Cooperation in times of crisis in the offshore- and
shipping sectors – some competition law perspectives
1. Introduction
presentations or conduct compliance reviews.
The demand has declined for many suppliers in the
shipping- and offshore sectors. Declining demand,
partially due to reduced oil price, and business cycles
more generally calls for a response by the suppliers.
2. The relevant competition regulations
For many suppliers cooperation is a natural response.
Cooperation with other suppliers may contribute to
the maintenance of turnover and profits. Cooperation
may also prevent dismissing employees, and may also
prevent capacity investments to depreciate.
However, competition law puts strict constraints
on cooperation – in particular cooperation between
competitors. This brief will describe the constraints on
cooperation imposed by competition law and provide
high-level guidance for cooperation within the
boundaries of competition law. The aim of this memo
is thus to highlight the most important pitfalls.
The Norwegian Competition Act (NCA) Section
10 prohibits cooperation between undertakings
having an object or effect to restrict competition. The
provision is harmonized with the similar prohibitions
in EU (TFEU Article 101 and the EEA-Agreement
article 53). However, according to Section 10
paragraph 3, cooperation that restricts competition is
still legal if it is necessary to create gains that benefit
consumers and that not foreclose all competition.
Competition law also deals with concentrations
such as mergers. A cooperation can in certain cases
be considered as a concentration. For there to be a
concentration there must be a change in control on a
lasting basis. A cooperation between suppliers can be
considered a concentration in two cases:
In a nutshell, cooperation between competitors is
prohibited when the cooperation has as its object
or effect the prevention, restriction or distortion of
competition. Such restrictions are in particular the
fixing of prices, trading conditions, output limitations,
market sharing, customer allocation and information
exchanges about future market behaviour. All of these
issues may arise in connection with restructuring,
refinancing and consolidation.
• Transfer of control to one (or more) of the parties
in the cooperation
• Establishing a joint venture under joint control
(full function joint venture)
The rules may also impact external advisors such
as banks and brokers, facilitation of information
exchanges may also typically involve external
advisors.
3. Cooperation by means of a concentration
(typically mergers or structural joint ventures)
Simonsen Vogt Wiig’s competition team advices on
all aspects of European and Norwegian competition
law and may, on short notice, hold internal
The brief will mostly concern cooperation according
to the NCA section 10, but we will first briefly
describe a cooperation organized as a so-called
concentration.
A concentration is regulated by the NCA section 16.
A concentration associated with sufficient turnover
in Norway cannot be completed before a notification
procedure is implemented. Notification is mandatory
if aggregated turnover of the undertakings involved
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in the concentration is larger than NOK 1 Billion,
and at least one of the undertakings must have a
turnover not less than NOK 100 million. If these
requirements are satisfied the concentration cannot
be completed before cleared by the competition
authorities.
Concentrations below the turnover thresholds are
also jurisdictionally subject to section 16, and the
competition authority may request a notification or
a notification can be done voluntarily. However, if
the competition authorities request a notification
below the threshold it must do so before 3 months
after the agreement is closed.
We also mention that if the concentration has a
sufficient cross-border dimension within EE/EEA,
it might be a duty to notify the concentration to
the EU/EEA authorities (EU-Commission or EFTA
Surveillance Authority). The turnover thresholds
for such notification are substantially higher.
We will not elaborate on the details of EU/EEA
notification in this brief, but will remark that there
is always necessary to establish who the relevant
authority is in the case of a concentration where
the parties involved have cross-border activity.
A concentration requires a lasting change in
control, which may be established by the sale of
shares, shareholder agreements, and in some case
the sale of company assets. A full function joint
venture is a concentration establishing a new
lasting commercially independent entity subject
to common control by the parties. In essence,
joint control means that all parties must agree on
significant commercial decisions, i.e. all parties
can individually block significant commercial
decisions.
The benefit of organizing a cooperation as a
concentration is that it is cleared one time for all
as long as the competition authorities has not
intervened within the deadlines. Hence, as long
as the procedure according to the competition
law is followed there is no competition law
risk. Restrictions between the parties, that is
ancillary restraints, necessary to implement the
concentration will be considered a part of the
concentration and will be cleared together with
the concentration.
However, organizing a cooperation as a
concentration also have disadvantages. It requires
more commitments between the parties and will
establish a lasting venture. If the parties want
to leave the venture and, hence, change control
back to the original situation, a new notification
may be necessary. There is also a risk that the
competition authority will not approve the joint
venture. Hence, for cooperation arrangements
that are intended to be temporary, good reasons
should be present to organize the cooperation as a
concentration.
4. Anticompetitive cooperation
4.1 Cooperation that restrict competition by
object
Cooperation arrangements that restrict
competition by object are such restrictions having
sufficient characteristic to be presumed anticompetitive without any inquiry into the anticompetitive effects. Agreements that typically will
be considered to restrict competition by object are:
• Agreement on prices and price increases
• Agreements to share future price plans
• Agreement that divides markets or customers
between participants
• Agreement on production levels and reduction
in production levels
• Agreements on capacity level and capacity
reductions
Agreements that restrict competition by object are
typically “naked restraints” where it is difficult
to see other possible effects than the restriction
competition.
I practice there is a blurred border between object
and effect restrictions. The more likely the anticompetitive effect is, the stronger the presumption
of illegality.
If a cooperation is considered to restrict
competition by object it will be up to the
parties to document that the cooperation is not
anticompetitive or generate efficiencies that
renders it legal.
4.2 Cooperation that restrict competition by effect
In assessing whether a cooperation restricts
competition an economic analysis must be
performed. This economic analysis must be
performed within accepted methods set out in
guidance and precedence.
The first part of the analysis is to delineate relevant
markets. The relevant market consists of the
supply that is sufficiently substitutable to render a
restriction on competition likely to increase prices
more than five percent above the competitive
level. The relevant market consists of a product
dimension and geographic dimension. The
delineation of the relevant market constitutes the
frames for the analysis of competitive effects and
possible efficiencies. Hence, this market definition
may be crucial for the outcome of the analysis.
Competition analysis is used to assess the effects
on competition. The competition analysis include:
• Identification of the parties in the cooperation
• How the cooperation affect the competition
between the parties
• External factors that may affect the exploitation
of market power
o Competition from suppliers outside the
cooperation
oEntry
o Buyer power
• The total effect on competition, usually with
the aid of economic models
4.3 Efficiencies
Both cooperations that restrict competition by
object and effect may be legal if they generate
efficiencies according to the NCA section 10
paragraph 3. In practice this means that the
cooperation must be necessary, and not be more
extensive than necessary, to generate efficiencies
that benefits consumers. At the same time not all
competition must be foreclosed.
Efficiencies are genuine efficiencies that benefits
society. Transfer of wealth is not efficiencies.
For instance a cooperation that maintains profit
levels and allows for marinating salaries and
other benefits for employees is not considered
to generate efficiencies because of these effects.
Typical efficiencies are better utilization of capacity
in terms of lower production costs, quality
improvements and innovations.
It is the parties to the cooperation that have the
burden of proof in documenting efficiencies
according to Paragraph 3. Such an assessment
should be performed before the cooperation
is implemented and the assessment should be
properly documented- To assess efficiencies an
independent economic expert should be consulted
and provide a report. The assessment should be
administered by outside legal counsel to assure
the benefit of the attorney-client confidentiality
privilege.
4.4 So called ‘ancillary restraints’
Sometimes some restraints on competition are
necessary to implement a cooperation agreement.
For instance, if suppliers decide to share capacity
to reduce costs it may be necessary to announce
intended use of the capacity for planning purposes.
Such restraints are called ancillary restraints
and are assessed together with the cooperation
agreement as a whole. To be considered ancillary,
the restraints must be necessary and proportionate
to facilitate the agreement.
In a cooperation agreement it is important to
assess whether restraints are necessary and can be
assessed together with the cooperation agreement
as a whole.
4.5 Crisis cartels
In competition law there is a concept of “crisis
cartels” which origins from the great depression
in the 1930s. Such cartels were to some extent
accepted by the “New Deal” program to prevent
ruinous competition.
However, since then “crisis cartels” has met scarce
sympathy in competition law enforcement. While
the concept was revitalized after the 2007 economic
crisis, it seems clear that a crisis as such is no
justification to enter into cartels.
However, at least in theory, there are
characteristics associated with crises that may
justify cartels on competition and efficiency
grounds. On such ground is that a temporarily
cartel may contribute to a competitive structure
that might be reinforced in better times. This
theory is based on a “business cycle” perspective
that a recession is temporarily. Maintaining this
structure may be better for competition in the
long run than a period of “ruinous competition”
that renders the market concentrated with fewer
prospects for competition.
We believe that it is very difficult to present
acceptable arguments based on the maintaining
competitive structure theory. However, in some
cases the argument may have merits, or at least
serve as an additional argument together with
other efficiencies.
5. Enforcement and sanctions
5.1 Enforcers
The Norwegian Competition Authority is the
main enforcer of the Norwegian Competition Act.
The EU Commission and the EFTA Surveillance
Authority (ESA) enforces the corresponding
provisions in the TFEU and EEA-Agreement
and have jurisdiction in the presence of crossborder effects. A cooperation may also have
effects in other jurisdictions, such as USA, and
the cooperation may be subject to liability in such
jurisdiction.
Violations of competition law may also be subject
to private enforcement. Such enforcement may
come from parties to agreement who claim that it
is void according to the NCA Section 10 paragraph
2. Buyers may also claim damages. We will briefly
return to damages below.
5.2 Who may be liable?
The main subjects liable for violation of
competition law are the undertakings that are
directly involved in the illegal cooperation.
However other related subjects may also be liable.
The possible liable persons include:
• Undertakings participating in the cooperation
• Associations of undertakings (trade
associations)
• Single persons involved may be subject to
criminal liability
• Third parties that are covered by the wording of
the law
• Third parties that may be liable due to separate
liability for contribution
The consequence of this is that not only the
undertakings themselves, but strategic consultants,
financial institutions, debt holders and other
security holders which may be involved in
strategic decision making, for instance due
to covenants, can, at least in theory be liable
according to competition law.
5.3 Sanctions
Undertakings covered by the NCA section 10 may
be fined. The calculation of fine is regulated by a
fine regulation. An undertaking may be fined up
to 10 percent of the turnover for the last financial
year. The actual calculation of fine depends on
several factors:
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The character of the infringement
The infringement’s impact on the market
The size of the market
The culpability of the parties
Market shares
The implementation of the illegal actions
According to the NCA physical persons
responsible for the violation may be subject to
criminal liability. The liability is fines or sentencing
up to 3 years. Under aggravating circumstances a
person may be sentenced up to 6 years.
We would also like to mention the leniency
program which, in essence, means that parties
that on its own initiative brings forward evidence
to the competition authorities that contribute to
the detection and sanction of a cartel may have its
sanctions reduced, possibly to zero.
5.4 Damages
After a violation of competition law parties are
liable for damages who suffered an economic
loss. Claimants will typically include customers
who claim to have paid to high prices due to
the offences. Not only direct customers, but also
indirect customers in the value chain may claim
damages because the higher prices charged to the
direct customers may have been passed on to the
indirect purchasers.
The parties are likely to be jointly liable for
the damages, hence, putting parties on a more
extended risk than just being liable to its own
customers. Furthermore, if the cooperation causes
a higher equilibrium price in the market, benefiting
suppliers not participating in the cooperation,
parties to the cooperation may be liable for
damages for customers of those suppliers.
Damages may also be claimed by upstream
suppliers to the parties of the cooperation if the
cooperation causes less demand or demand at
lower prices. However, normally it is more difficult
for suppliers to prove damages.
We would like to point of the considerable risk of
damages if the cartel has effect in US, and is subject
tto US antitrust legislation. In that case parties may
be not only liable for damages, but also “punitive”
treble damages.
6. Recommendations
If a cooperation agreement subject to competition
law is planned we advise the following steps to be
taken:
• Consult external counsel
o Attorney-client privilege applies to the
correspondence
o Identify whether the cooperation agreement
is a concentration or agreement according to
competition law
o Identify jurisdictional issues
o Identify whether the agreement restrict
competition by object or effect
o Identify efficiency gains
o Assess the available documentation
o Assess whether an economic expert report
should be made
o Assess compliance adjustments to the
cooperation
o Promulgate compliance guidelines to be in
place from day one
• Make a package of all the documentation
to be in place in case of a competition law
investigation
• In some cases it might be constructive to inform
the competition authority in the planning
process. The competition authority has no
authority to clear a planned cooperation, but
such a meeting may I some cases be useful,
because the competition authority can address
issues that are considered most problematic.
Furthermore, informing the competition
authority may reduce the culpability in case
of investigation and sanction.
For further information, please contact:
Jan Magne Juuhl-Langseth
Partner
T +47 966 44 440
[email protected]
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