished by the Court. [23]




The new construction of the article 7(6) of Act (1992:1528) as formed by article 16(20) of the Act(2010:571) contains the old formulation and it adds that:

The right to damages includes the compensation granted to a candidate or a tenderer, who hasparticipated in a public procurement procedure and supported costs for preparing the submissionand participation in the tender procedure, if the failure to comply with the provisions of this Act hasled to the loss of the opportunity to be awarded the contract.

The factual background of the case, namely the existence of only two suppliers who participated inthe tender award implied that the question of a thorny burden of proof placed in the hands of theclaimant could be avoided. This question has neither been satisfactorily enlightened by thepre-legislative scrutiny documents. The substantiation of the scenario that a certain supplier wouldhave won the award, it might require to prove that any other alternative choices would have beenexcluded by law and envisage a system of equations where only one solution can be legally correct.Such a system is of course an ideal one, where no margin of discretion would be permitted.

[1] Comment no 203 to the article 16(20) of the Public Procurement Act (2007:1091).

[2] See Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulationsand administrative provisions relating to the application of review procedures to the award of publicsupply and public works contracts; OJ L 395, 30.12.1989, p. 33–35.

[3] Interest Rates Act art 4(2) in conjunction with art 6: In the case of commercial credit relationsbetween private undertakings the failure to pay results in the obligation to pay interest. Where anundertaking has a requirement on a public authority or other public body related to payment ofgoods or services the same rule shall apply. The rate for an annual interest shall correspond to thecurrent rate of reference with an addition of 8 %.

[4] Interest Rates Act art 4(3) in conjunction with art 6: If the requirement concerns damages orother compensation, interest shall be payable on the amount due from the day when the claim hasbeen lodged and the necessary supporting evidence has been submitted The debtor is not liable topay interest for the period before the claim has been lodged and the evidence has been madeavailable [to the debtor]. The rate for an annual interest shall correspond to the current rate ofreference with an addition of 8 %.

[5] Article 53 of the Directive 2004/18/EC of the European Parliament and of the Council of 31March 2004 on the coordination of procedures for the award of public works contracts, public supplycontracts and public service contracts ; OJ L 134, 30.4.2004, p. 114-240 as implemented by article12(1) of the Act 2010:571

[6] See also http://www.kkv.se/upload/filer/upph....

[7] Third indent of the Recital 46 of the Directive cited supra footnote 5.

[8] Hellner, Law of Torts, 5th edition page 467 and JT 1998/99 page 950. Public Procurement andthe right to Damages.

[9] ECJ, 5 March 1996, Joined cases C-46/93 and C-48/93, Brasserie du Pêcheur SA v




http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31989L0665:EN:HTML

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1989:395:0033:0035:EN:PDF



http://www.kkv.se/upload/filer/upphandling/nou-arkiv/pdf/99-53.pdf

http://curia.europa.eu/juris/showPdf.jsf?text=&docid=81389&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=296046

Bundesrepublik Deutschland and The Queen v Secretary of State for Transport, ex parte:Factortame Ltd and others, [1996] ECR I-01029, paragraph 56.

[10] Government Bill 2006/07:128, pages 444-445.

[11] Government Bill 1992/93:88, page 102.

[12] See NJA 2000 page 712.

[13] See also Government Bill cited supra at footnote 10, page 445. By way of analogy, thenon-contractual liability of the Union within the meaning of the Article 340(2) TFEU incurs if a seriesof conditions are met, namely: the alleged conduct on the part of the institution must be unlawful,actual damage must have been suffered and there must be a causal link between the alleged conductand the harm pleaded. The first of those conditions, the unlawful conduct alleged against aninstitution must consist of a sufficiently serious breach of a rule of law intended to confer rights onindividuals. The decisive test for finding that that requirement is fulfilled is whether the institutionconcerned manifestly and seriously disregarded the limits on its powers. CFI, 14 December 2005,Case T-383/00, Beamglow Ltd v European Parliament, Council of the European Union andCommission of the European Communities, [2005] ECR II-05459, paragraphs 95-99.

[14] Recital 4 of the Directive cited supra footnote 5.

[15] See Directive 2007/66/EC of the European Parliament and of the Council of 11 December2007 amending Council Directives 89/665/EEC and 92/13/EEC with regard to improving theeffectiveness of review procedures concerning the award of public contracts ; OJ L 335, 20.12.2007,p. 31-46.

[16] Idem footnote 14.

[17] Recital 20 of the Directive cited supra footnote 15.

[18] NJA 2007, page 358.

[19] Article 2e of the Directive cited supra footnote 15.

[20] Madell, T. & Björklund, D.: Award of damages in the field of public procurement, SvJT 2008pages 579.

[21] File JO 3026-2009, Complaint against municipalities of Tomellila and Simrishamn concerningcontempt of court; File JO 1282-2007, Complaint against municipality of Ydre concerning contemptof court; File JO 5301-2009 Complaint against municipality of Gothenburg concerning contempt ofcourt; File JO 3691-2007 Complaint against municipality of Söderköping concerning unreasonablylong procedures.

[22] The time limit was 25 January 2002 to 5 February 2002 i.e. seven working days counted fromthe moment when the information has been released, not from the moment the supplier has actuallyreceived it.

[23] RH 2010:48 Judgment of Court of Appeal Scania (Southern Sweden) from 22/04/2010.This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document constitutes a violation of the publisher's rights and may be punished by up to



http://juridik.karnovgroup.se.ludwig.lub.lu.se/document/abs/NJA_2000_S_0712?versid=163-1-2005

http://curia.europa.eu/juris/document/document.jsf?text=&docid=57080&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=295966

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2007:335:0031:01:EN:HTML



http://www.jo.se/Page.aspx?MenuId=106&MainMenuId=106&Language=sv&ObjectClass=DynamX_SFS_Decision&Id=5228

Emanuela Matei | University of Lund | [email protected]





September 2012

The Swedish Competition Authority issues adecision concerning pecuniary sanctionsimposed on a contracting authority forinfringements of public procurement law(Akademiska Hus Norr)Sweden, Public procurement, Damages, Sanctions/Fines/Penalties, Publicundertaking, ConstructionSwedish Competition Authority (Konkurrensverket), 11 September 2012, File 476/2012, Akademiska Hus Norr AB


I. IntroductionThe building project in this case involves the modification andexpansion of an existing construction,namely the building of the University of Agricultural Sciences situated in the municipality of Umeå.The value of the contract is of approximately SEK 39 million. The Swedish Competition Authority(’SCA’) found a case of illegal direct award, since a contract notice should have been publishedaccording to certain formalities, as stipulated in article 15 Swedish Procurement Act (’LOU’) inorder to enable all potential providers to receive information about the forthcoming contracts. SCAhas decided to bring proceedings before the Court requesting that the contracting authority shall beordered to pay a public procurement damage fine of SEK 3 million. The legal base for this action canbe found in the third indent of the article 17(1) LOU, which stipulates that a general administrativecourt may decide whether an illegal award of contracts shall be sanctioned with a publicprocurement damage fine. The legal analysis presented by SCA in the present decision is mainlyconcerned with the concept of ’body governed by public law’ which is enshrined in article 1(9) of theDirective 2004/18.

II. The legal frameworkThe pre-legislative scrutiny of draft bills is a very important source of law in the Swedish legal order,which is used for the interpretation of statutory provisions. The Directive 2007/66/EC with regard toimproving the effectiveness of review procedures concerning the award of public contracts [1] hasbeen implemented into the national legal order on the 15/07/2010 through an amendment made to




the Swedish Procurement Act. SCA refers to the pre-legislative acts of the latest amendment [2],which among other things have introduced some new articles, notably the article 18 on the matter ofsupervision in order to assert that article 18(1) LOU read in conjunction with the first paragraph ofthe Government Regulation (2007:1117) grants SCA a supervisory role in the field of publicprocurement [3].

A public procurement damage fine may be imposed for an illegal direct award, which is anagreement that has been concluded in breach of the duty to publish a contract notice according tothe relevant provisions of the Swedish Procurement Act. It is the competence of SCA to decidewhether to impose or not a public procurement damage fine. In cases where the sanctioned personcan be expected to have good knowledge of the rules and there is a special reason to ensure that theregulation in question is not violated, the rule of strict liability shall be applicable. It is not necessaryto prove that the deed was either intentional or caused by negligence in order to impose a sanctionconsisting in damage fines [4].

In order to combat the illegal direct award of contracts, which the Court of Justice has called themost serious breach of Union law in the field of public procurement on the part of a contractingauthority or contracting entity, there should be provision for effective, proportionate and dissuasivesanctions. Therefore a contract resulting from an illegal direct award should in principle beconsidered ineffective. The ineffectiveness should not be automatic but should be ascertained by orshould be the result of a decision of an independent review body [5].

Article 2 of the Directive 2007/66/EC requires alternative penalties in the form of either theimposition of fines on the contracting authority or the shortening of the duration of the contract.Member States may confer a broad margin of discretion to the supervisory body allowing theassessment of all the relevant factors, including the gravity of the infringement, the behaviour of thecontracting authority and, in the cases referred to in article 2d on the consequences of a contractbeing considered ineffective, to the extent to which the contract remains in force [6]. The publicprocurement damage fine shall not exceed 10% of the value of the contract in question and themaximum charge that can be imposed is of SEK 10 million. When calculating the amount of thedamage fine, special consideration should be given to the gravity of the violation. No fine shall becharged in minor cases and the fine may be waived in exceptional circumstances.

III. The factual frameworkAkademiska Hus Norr AB (’AHN’) is a wholly owned subsidiary of the state company AkademiskaHus AB (’Parent Company’). The latter is also the sole shareholder of the following subsidiaries:Akademiska Hus Stockholm AB, Akademiska Hus Uppsala AB, Akademiska Hus Syd AB, AkademiskaHus Väst AB and Akademiska Hus Öst AB. The Parent Company constitutes the relevant contractingauthority in this case according to the provisions of a supervisory decision issued by SCA inDecember 2008. [7] The object of the application brought before the Court is a public workscontract [8] concluded by AHN with Rekab on the 2011-10-07 and amounting to approximately SEK39 million.

By studying the Articles of Association of the Parent Company and its subsidiaries, SCA concludedthat all the companies of the Group have conducted activities for the same purpose, i.e. the one of ’meeting needs in the general interest, not having an industrial or commercial character’. In a




previous supervisory errand conducted by SCA, the Parent Company had testified that the aim of theactivity of the Group was to meet needs in the general interest. Moreover the CEO of the ParentCompany occupies the position of chairman on the Board of all its subsidiaries. The decisionsconcerning bigger investment projects are always made subject to approval by the Board of theParent Company. The overall objective of the Swedish government related to the foundation of a ’body governed by public law’in question is to encourage companies to create value and for theforthcoming cases to ensure the achievement of the recognized public interest tasks [9].

A Government Bill from 1997 contains the assertion that the distinction between a public interest orinstitutional building and a commercial building might be difficult to draw [10]. It has beenappreciated that only 5-10% of the buildings are purposely dedicated for research and education,such as the laboratory buildings. The Parent Company operates under conditions of competitionconducted on an open market according to the documents from the government. The real estategroup in question is the second largest in Sweden and AHN itself holds 69% on the relevant market.

It was stated in various government documents that the pursuit of profit did not trigger the creationof the Group, even if the Group was advised to adopt an economically rational management implyingthat a requirement for a certain return on investment could not be excluded. While it is possible thatthose activities may generate profits distributed in the form of dividends to shareholders of theentity, the making of such profits can never constitute its principal aim [11]. In the same governmentcommunication we can find summary information about the Parent Company’s establishment in1993 and its main objectives aiming to offer proper accommodation for education and researchactivities to the Swedish universities and to preserve the economic and cultural value of thebuildings. Certain university buildings have a remarkable cultural character, mainly the onessituated in the central urban zone of Uppsala and Lund.

IV. The concept of Body Governed by Public LawThe concept of contracting authority is defined by the Article 1(9) of the Directive 2004/18/EC,which corresponds to article 1(19) LOU read in conjunction with article 1(12) LOU:

Art 1(9). ’Contracting authorities’ means the State, regional or local authorities, bodies governed bypublic law, associations formed by one or several of such authorities or one or several of such bodiesgoverned by public law.

A «body governed by public law« means any body:

a. established for the specific purpose of meeting needs in the general interest, not having anindustrial or commercial character;

b. having legal personality; and

c. financed, for the most part, by the State, regional or local authorities, or other bodies governedby public law; or subject to management supervision by those bodies; or having an administrative,managerial or supervisory board, more than half of whose members are appointed by the State,regional or local authorities, or by other bodies governed by public law.




Non-exhaustive lists of bodies and categories of bodies governed by public law which fulfil thecriteria referred to in (a), (b) and (c) of the second subparagraph are set out in Annex III. MemberStates shall periodically notify the Commission of any changes to their lists of bodies and categoriesof bodies.

SCA has noticed that the enumerated conditions of the article 1(9) are alternative grounds fordetermining the quality of being a ’body governed by public law’ and that according to settledcase-law, national courts are obliged, when applying domestic law, to interpret it, so far as possible,in the light of the wording and the purpose of a directive in order to achieve the result sought bythat directive and thus to satisfy the Article 288(3) TFEU [12].

The Court of Justice adopted a generous approach to the definition of ’needs in the general interest’by not restricting it to just institutional activities conducted by the State or to the concept of publicorder [13]. SCA invoked the case law of the Court of Justice supporting the idea that the purpose ofthe secondary legislation in the field of public procurement is to avoid the risk of preference beinggiven to national tenderers or applicants whenever a contract should be awarded by the contractingauthorities and the possibility that a body financed or controlled by the State, regional or localauthorities or other bodies governed by public law might prefer to be guided by non-economicconsiderations.

The existence of competition as an indicative that the public interest concerned is industrial orcommercial in nature [14] is insufficient to exclude considerations other than the economic [15],since the fact that an undertaking pursues its activity in a closed market is not essential for thepurposes of identifying a body as one governed by public law. Thus a double objective can beidentified: launching competition and transparency [16]. SCA emphasized that in only one case theCourt of Justice has found that these defining conditions were not satisfied [17]. In assessingwhether or not such a need in the general interest is present, all the relevant legal and factualelements should be considered, such as the circumstances prevailing at the time when the bodyconcerned was established and the conditions under which it exercises its activity [18].

The needs met by the Group, i.e. to satisfy the universities requirements for accommodationappropriate to their objectives, are mainly not of an industrial or commercial character. Thecombination of the facts that the Group is composed by state-owned companies and that it meets ageneral interest not being exposed to normal market conditions implies the fulfilment of the definingconditions of the article 1(19) and brings about the duty to comply with the provisions of theSwedish Procurement Act.

V. Illegal direct awardThe notice (2010:53) of the Swedish Government informs about the thresholds that must applyregarding the public works contracts [19]. The value of the present contract being of SEK39,130,000, which is less than the threshold value [20] of SEK 48,193,215, the provisions of thearticle 15 LOU governing the award procedures not covered by the Directive 2004/18/EC shall beapplicable. AHN had to give an account to SCA on whether it had complied with its duty to publishthe award and if it did, in which way and to what extent. AHN declared that the contract in questionhad not been advertised as required according to the provisions of the article 15 LOU; thus thedisregard of the advertising obligations brings about the occurrence of an illegal direct award.




VI. Public Procurement Damage FineAccording to the opinion of SCA, the procurement damage fine for illegal direct award shall becalculated based on the value of the awarded contract. It should be examined whether anymitigating or aggravating circumstances exist in the case which may lead to the reduction orincrease of the prescribed amount of fine. This method contributes to consistency and predictabilityin the calculation of fines. The value of the awarded contract constitutes also an objective measurefor the gravity of the infringement [21].

SCA mentions also that in other previous rulings of the Administrative Court and AdministrativeCourt of Appeal the method of calculation adopted by the supervisory body has been approved bythe court and deemed as appropriate and proportionate [22]. With regard to the circumstances ofthe present case, SCA found that the Parent Company, in flagrant breach of both the current andprevious decisions of the supervisory body, has failed to conclude agreements in conformity with thepublic procurement law. The fine should be large enough in order to discourage the companies ofthe Group to disregard the provisions of the public procurement law at the occasion given by theconclusion of future agreements. The value of the agreement being of 39,130,000 SEK aprocurement damage fine of SEK 3,000,000 represents about 7.7 % of the contract value, which inthe view of SCA would lead to an appropriate and proportionate sanction in relation to the gravity ofthe infringement.

VII. ConclusionThe concepts of a ’contracting authority’ and a ’body governed by public law’ have been defined bythe Court of Justice using a functional interpretation in order to avoid the creation of gaps thatwould have provided wide scope for abuse [23]. A body which aims to make a profit and bears thelosses associated with the exercise of its activity will not normally become involved in an awardprocedure on conditions which are not economically justified. On the contrary public purchasershave to consider other incentives than those of managers of a private business who bear the risk oflosses and ultimately bankruptcy, and are directly controlled by market forces [24].

The most important requisite for this case is ’aims to make a profit and bears the losses associatedwith the exercise of its activity’ since the ability to assume the incumbent financial risk is essentialfor the purposes of identifying a body as one governed by public law. According to SCA it seemsunlikely that AHN itself would have to bear the financial risks bound up with its activity, the SwedishState, being the sole shareholder, will most probably take all necessary measures to prevent animpending compulsory liquidation [25]. Therefore the predisposition to become involved in an awardprocedure on conditions which are not economically justified cannot be ruled out and the award inquestion falls within the scope of the public procurement law.

[1] See Directive 2007/66/EC of the European Parliament and of the Council of 11 December 2007amending Council Directives 89/665/EEC and 92/13/EEC with regard to improving the effectivenessof review procedures concerning the award of public contracts ; OJ L 335, 20.12.2007, p. 31-46.

[2] See Proposition 2009/10:180 of the 08 April 2010 on the Legal Remedies in the field of PublicProcurement .






http://www.regeringen.se/content/1/c6/14/38/03/ba918059.pdf

[3] Government Regulation with instructions to the Competition Authority, 29 November 2007.

[4] Proposition cited supra at footnote 2, page 193.

[5] Directive cited at footnote 1, preamble point 13.

[6] See also Proposition cited supra at footnote 2, page 307.

[7] The National Board for Public Procurementin two similar cases and the Administrative Court ofUmeå in a recent case 2306-11 E have a divergent opinion and considered the group of AkademiskaHuscompanies (’Group’) as being the pertinent contracting authority.

[8] Article 1(2)-b of the Directive 2004/18/EC of the European Parliament and of the Council of 31March 2004 on the coordination of procedures for the award of public works contracts, public supplycontracts and public service contracts ; OJ L 134, 30.4.2004, p. 114-240 corresponds to article 2(3)of the LOU and states that ’public works contracts’ are public contracts having as their object eitherthe execution, or both the design and execution, of works related to one of the activities within themeaning of Annex I or a work, or the realisation, by whatever means, of a work corresponding to therequirements specified by the contracting authority. A ’work’ means the outcome of building or civilengineering works taken as a whole which is sufficient of itself to fulfil an economic or technicalfunction.

[9] Swedish Government Communication to the National Parliament No 2011/12:140, page 6.

[10] See Proposition 1997/98:137 pages 7-8.

[11] ECJ, 10 April 2008, Case C-393/06, Ing.Aigner, [2008] ECR I-02339, paragraph 42.

[12] See, by way of example, ECJ, 10 April 1984, Case 14/83, Von Colson and Kamann, [1984]ECR 1891, paragraph 26; 5 October 2004, Joined Cases C 397/01 to C 403/01, Pfeiffer, [2004] ECRI 8835 paragraph 113; and 4 July 2006, Case C 212/04, Adeneler, [2006] ECR I 6057 paragraph 108.

[13] ECJ, 15 January 1998, Case C-44/96, Mannesmann Anlagenbau Austria and Others, [1998]ECR I-00073 paragraph 24, and 16 October 2003, Case C 283/00, Commission v Spain, [2003]ECR I 11697, paragraph 85), and has extended it to the organisation of fairs, exhibitions and othersimilar initiatives (ECJ, 10 May 2001, Joined Cases C 223/99 and C 260/99, Agorà and Excelsior,[2001] ECR I 3605, paragraphs 33 and 34); to the buying, selling and leasing of properties and thesupply of property management services for a local authority (ECJ, 22 May 2003, Case C 18/01,Korhonen and Others [2003] ECR I 5321, paragraphs 41 and 45); and to the construction ofhousing intended for selling or leasing to families of low means (ECJ, 1 February 2001, Case C237/99, Commission v France, [2001] ECR I 939, paragraph 47.

[14] ECJ, 10 November 1998, Case C 360/96, BFI Holding, [1998] ECR I-06821 paragraph 49; Casecited supra footnote 13, Agorà and Excelsior, paragraph 38; and Case cited infra footnote 16, AdolfTruley, paragraph 60.

[15] Case cited supra footnote 14, BFI Holding, paragraph 43, and Case cited infra footnote 16,Adolf Truley, paragraph 61. According to paragraph 44 of the judgment in BFI Holding, it is almost




http://www.lagboken.se/files/SFS/2007/071117.PDF



http://www.regeringen.se/content/1/c4/36/67/e71545e4.pdf







http://curia.europa.eu/juris/document/document.jsf?text=&docid=48310&pageIndex=0&doclang=FR&mode=lst&dir=&occ=first&part=1&cid=948516




impossible to imagine any activities that could not be carried on by private undertakings, and thusthe lack of competition would render futile the term ’body governed by public law’ used in thedirectives.

[16] ECJ, 27 February 2003, Case C-373/00, Truly, [2003] ECR I-01931, paragraph 43.

[17] Case cited supra footnote 13, Agorà and Excelsior.

[18] Case cited supra footnote 13, Korhonen, paragraph 48.

[19] See Government Notice 16 February 2012 See also Commission Regulation (EC) No1177/2009, of 30 November 2009 amending Directives 2004/17/EC, 2004/18/EC and 2009/81/EC ofthe European Parliament and of the Council in respect of their application thresholds for theprocedures for the award of contracts (OJ L 314, 1.12.2009, p. 64–65).

[20] Article 2 of the Commission Regulation (EC) No 1177/2009 (application thresholds for theprocedures for the award of contracts).

[21] Proposition cited supra footnote 2, page 183.

[22] Administrative Court of Appeal Stockholm Case 1305-12; Administrative Court Växjö Case286-12; Administrative Court Stockholm Case 1271-12, 1273-12 and 1281-12; Administrative CourtLinköping Case 3834-11; Administrative Court Luleå Case 2166-11 and Case 434-12.

[23] ECJ, 13 December 2007, Case C-337/06, Bayerischer Rundfunk and Others, [2007] ECR I11173, paragraph 37 See also, in connection with a similar situation, Case C-300/07, Hans &Christophorus Oymanns, [2009] ECR I 0000, paragraph 57.

[24] Green Paper on the modernisation of EU public procurement policy Towards a more efficientEuropean Procurement Market, COM/2011/0015.

[25] ECJ, 16 October 2003, Case C-283/00, Commission v Spain, [2003] ECR I-11697, paragraph91 and the discussed Application file 476/2012 of 11/09/2012, points 52-55.






http://www.lagboken.se/files/SFS/2010/100053.PDF






http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0015:FIN:EN:PDF



September 2012

The Administrative Court of Appeal ofJönköping orders that the award procedureshall be recommenced for violation of thetransparency principle (PWC v Västervik, KPMGv Västervik)Sweden, Public procurement, Misinformation, Remedies (antitrust), Judicialreview, Public undertaking, ServicesAdministrative Court of Appeal of Jönköping, 20 septembre 2012, Case 842-12, PWC v Västervik

Administrative Court of Appeal of Jönköping, 20 septembre 2012, Case 8409-11, KPMG v Västervik


I. Introduction

The tender documentation of the award procedure concerned with a procurement contract of auditservices by Västervik municipal authorities comprised erroneous information. The error consisted indisregarding the provisions of the Swedish constitutional law, namely the article 12(4) IG and itsrequisite that the delegation of administrative assignments involving exercise of public authority canonly be done in accordance with law. This error has led to an order to recommence the awardprocedure and the finding that the false information implies a breach of the transparency principle.

II. Legal frameworkThe award of public contracts by or on behalf of Member States authorities has to comply with theprinciples deriving from the Treaties, such as equal treatment, non-discrimination, mutualrecognition, proportionality and transparency [1]. However, for public contracts above a certainvalue, provisions on national procurement procedures should be adopted and implemented in orderto ensure that these principles are given actual effect and public procurement is opened up tocompetition [2].

Contracts shall be awarded on the basis of objective criteria that ensure compliance with theprinciples of transparency, non-discrimination and equal treatment. Consequently the contracting




authorities shall be able to adopt as award criteria either ‘the most economically advantageoustender’ or ‘the lowest cost’, taking into account that in the latter case they are free to set adequatequality standards by using technical specifications or contract performance conditions [3].

If a supplier considered that it had been wrongly treated during an award procedure and if the timeallows, it should make a complaint directly to the contracting authority before institutingproceedings before a court. In accordance with article 16 of the Swedish Procurement Act (‘LOU’), asupplier may bring proceedings for a review before an administrative court if it suspects that acontracting authority has infringed the procurement law and the violation entails or may entail thatthe supplier would suffer damages. If the administrative court deems that there has been such aviolation and that damages have arisen or may arise for the supplier, the administrative court maydecide that the procurement process should be recommenced or corrected.

III. The parallel disputes brought before the Swedish CourtThe contract in question relates to audit services to be procured by Västervik municipal authorities,i.e. an assignment concerning mail reception, collection and storage of the data, and attendancereporting. The audit contract has been awarded initially to PWC and afterwards to KPMG followingthe finding that the tender of PWC did not indicate any price for the second year in the case of theassignment concerning mail reception, collection and storage of the data and attendance reporting.According with the first decision of the Swedish Court of first instance, the tender of PWC shouldhave been excluded from the evaluation phase, while the second decision accepted the complaint ofPWC that the tender documentation was seriously vitiated, thus the award procedure should berecommenced and the applicant should be allowed to participate. I will make a summary of theparallel proceedings before the first instance and respectively, the appeal instance.

A. Case 8409-11 KPMG v Västervik

In the tender documents, point 4 step 2 ‘Service requirements’, it has been asserted that the namedrequirements are compulsory in nature and only tenders that fulfil them would be taken intoconsideration for the evaluation phase. The award consists of eight assignments and a total priceindication is required for each of the following five assignments A, B, D, G and H for a period of twoconsecutive contractual years. The assignment ‘H’ refers to the following compulsory tasks: mailreception, collection and storage of the data and attendance reporting. In line with article 1(9) LOUdisregarding the compulsory requirements amounts to a violation of the principle of equal treatment.The contracting authority has the obligation to verify that all incoming tenders satisfy thecompulsory requirements. PWC had indicated a fixed price of SEK 15,000 for the first year and zerofor the second year with the proviso that the municipality council will take over these tasks duringthe second year. KPMG submits that PWC‘s tender did not comply with the requirements and thus itshouldn’t have been taken into consideration for the evaluation phase. KPMG‘s tender was thesecond ‘most economically advantageous tender’ after the one submitted by PWC, therefore KPMGcould have suffered damages and the prerequisite for action under article 16(6) LOU was fulfilled.KPMG contends that a re-examination of the tenders should be ordered by the Court and PWC‘stender should not be considered at that occasion. On the 29/02/2012 the Administrative Court ofFirst Instance has upheld the claims of the applicant. The applicant has been successful.




B. Case 1626-12 PWC v Västervik

PWC applied for a re-examination of the award decision issued on the 02/03/2012 by Västervikmunicipal authorities and pleaded for the reopening of the award procedure. The award procedurereferred to i.a. mail reception, collection and storage of the data and attendance reporting and thusit has been related to tasks involving exercise of public authority. According to article 12(4) of theInstrument of Government (‘IG’) [4] read in conjunction with article 3(16) of the Municipality act [5],any assignment involving exercise of public authority shall be delegated in accordance with law.Since such a legal basis does not exist in the present case the award of the assignment in question isexcluded according to the Swedish constitutional law. The service suppliers have received incorrectinformation and the contracting authorities have acted in violation of the principle of transparency.Has this fault of the contracting authorities caused any damages to PWC? Administrative Court ofFirst Instance has decided in case 8409-11 that the tender submitted by PWC shall not beconsidered for the evaluation phase. Under these circumstances PWC is no longer a presumptivesupplier and therefore it cannot suffer any damages in the meaning of the Public Procurement Act [6]. The Court asserts nevertheless that the severe error committed by the contracting authority isdeemed to cause the disruption of the award procedure and despite the previous decision of theCourt [7] from 29/02/2012 the PWC might suffer damages since the exclusion itself has beenfounded on the failure to comply with the provisions of the article 12(4) IG. There are inconsequence reasonable grounds to order that the award procedure shall be recommenced, whileallowing the participation of PWC. The applicant has been successful according to the judgment ofthe Court issued on the 27/04/2012 [8].

C. Case 842-12 PWC v Västervik

On the 20/09/2012 PWC challenged the decision of the Administrative Court of First Instance fromthe 29/02/2012 and pleaded at first hand that the award procedure should be recommenced and atsecond hand that the decision of Administrative Court of First Instance should be annulled. Theclaim relied upon the assertion that the contracting authority did not intend to pursue theprocurement of the assignment ‘H’ and the Administrative Court of First Instance had built itsdecision on the erroneous statement that the assignment ‘H’ should have been included in thetender documentation. KPMG claims at first that the appeal should be dismissed and at second thatthe matter should be referred back to the Administrative Court of First Instance for a re-examination.The defendants, Västervik municipal authorities contended the annulment of the decision of the firstinstance, but did not dispute the first hand pleading, namely that the award procedure should berecommenced. Administrative Court of Appeal consented with the decision of Administrative Courtof First Instance and dismissed the appeal brought by PWC.

IV. ConclusionThe mail reception, collection and storage of the data in question are carried out in the context ofthe exercise of public powers. Activities involving the exercise of public powers are not of aneconomic nature and thus fall outside the scope of the competition rules [9]. In line with Article 51TFEU read in conjunction with Article 62 TFEU, the provisions on the free movement of services andfreedom of establishment do not apply to activities which in that state are connected, evenoccasionally, with the exercise of official authority. It is clear that the award of this assignment per




se falls outside the scope of EU law.

The provisions of the Swedish constitution exclude the delegation of the exercise of public powersunless it is done in accordance with law. Despite these preventing legal norms the activities inquestion have been included in the tender documentation and the lack of price indication for thenamed assignment has almost led to the exclusion of one of the suppliers. The significant error hasbeen deemed to constitute a violation of the transparency principle [10] in the meaning of the article1(9) LOU and according to 16(6) LOU the infringement in question entails or may entail that thesupplier would suffer damages. In sum the remedy prescribed by the Court of Appeal is that theprocedure for the award of the audit contract shall be recommenced.

Even if the article 1(9) LOU implements article 2 of the Directive 2004/18/EC stating that ‘contracting authorities shall treat economic operators equally and non-discriminatorily and shall actin a transparent way’ the activities comprised by assignment ‘H’ per se fall outside the scope ofUnion law. The conclusion provided by the Court that the erroneous information specified by thecontracting authority, not paying due regard to the national constitutional law, falls foul of the dutyto act in a transparent way can be seen as an extensive interpretation of the transparency principle.

[1] Article 1(9) of the Swedish Procurement Act (‘LOU’) (Lag om offentlig upphandling 2007/1091).

[2] See also Recital 2 - Proposal for a Directive on public procurement COM/2011/0896.

[3] See also Recital 37 - Proposal for a Directive cited supra in footnote 2.

[4] Article 12(4) IG: Administrative functions may be delegated to local authorities. Administrativefunctions may also be delegated to other legal entities or to individuals. If such a function involvesthe exercise of public authority, it may only be delegated in accordance with law.

[5] Article 3(16) MA: The local authorities following the decision of the council may delegate theadministration of a certain matter to private companies or individuals. Administrative tasksconcerning the exercise of public authority in the sense of article 12(4) IG may only be delegated inaccordance with law.

[6] Judgments in Case 3307-11 issued on 28/03/2012 by Court of Appeal of Jönköping and Case4660-10 issued on 11/02/2011 by Court of Appeal of Göteborg.

[7] Judgment in Case 8409-11, KPMG v Västervik issued on the 29/02/2012.

[8] On the appeal of 20/09/2012, in Case 1694-12, (action brought in parallel with the one initiatedby PWC Case 842-12) KPMG contended that the decision of the Administrative Court of FirstInstance from the 27/04/2012 should be overruled and pleaded at first hand that the decision shouldbe annulled and the PWC application for appeal should be dismissed and at second hand that theapplication should be rejected as unfounded. Västervik municipal authorities have not responded tothe case, while PWC claimed that the appeal should be rejected as unfounded. The Court of appealfound no reason to overrule the decision of the Administrative Court of First Instance. KPMG didneither have the quality of litigant nor the one of a concerned party in the trial before theAdministrative Court of First Instance, where the contested decision from the 27/04/2012 had beenissued.




[9] ECJ, 11 July 1985, Case 107/84, Commission v Germany,[1985] ECR 2655, paragraphs 14 and15; 19 January 1994, Case C-364/92, SAT Fluggesellschaft,[1994] ECR I-43, paragraph 30; and 1stJuly 2008, Case C-49/07, MOTOE, [2008] ECR I-4863, paragraph 24

[10] In Swedish, the original language, of the judgment stays that: ‘Felet får mot denna bakgrundanses innebära att de upphandlande myndigheterna brutit mot transparensprincipen.’









October 2012

The Swedish Competition Authority issues adecision concerning pecuniary sanctionsimposed on administrative agency for an illegalaward of a contract (Agency for Economic andRegional Growth, New Grand Hotel)Sweden, Public procurement, Damages, Sanctions/Fines/Penalties, Publicundertaking, ServicesSwedish Competition Authority (Konkurrensverket), 26 October 2012, Agency for Economic and Regional Growth


I. IntroductionThe staff banquet day organized by Agency for Economic and Regional Growth (’Agency’) on the 23May 2012 has been awarded to New Grand Hotel AB without prior advertisement. The value of thecontract is of approximately SEK 600,000 (more exactly of SEK 608,908). The Swedish CompetitionAuthority (’SCA’) found a case of illegal direct award, since a contract notice should have beenpublished according to certain formalities, as stipulated in article 15 Swedish Procurement Act(’LOU’) in order to enable all potential providers to receive information about the forthcomingcontracts.

SCA has decided to bring proceedings before the Court requesting that the contracting authorityshall be ordered to pay a public procurement damage fine of SEK 45,000 (EUR 4,743), whichrepresents 7.5% of the contract value. The legal base for this action can be found in the third indentof the article 17(1) LOU, which stipulates that a general administrative court may decide whether anillegal award of contracts shall be sanctioned with a public procurement damage fine.

II. The legal frameworkA public procurement damage fine may be imposed for an illegal direct award, which is anagreement that has been concluded in breach of the duty to publish a contract notice according tothe relevant provisions of the Swedish Procurement Act. It is the competence of SCA to decidewhether to impose or not a public procurement damage fine. In cases where the sanctioned person




can be expected to have good knowledge of the rules and there is a special reason to ensure that theregulation in question is not violated, the rule of strict liability shall be applicable. It is not necessaryto prove that the deed was either intentional or caused by negligence in order to impose a sanctionconsisting in damage fines [1].

Within the limits imposed by public procurement law the decision instance should have a largediscretion to deem the appropriate amount of fine. It must be said that the government billamending the public procurement act has stated that the alternative sanctions shall be effective,proportionate and deterring. The purpose of the government bill is to attain a system of sanctionsbased on the proportionality between the amount of fine and the gravity of the infringement. Illegaldirect awards constitute the most serious type of infringements of procurement rules, fact thatimplies that the amount of fine should be significant in this case. The public procurement fine can beused in parallel with or instead of civil damages, periodic penalties, criminal penalties andconfiscation. The aim was to improve the enforcement of the procurement rules and in this sense theSwedish government has considered that public procurement fines represent more effective meansthan the criminal penalties [2].

The public procurement damage fine shall not exceed 10% of the value of the contract in questionand the maximum charge that can be imposed is of SEK 10 million. When calculating the amount ofthe damage fine, special consideration should be given to the gravity of the violation. No fine shallbe charged in minor cases and the fine may be waived in exceptional circumstances [3].

III. The factual frameworkOn the 26 October 2011 the Agency made a preliminary booking with Grand Hotel Stockholm for theorganization of the next year staff banquet. The confirmation of the booking has been done at theend of January 2012. The rental agreement of SEK 58,650had as object a conference hall for the daytime and a dance hall for the evening party for the 23 May 2012. An additional amount of SEK38,350 was due for guard and security services.On the 13 March a verbal agreement has beenconcluded between the Agency and the Grand Hotel concerning the purchase of food and beverages.The actual value for food and beverages comprising both conference and dinner was of SEK 511,908.The total value of the contract is of SEK 608,908, which amounts to approximately EUR 64,180.

IV. Illegal direct awardThe definition of a direct award is given by article 2(23) LOU, which is the conclusion of a publicprocurement contract without any prior tendering. The notice (2011:1575) of the SwedishGovernment informs about the thresholds that must apply regarding the public services contracts [4]. The value of the present contract is of SEK 608,908 (EUR 64,180) which is obviously less than thethreshold value [5] of 1,897,540 of SEK (EUR 200,000). The value of the contract is situated underthe thresholds in the Directive 2004/18/EC, thus the matter falls outside the scope of the EUdirective.

Hotel services are included at position 17 in the LOU Annex 3 (B-services). According to article 17(4)LOU the value shall be calculated jointly in accordance with article 15(3)(a) LOU in cases whereseveral direct award procedures of the same type have been conducted during a financial year [6].




According to article 15(3) LOU the threshold value for a direct award is of 15% of SEK 1,897,540,which represents SEK 284,000. Since SEK 608,908 is larger than the threshold in article 15(3) LOUthe direct award procedure is excluded by law. The present public procurement procedureconstitutes an illegal direct award.

V. Public Procurement Damage FineThe case-law of the Court steers away from a broad interpretation of the derogations and requiresanyone seeking to rely on them to provide proof that the derogations do not go beyond the limits laiddown for the scenarios in question [7]. According to the view of the SCA, the present case is one ofillegal direct award, the most serious type of infringement of procurement law [8]. An ordinaryillegal direct award should be sanctioned with fines calculated as 7% to 8% of the contract value [9].SCA has calculated the value of the contract as amounting to SEK 608,908. A damage fine of SEK45,000 represents circa 7.5% of the contract value and according to the assessment of thecircumstances in the present case it stands for a proportionate sanction in regard of the relatableinfringement of procurement law.

VI. ConclusionThe essential requisite in this case is the rule in the third indent of article 15(3a) LOU: ’thecontracting authority shall take into account the direct awards of the same type concluded duringthe financial year when it calculates the value of the contract of public procurement’. Thecontracting authority is precluded from splitting the contract in order to circumvent the provisionsof the public procurement act. Can the following expenses be considered separately from each otherand in this way allowing the reduction of the value of the illegal contract and the attenuation of theprescribed amount of damage fine? It can be observed that the expenses for dinner alone exceed thethreshold of SEK 284,000.

For the sake of clarity, it must be said that according to the pre-legislative documents there is nointerdiction to split a contract in several lots and the contracting authority has the competence tocalculate the value of the contract. The contracts of the same type concluded by the operating unitsof a contracting authority during a financial year must be jointly accounted. Transactions of publicprocurement being related as content and connected from a temporal perspective shall be regardedas one contract [10]. In the case at hand all the transactions relate to the same event taking place onthe same day, thus it is obvious that they constitute direct awards of the same type.

[1] Government bill 2009/10:180, page 193.

[2] Government bill cited supra footnote 1, page 197.

[3] For more details concerning the relevant legal framework, see Emanuela Matei, The SwedishCompetition Authority issues a decision concerning pecuniary sanctions imposed on a contractingauthority for infringements of public procurement law (Akademiska Hus Norr), 11 septembre 2012,e-Competitions, n° 49159.

[4] Government Notice 08/12/11 See also Commission Regulation (EC) No 1177/2009, of 30November 2009 amending Directives 2004/17/EC, 2004/18/EC and 2009/81/EC of the European




http://www.concurrences.com/Bulletin/News-Issues/September-2012/The-Swedish-Competition-Authority-49159








Parliament and of the Council in respect of their application thresholds for the procedures for theaward of contracts (OJ L 314, 1.12.2009, p. 64–65).

[5] Article 2 of the Commission Regulation (EC) No 1177/2009 (application thresholds for theprocedures for the award of contracts).

[6] The contracting authority shall take into account the direct awards of the same type concludedduring the relevant financial year.

[7] ECJ, 10 March 1987, Case 199/85, Commission v Italy, [1987] ECR 1039; 4 October 1991, CaseC 367/89, Richardt and Les Accessoires Scientifiques, [1991] ECR I 4621; 16 September 1999,Case C 414/97, Commission v Spain; and 2 June 2005, Case C 394/02, Commission v Greece,[2005] ECR I 4713. RÅ-Notes, RÅ 2009 note 134: ’Since the derogation in [art 4(5)(2)] LOU is notapplicable in the present case the contracting authority has infringed the public procurement rulesby failing to comply with the advertising obligation.’

[8] Idem footnote 2

[9] Administrative Court of Appeal Stockholm, Case 1305-12; Administrative Court Växjö, Case286-12; Administrative Court Linköping, Case 3834-11 and Administrative Court Luleå, Case2166-11 and Case 434-12

[10] Government bill cited supra footnote 1, page 293












March 2013

The Swedish Competition Authority decidesthat the practice of excluding suppliers from‘tax havens’ is incompatible with EU law(Municipality of Kalmar)Sweden, Public procurement, Tax, Principle of proportionality, Publicundertaking, Bank, ServicesSwedish Competition Authority (Konkurrensverket), 6 March 2013, Municipality of Kalmar


I. IntroductionOECD’s list of uncooperative tax havens has become the world’s shortest black list, only two smallislands in Pacific being listed as uncooperative tax havens. The use of legal methods to modify acorporation’s financial situation in order to lower the amount of corporate tax owed is a form of taxavoidance. This practice differs from tax evasion, which is illegal The eventuality of transferringprofits obtained by private undertakings from activities that can be associated in any way withpublic resources on the pursuit of tax avoidance, even if the pursuit is attained by legal methods is asensitive matter in Sweden.

The possibility to reduce the fiscal burden is deemed as constituting an illegitimate competitiveadvantage by the contracting authority of Kalmar. Swedish Competition Authority disavows thispresumption of tax avoidance and establishes the illegal character of the public procurementpractice adopted by the concerned local authority establishing the breach of several generalprinciples of law: non-discrimination, equal-treatment, proportionality and transparency.

II. Relevant lawContracting authorities shall treat all suppliers equally and in a non-discriminatory manner and theyshall conduct their procedures for public procurement in an open manner. Furthermore a publicprocurement procedure must respect the principles of mutual recognition and proportionality [1].

The award of contracts concluded in the Member States on behalf of the local authorities is subjectto the respect of the principles of the Treaty and in particular to the principle of freedom of




movement of goods, the principle of freedom of establishment and the principle of freedom toprovide services and to the principles deriving there from, such as the principle of equal treatment,the principle of non-discrimination, the principle of mutual recognition, the principle ofproportionality and the principle of transparency [2].

According to article 10(2) LOU, Swedish Act on Public Procurement [3], fifth indent, a supplier canbe excluded from a public procurement procedure, if it has not complied with its fiscal or socialsecurity duties in its country of establishment or in the country where the award procedure takesplace. Article 45(2) of the Directive 2004/18/EC stipulates that any economic operator may beexcluded from participation in a contract, where that economic operator has not fulfilled obligationsrelating to the payment of social security contributions and of taxes in accordance with the legalprovisions of the country in which he is established or with those of the country of the contractingauthority.

III. Factual situationThe case concerns a practice adopted by municipality of Kalmar (hereinafter the ’Addressee’)according to which all potential tenderers have been obliged to adhere to a Code of Conduct. Amongother provisions the Code precluded any connection of any kind with jurisdictions defined as taxhavens. The Swedish Competition authority (hereinafter the ’SCA’) has asked for sources ofinformation in order to determine according to what standard a jurisdiction can be defined as a taxhaven.

The Addressee has referred to the OECD standard, namely to the so-called OECD’s list ofuncooperative tax havens issued in 2000. The list has been amended several times and in 2012 onlytwo jurisdictions were listed on the black list: Nauru and Niue. Already as this point the SCAconsidered that it is unreasonable to require the potential tenderers not to have relations to twosmall islands in the Pacific and that such a condition is de facto ineffective. The Addressee alsoagrees with this fact, but nevertheless wants to maintain in place the Code of Conduct. It is alsoexplained that the Code is going to be amended in order to provide a better response to the changedsituation as reflected by the OECD data.

IV. The present SCA decisionThe main argument of the Addressee relies on its interpretation of Michaniki jurisprudence [4].Since the Addressee considers that tax avoidance implies the achievement of illegitimate competitiveadvantages, it argues that the concerned practice results in a better equality of treatment. SCAclarifies that the issue of eligibility, i.e. access to the procedure, is at stake in the present case andunderlines the fact that only the requirement of ’no connection to any tax havens’ makes subject tothe present decision.

The requirement of ’no connection to any tax havens’ is enshrined in the Code of Conduct that mustbe complied with in order to satisfy the eligibility criterion. A tenderer who refuses to give itsconsent cannot qualify to participate in the public procurement. Therefore despite the fact that theAddresseeundertakes to amend the Code of Conduct a decision from the SCA is still necessary. Theactual possibility to participate is hindered by the named requirement.




SCA provides an example in order to explain the difference between eligibility and other types ofrequirements referring to the tender itself. 1. ’Only suppliers whose assortment of products contains exclusively ecological apples is allowed

to submit a tender’ 2. ’The apples procured by public authorities shall be ecological’

The first type of requirement is likely to deter certain tenderers from submitting a bid. SCAassertsthat the intention of the Addressee is to eliminate the participation of any suppliers fromjurisdictions with significantly lower corporate tax. This strategy is illicit for a series of reasons.

CJEU case-law makes clear that every citizen of the Union may rely on Article 18 TFEU, whichprohibits any discrimination on grounds of nationality, in all situations falling within the scoperatione materiae of European Union law, those situations including the exercise of the freedomconferred by the provisions of the Title IV of the Treaty on the functioning of the EU.Article 18 TFEUand other more specificprovisions on free movement have a relation of complementarity, in themeaning that wherever explicit provisions are applicable, they take precedence over the generalprohibition in Article 18 TFEU.

Articles 49 TFEU and 56 TFEU are explicit expressions of the principle of equal treatment [5]. Theprohibition on discrimination on grounds of nationality gives also explicit expression to the generalprinciple of equal treatment [6]. In its case-law relating to the directives on public procurement, theCJEU has found that the principle of equal treatment of tenderers aims to afford equality ofopportunity to all tenderers, when formulating their tenders, regardless of their nationality [7].Consequently, the principle of equal treatment of tenderers is to be applied to public procurementpractices, even in the absence of discrimination on grounds of nationality [8].

National measures liable to hinder or make less attractive the exercise of fundamental freedomsguaranteed by the Treaty must fulfil four conditions: they must be applied in a non-discriminatorymanner; they must be justified by imperative requirements in the general interest; they must besuitable for securing the attainment of the objective which they pursue; and they must not gobeyond what is necessary in order to attain it [9].

A. Restriction of the economic freedoms

SCA asserts that since de facto only two non-European jurisdictions are referred to as tax havens,the case does not concern direct discrimination on grounds of nationality. The principle of equaltreatment of tenderers applies to public procurement practices, even in the absence ofdiscrimination on grounds of nationality. SCA deems that the measure is precluded by Article 56TFEU stipulating the freedom to provide services. The second paragraph of Article 56 TFEU statesthat the Union legislator may extend the provisions of Chapter 3 of Title IV of the Treaty entitled ’Services’ to nationals of third countries. Moreover, the principle of equal treatment underlying thedirectives on public procurement procedures implies an obligation of transparency in order toenable verification that it has been complied with [10].

B. The unjustified character of the restriction

A restriction of the fundamental freedoms is not per se prohibited by EU law several grounds of




justification being available. The prevention of tax evasion is an overriding reason relating to thepublic interest, capable of justifying a restriction on the exercise of freedom of movementguaranteed by the Treaty [11]. On the other hand it is for national law to determine the content andscope of fiscal obligations and for the competent tax or social security authorities to establishwhether the candidate is in compliance with his obligations with a view to his admission to aprocedure for the award of a public contract [12].

It is settled case-law that tax revenue shortfalls do not constitute an overriding reason in the publicinterest [13]. The simple fact that certain potential suppliers might belong to a group of companieshaving some sort of connection with a tax haven can not in itself justify a general presumption of taxavoidance [14]. Even if SCA recognizes the commendable ethical character of the practice under itsreview, it expresses serious doubts that such a measure may be compatible with EU law, moreexactly with the principle of proportionality.

The principle of transparency requires that all the conditions and detailed rules of publicprocurement procedure must be drawn up in a clear, precise and unequivocal manner in the noticeor contract documents so that, first, all reasonably informed tenderers exercising normal cautioncan comprehend their correct meaning and interpret them in the same way and, secondly, thecontracting authority is able to establish whether the tenders submitted fulfil the criteria applying tothe relevant contract [15].

From the information provided by the Addresseeit could be understood clearly that the applicabledefinition of tax haven was the one proposed by the OECD and the term ’connection’ was notexplained at all. It is up to each and every potential supplier to understand these terms to the best oftheir abilities. It is very plausible that normally cautious tenderers may not comprehend theircorrect meaning and may interpret them in a divergent manner and secondly, the contractingauthority cannot establish whether the tenders submitted fulfil the criteria applying to the relevantcontract. The concerned practice is found to be in breach of the transparency principle.

C. Conclusion of the Decision in question

SCA assessment concludes that the requirement imposed by the Addresseethat each and everypotential supplier is precluded from having any form of connection to a tax haven violates severalgeneral principles of law: non-discrimination, equal treatment, transparency and proportionality.

D. Interconnected general principles of EU law

A system of undistorted competition, such as that provided for by the Treaty, can be ensured only ifequality of opportunity is secured as between the various economic operators [16]. There are noexplicit provisions in the Treaty referring to public procurement, the relevant principles beingdeveloped by the case-law on the interpretation of the provisions of EU directives on public awardprocedures. The principle of equal treatment entails the principle of transparency and these twointerrelated principles require that all suppliers no matter if they constitute factual or only potentialtenderers must generally be on an equal footing and have equality of opportunity in formulating theterms of their participation applications and their tenders.

In particular, potential tenderers must be in a position of equality as regards the scope of the




information in a contract notice. It is not consistent with those principles for one category of thoseconcerned to have to request clarification and additional information from the contracting entity asto the actual meaning of the content of a contract notice, where its formulation would leave no roomfor doubt in the mind of a reasonably well-informed and diligent potential tenderer [17].

The principle of transparency, which is the corollary of the principle of equal treatment, aimsbasically to preclude any risk of favouritism or arbitrariness on the part of the contracting authority.It implies that all the conditions and detailed rules of the award procedure must be drawn up in aclear, precise and unequivocal manner in the notice or contract documents [18]. The obligation oftransparency is consequent to the principles of non-discrimination and equal treatment.

In order to summarize all the findings enumerated and discussed above I will start from pointing outthat the requirement in question has an eliminatory character; the potential tenderers who do notsatisfy it will be automatically disqualified. According to the information provided by SCA therequirement is not drawn up in a clear, precise and unequivocal manner and therefore it violates thetransparency principle.

A violation of the transparency principle implies also a disregard of the principle of equal treatment.A violation of the equal treatment is possible even in the absence of discrimination on grounds ofnationality. Eventually, the requirement is not compatible with the proportionality principle, since itamounts to a presumption of tax avoidance and it impedes the equality of opportunity that alltenderers must be able to enjoy. The argument of the Addressee that the named practice ensures abetter equality of treatment must be dismissed. A general presumption of tax avoidance cannotjustify the requirement imposed on the potential tenderers that results in a limitation of theireconomic freedoms guaranteed by the Treaty. Furthermore the article 10(2) of the Swedish actmentions failure to comply with fiscal obligations as a reason for disqualification. However, only thecompetent tax or social security authorities have the authority to establish whether a candidate is incompliance with his fiscal duties.

[1] Swedish Act 2007:1091 Chapter 1 article 9 entitled ’Public procurement principles’implementing Directive 2004/18/EC.

[2] Directive 2004/18/EC, recital 2, OJ L 134 , 30/04/2004 P. 0114 – 0240.

[3] Lag (2007:1091) om offentlig upphandling 22/11/2007.

[4] CJEU, 16 December 2008, Case C-213/07, Michaniki AE v Ethniko Symvoulio Radiotileorasisand Ypourgos Epikrateias, [2008] ECR I-09999.

[5] CJEU, 5 December 1989, Case C-3/88, Commission v Italy, [1989] ECR 4035 paragraph 8.

[6] CJEU, 8 October 1980, Case 810/79, Überschär, [1980] ECR 2747 paragraph 16.

[7] CJEU, 25 April 1996, Case C-87/94, Commission v Belgium, [1996] ECR I-2043, paragraphs 33and 54.

[8] CJEU, 13 October 2005, Case C-458/03, Parking Brixen GmbH v Gemeinde Brixen andStadtwerke Brixen AG, [2005] ECR I-08585 paragraph 48.






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[9] CJEU, 14 December 2004, Case C-210/03, Swedish Match, [2004] ECR I-11893 paragraph 72.

[10] CJEU, 12 December 2002, Case C-470/99, Universale-Bau AG, [2002] ECR I-11617 paragraph91.

[11] CJEU, 11 October 2007, Case C 451/05, ELISA, [2007] ECR I 8251 paragraph 81.

[12] CJEU, 9 February 2006, Joined Cases C-226/04 and C-228/04, La Cascina e.a., [2006] ECRI-01347 paragraphs 35, 37.

[13] CJEU, 12 December 2002, Case C 324/00, Lankhorst-Hohorst, [2002] ECR I 11779 paragraph36; 11 March 2004, Case C-9/02, de Lasteyrie du Saillant, [2004] ECR I-02409 paragraph 51; and12 September 2006, Case C-196/04, Cadbury Schweppes and Cadbury Schweppes Overseas,[2006] ECR I-07995 paragraph 49.

[14] By analogy compare with Opinion of AG Kokott, 8 September 2011, Case C-371/10, NationalGrid Indus, n.y.r. point 103

[15] CJEU, 10 May 2012, Case C-368/10, Commission v Netherlands, n.y.r. paragraph 109

[16] CJEU, 1 July 2008, Case C-49/07, MOTOE, [2008] ECR I-04863 paragraph 51.

[17] CJEU, 12 November 2009, Case C-199/07, Commission v Greece, [2009] ECR I-10669paragraph 38.

[18] CJEU, 29 April 2004, Case C-496/99 P, Commission v CAS Succhi di Frutta, [2004] ECR I-03801 paragraph 111.


















April 2013

The Swedish Court of Appeal endorses the EUCourt of Justice's finding of abuse of dominancein margin squeeze case (TeliaSonera)Sweden, Unilateral practices, Abuse of dominance, Essential facility, Relevantmarket, Price squeeze, Preliminary ruling (Art. 267 TFEU), Telecommunication,Information technologySwedish Appeal Court (Marknadsdomstolen), 12 April 2013, Case A 8/11, TeliaSonera


I. IntroductionOn the 17 of February 2011 the Court of Justice of the European Union released its preliminaryruling in Case C-52/09 Konkurrensverket v TeliaSonera [1]. At the origin of this litigation we couldfind an application for summons issued by Konkurrensverket on 21 December 2004. After almost 10years the litigants have received the final judgment on the 12 of April 2013 [2], where at appealMarknadsdomstolen has decided to uphold partly the findings of the first instance. The newer formof infringement, margin squeeze, is maintained, though the circumstances have been interpreteddifferently, both the period and the market parts, where the infringement has been found beingreduced. As a consequence the fine is also diminished from SEK 144 million to 35 million. Thepreliminary ruling has been very intensively commented; therefore I am not going to repeat morethan some essential aspects. It has been established that:

in the absence of any objective justification, the fact that a vertically integrated undertaking,enjoying a dominant position on the wholesale market for ADSL input services, applies a pricingpractice of such a kind that the spread between the prices applied on that market and those appliedin the retail market for broadband connection services to end users is not sufficient to cover thespecific costs which that undertaking must incur in order to gain access to that retail market mayconstitute an abuse within the meaning of Article 102 TFEU.

The referring court, Stockholm Tingsrätten had asked many questions concerning the circumstances.All these questions make implicit reference to previous case law dealing with different forms ofabuse of dominance and theories of economics about predatory pricing, excessive pricing andrefusal to supply. I will pay certain attention to the relevant circumstances as found by the CJEU inits preliminary ruling.




The central case that the CJEU makes reference to is Deutsche Telekom v Commission [3], where ithas been established that it’s neither necessary to bring evidence about the predatory prices on theretail market nor about the excessive prices on the wholesale market in order to find a marginsqueeze practice [4].

A margin squeeze is the result of the spread between the prices for wholesale services and those forretail services and not of the level of those prices as such [5].

The following aspects are in principle irrelevant for the assessment of abuse: the absence of anyregulatory obligations, the degree of dominance held by that undertaking, the absence of dominancein the retail market, new or existing customers subject to the practice, the possibility to recover thelosses caused by the low retail prices and the maturity of the market.

It might be difficult to understand why in the absence of predatory or excessive pricing the practicemay still be deemed as anticompetitive. Low prices mean an advantage brought to the consumersand an enhancement of the welfare of consumers in general. A margin squeeze can be understood asa form of subsidising low consumer prices by increasing the prices practiced on the upstreammarket. Technology markets are dynamic and the possibility to recover the losses in the future byexcluding the competitors from an emerging market is limited as time horizon.

The most important competitive advantage is to be first on the market, the so calledfirst-mover-advantage. It’s all about timing; to entry and exit the market in a strategic manner is thekey of being successful on technological markets. From my perspective if the product offered on theupstream market were not indispensable or the dominant company were not unavoidable as a tradepartner, the margin squeeze even if present would not have anticompetitive effects, either actuallyor potentially.

The actual possibility to exclude the competitors from the emerging market relies on the privilege ofowning the copper network, which is an inheritance from the former legal monopoly over thenetworks for telephone services. I would translate this situation of margin squeeze as a practice ofimpeding the equality of opportunity offered to equally efficient competitors to access a new market.However the Regulation on unbundled access to the local loop from 2000 had already been enteredinto force and aimed at:

’intensifying competition and stimulating technological innovation on the local access market,through the setting of harmonised conditions for unbundled access to the local loop, to foster thecompetitive provision of a wide range of electronic communication services’.

The ownership of the local loop remains unaffected by the provisions of the Regulation [6]. Only inthis sense I understand the concept of competition on the merits in the case of margin squeeze,since it appears to me that the distortion of competition arises because of the rights enjoyed byTeliaSonera in relation to the ownership of a local metallic access network to which almost allSwedish households are connected.

Unbundled access to the local loop allows new entrants to compete with notified operators inoffering high bit-rate data transmission services for continuous Internet access and for multimediaapplications based on digital subscriber line (DSL) technology as well as voice telephony services. Areasonable request for unbundled access implies that the access is necessary for the provision of the




services of the beneficiary, and that refusal of the request would prevent, restrict or distortcompetition in this sector [7]

TeliaSonera had to provide information and unbundled access to third parties under the sameconditions and of the same quality as they provide for their own services or to their associatedcompanies. Besides that obligation TeliaSonera by own initiative offered to operators an ADSLproduct intended for wholesale users and at the same time, it offered broadband connection servicesdirectly to end users.

My inquiry here in this article has identified the indispensable character of the product as anintriguing aspect of the legal assessment in cases of margin squeeze. If TeliaSonera were not anunavoidable partner for the wholesale users could we still discuss about an abuse of dominance?Does a dominant undertaking still enjoy the right to dispose of its acquired possessions and the rightto conduct a business?

II. The doctrine of essential facilitiesThis doctrine has been developed in the context of U.S. antitrust law and has multiple meanings, butin general it relates to the mandate of the owner or otherwise controller of an essential facility toallow access at a reasonable price. The leading U.S. essential facilities case is MCI CommunicationsCorp. v. AT&T said that there were four elements necessary to establish liability under the essentialfacilities doctrine [8]:

i. control of the essential facility by a monopolist;

ii. a competitor’s inability practically or reasonably to duplicate the essential facility;

iii. the denial of the use of the facility to a competitor;

iv. the practical possibility of providing the facility.

A refusal to supply can be explicit or implicit. TeliaSonera, by own initiative decided to supply theADSL product intended for wholesale; however the fact that the supply conditions were unfair couldhave been interpreted as an implicit form of refusal. In Bronner case the conditions under which arefusal to grant access to its home-delivery scheme to the publisher of a rival newspaper may beabusive have been established [9]. AG Jacobs in his Opinion from 28 May 1998 argues that the merefact that the participation on a certain market implies a high level of investment and losses in theshort run is not a sufficient as a ground to disallow the refusal to supply.

There can be no obligation on Mediaprint to allow Bronner access to its nation-wide home-deliverynetwork. Although Bronner itself may be unable to duplicate Mediaprint’s network, it has numerousalternative - albeit less convenient - means of distribution open to it [10].

Already in Magill had been established that the exercise of an exclusive right by an owner mayinvolve abusive conduct only in exceptional circumstances [11]. The Court of Justice follows theOpinion of AG Jacobs in Bronner and concludes that the lack of convenience is not an indicative ofindispensable character.




the refusal by a press undertaking which holds a very large share of the daily newspaper market in aMember State and operates the only nationwide newspaper home-delivery scheme in that MemberState to allow the publisher of a rival newspaper, which by reason of its small circulation is unableeither alone or in cooperation with other publishers to set up and operate its own home-deliveryscheme in economically reasonable conditions, to have access to that scheme for appropriateremuneration does not constitute abuse of a dominant position within the meaning of Article [102TFEU] [12].

A question seems to be relevant, namely whether it could be possible for Tele2 or Telenordia tocompete on the market for internet services via ADSL and avoid dealing with TeliaSonera. The CJEUanalysed the Bronnerjurisprudence [13] in connection with the relevance of an eventual refusal tosupply. The ADSL product intended for wholesale is not indispensable product in the meaning ofBronner jurisprudence, because despite the less convenient conditions the competitors could at leasttheoretically have obtained unbundled access to the local loop allowing them to compete withTeliaSonera.

This might be nevertheless true only if we ignore the dynamic character of the hi-tech markets. Bytrying to develop their own ADSL product and abstaining from buying TeliaSonera’s ADSL product,Tele2, Spray and Telenordia would have lost not only time, but also market shares and thereby thepossibility to recover the investment in the future.

III. Deutsche Telekom, indispensable productNow from an impartial position, one can observe that the definition in Deutsche Telekom is verylarge and ’if it does not make their market penetration any more difficult’ can definitely include thefact that in this specific market, a very dynamic one, the competitors will absolutely lose preciousmarket shares by delaying their entry, fact that Tele2 for instanceis aware of as you will be able tosee from the judgment of the Swedish Appeal Court, Marknadsdomstolen.

Where a dominant undertaking actually implements a pricing practice resulting in a margin squeezeof its equally efficient competitors, with the purpose of driving them from the relevant market, thefact that the desired result is not ultimately achieved does not alter its categorisation as abusewithin the meaning of Article [102 TFEU]. However, in the absence of any effect on the competitivesituation of competitors, such a pricing practice cannot be classified as exclusionary if it does notmake their market penetration any more difficult [14].

In this way the accent moves to excluding ’competitors who are at least as efficient as the dominantundertaking’. At appeal the finding of the first instance that there was no indication that the namedcompetitors would have been less efficient has been maintained. The argument is based on the factthat on the dial-up market the concerned competitors were at least as efficient as TeliaSonera [15].

In the cases where the product intended for wholesalers is indispensable for competing on the retailmarket the anticompetitive effects are presumed to exist, unless an economic justification can beoffered. If the product is not indispensable the presumption is removed and it is up to the nationalcourt to examine whether that practice produces, at least potentially, an anticompetitive effect onthe retail market, which is not in any way economically justified.




IV. The legal analysis performed by the MarknadsdomstolenThe reasoning of the Marknadsdomstolen begins with the study of the definition of market, bothrelevant product market and relevant geographic market. The relevant product is the ADSL productintended for wholesale and the geographic market is confirmed to be national. Then the dominantposition is studied in greater detail and the Marknadsdomstolen reaches the conclusion that theanalysis of the dominant position completed by the first instance must be adjusted.

There are two types of adjustments. The first relates to the lack of similarity between TeliaSoneraand Bostream type of internet services. The segment of market where Bostream operated wascharacterised by much higher connection speed and limited technical possibilities to expand due to alimited number of lines. Because the products are deemed as dissimilar they do not compete on theretail market. The second adjustment refers to the period during which the ADSL market can betreated as distinct from the dial-up internet market.

The initial period starting with the spring of 2000 until January 2003 has been reduced to July 2001until January 2003, period in which TeliaSonera actually had a special duty not to distort competitionon the relevant market. The motivation for this reduction was based on the fact that before thedevelopment of multimedia and social media applications the consumer did not make the differencebetween dial-up and ADSL internet, the services being deemed to be similar from the point of viewof the customer.

The diminished period of dominance has naturally a direct impact on the period in which the abusivepractice existed under Article 102 TFEU and Article 19 of the Swedish competition law. TeliaSoneraunderlines in its pleading that there might be a misapprehension that the access to the local metallicnetwork and access services by ADSL were one and the same thing.

At the material time three modalities were technically available in order to obtain access to the localmetallic network: LLUB, bit stream access and wholesale products. Only the access via the firstmethod, LLUB (’Local Loop Unbundling’) has been regulated by Union law. The other two have beendeveloped by free initiative.

The first instance discusses the aspects related to the indispensable character of the wholesaleproduct and concludes that the bit stream was fully absent from the Swedish market and LLUBbelonged to a different relevant product market. The court of appeal, Marknadsdomstolen upholdsthe finding of the first instance, defining the relevant product market in a narrow manner includingonly the ADSL wholesale product and dial-up internet until the end of June 2001. From the 1st ofJuly 2001 the relevant market comprises only the ADSL wholesale product.

This narrow definition implies that from the 1st of July when the ADSL became a distinct market theonly actual method of access was the ADSL wholesale product. Therefore the assessment of abuse isreduced to the cost & price analysis, a negative or very low margin being a strong indication of thenegative effects on competition. In the absence of an economic justification the anticompetitiveeffects have to be established [16].

Based on the fact that the calculation of margin squeeze relies on the costs of the dominantundertaking the court concludes that intention or at least negligence must be established as well [17




]. The imposed sanction for the case of unilateral practices in which a dominant undertaking hasbeen engaged intentionally or by negligence is administrative fines according to Swedish law [18]. Inthe case of minor offenses no sanction should be imposed [19].

The magnitude of the competition damages are measured in function of several factors: theimportance of the services affected by the infringement, the general situation of the concernedmarket, the market shares of the dominant undertaking and the existence of direct economicdamages suffered by the competitors [20]. The injured parties are identifiable competitors on adistinct part of the market and the time period for the infringement has been clearly defined namelyeight to nineteen months.

Furthermore TeliaSonera has not enjoyed a position of monopoly in relation to the actual access tothe copper telecoms network, but because TeliaSonera continued to be the owner of this network, itwent on with taking advantage of its favourable position. This position has engendered thefirst-mover-advantage on the ADSL market [21]. An overall analysis gives reason to deem the marginsqueeze infringement as serious as a matter of gravity [22]. Considering the novel character of theinfringement the court of appeal does not find any ground for a reduction of the level of fines. Thesanction has been set to fines amounting to SEK 35 million. By making reference to article 3 of theRegulation 1/2003 the Marknadsdomstolen decides that the application of Article 102 TFEU leads tothe same result as the application of article 19 of the Swedish competition law.

V. Competition on the meritsArticle 102 TFEU prohibits a dominant undertaking from strengthening its position by havingrecourse to means other than those falling within competition based on merits [23]. Can the fact oftaking advantage of its favourable position as owner of the local metallic network be considered asmeans ’other than those falling within competition based on merits’?

The interdiction not to have recourse to other means than those based on merits is also justified bythe concern not to cause harm to consumers. A finding that an undertaking has a dominant positionis not in itself a recrimination; it means that, irrespective of the reasons for which it has such adominant position, the undertaking concerned has a special responsibility not to allow its conduct toimpair genuine undistorted competition on the internal market [24].

The case appears to be similar with the AstraZeneca, since there also we have another form ofownership, the IP rights and two types of abuse related to them, i.e. the withdrawal of marketingauthorisation and the illegitimate prolongation of the IPR exclusivity. The withdrawal of registrationof the marketing authorisations wasn’t based on the legitimate protection of an investmentaccording to the judgment of the Court. It wasn’t part of competition on the merits and, moreover,was not required by the conversion of AstraZeneca sales of Losec capsules to Losec MUPS [25].

Likewise, whilst the fact that an undertaking is in a dominant position cannot deprive it of itsentitlement to protect its own commercial interests when they are attacked, and whilst such anundertaking must be allowed the right to take such reasonable steps as it deems appropriate toprotect those interests, such behaviour cannot be allowed if its purpose is to strengthen thatdominant position and thereby abuse it [26].




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Moreover not all forms of competition by means of price can be regarded as legitimate [27].Competition on the merits may, by definition, lead to the departure from the market or themarginalisation of competitors that are less efficient and so less attractive to consumers from thepoint of view of, among other things, price, choice, quality or innovation. When the existence of adominant position has its origins in a former legal monopoly, that fact has to be taken into account [28].

In all the cases of infringement of antitrust in relation to competition relying on other means thancompetitive merits, the property rights of the dominant company are used in a manner that leads tothe exclusion of ’competitors who are at least as efficient as the dominant undertaking’. Protection isdue to consumers and the elimination of efficient competitors has the effect of impeding competitionand harming the consumer.

In several of the cases where the doctrine ’competition on merits’ has been applied the court dealswith telecoms markets and the former legal monopolies, areas where the public interest remainsstrong, even after liberalisation. Distortion of competition in these areas may lead to a serioushinder brought against the right to access information and communicate. Internet connection is aclub good today, not subject to rivalry, but potentially subject to exclusion. Internet connectionconstitutes definitely an essential facility nowadays and therefore exclusionary practices mayproduce serious harm to consumers.

However, the sensitive part in the present case is that the harm envisaged only was potential at theconsumer level, while the benefit brought by lower prices for enjoying a high quality product wasimmediate. At the foundation of theory of ’competition on merits’ we must place the idea that anyfurther accumulation of market power must be achieved in a manner that does not lessen thecompetition in the future and gives possibility to practice excessive prices or diminish the motivationto invest in innovation or impedes the freedom of choice of the consumer.

It’s a preventive dimension that makes that the market analysis is projected into the future andrequires the dominant undertaking to take into consideration not only its own commercial interests,but also the public interest of maintaining a structure of competition on the internal market. Does adominant undertaking still enjoy the right to dispose of its acquired possessions and the right toconduct a business? Yes, it does but the exercise of these rights must be in compliance with theapplicable competition rules.

VI. ConclusionIf TeliaSonera were not an unavoidable partner for the wholesale users could we still discuss aboutan abuse of dominance? Already in Magill had been established that the exercise of an exclusiveright by an owner may involve abusive conduct only in exceptional circumstances. The ADSL productintended for wholesale is not indispensable product in the meaning of Bronner jurisprudence,because despite the less convenient conditions the competitors could at least theoretically haveobtained unbundled access to the local loop allowing them to compete with TeliaSonera.

The analysis of the indispensable character is not broadened by the Court of appeal, even if both thepreliminary ruling and the judgment of the first instance [29] had underlined this aspect as animportant one. We understand obviously that internet connection represents an essential facility




now-a-days for all types of consumers. It appears also clear that the ownership of the coppernetwork brings about a competitive advantage on adjacent markets. The telecoms network could beused in order to provide high quality internet services, however TeliaSonera did not enjoy exclusivityde jure in relation to the possibility to exploit this facility.

From the judgment of the first instance, more exactly from the analysis of the relevant market, itappears clear that an investment as required by the LLUB modality in accordance with Bronnerjurisprudence would have been economically justifiable and feasible only if the clientele were largeenough. Therefore LLUB is not considered as an actual alternative to the ADSL wholesale product.

Margin squeeze assumes that the incumbent has an upstream monopoly over an essential input. Inpractice, the incumbent’s upstream market power may not be that strong. While the incumbentoperator typically owns the copper line, substitute networks in the form of cable, wireless etc. areavailable. In other words, the incumbent’s essential facility is not absolute. The downstreamcompetitors may therefore bypass the incumbent’s network and consider purchasing access fromalternative providers, or investing in an own network [30]

I would retain from the quote above the assertion that the incumbent TeliaSonera does no longerenjoy an absolute control over the telecoms network. The essential facility is de facto the wholesaleproduct because this one constituted at the material time the only viable means to provide internetservices via ADSL on the retail market and prevent the loss of market shares. Under these limitedperiod of time between the 1st of July 2001 and 1st of January 2003 TeliaSonera has been anunavoidable trade partner not by maintaining an absolute control over the copper network as such,but rather through the relative control that as a former monopolist could retain after theliberalisation of the relevant market in Sweden and in the European Union in general.

[1] CJEU, 17 February 2011, C-52/09, TeliaSonera, [2011] I-00527 (Jaime Garcia-Nieto, JordiCasanova Tormo, The European Court of Justice holds a preliminary ruling in a margin squeezecase in the telecomunications sector (TeliaSonera Sverige), 17 February 2011, e-Competitions, n°36666).

[2] Marknadsdomstolen, 12 April 2013, A-8/11, TeliaSonera, [2013].

[3] CJEU, 14 October 2010, Case C 280/08 P, Deutsche Telekom v Commission [2010] ECR I 9555 (Paul Nihoul, The Court of justice of the EU rules on predatory pricing in the form of price squeeze(Deutsche Telekom), 14 October 2010, e-Competitions, n° 34050 and Serge Clerckx, Alexandre G.Verheyden, The ECJ upholds European Commission’s fine against telecommunications operator inmargin squeeze case (Deutsche Telekom), 14 October 2010, e-Competitions, n° 33659).

[4] See Deutsche Telekom v Commission, supra footnote 3,paragraph 169 andCase T 271/03Deutsche Telekom v Commission[2008] ECR II 477, paragraph 167.

[5] General Court, 29 March 2012, Case T-336/07, Telefónica, SA and Telefónica de España, SA vCommission, [2012] II-00000, paragraph 187 (Hendrik Auf’mkolk, The EU General Court dismissesSpanish telecom incumbent’s appeal against a Commission decision that imposed a €151 million fineon the company for a margin squeeze in the regulated national broadband market(Telefonica/Commission), 29 March 2012, e-Competitions, n° 45020); TeliaSonera, supra footnote 1,paragraphs 97 and 98.




http://www.concurrences.com/Bulletin/News-Issues/June-2011/The-European-Court-of-Justice-36666







http://www.concurrences.com/Bulletin/News-Issues/October-2010/The-Court-of-justice-of-the-EU





http://www.concurrences.com/Bulletin/News-Issues/October-2010/The-ECJ-upholds-European






http://www.concurrences.com/Bulletin/News-Issues/April-2012/The-EU-General-Court-dismisses-45020







[6] Article 2 e.

[7] Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December2000 L336/4, recital (7) .

[8] The Seventh Circuit 708 F.2d 1081, 1132, cert. Denied , 464 U.S. 891 (1983) at 1132-33.

[9] CJEU, 26 November 1998, Case C 7/97, Bronner, [1998] ECR I 7791.

[10] CJEU, 28 May 1998, Opinion AG Jacobs, Case C 7/97, Bronner, [1998] ECR I 7791 points 67-68.

[11] CJEU, 6 April 1995, Joined cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) andIndependent Television Publications Ltd (ITP) v Commission, [1995] I-00743 paragraph 50.

[12] See Bronner, supra footnote7,paragraph 47.

[13] See TeliaSonera , supra footnote 1, paragraphs 54-58.

[14] Case C-280/08 P, Deutsche Telekom v Commission, supra footnote 3, paras 251-254.

[15] Marknadsdomstolen, TeliaSonera, supra footnote 2, page 28, paragraph 132.



[18] Competition law (’KL’) article 26.

[19] Competition law (’KL’) article 28.

[20] Marknadsdomstolen, TeliaSonera, supra footnote 2, pages 62-3, paragraph 293 and Bill1992/93:56 p. 93.

[21] Marknadsdomstolen, TeliaSonera, supra footnote 2, page 64, paragraphs 298-299.


[23] CFI, Case T-228/97, Irish Sugar v Commission, [1999] ECR II-2969, paragraph 111; CFI, 17September 2007, Case T-201/04, Microsoft Corp. v Commission, [2007] II-03601 paragraph 1070.

[24] CFI, 23 October 2003, Case T-65/98, Van den Bergh Foods Ltd v Commission, [2003] II-04653paragraph 158.

[25] CJEU, 6 December 2012, Case C-457/10 P, paragraph 76.

[26] General Court, 9 September 2010, Case T-155/06, Tomra Systems ASA and Others vCommission, [2010] II-04361 paragraphs 206-207 (Nicolas Petit, The EU General Court upholds aCommission’s decision concerning an abuse of dominance in the market for machines for thecollection of used beverage containers addressing the issues of loyalty rebates and exclusivityagreements (Tomra), 9 September 2010, e-Competitions, n° 36404).




http://www.concurrences.com/Bulletin/News-Issues/September-2010/The-EU-General-Court-upholds-a







[27] See Deutsche Telekom v Commission, supra footnote 3,paragraph 177.

[28] CJEU, 27 March 2012, Case C-209/10, Post Danmark A/S v Konkurrencerådet, paragraphs 22-23(Luc Peeperkorn, The EU Court of Justice affirms the application of a consumer orientedeffects-based approach to exclusionary pricing practices of dominant undertakings and the "asefficient competitor test" as a basis for their assessment : A big step towards the consistentapplication of an effects-based approach to exclusionary pricing practices of dominant undertakings(Post Danmark), 27 mars 2012, e-Competitions, n°48816).

[29] Stockholm Tingsrätten, 2 December 2011, T-31862/04.

[30] Bouckaert, J., and Verboven, F., Price Squeezes in a Regulatory Environment, CEPR, DiscussionPaper Series cited by AG Mazák in Opinion delivered on 2 September 2010, TeliaSonera, point 18.





http://www.concurrences.com/Bulletin/News-Issues/March-2012/The-EU-Court-of-Justice-affirms-48816









May 2013

The Swedish Supreme Court holds that the timewhen the contract implementing an illegaldirect award has been initiated should coincidewith the time when the award decision may besubject to legal review (Swedish ImmigrationOffice)Sweden, Public procurement, Damages, Sanctions/Fines/Penalties, Judicialreview, Preliminary ruling (Art. 267 TFEU), ConstructionSwedish Administrative Supreme Court, 17 May 2013, 5766-12, Swedish Competition Authority / Swedish ImmigrationOffice


I. IntroductionKonkurrensverket (Swedish Competition Authority) applied for public procurement fines against theMigrationsverket (Swedish Immigration Office) before the court of first instance on the 17 June 2011.The value of the contract in question exceeded € 8 million (SEK 69 million), which could incur anamount of fines of maximum € 0.8 million. The amount of fines calculated by Konkurrensverket andprescribed in its judgment from 14 February 2012 by the first instance was of € 0.64 million (SEK5.5 million) i.e. around 8% of the contract value. On the 26 September 2012 in case 748-12 theAdministrative Court of Appeal has annulled the judgment of the first instance and declined theapplication for fines.

On the 17 of May 2013 the Supreme Court of Sweden has rejected the appeal of the appellantKonkurrensverket and subsequently its action for public procurement fines brought in case 5766-12.The illegal direct award in question referred to a works contract for buildings adapted toaccommodate asylum seekers. The owner of the real estate concerned by this award was BrinovaÅstorp AB. The illegality of the award granted without prior publication of a contract notice is notcalled into question.

The fine liability for the named infringement of the Swedish and Union public procurement rules hasbeen introduced in chapter 17 of the Act (2007:1091) according to the amending Act (2010:571)




entering into force on the 15 July 2010. Therefore it has been important to determine the date ofinitiation of the award proceedings. A fine could be imposed by an administrative judicial instanceaccording to the Act (2007:1091) of 22 November 2007 as amended in June 2010, only if the awardwas deemed to have been initiated on the 15 July 2010 or later [1].

II. Legal frameworkIneffectiveness is the most useful way to restore competition and to create new businessopportunities for those economic operators which have been deprived illegally of their opportunityto compete. Direct awards within the meaning of the Remedies Directive include all contract awardsmade without prior publication of a contract notice within the meaning of Directive 2004/18/EC [2].

In order to combat the illegal direct award of contracts, which the Court of Justice has called themost serious breach of Community law in the field of public procurement on the part of acontracting authority or contracting entity, there should be provision for effective, proportionate anddissuasive sanctions. Therefore a contract resulting from an illegal direct award should in principlebe considered ineffective. The ineffectiveness should not be automatic but should be ascertained byor should be the result of a decision of an independent review body [3].

The chapter 1 article 9 of Act (2007:1091) stipulates that contracting authorities shall treat allsuppliers equally and impartially and shall conduct award proceedings in a transparent manner. Theaward shall furthermore comply with the principles of mutual recognition and proportionality. [4]The principles of equal treatment and transparency have been put into expression thereby.

An added complication was the fact that the amendments brought to the named Act (2007:1091) hada dual pursuit. They were meant to implement the Directive 2007/66/EC and to increase theeffectiveness of the Swedish remedies against the most serious and quite usual type of infringementi.e. the illegal direct award of public contracts. According to Swedish law, the imposition of finesrepresents not only a substitutive remedy for the cases where the ineffectiveness would lead todisproportionate consequences or where overriding reasons relating to a non-economic interestrequired that the effects of the contract should be maintained, but also a complementary remedymeant to deter this serious infringement [5].

The Directive 2007/66/EC prescribes that if the contract cannot be considered ineffective,alternative penalties shall be provided by the Member States. Two remedies are explicitly mentionedand another one is qualified as inappropriate, the latter being the award of civil damages. Theapposite alternative remedies according to the provisions of article 2 (e) (2) shall be:

The imposition of fines on the contracting authority or

The reduction of the duration of contract [6].

Ineffectiveness is the most purposeful manner to restore competition, but it has been considered bythe Swedish government as not being sufficient in order to prevent future serious infringements ofthe public procurement laws. Therefore according to Swedish law even in cases whereineffectiveness comes into question an additional penalty can be actually imposed. The preamble ofthe Remedies Directive allows the Member States to adopt stricter sanctions in accordance with




national law [7].

Member States had to bring into force the laws, regulations and administrative provisions necessaryto comply with the Remedies Directive by 20 December 2009 [8]. The Swedish Bill bringing aboutthe amendment of the Swedish procurement Act (2007:1091) has been submitted to the Parliamenton the 8 April 2010 and the proposed date of entry into force was the 15 July 2010. According to theSwedish government there were two important amendments involved by the Remedies Directive: thestandstill period meant to discourage the ’race to signature’ and the more effective sanctionsintroduced by the directive in question and both of them have been implemented in Swedish law [9].The standstill period is provided for in chapter 16, while the procurement fine is stipulated by theprovisions of the chapter 17 [10].

III. The arguments of the partiesThe appellant, Konkurrensverket argues that the question concerning the time of initiation of anaward proceeding has not yet been established by the case law of the Court of Justice. The conceptof ’initiated award proceedings’ [11] has not been contemplated by the Court of Justice in the caseslike C-26/03 and C-337/98; therefore the Union case law does not offer a direct support forinterpretation of the concept. There is no indication according to the appellant that the travauxpréparatoires aimed to frame the transition rules following the stipulations of the named case law.

In Stadt Halle, C-26/03 the Court has recognized that compliance with Union procurement rulesmust be ensured at a stage at which infringements can still be corrected. Beyond this stage, theMember States must ensure that review procedures are available at least to any interested personwho has been or risks being harmed by an alleged infringement [12].

The obligation of the Member States to ensure that effective and rapid remedies are availableagainst decisions taken by contracting authorities extends also to decisions taken outside a formalaward procedure and decisions prior to a formal call for tenders, in particular the decision onwhether a particular contract falls within the personal and material scope of Directive 2004/18/EC [13].

In Commission v French Republic, C-337/98 the provisions of the directive in question were notapplicable to the choice made by the contracting entity to use a negotiated procedure without aprior call for competition [14]. According to the appellant the sanction prescribed by chapter 17,article 1 concerns a concluded award and not the stages preceding its conclusion. Hence, thecontract has been concluded after the 15 July 2010. Moreover a conform interpretation of theSwedish law implementing a directive would require that the most effective solution must beadopted [15].

subject to the duty of the national court to interpret national law as far as possible in conformitywith Community law, it is not contrary to the latter for a transitional rule of national law to providethat an appeal against a decision given before the date on which the rules transposing the directiveinto national law were belatedly brought into force is to be decided in accordance with the rulesapplicable before that date, even where judgment is given after that date [16].

The intention of the Swedish legislator must have been to implement the provisions of the Remedies




Directive as soon as possible and it would be irreconcilable with the Union law to interpret theconcept of ’initiated award proceedings’ in a manner that leads to further delays. The appellantmentions as well that it must be inappropriate to grant a greater protection against retroactiveapplication of chapters 16 and 17 of (2007:1091) in comparison with the protection due in the caseof private individuals as subjects for criminal penalties according to Swedish law.

Migrationsverket disagrees that the rules stipulated by chapter 17 can be applicable since they havecome into force after the initiation of the public award. The interpretation given by the appellant isneither compliant with the EU procurement rules nor with the Swedish law. An award must bedeemed as initiated beginning with the temporal position, at which an action for annulment can bebrought according to law against the decision of the contracting authority. The contracting authoritymust be allowed to bring evidence concerning the time of initiation of the award proceedings, nomatter if the award might be illegal or not. The general principle of legal certainty excludes aninterpretation according to which a penalty can be imposed retroactively.

IV. The assessment of the Supreme CourtThe Court starts by resuming the facts. On the 8 June 2009 the contracting authority forwarded arequest to the Swedish government asking for authorization for signing a letter of intention and acontract entitled ’leasing’ concerning a new shelter for asylum seekers situated on the propertyowned by Brinova Åstorp AB. The submission has been approved by the government on the 24September 2009 and on the 21 July 2010 a letter of intention has been signed by both Brinova andthe contracting authority. The contract has been concluded on the 6 October 2010.

The Court underlines that this award is covered by the procurement law and it has been grantedwithout prior publication of a contract notice [17] and reminds that the court of first instanceadmitted the application for fines submitted by the appellant in the current case, while the court ofappeal annulled the judgment of the first instance and rejected the application for fines.

In the travaux préparatoires to the Act (2007:1092) it has been stipulated that the date of initiationof an award corresponds with the date of the decision taken by the contracting authority on whichtype of proceedings to be adopted or the date of the decision for prior publication of a contractnotice [18]. The same has been provided by the travaux préparatoires to the Act (2007:1091) withone, I would say significant exception, namely that in the case of an illegal direct award the date ofinitiation shall be the date of concluding the contract unless the contracting authority can bringevidence that the award has been initiated before this date [19].

The question is reduced to the determination of the aspect whether the award has been initiated onthe 6 October 2010 or already before when the contracting authority took other preliminarymeasures leading in the end to the conclusion of the contract. The Supreme Court underlines thatthe directive should have been implemented already on the 20 December 2009, but the necessaryamendments only came into force on the 15 July 2010, with a delay of almost seven months. TheRemedies Directive does neither afford any transitory period nor defines the concept of ’initiatedaward proceedings’.

The Court makes the distinction between the first and second paragraphs of the article 1 of chapter17 and the third paragraph referring to the case of direct award without prior publication of a




contract notice. Concerning the first and second paragraphs of the article 1 the sanction constitutesan alternative to the ineffectiveness, while the third paragraph does not constitute animplementation of the article 2e of the Remedies directive, but a provision of domestic law. Thedeterrence implied by the ineffectiveness has been considered by the Government to be insufficientfor the case of illegal direct awards. The procurement rules had been disregarded by the contractingauthorities in several occasions, because the existing sanctions did not constitute a real disincentiveto prevent the lack of compliance [20]. The Court concludes that the transitory provisions arerelevant for both the application of first and second paragraphs of the article 1 implementing theDirective and on the third paragraph embodying a rule of domestic law.

The formulation in article 2e of the Directive is ineffectiveness or alternative penalties, while theSwedish law provides for ineffectiveness and fines in the case of an illegal direct award. The firstparagraph of the article 1 refers to the violation of the standstill provision, while the secondparagraph concerns the case where overriding reasons relating to a general interest require that theeffects of the contract should be maintained.

The Court underlines that the same interpretation must be applied no matter if the concept inquestion arises directly from the implemented provisions of EU law or relies on the rules of domesticlaw that stipulate stricter sanctions as mentioned by recital 20 of the Directive [21].

The decision by a contracting entity concerning the type of procedure to be followed and whether itis necessary for a prior call for competition to be issued for the award of a public contractconstitutes a distinct stage in the procedure, a stage during which the essential characteristics ofthe execution of the procedure are defined and which may, as a rule, take place only at the pointwhen that procedure is initiated [22].

According to Stadt Halle, measures which constitute a mere preliminary study of the market orwhich are purely preparatory and form part of the internal reflections of the contracting authoritywith a view to a public award procedure are not amenable to review [23] Entering into specificcontractual negotiations with an interested party constitutes an expression of the will of thecontracting authority in connection with a contract, if it comes in whatever way to the knowledge ofthe persons interested [24].

V. Ruling given by the Supreme CourtThe Supreme Court concludes that the moment at which an award has been initiated corresponds tothe moment at which an award may become subject to review. According to the findings of StadtHalle,at the time when the phase of preliminary internal appraisal has been completed and the willof engaging in a contract has been expressed, the award must have been initiated.

The start of negotiations with an external party must be considered as corresponding with theinitiation of the award. On the 8 June 2009 the contracting authority had already moved beyond thephase of opening negotiations with an external party, therefore the award was initiated before thecoming into force of the amendments brought by the Act (2010:571). Even if the contract in questionhas been concluded after the 15 July 2010, the provisions of chapter 17, article 1, 3rd paragraph arenot applicable. The fines prescribed by the Act (2010:571) for an illegal direct award cannot beimposed and the appeal must be dismissed.




VI. CommentsThe ruling of the Supreme Court is correct in making the distinction between the internal andexternal phases of the appraisal process connected with award proceedings. However if we payattention to the references made to the relevant findings in Stadt Halle, two observations must bemade. First, it has been said that a contract, which comes in whatever way to the knowledge of thepersons interested, is amenable to review and secondly, the obligation of transparency means toenable the verification of compliance with Union law.

Concerning the issue of illegal direct awards, i.e. the conclusion of a contract with neither priorpublication nor prior call for competition as required by the provisions of Act (2007:1091) andrespectively Act (2007:1092), the award in question shall be deemed to begin when the contract hasbeen concluded, unless the authority or entity can demonstrate that it has commenced de facto at anearlier date. [25]

The Supreme Court considers that the contracting authority has demonstrated that the awardcommenced in fact at an earlier date based on the exchange of documents between the latter and itssupplier, Brinova Åstorp AB and on the consent request that had been sent to the government. Themanifest breach of the transparency principle and the subsequent violation of the equal treatmentand their bearing on the current case are not examined at all.

the purpose underlying the principle of transparency, which is a corollary of the principle of equality,is essentially to ensure that any interested operator may take the decision to tender for contracts onthe basis of all the relevant information and to preclude any risk of favouritism or arbitrariness onthe part of the licensing authority [26]

In my opinion, a manifest breach of the transparency principle implies an impediment broughtagainst the very possibility of the interested persons to bring an action for annulment. The award ofa public contract without a call for tenders interferes with the objective of free and undistortedcompetition and the principle of equal treatment, since the direct award would offer the supplierBrinova AB an illegitimate advantage over its competitors.

that obligation of transparency which is imposed on the contracting authority consists in ensuring,for the benefit of any potential tenderer, a degree of advertising sufficient to enable the servicesmarket to be opened up to competition and the impartiality of procurement procedures to bereviewed [27].

A contrario the impartiality of procurement procedures cannot actually be reviewed, if the obligationof transparency is manifestly disregarded by the contracting authority and the persons who canactually or potentially be interested in this award of public contract do not have any knowledgeabout it.

I agree with the reasoning provided by the appellant according to which the lack of transparencyinherent to any award granted without prior publication should not support an interpretation infavour of the defendant. In my opinion the fact that the Swedish legislator stipulates that the case ofillegal direct award should be treated differently in the sense of a stricter regime of sanctions isrelevant.




The lack of transparency obstructs the exercise of the right of access to a court as guaranteed byArticle 47 of the Charter in the sense that the risk of favouritism or arbitrariness and theinterference with free and undistorted competition are enhanced, though the concerned procedurescannot be reviewed, unless the information becomes public in whatever way [28]. Hence a stricterregime of sanctions has been deemed necessary by the Swedish legislator in order to fulfil theobligation to provide remedies sufficient to ensure effective legal protection in the fields covered byUnion law stipulated by Article 19 TEU.

Another significant difference can be found under the title ’Entry into force and transitory provisions’in the travaux préparatoires to the Act (2010:571). All the other awards, excepting the illegal directawards begin starting with the date of publication or call for tenders or when the authority hasdecided to employ a certain procedure. The main rule for illegal direct awards is that the date ofinitiation shall correspond with the date of conclusion of the contract, although the exception ruleallows the contracting authority to bring evidence that the award has de facto begun at an earlierdate [29]. In my view, the appellant has made valid points by requiring that the exception shall beinterpreted more restrictively and the main rule should have been given priority. Unfortunately, thetravaux préparatoires do not explain in detail what type of evidence should be produced by thecontracting authority.

In my interpretation, the move from internal reflections towards an external expression of will in theprocess of public procurement as discussed in Stadt Halle must be related to the condition of publicaccess to information. The externality should be understood as the possibility of a third party toobtain access to the relevant information concerning the award and not the beginning ofnegotiations between the contractual partners in a regime of confidentiality.

An actual possibility to bring an action for annulment emerges only at the moment, when anallegedly illegal award becomes known to the actually or potentially interested persons. A thirdparty access to the relevant information is a necessary condition in order to enable access to justiceand comply with Article 47 of the Charter of Fundamental Rights of the European Union [30].

The link between the moment of initiation of an award and the moment when an action forannulment against the award decision can be enabled is well-substantiated. According to the caselaw from the Court of Justice due respect must nevertheless be paid in this context to the principleof transparency as a corollary of the equality principle.

Eventually, after covering the intricate substance of the present ruling of the Supreme Court aquestion arises. Why has the matter making object of this recent judicial decision never reached theCourt of Justice via the preliminary ruling mechanism established by Article 267 TFEU?

The appellant argues that the question has never been treated by the case law of the CJEU. The caselaw used as reference material by the Supreme Court does not deal with the same question and thecorrect application of the relevant Union law is far from obvious as not to leave any scope forreasonable doubt [31]. Furthermore the Supreme Court refers in its examination [32] to the ruling incase C-28/95, Leur-Bloem [33] implying that the situation in question would be a purely internal one.In my opinion the fact that the sanction provided by chapter 17, article 1, 3rd paragraph is stricterthan the general regime imposed by the Directive 2007/66/EC does not place the situation underreview outside the scope of Union public procurement law




The raised question concerns an illegal direct award prohibited by EU public procurement rules,since the value of the contract in question exceeds the threshold of Directive 2004/18/EC: €5,000,000 corresponding to SEK 47,438,500 [34]. The situation under review is not purely internalto a member state and the chapter 17, article 1, 3rd paragraph of the Act (2007:1091) does not makea reference to provisions of Union law as it is the case in Dzodzi for instance, but it embodies meansof improving the effectiveness of remedies concerning the award of public contracts [35].

On the other hand, it is up to the member states to apply stricter sanctions in accordance withnational law; exactly like concerning the meaning of ineffectiveness the member states enjoy a largedegree of discretion to allow the national judge to choose between ex tunc or ex nunc or to regulatebeforehand what type of ineffectiveness can be applicable in their jurisdiction [36]. The discretionenjoyed by the member states is nevertheless comprised within the framework of a decentralisedsystem of judicial protection that relies on the foundation of the preliminary ruling mechanism and aduty of sincere cooperation.

[1] Act (2007:1091) of 22 November 2007 concerning the award of public contracts, chapter 17article 1

[2] Directive 2007/66/EC of 11 December 2007 (Remedies Directive) with regard to improving theeffectiveness of review procedures concerning the award of public contracts, OJ L335/31, Recital (14)

[3] Recital (13) of the Remedies Directive, cited supra footnote 2

[4] In original language: ’Upphandlande myndigheter skall behandla leverantörer på ett likvärdigtoch icke-diskriminerande sätt samt genomföra upphandlingar på ett öppet sätt. Vid upphandlingarskall vidare principerna om ömsesidigt erkännande och proportionalitet iakttas’.

[5] Government Bill 2009/10:180 of 8 April 2010 in original language: Prop. 2009/10:180 part I, p.187

[6] Article 2(d)(3) read together with article 2(e)(2) of the Remedies Directive, cited supra footnote 2

[7] Recital (20) of the Remedies Directive, cited supra footnote 2

[8] Remedies directive, cited supra footnote 2, article 3 ’Transposition’

[9] Government Bill 2009/10:180 part I, p. 100

[10] Act (2007:1091) of 22 November 2007 concerning the award of public contracts, in originallanguage: Lag (2007:1091) om offentlig upphandling, entered into force on the 1 January 2008. Therelevant chapters 16 and 17 have been amended in June 2010 and later in September 2011 via Act(2010:571) and Act (2011:1030), entering into force on the 15 July 2010 and respectively on the 1November 2011. The amendments in discussion in this case are only the ones entering into force onthe 15 July 2010.

[11] In original language: upphandlingar som påbörjats

[12] Judgment of the Court of 11 January 2005, Case C-26/03, Stadt Halle and RPL Recyclingpark




Lochau GmbH v Arbeitsgemeinschaft Thermische Restabfall- und Energieverwertungsanlage TREALeuna, [2005] I-00001 paragraphs 39-40

[13] Stadt Halle, cited supra footnote 12, paragraph 41

[14] Judgment of the Court of 5 October 2000, Case C-337/98, Commission v France, [2000] I-08377paragraphs 38-39, 41-42

[15] Judgment of the Court of 23 February 1999, C-63/97, BMW, [1999] I-00905, paragraph 22-23

[16] BMW, cited supra footnote 15, paragraph 24

[17] Judgment of the Swedish Supreme Court of 17 May 2013, Case 5766/2012, Konkurrensverket vMigrationsverket p. 4




[21] The Supreme Court refers to Case C-28/95, paragraph 32

[22] Commission v France, cited supra footnote 14, paragraph 36



[25] Government Bill 2009/10:180 part I, p. 310 and 374. In original language: När det gällerotillåten direktupphandling, dvs. när ett avtal har slutits utan att upphandlingen har annonseratsenligt bestämmelserna i LOU eller LUF, får en sådan anses påbörjad först när avtalet har slutits, ominte myndigheten eller enheten kan visa att ett upphandlingsförfarande enligt lagarna rent faktiskthar påbörjats vid en tidigare tidpunkt.

[26] Judgment of the Court of 16 February 2012, Marcello Costa (C-72/10) and Ugo Cifone (C-77/10),[2012] I-00000 paragraph 73

[27] Judgment of the Court of 7 December 2000, Case C-324/98, Telaustria Verlags GmbH andTelefonadress GmbH v Telekom Austria AG, joined party: Herold Business Data AG, [2000] I-10745paragraph 62

[28] See supra footnote 24

[29] See supra footnote 19

[30] See by analogy Advocate General’s Opinion - 7 February 2013, Case C-536/11, Donau Chemieand Others (pending)




[31] Judgment of the Court of 6 October 1982, Case 283/81, Srl CILFIT and Lanificio di Gavardo SpAv Ministry of Health, [1982] I-03415 paragraph 16

[32] Konkurrensverket v Migrationsverket, cited supra footnote 17, p. 6, 3rd indent

[33] Judgment of the Court of 17 July 1997, Case C-28/95, A. Leur-Bloem v Inspecteur derBelastingdienst/Ondernemingen Amsterdam 2, [1997] I-04161 paragraph 32

[34] Commission Regulation (EU) No 1251/2011 of 30 November 2011 amending Directives2004/17/EC, 2004/18/EC and 2009/81/EC of the European Parliament and of the Council in respectof their application thresholds for the procedures for the awards of contract, OJ L 319, 2.12.2011, p.43–44

[35] Judgment of the Court of 18 October 1990, Joined cases C-297/88 and C-197/89, Massam Dzodziv Belgian State, [1990] I-03763 paragraphs 36-37

[36] Article 2d2 of the Remedies Directive, cited supra footnote 2





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