Lithuanian national railway abused its dominant position in the freight market

Lithuanian national railway abused its dominant position in the freight market

By: Ganado Advocates 

On 12 January 2023, the Court of Justice of the European Union (CJEU) upheld the General Court’s decision on imposing a fine of around €20 million on the Lithuanian national railway company in the judgement of Lietuvos gelezinkeliai v Commission (Case C-42/21 P).

The relevant article in discussion was Article 102 of Treaty of Functioning of the European Union (TFEU). This article prohibits actions by companies which may cause harm to consumers and create an impact on competition, thereby having an exclusionary effect on other potential or actual competitors. It specifically states that “any abuse by…an undertaking’s dominant position within the internal market…. shall be prohibited”. In this case, the CJEU confirmed that the Lithuanian national railway had abused its dominant position in the freight market which consequently resulted in anticompetitive effects.

Background

Lietuvos gelezinkeliai AB, the Lithuanian national railway company (LG) deals with both railway infrastructure as well as the provision of rail transport services. Orlen Lietuva AB (Orlen), is a Lithuanian oil company and a subsidiary of the Polish undertaking PKN Orlen SA.

In 1999, an agreement was entered into between LG and Orlen, for LG to provide its rail transport services to Orlen. One of the routes to transport Orlen’s products involved crossing to the Latvian border and LG concluded a subcontract with the Latvian national railway (Latvian Railway) which consequently operated under LG since it did not have the necessary regulatory authorisation to carry out its activities independently in the territory of Lithuania. Therefore, Orlen relied heavily on LG for most of its refined oil products to be transported.

In 2008, a commercial dispute arose between LG and Orlen, and subsequently, Orlen explored the possibility of contracting directly with the Latvian Railway and discussed its plans to switch their transport services. Later that year, LG identified a defect in several rail tracks including the important route leading to the Latvian border, which was an important shortcut for Orlen’s business. LG removed this 19km stretch of track completely, and all traffic was suspended until all restoration and repair works were completed. It transpired that LG did not intend to repair the 19km track on the shortcut to Latvia and during this time, discussions between Orlen and the Latvian Railway were interrupted.

Orlen lodged a formal complaint with the European Commission and the Commission imposed a fine of close to €28 million under Article 102 TFEU. The Commission found that LG held a legal monopoly under the Lithuanian legislation and was the only rail transport service to transfer oil products for Orlen, and therefore, LG abused its dominant position in the transport of rail freight. Furthermore, LG’s removal of the track prevented the Latvian Railway from entering the Lithuanian rail freight market and gave Orlen the option to use the longer route to Latvia, which would only require the services of LG.

LG brought an action by seeking the annulment of the Commission’s decision and reduction of the fine before the General Court of the European Union. The General Court dismissed the appeal, however, it did reduce the fine to around €20 million. LG then brought an appeal before the Court of Justice to set aside the General Court’s judgement.

CJEU considerations

On the first ground of appeal, LG stated that the General Court erred in law by not applying the test established in the Bronner[1] case. This test is used to establish whether abuse under Article 102 TFEU exits. However, the General Court stated that this test does not apply to this specific case. The Bronner conditions usually impose a high threshold when assessing the obligations on dominant companies in the internal market. The following conditions need to be fulfilled before a refusal by a dominant company to allow access to the service can constitute abuse under the article:

The refusal is likely to eliminate competition.

The refusal cannot be objectively justified.

The service is absolutely necessary to other companies.

The General Court found that in this instance it was not only a problem of access, but a complete destruction of railway tracks. The Court of Justice clarified that Article 102 TFEU must be interpreted objectively and further stated that the effect of the company’s dominant power on trade within the internal market should be assessed. In this instance, there was a destruction of the railway infrastructure which resulted in the whole asset itself becoming unusable by the dominant undertaking itself. This destruction prevented market entry completely. The Court of Justice stated that the General Court was correct in their assessment and that this case was to be interpreted as an independent form of abuse. Therefore, such removal of railway infrastructure did not need to be assessed under the aforementioned Bronner conditions.

The Court of Justice further denied examining the arguments raised by LG on the second ground of appeal where it stated that the General Court had carefully considered the findings of the Commission and there was no further reason to discuss how LG abused its dominant position under the meaning of Article 102 TFEU. Furthermore, LG rejected the General Court’s justification of the Commission’s finding that the 19 km track was removed on purpose to prevent the conclusion of the discussions between Orlen and the Latvian Railway. However, the Court stated that it was evident that LG was aware of Orlen’s plans to change services, and therefore, this could not be further challenged.

LG, on its third ground of appeal, noted that the General Court was incorrect by upholding the Commission’s decision that LG’s removal of the track was capable of restricting competition. In this regard, the General Court had noted that LG had a “special responsibility” to not allow its conduct to impair competition due to its dominant power in the industry. The Court of Justice also rejected LG’s argument in this regard.

On the last ground of appeal, LG criticised the General Court’s assessment on the fine it imposed on it. The Court of Justice stated that the General Court seems to have used its unlimited jurisdiction in the assessment of fines set by the Commission. Therefore, there was nothing further to discuss according to the Court.

Concluding remarks

LG was not successful in any of the grounds of appeal that it raised and therefore, the CJEU dismissed the appeal and upheld the General Court’s decision.

The interpretation of Article 102 TFEU is constantly improving, and this case was assessed as a separate form of abuse where the Bronner conditions were not applied. The complete removal of a railway infrastructure had anticompetitive effects where it restricted other service providers to enter the freight market.

____________

[1] Case C-7/97, Bronner v Mediaprint (26 November 1998).

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.

This article was first published on The Malta Independent on 12/07/2023 and written by Dr Simay Cilingir (Trainee Advocate, Shipping).

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