Select Committee on European Union Fifteenth Report


CHAPTER 2: Defining The Problem

The CBI's analysis

24.  The CBI has identified the problem in the following terms:

"A major problem for companies planning a merger is that under the EC merger regime there is virtually no remedy available to them if the Commission decides against their merger. They have no choice about notifying a qualifying merger, but after the process of a Commission investigation they are likely to have to wait for a year for a review of an adverse decision. Faced with this delay the merger is likely to be abandoned.

Mergers and acquisitions are essential for the restructuring of EU industries and the reallocation of resources. If there is a fundamental flaw in the mechanism this can only damage the effectiveness of competition and EU competitiveness" (p 1).

25.  Industry witnesses were united in saying that the parties to merger proposals needed speedy decisions both from the Commission and, if challenged, the CFI. UNICE drew particular attention to the uncertainty caused by any delay: "The current system of judicial review is unsatisfactory because the length of proceedings discourages and frustrates litigation and causes legal uncertainty for companies. Companies are hindered by uncertainty regarding the validity of their business strategies, whether related to a planned merger, to cooperation, or to the distribution or marketing of their products" (p 163).

26.  We have outlined the Commission's procedure and the timetable under the EC Merger Regulation (paras 9-10). Before examining the causes of delay it may be helpful to describe the procedure in appeals before the CFI.

Proceedings in the CFI

27.  Competition cases usually reach the CFI by way of a direct action under Article 230 TEC, brought by addressees of decisions finding an infringement of the competition rules and imposing a fine (Articles 81 and 82) or prohibiting a merger, or by third parties such as disappointed complainants or competitors. The proceedings must be commenced within two months of the Commission decision.[22]

28.  The CFI does not sit as a full (27 judge) court. Cases are in practice dealt with by chambers of three judges, one of whom acts as judge-rapporteur and takes particular responsibility for the case.

(A) WRITTEN PROCEDURE

29.  The proceedings are essentially written and are commenced by the application which defines the scope of the action. All evidence to be relied on should in principle be adduced with the application. The defendant (usually the Commission in competition cases) responds in the defence. Following the defence, the applicant has the right, but no obligation, to file a reply, normally a shorter document than the application, concentrating on rebutting any points raised in the defence which were not anticipated in the application. The defendant then has the right to submit a rejoinder. If a case has attracted interventions from interested third parties, the applicant and defendant are invited to submit written observations on the interventions.

30.  The CFI's Practice Directions[23] provide that applications and defences should "in principle" not exceed 50 pages, while replies and rejoinders should be limited to a maximum of 25 pages. These limits may be difficult to respect in complex competition cases. Deadlines for pleadings subsequent to the application are governed by the Rules of Procedure, which sets a period of one month, but this may be extended by the Court if it is satisfied by the justification offered by the party seeking the extension of time.

(B) ORAL HEARING

31.  Unless the case has been expedited (described below) some time may elapse between the close of the written pleadings and the oral hearing. Major competition cases are particularly susceptible to delay on account of their weight and the fact that competition decisions frequently give rise to several applications, possibly in several languages, which will need to be coordinated for the purposes of oral hearing and judgment. When preparing for the hearing of a case, the judge-rapporteur may identify issues that require clarification, or documents that should be produced, and will invite further written submissions and the production of documents from some or all parties. The Report for the Hearing is then prepared; this summarises the parties' submissions and provides a basis for the statement of facts and arguments to be set out in the judgment.

32.  The Report for the Hearing enables the hearing to be shorter and in practice limited time is given to the advocates. Advocates are not usually interrupted during their main speech, but the Court may spend a considerable amount of time afterwards putting questions to the parties on their arguments and on the evidence before the Court. Examination of witnesses is rare in competition cases.[24]

(C) FAST-TRACK PROCEDURE

33.  In 2001, an "expedited procedure" was created enabling the Community Courts to give priority to specific cases with the aim of deciding cases, especially but not exclusively merger cases, within one year of the application for review being made.[25] Either the applicant or defendant may apply for expedition. The Court will decide whether to grant such request having regard to "the particular urgency and the circumstances of the case". If granted the case has priority and there will usually be only one round of written pleadings. The oral hearing may be longer on account of the abbreviated written proceedings. The judge-rapporteur may hold case conferences with the parties and notes of argument may be exchanged prior to the oral hearing.

34.  Judge Forwood, for the CFI, described the process: "by and large the timeframes have been in general agreed with the parties at the outset … the application for an accelerated procedure is made at the same time as the lodging of the substantive application itself. There is in practice, almost immediately, direct contact between the Commission lawyers and the applicant's lawyers before the Commission puts in its response to that application. So, by the time the first … case handling meeting takes place with the parties, firstly the parties have already been able to identify the sort of timeframe within which they would want a judgment for it to be useful for their purposes; secondly, to a certain extent they may have already started to identify the issues that would be dealt with if the case is accepted on an accelerated procedure basis" (Q 381). It appears that the fast-track works best with the cooperation of all the parties (Q 404).

35.  Judge Forwood reported that since February 2001 there have been 84 applications for the fast-track of which 28 have been accepted. Of those 84 cases, 21 have been merger cases and of those 21 requests, 17 have been accepted (Q 383). From these figures it can be seen that approximately two-thirds of the cases dealt with by way of the expedited procedure have been merger cases.

Current performance under fast-track
Case Name Date of Application Date of Judgment Duration: months
T-310/01

Schneider Electric

13.12.0122.10.02 10
T-5/02

Tetra Laval

15.1.0225.10.02 9
T-114/02 & T-119/02

BaByliss and Royal Philips

15.4.02

17.4.02

) 3.4.03

)

12
T-346 & 347/02

Cableuropa and Or.

22.11.0230.9.03 10
T-87/05

EDP—Energias de Portugal

25.2.0521.9.05 7
T-464/04

IMPALA

3.12.0413.7.06 19
T-417/05

Endesa

29.11.0514.7.06

  Source: Peter Roth QC. This table lists only those cases where judgment has been pronounced.

36.  As can be seen from the above table, in only two cases, EDP[26] and Endesa[27], has the fast-track procedure produced a result anywhere near the CBI target of six months. Peter Roth QC concluded: "There is no doubt that the duration of such cases is profoundly unsatisfactory, even under the 'fast-track procedure' introduced by the CFI in 2001" (p 153).

37.  The DTI was concerned to rebut the CBI claim that even under the expedited fast-track procedure cases have taken nearly two years to resolve. The figure of two years related to one case Sony/Bertelsmann where the appeal was lodged by a third-party (IMPALA) and involved complex issues of confidentiality. In the DTI's view, "The statistics suggest a more nuanced story" (p 130).

Causes of delay

38.  As mentioned, the CBI appears to attribute much of the delay to the need for translation of pleadings and other documents into the working language of the Court; other witnesses doubted whether this was the only or main contributing factor.

(I) THE LANGUAGE ISSUE

39.  The CBI Brief would suggest that the need for translation is the major cause of delay in the Court's proceedings, adding weeks to the time taken by the procedure (p 1). As witnesses confirmed, it is necessary to distinguish between the language of the proceedings (i.e. the language in which the written and oral procedure is conducted)—this is in the hands of the applicant—and the working language of the Court (i.e. the requirement for documents to be translated into and for deliberations to take place in French). The CBI see the latter as the more significant cause of delay.

40.  Sir Christopher Bellamy QC, a former judge in the CFI, described how the system worked: "if a competition case or a merger case comes into a cabinet that is not one of the Anglophone cabinets and it is in English, it will be translated into French, then worked on in French, there will be the preparation of a document called 'the report for the hearing' that will be prepared in French, that document will then be sent to the translation service to be translated into English for the hearing, the hearing will then take place in English through simultaneous translation, the deliberations, internal notes and so forth will all go on in French, there will then be a judgment prepared in French and that judgment will then be sent back to be translated into English for a final version for parties" (Q 194).

41.  Judge Vesterdorf accepted that translation into and out of French could add some time. But he noted that Tetra Laval (in English) and Schneider Electric (in French) were cases of similar importance and complexity and were decided in the same time. Judge Vesterdorf pointed out that fast-track cases were given priority by the Court's translation services (Q 395).

(II) THE QUESTION OF OVERLOAD

42.  Both Peter Roth and the Competition Law Association (CLA) considered that the main problem was that the CFI was overloaded. Peter Roth noted the growth in the number of new cases (around 500) lodged each year and the number of cases pending (1033 at the end of 2005). He also noted the substantial increase in intellectual property cases.[28] The assistance to the CFI derived from the arrival of ten additional judges in 2005 was likely to be counter-balanced over the next few years by the increased case-load deriving from the corresponding ten new Member States (p 154). The CLA noted that the workload of the CFI today exceeded that of the ECJ when the CFI was created in 1989. They expected that as a result of enlargement of the Union the workload of both courts would continue to increase and that ECJ would be under pressure to transfer more categories of case to the CFI (p 127).

43.  Judge Vesterdorf, not surprisingly, would not say that the CFI was overloaded. He did, however, acknowledge the considerable recent increase, particularly in the number of trade mark cases, in the Court's work. The advantage gained by losing staff cases to the Civil Service Tribunal had been swallowed up by the increase in the number of other cases introduced to the Court. Moreover, a significant number of staff cases (perhaps 40-50 per year) were expected to come back on appeal (QQ 364-371).

(III) OTHER CAUSES OF DELAY

44.  In addition to concerns over translation and overload, the Competition Law Association identified "case management deficiencies (including the availability of judges with competition law experience)" (p 126). The DTI believed that "the single major factor contributing to the length of the appeal is the complexity of the case and the documents provided to the CFI. Complexity and the related issue of the time to translate lengthy documents appear to be the reason one case can take seven months and another two years. The signs are that the issues of documentation and complexity are likely to get worse. The recent ruling in the IMPALA case where the CFI criticised the rigour and evidence base of the Commission's original decision is likely to lead to more documentation provided to the court for examination and a more rigorous Commission approach is more likely to lead to even greater complexity in the appeal pleadings" (p 130). The IMPALA case also shows that while the merging parties may want speed others may not share that interest (see 'Third party actions' below).

Extent of the problem

45.  The Commission did not believe that the facts supported the CBI's case. Only 19 out of some 3,000 mergers examined since 1991 had been prohibited. The Commission argued that the relevant test period should be since the fast-track procedure was introduced in 2001. In that period only three prohibition decisions had been reviewed by the CFI under the new procedure. Of these three, Tetra Laval/Sidel[29] survived after ten months of judicial review. Another, Schneider/Legrand,[30] was abandoned after the ten month judicial review. In the third and most recent, EDP, the Commission's prohibition was upheld by the CFI in seven months. The challenge of the Commission's decision in Sony/Bertelsmann had taken 19 months but that had involved a positive decision which was appealed by a third party (IMPALA)[31] with consequent procedural and confidentiality problems. M. Michel Petite, EC Commission Legal Service, said: "Consequently and in a nutshell, we believe the concrete evidence for the CBI's case to be thin" (Q 333).

Not restricted to prohibition decisions

46.  It may not be prohibition decisions alone which raise problems. Judge Vesterdorf said: "one of the mistakes that has been made, or perhaps a wrong assessment has been made in some of the submissions, is that only negative merger decisions are something which need a speedy decision of the Court. In my opinion, that is not correct. Positive decisions being attacked by competitors, leaving those who have permission from the Commission—the green light from the Commission—in the uncertainty of whether the accomplished merger will survive or whether they will have to dissolve the companies afterwards, are just as important. And of those, we have had quite a number of cases, and of those we have also had cases in which we have accepted the fast-track procedure, simply because it is just as important for the company to know: can it survive or will it die later on?" (Q 390)

47.  The Commission argued that though speed of resolution might be important for parties challenging a prohibition or divestiture decision that was not necessarily so in the case of conditional authorisation decisions. It was not "clear whether greater speed would unleash pent-up demand to challenge the more numerous conditional authorisation decisions". It was easier for the companies to "pocket" the authorisation and to challenge the conditions (especially if the remedies are behavioural in character) over a longer period. The "deal" was not put in immediate danger. The Commission concluded that as conditional authorisation decisions had not been challenged in large numbers to date the current timing of proceedings did not lead to a "denial of justice" for the parties (p 68).

Third party actions

48.  Although there may well be cases where it is important for third parties, as competitors or clients/customers, to have a speedy result in a matter affecting structure of the market, the time factor seems to be less of an issue for third parties challenging such decisions. The Commission said: "it is striking that many third-party applicants have not sought the expedited procedure. It does not appear likely that considerable numbers of third-party actions are deterred by the current likely timing of such proceedings" (p 69).

49.  A third party challenge to a Commission decision authorising a merger does not have a suspensory effect under the Regulation or the CFI's Rules and therefore does not necessarily stop the merger proceeding.[32] It may nevertheless lead to prolonged[33] uncertainty for the merging parties, even where the expedited procedure is used (as in the IMPALA case).[34] This is something which, as the Commission observed, third parties may see as being a greater advantage (p 68). The interests and strategies of merging parties and third parties are clearly not necessarily the same.

The delay in context

50.  While there was, with the exception of the Commission witnesses, uniform criticism of the time taken by CFI proceedings, some witnesses also attributed delay in the process to the time taken by the Commission in reaching decisions in merger cases. The EC Merger Regulation's timetable (Phase I one month and, if necessary, Phase II three months) could be misleading. Temple Lang and O'Donoghue, Cleary Gottlieb Steen and Hamilton LLP, explained: "In difficult merger cases, extensive pre-notification contacts with the Commission, sometimes lasting months, are not unusual. Commission merger investigations are also longer now following reforms in 2004 that allow the Commission or the notifying parties to 'stop the clock'. Following a successful appeal, the CFI must also send annulled decisions back to the Commission for re-examination, which also means significant additional delay. If this occurs, the review will in many cases be complicated by the fact that the market may have changed materially in the period since the Commission's initial review, e.g. the emergence of new markets that did not form part of the Commission's assessment. Companies are rarely willing or able to keep deals alive for long periods of this kind, particularly in the case of merger prohibition decisions" (p 159).

Speed not everything

51.  Even those who advocated the need for a quicker resolution of cases by the CFI acknowledged that there were competing interests. Sir David Edward QC, a former judge of both the CFI and the ECJ, referred also to "finality" (that there should not be too many layers of appeal) and "quality control" which he described as the ultimate purpose of judicial review (that the decision complies with substantive and procedural law). There was, in Sir David's view, an inherent conflict between speed and quality control (Q 239).

52.  The International Bar Association (IBA) also stressed the importance of quality control: "We agree that appeals of Commission merger decisions (whether cleared or prohibited) need to be determined quickly because of the time critical nature of mergers and the fact that such cases are rarely suitable for interim relief … However, the appeal process must remain thorough and properly resourced if it is to retain user credibility and serve as a meaningful guarantor of the quality of Commission decision-making" (p 137). Similarly the DTI said: "The importance of a full in-depth examination of the issues and the concept of 'a day in court' should not be understated" (p 129).

Preliminary observations

53.  At this point we would make three preliminary observations. First, language may play an important part in some, but not all, cases. It may add to the time taken by the Court but is only one factor to be considered when assessing the time taken in hearing appeals in competition cases. Second, competition cases are frequently fact intensive and raise complex issues. The need for a quality decision may make a speedy decision difficult to achieve. There is a serious question as to whether the six month target set by the CBI is always realistic even if desirable. Third, it is clear that parties' interests and behaviour affect the speed with which decisions are reached. In particular, cooperation between the parties and between the parties and the Court seems essential if the full advantage of the fast-track procedure is to be gained.


22   The basic limitation period is laid down in Article 230 TEC, but is supplemented (e.g. to include a ten days delai de route) by the Statute of the Court and rules of procedure. Back

23   [2002] OJ L87/48. Back

24   This brief description is drawn from Kerse and Khan EC Antitrust Procedure (5th edit, 2005) at Chapter 8. Back

25   Rules of Procedure of the Court of First Instance of the European Communities. Article 76a Expedited Procedures. Back

26   Case T-87/05 EDP v Commission [2005] ECR II-3745. Back

27   Case T-417/05 Endesa v Commission Judgment of 14 July 2006. Back

28   The Court's statistics indicate that there was an increase from 30-40 new cases a year in 2000-2001 to some 100 new cases a year in 2004-2005. Back

29   Case T-5/02 Tetra Laval v Commission [2002] ECR II-4381Back

30   Case T-310/01 Schneider Electric v Commission [2002] ECR II-4071. Back

31   Case T-464/04, IMPALA v Commission Judgment of 13 July 2006. Back

32   There is one qualification, as the Commission explained: "if there was harm to that third party demonstrably from the conditions in which the merger was to be implemented, it would be up to the third party to make that case to the President of the Court of First Instance and ask for interim measures to prevent the merger from going ahead. That situation has not arisen so far" (Q 336). Back

33   As the Commission noted, even when the expedited procedure is sought by a third party applicant, proceedings may be complicated by a number of factors: the applicant may have sight of evidence relied on by the Commission only upon receipt of the defence; production of such evidence can involve difficult and time-consuming questions of confidential treatment; and the merging parties will normally wish to intervene and to make a written statement in intervention (p 68). Back

34   Case T-464/04, IMPALA v Commission Judgment of 13 July 2006. The Commission cleared the Sony/Bertelsmann merger which decision was then challenged successfully by IMPALA. Back


 
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