What Happens in Vegas Stays in Vegas: the EU General Court’s Ruling in Timab v. Commission

June 12, 2015

It was only a matter of time before the European courts heard a case on “hybrid” cartel proceedings.  In a hybrid case, the European Commission (EC) must run two types of administrative proceedings at the same time for the same cartel.  One is a “settlement” proceeding, which enjoys the procedural benefits of Regulation 622/2008 on the conduct of settlement procedures in cartel cases (the Settlement Regulation).  The other is a good old-fashioned “standard” proceeding under Regulation 773/2004 on the conduct of proceedings by the EC pursuant to Articles 101 and 102 of the Treaty on the Functioning of the EU.  As Timab Industries and Cie financière et de participations Roullier (CFPR) found out on appeal against the EC decision imposing fines (T-456/10), the General Court (GC) considers that what happens in settlement proceedings stays in settlement proceedings.

The Beginning of the Proceedings

On the basis of the Kemira group’s immunity application, in February 2004 the EC conducted dawn raids at a number of animal feed phosphate (AFP) facilities in Belgium and France.  Among the raided companies was Timab, a subsidiary of the Roullier group.  As is normally the case, leniency applications began rolling into the EC.  Timab’s application was the third and final application after the raid.  In its application, Timab included information that, among other things, indicated that it may have been participating in the cartel from 1978 – 2004, whereas the EC had only had evidence that the cartel had been operating since 1993.

Internally, the EC decided that the case was a good one for the settlement procedure.  Therefore, in February 2009 it notified all of the undertakings – including Timab – of this fact and gave everyone two weeks to inform the EC in writing if they were willing to take part in settlement discussions.  Everyone responded positively.  Therefore, the EC began having individual, bilateral meetings with each of the undertakings.

During the bilateral meetings, the EC shared the substance of its objections and its evidence in support of those objections.  Following the meetings, the EC calculated the range of potential fines for each undertaking.  Timab was notified that its range was € 41 – 44 million.  This amount included: (i) a 17% reduction under the leniency notice and (ii) a 35% reduction for mitigating circumstances under the Fining Guidelines for allowing the EC to extend the duration of Timab’s participation in the cartel due to evidence in its leniency application.

The Great Divide

As prescribed by the Settlement Regulation, the EC gave the undertakings time to formally commit to follow the settlement procedure.  They were required to show this commitment by submitting settlement submissions that captured the results of the settlement discussions, acknowledged their participation in an Article 101 TFEU infringement, and their liability.   Everyone except Timab submitted proposals in time.  Timab withdrew from the settlement procedure.  Thereafter, the EC had to run a hybrid case against Timab.

The EC sent out Statements of Objection (SO).  All of the undertakings that were settling replied to their respective SOs confirming that the document corresponded to their respective proposals.  Thus, their commitment to the settlement procedure was unquestioned. Timab was now subject to standard proceedings.  It had access to the file and a hearing.  It also submitted a Reply to the SO in which, among other things, it disputed having participated in a single infringement before 1993.

In July 2010, the EC issued two decisions. One was addressed to the settling undertakings.  The other was addressed to Timab. In its decision, Timab was fined € 59.85 million, which was significantly higher than the range of fines that the EC offered during the settlement discussions.

General Court’s Judgment:  Two Distinct Procedures

Timab challenged the EC’s decision. The various legal arguments boil down to the fact that the EC imposed on Timab, an undertaking that did not settle, a fine that was greater than the maximum amount the EC envisaged during the settlement discussions (€ 59.85 million vs € 41 – 44 million).

The General Court (GC) starts the substantive portion of its judgment with some history.  The settlement procedure was created in 2008.  The idea behind it is to simplify and speed up cartel cases and reduce the number of cases that is brought to the European Courts.  In theory, this would mean that DG Competition (DG COMP) can handle more investigations than would otherwise be the case.  In return for accepting a more streamlined process, the EC gives settling undertakings a 10% reduction on the amount of the fine that would have been imposed if they had used the standard process.  To be clear, the GC states, “[t]he settlement procedure is an alternative to the – adversarial – standard administrative procedure, distinct from it, and presenting certain special features, such as an advance statement of objections and the notification of a likely range of fines.”

General Court’s Judgment:  What about the Fine?

The settlement procedure and the standard procedure are two separate procedures. That said, the EC is bound by the principle of non-discrimination and the Fining Guidelines regardless of which of the two procedures applies.  Therefore, the EC cannot discriminate between settling undertakings and non-settling undertakings in the same cartel (except where the procedures deviate, e.g. the 10% reduction for settling).

The GC takes a close look at the figures used to calculate the likely range of Timab’s fine and its final fine and concludes that the EC has not discriminated against the undertaking.  It points out that in Timab’s SO, the EC stated that the company had taken part in a cartel from 1978 to 2004.  Subsequently, after (among other things) receiving Timab’s reply to the SO where it denied having taken part in any infringement pre-1993, the EC could not rely on the evidence that Timab had given in its leniency application.  The EC had therefore concluded that the company participated in the cartel from 1993 to 2004.  At the same time, this resulted in the EC reducing Timab’s leniency rebate from 17% to 5%.  The GC also found it logical that Timab would no longer receive 35% off for mitigating circumstances for helping the EC extend the duration of the infringement well before 1993.  In addition to losing these reductions, the GC goes through the analysis to show how it was not malice on the part of the EC, but rather a higher average annual sales figure during the infringement period 1993-2004 than during the period 1978-2004 that caused the fine to go up.  All of the factors led the EC to depart significantly from the € 41-44 million range, despite of the fact that the duration of the infringement had significantly decreased.

Timab v. EC:  Does it Make a Difference?

Few would argue that undertakings that engage in settlement discussions with the EC do so with anything but good intentions.  There are discussions about the fact that the EC settlement procedure is not a negotiation, although there is the possibility of doing a certain amount of fact sculpting during the settlement discussions.  Regardless, the settlement procedure could provide an interesting tool for certain undertakings.  With the knowledge that the EC must calculate a fine more or less in the same manner irrespective of the applicable procedure, a savvy (dishonest?) undertaking could agree to engage in settlement discussions simply to find out what type of fine it should expect at the end of the proceedings.  With the range in hand, the undertaking is in a better position to calculate the risk/benefit of staying in the settlement procedure or jumping ship and moving back to the adversarial, traditional procedure.  To be sure, Timab got unlucky.  And this is a dangerous game to play, since as the GC says anything can happen before the final decision is issued.