On 5th of July 2018 the European Court of Justice (ECJ) handed down its preliminary ruling in proceedings between, on one hand, flyLAL-Lithuanian Airlines and, on the other hand, two Latvian companies Air Baltic airline and Riga Airport pending in front of the Court of Appeal of Lithuania. The judgement clarified interpretation of Art. 5(3) and Art. 5(5) of Regulation No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (now Art. 7(2) and Art. 7(5) of Regulation (EU) No 1215/2012) in damage claim cases arising from anticompetitive conduct.
The main proceedings
The conflict between the parties initiated in 2004 when Air Baltic commenced operation of flights serving the same destinations as flyLAL from and to Vilnius Airport. Latvian airline started applying predatory prices, aligning the flight times, terminating direct flights after flyLAL stepped out from the market and moved passenger traffic to Riga Airport. As a result, the number of passengers flying from Vilnius through transit in Riga Airport increased five times, which consequently led to flyLAL suffering financial losses and going into liquidation in 2009.
The predatory prices funded by Riga Airport, granted up to 80% reductions to Air Baltic fees for airport services, such as take-off, landing and security and, in fact, Latvian Competition Council by its decision of 22 November 2006 declared such discount system contrary to Art. 102(c) of the Treaty on the Functioning of the European Union (TFEU).
flyLAL sued two Latvian companies for €57million in damages and although the claim against Riga Airport was dismissed, Vilnius Regional Court nevertheless ordered Air Baltic to pay €16million in damages plus a yearly interest rate of 6% to flyLAL.
Parties appealed the decision to the Court of Appeal of Lithuania, which on 12 January 2017 referred three questions to the ECJ on jurisdiction issues.
Firstly, the ECJ ruled that the alleged loss of income incurred due to predatory pricing constitutes “damage” providing basis for jurisdiction under Art. 5(3). It also held that, when the market affected by the anticompetitive conduct is in the Member State where the victim claims to have suffered the damage and lost income, that place must be considered the “place where harmful event occurred”. The market affected is determined by identifying the place where the damaged company conducts the main part of its sales activities, in this case – the Lithuanian market.
The ECJ also reaffirmed its previous case law that “place where harmful event occurred” does not encompass any place where adverse consequences of a conduct can be felt, but only that place where direct or initial damage was suffered.
Secondly, the ECJ found that both (i) the place of conclusion of the anticompetitive agreement, prohibited by Art. 101 TFEU, and (ii) the place where the financial benefit stemming out of agreement was exploited, prohibited by Art. 102 TFEU, can be regarded as “the place where the harmful event occurred” in the context of seeking compensation in the damages claim.
It is up to the national court applying national rules to determine whether the anticompetitive agreement and predatory pricing form two separate infringements or are part of a common strategy to oust flyLAL from the market. In case the latter is found, Court of Appeal will have to determine which specific event is most important to establish one relevant jurisdiction in order to uphold special nature of Art. 5(3) and prevent proliferation of jurisdictions.
Thirdly, in relation to anticompetitive conduct of Air Baltic branch in Lithuania, the Court held that in order to apply Art. 5(5), which provides for jurisdiction to courts for the place where the branch is situated, it is necessary that the branch actually and significantly participated in the abusive practice.
The judgement comes on the same day as the opinion of Advocate General Wahl in another preliminary ruling stemming from €62.5million damage case between Apple and Ebizcuss, in which the French Court of Cassation asked the ECJ to interpret the jurisdiction clause in the supply contract, which did not refer to disputes arising from antitrust infringements. Opinion states that in the context of damages action, in principle, there is nothing to stop application of jurisdiction clause, which would mean that the former Apple distributor Ebizcuss would have to move litigation to Ireland as agreed in the contract.
Authors: Carolina Fernández Bustillo y Emilija Berzanskaite