European Union: Key ECJ judgments and EC policy developments

In summary

This chapter highlights the recent HSBC judgment in relation to hybrid settlement procedures and the threshold for non-settling parties to challenge the standard decision on the basis of an infringement of the presumption of innocence. Second, the chapter discusses the Volvo DAF and Repsol judgments in relation to the temporal applicability of procedural and substantive provisions in the Damages Directive. The chapter also deals with policy developments across the EU in the past year, focusing on the Commission’s refreshed guidance on the leniency procedure as well as developments on companies cooperating on sustainability objectives, in light of the Dutch Competition Authority’s assessment of a joint marketing agreement for carbon capture and storage. Finally, the chapter considers the UK CMA’s power to investigate European companies following Brexit.

Discussion points

• ECJ’s judgment in HSBC on hybrid settlement procedure and the ability of non-settling parties to challenge the standard decision
• Temporal application of provisions within the Damages Directive
• The Commission’s new Leniency FAQs
• The positions of the Commission and EU member states in relation to cooperation between companies on grounds of sustainability
• The UK Competition and Markets Authority’s powers to investigate European companies following Brexit

Referenced in this article

• BMW AG and VW AG v CMA
• Directive 2014/104/EU of 26 November 2014
• Frequently Asked Questions on Leniency
• HSBC
• Repsol
• Volvo DAF

Introduction

Over the past year, there have been numerous legal and policy developments in the EU in relation to cartel enforcement in the EU.

The rules governing hybrid settlement procedures have been clarified further by the European Court of Justice (ECJ). Specifically, the ECJ reiterated the importance of rights of defence, while lowering the legal threshold to annul the standard decision in the event of a breach of a non-settling party’s fundamental rights.

The ECJ also handed down important judgments in Volvo DAF and Repsol regarding private damages claims and the temporal applicability of provisions within the Damages Directive.

In October 2022, the Commission provided new guidance on the leniency procedure in an attempt to revitalise dwindling use of leniency applications in recent years. Separately, while the European Commission (the Commission) will soon adopt a final version of its Horizontal Guidelines,^[1] national competition authorities have taken the lead on the issue of cooperation between companies on grounds of sustainability, in particular with the Dutch TotalEnergies/Shell joint marketing agreement case.

Finally, this article discusses the UK Competition Appeal Tribunal’s (CAT) recent rebuttal of attempts by the UK Competition and Markets Authority (CMA) to serve requests for information on European parent companies of UK subsidiaries. This provides an interesting development for antitrust investigations in the post-Brexit environment and demonstrates the extraterritorial limits of the CMA’s investigatory powers.

Further ECJ guidance on hybrid settlements

Over recent years, there has been an increase in hybrid settlement procedures, in which one or more party to proceedings opts not to join the settlement procedure or withdraws from ongoing settlement discussions. In these scenarios, the Commission has tended to complete the settlement procedure first, while issuing the standard decision against the non-settling parties at a later stage. These cases have been the subject of repeated judicial consideration since the General Court (GC) first considered their legality in its Icap judgment in November 2017.^[2] Most recently, the ECJ has revisited the topic again in HSBC.^[3]

Presumption of innocence and impartiality

In HSBC, the ECJ reiterated its previous position, outlined in Pometon and followed by the GC in Scania, that the Commission must ensure that, in concluding the settlement procedure, the presumption of innocence of non-settling parties is preserved.^[4] To ensure this is achieved, the court must analyse the settlement decision and its reasoning ‘as a whole and in the light of the particular circumstances in which that decision has been adopted’.^[5] In particular, the ECJ makes clear that ‘any explicit reference, in certain parts of that decision, to the absence of guilt of the other participants to the alleged cartel would be devoid of sense if other parts of that decision were likely to be understood as a premature expression of their guilt’.^[6]

The ECJ reasserts the two-pronged test that the settlement decision must not: (1) contain a premature judgment as to the non-settling party’s participation in the cartel (no legal qualification of the non-settling party’s behaviour); and (2) make reference the a non-settling party unless necessary. Similar to Scania, the Commission successfully demonstrated that it fulfilled the test as it had avoided prejudging HSBC through careful drafting of the settlement decision. In particular, the Commission had made clear in recitals and footnotes that any references to HSBC were strictly necessary for understanding and establishing facts and were used exclusively to establish the liability of the settling parties.^[7]

The ECJ has, therefore, simultaneously reiterated the importance of the right to a defence and the presumption of innocence, while also providing the Commission with the comfort to refer openly to non-settling parties in the factual portion of the settlement decision, if these references are necessary.

Threshold to annul the settlement decision

Another element of the hybrid settlement procedure reconsidered in HSBC is the standard required to demonstrate that a breach of the non-settling party’s rights in the settlement decision affects the legality of the standard decision addressed to that non-settling party. In Icap, the GC held that the settlement decision could only be annulled if the non-settling party established that the standard decision would have been different, had it not been for the settlement decision (the Suiker Unie test).^[8]

Last year, AG Emiliou published his opinion in HSBC criticising such a stringent test when fundamental EU principles are involved. Instead, AG Emiliou argued that the Suiker Unie test should not apply to breaches of fundamental rights.^[9]

In its decision, the ECJ has now followed AG Emiliou’s recommendation and ruled the Suiker Unie test is not applicable to breaches of fundamental rights. The ECJ distinguished the issue in HSBC from Suiker Unie on two grounds. First, the court noted that the issues involved (ie, the principle of impartiality and the presumption of innocence) were fundamental rights under EU law.^[10] An infringement of these principles would have constituted ‘a sufficiently serious infringement capable of vitiating the entire procedure that led to the adoption of the decision at issue’.^[11] By comparison, the Suiker Unie case involved a procedural error of far less significance. Second, Suiker Unie did not relate to a hybrid settlement procedure.

As a result of these distinctions, the ECJ found that the GC had applied an incorrect test when deciding that a decision could only be annulled if it were established that, but for those irregularities, the content of the decision would have been different.^[12] As such, it was not sufficient for the GC to rely solely on the Suiker Unie test to reject HSBC’s arguments. Instead, the GC should have examined the settlement decision to determine whether the fundamental principles had been observed correctly by the Commission.

Nevertheless, the ECJ did not find that the Commission had infringed either the presumption of innocence or the principle of impartiality. Therefore, it did not provide any additional detail on the consequences of a breach of these fundamental rights on the legality of the settlement and standard decisions.

In future, further clarification of these issues will be required, in particular the extent of the rights to defence and the implications of annulling the settlement and standard decisions. In the near term, the ECJ may provide some additional guidance in the pending appeal in the Scania case. Scania has appealed the aforementioned GC decision, once again arguing that the Commission failed to uphold its presumption of innocence following the settlement decision. In particular, Scania claims the Commission’s use of the same case team for the investigations in the settlement procedure and the standard procedure infringed its right to a presumption of innocence.

Private damages and temporal application of the Damages Directive

Over the past year the ECJ has provided new rulings on the temporal application of the Damages Directive (the Directive).^[13] These cases centred on damages claims brought after the Directive was implemented under national law but in relation to infringements that ceased prior to the Directive entering into force.

The first case involved a claim brought against Volvo AB and DAF Trucks NV (the Defendants) in Spain for harm caused by their involvement in a cartel. The claimant, RM, had purchased trucks from the Defendants in 2006 and 2007. Later in July 2016, the Commission issued a decision determining the Defendants to have participated in a price-fixing cartel for trucks from 1997 to 2011. RM initiated its claim seeking compensation for harm suffered as a result of the cartel in the Spanish Commercial Court on 1 April 2018. The Spanish Commercial Court ordered the Defendants to pay damages. Following this, the Defendants appealed the decision to the Provincial Court, which in turn referred several questions for clarification to the ECJ.^[14]

The ECJ was ultimately required to consider the applicability of three provisions of the Directive:

• article 10: the five-year limitation period to bring a claim;
• article 17(1): the national courts’ power to estimate damages caused by a cartel; and
• article 17(2): the presumption that cartels cause harm.

Application of the limitation period for bringing a claim for private damages across EU member states (article 10)

The question raised in this judgment is whether article 10 of the Directive, which harmonises the limitation period for bringing a claim for private damages across EU member states, should be applied to cases where the infringement ended before the transposition of the Directive into national law, or at least before the deadline for such transposition. The ECJ’s response not only clarifies the application of the Directive in time, but is also an interesting illustration of the interaction between EU and national law provisions.

In Volvo DAF, the ECJ started by addressing the question whether article 10 is a procedural or a substantive provision. It noted that, in line with its previous case law as well as the provision setting out the temporal application of the Directive,^[15] substantive provisions in the Directive do not apply retroactively, that is to situations that have arisen and become definitive under old law.^[16] By contrast, procedural provisions apply to actions brought after the date of entry into force of the Directive regardless of when the infringement occurred.

The ECJ held that article 10 is a substantive provision that should be distinguished from ordinary procedural time limits.^[17] This is because limitation periods result in the extinction of legal action and, hence, directly affect the ability of a person to be heard before the court.^[18]

Thus, article 10 being a substantive provision, it does not apply retroactively. Therefore, the ECJ determined that the new limitation period (provided by article 10) will only apply where the limitation period for bringing an action pursuant to the old law had not expired before the transposition of the Directive (or the deadline for transposition the Directive).^[19]

Since, in the case at hand, the limitation period provided by Spanish law (and interpreted by the ECJ in light of EU law)^[20] continued at the deadline for transposition of the Directive, the limitation period instituted by the Directive was applicable to this case ratione temporis. As RM brought its action for damages shortly after the deadline for transposition of the Directive, its claim is admissible.^[21]

As a result of this decision, where the national limitation period for a claim has not expired before the Directive becomes applicable, the five-year limitation period under article 10 must be applied. The effects of the decision were seen in Portugal with a decision from the competition court in November 2022. The claimant, Transfrugal, filed an action for damages against DAF Trucks based on the same Truck cartel. The Portuguese court applied Volvo DAF in full, holding that the five-year limitation period under the Directive applied because the three-year limitation period under Portuguese law had not expired at the time the Directive was transposed into Portuguese law.^[22] As such, the claim was not time barred.

Application of the provision on the quantification of harm to national proceedings (article 17)

In addition to considering limitation periods under the Directive, the ECJ also considered the applicability of article 17. The ECJ drew a distinction between article 17(1) and article 17(2) of the Directive. Article 17(1), which empowers national courts to estimate the amount of harm caused by a cartel where it is otherwise impossible to quantify, was held to be a procedural provision.^[23] The ECJ determined article 17(1) related to the rules on burden and standard of proof, which have in previous cases been held to be procedural rules.^[24] On the other hand, the ECJ determined that article 17(2), which establishes a rebuttable presumption that cartel infringements cause harm, was a substantive rule because it related directly to the incurrence of liability.^[25]

As a result, article 17(1) of the Directive applied in Volvo DAF because the claimant brought the action after the Directive had been implemented in Spain. The fact that the infringement had occurred before the implementation of the Directive did not preclude it from applying. However, article 17(2), being a substantive provision, could not apply to the infringement retrospectively. In addition, the infringement had ceased prior to the date of expiry of the time limit for transposition of the Directive, hence the court could not apply the same reasoning as it had for article 10 in relation to ongoing situations.^[26] Article 17(2), therefore, could not apply to this case.

Since Volvo DAF, the Portuguese competition court considered the applicability of article 17(2) in Transfrugal. The court applied the ECJ’s ruling, finding that article 17(2) could not apply to the claim because the infringement had occurred prior to the Directive’s implementation.^[27] However, by relying upon the principle of effectiveness, the Commission settlement decision and previous EU court judgments, the court still found it was possible to presume that the Trucks cartel had resulted in increased prices, without relying on the Directive.^[28] This case, thus, demonstrates that, despite the inapplicability of article 17(2), national courts can still presume harm caused by historical cartels.

Application of the provision on the presumption of the existence of an infringement (article 9(1))

In a second case, Repsol,^[29] the ECJ considered the temporal applicability of article 9(1) of the Directive in a preliminary ruling by applying the two-stage process from Volvo DAF.

Article 9(1) requires that:

an infringement of competition law found by a final decision of a national competition authority or by a review court is deemed to be irrefutably established for the purposes of an action for damages brought before their national courts under Article 101 or 102 TFEU or under national competition law.^[30]

As with article 17(2) in Volvo DAF, the ECJ outlined that article 9(1) is directly related to establishing civil liability and hence a substantive rule.^[31] Article 9(1), therefore, could not apply retrospectively. In addition, when considering the second stage of the analysis for article 9(1), the ECJ outlined that the situation at issue is the final decision of the competition authority or court, as this is when the presumption of an existence of an infringement arises.^[32] In Repsol, the relevant judgments by the courts had been passed in 2010 and 2015, prior to the date of expiry of the time limit for transposition of the Directive. As such, article 9(1) could not apply to this action for damages.^[33]

Leniency and whistle-blowing

There has been a steady decline in leniency applications to the Commission. Applications fell from 46 to 15 between 2014 and 2019 and continued to fall thereafter.^[34] In 2022, there were just 12 applications, although the Commission notes this is twice as many as 2021 and three times as many as 2020, when applications were depressed by the covid-19 pandemic.^[35]

In an attempt to revitalise the use of leniency applications, on 25 October 2022 the Commission issued new guidance in the form of frequently asked questions (FAQs).^[36] These clarify certain elements of the leniency procedure, as well as introducing new tools aimed at encouraging engagement with the Commission.

Companies looking to apply for leniency can now contact the Commission on a ‘no names basis, without the need to disclose the sector, the parties involved or any other details identifying the potential cartel’.^[37] This provides the opportunity for parties to ascertain whether the relevant conduct may be considered a cartel and whether they would be likely to benefit under the Leniency Notice if they reported it. The system is designed to be an informal exchange about potential immunity applications.^[38]

Newly created leniency officers have a role to provide information and informal advice and discuss potential applications with prospective applicants.^[39] Legal representatives of prospective applicants can contact the leniency officer to establish whether immunity is available for the relevant cartel. While the parties can remain anonymous, they must disclose the product involved. In addition, the party’s legal representative has to commit, on behalf of its client, that if the leniency officer confirms that immunity is available, the client will make an application for immunity immediately.^[40]

Meanwhile, in an apparent attempt to deter fears of private litigation, the FAQs detail the additional legal protections against exposure to civil damages provided by the leniency programme.^[41] It stresses the preferential treatment of immunity applicants under article 11(4) of the Damages Directive, providing that an entity who gained immunity is only jointly and severally liable to customers and other cartel victims if full compensation cannot be obtained from the other cartelists.^[42] The FAQs further ensure that the Commission will support the leniency applicant in resisting disclosure of leniency submissions.^[43]

Similarly, the FAQs reference some of the potential benefits of the leniency procedure. Since 2006, entities which cooperated under the Leniency Notice have had their fines reduced by €16 billion.^[44] In addition, leniency applicants are less likely to be precluded from public procurement procedures as collaboration with the competition authority is taken into account when the tendering authority assesses the grounds for exclusion.^[45] Once again, however, it seems unlikely these perceived benefits and protections will be sufficient to encourage more parties to come forward.

It remains to be seen whether these attempts at streamlining the leniency application process and highlighting the perceived benefits and protections of the leniency procedure is successful in increasing the numbers of applications. In reality, the FAQs do little to reduce the risks associated with leniency applications – leniency applicants still remain at risk from private litigation and additional international leniency requirements. In addition, while the no-names discussions with the Commission may prove to be a helpful tool, entities may be hesitant to engage with leniency officers on the basis that they have to commit to making a leniency application if immunity is confirmed as being available. It seems unlikely, therefore, that these additional clarifications and tools will make a significant difference to the uptake of the leniency procedure.

Collaboration on sustainability and article 101 of the Treaty on the Functioning of the European Union

While the Commission has added a chapter on sustainability collaboration to its Draft Horizontal Guidelines (published last year),^[46] the potential divergence between the cautious approach adopted by the Commission and the push in some EU member states to create more space for collaboration by companies on grounds of sustainability has become more acute. In some jurisdictions, such as the Netherlands and Austria, competition authorities and legislators have demonstrated an acceptance of a degree of collaboration if the proposal is sufficiently beneficial to wider sustainable goals.^[47] However, in a speech on 2 March 2023, the EU’s competition chief, Margerethe Vestager, warned that competition authorities must call out the ‘green bluff’ and not allow companies to lessen competition in the name of sustainability.^[48] Vestager highlighted the need to urgently challenge greenwashing attempts – a practice whereby companies rely on sustainability goals to justify lessening competition – indicating that the Commission is committed to rigorously applying competition rules regardless of the underlying objectives of cooperation.

The clearest practical divergence is over whether companies ought to be allowed to cooperate on sustainability goals to benefit wider society, even if such collaboration leaves consumers in that market worse off. Vestager argued this would go against the core objective of competition enforcers. Instead, she defended the Commission’s Horizontal Guidelines, which do not permit cooperation on green issues if it would leave consumers worse off.

In the Netherlands, however, the Dutch Authority for Consumers and Markets (ACM) last year issued an opinion leading the way to a new approach to collaboration between competitors that is beneficial to sustainability.^[49] The ACM was considering proposed cooperation between TotalEnergies and Shell to jointly market five million tonnes of CO2 per annum for a carbon capture and storage (CCS) facility in the North Sea. The parties agreed to offer a joint tariff for the first five million tonnes per annum (20 per cent of the facility’s capacity) for 15 years, with the remaining 80 per cent of transport and storage capacity remaining competitive. In its analysis, the ACM found that the proposed arrangements would likely benefit all consumers (ie, all Dutch CO2 emitters that will be able to store their emissions in the North Sea CCS site) as it offered an additional solution to deal with emissions, without eliminating any other available options.^[50] As such, the proposal could be cleared on the grounds of providing a fair share for consumers. On top of this, the ACM noted that as 80 per cent of the facility would function competitively, there was little risk of anticompetitive effects.^[51]

More importantly, however, the ACM provided some additional commentary on its approach to the proposed cooperation. The ACM integrated environmental costs into the analysis of whether the measure would entail benefits, concluding that the agreement would bring ‘environmental benefits because capturing and storing CO2 at current rates is believed to be less costly from a societal perspective than emitting it into the atmosphere’. The ACM also classified the proposition as ‘an environmental damage agreement’, leading to cleaner air and less CO2 pollution, meaning benefits to society as a whole should be accounted for in the analysis.^[52] Thus, even if consumers had been left worse off, the ACM stated that it would likely have cleared the cooperation on the basis that ‘the benefits for the consumers and society would outweigh the negative effects for the consumers’.^[53]

Therefore, even though the ACM was under no obligation to do so, it opted to outline a possible acceptance of sustainability-focused cooperation agreements between companies even if they may not be beneficial to individual consumers. This seems a more forceful approach to that outlined by Vestager in her March 2023 speech. While the Commission primarily focuses on preventing cartels having a negative impact on sustainability,^[54] it seems some member states are equally pushing to provide companies with more comfort when cooperating to enhance sustainability goals. It remains to be seen whether the Commission’s final Horizontal Guidelines, which should be published in the coming weeks, will concede more scope in that regard compared to the draft published last year.

CMA’s ultra vires requests for information

The UK’s CMA conducted its first dawn raids alongside the Commission since completion of the UK’s withdrawal from the EU, investigating the automotive sector’s treatment of end-of-life vehicles. Since 1 January 2021, the Commission no longer has jurisdiction to carry out dawn raids in the UK for new investigations, nor to direct the CMA to carry these out. This means the investigations now run in parallel.

However, a recent judgment of the CAT on 8 February 2023 also confirmed that the CMA has no power to request information held outside of the UK by foreign companies.^[55] The judgment related to requests for information sent by the CMA to BMW UK and Volkswagen UK, as well as to their parent companies BMW AG and Volkswagen AG under section 26 of the Competition Act 1998. BMW UK complied with the request insofar as it had access to the information. However, BMW AG appealed to the CAT after receiving a fine from the CMA for failing to respond to the requests, where this information was held exclusively outside the UK. Similarly, Volkswagen AG launched a judicial review of the CMA’s decision to request information. The CAT provided a single judgment in which it determined that only the group entities having a UK territorial connection (eg, being incorporated in the UK or having a UK branch or office) can legally be required to comply with a request for information issued by the CMA. This is because under section 26 of the Competition Act 1998, the CMA has the power to issue requests for information to any person with sufficient connection to the UK, rather than to an undertaking as a whole. The CMA’s requests to the BMW AG and Volkswagen AG, which are domiciled outside of the UK and have no branch or office in the UK, were therefore ultra vires.^[56] In its decision, the CAT described the CMA’s interpretation of its authority to request any information held by an entity abroad, so long as an entity in its wider undertaking had a territorial connection to the UK, as ‘aggressively extraterritorial’.^[57]

As a result of this decision, the CMA is limited in its ability to issue binding requests for information, as it can address them to UK subsidiaries but not to companies established overseas (unless they have a branch or office in the UK). This highlights the disadvantage the CMA is at following the UK’s withdrawal from the EU. The CAT made clear that even if the CMA were to conclude international agreements on antitrust investigation cooperation, this would still not extend the powers it has to issue requests for information internationally.^[58] Instead, the CMA will be reliant on other antitrust authorities sharing information to uncover evidence relating to undertakings not domiciled in the UK, within the framework of international agreements for mutual assistance in that respect.

This limitation on the CMA’s power clashes with its recent proactive approach to antitrust enforcement. In response to the judgment, a spokesperson made clear the CMA would seek permission to appeal, seeing the judgment as a restriction on their ability to ‘investigate suspected unlawful conduct and ensure robust enforcement’.^[59]

^* The authors would like to thank Samuel Honnywill for his assistance in writing this article.

Notes