In a recent judgement of the Competition and Consumer Tribunal, the Office for Competition obtained confirmation that a public authority, in its dealings with market players, does not qualify as an ‘undertaking’ in terms of the Competition Act, unless it is actually performing a commercial function in the market.
The case concerned a subsidy granted by the Malta Tourism Authority to tourism operators: the claimant alleged that the authority discriminated against it in the grant of said subsidy when compared to other tour operators.
The Office for Competition concluded that Malta Tourism Authority is not to be considered an undertaking for the purposes of Articles 5 and 9 of the Competition Act, Chapter 379 of the Laws of Malta. On the basis of Article 5 of Chapter 409 of the Laws of Malta, the functions of the Malta Tourism Authority are of a purely regulatory nature, and thus cannot constitute commercial activity.
It is important to keep in mind that the Court of Justice of the European Union (CoJ) has repeatedly defined the concept of an undertaking as ‘any entity engaged in an economic activity, regardless of its legal status and the way in which is it financed’; an economic activity is ‘any activity consisting in offering goods and services on a given market’.
In this instance, Article 5 (2) of the Malta Travel and Tourism Services Act (the empowering act for Malta Tourism Authority [MTA]) states that: “In the performance of its functions the Authority shall adopt and follow the policies and plans of the Government and otherwise act in conformity with the provisions of this Act and any other applicable law; and the Authority may make such investments, as the Minister may approve, and as are calculated to assist in the promotion and advancement of Malta as a tourist destination”.
Clearly, therefore, the MTA plays a regulatory role, and not a commercial one, and is thus not an undertaking competing on the market for tour operators.
Although public authorities may qualify as undertakings when engaged in economic activity, they would not do so when their behaviour “is connected with the exercise of the powers of a public authority” (emphasis added).
In Corinne Bodson v Pompes Funebres des Regions Liberees SA, the CoJ held that “an entity acts in the exercise of an official authority where the activity in question is a task in the public interest which forms part of the essential functions of the State’ and where that activity ‘is connected by its nature, its aim and the rules to which it is subject with the exercise of powers …which are typically those of a public authority”.
In an assessment regarding the activity by the public authority in question, it is the nature of the particular activity being conducted, not the legal form of the entity, that is relevant. The matter ought to be reviewed on a case-by-case basis, since there are instances where a public entity may be exercising a commercial function rather than a regulatory role, in which case it would be considered an undertaking in terms of the Competition Act.
The Office held that the MTA does does not fall within the concept of undertaking, in particular because in this case, it exercised its functions as regulator, and not as a commercial undertaking.
Complainant appealed, quoting a previous decision in which MTA had been held to be an undertaking. In that decision, however, circumstances were different and that former complaint concerned the composition of the Board of MTA, which included other private undertakings. That reasoning applied to that particular case only, and could not be extended to the current case.
The Tribunal quoted other jurisprudence in support of the fact that a public entity exercising the essential functions of the State, in which cases a sharp distinction was drawn between cases where the activities are of an ‘economic nature’ and where they are ‘acts in the exercise of public authority’. An entity, public or private, performing the latter “will not be an undertaking, and so will be immune from the application of the rules” (c.f. Jones & Sufrin, pg 110-111).
Indeed, in the above quoted Bodson case of the Court of Justice of the European Union, the granting of concessions for funeral services was considered as the carrying out of an administrative duty on the part of the Staet. If an authority is carrying out a public service, it falls outside the Treaty Competition rules.
The Tribunal held that MTA, in granting these subsidies, exercised a function in the public interest – that of promoting tourism in Malta. It therefore upheld the decision of the Office for Competition – that MTA could not be considered an undertaking in this case and that these activities fall outside the scope of the Competition Act. The decision can be accessed here.
The Office for Competition can, however, exercise its advocacy role and remind authorities of the importance of ensuring that measures that they take do not hinder or distort competition, and this has been done in many cases involving sector-wide measures taken by authorities.