Relaxing whilst doing Competition Law is not an Oxymoron

Case T-180/15, Icap and post-Menarini Judicial Review- Almost There?

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The ICAP Judgment rendered by the GC on 10 November is one of the highlights of the year. It has taken us a few days to process it and a rainy weekend at home to write the comment (I hear that the Commission is taking quite some time to process it too) and a closer look reveals that it offers much food for thought and action.

In our view, it has many lights that make it an example for judicial review in the post-Menarini era, but also contains one important shadow that casts a doubt on this trend: the GC finds a breach of the presumption of innocence, but immediately after finds the breach not to have had legal consequences (a situation reminiscent of that illustrated in the pic above) causing some unsurprising frustration.

The Judgment is important on at least 5 counts, namely: 1) for its implications for hybrid settlements and the respect of the presumption of innocence; 2) the interpretation/expansion of AC-Treuhand and the role of the principle of legality in competition cases; 3) the practical assessment of evidence; 4) the interpretation of the “single and repeated” vs “single and continuous” infringement and 5) the statement of reasons regarding the calculation of fines. There are other interesting procedural issues for litigation geeks but I will keep those out of this post.

Background. The case concerned one of the Commission’s cases concerning manipulation of benchmarks, this time in relation to Yen Interest Rate Derivatives. In a 2013 settlement decision the Commission declared and sanctioned 6 bilateral agreements between banks, stating in the decision that ICAP had acted as a facilitator thereof (but also underlining that the facts accepted by the settling parties could not establish liability for ICAP). In February 2015 the Commission issued a separate decision addressed to ICAP, an alleged facilitator in the case that had refused to settle. ICAP was eventually fined 14 million euros and appealed to the GC which has now rendered its Judgment.

Implications for hybrid settlements. The most remarkable part of the Judgment comes towards the end. ICAP alleged that the Commission had breached its presumption of innocence by describing, in the 2013 settlement decision, how ICAP had facilitated the infringement (para. 258). Even if the Commission took the obvious precaution of not legally qualifying such conduct, the GC finds that it reveals “the existence of a position adopted by the Commission” (259) from which “a legal classification (…) could easily be inferred” (260) (admittedly, the fact that on this point the 2013 Decision reproduced the content of AC-Treuhand didn’t make it that difficult…).

The Commission’s position was that it needed to refer to ICAP’s participation to assess the guilt of those who had opted to settle and that having settlement decisions wait until the standard procedure is concluded with non-settling parties would be contrary to the objectives of efficiency and greater rapidity of the settlement procedure (para. 264). The GC’s response is that as laudable as those objectives may be (266) they cannot prevail over the principle of presumption of innocence (para. 266). Amen. That logic makes perfect sense, is fully in line with other recent case law (see e.g. our comments on Eturas here) and is rightly premised on the idea that the presumption of innocence is a higher good.

The Judgment therefore states that settlement decisions must respect the requirements flowing from this presumption and even suggests a possible solution to do so in cases where the Commission needs to refer to the conduct of the non-settling party in the settlement decision: adopt the settlement and non-settlement decisions at the same time like the Commission did in the case giving rise to the Timab Judgment endorsed by the Court (Animal Feed Phosphates). Pretty obvious, right?

Three years ago some of us anticipated these problems (see my last point at the end of this post) and I don’t think I was the only one. The Commission, however, decided to take a risk and play the fait accompli strategy (which admittedly has been effective in the past), taking staggered hybrid-settlement decisions in all but its very first hybrid case.

The problem, however, is that the same recital that declares that the presumption of innocence was breached (para. 269) then states that it cannot have a direct impact on the non-settlement decision and that one needs to verify whether the Commission’s objective impartiality was compromised (270). In para. 274 the Court holds that the Commission’s stance did not seem to be vitiated by a lack of impartiality regarding the legal classification of the conduct as revealed by the Court’s “comprehensive review” in this case (the drafting –repeated in 278- may suggest that perhaps the review was particularly comprehensive given the circumstances; see below for more on this). The Judgement goes on to explain that even if the errors identified by the GC in the assessment of evidence could have been caused by a lack of impartiality, then that wouldn’t really matter because “the contested decision must already be annulled in that regard” (277).

As regards other findings in the decision, the GC applies the case law regarding functional errors, according to which irregularities only entail the annulment of the decision it is established that absent the irregularity the content of the decision would have been different, and in this case the “comprehensive review” (second time the Judgment insists on this point) of the decision showed that the Commission got it mostly right (278).

Consequences of a breach of the presumption of innocence. In my view, the requirements stemming from the presumption of innocence are of paramount importance, they are not functional obligations that can later by remedied by a particularly thorough judicial review. Whether a breach makes a difference to the outcome of the case or not should be irrelevant.

Why? Because the solution adopted by the GC (that a breach may not matter at all if a thorough scrutiny later either a) shows that a decision was well founded or b) amends any errors by an annulment/partial annulment) effectively means that the breach in itself won’t have any consequences in any circumstance. It would only matter in case the Commission makes a manifest error in its decision, but in that case it would be annulled anyhow. That is why this solution creates perverse incentives: what incentives would the Commission have to not breach the presumption? That can’t be right.  A possible interpretation is that the GC is indirectly saying that it will be very strict and “thorough” in its review to compensate (as explained later, the assessment of evidence in this case is exemplary). But the Court should always be equally strict and thorough when it comes to evidence, precisely because the presumption of innocence requires it and because its review of evidence should not vary depending on circumstances unrelated to the objective body of evidence itself.

Possible solutions going forward. What should the Commission do now in hybrid cases?

In most cases a simple carve-out of evidence and mentions to third parties might be the best alternative.

The problem is more intense in cases like this one (facilitators or bilateral infringements), where declaring the infringement necessarily requires saying something about a non-settling party. In these situations there are several options:

  • I have heard people say that it’s enough not to mention the name of the non-settling company in the settlement decision; that doesn’t make any sense to me, as the identity of the company “could easily be inferred” (to use the words of para. 260 of this Judgment).
  • The obvious alternative is the one pointed out by the GC: adopt the two decisions at the same time. But of course the Commission would want to avoid that because that would enable “non-settlers” to delay the settlement decision and could have an impact in follow-on actions (and timing is often of great importance in these settings). That would work from the perspective of respect of the presumption of innocence, but I am afraid this option could perhaps risk leading the Commission to play hardball with companies inclined not to settle, somehow creating incentives for them to accept a settlement.
  • In my view, and in addition to the options above, part of the problem may perhaps be partly addressed with (more) careful and transparent drafting. When describing the background and facts the Commission could explicitly acknowledge the special circumstances for hybrid proceedings and note that the facts remain contested by other parties. This could be done by enabling non-settling parties to submit observations on the Preliminary Assessment sent to the settling parties, and to consider or reflect their views in the decision.
  • Any other ideas?

By object or not? The Judgment kicks off with a re-statement of the case law on object/effects (43-48) and of the controversial case law regarding concerted practices and exchanges of information (T-Mobile, Dole, etc, discussed here and here; 49-58). Applying it to the case at issue, the GC inevitably finds that the coordination of panel submissions was a restriction by object (72) and that even if examining the complementary information exchanges would not be required (73), those too would have been “by object” (74-91). Not much new under the sun on this point.

Interpretation and expansion of AC-Treuhand (+ principle of legality). ICAP contended that the requirements set in AC-Treuhand for a “facilitator” to be covered by Art.101 (summarized in para. 100 and akin to those governing single and cont infringements) were not met in this case [for our previous comments on AC-Treuhand, see here and here]. In this regard the GC first essentially re-states the content of AC-Treuhand (paras. 92-104) and then assessed the evidence in the light thereof (see next section below).

The applicants also argued that the facilitation test applied to ICAP was too broad and a novelty (because while AC-Treuhand’s intervention had made the infringement possible, ICAP had “only” contributed to it) and could not have been foreseen, so they invoked a breach of the principle of legal certainty/legality (the discussion on this point might perhaps be relevant to future/ongoing cases). The GC’s response is that foreseeability is also to be assessed having regard to the person concerned, as some companies can be expected to take special care in evaluating the risk that their activities entail (para. 196, reminiscent of the “special responsibility” logic…) and that ICAP should have been aware of the broad scope of the notion of “agreement” and “concerted practice” (this logic, particularly when  put together with what the GC said in this other Judgment, seems to suggest that companies should foresee that virtually anything comes within the scope of the competition rules).

Assessment of evidence (in theory and in practice). The GC had to assess whether the EC proved that ICAP was aware or could have reasonably foreseen the conduct planned and put into effect by other banks. As part of that exercise, the Judgment first summarizes (114-118) the general principles governing the assessment of evidence and then engages in a thorough, meritorious and commendable review of the evidence. The Judgment itself highlights its “comprehensive review” in paras. 274 and 278. That is the sort of review that one expects following Chalkor, KME,,etc. i.e. examining with care every item of evidence document by document (like we lawyers typically try to do) and only then the body of evidence altogether as a whole (like authorities typically try to do) (this methodology is evident e.g. in para. 141) That is often the trick in the assessment of evidence (as I explained here, only a draft and Spanish though). And, in the face of any doubt, the GC finds in favour of the applicant. The GC’s assessment of evidence in this case is excellent both when the GC confirms the Commission’s view (e.g. paras. 122-132 or 146-164 as well as when it quashes it (e.g. paras.  133-145) [Side note: such detailed review can also be seen in other cases won by the Commission -and that therefore did not receive that much attention; it’s not that Judgments are good only when the Commission loses something].

Single and continuous infringement vs. single and repeated infringement. The infringement at issue was committed on a daily basis, but the Commission’s evidence regarding ICAP showed regular contacts occurring at intermittent periods. It is very common in cartel cases to have some holes in the body of evidence or periods of lesser/no cartel activity. The case law on these situations had acknowledged that, depending on the circumstances, gaps of over a year do not necessarily undermine the finding of a single and continuous infringement (see e.g the case law cited in para. 218). The criteria applied in this case for infringements committed on a daily basis sets a pretty high bar for the Commission.

The Judgment explains that a single infringement may be categorized as continued or repeated depending on how it is committed (216-217). It states that in order to presume that an infringement continued uninterrupted between two specific dates the Commission must adduce evidence of fact sufficiently proximate in time (219), the length of the period depending on the context of the functioning of the cartel in question (220). In this case the GC takes into consideration the fact that the manipulation needed to be repeated on a daily basis for its effects to continue. The GC considers, for instance, that in relation to a 3 month period for which the Commission had 10 evidential items for different dates, a gap of seven weeks is enough to break the continuity (para. 235). Conversely, and although the Judgment doesn’t explicitly say it, the dates referred to in para 233 also reveal that the GC considers a gap of three weeks to be acceptable to show continuity (25 May-15 June). Where is the limit and how it should be set are relevant questions that many of us might encounter in the future.

Statement of reasons and fines. Para. 37 of the fining guidelines requires the Commission to justify any deviations from the methodology set therein. In this case the Commission justified deviating from the standard methodology because ICAP had no turnover in the markets concerned (para. 287), but it did not explain the alternative methodology that it followed. After recalling the case law on duty to state reasons, the GC states that the requirements flowing from this dusty “must be complied with all the more rigorously” when the Commission departs from the guidelines (289) and finds that a general references to gravity, duration and nature of the infringement constituted an insufficient reasoning of the methodology used (294). The fact that the Commission had discussed the methodology with ICAP or the explanations provided in the written phase of the litigation are considered irrelevant (295-296). All pretty straightforward and logical.

Written by Alfonso Lamadrid

27 November 2017 at 7:14 pm

Posted in Uncategorized

2 Responses

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  1. “In most cases a simple carve-out of evidence and mentions to third parties might be the best alternative”: but in cartel cases, you always need to say how many parties were involved, or at least that there were more parties than those participating in the settlement. That, together with the fact that the Commission opens proceedings for the same cartel against the non-settling party, should be more than enough to “inferre” who the non-settling party was, and also that the Commission already made up its mind about its participation in the cartel (i.e. the Commission has, at the very least, already decided that the behaviour where the non-settling party participated was a cartel).

    Also, for the solution of reflecting the non-settling parties’ observations, I do not think it could work in our system: settlement or not settlement, the Commission has the obligation to conclude its investigation and present evidence that, in its view, unequivocally leads to the conclusions stated in the Decision. I do not see how the Commission could publish a Decision fining some companies and indicating that it still “hasn’t made up its mind” on arguments advanced by companies that did the exact same thing as the addressees of the settling decision. Even if the decision contains some arguments intended to counteract the legal conclusion of the Commission, the fact that the Decision is adopted is in itself an answer to those arguments,and that answer should be substantiated. And if anyway the Commission needs to substantiate the arguments, wouldn’t it rather do the ordinary procedure in parallel?


    28 November 2017 at 11:40 am

  2. I don’t know… (I really don’t, not just a figure of speech.)

    I worry that all of this risks elevating appearances over reality/common sense. What is really gained if the Commission draft a settlement decision and then put it in a drawer for a few months (years) until they’re done with the contested case?


    28 November 2017 at 5:37 pm

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