Wise up to competition rules

There has been a great deal of attention given to the impact of competition law in the shipping sector in recent months - particularly following changes in EU legislation. For the first time competition rules apply directly to the wider shipping sector. So what are the competition rules and how are they applied in practice?

What is competition law?

Competition, or anti-trust, law is designed to regulate the operation of free markets to ensure they remain functional and do not allow one or more companies to behave anti-competitively, i.e. for example by fixing prices or abusing positions of market power. This will come as no surprise as these laws have existed in some form for over 30 years (and in the USA since the early 19 th century). However, they are being increasingly adopted and enforced by EU authorities.

What does competition law do?

In general terms, competition law seeks to prohibit the following three basic types of behaviour:

• anti-competitive agreements or collusive behaviour between companies. This covers cartel agreements, fixing prices or other conditions but also informal arrangements and sharing of confidential business information, e.g. sales figures or strategic plans - with competitors;
• the abuse of a dominant market position by one (or possibly more) companies. Where, for example, one or more parties are able to act substantially without consideration for their customers or competitors due to their economic strength in that market. The rules are designed to prevent abuses such as discriminatory pricing, or attempts to drive smaller competitors out of the market (e.g. through exclusivity arrangements); and
  
• the creation of anti-competitive market structures through mergers or acquisitions. Whilst the authorities do not oppose the existence of dominant market positions, where these have evolved in the course of normal competition, they will seek to prevent these being created through acquisitions. Mergers and some joint ventures will be subject to merger control rules and may need clearance by competition authorities. Accordingly they can be blocked or subject to certain conditions where the authorities deem this to be necessary. Articles 80 and 81 of the EC Treaty apply to all member states and they are being more rigorously enforced on a regular basis at all levels.

Enforcement of Competition Law

Competition authorities will investigate any suspected anti-competitive behaviour by:

• raiding company offices;
• interviewing individuals; and/or
• issuing information requests..

In addition to direct consequences, there are the costs of damage to reputation and management time and legal expenses incurred in dealing with investigations such as this.

Additionally, if joint ventures and mergers do require clearance, they will often be subject to conditions such as turnover thresholds or prohibition of block transactions.

Action by Shipping Companies

In October 2006 the EU finally ended the exemptions for liner conferences and "tramp" shipping. Although the EU has indicated that its authorities will not act hastily, nevertheless the warning bells have been sounded as all involved in shipping need to get familiar with these rules. In particular anyone involved in shipping (whether it be commercial or recreational) needs to consider whether they are in a dominant position, or party to any anti-competitive agreements or, potentially in breach of any of the competition rule requirements.

The EU authorities have already raided airlines in both the passenger and cargo sectors and imposed substantial penalties on both companies and the executives concerned. The implications for the shipping sector are there for all to see. By considering competition law issues now any company involved in shipping can minimise risk and be ready for any inevitable changes.

Conclusion

Given the seriousness of consequences to both companies and individuals (e.g. a fine of 10% of turnover etc) such issues should be given high priority during the course of 2007. Should any help be required please contact Ashfords who specialise in this type of work.


Ashfords LLP is regulated by the Solicitors Regulation Authority. The information in this note is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.