Commission ordered to compensate Schneider after merger prohibited: Case T-351/03

Here's a real blockbuster of a judgment. Shame it is not yet available in English.

The Commission has been found liable by the Court of First Instance to compensate a company after it had illegally prohibited a merger with another undertaking. That is the consequence of its judgment in Case T-351/03 Schneider Electric SA v. Commission.

What happened was this. Schneider, a large French electrical company wanted to acquire control of Legrand, another large French electrical company, by means of a public exchange offer for shares (the offer) on the Paris Bourse. They notified the Commission of their proposed merger in February 2001, to get clearance for the merger. Schneider then acquired 98% of the capital of Legrand on close of the offer in August 2001 (the Paris Bourse not permitting conditional offers at the time). Then the Commission, by decision of October 10th, 2001, declared the merger to be incompatible with the common market.

Schneider had actually implemented the merger which was subsequently declared incompatible with the common market, on January 30th, 2002, and so the Commission adopted a second decision ordering Schneider to divest itself of Legrand.

Schneider lodged an action for annulment of each of those two decisions before the Court of First Instance. In anticipation of the possible dismissal of those two actions, Schneider prepared its divestiture of Legrand and on July 26th, 2002, concluded a contract of divestiture with the consortium Wendel/KKR which had to be executed by December 10th 2002 at the latest.

But Schneider did not lose its cases before the Court of First Instance. In fact it won ! By its judgments of October 22nd, 2002, the Court of First Instance annulled the prohibition decision (in Case T-310/01 Schneider v. Commission and, consequently, also the divestiture decision in Case T-77/02 Schneider v. Commission, which was a measure in implementation of the prohibition decision.

The merger control procedure, which was resumed by the Commission the day after the Court annulled its decisions, was closed by the Commission on December 13th, 2002, after the persistent doubts which it expressed as to whether Schneider’s corrective measures were adequate to render the merger compatible with the common market had led Schneider to abandon the operation and to execute the contract of divestiture with Wendel/KKR on December 10th, 2002.

Schneider then brought an action for damages under Article 288 EC before the Court of First Instance seeking compensation for the loss suffered as a result of the illegality of the prohibition decision, as found by the Court on October 22nd 2002.

In substance, the Court of First Instance in its judgment in Case T-351/03 accepts most of the claims made by Schneider.

First, the Court points out that for the Community to be liable to compensate for the loss and damage suffered its institutions must have engaged in unlawful conduct in grave and manifest disregard of the limits of their powers of assessment. The purpose of defining the threshold at which the Community may incur non contractual liability is to protect the latitude and discretion which, in the public interest, the Community competition regulator must enjoy, both in its policy decisions and in its appraisal and application of relevant provisions of Community law. But, the Court states, the cost of the consequences of flagrant and inexcusable failings must not fall on others.

The Court held that the Commission had seriously infringed Schneider's right to be heard before adoption of the prohibition decision which deprived Schneider at the time of any possibility of knowing that there was no prospect of obtaining a declaration that the merger was compatible. The Court held that there was no justification for such an infringement by the Commission on the basis of its margin of discretion. As a consequence, the Commission must compensate Schneider for the loss and damage caused.

The Court held that the illegality vitiating the decision of incompatibility requires the Commission to compensate Schneider for two categories of financial losses suffered by it.
The first comprises the expenses incurred by Schneider relating to its participation in the resumed merger control procedure which was undertaken by the Commission following the annulments pronounced by the Court on October 22nd 2002.
The second represents the reduction in the divestiture price which Schneider had to concede to Wendel/KKR to obtain a postponement of the execution of that divestiture. Only two-thirds of the latter loss is to be compensated: The Court considers that Schneider had itself contributed to its own loss by assuming the real risk that the merger would subsequently be declared incompatible and that resale of the shareholding in Legrand would be the inevitable consequence.

The Court of First Instance did not quantify the loss and damage. Instead it orders the parties to agree and inform the Court of the amount of the first category of loss within three months of the judgment. The second category of loss will be quantified by a Court appointed expert.

Schneider will probably receive less than the €1,663,734,716.76 (US$ 2,290,463,583.40) claimed initially.

A similar, but not identical, case is still pending before the Court of First Instance in Case T-212/03 MyTravel v. Commission.

Comments

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