Britned Development Ltd v ABB

General points Para. 28

BritNed’s factual witnesses Para. 32

Mr Mathew Rose Para. 33

Mr Michael Jackson Para. 36

ABB’s factual witnesses Para. 39 (i) Mr Hans-Åke Jönsson Para. 40 (ii) Mr Peter Leupp Para. 47 (iii) Mr Stefan Ekman Para. 52

Mr Magnus Larsson-Hoffstein Para. 56 (v) Mr Hans-Magnus Röstlund Para. 61

The documentary evidence Para. 64

The Decision of the European Commission Para. 67 (a) The law regarding the bindingness of decisions Para. 67 (b) My approach in the case of the Decision Para. 68

The expert evidence Para. 72 (6) Overview Para. 76 D. THE NATURE AND OPERATION OF THE Para. 80 CARTEL (1) General nature and operation Para. 81 (2) ABB and the Cartel Para. 90 E. THE CHARACTERISTICS OF SUBMARINE Para. 97 CABLES (1) Introduction Para. 97 (2) The difference between submarine and underground Para. 98 cable projects

Alternating current or direct current Para. 103 (4) Cable width Para. 108 F. THE HISTORY OF THE BRITNED TENDER Para. 111 (1) Genesis Para. 111 (2) The lots Para. 114 (3) Transmission capacity Para. 115 (4) The OJEU Notice (August 2005) Para. 117 (5) BritNed’s negotiating team Para. 118 (6) Expressions of interest (September to October 2005) Para. 120 (7) ABB’s tender team and its approach to tendering Para. 122

The ABB tender team Para. 122 (b) ABB’s methodology during the “technical” process Para. 126

Pre-tender communications Para. 128

Initial design on tender Para. 129

Costings Para. 130 (iv) Risk review Para. 133

Submission of a tender Para. 134 (vi) Use of Product Pricing Models Para. 135 (c) The process post-tender Para. 136

Pre-qualification to tender Para. 137 (9) Tender evaluation “Phase One” Para. 138 (10) ABB’s discussions with Nexans Para. 141 (11) The ILEX Study (May 2006) Para. 142 (12) Prysmian did not submit a tender (June 2006) Para. 143 (13) Areva did not submit a tender (June 2006) Para. 146 (14) Nexans’ tender (June/July 2006) Para. 147 (15) ABB’s tender (June 2006) Para. 148 (16) BritNed’s position at this point Para. 149 (17) Evaluation by BritNed Para. 150 (18) Tender evaluation “Phase Two” (July 2006 onwards) Para. 152 (19) Best and final offers (March 2007) Para. 158 (20) Last and final offers (March 2007) Para. 160 (21) Final cable price negotiations (April 2007) Para. 161 (22) Letter of intent and contract Para. 167 (23) The price offered by ABB over time Para. 169 G. COMPETITIVE PRESSURES ARISING IN THE Para. 171 NEGOTIATION PROCESS (1) Introduction Para. 171 (2) The limited response from bidders that BritNed had to Para. 173 contend with (3) The various commercial pressures that BritNed sought Para. 176 to deploy during the negotiations

The commercial pressures identified Para. 176 (b) Keeping Siemens in Para. 177

Full bipole versus simple bipole Para. 182 (d) Comparison with NorNed Para. 184

Risk of the project not going ahead Para. 188 (f) ABB’s lack of its own cable laying vessel Para. 190 (g) Perception that ABB needed the work Para. 197

The advantage ABB derived from its participation in Para. 201 the Cartel

Introduction Para. 201 (b) BritNed’s position Para. 204 (c) Approach to analysing ABB’s knowledge advantage Para. 211

Who knew about the Cartel and who did not know about Para. 220 the Cartel?

What these persons knew regarding the BritNed bid? Para. 226

The fact that projects were allocated by the Cartel and Para. 227 that BritNed was allocated to ABB

Likely absence of competition from Japan/Korea Para. 230

Level of competition from European suppliers as regards Para. 234 cable projects

Level of competition as regards the Converter element Para. 243 and Lot 3

Conclusion Para. 247

Whether, and if so how, any “useful” knowledge Para. 249 regarding competition could have been deployed within ABB

Introduction Para. 249

Direct influence on the level of the bid Para. 252

Conclusions Para. 284

The approach of Dr Jenkins Para. 288

A summary of Dr Jenkins’ approach Para. 288 (b) Statistical tools and devices Para. 293 (i) What is a coefficient? Para. 293

Correlation Para. 294

Measuring correlation Para. 295 (iv) Regression analysis Para. 299

Testing how good a model is: statistical significance Para. 303 (vi) The Practical Guide on Quantifying Harm Para. 309

One-sided and two-sided hypothesis testing Para. 310

Dr Jenkins’ dataset Para. 312 (d) Information regarding each project forming part of Dr Para. 314 Jenkins’ dataset (e) Dr Jenkins’ process of normalisation Para. 316 (f) Dr Jenkins’ regression analysis Para. 318

The approach of Mr Biro Para. 321

A summary of Mr Biro’s approach Para. 321 (b) Mr Biro’s first approach: a price comparison analysis Para. 323 controlling for ABB’s actual costs of supply

Overview Para. 323

Comparable projects Para. 325

Multiple margins and margin consolidation Para. 326

Calculation of gross margin Para. 327

An econometric analysis of the relationship between Para. 334 prices and ABB’s actual costs of supply (d) A price comparison analysis which does not directly Para. 339 control for ABB’s actual costs of supply, but instead uses proxy measures based on the technical characteristics of the projects

A critical assessment of the two approaches Para. 343

Introduction Para. 343 (b) The reliability of the ABB data Para. 349

Dr Jenkins’ criticisms Para. 349 (ii) Reliability of direct costs Para. 356 (iii) Reliability of common costs Para. 361 (iv) Baked-in inefficiencies Para. 365

Cartel savings Para. 369 (vi) Lost bids Para. 372

Successful Cartel submarine bids Para. 374

Reliability of Dr Jenkins’ model Para. 376 (i) The relevant uncertainties Para. 376 (ii) The inclusion of Cartel projects Para. 382

The inclusion of underground cable projects Para. 388 (iv) Exclusion of the time trend variable Para. 398

Exclusion of the order backlog variable Para. 402

Which approach is preferable? Para. 414

The reliability of Mr Biro’s model Para. 414

The reliability of Dr Jenkins’ model Para. 417

Appropriateness Para. 419

Introduction Para. 427

Was there a directly influenced overcharge in ABB’s Para. 438 common costs?

Baked-in inefficiencies Para. 445 (d) Cartel savings Para. 454

Was there an indirect influence on ABB to be Para. 459 uncompetitive?

Conclusion Para. 464 J. THE LOST PROFIT CLAIM Para. 466 (1) Introduction Para. 466 (2) The law Para. 468 (3) The facts Para. 470

Introduction Para. 470 (b) BritNed’s default position Para. 472 (c) Non-price factors affecting capacity choice Para. 475

Unproven technology Para. 476

Bigger is not necessarily better Para. 477

A limit of 1,320MW Para. 480

A flexible capacity Para. 481

Conclusion Para. 482

The need to make a choice between Base Cases Para. 483 (e) The choice actually made by BritNed Para. 487

The counterfactual assessment Para. 497

Dr Jenkins’ approach Para. 497 (b) At what price would ABB have tendered for Base Case Para. 502 3?

Conclusion Para. 507

Directive 2003/54/EC Para. 516 (c) Domestic provisions Para. 519 (d) BritNed’s application for an exemption Para. 520

The arguments Para. 524

ABB’s contentions Para. 524 (b) BritNed’s response Para. 527

The proper construction of the IRR Cap Para. 529 (5) The law Para. 531

A brief statement of the relevant principles Para. 531 (b) Has BritNed suffered any loss at all? Para. 534 (c) British Transport Commission v. Gourley Para. 538 (d) Conclusion Para. 541

Assessing the future effect of the IRR Cap Para. 542 L. THE COMPOUND INTEREST CLAIM Para. 543 M. DISPOSITION Para. 550

TABLES AND FIGURES

INTRODUCTION (1) The Cartel

By a decision of the European Commission dated 2 April 2014 in Case AT.39610 – Power Cables (the “Decision” (Footnote: ¹)), the European Commission found the existence of a cartel (the “Cartel”) in relation to (extra) high voltage submarine and underground power cable projects.

The Cartel was global, with participants from Europe, Japan and Korea. Amongst the undertakings participating in the Cartel were the Defendants, collectively referred to herein as “ABB”.

The Cartel operated between 1999 and 2009.

BritNed’s claim and ABB’s response to that claim

The Claimant – “BritNed” – is jointly owned by National Grid and TenneT, the operators of the UK and Dutch electricity grids. BritNed owns and operates the BritNed “Interconnector”, a 1,000-megawatt (“MW”) capacity electricity submarine cable system connecting the Dutch and UK electricity grids. It was constructed between 2009-2010.

BritNed was a customer of ABB. ABB supplied the cable element of the BritNed

BritNed contends that, by reason of the Cartel and its operation, it has suffered loss and damage. It brings a claim in tort against ABB, for breach of statutory duty, specifically a restriction of competition by object contrary to Article 101 of the Treaty on the

BritNed claims three heads of loss:

ABB cannot, and does not, deny the existence of the Cartel, nor its participation in the Cartel. Nevertheless, all three of BritNed’s heads of claim are disputed:

Approach and the structure of this Judgment

The points in dispute between the parties are thus both extensive and fundamental. This Judgment approaches matters in the following way:

LEGAL PRINCIPLES AND APPROACH (1) Elements of the tort

In English law, competition law infringements are vindicated as statutory torts. To establish a claim, two things must be shown: (i) an infringement of competition law; and (ii) actionable harm or damage, caused by that infringement. (Footnote: ²) As has been stated in the context of the tort of negligence – but the point holds good for breach of statutory duty – “[i]t is a truism that a fundamental requirement for a claim in negligence is that the plaintiff has suffered some past “damage”. A breach of duty by the defendant is not enough. The cause of action will not accrue until actionable damage occurs. The damage is said to form the gist of the action. Recovery is not limited to this threshold

“gist damage”, but without it there is no cause of action.” (Footnote: ³) Proving actionable damage inevitably involves demonstrating a causal link between the infringement and the damage, generally using the “but for” test of causation.⁴

It is often said that in terms of what a claimant has to prove in order to recover a loss depends upon the distinction between past facts on the one hand and future events or hypothetical actions on the other. In Mallett v. McMonagle, (Footnote: ⁴) Lord Diplock said this:

“In determining what did happen in the past a court decides on the balance of probabilities. Anything that is more probable than not it treats as certain. But in assessing damages which depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the chances that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards.”

This is a helpful summary of the law. In order to apply this statement in the present case, it is necessary to unpack a little further the implications of Lord Diplock’s statement:

A preliminary pleading point: the Overcharge Claim and the definition of “overcharge”

In this case, the infringement of competition law has been established by the Decision. But the question of whether that infringement has caused actionable harm or damage to BritNed is in dispute and for me to determine.

So far as the Overcharge Claim is concerned, the Particulars of Claim plead that

There was a dispute between the parties as to how this unlawful inflation of price – the overcharge – was to be assessed. Two alternatives were contended for:

ABB contended that the recoverable overcharge was the first of these two alternatives. ABB’s position is stated in its written closing submissions: (Footnote: ¹⁷)

“296.

BritNed’s pleaded claim in respect of overcharge is as follows:

“As a result of the activities carried out by ABB through their participation in the Cartel from 1 April 2000 to 17 October 2008, BritNed: (a) paid a price under the Agreement that was unlawfully inflated above the price which would have prevailed had there been no Cartel.”

297.

The Agreement in question is the contract between BritNed and ABB for the BritNed Works signed on 21 May 2007.

298.

Both Mr Biro and Dr Jenkins, in considering the competitive price absent the Cartel, had used ABB’s data from before and after the Cartel: they have therefore proceeded on the basis that the competitive price is the price that ABB would have charged to BritNed absent the Cartel (the “ABB counterfactual price”).

299.

Although its position is not clear, during the course of the trial BritNed may have posited a further counterfactual, based on the premise that a third party other than ABB would have won the project at a price lower than the ABB counterfactual price.

300.

ABB submits that it is not open to BritNed to advance this argument for the first time during the course of the trial. It has not been considered by the experts and ABB has not had the opportunity to address it, by way of disclosure or factual or witness evidence.” BritNed contended for the second of the two alternatives. (Footnote: ¹⁸)

Considering the terms of BritNed’s pleading – which, as it seems to me, is certainly the crucial and perhaps the only question that arises – I have no doubt that BritNed’s pleaded case on overcharge defines the overcharge as the second of the two alternatives described in paragraph 15 above, that is the difference between the price actually agreed and the price that would have resulted had there been no Cartel, whoever the party contracting with BritNed would have been in the counter-factual world. As to this:

Accordingly, the overcharge that I am seeking to assess is the difference between (i) the price agreed between ABB and BritNed and (ii) the price that would have been agreed – whether with ABB or by another provider – had the Cartel not operated. That said, for the reasons given in paragraph 17(4) above, the sort of price that a third-party provider would offer is extremely difficult to determine, given the (lack of) evidence. Inevitably, that has a bearing on my approach to the assessment of the overcharge.

A presumption of overcharge and the principle of effectiveness

Directive 2014/104/EU (the “Damages Directive”), which has been implemented into English law by an amendment to the Competition Act 1998, requires Member States to establish a presumption of harm in cartel damages cases.²³ The rationale for this is explained in Recital (47) of the Damages Directive:

“To remedy the information asymmetry and some of the difficulties associated with quantifying harm in competition law cases, and to ensure the effectiveness of claims for damages, it is appropriate to presume that cartel infringements result in harm, in particular via an effect on prices. Depending on the facts of the case, cartels result in a rise in prices, or prevent a lowering of prices which would otherwise have occurred but for the cartel. This presumption should not cover the concrete amount of harm. Infringers should be allowed to rebut the presumption. It is appropriate to limit this rebuttable presumption to cartels, given their secret nature, which increases the information asymmetry and makes it more difficult for claimants to obtain the evidence necessary to prove the harm.”

Paragraph 13 of Schedule 8A to the Competition Act 1998 now provides:

“For the purposes of competition proceedings, it is to be presumed, unless the contrary is proved, that a cartel causes loss or damage.”

BritNed accepted that neither the Damages Directive nor the amendment to the Competition Act 1998 applied in this case. Paragraph 13 of Schedule 8A applies to cases arising after March 2017 and so does not apply to this case.

Nevertheless, BritNed contended that the principle of effectiveness requires a presumption of harm. BritNed invited me (rebuttably) to presume that the Cartel had caused loss to BritNed.

I reject this contention:

ABB’s prior bad conduct

In opening, BritNed stated that ABB was a “dirty company”:²⁶

“My Lord, in 22 years of practice, this is not a word I have used before any tribunal, but I’m afraid to say that ABB is a dirty company. For over two decades, its power business has involved itself in at least three pernicious global cartels, covering power cables, gas-insulated switchgear and power transformers, and a fourth cartel actually in pre-insulated pipes, which is something slightly different. These cartels were organised and implemented at the highest levels within ABB.”

The suggestion that the court should have regard to the fact that the Cartel was preceded by other cartels involving ABB’s power division was reiterated in BritNed’s written closing submissions. (Footnote: ²²)

ABB contended that this was a jury point to be disregarded.²⁸ I agree:

THE EVIDENCE (1) Introduction

The evidence before me comprised the following types:

Each type of evidence gave rise to particular difficulties in terms of evaluation and the drawing of conclusions. Sections C(1) to C(5) describe and assess these various different types of evidence. Section C(6) provides some overview.

Factual witness evidence

General points

The general problems presented by witnesses of fact are well-known and have been clearly articulated by Leggatt J in Gestmin SGPS S.A. v. Credit Suisse (UK) Limited, [2013] EWHC 3560 (Comm) at [15] to [22]. Even if I had heard evidence from a number of persons regarding the operation of the Cartel, reconstructing its operation with particular regard to the BritNed Interconnector would have been extremely difficult.

As it was, I only heard evidence from one person with actual knowledge of the Cartel.

Thus, not only did the relevant events take place a number of years ago, but also the witnesses whose evidence I received could, with one exception, at best and at most, describe their innocent actions in the context of a cartelised bid. Inevitably, I have had to tread extremely carefully in assessing such evidence, and I say that out of no disrespect to these witnesses.

The evidence of the exceptional witness – Mr Hans-Åke Jönsson – who did know of the Cartel presented different and even greater problems, which I consider in greater detail below. In substance, however, those problems are twofold:

BritNed’s factual witnesses

BritNed called two factual witnesses, Mr Mathew Rose and Mr Michael Jackson.

Mr Mathew Rose

At the times material to these proceedings, Mr Rose worked for National Grid plc. He worked for National Grid plc from 1999 to 2013, in a variety of roles. Between July 2005 and October 2007, Mr Rose was the managing director of BritNed, where he was responsible for running the BritNed project alongside his colleague, Mr Dick Bos. Mr Rose and Mr Bos were joint Project Managers, and they led the BritNed project team. That does not mean to say that Mr Rose was always, or even mostly, involved in the front-line negotiations regarding the BritNed project – often such negotiations or dealings would be handled by other members of the team. But I accept that Mr Rose was centrally involved in the BritNed project between July 2005 and October 2007.

Mr Rose made three written statements in these proceedings:

Mr Rose was an impressive witness. Highly articulate, he radiated a quiet confidence in his abilities, and had a good recollection of the events he had been involved in and the way the BritNed project had developed. He was, during the time of his involvement in the BritNed project, unaware of the Cartel. His subsequent knowledge of the existence of the Cartel inevitably coloured how he saw past events: unsurprisingly, he saw them in a different light. For instance, the reason for the non-participation of certain parties in the BritNed tender, which might have puzzled him at the time, became clearer over time. I regard it as inevitable that Mr Rose’s recollection would be coloured by events he learned of subsequently. I consider he did his best to separate what would have been his thinking in 2005-2007 and what his interpretation of those events was now, in light of his appreciation of the existence of the Cartel. He was an honest, straightforward and, as I have said, impressive witness.

Mr Michael Jackson

Mr Michael Jackson provides (through his company, Mike F Jackson Consulting Limited) consultancy services to a range of clients in the power sector. Between August 2006 and August 2008, he was engaged, as an independent contractor, as commercial manager for the BritNed project. His primary role was to lead BritNed’s negotiation team.

Mr Jackson made one witness statement in these proceedings, dated 28 April 2017 (“Jackson 1”). He gave evidence on Day 4 (12 February 2018).

Mr Jackson was a bluff and forthright witness. He gave his evidence honestly, but I consider he had greater difficulty than Mr Rose in separating his subsequent knowledge about the Cartel from his attempt to recollect his thinking at the time. As I have already stressed in the case of Mr Rose, I regard this colouring of recollection as inevitable, and this is in no sense a criticism of Mr Jackson. Nevertheless, it is important to bear this factor in mind: it certainly coloured Mr Jackson’s evidence regarding the “discount” provided by ABB during the course of the final stages of the negotiation of the contract between BritNed and ABB. It will be necessary to return to this discount later on in this Judgment: it constitutes one of the clearest indicators that ABB was under some competitive pressure, which of course sits uneasily with the Cartel effects contended for by BritNed. Mr Jackson’s evidence on this point was a little skewed by the fact that he could not reconcile the granting of this discount by ABB with his after-the-event views of the effect of the Cartel.

ABB’s factual witnesses

ABB called five witnesses in the following order:

Mr Hans-Åke Jönsson

Mr Jönsson is now retired. He worked for ABB between 1982 and 2009. For a short period after 2009, he worked as a consultant. He knew of the Cartel. His departure from ABB in 2009 was as a consequence of his involvement in the Cartel. The terms of his departure from ABB were set out in an agreement (that remains confidential, but which I have seen) made in 2010.

From 1994 to 2000, Mr Jönsson was the general manager of the ABB Reactive Power Compensation Business in Västerås, Sweden. From 2001 to 2009, he was the general manager and vice-president of the ABB High Voltage Cables business. During the period – specifically, between 2004 and 2008 – he was additionally the manager of ABB’s cables factory in Karlskrona.

Mr Jönsson made four witness statements in these proceedings:

Mr Jönsson gave evidence on Day 5 (13 February 2018), Day 6 (14 February 2018) and Day 7 (15 February 2018).

Mr Jönsson was a self-confessed cartelist. I consider that he had an obvious interest in minimising his – and therefore ABB’s – involvement in the Cartel. I do not consider that Mr Jönsson was a dishonest witness, but I do consider that he did, throughout his evidence, seek to minimise the effect of the Cartel and ABB’s (and his) role in it, so far as he possibly could. Mr Jönsson was an extremely clever man, and his approach was to accept, pretty much without question, unequivocal findings in the Decision. However, the moment there was wriggle-room – for instance, where a more benevolent interpretation of the facts could be taken or where there was an alternative (non-Cartelrelated) explanation for events – Mr Jönsson showed a distinct pre-disposition to opt for this, more advantageous, course. That does not mean to say that Mr Jönsson was wrong in what he said; still less that he was being dishonest. But the trend was very much oneway, and that is a factor I consider that I must bear in mind when evaluating Mr Jönsson’s evidence.

There was, in short, a lack of frankness in Mr Jönsson’s evidence as to how, in practical terms, the Cartel operated, specifically in relation to the BritNed Interconnector.

Accordingly, I am minded to treat Mr Jönsson’s evidence with a relatively high degree of caution. That is particularly the case because – as is frequently the situation with cartels – the documentation regarding the detailed operation of the Cartel was probably always quite sparse, and most of such documentation as did exist has either failed to survive or else is kept under wraps by the European Commission itself (and is not available to me).

Mr Peter Leupp

At the time of the BritNed project, Mr Leupp was the head of division, Power Systems, within ABB Limited, based in Switzerland. ABB’s cables business was, at this time, within the Power Systems Division.

Mr Leupp was involved in the process by which ABB sought to tender for the BritNed project. He claimed not to be aware of the existence of the Cartel, and BritNed did not seek to contend otherwise. I accept this evidence.

Mr Leupp was in a high-level position within ABB. (Footnote: ²³) He would have relied on others to brief him on the details of the BritNed project, including the competitive dynamics and the state of negotiations. Those briefing Mr Leupp would have included Mr Jönsson, although Mr Jönsson did not report directly to Mr Leupp. Mr Jönsson reported to a Mr Per Haugland (who did not give evidence before me), who reported to Mr Leupp. (Footnote: ²⁴)

Mr Leupp made one witness statement dated 27 September 2016 (“Leupp 1”). He gave evidence on Day 7 (15 February 2018).

Mr Leupp was a precise, clear and articulate witness. I regard his evidence as reliable.

Mr Stefan Ekman

Mr Ekman is now the senior advisor (finance) at NKT HV Cables AB. Prior to its sale to NKT in March 2017, Mr Ekman was the manager business controlling for ABB’s High Voltage Cables business from 2010. Prior to that, he was the chief financial officer in the same business, which was located in Karlskrona, Sweden.

Mr Ekman had not been involved in the Cartel,³¹ as BritNed accepted. He also played no role in the negotiation of the BritNed contract. His evidence was submitted in response to certain points made by Dr Jenkins – BritNed’s expert economist – regarding ABB’s order backlog. The significance of this point – and the significance of Mr Ekman’s evidence – is considered further below.

Mr Ekman made one witness statement dated 9 November 2017 (“Ekman 1”). He gave evidence on Day 8 (16 February 2018).

Given the nature of his factual evidence – which essentially drew him into a dispute regarding the modelling of the effect of the Cartel and the extent of the overcharge between the expert economists – Mr Ekman was (I find quite understandably) somewhat of a defensive and cautious witness, determined to speak only to matters within his knowledge. Sometimes that caution was a little excessive: there were times when Mr Ekman declined to be drawn even on documents referenced in his own statement. But the fact is that because of the somewhat recondite area on which he was giving evidence, his defensiveness and caution were perfectly understandable, and I consider that he was doing his very best to assist the court and that his evidence is reliable.

Mr Magnus Larsson-Hoffstein

Mr Larsson-Hoffstein is a project manager at NKT HV Cables (Sweden) AB, a position he has held since 1 February 2017. Prior to that date, between late 2007 and 31 January 2017, he was employed in the same position by ABB AB. He originally joined ABB AB in 2000.

Mr Larsson-Hoffstein was centrally involved in the tender process for the BritNed project. He had a team of people under him, working on the tender, and there were several echelons of people above him in the organisation (including Mr Jönsson) to whom he reported (directly or indirectly) and who also (directly or indirectly) had input into the tender process.

Mr Larsson-Hoffstein was not involved in nor aware of the Cartel, (Footnote: ²⁵) and this evidence was not challenged by BritNed. (Footnote: ²⁶) At the trial, Mr Larsson-Hoffstein made a single witness statement dated 6 February 2017 (“Larsson-Hoffstein 1”). He gave evidence on Day 8 (16 February 2018).

Mr Larsson-Hoffstein’s English was good, but not as good as the other witnesses called by ABB. Nevertheless, I am satisfied that he understood all of the questions put to him, and his answers were clear. He was a transparently honest witness, who provided me with clear insight into the way in which ABB put together tenders and conducted its negotiations.

Subsequent to the trial, and in order to deal with a discrete point regarding the cost of copper purchased by ABB for use in the cable for the BritNed Interconnector, Mr

Mr Hans Magnus Röstlund

Mr Röstlund began working for ABB in 2000. Throughout his career he was involved in sales. He was not involved in, nor aware of, the Cartel (a fact which BritNed did not challenge).³⁴ He commented on power cables projects from a technical perspective. He was not directly involved in the BritNed project but provided evidence regarding power cables projects more generally.

Mr Röstlund made two witness statements in the proceedings, the first dated 12 July 2016 (“Röstlund 1”) and the second dated 6 February 2017 (“Röstlund 2”). He gave evidence on Day 9 (19 February 2018).

Mr Röstlund was a straightforward and extremely competent witness. He knew what he was talking about and was careful to make clear the limits of his knowledge (in particular on specific technical aspects). He was an impressive witness.

The documentary evidence

In the ordinary course, when assessing factual evidence, a Judge has well in mind the approach of Lord Goff in Grace Shipping Inc. v. CF Sharp and Co (Malaya) Pte Ltd [1987] 1 Lloyd’s Rep. 207 at 215:

“In such a case [where witnesses were seeking to recall events and telephone conversations of five years earlier] memories may very well be unreliable; and it is of crucial importance for the judge to have regard to the contemporary documents and to the overall probabilities…”

Whilst I obviously have had regard to the contemporary documents, it is (as I have said) in the nature of cartels that material documents are sparse. Either notes or records are not kept or else they are destroyed. In the case of the Cartel, and ABB’s recording of its activities, the practice appears to have been for ABB to keep as few records as possible. Mr Jönsson’s evidence was as follows: (Footnote: ²⁷)

There are thus significant gaps in the contemporary documentary record. In the first place, there is before the court only ABB’s disclosure; (Footnote: ²⁹) and that, as Mr Jönsson made clear, was an intentionally incomplete record.

The Decision of the European Commission

The law regarding the bindingness of decisions

The relevant law may be stated in the following propositions:

My approach in the case of the Decision

Applying this approach to the Decision is relatively straightforward. ABB did not seek to challenge the operative parts of the Decision nor, indeed, the recitals in the Decision that might be said to constitute part of the essential basis for a decision. (Footnote: ³⁶) Indeed, Mr

The problem is that most of the Decision does not deal with the BritNed Interconnector, although some reference is made to it. The Decision – entirely unsurprisingly – operates at an altogether higher level of generality, since it is concerned with the Cartel generally and not with any single project that was the object of the Cartel. In this case, of course, I am concerned only with the BritNed Interconnector: obviously, the findings I make will be made against the backdrop of the fact that the Interconnector was sold in a cartelised market, but it is difficult to see what specific findings this impels me to.

There are two other factors that are relevant to the weight that I attach to the Decision:

In these circumstances, I am inclined to be cautious in terms of the weight I attach to non-binding recitals in the Decision. The statements by the European Commission may well be justifiable: but on these points I am the determiner of fact, and I am only prepared to accept a non-binding statement by the European Commission where it seems to me that it is a finding I can properly make on the evidence viewed as a whole.

The expert evidence

I heard evidence – over six days – from two expert economists. BritNed called Dr Helen Jenkins of Oxera; ABB called Mr Zoltan Biro of Frontier Economics.

The experts submitted their reports in these proceedings in accordance with my order of 20 July 2017. That order required the parties to produce a list of issues to be addressed by the experts in an agreed form. That list was then supplemented by a statement by

In all, the following reports were submitted by the experts:

The experts gave evidence in two stages. Before any factual evidence was called, I indicated that it would be helpful if each expert could provide a neutral explanation, under oath, of their working methodology. This came to be referred to as the “teach-in” and it took place on Day 3 (9 February 2018), after the parties’ oral openings, which took place on Days 1 and 2 (7 and 8 February 2018). The experts were then crossexamined, for just over two days each, on Days 9 to 13 (19 to 23 February 2018). Both experts were extremely impressive witnesses. I consider that they did their very best to assist the court in what was, on any view, a complex and difficult exercise.

Overview

Each of the different types of evidence before me has its strengths and weaknesses. The factual evidence, the documentary evidence and the Decision inform the substance of Sections D, E F and G below. The expert evidence, although it features incidentally in these Sections, is on the whole treated separately, in Section H. The various strands are then brought together, and the various claims and defences determined, in Section I and the subsequent Sections of the Judgment.

In considering the various strands of evidence before me, I have been concerned to build a picture of the relationship between BritNed and ABB and the manner and extent to which that relationship was affected by the Cartel. Without building as comprehensive a picture as possible, it will be difficult to discern the true nature and true effects of the Cartel.

In opening, BritNed said that “[t]he narrative side of the case, in terms of the contours and fabric of the Cartel, are in my submission critically important when it comes to understanding the factual evidence.” (Footnote: ³⁷) I agree with this statement, and consider the general nature and operation of the Cartel in Section D below. But that is not the only factual aspect that is of critical importance. Of equal importance are the characteristics of submarine cable projects (Section E), the history of the BritNed tender (Section F), and the competitive pressures that arose or – because of the Cartel – did not arise during the negotiating process (Section G). As I have noted, the expert assessment stands somewhat separate but also draws on this material. For that reason, I consider it separately (Section H).

The material before me inevitably has gaps. These I seek to bridge through careful deployment of the broad brush. I have not considered it necessary or appropriate to draw adverse inferences in relation to the absence of material before me, although I was invited to do so by BritNed. (Footnote: ³⁸) It seems to me that, at least in this case, it would be a mistake to do so. I am not concerned, as I have noted, in determining the existence of the Cartel nor in deciding ABB’s participation in it. These are givens. I am concerned with the economic effects of the Cartel, translated into a claim for damages. To draw adverse inferences would be a distortion of the process of assessment that I must undertake, in much the same way as a presumption of overcharge for the reasons given above. (Footnote: ³⁹)

THE NATURE AND OPERATION OF THE CARTEL

I shall consider the nature and operation of the Cartel first in general terms (Section D(1)), before turning to ABB’s specific role and involvement in the Cartel (Section D(2)).

General nature and operation

The Cartel had its genesis in a perceived excess of capacity amongst cable suppliers. (Footnote: ⁴⁰) Although there were calls to reduce existing excess capacity, (Footnote: ⁴¹) the Cartel sought to deal with this problem by maintaining price levels and allocating bids. (Footnote: ⁴²)

Essentially, the Cartel operated on a territorial basis, using a “home territory” principle. (Footnote: ⁴³) Thus, Japanese and Korean producers would not compete for power cable projects in the European home territory and Europeans would not compete for power cable projects in the Japanese and Korean home territories. (Footnote: ⁴⁴)

Within these territories, there was further territorial allocation. The Baltic and North Sea area was allocated to ABB and (to some extent) Nexans. The Mediterranean area was divided between Prysmian and Nexans. (Footnote: ⁴⁵) But there were ad hoc exceptions to this territorial approach (Footnote: ⁴⁶) and friction was generated when multiple parties sought the same contract.⁵⁷

The Decision says this about the Cartel:

“(67)

Adhering to the rules of the Cartel, from February 1999 onwards, the parties allocated projects according to their geographic region or customer. In addition, they exchanged information on prices and other commercially sensitive information in order to ensure that the designated power cable supplier or “allottee” would make the lowest price while the other companies would submit a higher offer or refrain from bidding or submit an offer that was unattractive to the customer. The parties installed reporting obligations to allow monitoring of the agreed allocations. Finally, the parties also implemented practices to reinforce the [Cartel] such as the collective refusal to supply accessories or technical assistance to certain competitors in order to ensure the agreed allocations.”

(68)

To ensure the implementation of the Cartel arrangements, the parties held periodical meetings and had contacts by email, telephone or fax.

(69)

Within the Cartel, and in line with [information pre-dating the infringement period], the European producers Nexans and Pirelli/Prysmian were normally referred to as “R”

(“Regular”) members, the Japanese producers Sumitomo, Hitachi and JPS, Furukawa and VISCAS (and later also EXSYM) as “A” (“Associated”) members and the Korean companies LS Cable and Taihan as “K”. In addition, the parties used the term “R associates” for ABB, Sagem/Safran, Brugg and nkt, while “A associates” was also used to refer to LS Cable, Taihan and Mitsubishi, Showa and EXSYM during a certain period.

(70)

Most of the parties participated in two main types of meetings:

(a)

the so-called “A/R meetings”, between representatives of the European and Japanese producers, and

(b)

regional meetings, such as the recurrent “R meetings” (also referred to as “seminars”) in which only the local producers participated.

(71)

In addition to the A/R meetings and R meetings, meetings including the Korean

companies (“A/K/R” meetings), bilateral and multilateral meetings between selected parties and meetings at the occasion of industry conferences (such as the International Cablemakers Federation (“ICF”) sessions) were also frequent.

(72)

Given the long period over which the Cartel has been operating, certain aspects and details of the Cartel arrangements, such as the geographic areas considered as “home territories”, the voltage levels covered by the arrangements or how projects were allocated within certain territories, have evolved over time. However, the evidence gathered by the Commission shows that the main features of the Cartel arrangements described below have in essence been maintained over time.

(73)

The Cartel had two main configurations:

(a)

On the one hand, the European, Japanese and Korean producers had as their objective the allocation of territories and customers. This configuration is referred to as the “A/R Cartel configuration”…Pursuant to this configuration, Japanese and Korean producers refrained from competing for projects in the European home territory while the European producers would stay out of Japan and Korea. The parties also allocated projects in most of the rest of the world and made use of a 60/40 quota arrangement for a certain period of time.

(b)

On the other hand, the “European Cartel configuration” involved the allocation of territories and customers by the European producers for projects inside the European home territory or allocated to the European producers…

(74)

These configurations were not separate but formed a composite whole.”

The Cartel had, within its allocations, “compensation” mechanisms to ensure “fairness”. Thus, if one member of the Cartel forwent a particular opportunity to bid (either by not bidding at all or by putting in an uncompetitive bid), that member would in due course receive “compensation” (generally in the form of being the favoured bidder in another project). (Footnote: ⁴⁷) For example:

This, of course, involved keeping track of allocations and monitoring who got what. (Footnote: ⁵⁰)

In order to allocate projects to particular cartelists, it was, of course, necessary to exchange information regarding bids, so that the cartelists who were not to succeed could (if they were going to bid) ensure that their bids were appropriately unattractive. (Footnote: ⁵¹)

The Cartel involved a great many meetings, although not necessarily all of the cartelists attended all of the meetings. The Decision says this:⁶³

“In order to achieve their overall aim, the parties established a network of multilateral and bilateral meetings and contacts and participated in one or more of the following cartel activities:

(a)

All producers implicitly or explicitly entered into an agreement or concerted practice through which the European home territory was protected from competition by Japanese and Korean power cable suppliers and vice versa…

(b)

In addition, the European Cartel members participated in the European cartel configuration; an agreement or concerted practice through which they allocated territories and customers within the EEA…

(c)

All producers participated in the allocation of projects in the export territories…

(d)

Several parties agreed on the prices to be offered for [submarine] and [underground] power cable projects by either the establishment of a floor price or the coordination of price levels…

(e)

Several parties participated in the submission of cover bids in order to ensure the agreed allocation of [submarine] and [underground] power cable projects. To this end, the parties exchanged prices and other sensitive commercial terms and conditions, required for the preparation of the cover bids. These agreements concerned…projects in the

EEA…

(f)

Several parties participated in the exchange of other sensitive commercial and strategic information such as their available capacity or interest in participating in specific tenders. These agreements concerned both projects in the EEA as well as in the export territories…

(g)

Some parties participated in the implementation of practices to reinforce the Cartel such as the collective refusal to supply accessories or technical assistance to certain competitors…

(h)

Several parties were involved in the monitoring of the implementation of the allocation and price agreements through the exchange of position sheets, market information and the establishment what reporting obligations. These arrangements concerned both projects in the EEA as in the export territories…”

Although the Cartel had clear objectives, there were internal conflicts, rivalries and cheating (in the sense that a cartelist bid competitively for a project not allocated to it by the Cartel). (Footnote: ⁵²)

ABB and the Cartel

ABB was not in the Cartel from the beginning. According to the Decision, ABB started participating in the Cartel between April and June 2000. Other members of the Cartel considered ABB’s participation important. (Footnote: ⁵³)

In his witness statement, Mr Jönsson emphasised Recital (453) of the Decision, which noted that “ABB’s position as a non-core player has prevented it from obtaining detailed information on the general application of the [Cartel]”. (Footnote: ⁵⁴) Recital (453) refers to the information that the various leniency applicants were able to provide to the Commission. But the Decision also notes at Recital (563): (Footnote: ⁵⁵)

“…Because of its absence from the A/R meetings, ABB was not able to set out the parameters of the Cartel. The level of participation of ABB is therefore lower than that of the core players. However, its deep involvement in many of the Cartel activities as set out in Recital (493)⁶⁸ and its participation in many contacts and meetings do not qualify ABB as a fringe player.”

The Decision finds that ABB was aware of the allocation of projects within Europe: (Footnote: ⁵⁶)

“ABB’s awareness of the allocation of projects within Europe is also evidenced in an internal email of 10 April 2000…This email contains the phrase: “I suspect that when [non-addressee] let Viking go to Pirelli and NorNed to us, the NSI [North Sea Interconnector, linking Norway and England] became their compensation”.

Mr Jönsson was told about the Cartel in January 2001, when he became business unit manager for cables in the high voltage cable business of ABB. (Footnote: ⁵⁷) The Decision says

Mr Jönsson attended a further meeting in July 2001, in Zurich again, to discuss

Entirely unsurprisingly, BritNed sought to play up ABB’s role and involvement in the Cartel, whilst ABB sought to play it down. It is unnecessary for me to reach many findings as regards ABB’s role and involvement in the Cartel in general terms, as opposed to the effect of the Cartel on the tender process and price of the BritNed Interconnector. It is sufficient for me to find, as I do, ABB was (as an organisation) appreciative of the general nature and operation of the Cartel, as I have described it in Section D(1) above.

It is unnecessary for me to consider the extent to which ABB was involved in the highest level of Cartel meetings, nor who exactly within ABB was aware of the Cartel. The general operation of the Cartel is only relevant insofar as it sheds light on the manner in which the Cartel affected the BritNed tender. That is a matter that I turn to in Section G below.

THE CHARACTERISTICS OF SUBMARINE CABLES (1) Introduction

There are a number of technical points that need to be understood about the nature of submarine cable projects. These are as follow:

The difference between submarine and underground cable projects

The very significant differences between underground and submarine cable projects were described in detail by Mr Röstlund in his statement. (Footnote: ⁶¹) His evidence was not – for the most part (Footnote: ⁶²) – challenged in cross-examination.

The differences between underground and submarine cable projects are important because – as will be described – Dr Jenkins used both underground and submarine cable projects for the purposes of her overcharge analysis and modelling. Dr Jenkins recognised that there were significant differences between underground and submarine cable projects and sought to compensate for this in her analysis. I consider the extent to which she was successful in this regard below. (Footnote: ⁶³)

It is, therefore, necessary to understand the differences that Dr Jenkins was seeking to represent in her model. Mr Röstlund identified a number of differences between underground and submarine cable projects:

In cross-examination of Mr Röstlund, it was suggested that there was a degree of interchangeability or equivalence between underground and submarine cable projects because both types of project were allocated by the Cartel, and the participants in the Cartel would be determined to obtain a “fair” allocation. This, it was put, suggested that the differences between the two types of project were less significant than Mr Röstlund was saying. (Footnote: ⁶⁸) Mr Röstlund did not accept this, and I do not consider that simply because it is possible to allocate different types of project across the Cartel that fact renders the technical or pricing differences articulated by Mr Röstlund any the less relevant. It seems to me that the members of the Cartel would focus on the value of a particular project to them: that value would turn on a number of subjectivities – their factory loading, their ability to do certain types of work, their margins etc.

In short, I accept the evidence of Mr Röstlund so far as the differences between submarine and underground cable projects are concerned. The significance of these differences – for the purposes of the experts’ evaluation – is a matter considered later on in the Judgment.

Alternating current or direct current

The BritNed cable was a high voltage direct current (“HVDC”) cable. (Footnote: ⁶⁹) Mr Rose described the rationale for a direct current cable as follows: (Footnote: ⁷⁰)

“Given the length of cable required to traverse the North Sea (approximately 245km of submarine cable and, once the cable had “arrived” on land, 9km of land cable) BritNed decided to utilise a high voltage direct current (HVDC) cable. The rationale behind the decision to use a direct current (“DC”) cable, as opposed to an alternating current (“AC”) cable, was primarily because DC cables have far lower transmission losses when compared to AC cables.

Mr Röstlund’s evidence was that:

The BritNed project was – given the distance (260 kilometres) and power rating (1,000MW (Footnote: ⁷⁶)) – plainly always going to use a DC cable. (Footnote: ⁷⁷) The price for using a DC cable, however, was the requirement for converter stations in both the UK and the Netherlands: (Footnote: ⁷⁸)

“The Interconnector is connected at its landfall in both the UK and the Netherlands to a converter station. Given that the electricity grids in both the UK and the Netherlands supply electricity in AC rather than DC format, the Project required the construction of converter stations to convert the AC electricity into DC format for transmission through the interconnector and to convert it back again into AC format for onward supply to customers through the respective electricity grids in the UK and the Netherlands.”

The BritNed interconnector thus comprised two, major, elements:

The distinction between AC and DC cables highlights two important, and different, measures when considering the costs of a project: capital expenses (“CapEx”) and operating expenses (“OpEx”). The terms are self-evident: CapEx represents the expenditure needed to acquire an asset, here the cost of the building the Interconnector. OpEx represents the costs of the day-to-day running of that asset. Very often, there may be a trade-off between the two. Clearly – since no-one appears to have suggested an AC cable for the Interconnector – the OpEx costs over the life of the project will have outweighed the additional CapEx costs of paying for the converters implied by a design based on a DC cable.

Cable width

Generally speaking, the higher the power rating of the cable, the larger the dimensions of the conductor and therefore the larger the amount of material required for the conductor. (Footnote: ⁸⁰) Thus, a 1,000MW capacity will imply a thicker cable than a 500MW capacity.

The relationship between cable thickness and power rating is not invariably proportionate. An alternative to increasing the cross-section of the cable conductor, in order to reach a higher power rating, is to increase the voltage. (Footnote: ⁸¹)

However, the diameter of the core of a cable, which is made of copper, affects the level of transmission losses. The thicker the cable, the lower the level of transmission losses – but the greater the cost of the cable. (Footnote: ⁸²) There is, thus, once-again, a potential trade-off between CapEx and OpEx in the choice of cable width. This was a factor that BritNed had in mind. (Footnote: ⁸³)

THE HISTORY OF THE BRITNED TENDER (1) Genesis

As has been described, BritNed was a joint venture between National Grid and

The purpose of the BritNed Interconnector was to enable providers of electricity in both the UK and the Netherlands to meet demand for electricity in these different jurisdictions. A UK provider could thus meet a Netherlands demand and vice versa.

BritNed regarded the Interconnector project as commercially quite risky, for reasons explained by Mr Rose:¹⁰²

“12.

At the time the Project was first conceived in and around 2000/2001, not only was there no interconnector between the Netherlands and the UK electricity markets, but it would have been the first interconnector to have been built between the UK and mainland

The capacity of the cable (namely, the “volume” of electricity capable of being transported between the UK and the Netherlands) was to be marketed through short-term auctions on the basis of capacity contracts of different durations. It was not expected that the duration of the capacity contracts would, or indeed could, exceed one year, given that there was little appetite in the market at that time for long-run contracts of that nature (i.e., customers would not commit beyond a year) and because of the regulatory pressure, particularly from the European Commission, to encourage open access to transmission.

It should be borne in mind that the interconnector is a separate business from the regulated business of National Grid and TenneT. It is a commercial merchant link and therefore its primary goal from the joint venture participants’ perspectives was to make a profit. At the same time, the system for the sale of the capacity (and the fact that interconnectors are “price takers” (i.e., the price of capacity is determined by the market rather than the operator)) meant that the joint venture participants did not have the security of having long term fixed price contracts in place with customers. This inevitably entailed TenneT and National Grid taking on merchant risk, without having the security of long term contracts to underpin the investment that was necessary to construct the interconnector.

As a result of the above, the Project was an inherently risky investment and meant that the business case had to meet certain risk-adjusted financial “hurdles” in order to be deemed viable and proceed. Indeed, it was determined, in conjunction with the joint venture participants, that, ultimately, the business case for the Project had to show that it had, at the very least, in internal rate of return (“IRR”) of between [X] (Footnote: ⁸⁶) and a substantial Net Present Value (“NPV”).”

The lots

The tender process around the Project was based upon seeking tender prices for three

Transmission capacity

A BritNed procurement and contracting strategy paper recommended that suppliers be asked to tender for three transmission capacity options or “Base Cases”:

BritNed was conscious that asking tenderers to price three bids, rather than one, would involve tenderers incurring additional costs, and might result in “half-hearted” bids for one or more of the options by one or more of the tenderers. (Footnote: ⁸⁹) However, the advantage of flexibility was considered to outweigh this risk, (Footnote: ⁹⁰) and BritNed planned to strive to delete capacity options, when it became clear that such an option ceased to be viable for technical reasons or on the basis of price or both. (Footnote: ⁹¹)

The OJEU Notice (August 2005)

BritNed caused to be published in the Official Journal of the European Union a Period Indicative Notice in relation to the Project in August 2005 (the “OJEU Notice”). (Footnote: ⁹²)

BritNed’s negotiating team

Mr Rose was in overall charge of the BritNed interconnector procurement. It was he who had to ensure that BritNed’s procurement strategy and procurement team were properly in place. (Footnote: ⁹³) He was responsible for bringing in Mr Jackson to lead the negotiations for BritNed. (Footnote: ⁹⁴)

Mr Rose said this about BritNed’s negotiating team: (Footnote: ⁹⁵)

“So, the lead negotiator on our behalf was Mike Jackson, supported by Louise Negus and Marco Kuijpers. They were the three primary members of the procurement team. Also, they drew upon the expertise of many people around them, but those were the primary people.”

Expressions of interest (September to October 2005)

Following the publication of the OJEU Notice, the expressions of interest and tenders subsequently received by BritNed came from the following European entities:

No expressions of interest were received from any Asian based cable manufacturers. (Footnote: ⁹⁷) Nexans, (Footnote: ⁹⁸) Prysmian (Footnote: ⁹⁹) and (obviously) ABB were all cartelists.

ABB’s tender team and its approach to tendering (a) The ABB tender team

ABB’s tender team was described by Mr Jönsson: (Footnote: ¹⁰⁰)

“17.

At the time of the tender process for the BritNed project, I was head of the factory at Karlskrona. Magnus Larsson-Hoffstein was appointed as the tender manager for the BritNed project and had primary responsibility for preparing the response to the tender for the supply of the power cables system of the BritNed project (Lot 2).

18.

For much of the time, I left the running of the tender largely to Magnus LarssonHoffstein and his team. Magnus Larsson-Hoffstein was experienced in pricing large submarine power cables projects, as he had been involved in the pricing of Gjøa and Estlink, two other large submarine cables projects. During the BritNed tender, he worked closely with Bo Pääjärvi, of the ABB HVDC (high voltage direct current) power converters team based in Ludvika, Sweden on the project. I would review some of the information that Magnus Larsson-Hoffstein and Bo Pääjärvi (and Åke Nilsson, ABB’s in-house counsel) prepared in producing ABB’s tender response. In particular, I reviewed and considered the risks, insurance and technical specifications of the power cables system element of the BritNed project.

19.

The power converters element of the project was priced separately by ABB’s HVDC converters team. I had no involvement in that pricing, or indeed in relation to any other aspect of the converters bid. In my few discussions with the customer during the tender process, I did, however, seek to emphasise the advantages of buying the whole package (i.e. the converters and the cables) from ABB, including by emphasising the efficiency benefits of having a joined-up team.

20.

The BritNed negotiations were primarily led on the ABB side by its power converters team and, particularly in the early stages, largely took place between Bo Pääjärvi of ABB and Dick Bos, project manager for the BritNed project at TenneT. I therefore attended a

few meetings with the customer during the course of negotiations. I became more involved in the discussions with BritNed in the period shortly before the power cables portion of the contract was awarded to ABB…”. (Footnote: ¹⁰¹)

Thus, ABB’s tender team was bifurcated between the Cables element and the Converter element. Mr Pääjärvi was in charge of the Converter side of the process, and I heard relatively little evidence about this. Mr Jönsson was in charge of the Cable side, but:

Mr Larsson-Hoffstein’s influence was most significant during the earlier phases of the tender process, when Mr Larsson-Hoffstein and his team were assessing what, technically, was required by the tender, and how much it would cost. After the submission of a tender, the process became a rather more brutal process of what I termed during the trial as “horse-trading”, where ABB would seek to defend its price, and BritNed would seek to obtain price concessions. Mr Larsson-Hoffstein’s role was much less significant at this stage: if he, personally, made a concession, he would do it on instruction from his superiors. (Footnote: ¹⁰⁶) But, as will be seen, it was not he, but Mr Leupp, who made a critical concession in the course of this tender.

It is, therefore, appropriate to consider separately ABB’s processes during the “technical” and “non-technical” stages of the tender process.

ABB’s methodology during the “technical” process

This process was described in abstract terms by Mr Röstlund in his second statement, Mr Röstlund not himself having been involved in the BritNed project. His evidence was not challenged. Mr Larsson-Hoffstein gave evidence of how he conducted the process in the specific case of BritNed.¹²⁵

In broad terms, without particularly referencing the BritNed project, the process was as described below.

Pre-tender communications.

Even before a formal invitation to tender, there might be informal communications between the customer and one or more cable suppliers. These might involve high level estimates of cost. (Footnote: ¹⁰⁷) The invitation to tender, however, would outline the key technical specifications that the customer sought. Invitations to tender would generally be issued to multiple suppliers. (Footnote: ¹⁰⁸) During the tender process, there would be considerable interaction between each cable supplier and the customer, which might well cause the specification in the invitation to tender to develop. (Footnote: ¹⁰⁹)

Initial design on tender.

On receipt of an invitation to tender, a sales team would be formed to assess the implications of the project. There would be input from various different departments within the ABB power cables business unit. (Footnote: ¹¹⁰) An initial design for the project would be produced, including a description of the requirements to manufacture and install the cable according to the customer’s requirements. (Footnote: ¹¹¹)

Costings

Based upon this design, costings would be produced. This would involve assessing the costs of supplying the services and products required, including internal costs and loading for risk and contingencies plus a margin representing ABB’s hoped-for profit. (Footnote: ¹¹²) Mr Röstlund described the role of the tender manager as follows: (Footnote: ¹¹³)

“…having received costings from its other departments, as well as any estimates of prices for third party suppliers or supplies from other ABB business units, the tender manager will assess the need to factor in any risks and contingencies as cost line items, and will also build in a margin based on the indicative margin targeted by the ABB Division in charge of power cables in a given year…No additional margin is applied to the costings by different departments involved in the supply of a cable (e.g. cable installation and manufacture) before this overall margin is applied. However, if together with the cables system, the turnkey project includes elements that are supplied by another ABB business unit – for example when the installation of the onshore cable is carried out by the local ABB entity – a separate price will be provided for that element, reflecting an internal margin applied by the relevant ABB business unit in charge of supplying this.”

Mr Röstlund expanded upon this later on in his second statement:¹³³

“128.

In addition to the underlying costs of producing and installing the power cable, and the risk involved, the price will also incorporate the margin that ABB seeks to earn on the project.

129.

As explained in paragraph 80(e) above, in preparing an offer for a submarine cable project, the tender manager assesses the costs, risks and contingencies associated with the project. A margin will then be added on top. This is referred to as the “costs plus” approach. The costs, risks and contingencies used to calculate the project’s gross margin

are those that are directly attributable to the supply of the project. These costs include mainly:

(a)

any research and development related to the design and tests of the cable;

(b)

materials, labour and machinery used in the production of the cable;

(c)

transportation and installation of the cable;

(d)

risks and contingencies associated with the design, production and installation of the cable.

130.

The costs used in the calculation of the net margin of a project are those listed in the paragraph above plus an allocation of the general and commercial overheads from the ABB Power Cable Business Unit.”

Mr Larsson-Hoffstein confirmed that he was responsible for putting together the initial pricing proposal for the Cables element of the BritNed project. (Footnote: ¹¹⁴) He adopted the approach described by Mr Röstlund. (Footnote: ¹¹⁵) As regards the compilation of the costings, Mr Larsson-Hoffstein stated that “[t]his did not involve starting with the pricing of any other project, but instead involved looking at the cost of each element of the project (e.g. conductors, insulation, and raw material prices) and putting together a costing on that basis”. (Footnote: ¹¹⁶)

Mr Larsson-Hoffstein was asked to describe the process in a little greater detail during the course of his cross-examination: (Footnote: ¹¹⁷)

Risk review

Larger cable projects would go through an internal ABB risk assessment exercise, known as a “risk review process”. The aim of the process, unsurprisingly, was to ensure that the relevant risks and contingencies had appropriately been considered and that the price being put forward generated the minimum level of expected margin. (Footnote: ¹¹⁸) It was possible for there to be multiple risk reviews. (Footnote: ¹¹⁹) The BritNed project was risk reviewed. Mr Larsson-Hoffstein said this in relation to the risk review of his costings for the BritNed project: (Footnote: ¹²⁰)

“I ran my proposed price past my managers within ABB at this time, including Mr Jönsson, but no alterations were made to those figures. Similarly, no adjustments were made to my figures as a result of the risk review process for the project.”

Submission of a tender

As was the case with BritNed, there might be two discrete components to the tender. In the case of BritNed, there were the Cable element and the Converter element. These discrete elements would have to be combined, to form ABB’s tender.

Use of Product Pricing Models

ABB’s cables unit used Product Pricing Models (or “PPMs”) throughout the tendering phase to help determine the sales price of a project. Such PPMs would be used on an iterative basis, frequently updated during the tender process so as to enable the reassessment of costs and risks.¹⁴¹

The process post-tender

This was much less formalised and, as I have noted, was really a process of negotiation. What occurred in the course of the BritNed tender is described below.

Pre-qualification to tender (March 2006)

Tenderers who had pre-qualified for one or all of the Lots were informed that they had done so by letter dated 6 March 2006. (Footnote: ¹²¹)

Tender evaluation “Phase One”

On 7 April 2006, BritNed produced a document entitled Tender Evaluation Procedure: Phase One (19 June – 3 July) (the “Phase One Procedure Paper”). (Footnote: ¹²²) The paper set out, amongst other things, the various Base Cases for which suppliers would need to submit prices. (Footnote: ¹²³) The paper also confirmed that, following evaluation of the bids, BritNed anticipated selecting one capacity option from the three Base Cases. Mr Rose describes the position as follows: (Footnote: ¹²⁴)

“The Phase One Procedure Paper also confirmed that, following the evaluation of bids provided by the suppliers, the Project Team “anticipated” selecting one capacity option from the three Base Cases after it had made a recommendation to the JV Board on 30 June 2006 and the decision had been notified to tenderers on 3 July 2006…Once the capacity option had been chosen, fixed prices would be required at the selected capacity during Phase Two, which would commence after the notification to tenderers had been dispatched on 3 July 2006. However, the Phase One Procedure Paper also confirmed that there was a possibility that two capacity options could “be taken forward to Phase Two” should they both be deemed viable during the evaluation process for Phase One.”

A pre-tender meeting and site visit took place at Maasvlakte on 19 April 2006, which all tenderers attended. (Footnote: ¹²⁵) At this meeting, it was made clear that there was no guarantee that the Project would go ahead: this would depend upon the business case, which was itself obviously in part dependent on the level of tenders received. (Footnote: ¹²⁶) BritNed also refused to be drawn on which of the three Base Cases it favoured. (Footnote: ¹²⁷)

After this meeting, various of the suppliers indicated that they would not be able to provide prices in respect of all of the Base Cases requested by BritNed. (Footnote: ¹²⁸) This resulted in an amendment to the Phase One tender process. (Footnote: ¹²⁹)

ABB’s discussions with Nexans

During the course of the Phase One tender process, ABB discussed the bid with

The ILEX Study (May 2006)

In order to further investigate the levels of revenue that the Interconnector would generate, BritNed commissioned a study from ILEX Energy Consulting Limited (the “ILEX Study”). The ILEX Study undertook a forward-looking analysis of the potential revenues that the Interconnector could generate. It was provided to BritNed in May 2006. (Footnote: ¹³²)

Prysmian did not submit a tender (June 2006)

Prysmian had expressed an interest in tendering and had pre-qualified for both Lot 2 and (with Siemens) Lot 3. (Footnote: ¹³³) On 9 June 2006, Prysmian informed BritNed that it would not be submitting a tender. The email in question stated: (Footnote: ¹³⁴)

“It is with much regret from our part that we have to inform you that Prysmian will not be submitting a bid for this project due to the acquisition of a major order and consequent impossibility to meet the deliveries request for BritNed.

We do hope that this will not cause BritNed…any disruption and take the opportunity to wish you good luck for the successful implementation of this potential submarine interconnection project.”

Prysmian did not identify to BritNed the “major order” in question, (Footnote: ¹³⁵) but there was no obligation on them to do so.

So far as BritNed was concerned, this meant that the possible consortium between Prysmian and Siemens in relation to Lot 3 could not proceed. (Footnote: ¹³⁶) Of course, that was a matter of BritNed’s knowledge: what other tenderers – and in particular, ABB – knew is a different question that is considered elsewhere. Prysmian was, of course, a cartelist. (Footnote: ¹³⁷)

Areva did not submit a tender (June 2006)

In a letter dated 13 June 2006, Areva wrote to BritNed stating that having reviewed the tender documents, they were “not able” to make an offer for the Project. (Footnote: ¹³⁸) The reasons for Areva not tendering were discussed before this letter was sent. One of the reasons – but it was only one – was the perceived dominance of ABB in being able to provide a full Lot 3 solution. (Footnote: ¹³⁹) Areva was not a cartelist. (Footnote: ¹⁴⁰)

Nexans’ tender (June/July 2006)

Nexans submitted initial and revised tenders for Lot 2 in June and July 2006. (Footnote: ¹⁴¹) These tenders were both priced higher than ABB’s bids (Footnote: ¹⁴²) and were assessed by BritNed as non-compliant on the basis that Nexans was unable to meet BritNed’s required deadline for the completion of the Project. (Footnote: ¹⁴³) The issue of meeting BritNed’s deadline was explored further with Nexans,¹⁶⁶ but proved to be impossible to resolve. Given its inability to meet the required deadlines by some considerable margin, BritNed ultimately (in October 2006) took the decision not to proceed with Nexans. (Footnote: ¹⁴⁴) Nexans was also a cartelist. (Footnote: ¹⁴⁵)

ABB’s tender (June 2006)

ABB submitted its tender in accordance with the amended Phase One tender process on 16 June 2006. (Footnote: ¹⁴⁶)

BritNed’s position at this point

Mr Rose described BritNed’s position in the following terms:¹⁷⁰

“38.

At the outset of the procurement process, members of the Project Team produced a document, dated 16 January 2006, entitled “Main outlines of procurement process” (the “Procurement & Contracting Strategy Paper”).

39.

The Procurement & Contracting Strategy Paper covered a number of issues, including the contracting strategy for the Project, which was based, in part, on the expressions of interest that had been received from Prysmian, Nexans, Siemens, Areva and ABB. In particular, the paper outlined the three contracting options available, with the “Single

EPC approach” (namely, one tenderer or consortium being awarded Lot 3) being identified as the “preferred option”. The alternative was to award separate contracts for separate and distinct lots of work (award one contract for the complete converter station system (Lot 1) and a separate contract for the cable supply and installation (Lot 2)). This, however, involved some “interface” risk between the respective contractors.

40.

However, in the absence of any expressions of interest or bids whatsoever from Asian suppliers, the failure of Prysmian to submit any bids despite its previous expressions of interest, and after Nexans effectively disqualified itself from the process by stating that it was unable to meet BritNed’s delivery deadlines, BritNed had no choice but to undertake a procurement process in the full knowledge that there was no competition for ABB in respect of both Lot 2 and Lot 3.

41.

In particular, the failure of Prysmian to submit a bid for the cable element of the Project not only meant ABB faced no competition from Prysmian in respect of Lot 2 but it also ensured that ABB faced no competition in respect of Lot 3, as without a consortium partner with cable expertise, Siemens was unable to bid for the combined package. This, in addition to Nexans’ non-compliant tender submission, was a significant disappointment, given that it removed any competition for the cable element of the Project from the very outset and inevitably limited our scope for manoeuvre thereafter, in particular the ability to maintain any competitive pressure on ABB.

42.

Consequently, despite the Project Team’s preferred contracting approach being the single EPC approach, it had to consider the alternative of awarding separate contracts Lot 1 and Lot 2, a contracting strategy that the Project Team had stressed throughout to the tenderers was a viable alternative to the single EPC approach, should it be necessary to pursue it.”

I accept this as an accurate statement of BritNed’s position.

Evaluation by BritNed

The joint venture board considered the outcome of the Phase One tender process on 30 June 2006. (Footnote: ¹⁴⁷) Base Case 1 was rejected as not being competitive on a price per megawatt basis when compared to either Base Case 2 or Base Case 3. (Footnote: ¹⁴⁸)

According to Mr Rose, the project was viable, but there were considerable commercial risks. (Footnote: ¹⁴⁹) He recommended pursuing Base Case 2. (Footnote: ¹⁵⁰) As to Base Case 3, Mr Rose said this in his witness statement: (Footnote: ¹⁵¹)

“However, if the budgetary prices provided by ABB for Base Case 3 had been lower, Base Case 3 would inevitably have been more attractive. Indeed, in accordance with the Capped Annual Revenue Figures in the ILEX Study, Base Case 3 would have meant access to additional revenue of EUR 11m per annum. From a revenue perspective, this option would therefore have presented a distinct advantage when compared to Base Case 2. As it was, the pricing received from ABB in its Initial Tender Returns for Base Case 3 ensured that the level of CAPEX that would have been required to pursue this option posed a substantial risk given the revenue uncertainty and precluded any recommendation being made to the JV Board that this option should either be pursued or explored further.”

Tender evaluation “Phase Two” (July 2006 onwards)

On 3 July 2006, BritNed notified the tenderers of the decision to proceed with Base Case 2. (Footnote: ¹⁵²) On 24 July 2006, BritNed produced a document entitled Tender Evaluation

The Phase Two Procedure Paper, which (like the Phase One Procedure Paper, was internal to BritNed) recorded some of the developments during Phase One tender evaluation and set out a timetable for Phase Two. It stated: (Footnote: ¹⁵⁴)

“As part of the Phase One evaluation process, Prysmian declined to submit a Tender for Lot 2 and therefore the Siemens/Prysmian joint venture withdrew from Lot 3. No submission was received from Areva for Lot 1 and subsequent to 30^th June 2006 a letter has been received confirming their decision not to participate further in the Tendering Process.

As part of the Phase One evaluation process, the capacity options were reduced to one capacity and voltage option, namely 1,000MW – 450kV. A limited number of optional prices have been requested as part of this Phase Two Tender submission and a full and detailed breakdown of the Tender Prices. As part of the Phase Two submission, the Tenderers are required for Lots 2 & 3 to provide firm prices for the cable installation element of the project, which was only submitted as a budget price at Phase One, no other changes have been requested.”

BritNed’s approach to evaluation was that the tenderer who represented the “most economically advantageous solution” would be selected as the preferred tenderer or tenderers. (Footnote: ¹⁵⁵) This had been made clear to the tenderers themselves in instructions to tenderers dated 6 April 2006.¹⁸⁰

Thus, by the commencement of the Phase Two tender evaluation, the only Base Case that suppliers were tendering for was the 1,000MW option. (Footnote: ¹⁵⁶)

ABB submitted revised tender returns in respect of Lots 2 and 3.¹⁸² Nexans submitted a tender return in respect of Lot 2.¹⁸³ Nexans’ bid was some €41,338,664 more expensive than ABB’s equivalent bid.¹⁸⁴

(Footnote: ¹⁵⁷) (Footnote: ¹⁵⁸) (Footnote: ¹⁵⁹) On 10 October 2006, BritNed held a technical and procurement meeting to decide upon the strategy to be followed with the remaining tenderers during the negotiation phase of the project, scheduled to commence in October/November 2006. (Footnote: ¹⁶⁰) It was at this meeting that the decision was taken not to progress with Nexans, given Nexans’ inability to provide the cable within the required timeframes. (Footnote: ¹⁶¹) BritNed intended to begin detailed negotiations only with ABB and Siemens. Again, this was a decision that was internal to BritNed.

On 10 November 2006 and 13 December 2006, the joint venture board was updated on the state of play. (Footnote: ¹⁶²) The Interconnector project continued to remain economically viable, but only just. (Footnote: ¹⁶³) What appears to be a Powerpoint slide presentation entitled “Procurement Update December 2006” noted that under the current market position: (Footnote: ¹⁶⁴)

“• Only ABB can provide cable in required timescales

•

Both ABB and Siemens have limited but available capacity for converter stations

•

Both have heavy tendering workload in Converter Stations and limited resource or appetite to engineer multiple options”

Best and final offers (March 2007)

Best and final offers (“BAFO”) were received from ABB and Siemens in March 2007. (Footnote: ¹⁶⁵) According to Mr Rose, “[w]hilst price negotiations continued with both tenderers, the Project Team was largely content with Siemens’ BAFO but extremely dissatisfied with those submitted by ABB”. (Footnote: ¹⁶⁶) One aspect of ABB’s BAFO was that its prices for the cable differed as between Lot 3 and Lot 2, with the prices in Lot 3 being lower. (Footnote: ¹⁶⁷) Clearly, ABB was prepared to offer better value if it could obtain the entire job, i.e. the Cable element as well as the Converter element.

An internal ABB email dated 10 March 2007, sent to Mr Pääjärvi and copied to Mr Jönsson recorded ABB’s perception:

“1.

BritNed will take a very tough position in the cable meetings, making it clear to ABB that based on the BAFO, the project will not get a go.

2.

In the cable meetings next week, BritNed will request ABB to further reduce the price and to accept a more aggressive risk allocation…

3.

At some point during the next coming weeks, BritNed will again introduce the converters into the discussions. They will try to squeeze ABB on the total package. BritNed will use two major arguments:

•

If the total investment cost is not reduced and if the total risk exposure for the owners are not lowered, the project will not be approved by the Board.

•

If ABB do not lower the price on the Converters, BritNed will award this part to another supplier…

The first meetings next week will be very important for us in order to get a better understanding of what BritNed really expects (price and risks). Based on this, we need to develop a strategy for how to proceed…”

Last and final offers (March 2007)

ABB submitted its last and final offer (“LAFO”) on 28 March 2007. (Footnote: ¹⁶⁸) ABB was prepared to offer a €10m reduction on the cable element of Lot 3, should it be chosen to provide the combined package. (Footnote: ¹⁶⁹)

Final Cable price negotiations (April 2007)

By this stage, BritNed only discussed the prices that had been submitted to it in respect of the Cable element of the project. In other words, there were only discussions with ABB, and not with Siemens. (Footnote: ¹⁷⁰) A meeting was held with ABB on 18 April 2007. (Footnote: ¹⁷¹)

At this meeting, ABB was persuaded to provide the Cable in Lot 2 for the price offered for Lot 3 in the LAFO. (Footnote: ¹⁷²) In other words, the discount which had previously only applied if ABB was awarded the entire contract (Lot 3) was to be applied to the Cable only part comprising Lot 2.

After the work on the project had been awarded, the parties were naturally more open about their thinking during the tender process. In particular, ABB received feedback from TenneT regarding ABB’s loss of the Converter element of the project. ABB recorded the feedback as follows:

“Today, I had lunch with Dick Bos, project manager acquisition BritNed on TenneT side. Afterward, we had a short chat with Marco Kuijpers, the purchaser. They gave me the following feedback on our lost the order.

Dick was very surprised that ABB gave a discount without a firm coupling of the package (cables + converters). The package was the trump card on which we should have won the order. In his perception (Dick has been a professional BtB salesman in aviation) this was our biggest mistake and really opened the door to go with Siemens!”

Mr Rose did not appreciate that this was Mr Bos’ view: but, independently of Mr Bos,

Mr Jackson also regarded ABB’s conduct in this regard as incomprehensible: (Footnote: ¹⁷⁶)

Knowing what they did, those on BritNed’s side of the negotiations obviously regarded this as an inexplicable error on the part of ABB. But, of course, ABB did not or did not necessarily know what BritNed knew. Instead of a mistake, the reduction in the Lot 2 price might reflect a concern on the part of ABB that it was not guaranteed to win even Lot 2. This was a decision made not by Mr Jönsson, but by Mr Leupp.²⁰²

Letter of intent and contract

A letter of intent was agreed with ABB on 27 April 2007 in which the overall price of the cable contract was agreed at €263m (exclusive of VAT). (Footnote: ¹⁷⁷)

Even when the tender had been agreed, some of the prices therein remained provisional. (Footnote: ¹⁷⁸) That was so, in the case of the Interconnector, as regards metals, contractors all risks insurance and currency. (Footnote: ¹⁷⁹) This remained the position in the final contract between ABB and BritNed. (Footnote: ¹⁸⁰) Essentially, the contract provided that the cost of the various provisional items was to be adjusted to reflect their actual cost. (Footnote: ¹⁸¹)

The price offered by ABB over time

It is convenient to record the price offered by ABB for the cable supply over the course of these negotiations. I leave out of account the price offered by ABB in relation to the Converter element (Lot 1). The table below, thus focuses on Lot 2 and the Cable element within Lot 3. It is also necessary, at least for the earlier prices, to have regard to the three “Base Cases” for which BritNed sought prices. (Footnote: ¹⁸²)

The total contract price was subsequently varied by a deed of settlement, dated 15

COMPETITIVE PRESSURES ARISING IN THE NEGOTIATION PROCESS (1) Introduction

In order to assess the manner in which the Cartel had or may have had an effect on the finally concluded price reached between BritNed and ABB, it is important to pay regard to the process of negotiation between the parties; the competitive pressures that existed; and the extent to which these were subverted by the Cartel.

Having considered, in Section F, the history of the negotiations between BritNed and ABB, this Section seeks to articulate the competitive pressures operating on ABB and BritNed during that process. In particular, it considers the extent to which BritNed was affected by the Cartel; the extent to which BritNed was able to deal with the effects of the Cartel; and the extent to which ABB was able to exploit these effects. Specifically, the following factors are considered:

The limited response from bidders that BritNed had to contend with

Clearly, as the party conducting the procurement, BritNed knew exactly who was interested and who was bidding and on what terms. As has been described, and as I accept, interest in the BritNed Interconnector project was thin. That may in part have been due to proper, commercial, factors, such as a potential supplier’s inability to meet the deadlines of the project, but a major factor was the Cartel. I consider and find that the operation of the Cartel explains:

Of course, BritNed did not know of the Cartel and therefore did not know why the response to its invitation to tender was so weak. That, to my mind, is irrelevant to an assessment of BritNed’s conduct during the course of the tender. What matters is that BritNed recognised that the response to its invitation to tender was thin, and it recognised that it would be less able to play-off one supplier against another. (Footnote: ¹⁹⁵)

As shall be seen, BritNed did, to an extent, manage to keep pressure on those suppliers actually tendering, despite the thinness of the response to the invitation to tender, but I recognise that BritNed was significantly hampered in its ability to negotiate by the thinness of the response to its invitiation to tender for the Interconnector.

The various commercial pressures that BritNed sought to deploy during the negotiations

The commercial pressures identified

Despite being hampered by a thin field of interested suppliers, BritNed was nevertheless able to generate some commercial pressure on bidders. The significant factors that BritNed deployed were:

Keeping Siemens in

BritNed’s negotiating team sought to ensure that Siemens remained a tenderer throughout the process. There were concerns within BritNed that Siemens was seriously considering withdrawing from the process, which would render Lot 3 the only option for BritNed if the Interconnector project were to proceed. (Footnote: ¹⁹⁶) BritNed was successful in ensuring Siemens remained a tenderer for Lot 1.

Siemens’ role – albeit limited – was significant. Siemens’ presence created competition in relation to the Converter element of the project, and so (even if, as to which I make no findings at present, ABB knew it was the only bidder in relation to the Cable element) ABB would be under pressure in terms of its desire to win the entire contract (i.e. Lot 3).

I find that Siemens’ participation in the project (i) increased competition and (ii) increased ABB’s perception of competition. Although BritNed’s witnesses were a little reluctant to accept this latter point, in the end they did. Mr Rose said this: (Footnote: ¹⁹⁷)

In his witness statement, Mr Jackson appeared not to accept the significance of Siemens’ role: (Footnote: ¹⁹⁸)

“35.

…I do not agree that BritNed attempted to use the combined Lot 3 package, for which ABB was the sole bidder, as a means to drive down ABB’s cable price…

36.

…BritNed’s preferred contracting strategy would have been to award Lot 3 to either a single tenderer or a consortium of parties with the requisite expertise. However, BritNed could not be seen to rely on Lot 3, since there was only one bidder for the combined package. This meant that Siemens’ bid for Lot 1 was the only means of maintaining any vague semblance of competition in the bidding process for the BritNed Project. To have allowed ABB to believe that BritNed was committed to awarding Lot 3 would have run counter to BritNed’s interests.”

Reading these paragraphs as a whole – and in particular the emphasised part – it is clear that Mr Jackson did see the presence of Siemens as a means of placing commercial pressure on ABB, and I frankly do not understand his denial of this in paragraph 35 of his statement. Of course, I accept that BritNed’s preference might well have been for a Lot 3 solution. But only if the price was right.

Mr Jönsson considered that “BritNed…used the fact that ABB was competing not just for the cable but also for the converter element of the project (in the combined Lot 3) to its advantage by using the “carrot” of the combined bid to put pressure on ABB’s cables price. This was ultimately reflected in the significant discount offered by ABB and was the result in my view of clever negotiation by BritNed.” (Footnote: ¹⁹⁹)

Full bipole versus simple bipole

One of the differences between the Siemens bid and the ABB bid was that Siemens offered a “full bipole” solution, whereas ABB, initially, did not.²²⁷ The technical detail does not matter: it is sufficient to note that a full bipole solution was BritNed’s preferred solution. ABB only moved to offer such a solution in late April 2007. (Footnote: ²⁰⁰) Whilst this difference between the bids continued in the period up to April 2007, BritNed sought to ascribe a monetary value to it, in order to assess the respective bids. (Footnote: ²⁰¹) BritNed assessed the “negative valuation” for a simple bipole design for the Project at around €25m to €35m. (Footnote: ²⁰²)

The failure, on the part of ABB, to provide a full bipole solution was obviously one that played its part in the negotiations. (Footnote: ²⁰³) It clearly increased the pressure on ABB regarding the competition ABB perceived it had with Siemens in relation to Lot 1, and so pushed ABB to a more competitive stance in relation to Lot 3.

Comparison with NorNed

During the tender process, BritNed sought to derive a sense of value and costs by comparing the Project with the NorNed project. (Footnote: ²⁰⁴) The NorNed project was one which had involved TenneT (as purchaser) and ABB (as supplier).

Quite how comparable the two projects actually were is not, for present purposes, the issue. The question is how the point played in negotiations:²³³

It may be that, in the course of negotiations, BritNed offered challenging conclusions as to price, drawn from its NorNed comparisons. (Footnote: ²⁰⁵) That would be expected in the course of commercial negotiations, and perfectly legitimate as an approach to negotiation.

Mr Jönsson described the effect of this use of NorNed as a comparator: (Footnote: ²⁰⁶)

“…I recall that in January 2007, TenneT was complaining about the price of ABB’s tender in relation to Lot 2 by comparing it to the price of the NorNed cable. I was particularly annoyed at BritNed’s attempts to compare the price of the NorNed cable with the BritNed cable price in the run up to our BAFO submission. The NorNed project has some similarities with the BritNed project in that both projects are 450 kV HVDC submarine interconnectors in the North Sea which connect transmission grids of two countries, one of which is the Netherlands. However, there are significant differences between the projects.”

The emails referenced below (Footnote: ²⁰⁷) provide some contemporaneous confirmation that this particular attempt at commercial pressure on the part of BritNed may not have been especially successful. Nevertheless, it was a factor.

Risk of the project not going ahead

BritNed would only proceed with the Interconnector project if its two shareholders considered that the project was viable according to their criteria. That is an entirely reasonable commercial position to adopt: but it is also, by providing an upper limit as to cost, a negotiating tool. Mr Rose was clearly aware of this: (Footnote: ²⁰⁸)

“The pressure we used across the project, particularly in relation to the cable, because we knew we only had one competitor, one party for the cable, was that the project risked not actually happening at all if a price that came in was too high and damaged the business case.

So, I accept that type of pressure was used, rightly I think, to try to create a feeling of competitive pressure.”

Naturally, this risk of the project not proceeding was conveyed to the tenderers. (Footnote: ²⁰⁹) ABB was aware of the risk. (Footnote: ²¹⁰)

ABB’s lack of its own cable laying vessel

At all material times, ABB lacked its own cable laying vessel. Were it to succeed in the bid, the laying of the cable would be work that ABB would have to sub-contract.

In contracts of this size, an element of sub-contracting is inevitable. Mr Rose did not consider this to be a particular concern: (Footnote: ²¹¹)

BritNed unsurprisingly identified ABB’s cable laying capability as an issue. An evaluation of the various expressions of interest that BritNed had received – circulated within BritNed on 1 February 2006 – stated:

“ABB has no ship or strategic relationship for the provision of a ship. However, the cable manufacturing capacity is smaller than cable laying capacity. Has to be taken care of during the tender phase.”

A cable laying capacity was one of the factors specifically listed in a table evaluating the various expressions of interest.

Mr Rose was pressed on whether this was an area of “concern” for BritNed, and eventually agreed that it was.²⁴¹ I consider that “concern” actually puts matters too highly. The point would only become one of concern if the tenderer in question could not adequately reassure BritNed that the issue could be solved. In short, it was something that, as Mr Rose said, needed to be bottomed-out during the tender process.

It is, therefore, likely that the matter would have been raised with ABB. Mr Rose was asked whether ABB would have felt pressure because it lacked a cable-laying vessel.

Mr Jönsson said that ABB considered this a weakness: (Footnote: ²¹³)

“…ABB did not have its own cable laying vessel and I remember that BritNed had expressly said that not having a vessel had weakened our bid. BritNed had made it clear that it wanted to award the contract to a supplier who could complete the entire works as a turnkey project. Without a vessel of its own, ABB felt at the mercy of others, particularly as our position, being in need of sub-suppliers to complete what was known to be a turnkey project, was apparent to the market.”

Perception that ABB needed the work

The extent to which ABB was hungry for work was a matter which was, essentially, a matter of ABB’s understanding. It appears that in the course of negotiations, BritNed got the impression that ABB was keen for more work, and obviously factored that into negotiations. (Footnote: ²¹⁴)

The “loading” of a factory – fully loaded, meaning that the factory has no capacity for a particular project – is a complex matter. This is because the process of manufacturing cables is not a single process, but a complex mixture of different processes. Whether a factory can take on an additional cable job will depend upon a complex mixture of timings (when a particular process must be undertaken), processes (which particular processes are necessary for the job) and client demands (which may be capable of variation during negotiations). (Footnote: ²¹⁵)

So far as the BritNed project was concerned, ABB regarded BritNed as a “priority project” as regards both the Cable element and the Converter element. This was because “there was a lot of spare capacity in both the cables and the converters factories”.²⁴⁶ In his witness statement, Mr Larsson-Hoffstein said this:²⁴⁷

“When subsequently submitting ABB’s prices on 3 April 2006 to BritNed, I stated to TenneT that we were keen to start production of the BritNed cable as early as possible. This was because ABB did not have any other MI cables in the pipeline and we wanted to fill the factory’s capacity.”

I find that ABB regarded the BritNed Interconnector as important work, that it was keen to secure. Of course, I do not leave out of account the fact that the Interconnector project had been “allocated” to ABB pursuant to the Cartel.

The advantage ABB derived from its participation in the Cartel

Introduction

The advantage derived by ABB from the Cartel would have been in relation to the extent and strength of the competition it faced. This has two aspects:

The first matter to be explored is how BritNed sought to handle and exploit the competitive pressure that an invitation to tender creates (or seeks to create). Unsurprisingly, BritNed:

These, somewhat elementary, points are considered in Section G(4)(b) below. Having considered them, I then proceed to the much more difficult question of ABB’s own knowledge of its competitive position. The question is difficult because by no means everyone at ABB involved in the BritNed tender actually knew of the Cartel.

BritNed’s position

At the pre-tender meeting and site visit at Maasvlakte on 19 April 2006, one of the participant suppliers asked whether BritNed would be negotiating with just one bidder. The answer was that BritNed “would be negotiating with more than one bidder and potentially on more than one lot”. (Footnote: ²¹⁶)

The Phase One Procedure Paper made clear, to those acting for BritNed, that it was important to keep the relative positions of tenderers confidential. Paragraph 5.3.1 stated that “[d]uring the Phase One Tender Evaluation, it will be extremely important to avoid giving any indications to Tenderers of the relative positions, particularly important in relation to the Phase Two Tender submissions”. The importance of maintaining such confidentiality in a competitive process is self-evident, and Mr Rose confirmed that he and his team understood the importance of this. (Footnote: ²¹⁷)

The same point was made in the Phase Two Procedure Paper and again – entirely unsurprisingly – Mr Rose confirmed the importance of this requirement. (Footnote: ²¹⁸)

I am very confident that BritNed would have maintained confidentiality on its side. As I have noted, I was impressed with both Mr Rose and Mr Jackson, and I do not consider that information would inappropriately have “leaked” to tenderers.

Of course, tenderers would seek information about competitors and the Cartel – as I have described – involved exchanges of information between cartelists. The question arises as to what ABB would have known about this, the BritNed tender.

Mr Jackson was extremely sceptical of ABB’s denials that they knew they were the only bidder for Lot 2 or Lot 3. (Footnote: ²¹⁹) In cross-examination, he said: (Footnote: ²²⁰)

I take Mr Jackson’s point regarding informal exchange of information in the market and market gossip. I also take the point that ABB was part of the Cartel. Clearly, these are both factors that would or could affect ABB’s knowledge. Beyond that, however, it seems to me that Mr Jackson’s subjective belief as to ABB’s knowledge does not take me any further as regards that knowledge. (Footnote: ²²¹) It is a matter for me to determine. It is this aspect that I now proceed to consider.

Approach to analysing ABB’s knowledge advantage

It is not ABB’s understanding of the Cartel in general that matters, but the extent to which ABB’s participation in the Cartel gave it an appreciation of the competitive position in which it stood in relation to the BritNed project.

There are two general points that arise out of this.

First, I appreciate that there is a distinction to be drawn between “ordinary” market gossip regarding the BritNed Interconnector tender – i.e. communications which might have occurred even if there was no Cartel – and information acquired through the operation of the Cartel. In my judgment, to the extent that there were valuable communications between competitors for the BritNed project, these would have been due to the Cartel, and I so find. In the ordinary course, whilst genuine competitors may exchange market “gossip”, they will be acutely aware of the need to preserve their own competitive advantage by maintaining confidence in “valuable” information. (Footnote: ²²²) The converse is more likely to be true as regards members of the Cartel. I consider that the appropriate approach to take is to presume that if valuable information was exchanged between “competitors” (e.g. as to participation in a bid or the level of pricing), that exchange occurred by reason of the Cartel, and would not have occurred but for the Cartel.

Secondly, it is important to note that as regards ABB’s bid for the BritNed Interconnector it would be an error to regard ABB as monolythic. Different persons associated with ABB’s bid for the Interconnector (and, specifically, the Cable element) had different knowledge in relation to the Cartel and in relation to ABB’s competitive position regarding the BritNed tender. It will be necessary to consider three distinct questions:

This, third, possibility, does not however exclude the possibility of an overcharge arising in relation to the Cable element. An overcharge could, in theory, arise in two ways:

I consider the three questions articulated in paragraph 214 above in the following Sections:

The difficulty underlying these questions of direct or indirect influence over the tender is illustrated by some of ABB’s internal documents, which suggest a perception, on the part of ABB, of a properly competitive process. Thus, an email dated 21 December 2006 from Mr Pääjärvi (who, as will be seen, I assume knew of the Cartel, but without making a finding to this effect) to various persons within ABB circulated a “brief update after our latest meeting on Cable installation and protection yesterday at Schiphol”. The final paragraph stated:

“I am concerned about the process. We are helping BritNed to develop the Contract with great efforts and costs and still we will be squeezed in the BAFO. It may well be that some of our competitors will be awarded the Contract in the end.”

This document was put to Mr Rose, who (unsurprisingly) was unable to say much about what was, after all, an internal ABB document. (Footnote: ²²⁴) He accepted that the email generally referred both to the Cable and Converter elements of the bid, but suggested that this comment made more sense in the context of the Converter element (where ABB did have competition) than the Cable element (where ABB did not have competition). (Footnote: ²²⁵) That, however, begs the very question of what ABB’s negotiating team actually knew. That is a point on which I will have to reach a view: for present purposes, I would only say that this email suggests a fear of competition – in relation to all aspects of the contract – on the part of ABB.

Another ABB internal document is an email (sender and recipients are immaterial) dated 30 March 2007 stating:

“As we said on the phone yesterday, Staffan, it feels terrible that we will probably lose yet another HVDC project. We now need to do everything we can do to win BritNed, if this still is possible. My ambition for getting as competitive a price as possible from us is to convince the bosses in Zürich etc. that we have to come in with a reasonable margin and risk provision. However, to succeed, I need your help:

Staffan: When you have any more information about the Great Belt straight, such as who the low bidder is and what the difference is in price or greater differences on the technical solution for the Tfo’s, then I will gladly receive this.

Staffan/Bo: I’d be pleased to hear any news about BritNed as I will try to work on the bosses from a number of angles. It is highly unlikely that we will have time to change our business model on this. We then will have to ensure that we work closely together in terms of our updated quotes for BritNed. As soon as I have a technical quote from our estimators, we can talk about this.”

It was put to Mr Rose that this document evidenced real commercial pressure on ABB. Mr Rose’s response was as follows: (Footnote: ²²⁶)

“The pressure we used across the project, particularly in relation to the cable, because we knew we only had one competitor, one party for the cable, was that the project risked not actually happening at all if a price that came in was too high and damaged the business case.

So I accept that type of pressure was used, rightly I think, to try to create a feeling of competitive pressure.”

Mr Rose, of course, knew who had bid and who had not. He knew that the field was thin, and that as a result the commercial pressures open to him were limited. He deployed them to the extent he could. But, of course, he could not speak to ABB’s knowledge. Like the previous communication – this email suggests a concern on the part of ABB that the project could go ahead, but with ABB being unsuccessful in its tender.

I reference these emails not because I am persuaded that within ABB everything operated on a competitive footing. I reference them because it is important that, when considering the facts, I keep in mind the potentially insidious nature of cartels. Cartels do not advertise themselves, and their influence can be extremely difficult to discern.

Who knew about the Cartel and who did not know about the Cartel?

BritNed accepted that a number of ABB employees – notably Mr Leupp and Mr Larsson-Hoffstein – had no knowledge of the Cartel. No case was advanced that these persons had used the existence of the Cartel to inflate the bid price.

If the bid for the Interconnector was inflated, then it was with the innocent involvement of such persons. In short, these persons considered that they were doing their duty – i.e. pricing competitively – and were effectively duped into producing a non-competitive price.

It is necessary to begin by identifying those aware of the Cartel and aware of the impairment of the competitive process as regards the BritNed tender. Clearly, Mr Jönsson was aware of the Cartel and aware of the fact that the Cartel might impair the competitive process as regards the BritNed tender. It was also alleged that Mr Pääjärvi

I regard the knowledge of these two persons as relevant because their role in ABB can be related to ABB’s bid. Mr Jönsson was in charge of the Cable element of the bid, although he delegated to Mr Larsson-Hoffstein. (Footnote: ²²⁸) Mr Pääjärvi was in charge of the Converter element of the bid. (Footnote: ²²⁹)

Clearly, each might well have been in a position to influence the nature of ABB’s bid, although I accept that in relation to the Cable element, Mr Pääjärvi’s influence would have been somewhat attenuated. Nevertheless, given Mr Jönsson’s evidence that Mr Pääjärvi had a broader role, (Footnote: ²³⁰) it is necessary to bear him in mind.

Unfortunately, it is very difficult to get any sense of how the various individuals worked together during the course of the BritNed tender. I heard no evidence from Mr Pääjärvi, and neither Mr Jönsson nor Mr Larsson-Hoffstein was able to paint a picture of how the ABB tender team really worked. It follows that I cannot actually trace – with any degree of specificity – the sort of influence that Mr Pääjärvi might have had. The same is all the more true of the other persons said by BritNed to have known of the Cartel. Their role in relation to the BritNed tender was exiguous. It seems to me that I should proceed on the basis that Mr Pääjärvi had the same knowledge and the same ability to influence matters as Mr Jönsson, simply as a safeguard against a tendency to regard Mr Jönsson as a “lone wolf”, acting on his own within an otherwise “innocent” ABB. That was very much not the case, as BritNed emphasised. The fact is that knowledge of the Cartel was embedded within ABB, and it is important not to lose sight of this fact. At the same time, a number of persons having significant influence over the BritNed tender did not know of the Cartel. In these circumstances, I shall proceed to analyse what Mr Jönsson knew, without mentioning Mr Pääjärvi further. However, the assumption that I am making regarding Mr Pääjärvi’s knowledge and influence underlies my analysis throughout for the reason that I have given.

What these persons knew regarding the BritNed bid?

I consider that Mr Jönsson would have known the following things.

The fact that projects were allocated by the Cartel and that the BritNed Interconnector was allocated to ABB

As has been described, the cartelists kept track of allocations of work and monitored who got what. (Footnote: ²³¹) I accept, of course, that sometimes the allocation of work was not followed, with resultant sanctions,²⁶⁴ but that, in my judgment, cannot affect the broad expectation that I find all cartelists, including ABB, to have had: namely that when work was allocated to a particular undertaking, the other cartelists would behave in a manner that would assist, if not ensure, that that undertaking received the work.

The fact that ABB was not a “core” cartelist, and may not itself have kept track of allocations, is nothing to the point. (Footnote: ²³²) The point is not whether ABB kept track but whether there was an expectation that if ABB was allocated a project, the other cartelists would “play ball” and do their best to see that ABB got the work. I find that there was such an expectation, based upon the Decision and Mr Jönsson’s general acceptance that the thrust of the Decision was right.²⁶⁶

In fact, Mr Jönsson’s understanding of the competitive situation is likely to have more sophisticated and more specific than this.

Likely absence of competition from Japan/Korea

I consider that Mr Jönsson would have appreciated that there would be an absence of competition – at least so far as the Cable element of the bid was concerned – from Japanese and Korean suppliers. I reach this conclusion based upon the fact that such a geographic allocation of work was the starting point for the Cartel. (Footnote: ²³³)

Mr Jönsson sought to suggest, in his witness statement, that he regarded the threat of competition from Japanese cable suppliers as a real one:²⁶⁸

“…I could not be confident that the Japanese cables suppliers would not compete for the cables contract since cartel discussions had broke off with Japanese companies in 2004. Any interactions I had with Japanese suppliers after that date…were not in the context of the Cartel but in the normal course of business. However, although they were developing technologies that could potentially be used for projects such as the BritNed project, the Japanese suppliers at the time lacked the technical expertise in certain areas to execute the BritNed project in its entirety…and were subject to significant transport costs.”

The thrust of Mr Jönsson’s evidence appears to be that the Japanese (and, no doubt, Korean) cable suppliers were not competitive rather than that they chose not to compete. I do not accept this evidence. It may be that these suppliers were uncompetitive: but that was not tested in the European market. I find that, by reason of

I conclude that Mr Jönsson would not have seriously been concerned about competition from Japanese or Korean suppliers. I do not go so far as to say that such competition was impossible: it simply would not have been expected and would have been discounted by those in the know.

Level of competition from European suppliers as regards cable projects

As regards ABB’s European competitors, for cables, ABB’s main competitors were Nexans and Prysmian. (Footnote: ²³⁵) Both of these companies were cartelists.

The contacts that Mr Jönsson had with Nexans have already been described,²⁷¹ as has Nexans’ submission of a non-compliant tender. (Footnote: ²³⁶) In these circumstances, the inference that Nexans did not compliantly tender because of the Cartel must be a strong one and I have found that this was indeed the case.

Nevertheless, Mr Jönsson sought to suggest that – because ABB had not made provision in its tender for a sub-contraction to Nexans, and because Nexans has

“reproached” ABB about this (Footnote: ²³⁷) – “[i]t could not…be ruled out that Nexans…would compete hard for the project”. (Footnote: ²³⁸)

I do not accept this evidence. In cross-examination, Mr Jönsson accepted that the BritNed project had been allocated to ABB by Nexans. (Footnote: ²³⁹) The relevant passage in cross-examination was as follows:²⁷⁶

As regards the possibility of Nexans reneging on this, because of ABB’s failure in its bid to make provision for a sub-contract to Nexans, Mr Jönsson said this: (Footnote: ²⁴⁰)

Clearly, it was not impossible that Nexans could tender – notwithstanding the Cartel allocation agreement. The question is how likely ABB would regard that eventuality. Mr Jönsson was pressed on this in cross-examination:²⁷⁸

There is, of course, a spurious and artificial precision to percentages. But I consider Mr Jönsson’s answer to be a helpful one as regards his own views regarding the likelihood of a truly competitive Nexans bid: not impossible, but quite unlikely.

As regards Prysmian, Mr Jönsson’s evidence was again that he could not exclude them as a potential bidder, particularly in conjunction with a collaborative bid with Siemens for Lot 3, with Siemens tendering for Lot 1 and Prysmian for Lot 2. (Footnote: ²⁴¹) Mr Jönsson’s evidence was, essentially, that he was cautious when assessing potential competition, and took nothing for granted. He did not accept that Prysmian could be classified as an “unrealistic” competitor, (Footnote: ²⁴²) but he did not put the chance of a real bid at much higher than this: (Footnote: ²⁴³)

As with Nexans, I find that Mr Jönsson’s view was that Prysmian was unlikely to constitute real competition in relation to the Cables element of the tender.

Level of competition as regards the Converter element and Lot 3

I heard much less evidence in relation to the Converter element of the tender. Mr Pääjärvi did not give evidence, and the parties (quite rightly, given the nature of BritNed’s Overcharge Claim) focussed on the Cable (Lot 2) element of the tender, because it was in relation to Lot 2 that the question of the overcharge arose.

In theory, competition in relation to the Converter element could only affect prices and competition in relation to Lot 1 and Lot 3. Lot 2, being purely concerned with the Cable element, ought to be insulated. However, as demonstrated by ABB’s own conduct in relation to Lot 2, it is not possible to regard the Cable and Converter elements as so isolated.

The relevance of Lot 1 to potential competition in relation to Lot 2 (and so Lot 3) is not that BritNed overpaid in relation to Lot 1. The evidence before me was such, however, that I can only proceed on the basis that the Cartel did not affect the level of the Siemens bid in relation to Lot 1, even though, had there been greater competition, it is likely that BritNed would have been able to place further legitimate competitive pressure on Siemens.

The importance of Lot 1 lies in – as I have described (Footnote: ²⁴⁶) – the commercial pressures it exerted on ABB. I consider that whilst ABB was assured – as it was with the Cable element of the bid – that it was the Cartel’s “choice” for this element, unlike with the Cables element of the bid, where Nexans and Prysmian represented the competition,²⁸⁵ competition in relation to the Converter element might emanate from non-cartelists. That threat of competition was made good by Siemens’ participation in the process. I consider that Mr Jönsson would have appreciated that the supply-side for the Converter element of the project was wider than that for the Cable element.

Conclusion

In terms of the knowledge that Mr Jönsson (and, inferentially, Mr Pääjärvi) had, I conclude that they appreciated that ABB would have a “clear run” in relation to Lot 2. By this, I mean that they appreciated (because of the fact that effective competition for Lot 2 only emanated from cartelists) that ABB would not face real competition from rival tenderers and that any tenders actually submitted would not be genuinely competitive.

That was not quite the case in relation to Lot 1. Here – although Mr Jönsson and Mr Pääjärvi could be assured that ABB was the choice of the Cartel – there was potential for competition from suppliers outside the Cartel. I consider that Mr Jönsson and Mr Pääjärvi would have been aware of this risk of competition at the time the tender process commenced, and their view would have been confirmed by the participation of Siemens in the tender process.

Whether, and if so how, any “useful” knowledge regarding competition could have been deployed within ABB

Introduction

I have found that the actual knowledge within ABB of the Cartel was limited. Some persons involved in formulating the ABB bid for the cable part of the contract did not know of the Cartel, whilst others did.

The question arises as to whether – and if so how – those aware of the Cartel transmitted their knowledge acquired through the Cartel within ABB so as to derive an advantage. One anterior question is this: was it necessary to transmit this information at all? BritNed contended that a cartelist would not participate in a cartel without wanting to benefit. I accept that: but the benefit may be the obtaining of work properly tendered for, as opposed to the obtaining of work at an inflated tender price. Given that the Cartel originated as a response to under-capacity, the perceived benefits of the Cartel may simply have been the allocation of work, thereby ensuring work flows were directed as the Cartel wished and minimising costs thrown away through unsuccessful tenders.

It seems to me, therefore, that I cannot presume that it was a necessary part of the Cartel to inflate tender prices by directly or indirectly influencing the bid. (As I noted earlier, the questions of baked-in inefficiency and cartel savings I leave for later.)

Direct influence on the level of the bid

The process by which ABB’s tender was compiled was described in general terms in paragraphs 125 to 136 above. The question I consider here is the extent to which it would be possible directly to influence – in an upward direction – the level of ABB’s bid.

For the purposes of analysis, it is necessary to differentiate between those costs which ABB considered to be directly attributable to the supply of a specific project (or part of a specific project – like the Cable element of the BritNed Interconnector) and all other costs incurred by ABB in the course of its business. This, as will be seen, represents a distinction drawn by Mr Biro as part of his analysis. (Footnote: ²⁴⁷) I shall refer to the former type of costs as “direct costs” and the second type as “common costs”. (Footnote: ²⁴⁸) It is clear from Mr Larsson-Hoffstein’s evidence regarding the production of costings during the “technical” stage of ABB’s tender process that this distinction between direct costs and common costs is one that informed ABB’s processes. (Footnote: ²⁴⁹)

I consider the question of the direct influence on the level of ABB’s bid for the Cable element of the BritNed Interconnector in the following way:

Mr Jönsson denied seeking to influence the amount of the BritNed bid. Mr Jönsson’s evidence was that Mr Larsson-Hoffstein’s process for costing would not be affected by the Cartel:²⁸⁹

The question is whether the converse also pertained: was ABB able to inflate bid prices in order to increase its profit in relation to projects that were allocated to it? It was Mr Jönsson’s evidence that there was no explicit increase of ABB’s prices of the sort described by him in relation to tenders ABB was concerned to lose. (Footnote: ²⁵¹) In other words, the benefit ABB derived from the Cartel was not business at a deliberately inflated price but simply business that it would not otherwise have got. 258. As I have said, I treat Mr Jönsson’s evidence on this point with a degree of scepticism. Mr Jönsson’s evidence was, however, confirmed by Mr Larsson-Hoffstein, at least so far as the BritNed Interconnector was concerned. Mr Larsson-Hoffstein’s evidence was as follows:

I consider that the direct costs recorded in the PPMs represent an honestly and competently compiled statement of those costs, and that they were not inflated by the direct influence of Mr Jönsson or (for that matter) anyone else within ABB. I reach this conclusion essentially because I considered Mr Larsson-Hoffstein to be not only a transparently honest witness, but also an extremely competent compiler of the costs of the Cable element of the ABB tender. I do not consider that he would have allowed that process to be distorted and that if he had been required to include within the Cable element of the tender a cost that he did not consider to be justified, he would have told the court. Mr Larsson-Hoffstein was not cross-examined, in any detail, on exactly how he had compiled the BritNed tender. The bulk of his evidence was given in response to questions from me, set out in paragraph 132 above.

I find that Mr Larsson-Hoffstein’s pricing of the direct costs of the BritNed

To an extent, I am fortified in this conclusion by the fact that Mr Biro reviewed the costs set out in the PPMs and considered them sufficiently robust to base his analysis on them. Again, I am satisfied that had he identified any anomalies, he would have drawn these to the court’s attention. However, I should say that I place only limited weight on the endorsement of Mr Biro. That is because Mr Biro gave evidence as an expert economist and did not hold himself out as having any expertise in relation to submarine cable projects like the Interconnector nor, indeed, any expertise in cable projects generally. Thus, whilst Mr Biro would no doubt be adept at spotting accounting anomalies in the PPMs, I doubt very much whether he would have been able to spot the illicit inflation of a direct cost for dubious and not well-founded technical reasons.

The same, of course, goes for Dr Jenkins. Like Mr Biro, Dr Jenkins was a formidable economist, but that was the limit of her expertise. Dr Jenkins did not consider the PPMs sufficiently reliable and relied on them as little as possible for the purposes of her analysis. In her first report, she set out her concerns regarding ABB’s reported costs. (Footnote: ²⁶⁰) Whilst I accept that the internal workings and costings of ABB were unsurprisingly complex and no doubt difficult to follow, I do not regard the points raised by Dr Jenkins as supporting a suggestion that the direct costs in the PPMs were inflated by reason of the direct influence of those knowing of the Cartel. In cross-examination, Dr Jenkins said this: (Footnote: ²⁶¹)

“The difficulty with the PPMs that have been supplied by ABB is that it is very difficult to do any of that checking and sense-checking – certainly for myself, with no access to ABB itself – other than through written questions. And I think in the teach-in I did point out a few of those situations where some of the cells in these PPMs just look quite unusual. They are not the sort of thing you would expect to see. Now, as you rightly say, perhaps there is a very good reason for that. But it is very hard to glean that information in this process, and there are very, very many cells in these spreadsheets. So the ability for there to be issues with those and aspects that may not be reflective of true costs is quite high in my view and that is why I was not keen to rely on them.”

This was explored further in cross-examination: (Footnote: ²⁶²)

BritNed did identify two specific elements in the direct costs which, it was contended, were indicative of Cartel inflation in the case of the BritNed project. One of these related to the cost of the copper recorded in the PPMs. The other related to the cost of the construction all-risk (“CAR”) insurance used by ABB in the tender. In neither case do I consider that these costs made good BritNed’s contention that the direct costs as recorded in the PPMs were inflated:

In conclusion, I find that BritNed’s attacks on the reliability of the direct costs recorded in the PPMs to be misconceived.

Mr Larsson-Hoffstein accepted that it was possible for others involved in the process to influence margins. (Footnote: ²⁷¹) He did not accept that this had in fact happened, and I do not consider that it did happen so far as direct costs are concerned. I consider that margins added to direct costs, including contingencies for risks relating to the Interconnector project, would properly have been added by Mr Larsson-Hoffstein.

However, the potential for inflation in relation to ABB’s common costs is less easily dismissed. Such costs were described by ABB as “selling, general and administrative costs” or “SGA” costs.

In her first report, Dr Jenkins analysed the SGA mark-up on production cost (which she set out in a figure) and said this: (Footnote: ²⁷²)

“3.35

As shown in the figure, SGA allocation is not consistent across projects or over time. The SGA mark-up is quite volatile during the Cartel period, and increases markedly for the later cartelised projects. More importantly, the SGA mark-up falls once the Cartel collapses.

3.36

The figure above provides indicative evidence that cost reporting differed during and after the Cartel period. It might be the case that the Selling, General and Administrative divisions at ABB were less efficient as a result of the Cartel, leading to inflated costs and a higher SGA mark-up…”

In the Joint Statement, Dr Jenkins’ response to Issue 16 – “There is evidence that ABB’s “SGA” costs were higher during the Cartel period” – was as follows:

“There is evidence that cost reporting differed during and after the Cartel period…It might be the case that the Selling, General and Administrative divisions at ABB were less efficient as a result of the Cartel, leading to inflated costs and a higher SGA mark-up…”

Dr Jenkins very fairly put the issue no higher than this: that it was possible that the SGA costs were affected by the Cartel, either deliberately, indirectly or simply because of (for example) baked-in inefficiencies or cartel savings.

The point was put to Mr Jönsson in cross-examination. Mr Jönsson was quite prepared to describe in general terms how ABB would have calculated its SGA costs: (Footnote: ²⁷³)

(Footnote: ²⁷⁵) I come to the question of indirect influence on price, baked-in inefficiencies and cartel savings in due course. Here I consider the possibility that SGA costs were inflated by direct influence so that ABB recovered more than its costs because of the Cartel. I consider that I cannot – on the basis of the factual evidence – exclude that possibility. Indeed, I note that Mr Biro accepts the possibility, but seeks to control for it in his analysis. (Footnote: ²⁷⁶) For the present, that is my finding in relation to SGA, or common, costs: that they could have been deliberately inflated within ABB. The extent of any such possible inflation (which will involve consideration of other matters, notably the competitive relation between ABB and BritNed) is a matter this is considered further in Section I below.

Indirect influence on the level of the bid

Although it is difficult to differentiate between baked-in inefficiencies and an indirect influence on the bid level, I nevertheless consider that such a distinction is worth drawing. Indirect influence, causing a bid to inflate, was well-described by Dr Jenkins:³²¹

“Indeed, that individuals who may themselves not know officially about the Cartel, but if they operate in an environment where there is actually not very much competitive pressure and therefore a process has grown up whereby you add 10% into a lot of your material costs, if you then face competition you discover you can’t continue to sustain that.

Now, if you ask that person, they say, “We are just following standard practice, and this is how we price things, there is a 10% overhead on all these costs”, it doesn’t mean it is a good measure of the counterfactual competitive costs that would have been observed absent the Cartel.”

There would, in my judgment, be a number of such influences operating within ABB.

Inevitably, within ABB, perfectly innocent conversations would have gone on as to which of ABB’s rivals was bidding, for what, and at what prices. It would be very surprising if that did not occur.

It would be very easy for someone in the position of Mr Jönsson, knowing of the Cartel, to feed into such conversations information derived illegitimately from his participation in the Cartel.

In his evidence, Mr Jönsson was not very forthcoming about this, partly because (as I have found) he was careful not to admit matters not clearly found by the European Commission in its Decision, but also because such exchanges would not necessarily be easy to remember: (Footnote: ²⁷⁷)

The conversations would have been much vaguer than this, and their effect difficult to judge. But I find that they would have taken place. One example concerns the low probability of Nexans bidding: (Footnote: ²⁷⁸)

For reasons that I have discussed, it would not be possible for Mr Jönsson to explain to an ABB officer innocent of the Cartel that ABB’s commercial approach could be more relaxed as regards costs because of the Cartel. I do not consider that such things would have been said overtly and explicitly. But I do consider that it would be possible for someone in the position of Mr Jönsson to affect the general approach ABB might take to a bid – to affect the “mood music” as it were, that would inform ABB’s commercial approach.

It was suggested that one way of ensuring that a bid was higher or “fatter” than it might be was by ABB explaining (if only internally), in advance of any bid, why that bid might be “high”. An example of this is an internal email within ABB which read as follows:

“At our last HVDC meeting, Hans-Ake and I concluded it would be good that we both pay a visit to Mel Kroon (and possibly Lex Hartman). Each time I meet Mel Kroon he makes clear to me he is worried not to get competitive prices from ABB (factory full…). We believe we should create clarity around that issue now (in neutral time and proactively). I learned from Hans-Ake that it is anyhow to be expected that due to material price increases and a more sound cable market situation vs the days that NorNed was signed (nineties) the BritNed price could be some 20% higher versus the NorNed. The day Mel would hear from this, if we do not prepare that message upfront, he will definitely conclude: ABB are crooks! We want to avoid this.”

This is a communication capable of a perfectly innocent reading. ABB was concerned that its prices for BritNed might appear too high and was proposing proactive steps to ensure that the (potential) client’s expectations were managed so that, when figures were put forward, ABB was not regarded as a “crook”. Yet the obvious effect within ABB would be to convey a sense that senior management within ABB were relaxed about a high bid. (Footnote: ²⁷⁹) Inevitably, this would have an effect on how the tender team approached costs.

Another instance is when ABB was called by TenneT, complaining that:

“TenneT experiences ABB as too arrogant with its pricing of the cable of

•

BritNed – 70% price increase in comparison with NorNed

•

NorNed 10km additional cable – 100% price increase in comparison with NorNed”

I take TenneT’s complaints about pricing with a pinch of salt. TenneT’s statements cannot, in my judgment, be regarded as an objective assessment of the situation. They were part of the bargaining process. ABB would have appreciated this. However, the reaction within ABB will have set the agenda for the tender team. Mr Jönsson’s response, disseminated within ABB, was that the comparisons made by TenneT were unsustainable. He concluded: (Footnote: ²⁸⁰)

“I have personally reviewed the pricing in both cases and these have been reviewed all the way up to CEO level (BritNed case). A key aspect in this review has been to have prices that are defensible and correct and should not be possible to label as arrogant.”

Here, therefore, we have the man in charge of the Cable element of the bid, aware of the Cartel and of the fact that ABB has an advantage in relation to the BritNed contract because of the Cartel, telling his team that the bid is not arrogant, but realistic. Leaving entirely on one side the question of whether the tender was inflated, if it was, then it was certainly not being challenged by a sense of competitive pressure coming from within ABB.

Conclusions

In terms of the effect that the Cartel had on ABB’s business practices so far as the Cable element of the BritNed Interconnector was concerned, I have reached the following conclusions:

THE EXPERTS’ ANALYSIS (1) Introduction

The experts adopted very different approaches in terms of how they sought to analyse the effect of the Cartel and the overcharge that BritNed contended the Cartel had caused. It is necessary, first, to state the approaches of Dr Jenkins and Mr Biro, as well as their findings, in as neutral a way as possible. This is done is Section H(2) in the case of Dr Jenkins and in Section H(3) in the case of Mr Biro.

Having articulated the different approaches of the experts, I then proceed to consider them more critically. The experts reached divergent views as to the amount of the overcharge. Dr Jenkins concluded that the overcharge was in excess of 20%: her precise estimates varied as Dr Jenkins refined her analysis during the course of exchange of expert reports and the compilation of the Joint Statement. Mr Biro put the overcharge at nil.

It goes without saying that it will be necessary to understand why this divergence has arisen, and whose assessment is the more reliable. This critical evaluation is undertaken in Section H(4).

The approach of Dr Jenkins

A summary of Dr Jenkins’ approach

Dr Jenkins’ general approach was described by her in her first report. Her expectation was that the Cartel would lead to higher prices, when compared with the competitive counterfactual. (Footnote: ²⁸³) She tested this expectation in the following way: (Footnote: ²⁸⁴)

“I test this expectation by analysing and estimating the size of the cartel overcharge using information on the prices ABB agreed with its customers at the point of the tender award for disclosed cable projects supplied in the period 2001 to 2016. My preferred approach to estimate the overcharge is a during-and-after price regression. This uses the pricing of post-cartel cable projects (i.e. projects “after” the cartel period) as the benchmark for the competitive counterfactual price, while controlling for factors that affect the price of projects, and which differ between projects and over time.”

Thus, Dr Jenkins was comparing the price of projects during the Cartel with the price of projects after the Cartel. The former were presumed by Dr Jenkins (although, as will be seen, Dr Jenkins tested for this) to be affected by the Cartel, such that their pricing was higher than it would be absent the Cartel. The latter were presumed to be competitive prices. (Footnote: ²⁸⁵)

Dr Jenkins’ analysis proceeded through the following stages:

In the next sections, Dr Jenkins’ approach is considered in a little greater detail. It is necessary first to explain my understanding of the various statistical tools and devices