In December 2016, the EU General Court issued its first judgment on an appeal brought by Printeos, a settling party, against a settlement decision relating to the envelopes cartel (case AT.39780). Although there can be little doubt that settling parties are entitled to appeal settlement decisions (since the right to an effective remedy and to a fair trial is guaranteed by Article 6 of the European Convention of Human Rights (ECHR) and Article 47 of the EU Charter of Fundamental Rights (CFR)), questions were nonetheless raised about the admissibility of the appeal given the nature of the action. The General Court not only confirmed that such an action is admissible but also that whilst the efficiency gains sought by the settlement procedure set inevitable and legitimate limitations to undertaking’s rights, these limits cannot be set at the cost of general principles of EU law. This judgment therefore helps to pave the way for future appeals.
Overview of the settlement procedure
The European Commission’s settlement procedure was introduced in 2008 and is used by the Commission to speed up the procedure for the adoption of cartel decisions when the parties admit to the Commission’s objections. In return, the settling party receives a 10 per cent reduction in the fine.
To achieve the expected efficiencies under the EU settlement procedure, parties willing to settle a case have to accept several limitations to their rights of defense. Most obviously, settling parties do not submit a full defence in writing (such as the response to the statement of objections in standard procedure) and can only draw the Commission’s attention to flaws in key aspects of the case in so-called “Technical Non-Papers”.
Parties also have limited access to the Commission’s case file to key evidence selected by the Commission’s case team and there is no opportunity to present an oral defence during a hearing.
How does the procedure work in practice?
The settlement procedure involves three rounds of formal bilateral (and confidential) meetings held between the Commission and each undertaking under investigation which has indicated a willingness to settle. During the course of these meetings, the discussions focus on the scope of the infringement, the key evidence contained in the case file, the extent of the undertaking’s liability and the methodology to set fines, as well as the range of the fines to be imposed. Before discussing fines, all parties need to individually reach a common understanding with the Commission regarding the description of the infringement. This common understanding, set out in a document called the “case overview”, outlines, among other things, how the cartel worked and what was the role of each party.
Only when the wording of the case overview has been agreed can discussions move on to the level of the fine. At this point, parties are no longer provided with any indication of other parties’ positions. This means that while each party will be aware of the scope of each undertaking’s liability the Commission does not provide any information on the range of other party fines. In practice, this means that the first opportunity for a settling party to measure its fine against others is the final decision, at which point it is no longer open to them to discuss their fine with the Commission.
What scope is there for parties to challenge deficiencies in the decision?
If a settling party notices any irregularity in the setting of the fines, its only possible remedy is an action for annulment before the General Court. This was indeed the road followed by Société Générale (Case T-98/14) in its action for annulment against the Euro Interest Rate Derivatives of 4 December 2013 (which was subsequently withdrawn) and indeed by Printeos in its action of 20 February 2015. Both undertakings sought to obtain the annulment of the article of the settlement decision which set their fines based on alleged violations of the principles of proportionality and equal treatment and the Commission’s failure to state sufficient reasons, including when determining the penalty.
Neither applicant contested its involvement in the alleged infringement. However, they argued that the Commission had failed to specify to the requisite legal standard the reasons why it had adjusted the basic amounts of the undertakings’ fines by departing from the Commission’s Fining Guidelines. In particular, the applicants claimed that the decision did not clearly explain why the Commission had applied different rates of reduction to different undertakings. Asserting that to comply with the requirements for clarity and precision, insofar as they relate to the principle of equal treatment, the reasons should have indicated (i) all factors necessary to determine whether or not the undertakings were in a comparable situation, (ii) whether the situations were treated differently or the same way and (iii) whether any objective justification could explain any difference in treatment applied
In the case of Printeos, the General Court upheld this plea noting that the obligation to state reasons is an essential procedural requirement (set out in Article 296 TFEU) that must be raised on its own motion by the court and does not become less onerous in a settlement procedure because of the information disclosed to the parties during settlement meetings. On the contrary, the judgment refers to the standard set in Chalkor, in which the Court of Justice emphasised the special importance attached to the Commission’s duty to state reasons when setting fines in competition cases and the need for the Commission to “explain the weighting and assessment of the various factors taken into account in determining the amount of the fines”. Furthermore, the General Court ruled that this principle is of “even more fundamental importance” when - as was the case in Envelopes - the Commission departs from the methodology provided by its Fining Guidelines to reflect the specific circumstances of a case. What had happened was that, pursuant to paragraph 37 of the Fining Guidelines, the Commission had opted for an exceptional adjustment to the basic amount of the fine of the undertakings concerned to take into account the fact that most of them were acting in a single market (as most fines would otherwise have reached and exceeded the 10 per cent ceiling set in Regulation 1/2003).
Following a thorough step by step review of the Commission’s calculation of the fines, the General Court concluded that the Envelopes decision was vitiated by a failure to state reasons, adding:
- First, if reasons were insufficiently stated in the statement of objections and in the decisions, the Commission cannot remedy this failure belatedly (i.e. during proceedings before the General Court) or claim that the undertaking received sufficient information (by another means) during the administrative procedure; and
- Second, despite the fact that proceedings before the General Court are exclusively inter partes (i.e. only have effects on the applicants and the Commission), the General Court’s review of the Commission’s duty to state reasons when setting fines is not limited to the reasons stated with respect to the fine adopted against Printeos.
The future of the settlement procedure
Two actions for annulment have now been submitted against settlement decisions based on what appears to be a “gap” in the procedure: since the parties are not informed of the maximum fines to be adopted against other settling parties during the discussions, this information cannot form part of what they agree to in their settlement submissions. Given the General Court’s judgment in Printeos, any violation by the Commission of the principle of equal treatment in setting fines, or insufficient reasons concerning how other parties’ fines were set, appears to open up a potential ground for appeal which cannot be pre-empted during the settlement procedure.
Of course the Printeos judgement does not answer all of the questions raised by the current settlement procedure. It remains to be determined whether the Commission would have argued that the action was inadmissible if, for example, it had been founded on any element agreed by Printeos during the settlement procedure. Alternatively, if a settling party was seeking an annulment by contradicting its own settlement submission, it also remains unclear whether or not the Commission would request the withdrawal of the ten per cent reduction of fines automatically granted in settlements. This outcome would be in line with Tokai Carbon (see Case T-236/01)in which it was confirmed that a ten per cent reduction of fines obtained for not substantially contesting the facts under the 1996 Leniency Notice could be subsequently reduced or withdrawn if the undertaking started to challenge the facts on appeal. Therefore, a necessary development of the Commission’s settlement practice may be to include, in the discussion rounds, an exchange on other parties’ maximum fines to limit the risk of appeal and preserve the efficiency of the procedure.
Following this first judgment regarding a settlement decision, it will be interesting to see if this was an isolated case, or if the “gap” left in the settling parties’ information (i.e. the level of the fines of other settling parties) may open the door to multiple appeals, thus defeating the efficiency purpose of the procedure. More generally, the increasing number of settlements generates a concern that the Commission’s decisional practice may become of lesser quality, due to shorter and less heavily deliberated decisions being adopted as a result of this procedure.
This might progressively lead to a wider margin of discretion being granted to the Commission to adopt infringement decisions without adequately justifying them (for example, by qualifying certain types of conduct as anti-competitive by object even in unprecedented cases) and create legal uncertainty for undertakings under investigation. However, Printeos also confirmed that an effective judicial remedy remains available to settling parties and that the standard of review should not be lowered as a result of the settlement. This ensures that, in the short term, the fundamental rights of defence of the parties are rigorously observed and, in the longer term, creates incentives for the Commission to maintain the quality of its decisional practice to avoid annulments by the General Court.
One thing is certain: the Commission cannot sacrifice fundamental procedural guarantees in the guise of achieving greater efficiency of process. Now that this principle has been (re)established, it will be interesting to see how it will be translated to other problematic aspects of the procedure. In particular, the long-awaited judgment in response to ICAP’s action for annulment against the Yen Interest Rate Derivatives decision (Case T-180/15) could provide further indications as to how the Court intends to balance the parties’ rights of defence with the search for efficiency in the hybrid staggered procedure. Under the current decisional practice of Commission, when one or more parties decide to withdraw from settlement discussions, the Commission will first adopt a decision against the settling parties and then only later resume its investigation against non-settling parties. ICAP argued that this process irremediably breached its presumption of innocence since the settlement decision took position on elements which directly affected its own liability. The General Court is expected to confirm in the course of this year whether or not the hybrid staggered procedure violated ICAP’s presumption of innocence.
Dealing with distress: business restructuring and rescue
Businesses in every sector and geography are having to transition to new ways of operating within a rapidly changing and increasingly uncertain legal and regulatory landscape.