The In-House Lawyer

The European Court of Justice (ECJ) has recently overturned in part a judgment by the Court of First Instance (CFI) involving the French company, Schneider (Commission v Schneider Electric (Competition) [2009]). The CFI had ordered the European Commission (the Commission) to pay compensation to Schneider in respect of losses incurred as a result of the Commission’s decision to block Schneider’s acquisition of another French company, Legrand. Commission stems from the Commission’s 2001 decision to prohibit a merger between Schneider and Legrand. As the merger had already been implemented, the Commission ordered Schneider to divest itself of Legrand in a specific timeframe, which Schneider subsequently did. The divestiture agreement contained a clause enabling Schneider to cancel the agreement if its appeal of the Commission’s decisions was successful before an agreed date.

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Schneider’s appeal was subsequently upheld by the CFI and both the prohibition decision and the divestiture decision were annulled (p102, IHL 153). As a result, the Commission opened a new merger control procedure to reassess Commission. However, Schneider decided to proceed with the sale of Legrand, even though it was entitled to cancel that agreement. Schneider then brought a separate action in the CFI seeking damages of around €1.7bn from the Commission for losses incurred as a result of the illegality of the decisions. In a judgment in July 2007, the CFI upheld Schneider’s claim for compensation and awarded it damages for:

• expenses incurred by Schneider in having to carry out the merger control procedure again (before Schneider confirmed to the Commission that it had decided to proceed with the sale of Legrand); and
• two-thirds of the losses incurred by Schneider as a result of the reduced sale price it had agreed with the buyer of Legrand (on the grounds that Schneider had contributed to those losses).

The Commission’s appeal of this judgment to the ECJ resulted in the present judgment. The ECJ upheld the CFI’s judgment in respect of the expenses incurred by Schneider in having to carry out the merger control procedure again. However, the ECJ overruled the CFI’s judgment with respect to the reduction in the sale price of Legrand. The ECJ based its decision on the fact that Schneider had allowed the sale of Legrand to complete after the CFI had annulled the Commission’s decisions. As a result, the ECJ concluded that the direct cause of Schneider’s losses was its decision to complete the sale even though it was under no obligation to do so.

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The ECJ’s judgment has mixed implications for companies that have had mergers blocked by the Commission. Although the ECJ reaffirmed that compensation is available for losses that have been directly caused by the Commission’s decisions, companies must be wary of taking action where they are not strictly obliged to do so, as it is unlikely that they would be able to recover compensation from the Commission for any such losses.

By Chris Bryant, senior associate, Berwin Leighton Paisner LLP.

E-mail: chris.bryant@blplaw.com.