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To Settle or not to Settle: The EU Highest Court Confirms the Commission’s Approach in First Hybrid Cartel

Daniel Barrio, Yves Botteman
January 30, 2017

To settle or not to settle, that is the question.  And an important one, as confirmed by the EU Court of Justice (CoJ) in its judgement in Timab Industries and Cie financière et de participations Roullier (CFPR) v European Commission (C–411/15).  The ruling confirms the findings of the General Court (GC) in its judgement of 2015 (T–456/10) and upholds the almost €60 million fine imposed by the European Commission (EC) on Timab and its parent company Roullier in 2010. 

The present judgement is important because it corroborates the EC’s approach in tackling – for the first time – a so-called ‘hybrid cartel.’  In such cases, the EC runs two separate procedures in parallel, one settlement procedure as introduced by Regulation 622/2008 (which modified Regulation 773/2004) for those parties wishing to settle a cartel investigation and a second ordinary procedure under Regulation 773/2004 for the non-settling parties.  The CoJ’s judgement confirms that these two procedures are separate and that parties who receive a range of fines by the EC in the context of settlement discussions cannot reasonably rely on these figures if they decide to drop out of the settlement procedure and follow the standard administrative procedure.   

The EC’s Investigation 

In 2010, the EC closed its first ‘hybrid cartel’ investigation by fining six groups of animal feed phosphate producers (a total of 12 companies) an amount of €175,647,000 for operating a price-fixing and market sharing cartel for over 30 years.  The hybrid nature of the investigation lies in the fact that the EC had to run two parallel but separate procedures for the same cartel after Timab abandoned the settlement discussions. 

During those discussions the EC informed Timab that it would impose a range (minimum and maximum) of potential fines of €41 million to €44 million for its participation in a single and continuous infringement in the cartel from 1978 to 2004.  Unhappy with that assessment, Timab decided to drop out of the settlement negotiations and dispute the duration of their involvement in the cartel by following the ordinary administrative procedure pursuant to Regulation 773/2004.  After having had access to the EC’s file, formally replied to the Statement of Objections (SO) and attended a hearing, Timab was able to successfully disprove its participation in the cartel for the period of 1978 to 1993. 

Paradoxically, and as what must have come as a surprise to Timab, the EC imposed a fine of €59,850,000 for Timab’s participation in the cartel from 1993 to 2004.  That is, almost €20 million more than the range of potential fines the EC had indicated during the settlement discussions for a shorter period of time (15 years).  The increase was due to the fact that most of the reductions envisaged by the EC during the settlement discussions referred to the period from 1978 to 1993, which was ultimately disproven by Timab during the ordinary procedure. 

The Action for Annulment Before the GC 

Timab lodged an action for annulment before the GC against the EC’s decision, in essence arguing that (i) the EC penalised Timab for having withdrawn from the settlement procedure by imposing a higher fine than initially foreshadowed and that (ii) the EC should be bound by the range of potential fines notified to Timab during the settlement discussions pursuant to Article 10(a)(2) of Regulation 773/2004. As explained in detail in our previous briefing, the GC was not convinced by Timab’s arguments, rejecting all of its claims. 

As to the first argument, the GC disputed the allegation that the EC penalised Timab for withdrawing from the settlement discussions.  The GC examined in detail the method followed by the EC in calculating the amount of the fine outside of the settlement procedure and the EC’s adherence to the rules set out in the 2006 Fining Guidelines.  The GC found that the EC correctly applied those rules and confirmed that the difference in the amount of the fines imposed was due to the fact that the reductions envisaged by the EC during the settlement discussions mainly applied to the period of 1978 to 1993, which was successfully disputed by Timab.  Aside from a 10% reduction for entering into settlement, the initial reductions foreseen during the settlement discussions included 1) a 35% reduction for mitigating circumstances granted for allowing the EC to extend the duration of Timab’s participation in the cartel (that is, from 1978 to 1993) pursuant to the 2006 Guidelines and 2) a 17% reduction according to the Leniency Notice.  These initial reductions went from 52% during the settlement discussions to a mere 5% in the context of the ordinary procedure.  This decrease was further exacerbated by the fact that Timab’s average annual sales, upon which the fines and reductions were calculated, were higher for the period from 1993 to 2004 than from 1978 to 2004, largely due to an increase in the undertaking’s activity and geographical spread during said period.   

Regarding the argument put forward by Timab that the EC is bound by the range of potential fines as indicated during the settlement negotiations, the GC draws a clear line in the sand by stating that ‘the [EC] is not bound by the range indicated during the discussions as part of the settlement procedure.’  The GC further clarifies that in the standard administrative procedure, the EC ’is only bound by the statement of objections which does not set a range of fines’ and that ’the range notified during the settlement procedure is irrelevant, since it is an instrument specific to that procedure, it would therefore be illogical, and even inappropriate that the [EC] be required to apply, or to refer to, a range of fines falling within the scope of another procedure now abandoned. 

The Appeal to the CoJ and the Principle of Legitimate Expectations 

Dissatisfied with the assessment of the GC, Timab asked the CoJ to set aside the judgement and to refer the case back in order to reduce the amount of the fine.  In essence, Timab’s complaints remained the same: the EC should not have imposed a higher fine during the ordinary procedure than the range of potential fines indicated during the settlement discussions, especially since the relevant period was 15 years shorter than initially considered.  The CoJ confirms the approach adopted by the EC and the GC in calculating the fines imposed on Timab and further sheds light on Timab’s claim that their legitimate expectations have been thwarted by the EC and the GC when they imposed  a fine different than initially envisaged.    

In this regard, the CoJ recalls that the principle of legitimate expectations is among the fundamental principles of EU law and that any economic operator may rely on it if an EU institution has given precise assurances which caused it to entertain justified expectations.  The CoJ clarifies, however, that at the procedural stage preceding the adoption of the final decision – either in settlement or during the ordinary procedure – the EC cannot give to the participants in the cartel any precise assurance as to any reductions or immunity from fines.  The CoJ also points out that the settlement procedure is an alternative administrative procedure with special features such as an indication of a likely range of fines; if an undertaking does not put forward a proposal for settlement, the procedure leading to the final decision is governed by the general provisions of Regulation 773/2004 and the EC is only bound by the SO which does not set a range of fines.  Moreover, the CoJ indicates that when Timab withdrew from the settlement discussions they had all the information required to foresee that disputing their involvement for the period of 1978 to 1993 may have had an effect on the reductions applied to that period pursuant to the 2006 Fining Guidelines and the Leniency Notice.   

To Settle or not to Settle: Lessons from the First Hybrid Cartel 

The settlement procedure was introduced in 2008 as a means of increasing the efficiency in dealing with complex cartel cases.  Whilst cartel settlements have proven to be a success, with 18 cartel cases settled to date, commentators have argued that the proliferation of ’hybrid cartels’ undermines these achievements by reducing the EC’s efficiency.  In this sense, the present judgement is welcome in that it draws a clear line between the settlement and the ordinary procedure which may discourage potential settling parties from pulling their guns too quickly and rush to the standard procedure. 

On a more practical note, not only does this judgment confirm the EC’s approach in dealing with 'hybrid cartels,' but it also teaches us some important lessons: whilst there may be a case for dropping the settlement discussions and engaging with the EC on the basis of the standard procedure, this should be done by means of a calculated risk, taking into account not only the relevant rules on fines and available reductions, but also how the factual arguments put forward in defense would affect the outcome. It also teaches us that the world of 'hybrid cartels' is either black or white, we settle or we don’t, but we cannot expect to have the benefits of both. 

N.B.: Other ‘hybrid cartel’ cases are: Canned mushrooms (2016), Steel abrasives (2016), Euro Rate Derivatives (2016) and Yen Rate Derivatives (2015).