Handout 6

Seminar 6: Competition Law and Contract Law

NB THIS SESSION IS ALSO PART OF THE COMPETITION & REGULATION WORKING GROUP.  We start at 10 AM and meet in Sala Europa.

Our guest speaker, Dr Pinar Akman (UEA) will kick off with a presentatin of her paper that has been circulated.

Contract Law remains national, albeit Europeanised in both positive ways (e.g. the consumer acquis) and negative ways (e.g. the requirements that EU-based rights are effectively protected). This seminar considers the intersection between contract law and competition law from a different perspective, and asks how contract law doctrines fare when confronted with competition law concepts.

 Reading

Akman ‘The Relationship between Economic Duress and Abuse of a Dominant Position’

 Lucey ‘Europeanisation and the Restraint of Trade Doctrine’ (2012) Legal Studies (not published yet, but available electronically from the journal’s website)

Case C-453/99  Courage v Crehan [2001] ECR I-6297

 For Discussion

 Please  identify, in the national contract law system you are familiar with, what doctrines appear analogous to economic duress as explored in the paper by Akman, and discuss to what extent the approach by the national courts to this phenomena is comparable (or not) to that taken by antitrust law

In US Law it is common for plaintiffs to use antitrust even for contractual disputes because of the lure of treble damages. This does not occur in the EU, but are there any differences in remedies between contract law and competition law that might shape a party’s litigation strategy?

Is it useful to ask whether competition law can teach something to contract law, or vice versa?

Does it at all matter that we are looking at the intersection between EU competition law and contract law, and not national competition law?

 Further Reading

** A particularly helpful analysis is found in Trebilcock The Limits of Freedom of Contract (1997) ch.4

Those unfamiliar with economic duress can have a look at Mc Meel ‘Threatened Breach of Contract and Refusal to Supply’ (1996) 5 Nottingham Law Journal 120

 Glick, Bush and Hafen ‘The Law and Economics of Post-Employment Covenants: A Unified Framework’ (2002) 11 George Mason Law Review 357

 Schepel ‘The Enforcement of EC Law in Contractual Relations: Case Studies in How Not to ‘Constitutionalize’ Private Law’ (2004) European Review of Private Law 661

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5 comments on “Handout 6

  1. Jotte says:

    It matters that we look specifically at the intersection between EU competition law and contract law because national contract law could be superseded by EU competition law. Although there is not something like a European civil law, the CJEU has under the auspices of art 102 TFEU outlawed various contracts that were considered abusive. Therefore, Member States have practically transferred part of their contract law to the EU jurisdiction. As Neven and Mavroidis argue (2003, p. 7), ‘the doctrine of abuse of dominance is the common ground, the overlap among European civil laws’. It therefore matters that we look at this intersection because the conceptualisation of abuse of dominance affects directly the material scope of national contract law that has been transferred to the EU sphere. In general, the difference in objectives between national contract law and competition law will be able to provide a sufficiently clear dividing line. Art. 102 is triggered on the basis of an injury to competition basis whereas national contract law is likely to be more focussed on an injury to competitors combined with a standard of fairness. This also appears to be the case with the concept of economic duress and I would argue this to be the main dividing line, and a sufficiently clear dividing line in most cases. But Akman argues that this distinction between competition law and contract law is unsatisfactory because it does not correspond with the application of Article 102 by the EU Courts or the provision itself which is based on an ‘abuse’ prohibition. The fact that for Article 102 to be applicable, market power has to be used in an abusive manner in a relationship with another trading party turns structural monopoly into a situational monopoly and hence blurs the dividing line. But this would only be so if the damage to competition criterion would not be applied in the assessment of an abuse of dominance case. However, the fact that the theory of harm in 102 cases is build around specific situations does not take away the fact that the exclusionary or exploitative behavior has to have a negative and quantifiable effect on competition. Looking at the case law and the economic approach to abuse cases of the European Commission it would seem to me that this criterion in the abuse test is very relevant and alive. Hence I do not agree with this part of the analysis of Akman. Any time a dominant player tries to injure competition, 102 is triggered and consequently domestic contract laws including the concept of economic duress becomes legally irrelevant and the legal benchmark to establish illegality is exclusively 102.

    Reference

    Damien Neven and Petros Mavroidis, ‘The interface between competition and contract law. The case of essential facilities’, 2003 EU Competition Law and Policy Workshop.

  2. Argyri says:

    i.
    Under Greek law there are general principles/rules found in the Civil Code corresponding to the economic duress doctrine. The relevant Civil Code articles are now considered to be “umbrella provisions” covering cases that are not covered by more specific legislation such as consumer law and competition law (both fields that were developed at a later stage compared to the Civil Code which used to be the primary legislation for all private -non-public law – relation).

    The relevant provisions are the following:

    – Article 179: “Void as contrary to morality is particular transaction which commits too much freedom of the person or the transaction by which one party takes advantage of the need, frivolity or the inexperience of the other and thus successfully agrees to take for oneself or for a third party, a benefit, which, under the circumstances, are in obvious disproportion to the supply.”
    [the translation is not very good and the text is rather old (morality..) but the article is interpreted as placing the emphasis on the parties having disproportionally different negotiating power]

    – Articles 140- 157: Voidable transactions due to fraud, deception or threat
    [I include these provisions as threat has sometimes been interpreted largely also to include situations that seem to me similar to the examples of economic duress doctrine]
    [the emphasis is on the nature of the pressure applied to the other party – mostly illegal pressure]

    – There are also articles imposing general good faith obligations on the contracting parties at the various stages of their contractual relationship (negotiations, execution of the contract ect.)
    e.g. article 197: “During negotiations for a contract the parties shall mutually to behave in accordance with good faith and commercial practices.”

    ii.
    Despite the discussed fusion in EU case-law especially after narrow market definition, the distinction between situational monopoly and structural monopoly makes doctrinal sense to me, and I tend to agree with Trebilcock’s view expressed on p. 16 of Akman’s paper; as nowadays there is already a complex body of competition law directed to problems of structural market power, a parallel set of rules applied for two-party contractual disputes under contract law might be not advisable perhaps creating unnecessary overlaps and confusion. Following this view, contract law would deal only with issues of clear situational monopoly (including the cases of a ‘bilateral monopoly’ such as the 1992 Kodak case as mentioned in the paper) or in general situational rather than structural abuse and otherwise in any case where coercion is not only situational but linked to the one party’s power in the market competition law rules can be applied. If courts were to follow such (seemingly?) clear distinction, I guess that the rule would be the application of competition and the exception of contract law, or at least it seems to me that pure contract law cases would be fewer. If that is the case then we would be enhancing the primacy to contractual freedom in contract law and primarily solve market failures with competition law rather than general principles of contract law.

  3. Chloé says:

    Under French law, during several years, consumer law, criminal law and French competition law sought to scrutinise specific situations of economic dominance, through the regulation of abusive clauses, the prohibition of abusive exploitation of an economic dependence’s situation, and through the incrimination of the abuse of situations of weakness, of ignorance or of vulnerability. Those provisions were, however, fragmented and did not include all the different manifestations of economic duress. During those years, tribunals and courts were reluctant to accept under general contract law, the protection of the weaker contracting party by inferring from its economic dependence’s state the existence of economic duress vitiating the consent. It was feared that the sanction of economic duress under contract law would lead to a climate of insecurity and uncertainty in the field of transactions. It was also feared that this would threaten the general principle of freedom of contract. Situations of unequal economic strengths are inevitable under contract law. It is indeed inevitable that certain contracting parties exercise their economic strength at the expense of weaker parties. In such situations, duress may be absent since the existence of economic dependence or economic dominance are not per se illegitimate. Therefore, a contract concluded under unfavourable economic circumstances cannot be declared void on the basis of duress. As a result; it was argued that economic duress should have a very limited scope: economic duress should only occur when the abovementioned economic situations are abused, are excessively exploited so as to illegitimately constrain a person to contract.
    Nonetheless; economic duress was finally recognised, under general contract law, by the French Supreme Court in 2000 (Cass civ 1ère, 30 mai 2000) where the Court concluded that transactions can be contested in any case there is duress and in that regard economic constraint is related to duress, which is one of the three elements considered as vitiating the consent and which is defined in Article 1112 of the civil code. Article 1112 indeed provides: “There is duress where it is of a nature to make an impression upon a reasonable person and where it can inspire him with a fear of exposing his person or his wealth to considerable and present harm.
    Regard shall be paid, on this question, to the age, the sex and the condition of the persons.”
    Two years later, the Supreme Court went further in detailing the elements of economic duress and also limiting its scope (Cass civ. 1ère, 3 avril 2002). As acknowledged by the Court, could be considered as duress vitiating the consent of a person, the abusive exploitations of a situation aimed at taking advantage of the fear of a harm directly threatening the legitimate interests of the person. Therefore, there must be an abusive exploitation of a situation for economic duress to be established. The abuse of a situation is thus at the heart of economic duress; a mere constraint without any abuse, would not be held as being illegitimate. In practice, to characterize the abuse, the courts will look at the profit, the excessive advantage the person has derived from the contract. In this respect, the approach adopted by the Court is comparable to that taken by competition law, in particular as regards the notion of abuse of dominant position. It is true that economic duress and competition law have some similarities and may sometimes overlap as Akman’s paper show and Courage v. Crehan. However, those two set of rules remain very different: competition law focuses on competitive markets and the harm caused to competition and to trace within a Member State and between Member States whereas economic duress as construed by national contract law aimed at protecting a weaker contracting party, victim of the abused economic strength of the other contracting party. As a result, I think that these two fields of law should remain separated. Indeed, should he notion of abuse of dominant position encompass economic duress, some situations would be left without any protection: quid of a contract concluded between two individuals not considered as ‘undertakings’ and quid of the situation of exogenous economic duress (i.e. where duress does not derive from the abuse of economic strength of a contracting party but from exogenous economic circumstances affecting the freedom of contract of a person and from which the other contracting party takes illegitimate advantage of)? Concerning the latter case, I found the distinction between situational monopoly and structural monopoly very interesting.

  4. Ema says:

    As far as I know, a doctrine of economic duress has not been developed under Scots law, but has been partially ‘transplanted’ from English law into our legal system. Such ‘alien’ doctrines appear because the Supreme Court (HoL) is the court of final appeal for both English and Scots law civil cases, resulting in a doctrine being borrowed from one system and implanted to another. From what I have been able to fathom, there are very few pure Scots law cases where economic (as opposed to physical) pressure has constituted a reason to set aside a contract in Scotland.Mostly, the position taken under pure Scots law is that threats of economic harm are “‘an unavoidable commercial practice”(K. Reid, A History of Private Law in Scotland, p. 13).However, the Supreme court cases have led to a doctrine of economic duress being applied to Scottish cases. As far as I can gather, these cases have mainly been in the banking sector. Given the range of financial institutions in Scotland, I wouldn’t think it likely that a given bank would have a dominant position, unless the Court were to take the narrow view and treat the contract as a bilateral monopoly. Despite the differences in contract law, with regards to competition the UK-wide Competition Act applies in Scotland; nonetheless, the general approachto problems of contracts made under economic duress seems to be that where contractual rights are infringed, it is for contract law to solve the problem (albeit this reference may stem from a time before competition law was developed fully)

    Regarding remedies, generally under contract law the remedy is restitution – restoring property or money as it was prior to the duress. The contract is voidable (valid and enforceable until declared void by the pursuer). Under competition law, the pursuer will likely find the remedies available more favourable: contracts where an abuse of a dominant position are established are void and unenforceable and damages (not just restitution) can be claimed. Also, the chain of causation needed to apply Art.102 is less stringent and so should be preferred by litigants.

    The level of the intersection relates to Regulation 1/2003. For economic duress/abuse of dominant position cases this is not so important, since the regulation permits stricter national laws to be applied. For art 101 (ex. restraint of trade as examined by Lucey), a stricter national law cannot be applied where the EU provisions are also applicable if the national provision pursues the same objective as competition law (which becomes all the more complicated since the objectives of competition law are not set in stone). At national level, it is the litigant’s choice whether to apply competition or contract law, but at EU level whether more restrictive contract law can be applied at all is determined by a comparison of objectives with EU competition law. In other words, if there is a restraint of trade that affects trade between MS, the question is not simply of the litigant choosing what law to apply, but must also take into account the limitations on national law pursued by regulation 1/2003. However, as set out by Lucey, it seems plausible to argue that the restraint of trade doctrine pursues different objectives from competition law and can therefore be applied in parallel.

  5. giorgiomontigiorgio says:

    In Norway, Article 36 of the general contract law dating back to the 1930′s gives a party to a contract the possibility to declare the contract null and void. This Article is a general clause based on the unreasonableness of upholding or enforcing the contract. It is clear that this clause cannot be invoked by a party to a contract because it turns out over time that he has entered into a contract not particularly favourable to him. It is equally impossible to invoke this Article because a party regrets having entered into a specific contract.
    >
    > The Article is perceived as a saving clause in the unlikely event that a contractual obligation cannot be imposed on a party due to specific circumstances. These can be of a surrounding character that not related to the behaviour of the strong party in the agreement and is often a combination of events which makes it unreasonable in a qualified manner to uphold the contract. It is fare to say that the clause har been invoked in many courtcases but it has rarerly been accepted by the court.
    >
    > An example would be consumercases.
    >
    > I do not recall instances where market failure/competition law arguments have been used in Article 36 cases. The law is regarded as something concerning the situation of parties to a contract and not general concerns of the society such as failures of the market. In light of the readings this week and the discussion I will reinvstigate cases in national law in order to explore if this could have been possible.

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