Wednesday, December 5, 2018
Council of State, Judgment No. 2341/2018.
In a decision published on 7 November 2018, the Council of State dismissed an appeal by the Hellenic Competition Commission (HCC) and upheld the judgement of the Athens Administrative Court of Appeal annulling a HCC decision imposing a fine on two motor vehicle national sales companies for allegedly imposing downstream price fixing on the members of their retail networks. The legal issue in this case was the characterization of the commercial relationship between the NSC‘s and their networks and in particular whether the network members were genuine agents or reseller distributors.
Competition rules provided in Article 101 TFEU and Article 1 of Law 3959/2011 require “two or more undertakings” a concept which contrasts with the concept of two entities comprising a “unitary economic entity” which applies to dependent relations such as that between a mother company and a controlled subsidiary or a supplier and his agents. With regard to agents, ECJ case law and Guidelines to Reg. 1475/95, 1400/2002 and 330/2010 have drawn a distinction between “non-genuine” and “genuine” agents, the former bearing certain risks and being characterised by a certain degree of independence allowing them to be deemed distinct from their supplier, hence independent entities, the latter not bearing certain risks and being integrated in their supplier’s commercial organisation, hence not being deemed independent of their supplier. In the latter case they are deemed a single economic entity and do not qualify as “two or more undertakings”.
In relation to the distinction between a genuine agency and a distribution agreement, the Athens Administrative Court of Appeal had affirmed that the decisive element that has to be examined is the allocation of risk and whether or not that negates “integration”. If no risk or only low risk is borne by the other party, then the relationship must be characterized as a genuine agency agreement, while if significant risk is present it must be characterized as a distribution agreement. In essence the appellate court had ruled that an agent may be a “genuine” agent even if it did take on some risk, if that risk was negligible and did not alter the dependent and integrated relationship between the parties. The HCC opposed this view arguing that any risk is sufficient to negate the genuineness of the agency relationship.
Based on the decision of the Athens Administrative Court of Appeal, the Council of State identified two categories of risk that must be examined: risk that is directly related to the contracts into which the other party enters (such as financing of stock) and risk related to non-recoverable (sunk) investments, which are necessary for the particular activity and which shall also include the risks related to the potential wear and tear or destruction of the assets acquired by such investments. According to the Administrative Court of Appeal, an investment must be considered recoverable if the assets acquired through such an investment can also be used for the performance of other similar activities.
The Council of State ruled that only risks related and present in the particular relevant market must be taken into account and not any risks connected to other markets, except if they have consequences also in the relevant market, which then must be specified in detail.
By applying the above criteria to the case at hand, the Council of State and the Athens Court of Appeal concluded that the commercial relationship between the NSC’s and their respective networks were genuine agency, in which the agent, despite certain risks deemed as low, must be considered as being integrated in the business structure of the principal. In such cases no agreement within the meaning of Article 101 TFEU and Article 1 of Law 3959/2011 can exist and consequently no price fixing agreement, nor infringement of these competition rules can be established.
Gregory Pelecanos, Senior Partner of Ballas, Pelecanos & Associates LPC argued for the NCS’s/ Defendants.