Ellex successfully represented the defendants in the Senate of the Supreme Court in a case of unfair competition

Ellex has successfully represented defendants before the Senate of the Supreme Court with respect to a cassation claim contesting a judgment of the Riga Regional Court whereby a breach of the unfair competition prohibition was established in the actions of the defendants and a compensation of losses in the amount of almost EUR 30,000 was adjudicated. The judgment of the Senate also provides a number of crucial conclusions regarding conditions for establishment of a breach of the unfair competition prohibition, the standard of proof, and adjudication of the compensation of damages.

In the case in suit, the claimant which is engaged in the logistics sector initially brought an action in court against two defendants, namely, a forwarding company and a natural person who was the former employee of the claimant, alleging a breach of Article 18(2) of the Competition Act which, as alleged in the statement of claim, manifested in unfair economic activity – unwarranted engagement of the forwarder in the economic activity of the claimant according to two transaction schemes. In the opinion of the claimant, the breach of unfair competition prohibition in the actions of both defendants stemmed from the fact that the forwarding company with which the claimant collaborated in the cargo carriage sector, was partially owned by a sister of the other defendant, who was an employee of the claimant. In the opinion of the claimant, all transactions relating to the carriage by road made with the particular forwarding company had caused damages to the claimant; therefore, the claimant sought a recovery of damages in the amount of ~EUR 68,000, jointly and severally, from the defendants which amounted to a two-year profit of the forwarding company. In substantiating both the establishment of the breach of the fair competition prohibition and establishment of the specific amount of damages, among others, the claimant argued that an alleviated standard of establishing a breach and losses is to be applied in cases of breach of the competition law pursuant to Directive 2014/104/EU.

The court of first instance partially satisfied the claim against the company adjudicating approximately EUR 6,800 in losses, while dismissed the claim against the natural person altogether, since the claimant’s employee did not amount to a market participant and a competitor of the claimant during the alleged period of breach. Conversely, the Riga Regional Court upheld the establishing of the breach of the unfair competition infringement by the company, while increased the amount of the indemnity of damages to be recovered from the company up to almost EUR 30,000.

By its judgment of 28 December 2022, the Senate of the Supreme Court revoked the judgment of the Riga Regional Court in the part whereby the claimant’s claim was satisfied and returned the case for a new review at the Riga Regional Court. The judgment of the Senate contains an elaborate criticism of the judgment of the Riga Regional Court.

Among other, in its judgement the Senate focused on the standard of establishing and proving a breach of the unfair competition infringement. First, the Senate confirmed that the list of actions contained in Article 18(3) of the Competition Act is not exhaustive, and other activities, if their nonconformity to the customs of fair economic activity is established, may be recognized as infringement of the unfair competition prohibition. Thus, in order to determine a breach of unfair competition prohibition on the grounds of Article 18(2) of the Competition Act, the court must accurately establish and substantiate with facts established under the procedure set out by the Civil Procedure Act which actions exactly perpetrated by the defendant do not conform to the customs of the fair economic activity and why.

In the opinion of the Senate, the Riga Regional Court had not fulfilled this obligation. The facts that the litigants (claimant and defendant) had used each other’s services and that the defendant company had gained profit from the collaboration are not, in themselves, sufficient to establish the non-conformity to the customs of fair economic activity. Furthermore, the Senate believed that the mere fact that the specific employee has engaged a company partially owned by his sister who was also on the defendant company’s board cannot cause harm to the claimant. The harm incurred by the claimant cannot be dependent on which person exactly provides forwarding services; instead, harm may be caused by a service provided by any intermediary, if it is proven that it was redundant and unreasonably rendered the provision of the cargo carriage service more expensive for the claimant.

Next, the Senate focused on verification of proof of the breach. Here, the Senate viewed critically the fact that in its judgment the Riga Regional Court had recognized that it is “incommensurably difficult or even practically impossible” to prove, by the means set out in the Civil Procedure Act, that during the disputed period engagement of the defendant as the forwarder in ensuring cargo carriages was unwarranted and non-conformant to the interests of the claimant. In the opinion of the Senate, such a conclusion of the regional court bears evidence that the court, based on the evidence in the case, had not gained certainty that the defendant’s actions satisfy the criteria for establishing breach of unfair competition prohibition.

Moreover, the Senate established that the Riga Regional Court had unreasonably referred to Directive 2014/104/EU in establishing infringement of unfair competition prohibition under Article 18 of the Competition Act. Since only infringements of the competition law, which manifest as prohibited agreements or an abuse of a dominant position in the meaning of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) (analogous to Articles 11 and 13 of the Competition Act under the Latvian law), fall within the scope of enforcement of Directive 2014/104/EU, there is no justification to recognize either a direct applicability of the said Directive or any other impact of the Directive to the legal relationship arising out of the alleged breach of the unfair competition prohibition for the purpose of Article 18 of the Competition Act. The foregoing means that in the case of establishing the breach of the unfair competition prohibition it is not permissible to apply a lower standard of proof of infringement, as it is pursuant to Directive 2014/104/EU which is transposed in the Competition Act and the Civil Procedure Act with regard to the bans on prohibited agreements and abuse of the dominant position.

Furthermore, the Senate focused on the issue of establishing the amount of claimed damages. To this end, the Senate emphasized that upon calculating lost profit of the claimant whose rights have been infringed pursuant to the unfair competition prohibition, it cannot be simply presumed that such lost profit might be the same as the profit of the infringing party which it obtained as a result of the respective allegedly infringing transactions. Of decisive relevance is what profit, taking into account the usual course of business, or else the special circumstances, if such are established in the case, would be gained by the market participant whose rights have been infringed, if the infringing activities, which are to be properly established in the case, were not perpetrated.

The case has been returned back to the Riga Regional Court which must adjudicate the claimant’s claim taking into account the conclusions contained in the judgment of the Senate.

The clients were represented by Mārtiņš Gailis, Partner of Ellex in Latvia, and Irina Kostina, Associated Partner.