May 22, 2015
On 20 May 2015, the General Court of the European Union handed down its judgment in Timab Industries and CFPR v. Commission, Case T-456/10, which is the first ruling on the European Commission’s cartel settlement procedure.
The judgment finds that the Commission is not bound by positions it takes during settlement negotiations, and may extend the scope of its investigation into a party that withdraws from settlement if this is justified by evidence that subsequently comes to light. Similarly, the Court has confirmed that the Commission may ultimately impose a higher fine than that it proposes during settlement negotiations if a party withdraws its settlement application.
EU cartel settlement procedures
In June 2008, the EU introduced a new procedure for settling cartel cases, via Regulation 622/2008.[1] Since the first settlement in 2010, 16 cartel cases have settled. In essence, in a cartel settlement, the defendant agrees with the Commission’s case in return for a ten per cent reduction in any fine. The defendant is informed in advance of the maximum amount the Commission proposes to inflict and can withdraw from the procedure if the Commission ultimately decides to impose a higher amount. The central objective of the settlement procedure is to shorten cartel investigations and allow the Commission’s resources to be deployed as efficiently as possible.
In addition to the reduction in fine, settlement has considerable cost and resource advantages for companies. A settlement decision also tends to be considerably shorter and less detailed than an infringement decision, which can help protect undertakings against follow-on damages claimants. On the other hand, settlement does require companies to make a clear and unequivocal acknowledgement of liability for the infringement.
Companies have no right to settle cases, and the Commission assesses whether settlement is appropriate on a case-by-case basis. Availability of settlement may depend on factors such as the number of parties involved, the complexity of a case, the number of immunity and leniency applicants, the degree of cooperation, and the importance of setting a legal precedent in a particular area.
Hybrid settlements
The majority of settlements to date have involved all parties under investigation, but the Commission’s rules allow for hybrid settlements, in which some parties settle but others do not. A considerable minority of cases (five) have concluded in this way, including major cases such as the LIBOR cases in 2013.[2]
Hybrid settlements typically arise where settlement negotiations with one or more parties to an alleged cartel fail. In hybrid cases, the Commission issues a short form settlement decision for the settling parties, but proceeds to a standard infringement decision for the others.
Hybrid settlements are not particularly desirable from the Commission’s perspective. Two sets of decisions need to be drafted, which negates many of the procedural advantages of settlement. Nonetheless, they still have advantages in terms of reducing the number and complexity of appeals that are likely to be lodged.[3]
From the perspective of settling parties, hybrid settlements deliver many of the benefits of standard settlements. However, they do have some potential disadvantages. Firstly, if a non-settling party successfully appeals the infringement decision then, except in the very unlikely event that the decision is annulled in its entirely, the settling parties may lose out. Secondly, in the event of follow-on damages litigation, the disclosure advantage the settling parties have won in terms of a short and undetailed decision may be negated by the publication of a detailed infringement decision against non-settling members of a cartel, which claimants may seek to use against them.
Timab v. Commission
The Timab case arose out of the Commission’s Animal Feed Phosphates cartel investigation[4], which was the Commission’s second settlement decision, and its first hybrid settlement decision. A number of producers of animal feed were fined a total of EUR 175 million for a 35-year long cartel for price fixing and market sharing in most of the EEA.
Settlement discussions were begun with all defendants. However, French company Timab subsequently decided to opt-out of the settlement proceedings. During negotiations, it had submitted evidence on the cartel dating back to 1978, but withdrew its submissions on this point after it withdrew from settlement. The Commission proceeded with settlement with the other parties, but brought standard infringement proceedings against Timab.
During negotiations, the Commission had originally informed Timab that it faced a range of likely fines of EUR 41-44 million, based on the duration that was under discussion at the time, including all reductions for settlement, mitigation and leniency. In the final decision, however, Timab received a fine of nearly EUR 60 million, which was more than 25% above the earlier estimate. This was so even though the Commission reduced its findings on the duration of Timab’s involvement, from 26 years at the time of the settlement negotiations, to 11 years in the final decision.
Timab appealed the decision, on the basis that its legitimate expectations — that the ultimate fine would be no more than ten per cent than the upper boundary of the Commission’s estimate during settlement negotiations — had been infringed.
The Court denied Timab’s appeal. It found that there had been no infringement of Timab’s rights of defence, and that Timab had not been penalised for withdrawing from settlement, because the Commission had applied the same method when calculating the range of fines at the stage of the settlement procedure, and the amount of the fine ultimately imposed.
The Court found that difference between the two amounts could be explained on the basis that the settlement figure took into account reductions which the Commission was not required to apply as part of the standard procedure.
Conclusion
This first judgment on the Commission’s settlement policy essentially endorses the existing procedures. As such, business can largely be expected to continue as usual in this regard.
For companies subject to EU cartel proceedings, settlement remains a good option in the right cases. Hybrid settlements are undoubtedly more complex than standard settlements, but can also be beneficial.
Nonetheless, the case highlights a number of potential pitfalls in pursuing any type of settlement. Principal among these is the importance of determining whether a particular case is suited to settlement. It is incumbent on the Commission to carefully assess whether settlement negotiations are likely to end fruitfully, as a hybrid conclusion may intensify rather than limit the drain on its resources. Companies should also exercise caution, as it may not be in their interests to rush too soon into a settlement procedure that they then regret.
The timing of settlement negotiations is also important. Settlement should not begin too early, before the investigation has progressed sufficiently to determine the nature of the infringement and its full scope. At the same time, beginning settlement too late can still deliver financial and litigation benefits to companies, but it is unlikely to deliver significant resource savings on either side.
The judgment also serves as a cautionary tale that companies should be wary of placing too great a weight on the fining indications given by the Commission during settlement discussions. The Timab judgment makes clear that the Commission is not bound by the range of fines indicated as part of the settlement procedure. The Commission retains a considerable degree of discretion to revise its proposed fines upwards without unlawfully penalising companies for withdrawing from settlement.
[1] Commission Regulation 622/2008, 2008 O.J. (L171) 3
[2] YIRD, 39.861, 4 December 2013; EIRD, 39.914, 4 December 2013
[3] Settlement does not preclude a company from appealing; however, appeals by settling parties are likely to be limited to questions of quantum and procedure, rather than substance.
[4] Animal Feed Phosphates, 38.866, 20 July 2010
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