ICCLR15_26(3)_73-113

International

Company and

Commercial

Law ReviewVolume 26, Issue 3 2015

articles…

John Ratliff EUROPEANMajor Events and Policy Issues in EU Competition Law, 2013–2014 (Part 1)

Ned Beale and Cara Gillingham ENGLAND AND WALESDispute Escalation Clauses in England and Wales: A New High Water Mark

Dr Khodr M. Fakih and Dr Sarwat El Zaher INTERNATIONALDiscrimination between National and Foreign Investors in Lebanese Corporate Law

book review...

news...

Other related titles of interest

European Competition Law Review

European Intellectual Property Review

Journal of Business Law

Practical Commercial Precedents

Commercial Transaction Checklists

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International Company and Commercial Law Review (ICCLR)

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International Company andCommercial Law Review2015 Vol.26 Issue 3

Table of ContentsISSN: 0958–5214

ArticlesMajor Events and Policy Issues in EU Competition Law, 2013–2014 (Part1) 73John Ratliff sets out his annual review of the major events of 2013–2014, dealing with: EU legislativedevelopments such as the Competition Damages Directive; and European Courts’ judgments on generalissues such as damages for “umbrella pricing” (Kone), claims for fine reduction or damages for delayat the General Court (Gascogne/Kendrion), applications for documents from the European Commissionunder the EU Transparency Regulation (EnBW) and what is a “restriction by object” (Cartes Bancaires).He also reviews European Court judgments in various cartel appeal cases, dealing with issues such asliability for joint ventures (Sasol), the application of undertaking fines to specific group companies(Degussa AlzChem); and participation in a single and continuous infringement (Soliver).

JOHN RATLIFF

Dispute Escalation Clauses in England and Wales: A New High WaterMark 102In Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd a dispute escalation clauserequiring parties to engage in “friendly discussion” was held to be enforceable. This article analyses thedecision in the context of the English case law on "agreements to agree" and dispute escalation, andexamines how the position in England compares to that in other jurisdictions.

NEDBEALEANDCARAGILLINGHAM

Discrimination betweenNational and Foreign Investors in Lebanese CorporateLaw 106A country that treats foreign and domestic investors alike with regard to commercial investment motivatesforeign investors to play a fundamental role in stimulating the economy in that country. However,discriminatory treatment is sometimes desirable from the perspective of public policy. Most nationallaws provide certain measures of discrimination between foreign and domestic investors in order to giveits citizens more privileges and advantages over foreign investors. This is applicable in the Lebanesecommercial legal system. This article discusses the discrimination that is implemented by Lebanesecommercial law between Lebanese and non-Lebanese investors specifically with regard to commercialrepresentation and joint stock companies.

DR KHODR M. FAKIH AND DRSARWAT EL ZAHER

Book ReviewA Practical Guide to Corporate Governance 113STEPHEN BLOOMFIELD

News SectionPUBLIC COMPANIESBrazilMarket regulation N-17

LEGISLATIVE PROCESSCyprusReferences to Supreme Court N-19

FINANCIAL MARKETSNigeriaGovernance N-21

EXCHANGE CONTROLRussiaPermitted foreign currency transactions N-23

FOREIGN EXCHANGEUkraineMandatory sale and conversion N-24

Editorial BoardGORDON GRIEVEPiper AldermanSydney

JOHN PATERSONReader in LawUniversity of Aberdeen

VINCENT POWERA & L GoodbodyDublin

SALEEM SHEIKHSolicitorLondon

MARK STALLWORTHYProfessor of LawUniversity of Swansea

Consultant EditorJASON CHUAHProfessor of Commercial andMaritime LawCity University London

News Section EditorMARK STALLWORTHYProfessor of LawUniversity of Swansea

Publishing EditorLYDIA MANCH

Country CorrespondentsAlbaniaSABINA LALAJBogta & AssociatesTirana

ArgentinaGABRIEL GÓMEZ GIGLIOBaker & McKenzieBuenos Aires

JUSTO F. NORMANMaciel, Norman & AsociadosBuenos Aires

AustraliaBRUCE LLOYDClayton UtzSydney/Melbourne

ANNE FREEMAN AND TOMGRIFFITHSPiper Alderman

AustriaFRIEDRICH SCHWANKLaw Offices of Dr F. SchwankVienna

BrazilWALTER STUBERWalter Stuber Consultoria Jurídica

CyprusPANAYIOTIS NEOCLEOUS,COSTAS STAMATIOU ANDPHILIPPOS ARISTOTELOUSAndreas Neocleous & Co LLCLimassol

Czech RepublicRADKA JERIEAndreas Neocleous & Co LLCPrague

EstoniaTOOMAS PRANGLI ANDLAIMONAS SKIBARKASorainenTallinn

GermanyDR NILS KRAUSEDLA Piper UK LLPHamburg

HungaryDR AGNES SZENT-IVÁNYSándor SzegediSzent-IványKomáromi EvershedsBudapest

IndiaRAVI SINGHANIARajani, Singhania & Partners

IrelandVINCENT POWERA & L GoodbodyDublin

LebanonFADI MOGHAIZELMoghaizel Law OfficesBeirut

NetherlandsMATTHIEU VAN SINT TRUIDENK10 LawAmsterdam

NigeriaNAT OFO PhDCollege of LawIgbinedion University, OkadaEdo State

PortugalMARIA ANTÓNIA CAMEIRA ANDANDRÉ ABRANTES DONASCIMENTOCL@Cameira LegalLisbon

RussiaNANA GULIYANAndreas Neocleous & Co LLCMoscow

South AfricaDEREK LOTTERBowman GilfillanJohannesburg

SpainJOAQUIMFORNERANDMIGUELTORRESUniversity of BarcelonaBarcelona

SwedenCARL SVERNLOVBaker & McKenzieStockholm

SwitzerlandURS ISENEGGERBill Isenegger Ackermann AGZurich

DR. JÜRG ROTHRechtsanwälte, Attorneys at LawZurich

UkraineANNA TSYVINSKAAndreas Neocleous & Co LLCKiev

The International Company and Commercial Law Review (I.C.C.L.R.) provides corporate and commercial lawyers in practice withtimely and topical analysis on recent developments in international company and commercial law. Featuring articles, analyses, opinions,book reviews and a news section with Country Correspondents from around the world, I.C.C.L.R. presents a forum in which current

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Major Events andPolicy Issues in EUCompetition Law,2013–2014 (Part 1)John Ratliff*WilmerHale, Brussels

Block exemptions; Cartels; Competition policy;Damages; EU law; Private enforcement; Technologytransfer agreements

This article is designed to offer an overview of the majorevents and policy issues related to arts 101, 102 and 106TFEU1 from November 2013 until the end of October2014.2 The article is divided into five sections:

• legislative developments;• European Court judgments;• European Commission decisions and

settlements;• patent settlement monitoring; and• current policy issues.

Legislative developments and European Court judgmentson general issues and cartel appeals are included in Part1. The remaining European Court judgments and the othersections will be included in Part 2, which will bepublished in the next issue of the I.C.C.L.R.The main themes of the year for the author are shown

in Box 1. These are discussed in the appropriate sectionsbelow and in Part 2.

Box 1

Major themes/issues in 2013/14•

Adoption of the Damages Directive (albeit deferred).—

Kone:—

“Umbrella pricing” damages claim possible.*

Effectiveness principle and national law.*

Gascogne/Kendrion:—

No reductions for GC delay at ECJ*

ECJ findings (for now?) but damages actions to the samecourt (the GC).

*

EnBW at the ECJ:—

EC can deny a (competition related) Transparency Regula-tion application by category of documents (generally).

*

Cartes Bancaires:—

What is a “restriction by object”?*

ECJ clarification of Allianz Hungaria.*

Look at nature of restriction in its actual context, but donot look at economic effect (compare Power Transform-ers?).

*

See A.G. Wahl’s Opinion also.*

Greek Lignite:—

ECJ overrules GC ruling.*

Statemeasures preventing equality of opportunity unlawful.*

Wide ruling.*

Intel:—

ECJ followed Tomra and old case law approach; not thenew economic approach.

*

Exclusive rebates unlawful unless objective justification.*

Post Danmark I also distinguished.*

Margin squeezing, predatory pricing cases distinguished.*

Legislative developments

Box 2

Legislative developments•

Proposed Damages Directive (now adopted but not yet pub-lished officially).

—

Revised Transfer of Technology Block Exemption andGuidelines.

—

Revised De Minimis Notice, with Guidance on “Restrictionby Object”.

—

Renewal of Consortia Shipping BE.—

Consultation on the Insurance BE.—

Proposed Damages DirectiveIn April 2014 the European Parliament adopted theProposed Damages Directive.3 The text was agreed withthe Council,4 but then its final adoption was deferred andoccurred in November 2014. At the time of writing it wasstill not in the Official Journal. A “Corrigendum Text”was adopted on October 21, 2014 and is now availableon the EC website.

*With many thanks to Jessy Siemons and Katrin Guéna for their general help in the production of this article; and to my Brussels and London colleagues for their assistance,which is indicated within the appropriate section.1 “TFEU” is the abbreviation for “Treaty on the Functioning of the European Union”; “EC” for “European Commission” (not “European Community”, as before the LisbonTreaty); “GC” is the abbreviation for “General Court”, “ECJ” for the “European Court of Justice” and “CJEU” for the overall “Court of Justice of the European Union”;“NCA” is the abbreviation for “National Competition Authority”; “SO” is the abbreviation for “Statement of Objections”; “BE” is the abbreviation for “Block Exemption”;“Article 27(4) Notice” refers to the EC’s Communications under that article of Regulation 1/2003 [2003] OJ L1/1. References to the “ECHR” are to the “European Conventionof Human Rights” and references to the “CFR” are to the EU “Charter of Fundamental Rights”.2The views expressed in this article are personal and do not necessarily reflect those of Wilmer Cutler Pickering Hale and Dorr LLP. References to the EC’s website are toDG Competition’s specific competition “page”: http://ec.europa.eu/competition/index_en.html [Accessed December 29, 2014]. References to “I.C.C.L.R” are to previousarticles in the series “Major Events and Policy Issues in (formerly EC) EU Competition Law” published in the International Company and Commercial Law Review.3With thanks to Hanna Pettersson for her assistance with this section.4Amendments by the European Parliament to the Commission, Proposed Directive of the European Parliament and of the Council on certain rules governing actions fordamages under national law for infringements of the competition law provisions of theMember States and of the European Union, available at http://ec.europa.eu/competition/antitrust/actionsdamages/documents.html [Accessed December 29, 2014].

Major Events and Policy Issues in EU Competition Law, 2013–2014 (Part 1) 73

[2015] I.C.C.L.R., Issue 3 © 2015 Thomson Reuters (Professional) UK Limited and Contributors

Last year’s article dealt extensively with the proposal.This year, we propose therefore just to focus on the mainchanges reported as made to the Proposal. Reference ismade to last year’s issue for a more detailed account.5

First, the provision dealing with disclosure of evidencehas been heavily revised and now includes a list of criteriawhich national courts must consider in assessing theproportionality of an order to disclose information.The national courts will be obliged to consider whether

the request is sufficiently specific, whether the request ismade in relation to an action for damages before anational court, as well as the need to safeguard theeffectiveness of the public enforcement of competitionlaw.6 The categories of evidence which can be disclosedonly after a competition authority has closed itsproceedings have also been extended to include settlementsubmissions that have been withdrawn.7

Finally, while the revised article still does not allownational courts to disclose leniency statements orsettlement submissions, it does allow claimants to presenta justified request that a national court access leniencystatements and settlement submissions, solely for thepurpose of ensuring that their content is such as to justifythem being defined as leniency statements or settlementdecisions. The parts of the documents that are not coveredby the definition of leniency statement or settlementsubmission should be disclosed.8

Secondly, the original proposal provided that decisionsof national competition authorities (“NCAs”) finding aninfringement should constitute proof of the infringementin all Member States. This has changed. The revised textrequires that the decision by a NCA should constituteproof of the infringement before the courts of the sameMember State.9 As for decisions taken in other MemberStates, these should constitute prima facie evidence of aninfringement and may be assessed with other evidencebrought by the parties.10

Thirdly, the revised text has an addition to the rule onlimitation periods. The limitation period may not beginto run before the infringement has ceased and the claimantknows or can reasonably be expected to know: (1) of thebehaviour and the fact that it constitutes an infringementof competition law; (2) that the infringement caused harmto him; and (3) the identity of the infringing undertaking.11

Fourthly, a new article has been inserted in the chapteron passing-on. The Proposed Directive now explicitlystates that the application of its provisions may not lead

to overcompensation12 and, in order to avoid this, MemberStates must put in place rules to ensure that compensationfor actual loss does not exceed the overcharge harmsuffered.13 The provisions on the passing-on defence andindirect purchasers remain the same as in the originalproposal, with only minor alterations.Fifthly, national courts will be obliged to take into

account relevant information in the public domainresulting from public enforcement cases, in addition toother actions and judgments relating to the sameinfringement, when assessing a claim for damages.14

Sixthly, a new article has been included in the revisedtext stating that the EC shall issue guidelines to nationalcourts on how to estimate the share of the overchargepassed on to an indirect purchaser.15

Seventhly, NCAs will be able to assist national courtson the determination of the quantum of damages.16

Eighthly, the revised proposal lists factors which theEC review of the Proposed Directive must include. TheEC will have to report on: (1) the impact of the payingof fines on the possibility for claimants to obtain fullcompensation; (2) to what extent claimants have beenunable to prove an infringement before a national courtwhere the infringement decision was adopted by acompetition authority in another Member State; and (3)to what extent compensation for actual loss has exceededthe overcharge harm. If appropriate, the EC’s review shallbe accompanied by a legislative proposal.17

Finally, it is stated that the national transpositionmeasures may not apply retroactively, i.e. to actions fordamages brought before the entry into force of theDirective.18

Transfer of Technology BE and GuidelinesIn March 2014, the EC published the final version of itsrevised Block Exemption Regulation and Guidelines onthe application of Art.101(3) of the Treaty on theFunctioning of the European Union (“TFEU”) tocategories of technology transfer agreements.19 The newdocuments amend the 2004 Technology Transfer (“TT”)Block Exemption Regulation and Guidelines and havebeen the subject of detailed consultation.20

The revised Technology Transfer Block Exemption(“the 2014 TT BE”) came into force on May 1, 2014.The main changes are as follows:

5 John Ratliff, “Major Events and Policy Issues in EU Competition Law, 2012–2013” [2014] I.C.C.L.R. 75, 77–79.6Revised Proposal art.6.4.7Revised Proposal art.6.5(c).8Revised Proposal art.6.7–6.8.9Revised Proposal art.9.1.10Revised Proposal art.9.2.11Revised Proposal art.10.2.12Revised Proposal art.3.3.13Revised Proposal art.12.2.14Revised Proposal art.15.1.15Revised Proposal art.16.16Revised Proposal art.17.3.17Revised Proposal art.20.18Revised Proposal art.22.19With thanks to Cormac O’Daly for this section. The texts are in [2014] OJ L93/17 and [2014] OJ C89/3 respectively.20 See http://ec.europa.eu/competition/antitrust/legislation/transfer.html [Accessed December 29, 2014].

74 International Company and Commercial Law Review


First, the new rules provide for the Research andDevelopment Block Exemption (“R&D BE”) to takeprecedence in the event of overlapping application withthe TT BE. Intellectual property rights are often licensedin the context of R&D collaborations. The previous rulesdid not provide clear guidance on whether the R&D BEor the technology transfer block exemption applied tothese arrangements. This has now been clarified: if theR&D BE applies, the 2014 TT BE will not.21 In practice,therefore, parties should first consider whether theiragreements fall within the sphere of the R&D BE and,only if they do not, consider them under the 2014 TT BE.Secondly, the TT Guidelines express increased

scepticism towards some settlement agreements. The2014 TT Guidelines introduce two new paragraphs on“pay-for-delay” settlements.22 However, they do not goso far as to indicate how the EC will assess theseagreements in practice. The Guidelines state that the ECwill be “particularly attentive to the risk of marketallocation/sharing” if the parties are actual or potentialcompetitors and there is a “significant value transfer fromthe licensor to the licensee” in exchange for the licenseedelaying or limiting launching a product. It would appearthat the EC preferred to let its more detailed position comeout through specific decisions.Thirdly, additional guidance on patent pools is set out.

The 2014 TT BE does not cover patent pools, but theyare discussed in the 2014 TT Guidelines. The maininnovation is a “safe harbour” for pools which have thefollowing characteristics23:

• The pool must be open to all interestedparties.

• The pool must implement safeguards toensure that only essential technologies arepooled. The guidance on what constitutes“essential” technology has been (helpfully)revised to cover not only technology thatis essential to making a product, but alsotechnology that is essential to complyingwith a standard.24

• The pool must implement safeguards tolimit exchange of sensitive information towhat is necessary.

• Licensing of the pooled technologies intothe pool must be non-exclusive.

• Licensing of the pooled technologies tothird parties must be on FRAND terms.

• Contributors and licensees must be allowedto challenge pooled technologies’ validityand “essentiality”.

• Contributors and licensees must be allowedto develop competing products andtechnology.

The 2014 TT Guidelines also expand the guidance onpools that are outside the safe harbour. For example, theyrecognise that sometimes it can be pro-competitive toinclude non-essential technologies in a pool, when thenumber of potentially essential technologies wouldmakeit prohibitively expensive to determine whether patentsare essential.25

Fourthly, the changes involve modified treatment ofcertain provisions that may need reviewing in existingagreements. Existing licences which comply with the2004 TT Block Exemption (which expired on April 30,2014) benefit from a grace period until April 30, 2015,but from then they will be assessed under the 2014 TTBE.26 Notably, the treatment of the following clauses ischanging:It is no longer possible automatically to prohibit passive

sales in licences between non-competitors during astart-up period. The 2004 TT Block Exemption treatedas outside art.101 TFEU agreements betweennon-competitors restricting the licensee from makingpassive/unsolicited sales into another licensee’s exclusiveterritory, or to another licensee’s exclusive customergroup, during the first two years of the agreement. Bycontrast, the 2014 TT BE treats such a provision as ahardcore restraint which takes the whole agreementoutside the BE. However, the 2014 TT Guidelinesrecognise that temporary restrictions on passive sales maybe “objectively necessary” for a licensee “to penetrate anew market”.27 The onus is on the parties to substantiatethis objective necessity.Fifthly, there is heightened scrutiny for exclusive

grant-back provisions. Under the 2004 Block Exemption,clauses requiring exclusive grant-backs of“non-severable” improvements to the licensed technologyfell within the exemption. The 2014 TT BE excludes allexclusive grant-backs from the exemption, regardless ofwhether the improvement is severable or non-severablefrom the licensed technology.28 Instead, any exclusivegrant-backs will have to be reviewed separately forcompliance with art.101 TFEU, taking account of allrelevant factual and economic circumstances.Sixthly, there is also heightened scrutiny for clauses

providing for termination following challenge to thelicensed technology’s validity. The 2004 BlockExemption allows a licensor to terminate the agreementif the licensee challenges the licensed technology’svalidity. The 2014 TT BE alters this significantly: whileparties can continue to include such termination clauses

21 2014 TT BE Recital 7 and art.9; and 2014 TT Guidelines paras 73 and 74.22 2014 TT Guidelines, paras 238 and 239.23 2014 TT Guidelines, para.261.24 2014 TT Guidelines, para.252.25 2014 TT Guidelines, para.264(a).26 2014 TT BE art.10.27 2014 TT Guidelines, para.126.28 2014 TT BE art.5(1)(a).



in exclusive licences, it is no longer possible to do thisin non-exclusive licences.29 In non-exclusive licences,therefore, termination clauses will have to be assessedseparately for compliance with EU competition law.Finally, it may be useful to note what has not changed.

The 2014 TT BE and Guidelines do not radically changethe existing framework for analysing the compatibilityof licences with EU competition law. For example, noneof the provisions regarding the BE’s market sharethresholds has changed.30 For agreements betweencompetitors to fall under the 2014 TT BE, the parties’combined market share on all relevant product andtechnology markets will have to be below 20 per cent.For agreements between non-competitors to fall underthe 2014 TT BE, each party’s individual market share onall relevant product and technology markets will have tobe below 30 per cent.The 2013 draft versions of the TT BE and Guidelines

proposed applying the 20 per cent market share threshold,which is normally applicable only to agreements betweencompetitors, to some licences between non-competitors,but this proposal has not been retained in the final versionof the 2014 TT BE.Apart from removing the right to restrict temporarily

passive sales in agreements between non-competitors,none of the hardcore restrictions of competition thatwould render the 2014 TT BE inapplicable have changedcompared with the 2004 texts. The wording of the articleconcerning hardcore restrictions in licences betweencompetitors has been somewhat simplified,31 but the ECstates in its Frequently Asked Questions document thatthis does not result in any substantive change.

Revised De Minimis NoticeIn June 2014 the EC published the revised version of theDe Minimis Notice.32 Interestingly, the Notice isaccompanied by a Staff Working Document which setsout “guidance” on what types of restrictions have beenconsidered “restrictions by object”.33

The main change in the Notice is the clarification thatit no longer covers “by object” agreements.34 It is said, inaccordance with Expedia,35 that such agreements cannotbe considered de minimis, but are instead always

considered to constitute an appreciable restriction ofcompetition under art.101 TFEU.36As a consequence, theEC will not apply the safe harbour rules set out in theNotice to “by object” agreements.37

That said, cases like Power Transformers, outlinedbelow, are still confirming that an agreement has to beconsidered in its economic context, including whether itis capable of affecting competition.38The Staff Working Document accompanying the new

Notice is intended to assist companies by setting out inwhat circumstances an agreement qualifies as a restrictionby object.39 The Document offers a list of agreementsbetween competitors and non-competitors, listingprice-fixing, market-sharing, output restrictions, bidrigging, collective boycott agreements, informationsharing, R&D restrictions and sales restrictions asexamples of “by object” infringements.While the EC’s effort to make all this clear is very

welcome, wemay not be entirely there yet, notably in thelight of the ECJ’s recent Cartes Bancaires case outlinedbelow.40

Consortia Shipping BEIn February 2014 the EC launched a public consultationon a proposal to prolong the existing BE for LinerShipping Consortia.41 The BE allows shipping lines witha combined market share below 30 per cent to enter intoco-operation agreements to provide joint cargo transportservices, or consortia.42

The EC has now stated that, as the responses to thepublic consultation showed that the main tenets of theEC’s approach towards consortia agreements are stillvalid, the EC has decided to extend the validity of the BEfor another five years, until April 2020.43

Consultation on Insurance BEIn August 2014, the EC announced that it published aquestionnaire to obtain comments from stakeholders onthe current insurance block exemption (“IBE”),Regulation 267/2010,44 ultimately to decide if the IBE

29 2014 TT BE art.5(1)(b).30 2014 TT BE art.3.31 2014 TT BE art.4(1).32Communication from the Commission, “Agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on theFunctioning of the European Union (DeMinimisNotice) of 25 June 2014 OJ C291/1” (August 30, 2014). See also IP/14/728 (June 25, 2014). With thanks to Hanna Petterssonfor her help with this section.33Commission Staff Working Document, “Guidance on restrictions of competition ‘by object’ for the purpose of defining which agreements may benefit from the DeMinimis Notice of 25 June 2014”, SWD(2014)198 final.34Notice, paras 2 and 13.35Expedia Inc v Autorité de la concurrence (C-226/11) EU:C:2012:795; [2013] 4 C.M.L.R. 14.36Notice, para.2.37Notice, para.13.38 See Toshiba Corp v European Commission (T-519/09) EU:T:2014:263; [2014] 5 C.M.L.R. 8 at [230]–[234].39 Staff Working Document, p.5.40Groupement des cartes Bancaires (C-67/13 P) EU:C:2014:2204; [2014] 5 C.M.L.R. 22.41 IP/14/196 (February 27, 2014). With thanks to Hanna Pettersson for her help with this section.42Regulation 906/2009 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shippingcompanies (consortia) [2009] OJ L256/31.43 IP/14/196 (February 27, 2014).44Regulation 267/2010 [2010] OJ L83/1. With thanks to Katrin Guéna for her help this section.



should be completely or partially renewed or not berenewed.45 The current Regulation will expire in March2017.It may be recalled that the current BE covers two types

of agreements between insurance and reinsurancecompanies: agreements on joint compilations, joint tablesand studies; and agreements covering certain types ofrisks. Those agreements are exempted from the generalprohibition on anti-competitive practices laid down inart.101 TFEU, under certain conditions specified in theIBE.The EC emphasised that a BE is an exceptional legal

act, only justified if the sector it applies to differssufficiently from other sectors not covered by BE’s. Thisis also why BE’s have to be reviewed on regular basis.Interested parties had until November 4, 2014 to make

their submissions. The EC will then address a report tothe Council and the Parliament by the end ofMarch 2016.

European Court judgments

General

Box 3

Court cases—general principles•

Kone:—

“Umbrella pricing” claim cannot be excluded in nationallaw dealingwith EU compensation for competition infringe-ments.

*

That would put the effectiveness of art.101 TFEU at risk.*

KoneIn June 2014, the ECJ ruled on a request for a preliminaryruling from the Austrian Supreme Court (“ObersterGerichtshof”) concerning “umbrella pricing”, in thecontext of the elevators cartel.46 The issue was whetherdamages could be recovered from cartelists as a result ofbuying from third-party undertakings at a higher pricethan otherwise would have been paid, insofar as thoseundertakings would have taken into account the cartelisedprices.In Austrian law such damages could not be recovered.

The claim would be considered too remote and causationbroken by the decision of the third party, who was not inthe cartel. However, both A.G. Kokott47 and the ECJ heldthat the EU principle of effectiveness required that sucha claim for compensation for violation of EU law shouldnot be categorically excluded by national law.The main points of interest are as follows:

First, the court held that umbrella pricing is a possibleeffect which members of a cartel cannot disregard. Themarket price is one of the main factors when undertakingsset the price at which they offer their goods. Even if thedetermination of an offer price by an undertaking notparty to a cartel is a purely autonomous decision, it hasbeen able to be taken by reference to a market pricedistorted by the cartel and therefore contrary tocompetition rules.48

Secondly, the court held that the effectiveness ofart.101 TFEU would be put at risk if the right of anyindividual to claim compensation for harm suffered weresubjected, categorically and regardless of the particularcircumstances of the case, to the existence of a directcausal link, while excluding the right because theindividual concerned had no contractual obligations withthe cartel member, but with a third party whose pricingpolicy was, however, a result of the cartel.49

Thirdly, the ECJ stated that the victim of umbrellapricing may obtain compensation for loss caused by thecartel members, even in the absence of contractual linkswith them, if: (1) the cartel was, in the circumstances ofthe case and, in particular, the specific aspects of therelevant market, liable to have the effect of umbrellapricing being applied by third parties actingindependently; and (2) the cartel members could not beunaware of those circumstances and specific aspects.50

However, the ECJ noted that it is for the national courtto determine whether those conditions are satisfied.So, the court’s answer is that art.101 TFEU precludes

national law which excludes the civil liability ofundertakings belonging to a cartel for loss, resulting fromthe fact that an undertaking not party to the cartel set itsprices higher than it would have under competitiveconditions.51

Predictably, already this has been a source of muchattention. This is yet another example of the way that theEU principle of effectiveness can affect national lawsignificantly. The ruling goes further than US law, whereit appears that the right to claim compensation forumbrella pricing is not yet settled.

SOA Nazionale CostruttoriIn December 2013, the ECJ ruled on a reference from theItalianConsiglio di Stato concerning an Italian lawwhichsets compulsory minimum tariffs for certain certificationactivities.52

The essential issue was that an Italian law had repealedcertain compulsoryminimum tariffs, but left in place sucha tariff for the activities of Italian “attestationorganisations”. These are undertakings which certify that

45 IP/14/905 (August 5, 2014).46Kone AG v OBB-Infrastruktur AG (C-557/12) EU:C:2014:1317; [2014] 5 C.M.L.R. 5. With thanks to Roberto Grasso and Svetlana Chobanova for their assistance withthis section.47Kone EU:C:2014:1958; [2014] 5 C.M.L.R. 5 (Opinion of January 30, 2014).48Kone EU:C:2014:1317; [2014] 5 C.M.L.R. 5 (Judgment) at [29]–[30].49Kone EU:C:2014:1317; [2014] 5 C.M.L.R. 5 at [33].50Kone EU:C:2014:1317; [2014] 5 C.M.L.R. 5 at [34].51Kone EU:C:2014:1317; [2014] 5 C.M.L.R. 5 at [37].52Ministero dello Sviluppo economico v SOA Nazionale Costruttori (C-327/12) EU:C:2013:827; [2014] P.T.S.R. D10.



companies bidding for public works are properly run,supervised, etc., and give certificates accordingly. Itappears that one company, SOA Nazionale Costruttori,applied to offer its customers discounts on fees. However,the relevant Italian Ministry decided not to allow this.On appeal the matter went ultimately to the Italian

Consiglio di Stato, which referred a question to theEuropean Court as to whether the Italian legislation wascontrary to EU law (arts 101, 102 and 106 TFEU).The ECJ found that the attestation organisations were

undertakings in EU competition law insofar as theycompeted among themselves.53

The court then considered whether the competitionrules applied, given that the rules on the minimum tariffsconcerned were set by the State. The court held that thiswas not the case since Italy was: (1) not requiring orencouraging the adoption of unlawful agreements; or (2)reinforcing their effects; or (3) delegating its legislativepowers to private parties.54 The court also found that Italyhad not given the undertakings’ special or exclusiverights, insofar as all the SOAs had the same rights andcompetences.55 So, overall, the court found that arts 101,102 and 106 TFEU did not preclude national legislationof this type.It may be useful to note that the court also considered

whether the legislation was contrary to art.49 TFEU,insofar as it restricted freedom of establishment. The courtheld that there was such a restriction insofar as thecompulsory tariff might make it more difficult forcompanies established in otherMember States to competewith those in Italy.56 However, the court noted that theItalian State justified the restriction on pricing to ensurethe independence of SOAs and the quality of certificationservices. The Italian State wanted to ensure that nocommercial or financial interest would result inunimpartial or discriminatory behaviour by SOAs incertification.57 The court also noted that SOAs were notallowed to have other commercial activities.The court therefore accepted the Italian position and

considered that the setting of minimum tariffs was suitablefor attaining the objective of ensuring the quality ofcertification services. However, the ECJ left the nationalcourt to assess whether the legislation was proportionateto that objective, in terms of the method of calculatingminimum tariffs.58

flyLAL-Lithuanian AirlinesIn October 2014, the ECJ delivered a judgment followinga request for a preliminary ruling brought by the LatvianSupreme Court (Augstākās Tiesas Senāts).59 In the main

proceedings, flyLAL is seeking compensation fordamages resulting from a claimed abuse of a dominantposition by Air Baltic and from an anti-competitiveagreement between Air Baltic and Starptautiskā lidostaRīga. FlyLAL sought the recognition and enforcementof a Lithuanian judgment ordering provision andprotective measures against the defendants.In the judgment, the ECJ ruled that actions seeking

legal redress for damage resulting from allegedinfringements of EU competition law fall within thedefinition andmeaning of “civil and commercial matters”of art.1(1) of Regulation 44/200160 on jurisdiction andthe recognition and enforcement of judgments in civiland commercial matters.61 Therefore, such actions fallwithin the scope of this Regulation.In addition, the ECJ held that the recognition and

enforcement in a Member State of a judgment comingfrom anotherMember State cannot be refused on themereground that the judgment will have serious economicconsequences.62

Cartel appeals

Box 4

Cartel appeals—general•

Some fine reductions, often linked to the way a fine is set fora specific company in a group, given changes overtime.

—

e.g.Fasteners (10% ceiling on acquired subsidiary),Degus-sa, AlzChem (no recidivism for subsidiary).

*

Or in a joint venture context (e.g. Sasol).*

Importance of argument that a company may not have beenshown to have been aware of full scheme of an infringement(e.g. Soliver-Carglass).

—

EC rounding practice unlawful if leads to unequal treatment.—

Dutch Bitumen

BallastIn April 2014, the ECJ ruled on a further appeal by BallastNedam against the GC’s ruling that Ballast Nedam shouldbe liable for an alleged infringement by its subsidiaryBallast NedamGrond enWegen (“BNGW”) in theDutchBitumen cartel case.63The EC had imposed a fine of €4.65 million on Ballast

Nedam (the parent of the Ballast Nedam group). This wason the basis that Ballast Nedam owned Ballast NedamInfra (“BN Infra”), which in turned owned BNGW.Between 1995 and 2000, the road construction activitiesof the group were carried out by BNGW. In 2000, BN

53 SOA Nazionale Costruttori EU:C:2013:827; [2014] P.T.S.R. D10 at [33]–[35].54 SOA Nazionale Costruttori EU:C:2013:827; [2014] P.T.S.R. D10 at [37]–[40].55 SOA Nazionale Costruttori EU:C:2013:827; [2014] P.T.S.R. D10 at [40]–[43].56 SOA Nazionale Costruttori EU:C:2013:827; [2014] P.T.S.R. D10 at [56]–[58].57 SOA Nazionale Costruttori EU:C:2013:827; [2014] P.T.S.R. D10 at [62].58 SOA Nazionale Costruttori EU:C:2013:827; [2014] P.T.S.R. D10 at [63]–[68].59 flyLAL-Lithuanian Airlines AS v Starptautiska lidosta Riga VAS (C-302/13) EU:C:2014:2319; [2014] 5 C.M.L.R. 27. With thanks to Virginia del Pozo for her assistance.60Regulation 44/2001 [2001] OJ L12/1 (“The Brussels I Regulation”).61 flyLAL-Lithuanian Airlines EU:C:2014:2319; [2014] 5 C.M.L.R. 27 at [38].62 flyLAL-Lithuanian Airlines EU:C:2014:2319; [2014] 5 C.M.L.R. 27 at [59].63Ballast Nedam NV v Commission (C-612/12 P) EU:C:2014:193; [2014] 4 C.M.L.R. 26; ECJ Press Release 42/14 (March 27, 2014).



Infra, another subsidiary of Ballast Nedam, took over thatbusiness. The EC had held Ballast Nedam and BN Infraliable for the infringement from June 1996 to April 2002.The EC did not address the Statement of Objections

(“SO”) in the case to BNGW. In the SO addressed toBallast Nedam and BN Infra, the EC stated that BallastNedam had participated in the cartel through themanaging director of BNGW, but did not specificallystate that it considered Ballast Nedam responsible forBNGW’s infringement by virtue of its control of thecapital of BN Infra (previously BNGW).Nevertheless, the GC held that, although the SO could

have been clearer, the way it had been set out wassufficient to allow Ballast Nedam to be aware that it waslikely to be held liable for BNGW as parent.The ECJ disagreed, noting that a SO must indicate in

which capacity an undertaking is called upon to answerallegations. The court disagreed that, in thesecircumstances, Ballast Nedam could not have beenunaware that the ECwas likely to hold it liable for BNGWas its parent.The ECJ then itself reduced Ballast Nedam’s joint and

several liability to €3.45 million, amounting to its liabilityfor BN Infra, fromwhen BN Infra took over the infringingbusiness.

Koninklijke Wegenbouw StevinIn December 2013, the ECJ rejected a further appeal byKoninklijke Wegenbouw Stevin (“KWS”) in the DutchBitumen cartel case.64KWS argued two points:First, KWS claimed that, since the GC had ruled that

KWS, through its subsidiary Shell NederlandVerkoopmaatschappij SNV, was not both an instigatorand a leader of the cartel, it should have reduced the 50per cent fine increase which the EC had applied for this.The GC had decided, in its unlimited jurisdiction, to keepthe fine increase at that level, despite finding that KWSwas only a leader.The ECJ rejected KWS’s claim, on the basis that it

could only substitute its view for the GC’s equitableassessment of the fine in its unlimited jurisdiction, if thelevel of fine was shown to be not only inappropriate, butexcessive to the point of being disproportionate. The courtconsidered that had not been shown, so it had nojurisdiction to review the GC’s finding.Secondly, KWS claimed that the GC had erred insofar

as, in its ruling in the appeal by Shell against the EC’sDutch Bitumen cartel decision, the court had found thatKWS’s subsidiary, SNV, had not been shown to be leaderof the cartel; while in its ruling on KWS’s appeal, it had

found the opposite.65 The ECJ found again that it did nothave jurisdiction, insofar as, KWS did not show that theGC had manifestly distorted the evidence before it. Thecourt did not have general jurisdiction to review the GC’sassessment of evidence.66

While the ECJ’s reasoning is understandable on therules as stated, this is a somewhat strange result. All themore so given the GC’s modern approach of dealing withmost appeals separately, albeit in the same Chamber. Onemight think that the alleged lack of consistency mighthave been viewed as raising an issue of manifest distortionof evidence, justifying the ECJ reviewing the matter onthe substance.

Industrial BagsIn the reference period, the ECJ has given judgment inseven cases related to the Industrial Bags cartel.

Box 5

Cartel appeals—Gascogne/Kendrion•

Change of position by ECJ.—

Used to allow a claim before it, alleging unreasonable delayin the GC (Baustahlgewerbe).

—

Now, the court considers an action for damages must bebrought before the GC (a different Chamber!).

—

Yet more delay.—

A.G. Sharpston for; A.G. Wathelet in Guardian critical.—

ECJ making rulings, but remitting in transitional period?—

Politics of GC enlargement.—

Gascogne/KendrionIn November 2013, sitting as a Grand Chamber, the ECJruled that excessive length of proceedings before the GCbreaches an applicant’s right to a hearing within areasonable time under the second paragraph of art.47 ofthe Charter of Fundamental Rights (“CFR”).67

However, the court held that an action for damagesbefore the GC is the appropriate remedy for suchunreasonable delay, rather than the approach adoptedpreviously by the court in Baustahlgewebe,68 where theECJ granted a reduction in the fine, in the interests ofprocedural economy and to give an effective, immediateremedy.It may be recalled that, in November 2005, the EC

found a cartel between 16 companies active on the plasticindustrial bags market in Germany, Spain, France andthe Benelux.69 A total of €290 million in fines was

64KWS v Commission (C-586/12 P) EU:C:2013:863.65KWS EU:C:2013:863 at [22]–[23].66KWS EU:C:2013:863 at [26]–[28].67Gascogne Sack Deutschland GmbH v Commission (C-40/12 P) EU:C:2013:768, [2014] 4 C.M.L.R. 12; Kendrion v Commission (C-50/12 P) EU:C:2013:771, [2014] 4C.M.L.R. 13; and Groupe Gascogne (C-58/12 P) EU:C:2013:770, [2014] 4 C.M.L.R. 14. ECJ Press Release 150/13 (November 26, 2013). Paragraph numbering below istaken from Groupe Gascogne unless specified otherwise. With thanks to Cormac O’Daly for his assistance.68Baustahlgewebe GmbH v Commission (C-185/95 P) [1998] E.C.R. I-8417; [1999] 4 C.M.L.R. 1203 ECJ.69 See J. Ratliff, “Major Events and Policy Issues in EC Competition Law, 2009–2010 (Part 1)” [2010] I.C.C.L.R. 67, 94; and J. Ratliff, “Major Events and Policy Issuesin EU Competition Law, 2011–2012 (Part 1)” [2013] I.C.C.L.R. 81, 88.



imposed, with Kendrion liable for €34 million, GascogneDeutschland liable for €13.3 million andGroupGascogneliable for €9.9 million.All three companies appealed to the GC in February

2006 and the GC rendered its judgments in November2011.70 The GC dismissed all three actions in theirentirety. The length of time between the lodging of theapplications and the date of the judgments was thereforefive years and nine months in all three cases. In all three,the delay between the closing of the written procedureand the opening of the oral procedure was three years andten months.The main points in the judgments before the ECJ are

as follows:First, the ECJ held that, regardless of whether the

parties had raised the issue before the GC, the questionas to whether unreasonable delay should entitle appellantsto a reduction in fines was admissible. The court foundthat it has jurisdiction to verify whether a breach ofprocedure before the GC has occurred, which adverselyaffected the appellants’ interests.71Although a party mustbe entitled to raise a breach of procedure before the GCwhen it considers that there has been a breach of theapplicable rules, a party cannot be required to do so whenthe full effects of that breach are not yet known.72

Secondly, although it was not obliged to do so, the ECJstated that, in the cases before it, the duration ofproceedings and, in particular, the period between theend of the written procedure and the opening of the oralprocedure (here approximately 3 years and 10 months)could not be explained by the complexity of the dispute,the conduct of the parties or particular proceduralmatters.73 Therefore the ECJ concluded that the GC hadfailed to adjudicate within a reasonable time.74

Thirdly, the ECJ, citing its previous judgment inBaustahlgewebe, acknowledged that it had reduced theapplicable fine “when first faced” with the issue ofexcessive delay, so as “to ensure an immediate andeffective remedy regarding a procedural irregularity”.75

However, the ECJ noted, citing its judgment inDerGrünePunkt,76 that it had also held that excessive delay couldgive rise to a claim for damages against the EU beforethe GC.

While accepting that the cases were similar to thesituation in Baustahlgewebe, the ECJ concluded that aclaim for damages against the EU constitutes an effectiveremedy for such a breach.77However, the court stated thatsuch a claim may not be made directly to the ECJ in thecontext of an appeal, but must be brought before the GCitself, in a new action.This ruling is clearly controversial.78 It follows the

suggested approach of A.G. Sharpston, who had notedthat these delays appeared to be the result of too fewjudges in the GC.79 She argued that, despite the attractionof Baustahlgewebe, there was something fundamentallywrong in reducing a fine for a cartel, for delay in thecourt.80

However, it may be interesting to note that A.G.Wathelet has already voiced his dissent in Guardian,81noting that to expect a new ruling by the General Courton its own delay (even if that would be by anotherChamber) looks wrong; and that it appears odd to add yetmore delay by requiring a new action.82

One senses that the ECJ did not want to go on receivingfurther appeals because of this issue and a certain politicalelement, insofar as the court is campaigning for morejudges in the GC, precisely to remove these delays.Since then, there have been several similar rulings of

GC delay by the ECJ, while rejecting such claims.

FL SmidthIn April 2014, the ECJ ruled on FL Smidth’s (“FLS”)further appeal of the GC judgment upholding the EC’sdecision, in which the EC found FLS jointly and severallyliable for the Industrial Bags infringement with its formersubsidiary Silvallac (which since had become TrioplastWittenheim (“TW”)).83 The ECJ rejected FLS’s appeal.FLS had bought Silvallac/TW from Cellulose du Pin

and then later resold it to Trioplast. TW’s fine was set at€17.85 million. FLS was held jointly and severally liableas to €15.3 million of the fine with TW and itsintermediate subsidiary FLS Plast (“FLSP”). Trioplast,the new owner, was held jointly and severally liable withTW as to €7.3 million. TW’s fine (and that of Trioplast)had been reduced by 30 per cent because of their leniencyapplication after Trioplast acquired TW.

70 Sachsa Verpackung (T-79/06) [2011] E.C.R. II-406; Kendrion (T-54/06) [2011] E.C.R. II-393; Groupe Gascogne (T-72/06) [2011] E.C.R. II-400 (November 16, 2011).71Groupe Gascogne EU:C:2013:770; [2014] 4 C.M.L.R. 14 at [66].72Groupe Gascogne EU:C:2013:770; [2014] 4 C.M.L.R. 14 at [70].73 See the Opinion of A.G. Sharpston in Groupe Gascogne EU:C:2013:360; [2014] 4 C.M.L.R. 14 at [92]–[94], in which she considered that after a delay of 18 months,without any active case management, from closing of the written procedure “alarm bells should be ringing” and that a delay of a further six months generally should beregarded as excessive.74Groupe Gascogne EU:C:2013:770; [2014] 4 C.M.L.R. 14 at [93]–[96].75Groupe Gascogne EU:C:2013:770; [2014] 4 C.M.L.R. 14 at [80].76Der Grüne Punkt-Duales System Deutschland (C-385/07 P) [2009] E.C.R. I-6155; [2009] 5 C.M.L.R. 19.77Groupe Gascogne EU:C:2013:770; [2014] 4 C.M.L.R. 14 at [82].78 Interestingly, she also noted that the ECJ had invited the (then) 27 Member States, the Parliament and Council to indicate their views on the correct remedy in writing.Seven Member States and the Council had favoured the Baustahlgewebe approach; three Member States and Parliament favoured the Der Grüne Punkt approach. See herOpinion in Groupe Gascogne EU:C:2013:360; [2014] 4 C.M.L.R. 14 at [119].79Referring to a passage on a similar point in the Preface to Charles Dickens’s Bleak House: see Opinion of A.G. Sharpston in Groupe Gascogne EU:C:2013:360; [2014]4 C.M.L.R. 14 at [70].80 See Opinion of A.G. Sharpston in Groupe Gascogne EU:C:2013:360; [2014] 4 C.M.L.R. 14 at [125].81Opinion of A.G. Wathelet in Guardian Industries Corp v Commission (C-580/12 P) EU:C:2014:272 at [110]–[116].82Opinion of A.G. Wathelet in Guardian EU:C:2014:272 at [108]–[112].83FLSmidth & Co A/S v Commission (C-238/12 P) EU:C:2014:284; [2014] 4 C.M.L.R. 32.



Subsequently, TW went into liquidation and theliability of Trioplast was reduced by €2.73 million by theGC, so that FLS’s and FLSP’s share of the liability sharedwith TW was in practice higher.FLS appealed, arguing that it should not be liable, even

if it was 100 per cent shareholder of FLSP, which in turnowned TW, because TW had been acting on its own,without FLS’s knowledge, as shown by an arbitral awardto that effect. The GC disagreed, finding that such a lackof knowledge did not suffice to rebut the liability.FLS also argued that it should benefit from TW’s

leniency reduction because, if it had the burden of beingliable as parent of TW, it should have the benefit asparent. The GC rejected this, stating that TW should nothave had a leniency reduction and FLS could not benefitfrom an unlawful act of a third party.However, the GC reduced FLS’ liability to €14.45

million, insofar as in an initial period it had not owned100 per cent of Silvallac and had not been shown tocontrol the company.On further appeal to the ECJ, the main points of interest

are as follows:First, the court agreed with the GC that FLS could not

benefit from TW’s leniency reduction, but for differentreasons. The court substituted the reasoning that FLScould not benefit because it was not a single undertakingwith TW at the time of the leniency application.84

Secondly, FLS argued that its liability should be less,because there should be mitigation for its lack ofknowledge of TW’s conduct. The ECJ disagreed, statingthat the liability was that of the undertaking as a whole(FLS, FLSP and TW), not FLS as ultimate parent.85 Thisis noted here, partly because companies often argue that,in practice, lack of knowledge like this should be at leastmitigation.Thirdly, the ECJ found that the procedure before the

GC had been excessively long (six years, with four yearsand four months between the end of the written procedureand the opening of the oral procedure). However,following Gascogne and Kendrion, the court ruled thatany claim for damage had to be brought before the GC.86

OtherIn May 2014, the ECJ rejected two further appeals bySpanish companies involved in the Industrial Bags cartel,Plasticos Españoles87 and Armando Alvarez.88Then in June 2014, the ECJ rejected the further appeal

by FLS Plast, the subsidiary of FL Smidth.89 This rulingoverlaps in part with the FLS judgment noted above. FLS

Plast’s fine also had been reduced by the GC to €14.85million, on the basis that it did not controlSilvallac/Trioplast Wittenheim for the period alleged bythe EC.It may be useful to note that the ECJ rejected the

argument of FLS Plast (and FLS) that a parent should beregarded as the guarantor of the fine imposed on itssubsidiary which participated in the cartel, rather thandeemed liable as part of a single undertaking.90 This isnoted here, since again it is a frequent argument by parentcompanies, in particular where they state that they hadno knowledge of the subsidiary’s involvement in a cartel.Otherwise the ECJ reiterated its new position on delay

before the GC.

Hydrogen Peroxide/Sodium PerborateIn December 2013, the ECJ gave five judgments inrelation to this cartel.91

SNIAIn December 2013, the ECJ ruled on the appeal by SNIAagainst the GC’s ruling, confirming its liability for Caffaroin the Hydrogen Peroxides and Sodium Perborate(“Hydrogen Peroxide”) cartel.92

It may be recalled that SNIA held some 53 to 59 percent of the shares of a company, called for presentpurposes “Ex-Caffaro”, which owned 100 per cent ofanother company, called for present purposes Caffaro.Caffaro participated in the infringement.After the infringement, but before the EC’s decision,

SNIA acquired 100 per cent of the shares of “Ex-Caffaro”.The EC then decided that, at the time of the infringement“Ex-Caffaro” and Caffaro formed an undertakingresponsible for infringement, but that, since SNIA hadacquired and absorbed “Ex-Caffaro”, SNIA was liablefor the infringement with Caffaro.93

On appeal to the GC, SNIA argued that the businessin question had been taken over by Caffaro and SNIAshould not be liable. However, the GC agreed with theEC that the principle of “economic continuity” meant thatthe liability of “Ex-Caffaro” had been transferred toSNIA.On further appeal, the ECJ agreed with the GC and

rejected SNIA’s claim.94

CaffaroA related appeal was brought by Caffaro contesting theGC’s ruling.95 The main points of interest are as follows:

84FLSmidth EU:C:2014:284; [2014] 4 C.M.L.R. 32 at [81]–[89].85FLSmidth EU:C:2014:284; [2014] 4 C.M.L.R. 32 at [70]–[71].86FLSmidth EU:C:2014:284; [2014] 4 C.M.L.R. 32 at [111]–[123].87Plasticos Españoles SA v Commission (C-35/12 P) EU:C:2014:348; [2014] 5 C.M.L.R. 3.88Armando Álvarez v Commission (C-36/12 P) EU:C:2014:349; [2014] 5 C.M.L.R. 4.89FLS Plast A/S v Commission (C-243/12 P) EU:C:2014:2006; [2014] 5 C.M.L.R. 14.90FLS Plast EU:C:2014:2006; [2014] 5 C.M.L.R. 14 at [106]–[107].91ECJ Press Release 154/13 (December 5, 2013).92 SNIA v Commission (C-448/11 P) EU:C:2013:80. With thanks to Philippe Claessens for his assistance.93 SNIA EU:C:2013:80 at [4]–[8] and [26].94 SNIA EU:C:2013:80 at [27]–[29].95Caffaro v Commission (C-447/11 P) EU:C:2013:797.



First, Caffaro argued that the GC should have acceptedthat its claimed economic dependence on other cartelmembers should have led to a different assessment of thefacts (of its “participation”). The ECJ disagreed, notingthat, as the GC had stated, this did not change theseriousness of the acts concerned.96

Secondly, Caffaro argued that the fact that it had leftthe market concerned meant that any fine would have nouseful effect. The ECJ disagreed, noting that this wouldbe too easy a way for an infringer to avoid a fine.97

Thirdly, Caffaro argued that it should not have beenfined on the basis of a different reference year to the othercompanies. However, the court noted that such adifferentiation was not in itself unlawful, where it was anapplication of the same principles as had been applied toothers. That was the case here. (The EC’s reasoning hadbeen that Caffaro’s turnover in that reference year wasnot a reliable indicator of its economic situation duringthe infringement.98)It may be useful to note also that both SNIA and

Caffaro were “under administration” as they appealed.

EdisonIn December 2013, the ECJ also ruled on the EC’s appealof the GC’s ruling, by which it annulled the EC’s decisionholding Edison liable for the infringement of Ausimont(which, after the infringement, had been sold to Solvayand renamed Solvay Solexis).99

It may be recalled that Edison argued before the GCthat the EC had not sufficiently reasoned its decision,rejecting Edison’s arguments and specific evidence to theeffect that Edison did not control Ausimont. Edison hadstated that, faced with a financial crisis in 1993, it hadtaken reorganisation measures giving companies in thegroup the right to behave independently and this had beensupported by detailed evidence.100

The GC considered that the EC had not sufficientlyexplained why these elements did not reverse thepresumption of control based on Edison’s 100 per centcontrol of an intermediate company, which in turn owned100 per cent of Ausimont.The EC appealed, arguing that the elements in question

would not have reversed the presumption anyway.

The ECJ rejected this, noting that the EC’s obligationto explain in detail why the elements concerned did notreverse the presumption, followed from the rebuttablenature of that presumption.101

The EC also argued that the GC had been wrong todeny it the possibility to rely on other elements, one (thata director of Edison was also a director in the intermediateparent of Ausimont) on the basis that it had not been putto Edison in the SO, the other (overlapping boardmembership and Edison’s involvement in one ofAusimont’s projects) on the basis that it had not beenmentioned in the EC decision.102 The EC argued that ithad to be allowed to raise such points in its pleadingsbefore the court.103

The court disagreed,104 applying Papierfabrik AugustKoehler105: an element which had not been put to Edisonin the SO, giving it the opportunity to respond in theadministrative procedure could not be raised againstEdison before the court.106 Similarly, applying ElfAquitaine,107 a lack of reasoning in an EC decision couldnot be rectified by explaining the reasoning to the partyconcerned in procedures before the European Courts.108

Solvay SolexisIn December 2013, the ECJ also ruled on the appeal ofSolvay Solexis (as noted above, formerly Ausimont untilacquired by Solvay, after the Hydrogen Peroxideinfringement).109 The ECJ rejected the appeal.The underlying issue here was somewhat different.

Part of the EC’s case had been that market participantshad met in an initial period in order to discuss if theycould share the production capacity available. It wasargued unsuccessfully before the GC that thesediscussions were “pre-cartel”, rather than in the cartel,since the parties had not yet agreed to do so. The courtalso found that there had been unlawful exchanges ofinformation.The main points of interest before the ECJ are as

follows:First, Solvay Solexis argued that the initial period

discussion had not constituted a concerted practice. Thecourt disagreed, noting that there had been an exchangeof volume and price information and that Solvay Solexishad not shown that such exchanges had no influence onits own market conduct (as presumed where competitorsexchange information and remain on the market).110

96Caffaro EU:C:2013:797 at [30].97Caffaro EU:C:2013:797at [38]–[41].98Caffaro EU:C:2013:797 at [54].99Commission v Edison (C-446/11 P) EU:C:2013:798. With thanks to Svetlana Chobanova for her assistance.100Edison (C-446/11 P) EU:C:2013:798 at [29]–[30].101Edison (C-446/11 P) EU:C:2013:798 at [24]–[25] and [31].102Edison (C-446/11 P) EU:C:2013:798 at [46]–[47].103Edison (C-446/11 P) EU:C:2013:798 at [49]–[50].104Edison (C-446/11 P) EU:C:2013:798 at [57].105Papierfabrik August Koehler AG v Commission (C-322/07 P) [2009] E.C.R. I-7191; [2009] 5 C.M.L.R. 20 at [34]–[37].106Papierfabrik August Koehler [2009] E.C.R. I-7191; [2009] 5 C.M.L.R. 20 at [54].107Elf Aquitaine (C-524/09 P) [2011] E.C.R. I-5947 at [148]-[149].108Papierfabrik August Koehler [2009] E.C.R. I-7191; [2009] 5 C.M.L.R. 20 at [55].109 Solvay Solexis v Commission (C-449/11 P) EU:C:2013:802. With thanks to Svetlana Chobanova for her assistance.110 Solvay Solexis EU:C:2013:802 at [37]–[39].



Secondly, Solvay Solexis argued that there had beenno agreement to stabilise the market in the face of thenew production capacity put in place by Ausimont andtwo other undertakings.111 The court stated that did notmatter, because, even if there was no agreement, the GChad found correctly that there was a concerted practicein the relevant period.112

Thirdly, Solvay Solexis argued that Ausimont hadnever participated in the capacity-sharing agreement andthis should have been reflected in the gravity assessmentfor its infringement or, at least as a mitigatingcircumstance in its fine.113

The ECJ disagreed, noting that it was for the GC toreview the EC’s assessment of “gravity”, which involvesa wide range of elements and that the court could decidewhether to treat a factor as relevant to gravity ormitigating circumstances.114Here the court had consideredAusimont’s non-participation in capacity-sharing undermitigating circumstances, albeit that it had held that fornon-participation in the infringement to qualify as sucha circumstance, it was necessary for Solvay Solexis toshow that it had not participated in the cartel at all, notjust some of its elements (which Solvay Solexis had notdone).115

SolvayIn December 2013, the ECJ also ruled on Solvay SA’sfurther appeal and a cross-appeal by the EC.116

It may be recalled that Solvay had been fined €167million. However, on appeal the GC had reduced the fineto €139 million, considering that the EC had undervaluedSolvay’s co-operation and increased the percentagereduction to 20 per cent.Most of Solvay’s claims overlap with those of Solvay

Solexis, noted above, and were rejected. However, Solvayalso contested the GC’s review as to whether it or Arkemahad provided “significant added value” first.117 The ECJrejected this, noting that the court had carried out anin-depth review of the related evidence, as it had to, sincethe issue was related to the level of fines.118 Further, itwas not obvious from the court’s file that in doing so theGC had distorted the evidence.119

Interestingly, in its cross-appeal, the EC argued thatthe GC had gone too far in reviewing the EC’s decisionin its discretion as to the value to give Solvay’sco-operation.120 The ECJ rejected that also, noting again

that the GC had carried out the in-depth review required.The court could not use the EC’s margin of discretion asa basis for not dispensing with the conduct of an in-depthreview of the law and of the facts.121 Nor could the ECJsubstitute its own appraisal of the evidence for that of theGC,122 or the GC’s assessment of the correct fine in itsunlimited jurisdiction.123

Calcium Carbide

Box 6

Cartel appeals—Calcium Carbide•

Arques/Gigaset:—

Investor company liable for infringement if it had controlof business concerned.

*

EC rounding practice in 2006 Fining Guidelines led to un-equal treatment.

*

GC adjusted fine on Gigaset so that more proportionate ascompared to the fine on SKW.

*

Evonik Degussa/AlzChem:—

Fact of compliance instructions (ignored by subsidiary) didnot show lack of decisive influence for liability purposes.

*

Intermediate subsidiary AlzChem, acquired after Degussa’sMethionine infringement, could not have its fine increasedfor recidivism: not part of earlier infringements.

*

Degussa fine reduction for co-operation adjusted by GCfrom 20% to 28%.

*

Degussa’s information had been relevant to the magnesiumreagents part of the SCI, although its own infringing saleswere calcium carbide.

—

GC found no rule that a fine reduction had to be relevant toa company’s own activity; the issue was relevance to provingthe infringement as a whole.

—

EC rounding practice led to disproportionate fine, so adjust-ed.

*

Donau Chemie:—

Similar fine reduction adjustment to Degussa case.*

Donau Chemie’s fine reduction increased to 43.5% from35% because its co-operation value did not only have to berelevant to the sales related to its own infringement.

*

Donau Chemie had also assisted the EC’s case on other as-pects of the SCI.

*

In the course of the year, the GC has issued severaljudgments as regards appeals against the EC’s Calciumcarbide and magnesium reagents cartel decision.124 Thisis the second set of judgments.125 The GC rejected the

111 Solvay Solexis EU:C:2013:802 at [48].112 Solvay Solexis EU:C:2013:802 at [53].113 Solvay Solexis EU:C:2013:802 at [69]–[70].114 Solvay Solexis EU:C:2013:802 at [78]–[79].115 Solvay Solexis EU:C:2013:802 at [80]–[83].116 Solvay v Commission (C-455/11 P) EU:C:2013:796. With thanks to Takeshige Sugimoto for his assistance.117 Solvay EU:C:2013:796 at [62].118 Solvay EU:C:2013:796 at [64]–[68].119 Solvay EU:C:2013:796 at [70].120 Solvay EU:C:2013:796 at [114].121 Solvay EU:C:2013:796 at [116] and [119].122 Solvay EU:C:2013:796 at [120].123 Solvay EU:C:2013:796 at [121].124Holding Slovenske elektrarne v Commission (HSE) (T-399/09) EU:T:2013:647, [2014] 4 C.M.L.R. 21; Gigaset AG v Commission (T-395/09) EU:T:2014:23; SKW vCommission (T-384/09) EU:T:2014:27; Evonik Degussa and AlzChem v Commission (T-391/09) EU:T:2014:22.125The first set was issued in December 2012. See Ratliff, “Major Events and Policy Issues in EU Competition Law, 2012–2013 (Part 1)” [2014] I.C.C.L.R. 75, 85.



appeal byHolding Slovenske elektrarne (“HSE”), reducedthe fines imposed on Gigaset by €1million and on EvonikDegussa by €950,000 and dismissed the appeal broughtby SKW Stahl-Metallurgie (“SKW”). The court alsoreduced the fine on Donau Chemie.There are several important points in these judgments.It may be useful to recall that the EC had found a

market-sharing and price-fixing cartel, operatingthroughout the EEA, save in Spain and Portugal and theUK and Ireland, which had been in place fromApril 2004to January 2007. The products concerned, calcium carbideand magnesium reagents, are used in the steel and gasindustries. There were three products, two types ofcalcium carbide, plus magnesium reagents. The EC founda single and continuous infringement (“SCI”) coveringthe three products.

HSEHSE was the parent of a company actually involved inthe infringement, TDR Metalurgija (“TDR”), owning a74.4 per cent shareholding therein.126 Before the ECdecision, TDR was ruled bankrupt, so the EC only finedHSE. HSE was fined €9.1 million for the infringement.HSE then appealed. HSE argued that it could not be

presumed to control TDR with a 74 per cent stake andthat TDR had been “parked” with HSE,127 as part of aSlovenian state reorganisation. Therefore, HSE shouldnot be held liable for TDR’s activities, or at most it shouldbe found “negligent” in failing to stop TDR’s activities(and fined less).128 HSE was an electricity company,whereas TDR was in steel-related business.The GC rejected all these points. The court found that

the key issue was whether HSE actually had decisiveinfluence over TDR.129 The court noted that the EC hadestablished this on the basis of specific indicia, not the100 per cent shareholding control presumption.130 If so,HSE and TDRwere an economic unit and HSEwas liableon that account,131 not for negligence in not detecting itssubsidiaries’ infringement.The court reviewed the evidence of HSE’s influence

over TDR at length and agreed with the EC’s findings.The court also noted that the infringement found was afterHSE became responsible for TDR in 2002.132 Even if HSEhad been just a holding company, HSE was liable if itwas a single economic unit with TDR.

GigasetAs background to this case, it should be noted that severaljudgments re this cartel relate to owners of SKWStahl-Metallurgie (“SKW”).133 SKW was owned byvarious different companies during the relevant periodof the infringement. It was first owned by Evonik Degussaand then by Arques (which became Gigaset) through aholding company called SKW Holding, which had beenestablished as an acquisition vehicle (Arques and Gigasetwill be termed “Gigaset” for present purposes).SKWHoldingwas 100 per cent owned byGigaset until

November 2006. Then, from November 2006 to January2007, Gigaset owned 57 per cent of SKWHolding, havinglisted the company on the stock exchange.The main points of interest in this case are as follows:First, Gigaset accepted that the 100 per cent

shareholding liability presumption applied for the firstperiod of its ownership of SKW, via SKW Holding, butargued that it should not be found to have exerciseddecisive influence in the second, while it only held 57per cent of SKW Holding.Further, Gigaset argued that, as it is a company which,

in its words, has “restructuring expertise which focuseson the acquisition of companies in special situations”, itonly had a strategic control of the business concerned,not an operative one. As a result, Gigaset argued that ithad not been involved in the infringement and should notbe held liable.The GC rejected this. The court noted that, even if

Gigaset was only involved in strategic operations, thatdid not prevent it from exercising a decisive influenceover SKW, or from forming, along with its subsidiary, asingle economic unit.134 Furthermore, the GC noted thatthe whole concept of Gigaset’s investment was that itwould control the SKWbusiness to achieve a better pricefor it on resale.135Gigaset had appointed directors in SKWHolding and SKW itself.Even after its holding was reduced to 57 per cent, the

court found that Gigaset continued to control SKW, theother shares being widely held.136 Moreover, Gigaset hadnot shown that such a change in shareholding changedits decisive influence over SKW.137 In short, the courtupheld the EC’s finding of decisive influence, based onthe Avebe/Knauf Gips case law.138Secondly, Gigaset argued that the EC’s application of

the duration multiplier was contrary to the principle ofequal treatment and proportionality. SKWhad been found

126With thanks to Tomek Koziel and Hanna Pettersson for their help with this section.127HSE EU:T:2013:647; [2014] 4 C.M.L.R. 21 at [59].128HSE EU:T:2013:647; [2014] 4 C.M.L.R. 21 at [134].129HSE EU:T:2013:647; [2014] 4 C.M.L.R. 21 at [49].130HSE EU:T:2013:647, [2014] 4 C.M.L.R. 21 at [22].131 See HSE EU:T:2013:647; [2014] 4 C.M.L.R. 21 at [100], [140] and [142].132HSE EU:T:2013:647; [2014] 4 C.M.L.R. 21 at [147.133With thanks to Thomas Jones for his help with this section.134Gigaset EU:T:2014:23 at [44].135Gigaset EU:T:2014:23 at [38] and [43].136Gigaset EU:T:2014:23 at [70].137Gigaset EU:T:2014:23 at [70].138Avebe v Commission (T-314/01) [2006] E.C.R. II-3085, [2007] 4 C.M.L.R. 1; and Knauf Gips v Commission (C-407/08 P) [2010] E.C.R. I-6375.



liable for the infringement for two years and eight months.Gigaset was found to have been liable for the infringementfor two years and four months. Yet the EC applied amultiplier of 2.5 to both SKW and Gigaset.139

According to the 2006 Fining Guidelines, a durationof less than one year, but more than six months, shouldcount as one year, and a duration of less than six monthsshould count as half a year.140

The EC argued in its defence that it did not have tofollow its Guidelines strictly. Fines should not be just aquestion of mechanical arithmetic. Interestingly, the ECalso noted that it had decided to apply a multiplier of 0.5after a supplementary three months of participation.Therefore, a company participating in an infringementfor two years and three months would have a multiplierof 2.5, whereas a company participating in aninfringement for two years and nine months would havea multiplier of 3.141

The court found that deviations from the FiningGuidelines were permitted, yet they had to be inaccordance with the general principles of law. In this casethe rounding practice was in breach of the principle ofequal treatment.142

Thirdly, the EC argued that Gigaset should not haveits fine reduced as it should not benefit from an illegalitycommitted in favour of SKW. The idea was that thecorrect multiplier of 2.5 was applied to Gigaset, whereasan incorrect multiplier was applied to SKW, namely 2.5,whereas it should have been 3. The GC disagreed, notingthat a deviation from the Fining Guidelines did notamount to illegality.143 The EC did have the right todeviate from its Guidelines. However, not if that led toequal treatment, which would be unlawful, as here.The court then considered how it could resolve the

issue.144 SKW had appealed to the GC, but had notchallenged the duration multiplier applied in its fine. TheGC also noted that the court did not raise arguments ofits own motion.As a result, the court decided that it should not increase

the fine on SKW, but should leave it and adjust the fineon Gigaset, so as to make it more “exact” and“proportionate”. The court then recalculated the amountof duration multiplier increase on Gigaset vis-à-vis thaton SKW and held that it should be reduced by €1million.

Evonik DegussaEvonik Degussa (“Degussa”) and AlzChem were heldliable as parents of SKW for a four-month period beforeit was sold to SKW Holding/Gigaset. They were fined€1.04 million jointly with SKW and €3.64 million, notwith SKW. Both appealed, succeeding on a number ofpoints.The following are the main points of interest in the

GC’s judgment145:First, Degussa argued that it should not be held liable,

because it did not have a decisive influence over SKW.In particular, Degussa had instructed SKW not to violatethe competition rules and employees of SKW hadconfirmed that they ignored these instructions.However, the GC held that this was not sufficient to

rebut the presumption.146 The court noted that Degussaheld 100 per cent of AlzChem, which held 100 per centof SKW. There were also other factors indicating controlof SKW. Moreover, Degussa’s compliance instructionsdid not show the contrary. Rather, the court consideredthat they showed that Degussa and AlzChem weredirecting SKW, even though their instructions were notfollowed.147 The court also found that a decisive influenceover a company is not incompatible with a “diversity ofbehaviour”, or “diversity of interest”, between the parentcompany and its subsidiary.148

Secondly, AlzChem claimed that it should not havehad a fine increase for recidivism. The fine of bothDegussa and AlzChem had been increased becauseDegussa had been an addressee of the Methioninedecision.149 AlzChem had not been an addressee of thatdecision. The EC argued that did not matter, relying onMichelin.150 However, the GC disagreed and held thatsince AlzChem had not been an addressee of the previousdecision, it could not have its fine increased forrecidivism.151

Thirdly, Degussa and AlzChem argued that ifAkzoNobel had been given a 100 per cent fine increasefor four infringements, they should have had 25 per centfor one, not 50 per cent. However, the court agreed withthe EC that it was not required to have a “linear” recidivistincrease approach. The EC could decide to increasemorefor a first repeat offence and then less per offencethereafter.152

Fourthly, Degussa argued that the EC should haveapplied a higher percentage reduction to Degussa andAlzChem for co-operation under the Leniency Notice.The EC had granted a 20 per cent reduction for

139Gigaset EU:T:2014:23 at [153]–[154].140 See Fining Guidelines, para.24.141Gigaset EU:T:2014:23 at [156].142Gigaset EU:T:2014:23 at [173]–[177] and [181].143Gigaset EU:T:2014:23 at [162]–[164], [170] and [179]–[180].144Gigaset EU:T:2014:23 at [181]–[186] and [189]–[192].145Evonik Degussa and AlzChem AG v Commission (T-391/09) EU:T:2014:22. With thanks to Tomek Koziel and Hanna Pettersson for their help with this section.146Evonik Degussa EU:T:2014:22 at [106]–[107], [114]–[117] and [119].147Evonik Degussa EU:T:2014:22 at [90]–[92].148Evonik Degussa EU:T:2014:22 at [115].149C.37.519-Methionine, OJ L255/1, October 8, 2003.150Michelin v Commission (T-203/01) [2003] E.C.R. II-4071; [2004] 4 C.M.L.R. 18.151Evonik Degussa EU:T:2014:22 at [153].152Evonik Degussa EU:T:2014:22 at [163]–[164].



co-operation, but they argued that their co-operationshould have justified more. (The EC could grant up to 30per cent.)The EC’s argument was that Degussa’s information

was relevant to the magnesium reagents side of the cartel,whereas Degussa’s fine here, on the facts, was based onits calcium carbide sales. Degussa argued that this wasinconsistent with the EC’s finding of a single andcontinuous infringement.The GC found for Degussa and AlzChem. There was

no rule in the Leniency Notice that the proof ofinfringement offered had to be relevant to theinfringement of the company which provided it.153 As aresult, the court found that the EC had not complied withthe Leniency Notice and, in its unlimited jurisdiction, theGC set Degussa’s leniency reduction at 28 per cent.154

Fifthly, the court again considered whether therounding-up practice applied by the EC violated theprinciple of proportionality. The EC had applied amultiplier of 0.5, although Degussa and AlzChem, viaSKW, had only participated in the infringement for fourmonths. The GC held that this was disproportionate andapplied a multiplier of one-third.155

After the various adjustments the fine on Degussa wasreduced to €2.49 million (jointly with SKW) and €1.24million for Degussa alone.

SKWIn January 2014, the GC also gave judgment on the appealby SKWHolding and SKW itself.156 The GC rejected theappeal.The main points of interest are as follows:First, SKWHolding and SKW argued that they should

have been allowed a confidential hearing in order toexplain how Degussa had controlled SKW “from adistance”, even after it had sold SKW to Arques/Gigaset.It was argued that this was a breach of their rights ofdefence. Interestingly, the Hearing Officer had deniedthe request on the basis that such a defence or claim ofmitigation would involve an allegation as regards thebehaviour of Degussa which it should have theopportunity to rebut.The GC agreed with the Hearing Officer and went

further. The court noted that SKWHolding and SKWdidnot deny that certain other employees of SKW had beeninvolved in the cartel and that, if an employee of Degussahad been seconded to SKW and involved in suchactivities, he was still working for SKW and SKWHolding had a 100 per cent shareholding of SKW.157 Onthat basis, SKW and SKW Holding were still liable.

Secondly, SKW Holding argued that it was just anintermediate acquisition vehicle owned byArques/Gigasetand should not therefore be liable. Again the GC rejectedthis, noting that intermediate shareholding companies arealso responsible for their subsidiaries and SKWHoldinghad not reversed the 100 per cent shareholding controlpresumption.158

Thirdly, SKW argued that it had been discriminatedagainst in comparisonwithAlmamet. Among other things,that company had not been fined on the basis of sales forwhich it acted as sales agent with a fixed commission forNCHZ.SKW argued that it was in the same situation as regards

supplies from Degussa. The court disagreed, noting thatthe reduced value of sales attributed to Almamet had beentaken by the EC to avoid double counting, since NCHZ,Almamet’s principal, had been fined for its unlawful actsas regards those same supplies.159

The court noted that the position of SKW and Degussawas different. SKW was an agent, but also received apercentage of the resale price, whereas Almamet was ona fixed commission. The EC had also not alleged a directparticipation in the cartel by Degussa or it employees.Degussa’s and AlzChem’s liability was as the owner ofSKW, before it was sold to SKW Holding andArques/Gigaset.160 In such circumstances, SKW’s salesas agent for Degussa could lawfully be taken into accountfor SKW’s basic amount of fine and SKW’s andAlmamet’s situations were different.Finally, SKW complained that the EC departed from

its Fining Guidelines and had held it liable for two fines(one while owned by Degussa; another while owned bySKW Holding), amounting to €14.34 million, althoughthe EC had stipulated in its decision that the most it shouldpay was €13.3 million.The court noted that this arose from the EC’s rounding

practice applied to the duration multiplier and, in fact,SKW’s fine should have been higher based on the EC’sFining Guidelines. In other words, the higher figure, notthe lower one was, in fact, legally correct. However, thecourt did not increase SKW’s fine. It just rejected theclaim.161

Donau ChemieDonau Chemie is an Austrian chemical company foundto have participated in the SCI concerning calcium carbidepowder and granulates andmagnesium reagents.162DonauChemie did not produce magnesium reagents, butproduced both calcium carbide powder and granulates.

153Evonik Degussa EU:T:2014:22 at [210].154Evonik Degussa EU:T:2014:22 at [209]–[211].155Evonik Degussa EU:T:2014:22 at [236].156With thanks to Thomas Jones for his assistance.157 SKW EU:T:2014:27 at [46]–[47], [51], [57]–[58] and [62]–[63].158 SKW EU:T:2014:27 at [100].159 SKW EU:T:2014:27 at [155]–[157].160 SKW EU:T:2014:27 at [158]–[159].161 SKW EU:T:2014:27 at [197]–[202].162Case COMP/39.396, Calcium carbide and magnesium based reagents for the steel and gas industries, EC Decision of July 22, 2009, C(2009) 5791 final.



The main point of interest in this case is the EC’sassessment of the value of evidence furnished by DonauChemie under the 2002 Leniency Notice. In its decision,the EC found that the information provided voluntarilyby Donau Chemie constituted significant added valueonly with respect to one of the three products underinvestigation, calcium carbide granulates.Although Donau Chemie had been the first to inform

the EC of the infringement on magnesium reagents, ithad not been the first to provide proof of that part of theinfringement. Donau Chemie’s information also did notprovide significant added value as regards the calciumcarbide powder infringement.163 The EC therefore gaveDonau Chemie a fine reduction of 35 per cent (out of arange of 30 to 50 per cent; Donau Chemie had been thesecond company to seek leniency).The EC reasoned that, despite the existence of a SCI,

it could differentiate according to the added value ofinformation provided as regards different elements of theinfringement.164

On appeal to the GC, the court rejected that argument(as it had in the cases of Degussa and AlzChem),165pointing out that the 2002 Leniency Notice did notprovide that proof supplied had to be relevant to the partof the infringement in which the undertaking wasinvolved. This was not a reason to limit the fine reduction.In the case of a SCI, if a company provides significantadded value, that value has to be assessed in relation tothe infringement as a whole and not just certain aspects.166

The court noted that some 45 to 50 per cent of the salesconcerned in the infringement were for calcium carbidepowder, 30 to 35 per cent were for granulates and 20 percent for magnesium reagents. Donau Chemie had giventhe EC evidence to prove 30 to 35 per cent of theinfringement and brought the magnesium reagentsinfringement to the EC’s attention. The GC thereforeassessed the added value of evidence provided by DonauChemie and, in its unlimited jurisdiction, decided toincrease the leniency discount by 8.5 per cent, from 35to 43.5 per cent.167

OtherIn May 2014, the ECJ also rejected a further appeal by1.garantovaná against the GC’s ruling that the EC hadbeen entitled to take 2007, rather than 2008 as the relevantbusiness year for application of the 10 per cent of turnoverfining ceiling, on the basis that 2008 did not appear to bea year of normal commercial activity.168

Gas Insulated Switchgear

Box 7

Cartel appeals—Gas Insulated Switchgear•

Siemens, Mitsubishi Electric,Toshiba:—

If the EC finds a clear agreement (by non-documentaryevidence), no need to look at alternative plausible explana-tion.

*

A restrictive object cannot be justified by economic context.*

For a single infringement, what matters is adherence to anoverall plan, not “complementarity” of conduct.

*

(Although that concept is still used in various other judg-ments this year.)

*

Areva/Alstom:—

ECmust fix separately and individually the amount of finesfor which different undertakings are liable, as a result ofsuccessive ownership.

*

EC also cannot determine joint and several liability withina group.

*

That was a question of national law.*

No default principle of equal shares of liability.*

EC/Siemens/Schneider:—

GC not entitled to vary a fine, to the prejudice of a party,if that issue is not raised before it, by that party.

*

Siemens, Mitsubishi Electric, ToshibaIn December 2013, the ECJ dismissed appeals broughtby Siemens, Mitsubishi Electric and Toshiba169 as regardsthe GC’s judgments concerning their participation in thecartel for gas insulated switchgear (“GIS”).170

It may be recalled that the GC had upheld the fine onSiemens of €397 million, but annulled that onMitsubishiElectric and Toshiba insofar as the EC had set their fineby reference to an earlier year of the cartel than for others,before they had formed a joint venture. The EC has sinceretaken those decisions with a new fine, which is alsobeing appealed.The focus of these appeals was on other aspects.The following are the main points of interest in the

ECJ judgment:First, the ECJ confirmed the existence of an “unwritten

common understanding” for the Japanese undertakingsnot to enter the European market. The court noted that,where the GC is satisfied that the EC has shown theexistence of an agreement of an anti-competitive nature,there is no need to examine the question as to whetherthere is a plausible alternative explanation for the conductcomplained of.

163COMP/39.396 Calcium carbide, EC Decision of July 22, 2009, C(2009) 5791 final at [223].164COMP/39.396 Calcium carbide, EC Decision of July 22, 2009, C(2009) 5791 final at [226].165Donau Chemie v Commission (T-406/09) EU:T:2014:254. With thanks to Tomek Koziel for his help with this section.166Donau Chemie EU:T:2014:254 at [226]–[230].167Donau Chemie EU:T:2014:254 at [231].168 1.garantovaná v Commission (C-90/13 P) EU:C:2014:326.169 Siemens (C-239/11 P),Mitsubishi Electric (C-489/11 P) and Toshiba v Commission (C-498/11 P) EU:C:2013:866, [2014] 5 C.M.L.R. 1; ECJ Press Release 161/13(December 19, 2013). With thanks to Thomas Jones for his assistance.170 Siemens v Commission (T-110/07) [2011] E.C.R. II-477, [2011] 4 C.M.L.R. 25;Mitsubishi Electric v Commission (T-133/07) [2011] E.C.R. II-4219, [2011] 5 C.M.L.R.22; and Toshiba v Commission (T-113/07) [2011] E.C.R. II-3989, [2011] 5 C.M.L.R. 20.



This was so, even though the evidence might not be“documentary” evidence, if it was sufficiently clear.171

The court therefore clarified Coats,172 which appeared tosuggest that, in cases other than those proved bydocumentary evidence, alternative plausible explanationshad to be examined.Secondly, the court stated that in the case of a

“restriction by object” (here a market-sharing agreement),economic evidence also could not be used to justify theagreement.173 The court noted that a restrictive “objectcannot be justified by an analysis of the economic contextof the anti-competitive conduct concerned” (emphasisadded), referring to the SumitomoMetal Industries case.174So, in practice the GC had not erred in refusing toconsider the argument that there were economic andtechnical barriers to entry for the Japanese producers.Thirdly, Mitsubishi and Toshiba both argued that the

GC should have assessed whether the elements of theinfringement, which was found to have a single objective,were “complementary”, relying on statements in AalbertsIndustries175 suggesting that this was required.The court stated that the GC does not have to examine

the additional condition of complementarity, but shouldfocus: (1) on whether the conduct concerned forms partof an “overall plan”; and (2) whether there were anyelements of the case which suggested otherwise, i.e. didnot appear to fit that plan.176

Areva and OthersIn April 2014, the ECJ gave judgment in two complexjoined cases relating to appeals by Siemens, Areva andAlstom and the EC itself.177

Somewhat simplified, the factual background to thefirst case was that the Alstom group (“Alstom”) had soldits GIS subsidiary to the Areva group (“Areva”) after thestart of the EC’s investigation, but before both the end ofthe infringement and the adoption of the final decision.178

In its decision, the EC had held Alstom jointly andseverally liable with its subsidiary for a fine of €53.5million, of which €25.5 million was to be paid by thesubsidiary, jointly and severally with Areva.On appeal, the GC upheld the decision, but lowered

the amount for whichAlstomwas liable to €48.98million,jointly and severally with its subsidiary and set the sumpayable jointly and severally by the subsidiary with Arevaat €20.4 million.The main points of interest were as follows:

First, Alstom argued that the GC had failed to criticisethe EC for not giving specific reasons for making Alstomand its subsidiary jointly and severable liable, even thoughthey no longer formed part of the same undertaking atthe time the decision was adopted.The ECJ confirmed that the EC was entitled to hold a

parent company liable for the unlawful conduct of itssubsidiary during an infringement period. The court alsoheld that the GC had been correct to find that the fact thatthe companies did not form a single undertaking whenthe decision was adopted could not prevent the EC fromholding the companies jointly and severally liable.179 TheEC had stated in its decision why it imputed liability inthis way.180

Secondly, Alstom argued that the GC had substitutedits reasoning for that of the EC. The court stated first thatthe EU Courts are not allowed to substitute their ownreasoning for that of the author of a contested act.However, if a GC judgment is based on evidence reliedon by the applicants before that court, it cannot becriticised for having examined that evidence in its reviewof the legality of the decision.In this case the court found that the argument was based

on the premise that the EC had not duly considered theevidence set out by Alstom in its response to the SO. Asthe court had found that the EC had provided adequatereasoning, that premise could not be accepted and theclaimwas rejected. The fact that the GC had given a moredetailed account of the reasoning in the contested decisiondid not mean it had substituted its own reasoning for thatof the EC.181

Another aspect of this plea was that the parties arguedthat the GC had added two new factors to the reasoningof the contested decision. The court held that the GC hadnot added any new factors, but simply answered in detailthe arguments raised before it.182

Thirdly, Areva and Alstom claimed that the EC andthe GC had unlawfully imposed de facto joint and severalliability on them, since the sum payable by Areva wasincorporated in the sum payable by Alstom.The court agreed and held that this was at odds with

the principle that the penalty must be specific to theoffender and the offence.183 The EC could not oblige anundertaking to bear the risk of insolvency of anotherundertaking, where those undertakings have never formeda single economic entity. The EC must fix separately, foreach undertaking involved, the amount of the fine forwhich the undertakings are jointly and severally liable.

171 Siemens, Mitsubishi Electric and Toshiba EU:C:2013:866, [2014] 5 C.M.L.R. 1 at [222]–[224].172Coats Holdings Ltd v Commission (T-36/05) [2007] E.C.R. II-110; [2008] 4 C.M.L.R. 2.173 Siemens, Mitsubishi Electric and Toshiba EU:C:2013:866; [2014] 5 C.M.L.R. 1 at [218]–[220].174 Sumitomo Metal Industries v Commission (C-403/04 P and C-405/04 P) [2007] E.C.R. I-729; [2007] 4 C.M.L.R. 16 at [43].175Aalberts Industries NV v Commission (T-385/06) [2011] E.C.R. II-1223; [2011] 4 C.M.L.R. 33 at [88].176 Siemens, Mitsubishi Electric and Toshiba EU:C:2013:866; [2014] 5 C.M.L.R. 1 at [248].177Areva v Commission (C-247/11 P and C-253/11 P) EU:C:2014:257; ECJ Press Release 60/14 (April 10, 2014); Commission v Siemens (C-231/11 P to C-233/11 P)EU:C:2014:256.178With thanks to Hanna Pettersson for her assistance with this section.179 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [49]–[53].180 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [51].181 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [56]–[61].182 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [73]–[75] and [77].183 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [121]–[139].



Each successive parent must be in a position to infer itsshare of liability, which must correspond to the part ofthe fine imposed on the subsidiary.In this case, since the liability of Areva and Alstom

was derived from the liability of the subsidiary, the totalamount payable by the parents could not be higher thanthe total amount payable by the subsidiary. In additionto infringing the principle that a penalty must be specificto the offender and the offence, the court also found thatthe EC’s and GC’s approach was an infringement of theprinciple of legal certainty, insofar as it did not allowparent companies to ascertain precisely the amount theywould be required to pay.Fourthly, the ECJ considered the issue as to whether

the EC was entitled to determine the internal allocationof a fine liability within a group. Here, the court held thatthe EC did not have such power. Rather its power isconfined to determining the amount of the payment forwhich the legal entities forming part of the sameundertaking are severally and jointly liable. It is for thenational courts to determine how the allocation of thatliability should be made.184

Nor was the GC entitled to find that, in the absence ofsuch an EC finding, the applicable default principle wasthat the companies concerned should pay an equal share.185

Finally, the ECJ, in its unlimited jurisdiction, set thefine for Alstom at €27,795,000, payable jointly andseverally with its subsidiary and for Areva at €20,400,000,payable jointly and severally with the same subsidiary.186

EC/Siemens and OthersTurning to the EC/Siemens case,187 it may be useful firstagain to offer some simplified background as to thechanging structure of the companies involved.Reyrolle was a subsidiary of Rolls-Royce, which was

acquired by VA Technologie (“VA Tech”) in 1998.Subsequently, in 2001, VA Tech transferred Reyrolleinto a new company VA Tech Schneider, in which VATech held 60 per cent of the shares and Schneider 40 percent. Schneider transferred into VA Tech Schneider twosubsidiaries, one which later became SiemensTransmission & Distribution (“SEHV”) and the othercalled Magrini. In 2004, VA Tech acquired all ofSchneider’s shares in VA Tech Schneider and in 2005,Siemens acquired exclusive control of the group, whoseparent company was VA Tech, through a public bid.Following the takeover, VA Tech and VATech Schneiderwere merged with Siemens Österreich.188

The EC started its investigation in 2004 and took itsdecision in 2007 finding a cartel for GIS supply involvingthese various companies and others for different durationsbetween 1988 and 2004.The appeals related to the fines imposed by the EC,

given these changes in ownership (and then the GC’srelated rulings).In the EC decision, Schneider was held liable for a fine

of €3.6 million. It was also held jointly and severallyliable with SEHV and Magrini for a fine of €4.5 million.Reyrolle was held liable for a fine of €22 million, ofwhich it was jointly and severally liable for €17.5 millionwith SEHV and Magrini and jointly and severally liablewith Siemens Österreich and another VA Tech companyfor a fine of €12.6 million.189

Then, before the GC, SEHV and Magrini were heldjointly and severally liable with Schneider for anincreased fine of €8.1 million. Reyrolle was held jointlyand severally liable with Siemens Österreich, SEHV andMagrini (and another VA Tech company) for €10.3million. Reyrolle was held jointly and severally liablewith Siemens Österreich (and the other VA Techcompany) for €2.3 million. Reyrolle itself was liable for€9.4 million.190

Before the ECJ there were three separate appeals, oneby the EC, another by Reyrolle and a third by SEHV andMagrini. There are three main points of interest:First, as regards the EC’s appeal, there was an overlap

with the Areva case. The GC had held that the EC wasresponsible for determining the respective shares of thefines imposed on the various companies jointly andseverally and held that this task could not be left to thenational courts.191 The EC appealed that.The ECJ agreed with the EC and held that the EC could

not determine the shares of the fine of those held jointlyand severally liable, beyond the determination of jointand several liability “from an external perspective”,meaning as between undertakings, as opposed tointernally within a group.192 Neither EU law generally,nor Regulation 1/2003, contains rules regulating a disputeconcerning internal allocation of debt.193

Moreover, as in the Areva case, the court consideredthat the GC was wrong to state that it must be presumedthat companies in an undertaking share equalresponsibility and accordingly must pay an equal shareof the fine.194 EU law does not lay down rules imposingliability in equal shares which are applicable by default.The shares to be paid by those held jointly and severally

184 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [149]–[156].185 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [153].186 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [196]–[197].187With thanks to Thomas Jones for his assistance with this section.188A more detailed summary of the company structure is available in Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [6].189 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [13].190 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [22].191 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [40].192 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [64] and [83].193 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [58]–[61].194 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [69].



liable must be determined in accordance with nationallaw.195 The ECJ therefore decided to set aside that part ofthe judgment.Secondly, concerning Reyrolle’s appeal, Reyrolle

argued that the GC should not have calculated a singlestarting amount in its case, based on the turnover andmarket share of the group which was formed later.Instead, two separate starting amounts should have beenestablished for Reyrolle, one when it was owned byRolls-Royce and another when it was part of VA Tech.196

This was rejected by the ECJ.197 The court held that theGC was entitled to establish a single starting amount forthe undertaking formed by the VA Tech group on thebasis of turnover for 2003, the last full year ofinfringement and then to apportion liability for theinfringement committed by the various companiesaccordingly. The reasoning was that Reyrolle alone hadbeen held responsible for the earlier period (notRolls-Royce). Then Reyrolle had continued to participatein the infringement in VA Tech.198

Thirdly, as regards the appeal by SEHV and Magrini,it may be recalled that the GC had varied the fine imposedjointly and severally on SEHV, Magrini and Schneider,increasing it from €4.5 million to €8.1 million. The GCannulled the fine to be paid by Schneider alone (€3.6million) and incorporated that amount into the fine forwhich Schneider, SEHV and Magrini were jointly andseverally liable. The GC had also noted that the fine didnot increase for Schneider as they had not contested theEC decision and were therefore not before the court.199

The ECJ held that the GC had exceeded its powers invarying the fine. The ECJ stated that the EU Courts areempowered to exercise unlimited jurisdiction where thequestion of the amount of the fine is raised before them.200

However, since the fine imposed on Schneider had notbeen submitted to the General Court for its appraisal, itcould not form part of the subject-matter of the appealvis-à-vis SEHV and Magrini.201

The court ruled therefore that the GC had ruled ultrapetita in bundling the fine imposed specifically onSchneider with those fines for which SEHV andMagriniwere held jointly and severally liable.202

Heat Stabilisers

Box 8

Cartel appeals—Heat Stabilisers•

Cartels re tin stabilisers and ESBO/esters used in PVC produc-tion.

—

Meetings in Switzerland “animated” by someone in AC-Treuhand.

—

GC established core description of infringement which wasthen applied to reject various appeals.

*

Questions of prescription:—

Had EC the ruled in time? (EC had thought time stopped“erga omnes” during Akzo/Akcros appeal, but EuropeanCourt had said no.)

*

The GC said yes on facts. Claims rejected by GC.*

Questions of individuality of fines on companies:—

e.g. Elf Aquitaine: Fine for deterrence only on parent;having sold Arkema/CECA subsidiaries.

*

“Real” fine on AC-Treuhand for facilitating cartel upheld.—

EC entitled to find two infringements.—

Meetings of two cartels separate.*

Members of one cartel were in fact purchasers of the other,so could not argue the two cartels were part of an overallplan.

*

In February 2014, the GC delivered three rulingsrejecting appeals relating to theHeat Stabilisers cartel.203This was followed by further judgments in March andMay 2014.204 The EC decision, adopted in November2009, found two infringements, one regarding tinstabilisers and another regarding ESBO/esters.The main cases of interest are as follows:

Elf AquitaineElf Aquitaine was not itself a participant in the cartel, butwas held liable as the parent company of Arkema Franceat the time of the infringement, which in turn was theparent company of CECA, which directly participated inthe infringement.205 The GC rejected Elf Aquitaine’sappeal.First, Elf Aquitaine argued that the EC could not

impose fines in the case, because of prescription. ElfAquitaine argued that the evidence did not show that thecartels extended beyond November 1999 (the EC’sdecision was in November 2009). After a detailed review,the court rejected those claims.206

195 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [70].196 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [87].197 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [95].198 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [92]–93].199 See Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [116] and [117] for a summary of the GC judgment.200 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [126].201 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [128].202 Siemens (C-231/11 P to C-233/11 P) EU:C:2014:256 at [129]–[131].203With thanks to Hanna Pettersson for her assistance with this section.204 See also Faci SpA v Commission (T-46/10) EU:T:2014:138; and Reagens SpA v Commission (T-30/10) EU:T:2014:253.205 See Elf Aquitaine SA v Commission (T-40/10) EU:T:2014:61; and Arkema France and CECA SA v Commission (T-23/10 and T-24/10) EU:T:2014:62.206Elf Aquitaine EU:T:2014:61 at [225]–[273].



Secondly, Elf Aquitaine argued that the fact that it hadbeen informed of the investigation first in July 2008, morethan two years after Arkema had left the ElfAquitaine/Total Group had infringed its defence rights,because it did not have access to all the elementsnecessary to show the full autonomy of Arkema on themarket.207

However, the court rejected those claims on the basisthat they were just affirmations not supported by concreteelements.208 Further, the EC had been entitled to send arequest for information in July 2008, rather than in 2003as the EC carried out its inspections of Elf Aquitaine’ssubsidiary. The EC was not required to inform all partiesto an enquiry as soon as it started.209

Thirdly, Elf Aquitaine argued that the administrativeprocedure (from the inspections in 2003 to the ECdecision in 2009) had been too long, denying its defencerights. The court disagreed, noting that the period ofinvestigation for Elf Aquitaine was only one year andfour months (from the request for information in July2008 until the decision in November 2009) and that ElfAquitaine had not shown, even if the proceedings weretaken from 2003, how that had concretely affected itsdefence rights.210

Fourthly, Elf Aquitaine argued that the EC had beenwrong to take into account the worldwide turnover of ElfAquitaine and increase its fines in order to ensure adeterrent effect. This had not been done with either of itssubsidiaries, Arkema or CECA. Elf Aquitaine complainedthat, if it was considered to constitute one undertakingwith Arkema and CECA, the EC could not increase onlythe fine on Elf Aquitaine and not that on the other twoundertakings.The court disagreed, noting that Arkema and CECA

had ceased to be in the same undertaking as Elf Aquitainein May 2006, after the infringement, but before thedecision. In such circumstances, assessment of their sizefor purposes of the deterrent effect of the fine wasdifferent.211

The court also noted that it was quite possible for sucha fine increase only to be applied to one of the companiesin a single undertaking and for the liability of companiesin a single undertaking to be specified.212

Fifthly, Elf Aquitaine objected to the fact that the EChad imposed three different fines on the three companies,claiming that this was contrary to the notion of a singleundertaking. Again the court rejected this claim, recalling

that the imposition of different fines on the differentcompanies in a group does not constitute a violation ofthe notion of a single undertaking.213

Finally, Elf Aquitaine argued that the EC had nolegitimate interest in finding an infringement in the past.The EC had made a finding in its decision thatArkema/CECA had been part of the tin stabilisers cartelbetween 1994 and 1996, then left the cartel, only later torejoin the same cartel, participating in it until the end inthe year 2000. The EC had not fined Arkema/CECA forthis earlier period, however.The EC stated that the finding was appropriate with a

view to discouraging repeat infringements byArkema/CECA and in the interest of enabling any injuredparties to bring matters before national civil courts. Thecourt agreed and held that when an undertaking hasrejoined the same cartel, this is, in itself, a sufficientground for a legitimate interest in finding that aninfringement has been committed in the past.214

AC-TreuhandIt may be recalled that AC-Treuhand is a Swissconsultancy, which was formerly Fides. In its decisionthe EC held AC-Treuhand liable for organising andfacilitating the cartel meetings of the members in the heatstabiliser cartels. The EC imposed two fines of €174,000,one for each infringement. AC-Treuhand appealed.In February 2014, the GC rejected that appeal.215 There

is much overlap with the Elf Aquitaine and Arkemajudgments. The main points of interest, relating toAC-Treuhand’s position, are set out below:First, AC-Treuhand argued (as it had done as regards

theOrganic Peroxides cartel216), that the EC had breachedart.101 TFEU and the principle of legality by holdingAC-Treuhand liable for the cartel, even though it had notparticipated in the anti-competitive agreement. The courtheld that its previous finding in AC-Treuhand I217 applied,and that it was clear that art.101 TFEU applies also toAC-Treuhand’s conduct, contributing actively andintentionally to a cartel between producers active on adifferent market to the service market on whichAC-Treuhand operated.218

Secondly, AC-Treuhand claimed that the EC shouldhave imposed only a symbolic fine on AC-Treuhand,such as it had previously in the Organic Peroxides case.It would appear that AC-Treuhand’s idea was that the

conduct in question was before the EC’s OrganicPeroxides decision and therefore, in both cases, the court

207Elf Aquitaine EU:T:2014:61 at [43].208Elf Aquitaine EU:T:2014:61 at [43] and [75]–[83].209Elf Aquitaine EU:T:2014:61 at [70].210Elf Aquitaine EU:T:2014:61 at [104]–115].211Elf Aquitaine EU:T:2014:61 at [305], [350] and [355]–[357].212Elf Aquitaine EU:T:2014:61 at [317]–[318].213Elf Aquitaine EU:T:2014:61 at [376]–[378].214Elf Aquitaine EU:T:2014:61 at [392]–[394].215AC-Treuhand AG v Commission (T-27/10) EU:T:2014:59.216COMP/E-2/37.857 Organic Peroxides, EC Decision of December 10, 2003.217AC-Treuhand v Commission (T-99/04) [2008] E.C.R. II-1501; [2008] 5 C.M.L.R. 13.218AC-Treuhand EU:T:2014:59 at [43]–[44].



should have only imposed a symbolic fine, only finingfor conduct after that decision. However, the courtdisagreed, noting that, while the 2006 Fining Guidelinesallow the EC to impose only a symbolic fine (on the basisof art.36 thereof), they do not oblige the EC to do so.219

The fact that the EC had imposed only a symbolic fineon AC-Treuhand in the Organic Peroxides case did notmean it was obliged to do so again.220

Thirdly, AC-Treuhand argued that the EC had beenwrong in deviating from the methodology in the 2006Fining Guidelines (using art.37 thereof), when it refusedto take into account in the calculation of the fines onlythe value of the sales of the services specifically relatedto the infringements.The court disagreed, finding that if the EC only had

taken into account the values of the sales of the servicesdirectly related to the infringements, the amount of thefine would not have been representative of the impact ofthe cartel on the heat stabilisers markets and of theparticipation of AC-Treuhand in the cartels. The specificcircumstances of the case, thus allowed, even obliged,the EC to deviate from the methodology in the 2006Fining Guidelines.221

Fourthly, AC-Treuhand argued that the EC had beenwrong in considering that there were two separateinfringements and not one single and continuousinfringement. AC-Treuhand claimed that there was onlyone infringement and that the two fines imposed violatedart.23(2) of Regulation1/2003, since they exceeded the10 per cent cap provided for in that provision.The court rejected this after a detailed review.222 What

appears to have been a decisive point was that certaincompanies were suppliers of tin stabilisers (in one cartel),yet purchasers of ESBO/esters stabilisers (in the othercartel).223 The court noted that, in such circumstances(amongst others), it was not possible to see the twoinfringements as part of an overall plan, withcomplementary links.

LCD PanelsIn February 2014, the GC ruled on two appeals relatedto the LCD Panel cartel case.224 It may be recalled that inDecember 2010 the EC adopted a decision addressed tosix international manufacturers of LCD panels.225 Thedecision related to LCD panels equal or greater than 12inches in size and included LCD panels for informationtechnology (LCD-IT) and LCD panels for televisions(LCD-TV). The manufacturers were found to haveparticipated in a single and continuous infringement,having held multilateral meetings known as the “Crystal

meetings”, where they fixed prices. The manufacturerswere also found to have engaged in bilateral exchangesof information.For the purposes of calculating the fine, and more

particularly the value of sales, the EC established threecategories of sales made by the cartel participants:

1. “Direct EEA sales”: sales of cartelised LCDpanels to another undertaking in the EEA.

2. “Direct EEA sales through transformedproducts”: sales of cartelised panelsincorporated into finished products, withinthe group to which the producer belongs,which were then sold to anotherundertaking within the EEA.

3. “Indirect sales”: sales of cartelised LCDpanels to another undertaking outside theEEA, which then incorporates the panelsinto finished products which it sells withinthe EEA.

The EC then stated that it only needed to take into accountthe first two categories, as the inclusion of the thirdcategory was not necessary for the fines imposed toachieve a sufficient level of deterrence. (It will beapparent that the latter also raises issues of extra-territorialjurisdiction.)The addressees of the decision were Korean and

Taiwanese manufacturers of LCD panels. Japaneseundertakings which had participated in the cartel werenot included in the decision since the EC found that itlacked sufficient evidence to hold them liable for aninfringement. However, the EC stated that theinvestigation against those undertakings continued afterthe decision against the Korean and Taiwaneseundertakings was adopted.

InnoLux CorpOne of the two judgments related to an appeal by InnoLuxCorp, formerly Chi Mei Optoelectronics of Taiwan.226

The main points of interest are as follows:First, InnoLux claimed that the EC was wrong to take

into account sales of finished products, such as televisionsor tablets, even though the established infringementrelated only to LCD panels. The court disagreed, notingthat the EC was entitled on the 2006 Fining Guidelinesto take into account sales in the relevant market, whichis the market concerned by the infringement.The court noted that the EC did not take into account

the full value of the finished products, but only theproportion which corresponded to the value of thecartelised LCD panels.227 Moreover, the court stated that

219AC-Treuhand EU:T:2014:59 at [287]–[288].220AC-Treuhand EU:T:2014:59 at [290].221AC-Treuhand EU:T:2014:59 at [302]–[304].222AC-Treuhand EU:T:2014:59 at [246]–[259].223AC-Treuhand EU:T:2014:59 at [253], [257]–[258].224GC Press Release 29/14 (February 27, 2014).225Case COMP/39.309, Liquid Crystal Displays, EC Decision of December 8, 2010, C(2010)8761 final. With thanks to Hanna Pettersson for her assistance.226 InnoLux Corp v Commission (T-91/11) EU:T:2014:92; [2014] 4 C.M.L.R. 23.227 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [45].



if the EC had not made use of the concept “direct EEAsales through transformed products”, it would not havebeen able to take into account, in the calculation of thefine, of a considerable proportion of the sales of cartelisedLCD panels made by cartel participants, which belongedto vertically integrated undertakings although those saleswere harmful to competition within the EEA.228 The courtalso noted that the internal sales of cartelised LCD panelsto undertakings participating in the cartel were made atprices affected by the cartel.229

Secondly, InnoLux argued that the EC’s use of theconcept “direct EEA sales through transformed products”allowed the EC to exceed the limits of its territorialjurisdiction. The court again disagreed, holding that thecartel had been implemented in the EU through the saleof products in the EEA by the undertaking concerned.230

When the cartelised LCD panels made by InnoLux wereincorporated into finished products by companiesbelonging to the same undertaking and those productswere sold in the EEA by that undertaking, the cartelaffected transactions which took place up to and includingthe moment of that sale.231

Thirdly, InnoLux argued that the use of the concept“direct EEA sales through transformed products” exposedInnoLux to discriminatory treatment in comparison toother participants in the cartel.InnoLux claimed that it had been discriminated against

as compared with Samsung. When Samsung deliveredcartelised LCD panels to its subsidiaries within the EEA,which incorporated these panels into finished products,these sales were taken into account as “direct EEA salesthrough transformed products” only when the finishedproducts were sold in the EEA. By contrast, whenInnoLux sold cartelised LCD panels to the same SamsungEuropean subsidiaries, they were taken into account as“direct EEA sales”, even if the finished products weresold outside the EEA.InnoLux argued that the sales therefore had not left the

“circle of cartel members” and had then left the EEA.232

The court rejected this, noting that the key point was thatInnoLux had sold to Samsung, a separate undertaking inthe EEA.233

Fourthly, InnoLux had also claimed that it had beentreated less favourably than the cartel participants AUOptronics and LG Display, because the EC applied onlythe concept of “direct EEA sales” to them. However, thecourt rejected this, noting that the key difference in their

cases was that they had sold LCD panels to relatedundertakings outside the EEA which were not within thesame undertaking.234

The court’s point here was also that the same ruleswere applied to all the companies concerned, albeit thatthey had a different impact, given the nature of eachcompanies’ sales structures.235

Fifthly, InnoLux argued that the EC had been wrongto conclude that the infringement extended to LCD-TVpanels. However, the court reviewed the evidence andnoted that there was a “link of complementarity” betweenthe cartel participants’ behaviour as regards the twocategories of cartelised LCD panels.236

The court concluded that the decisions taken and theexchanges of data concerning LCD-TV panels were partof the same overall plan as the exchanges relating toLCD-IT panels and, consequently, part of the same singleand continuous infringement.237

This is quite a wide ruling, because InnoLux was noteven making LCD-TVs when data on them was firstexchanged in the “Crystal meetings”. However, the courtfound it could take advantage of such exchanges when itexpanded its business to such screens.238

Sixthly, InnoLux explained to the court that it hadmistakenly submitted an inaccurate value of sales, as ithad included sales relating to categories of LCD panelsother than those covered by the contested decision.239

InnoLux therefore requested the court to reduce its fineaccordingly.The EC agreed that there should be a reduction.

However, the EC indicated that it had rounded down thecartel participants’ fines, while ensuring that the gain wasnot more than 2 per cent.240

The EC proposed that the same approach be appliedto the original fine amount, when making the correction,not that already rounded down, if not there would be“double rounding”. The court agreed and followed theEC’s method, reducing InnoLux’s fine from €300millionto €288 million.241 The court noted that the approach hadbenefitted those concerned “admittedly to a differingdegree”, but considered it appropriate to avoid unequaltreatment here.242

228 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [46].229 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [48].230 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [66].231 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [70]–[75].232 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [81].233 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [84]–[85].234 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [90].235 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [80].236 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [118].237 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [123].238 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [126].239 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [155].240 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [160].241 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [173].242 InnoLux Corp EU:T:2014:92; [2014] 4 C.M.L.R. 23 at [166].



LG DisplayThe second judgment related to the appeal by LGDisplay,a group established in Korea and Taiwan.243 The mainpoints of interest are as follows:First, LG Display (“LGD”) argued that the EC had

wrongly included sales between LGD, a joint venturebetween LG Electronics and Philips and its parents. Thejoint venture was owned initially 50 per cent each, withtheir shareholdings reduced to 37.9 and 32.87 per cent in2004. The infringement had been found from 2001 to atleast February 2006. LGD’s sales had been included as“direct sales to the EEA”.In the SO, the EC had treated LGE and Philips as

jointly and severally liable for LGD. However, in itsdecision the EC found only LGD liable.244 The ECtherefore treated the sales as to independent third parties.Further, in order to show that the sales to LGE and

Philips were linked to the cartel, the EC had relied on thefact that: (1) sales of cartelised LCD panels to customerswere part of the cartel discussions; and (2) that prices forsales to those customers were influenced by the existenceof cartelised prices.245

The court reviewed those elements and agreed withthe EC. The GC found that LGD’s sales of cartelised LCDpanels to LGE and Philips were made on the marketconcerned by the infringement.246 The EC also had proofthat sales to such related companies had been part of thecartel discussions. The court also found that the EC hadshown that LGD’s sales to LGE and Philips were affectedby the cartel.247

Secondly, LGD claimed that the EC had been wrongin refusing to grant the applicants partial immunity fromfines pursuant to the final paragraph of point 23(b) of the2002 Leniency Notice. Notably insofar as the EC hadrelied on many of the documents which LGD producedin its decision.However, the court disagreed, noting that the criterion

for this provision is that a company gives the EC newinformation, meaning evidence, allowing it to make newfindings as to the gravity or the duration of theinfringement.248 In this case, LGD had not been the firstto provide such evidence, so it could not obtain immunity,although it had been rewarded for its co-operationotherwise under the 2002 Leniency Notice.249

Thirdly, LGD argued that the EC had been wrong innot taking into account the partial immunity granted whencalculating the average sales for the basic amount of fine.The EC had granted LGD partial immunity for January2006 and therefore had applied to it a lower multiplier

for duration than for the other participants of the cartel.However, the EC had calculated the average sales overthe whole infringement period, including January 2006.The court agreed with LGD that its sales in that month

should not have been taken into account.250 As a result,the court reduced LGD’s fine from €215 million to €210million.Fourthly, LGD argued that the EC should have also

brought proceedings against Japanese suppliers of LCDpanels (InnoLux made a similar claim). The courtdisagreed. Essentially, the court found that the EC wasentitled to focus in its action on the “Crystal meetings”in which the Japanese had not been involved. If there hadbeen complementary action by Japanese suppliers, theEC could have sought to show a single and continuousinfringement. However, if the EC did not have evidenceof such an overall plan and common methods, it was notprevented from acting on what it did have.251

Car Glass

Box 9

Cartel appeals—Car Glass:•

Saint-Gobain:—

GC ruled that recidivism could be found 13 years and 8months after first infringement decision, if it was the samebusiness unit and the same type of infringement.

*

BUT no recidivism if parent company not previouslysanctioned.

*

Soliver:—

Bilateral contacts of an anti-competitive nature found, butno participation in the overall plan of the single and contin-uous car glass infringement.

*

Decision annulled.*

Saint-GobainIn November 2008, the EC adopted its decision in the carglass cartel, which it found to involve the sharing ofdeliveries among car glass producers by co-ordinatingtheir bids. Saint-Gobain and its parent company (“theCompagnie”) were found to have participated in the cartelfromMarch 1998 until March 2003 and were held jointlyand severally liable for a fine of €896million. In February2009, the EC lowered the fine to €880 million becausethe sales which it had taken into account for thecalculation of Saint-Gobain’s fine were too high.In March 2014, the GC ruled on the appeals by

Saint-Gobain and the Compagnie against the EC’sdecision.252

243 LG Display Co Ltd v Commission (T-128/11) EU:T:2014:88; [2014] 4 C.M.L.R. 24.244 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [18].245 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [63].246 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [69].247 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [89].248 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [165]–[167].249 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [189]–[190].250 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [203].251 LG Display EU:T:2014:88; [2014] 4 C.M.L.R. 24 at [222]–[231].252 Saint-Gobain Glass France SA v Commission (T-56/09 and T-73/09) EU:T:2014:160. With thanks to Philip Claessens for his help with this section.



The main interest in the cases relates to the onlysuccessful ground of appeal, which concerned the EC’sfinding of recidivism. In its decision, the EC had increasedthe basic amount of the fine by 60 per cent (i.e. two times30 per cent) in order to account for the Saint-Gobaingroup’s participation in two previous infringements: theBenelux Flat Glass cartel (an EC decision from 1984253)and the Italian Flat Glass cartel (an EC decision from1988254). Crucially, the Benelux decision was addressedto, among others, the Compagnie, whereas the Italiandecision was neither addressed to the Compagnie, nor toSaint-Gobain (but instead to Fabbrica Pisana, a subsidiaryof the Compagnie).The GC ruled that a finding of recidivism requires the

same person to commit a new infringement, after havingbeen previously sanctioned for a similar infringement andthat the Italian decision therefore should not have beentaken into account in a finding of recidivism vis-à-vis theCompagnie, because the Compagnie was not among theaddressees of that decision.255

The GC rejected the EC’s arguments that theCompagnie constituted a single economic unit withFabbrica Pisana at the time of the Italian decision in 1988(based on the presumption of decisive influence in caseof a 100 per cent shareholding), that the EC could havefined it then had it so wished and that the Compagnie wasgiven the opportunity to rebut that presumption in theproceedings leading to the 2008 decision.The GC noted that it is fundamental that a parent

should have the right to rebut the presumption ofcontrol/liability, that many years may have passedbetween the finding of an infringement and the subsequentfinding of a single economic unit, in which case it is moredifficult, if not impossible, for the parent company tocontest the existence of a single economic unit.256

The EC is therefore not allowed to apply thepresumption of control ex post, after the adoption of thedecision in which it found an infringement. It is alsofundamental that a finding of infringement be addressedto a specific undertaking. Since these conditions had notbeen met, the parents could not be held liable forrecidivism.As regards the claims by Saint-Gobain and the

Compagnie that there could not be a finding of recidivism,where more than 10 years have elapsed between aprevious finding of an infringement and the beginning ofthe repeated infringement, the GC noted that the EC isnot bound by any such time-limit and the appreciation of

a company’s propensity to reoffend, the basis for arecidivism increase, is something which the EC has toassess in all the circumstances.257

The court then itself considered whether the Beneluxdecision, which was 13 years and 8 months before thebeginning of the Car Glass infringement, should be thebasis for recidivism. It held that was the case because thesame business unit was involved and it was the same typeof infringement.258

In view of the reduced scope of the recidivism, withonly the Benelux decision being taken into account, theincrease in the basic amount of the fine was reduced from60 to 30 per cent, leading to a reduced fine of €715million.

SoliverIt may be useful to recap that in its decision in November2008, the EC fined four car glass producers a total of€1.384 billion for a cartel in the car glass sector.259 TheEC found that, during various periods between March1998 andMarch 2003, the companies had discussed targetprices, shared markets and allocated customers. Soliverwas fined some €4.39 million.The EC identified 37 meetings and 52 other contacts

between the three larger car glass producers(Saint-Gobain, Pilkington and Asahi) from 1998 to 2003,deciding that there was single and continuous collusioncovering the entire EEA. The EC found that Soliver (thesmallest competitor of this group) only took part in someof these discussions between November 2001 andMarch2003. Nevertheless, Soliver was still found to haveparticipated in the whole infringement.Soliver appealed. In October 2014 the GC issued its

judgment annulling the EC’s decision as regards Soliver.260

This is an interesting judgment. Despite evidence ofcertain anti-competitive bilateral contacts between Soliverand two of its competitors, the court found that the EChad failed to show that Soliver knew, or should haveknown, that these collusive contacts were framed withina wider cartel covering the entire EEA car glass market.The GC recalled that the EC had to show not only the

anti-competitive nature of Soliver’s contacts with the twocompetitors, but also that Soliver was aware that thosecontacts were intended to contribute to the overall planof the cartel and the general scope and essentialcharacteristics of the cartel.261

The court reviewed first the evidence of Soliver’sinfringement and then the evidence of Soliver’sparticipation in the overall cartel.262

253EC Decision 84/388 relating to a proceeding under Article [81 EC] (Case IV/30.988 — Agreements and concerted practices in the flat-glass sector in the Beneluxcountries) [1984] OJ L212/13.254EC Decision 89/93 relating to a proceeding under Articles [81 EC] and [82 EC] (Case IV/31. 906, flat glass) [1989] OJ L33/44.255 Saint-Gobain EU:T:2014:160 at [305] and [314]–[315].256 Saint-Gobain EU:T:2014:160 at [318]–[319].257 Saint-Gobain EU:T:2014:160 at [325]–[326].258 Saint-Gobain EU:T:2014:160 at [331]–[334].259Case COMP/39.125, Carglass, EC Decision of November 12, 2008, as amended by Decision C(2009)863, final of February 11, 2009.260 Soliver NV v Commision (T-68/09) EU:T:2014:867; [2014] 5 C.M.L.R. 24. With thanks to Geoffroy Barthet for his assistance.261 Soliver EU:T:2014:867; [2014] 5 C.M.L.R. 24 at [67].262 Soliver EU:T:2014:867; [2014] 5 C.M.L.R. 24 at [82]–[106].



The court noted that Soliver did not participate in twomeetings where the other larger competitors assessed theoperation of the cartel. The applicant was also notmentioned in the draft market share tables drawn up bythe big three producers of car glass in those meetings.The GC reviewed the documents seized during a dawnraid in the applicant’s premises (internal notes, recordsof telephone conversations, handwritten notes). The courtalso considered a passage in a leniency statementsuggesting that Soliver was a third party to the cartel andnot involved in a compensation system between the threelarger suppliers.The implication of all this was that, although Soliver

may have participated in certain anti-competitive conduct,it was not proved that it was a party to the overall planof the collusion between the three larger car glassproducers.The court then considered whether it could partially

annul the EC’s decision. However, since the decision wasformulated only as a single and continuous infringement,the court found it could not do so (and therefore couldnot still find more specific separate infringements).263

Italian Raw TobaccoIn June 2014, the ECJ ruled on a further appeal byDeltafina against the GC’s judgment upholding a fine of€30 million on Deltafina.264

It will be recalled that Deltafina was one of severalprocessors of raw tobacco on the Italian market. InMarch2002, Deltafina sought immunity from the EC, disclosinga cartel. However, shortly after, Deltafina also told theEC that it would have to divulge its immunity applicationat an association meeting, before the EC undertookplanned inspections in the case. Deltafina argued that inits meeting with the EC and a subsequent call the ECaccepted that Deltafina would have to disclose itsapplication. The EC denied any authorisation.Subsequently, Deltafina disclosed its application, but

did not inform the EC that it had done so. It came outonly later at the hearing of the case.The EC then found that Deltafina had breached its

obligation to co-operate with the EC by divulging theapplication and not informing it of that. The EC thereforeonly granted Deltafina a 50 per cent fine reduction for itsco-operation.On appeal, the GC upheld the EC’s approach. Notably,

the court took the view that voluntary and unsoliciteddisclosure of the applicationwas sufficient to show breachof the duty to co-operate, unless Deltafina could establishthat the EC had expressly authorised the disclosure (whichthe court found not to be the case).

Before the ECJ, Deltafina argued that the way the courthad reached that conclusion was flawed. Notably, thecourt had ex post reconstructed the facts in question and,at the hearing, the GC had taken oral testimony fromDeltafina’s lawyer and the EC official in charge of thecase, without proper witness statements.The ECJ agreed that the taking of evidence in that way

was wrong, since the questions concerned facts whichwere contentious and in dispute between the parties265 butfound that, in any event, based on the written evidence,the GC was entitled to find that Deltafina had notexpressly communicated that it planned voluntarily todisclose its co-operation, or that the EC had authorisedit.266

Deltafina also argued unreasonable delay before theGC. Again the ECJ agreed, noting that three years andseven months had elapsed between the end of the writtenprocedure and the hearing and that the overall proceedingsbefore the GC had lasted five years and eight months.However, again the court stated that a related claim fordamages had to be brought before the GC.267

Carbonless PaperInMay 2014, the ECJ ruled on a further appeal by Bolloréin the Carbonless Paper cartel case.268 It may be recalledthat this is the second round of judicial review in this casefor Bolloré. Bolloré succeeded in the first round, insofaras it challenged the way that the EC had decided thatBolloré was directly liable for an infringement, althoughit had been implicated in the SO only as parent of aninfringing subsidiary.However, the EC then reissued a new SO and took a

new decision, dealing with its direct liability. Bolloré’sarguments here centredmainly on the length of the overallproceedings and whether that had affected the exerciseof its rights of defence. The ECJ rejected its claims.

Power TransformersIn May 2014, the GC ruled on an appeal by Toshibaagainst the EC’s decision in October 2009, imposing afine of €13.2 million on Toshiba.269

The underlying decision related to a gentleman’sagreement between various European and Japaneseproducers, to respect each other’s homemarkets. Toshibawas found to have participated at least from June 1999until May 2003. Power transformers are used to reduceor increase the voltage in an electrical circuit and are usedin power stations.The court rejected all Toshiba’s arguments. The main

points of interest were:

263 Soliver EU:T:2014:867; [2014] 5 C.M.L.R. 24 at [107]–[114].264Deltafina SpA v Commission (C-578/11 P) EU:C:2014:1742; [2014] 5 C.M.L.R. 12. With thanks to Svetlana Chobanova for her assistance.265Deltafina EU:C:2014:1742; [2014] 5 C.M.L.R. 12 at [62]. A.G. Sharpston’s Opinion in the case was published inMarch 2014, giving a fuller account as to what happenedat the hearing. See Opinion of A.G. Sharpston, Deltafina SpA v Commission (C-578/11 P) EU:C:2014:199; [2014] 5 C.M.L.R. 12 esp. [102]–[121].266Deltafina EU:C:2014:1742; [2014] 5 C.M.L.R. 12 at [63]–[66].267Deltafina EU:C:2014:1742; [2014] 5 C.M.L.R. 12 at [90]–[92].268Bolloré v Commission (C-414/12 P) EU:C:2014:301. With thanks to Virginia del Pozo for her assistance.269 Toshiba Corp v Commission (T-519/09) EU:T:2014:263.



First, the bulk of the judgment is taken up withevidentiary issues. Had the EC proved various elementsof the infringement? The court said yes.Secondly, it appears that Toshiba raised the issue as to

whether it would continue in the agreement in a cartelmeeting in September 2002, because it was forming ajoint venture with another company. However, that wasnot found to be effective distancing from the cartel, soToshiba was found to have continued therein, until thecartel was wound up in another meeting in May 2003.The GC found that Toshiba could not say that it had

ceased to participate in October 2002, as the joint venturewas established, because it had not informed the otherparticipants that it was withdrawing before the meetingofMay 2003. Nor had it informed the others that the jointventure would not participate.270

Thirdly, Toshiba argued that the EC had not shown arestriction on competition, insofar as it claimedinsurmountable barriers precluded the entry of Japaneseproducers on to the European market. The court rejectedthis, noting, as the EC had, that the infringementconcerned was a restriction by object. As a result, the ECdid not have to show effect.Interestingly, Toshiba’s response was that, even if the

gentleman’s agreement was unlawful by nature, it couldnot be caught by art.101 TFEU, if it was not capable ofappreciably restricting competition in the EU, which, itargued, was the case here because the Japanese producerswere not competitors of the European producers in theEuropean market.The court noted that, “admittedly”, an agreement had

to be examined not only for its content, but also in itseconomic context, referring to the Irish Beef case.271However, the court then did so and noted that there wasevidence, not only of potential competition by Japaneseproducers, but even actual competition, a sale of powertransformers to European customers by Hitachi.272

Fourthly, Toshiba objected to the way that the EC hadused para.18 of the 2006 Fining Guidelines to establishits fine. The point was that Japanese producers had nosales in the EU. The EU therefore took the market sharesof the undertakings on the worldwide market and appliedthat to the aggregate sales of the undertakings in the EEA.Toshiba argued that the EC should have looked at its salesin Europe and Japan, since that was the geographic scopeof the gentleman’s agreement. The GC upheld the EC’sapproach, based on the wording and object of para.18.273

Candle Wax

Box 10

Cartel appeals—Candle Wax•

Sasol:—

Fine reduced from €318 to €150 million.*

Avebe applied: Assessing liability in a joint venture has tobe based on factual assessment, not review of the corporatedocuments as in merger control.

*

Part of fine reduced because of unequal treatment (in a firstinfringement period): those controlling not found liable,whereas later Sasol was found liable for its control (in athird infringement period). (Sasol still liable as economicsuccessor for the first period, but fined less.)

*

Fine also reduced (in a second infringement period) becauseEC found Sasol controlled a joint venture when GC consid-ered that was not the case.

*

GC then reset fine in its unlimited jurisdiction*

RWE:—

Avebe again applied: RWE not shown to have joint controlof joint venture with Shell.

*

Esso:—

If A merges with B and AB is then fined, A not having in-fringed before the merger, but B has done so, AB’s finehas to be split in time, including only B’s sales for the ear-lier period, before the merger.

*

SasolIn July 2014, the GC gave its judgment in Sasol.274 In theEC’s decision, Sasol was fined €318 million for itsparticipation in the Paraffin Waxes and Slack Wax cartel.The GC reduced the fine to €150 million.It may be useful to start by noting the structure of the

Sasol group over the period of the infringement, as setout in the EC’s decision. The EC distinguished threeperiods: first, the period from September 1992 until April2002 (the so-called “Schumann period”), the period fromMay 1995 until December 2002 (“the joint ventureperiod”) and the period from January 2003 until April2005 (“the Sasol period”).During the Schumann period, the relevant business

involved in the infringement, Hans-Otto Schumann(“HOS”), was controlled by a Mr Schumann personallythrough a holding company, Vara. In the EC Decision,however, neither Vara nor Mr Schumann was held liablefor the infringement. Instead Sasol, which later acquiredthe business, was held responsible, as owner of thatbusiness.During the joint venture period, Sasol acquired

two-thirds of HOS (and the latter was renamed SchumannSasol, then Sasol Wax). Schumann Sasol was a 99.9 percent subsidiary of the parent company, Schumann Sasol

270 Toshiba EU:T:2014:263 at [205]–[221].271Competition Authority v Beef Industry Development Society (C-209/07) [2008] E.C.R. I-8637; [2009] 4 C.M.L.R. 6 at [16].272 Toshiba EU:T:2014:263 at [225]–[235].273 Toshiba EU:T:2014:263 at [270]–[277].274 Sasol v Commission (T-541/08) EU:T:2014:628; [2014] 5 C.M.L.R. 16. With thanks to Thomas Jones for his assistance.



International. One-third of Schumann Sasol Internationalwas held by Vara and two-thirds were held by SasolHolding in Germany.During the joint venture period, various Sasol

companies were held jointly and severally liable. Theywere also found to exercise decisive influence overSchumann Sasol. Vara (which held one-third ofSchumann Sasol International) and the Schumann family(which owned Vara) were not held liable for theinfringement.During the Sasol period, the Sasol group had acquired

the remaining one-third of Schumann Sasol International,which had been owned previously by Vara. During thisperiod, various Sasol companies were held liable.On appeal, Sasol made various claims, but the main

point was to argue that it should not be liable for theSchumann period and not solely liable for the jointventure period. The GC agreed, in an interestingjudgment.The main points are as follows:First, the GC accepted that the EC wrongly concluded

that Sasol Ltd and Sasol Holding in Germany were liablefor the joint venture period.275 The GC found that theorganisational, financial and legal relationships betweenSchumann Sasol, on the one hand, and Sasol Ltd andSasol Holding in Germany, on the other, did not supportsuch a finding of decisive influence.The court found that the EC had based its decision on

an “abstract analysis of the documents” based on the EUmerger clearance rules,276 whereas it should haveconsidered what influence was exercised by the powersof the joint venture in fact.277 The court noted that, wherethe EC finds only one of the parent companies of a jointventure liable for a joint venture’s conduct, it must showthat the decisive influence on the joint venture’scommercial conduct was exercised unilaterally by thatparent company.278

However, the court considered that the EC had notdemonstrated this. The court found that the EC hadincorrectly assessed the evidence in concluding that thechairman of Schumann Sasol International’s managementboard did not represent Vara.The EC had also not shown that Sasol alone could

determine all the strategic commercial decisions of thejoint venture. Rather, the most important decisions hadto be adopted jointly by Sasol Holding in Germany and

Vara.279 Accordingly, the GC annulled the EC’s decisionas regards Sasol Holding in Germany and Sasol Ltd priorto July 2002.280

Secondly, the GC ruled that the EC had breached theprinciple of equal treatment in not finding Vara jointlyand severally liable for the Schumann period, even thoughHOS was controlled by Vara and ultimately by MrSchumann personally281 while finding Sasol groupcompanies jointly and severally liable for the infringementin the later Sasol period.As such, the EC had treated two comparable situations

differently. Moreover, the GC did not accept thatlimitation rules prevented bringing an equal treatmentargument against Vara and Mr Schumann,282 or that theEC could rely on its discretion in deciding which entitiesof an undertaking it finds liable for an infringement.283

Thirdly, the GC upheld the EC’s finding that Sasolplayed a leading role in relation to paraffin waxes.284

Among other things, the GC considered it significant thatSasol was considered to be the leader by the otherparticipants: notably Exxon sent an email expressing itsdesire to bring an end to its participation in theinfringement only to Sasol.285 Nor was the imposition ofa 50 per cent increase in the basic amount of the fineconsidered excessive, disproportionate ordiscriminatory.286

Finally, in exercise of its unlimited jurisdiction, thecourt limited the part of the fine imposed on Sasol Waxin respect of the infringement during the Schumann periodto 10 per cent of its turnover in 2007. Therefore, that partof the fine imposed amounted to €30.9 million.287

Similarly, the GC limited the fine imposed on Sasol Waxand Schumann Sasol International during the joint ventureperiod to 10 per cent of the turnover of Schumann SasolInternational in 2007. Therefore, that part of the fineimposed on Sasol Wax and Sasol Wax Internationalamounted to €48 million.288

Interestingly, the EC has since applied for rectificationof the GC’s fine assessment, arguing that it departed fromthe EC’s 2006 Fining Guidelines and was therefore toolow. The GC has rejected this, stating:

“[T]he difference between the amounts proposed bythe Commission and by the applicants and theamount set in the judgment at issue results not froman error in calculation, but from the Court’s choiceof a methodology that diverges on purpose from themethodology laid down in the 2006 Guidelines.”289

275 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [124]–[127].276 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [47].277 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [50].278 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [56].279 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [121].280 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [128].281 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [187].282 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [191].283 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [192]–[194].284 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [413].285 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [367] and [381].286 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [411].287 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [453].288 Sasol EU:T:2014:628; [2014] 5 C.M.L.R. 16 at [462].289Order of September 18, 2014, Sasol v Commission (T-541/08 REC) EU:T:2014:823 at [5] (MLex, September 30, 2014).



RWEIn July 2014, the GC gave its judgment in theRWE case.290

It may be recalled that RWE was fined €37.4 million.The EC found that RWE, as the owner of DeaMineraloel(“DEA”) was liable for the infringement from 1992 to2002 and then for a further period of some six monthswhen Shell had bought DEA, before taking full control.The main issue of interest was whether RWE should

be considered jointly liable for the period when DEAwasa joint venture. RWE argued that it should not, because,in fact, Shell had already taken control then, whereas theEC appears to have relied on its merger control decisionat the time that the joint venture was established, findingjoint control.The GC ruled that the EC had not proved joint control

in fact and annulled that part of the EC decision, reducingthe fine by 4.1 per cent to €35.8 million. As in Sasol, theGC found that the EC had conducted only an “abstractanalysis”, i.e. on the basis of the agreements signed bythe parents before the joint business started, whereas thecourt considered that in a number of ways Shell controlledthe management in the period concerned. Notably,decision-making and reporting to the parents was donein accordance with Shell’s existing structures and thechairman of the management board, who was appointedby Shell, had a casting vote.The GC stressed that an imputation of liability was not

the same as merger control. Here a closer assessment ofthe actual facts was required. The GC found that the EChad not shown joint action as had been found in Avebe.291The EC was entitled to rely on the provisions of the jointventure agreement being applied. However, the factualassessment may override that (and in this case, it led toa different result).292

Esso FranceIn July 2014, the GC gave its judgment in the Esso case.293It may be recalled that the EC had imposed a fine of €83million on Esso France, for which ExxonMobil was heldjointly and severally liable for €34million. On appeal theGC reduced Esso France’s fine to €63 million.There are two points of interest arising from the GC’s

judgment:First, the GC accepted Esso’s argument that the EC

should have taken into account the fact that Exxon hadnot participated in the infringement before theExxon/Mobil merger in November 1999when calculatingthe amount of Esso France’s fine.

In its decision, the EC had calculated Esso France’sfine, taking into account for the basic amount the valueof sales after the merger of the ExxonMobil group andmultiplying that value by the number of years in whichMobil participated in the cartel, when Exxon was not amember.The applicants objected to this for the period from

September 1992 to November 1999, when Mobil Francealone participated in the cartel.294

The GC agreed, finding that was a breach of theprinciple of equal treatment,295 art.23(3) of Regulation1/2003 and the principle of proportionality.296 The courtheld that where there has been a merger during the courseof a cartel and only one of the parties participated beforethe merger, the value of sales, during the last full year,of the entity resulting from the merger, multiplied by thenumber of years of the participation not only of that entity,but also of the party which participated alone in the cartelbefore the merger, could not constitute an “appropriateproxy to reflect the economic importance of theinfringement” for the entire duration of the participation(as it should).By multiplying the value of sales of the entity resulting

from the merger also by the number of years in whichonly one of the parties to the merger participated in theinfringement, the EC had artificially increased the basicamount of the fine in a manner which did not reflect theeconomic reality during the years preceding the merger.297

As a result, the GC reset the fines, taking MobilFrance’s sales in 2000 as the basic amount (1999 notbeing available) with a multiplier for its period ofinfringement (1992–1999); and ExxonMobil’s salesthereafter, for ExxonMobil’s basic amount for the periodit was responsible for the infringement (1999–2003).298

Secondly, practitioners may be interested in anevidentiary issue.299 It appears that, faced with a claim inExxon’s defence before the court that Exxon was notaware of the infringement before a certain date the ECproduced evidence attached to its rejoinder. Exxon wasnot invited to comment thereon by the court, but offeredcomments, when the GC asked written questions on otherissues.The parties then sought to have each other’s material

ruled inadmissible and/or excluded from the file.Interestingly, the court rejected both requests. The courtfound that the evidence was relevant to rebut allegationsraised in the defence and had been available to Exxon inthe administrative proceeding, so it was not new beforethe court.300

290RWE AG v Commission (T-543/08) EU:T:2014:62. With thanks to Hanna Pettersson for her assistance with this section.291RWE EU:T:2014:62 at [100]–[104]. See Avebe [2006] E.C.R. II-3085; [2007] 4 C.M.L.R. 1.292RWE EU:T:2014:62 at [112]–[116].293Esso Societé Anonyme Française v Commission (T-540/08) EU:T:2014:627; [2014] 5 C.M.L.R. 15. With thanks to Thomas Jones for his assistance.294Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [97].295Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [103].296Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [114].297Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [112].298Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [134]–[136].299Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [56]–[66] and [77]–[79].300Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [79].



Equally, Exxon’s comments thereon were relevant andthe court had not ruled on their admissibility, or askedExxon to comment on the EC’s evidence before thehearing. Having regard to the right to a fair hearing andeconomy of procedure, the court preferred that Exxon’scomments remain in the file.301An interesting result, sincethe issue as to what to do with apparently new evidencein the proceedings comes up quite often.

FastenersIt may be recalled that in September 2007, the EC adoptedits decision in the Fasteners cartel case, imposing a totalfine of €303.5 million on seven companies for theirparticipation in four different cartels. The YKK group,which had participated in three out of the fourinfringements, was fined a total of €150 million.302

As regards one aspect of the cartel, the so-called “BWAcoordination”, YKK Stocko was held to have participatedfrom 1991 until 2001 and was fined €68.25 million. Itsultimate parent undertaking, YKK Corp, and itsintermediate parent undertaking, YKK Holding, wereheld jointly and severally liable for €49 million of the€68.25 million, because they had acquired YKK Stockoin 1997. YKK Stocko was thus solely liable for a fine of€19.25 million, which corresponded to the 1991–1997period. In June 2012, the GC dismissed YKK’s appealand upheld their fine.303

In September 2014, the ECJ partially upheld YKK’sappeal against the GC’s judgment.304

There were twomain issues before the ECJ. First, YKKargued that the EC and the GC had infringed art.23(2) ofRegulation 1/2003, the principle of proportionality, theprinciple of equal treatment and the principle thatpenalties must be specific to the individual by applyingthe 10 per cent ceiling of art.23(2) to the YKK group asa whole for the entire fine, including the part of the finerelating to the 1991–1997 period, for which only YKKStocko was liable.YKK argued that YKK Stocko was the only entity that

was liable for the fine relating to the 1991–1997 periodand that therefore the 10 per cent ceiling had to be appliedto YKK Stocko’s turnover for that part of the fine andnot to the entire YKK group’s turnover. The amount of€19.25 million, which related to the 1991–1997 periodand for which only YKK Stocko was liable, amounted to55 per cent of YKK Stocko’s 2006 turnover.The ECJ agreed with YKK. The court indicated that

the notion of “undertaking participating in theinfringement” for the purposes of that provision musthave the same meaning as for the application of art.101

TFEU.305 Where an undertaking responsible for aninfringement of art.101 TFEU is acquired by anotherundertaking, but remains a distinct economic entity, theEC must take account of the specific turnover of each ofthose economic entities when applying the 10 per centceiling.306

The ECJ therefore reduced YKK Stocko’s fine for the1991–1997 period from €19.25 million to €2.8 million,which corresponded to 10 per cent of YKKStocko’s 2006turnover, less a 20 per cent leniency reduction (in linewith the reduction YKK as a group had benefited from).307

Secondly, YKK challenged the application of adeterrence multiplier to YKK Stocko for the 1991–1997period. The EC had applied a deterrence multiplier to theYKK group as a whole because of its greater financialresources as compared with YKK’s competitors.YKK argued that the EC erred in applying that

multiplier to YKK Stocko for the 1991–1997 periodbecause of its size and limited resources, arguing thatonly the resources and means of the undertakingresponsible for the infringement had to be taken intoaccount.The ECJ disagreed, stating that, whereas the purpose

of the 10 per cent ceiling is to adjust the fine to theeconomic capacity of the responsible undertaking, thepurpose of the deterrence multiplier is to deter theundertaking from infringing competition rules in thefuture. In order to produce a deterrent effect on theundertaking as it exists at the time of adoption of thedecision, account must be taken of the size and theresources of that undertaking at that time.308 The courttherefore ruled that the EC rightly applied the deterrencemultiplier to the YKK group as a whole for the entirefine.

Aluminium FluorideIn October 2014, the ECJ dismissed the appeal broughtby ICF309 against the GC’s judgment upholding the ECdecision to fine ICF for agreeing on target price increases,on the world market in aluminium fluoride. We notesimply that ICF argued that the GC had failed toadjudicate within a reasonable time (five years). As inthe Industrial Bags cases, the ECJ agreed that there hadbeen unreasonable delay, notably insofar there was somethree years between the end of the written procedure andthe hearing.310 However, again the court stated that thesanction for a breach of this obligation must be an actionfor damages brought before the GC.311

301Esso France EU:T:2014:627; [2014] 5 C.M.L.R. 15 at [62].302With thanks to Philippe Claessens for his assistance.303 YKK Corp v Commission (T-448/07) EU:T:2012:322; [2012] 5 C.M.L.R. 12.304 YKK Corp v Commission (C-408/12 P) EU:C:2014:2153; [2014] 5 C.M.L.R. 26.305 YKK Corp EU:C:2014:2153; [2014] 5 C.M.L.R. 26 at [59].306 YKK Corp EU:C:2014:2153; [2014] 5 C.M.L.R. 26 at [60].307 YKK Corp EU:C:2014:2153; [2014] 5 C.M.L.R. 26 at [97]–[99].308 YKK Corp EU:C:2014:2153; [2014] 5 C.M.L.R. 26 at [86], [90] and [91].309 Industries Chimiques du Fluor v Commission (C-467/13 P) EU:C:2014:2274. With thanks to Geoffroy Barthet for his assistance.310 ICF EU:C:2014:2274 at [59]–[60].311 ICF EU:C:2014:2274 at [57].



In Part 2, to be published in the next issue, John Ratliffwill outline:

Other court rulings:

on access to file, including EnBW in the ECJ;•

on EC requests for information, in the Cement investigation;•

a new leading judgment of the ECJ on restrictions by object (CartesBancaires); and

•

on art.102 TFEU issues, notably the Intel appeal before the GCand the Greek Lignite and Telefónica cases before the ECJ.

•

The author also summarises the EC decisions and settlements oncartels and other infringement issues, including theMotorola—Stan-dard Essential Patent case.



Dispute EscalationClauses in Englandand Wales: A NewHigh Water MarkNed BealeCara Gillingham

Arbitration clauses; Conditions precedent; Disputeresolution; Negotiations

IntroductionDispute escalation clauses, which oblige parties to engagein steps such as structured negotiation, conciliation ormediation aimed at settling the dispute prior tocommencing legal proceedings, are increasingly prevalentin long-term, high-value contracts, including joint venture,outsourcing, agency and many other commercialarrangements.Since 2002, when the English court first established

the principle that dispute escalation provisions can belegally binding,1 there have been several judgments whichprovide guidance on the limits of their enforceability.Uncertainty in this regard can result in time-consumingand expensive satellite litigation to determine whether ornot the clause has been satisfied. It is especially invidiouswhere the subsequent proceedings are referred toarbitration, because a failure to comply may providegrounds to challenge or resist enforcement of any awardissued.In Emirates Trading Agency LLC v Prime Mineral

Exports Private Ltd,2 the English court held that a clauserequiring parties to engage in “friendly discussion” priorto legal proceedings was enforceable. This is a high watermark decision which, in the authors’ view, extends theprinciple that dispute escalation provisions are enforceablefurther than any previous judgment, and so is importantfor any practitioner drafting or litigating a contractcontaining dispute escalation provisions. This articleexplains the Emirates Trading litigation and judgment,analyses it in the context of the different lines of Englishjudicial authority relevant to the decision and brieflyexamines how this compares to the position in otherjurisdictions.

Emirates Trading litigationThe claimant (Emirates) entered into a contract with thedefendant (Prime) in October 2007 whereby Emiratesagreed to purchase iron ore from Prime. Emirates failedto purchase the required amount of iron ore in the firstyear and Prime sought liquidated damages to the valueof US$1,472,800. The following shipment year Emiratesfailed to purchase any iron ore at all and Prime sent asecond notice terminating the contract and claimingUS$45,472,800 in liquidated damages. The notice statedthat if this was not paid within 45 days, Prime would referthe matter to arbitration in accordance with cl.11.2 of thecontract.After the first notice was served, but prior to the

second, Emirates and Prime met several times in anattempt to resolve matters. The first meeting was in Dubaiin January 2009, at which Emirates requested more timeto find buyers. Following this meeting, they met threemore times, in Goa, between March and April 2009.Emirates sought price concessions to which Prime wouldnot agree. The parties also discussed shipping the ironore to other buyers, but could not agree on terms. Theylater met again in Dubai, but by this time Emirates hadfailed to purchase any iron ore for the whole of 2009 andPrime terminated the contract by notice in December2009.Following the service of the second notice, the parties

continued to meet to discuss possible settlement, the lasttime being inMarch 2010, whenMr Hussain of Emiratesasked his counterpart at Prime to “wait, bear with us andwe will make good the wrong”. However, in June 2010,Emirates had still failed to comply with its obligations,and so Prime filed a request for arbitration.Emirates then applied to the English court under s.67

of the Arbitration Act 1996 for an order declaring thatthe tribunal did not have jurisdiction to hear the case, onthe grounds that cl.11.1 of the contract constituted acondition precedent to arbitration. Emirates claimed thatthis condition precedent had not been fulfilled.Clause 11.1 of the contract stated that:

“In case of any dispute or claim… the Parties shallfirst seek to resolve the dispute or claim by friendlydiscussion. Any party may notify the other Party ofits desire to enter into consultation to resolve adispute or claim. If no solution can be arrived at inbetween the parties for a continuous period of 4(four) weeks then the non-defaulting party caninvoke the arbitration clause and refer the disputesto arbitration.”

Emirates argued that cl.11.1 constituted a bindingcondition precedent which was not satisfied because themeetings between the parties, although friendly, were notdiscussions for the purposes of cl.11.1 and/or did not lastfor a continuous period of four weeks. Prime, in response,

1Cable & Wireless Plc v IBM UK Ltd [2002] EWHC 2059 (Comm); [2002] 2 All E.R. (Comm) 1041.2Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm); [2014] 2 Lloyd’s Rep. 457.



argued that cl.11.1 was not enforceable, being a mere“agreement to agree”, relying on the House of Lordsruling inWalford v Miles3 to the effect that an agreementto negotiate cannot constitute an enforceable contract.Prime argued alternatively that, if the condition precedentwas enforceable, then this condition had been satisfiedby the meetings which actually took place.

JudgmentMr Justice Teare ruled that cl.11.1 of the contract didconstitute an enforceable condition precedent to engagein “friendly discussion”. His construction placed relianceon the use of the word “shall” in the clause, which he saidindicated a mandatory, legally binding condition. Hestated that such a binding requirement made commercialsense, and also that it was consistent with public policyto give effect to dispute resolution clauses which requirethe parties to seek to resolve disputes before resorting toarbitration or litigation.However, Teare J held that the clause did not require

continuous discussions to take place for the entirefour-week period referred to in the clause, but merely thata period of four weeks should elapse between thediscussions first being held and any legal proceedingsbeing commenced. On that basis, he held that thecondition precedent was satisfied because this period hadelapsed. He also ruled that, even if it was necessary forthe discussion to take place for four continuous weeks,the series of meetings held constituted such a continuousdiscussion. As a result, Emirates’ challenge to jurisdictionfailed.

Analysis in the English contextThe Emirates Trading judgment can be seen as theproduct of three different lines of English authority. Oneis that which reached its high point inWalford. Here, theHouse of Lords held that a bare agreement to negotiate,like an agreement to agree, is unenforceable because itlacks certainty. This was on the basis that the concept ofa duty to carry on negotiations in good faith is inconsistentwith the adversarial nature of negotiations, and the courtcannot be expected to decide whether a proper reasonexisted for the termination of negotiations.The second originated with the 2002 judgment inCable

&Wireless Plc v IBMUK Ltd.4Here, the court considereda contract which included a clause which required theparties to “attempt in good faith” to resolve disputesarising between them “through an alternative disputeresolution procedure as recommended to the parties bythe Centre for Dispute Resolution”. The court held thatthe obligation was sufficiently certain to be enforceablebecause it set out the means by which the “attempt”

should be made. The court ruled that if a party was torefuse to participate in the prescribed procedure, it wouldbe in clear breach of its obligation. However, the judgedid state that, had the clause simply required the partiesto attempt, in good faith, to resolve their differences, thiswould have been void for uncertainty. This was the firstdecision in which an agreement to negotiate contained indispute escalation provisions was held to be enforceable.It was followed by others, such as Holloway v ChanceryMead Ltd.5Meanwhile, in a third line of authority, the court

considered the concept of an agreement to negotiateoutside the dispute escalation context. Notably, inPetromec Inc v Petroleo Brasileiro, the court was askedto consider an agreement to negotiate in good faith thecosts of an upgrade of an offshore oil platform, thatagreement forming part of a wider concluded contract.Lord Justice Longmore stated that if three factors werepresent then such a clause would be enforceable, namely:(1) the obligation to negotiate is part of a contractuallybinding agreement; (2) the obligation to negotiate in goodfaith is express rather than implied; and (3) the matter tobe negotiated is capable of objective assessment by a thirdparty.While Longmore LJ did acknowledge that a review of

the decision in Walford was a matter for the House ofLords, he stated that Walford was “of comparativelynarrow scope” and did not amount to a blanket prohibitionon the enforceability of agreements to negotiate. Thisresulted in a series of cases dealing with the enforceabilityof agreements to agree price adjustments in the course oflong term contracts, including Mamidoil-Jetoil GreekPetroleum Co SA v Okta Crude Oil Refinery AD,6BJAviation Ltd v Pool Aviation Ltd7 and, in 2013, MRITrading AG v Erdenet Mining Corp LLC.8These principles were also considered recently inWah

v Grant Thornton International Ltd,9 in a judgmentdealing with a dispute escalation clause. Here, theclaimants were partners in the HongKong branch of GrantThornton’s international accountancy and audit network.The claimants were expelled from the network, and adispute arose under the master agreement governing thenetwork, whichwas governed by English law. That masteragreement included a dispute escalation clause settingout a series of steps which had to be undertaken beforethe arbitration agreement in the agreement could beinvoked. The defendants obtained an arbitration awardagainst the claimants, and the claimants sought tochallenge that award before the English court on the basisthat the tribunal lacked jurisdiction, because of the failureto comply with the dispute escalation procedure. MrJustice Hildyard did not take issue with the principle thatdispute escalation clauses would be enforceable if their

3Walford v Miles [1992] 2 A.C. 128 HL.4Cable & Wireless Plc v IBM UK Ltd [2002] EWHC 2059 (Comm); [2002] 2 All E.R. (Comm) 1041.5Holloway v Chancery Mead Ltd [2007] EWHC 2495 (TCC); [2008] 1 All E.R. (Comm) 653.6Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] EWCA Civ 406; [2001] 2 All E.R. (Comm) 193.7BJ Aviation Ltd v Pool Aviation Ltd [2002] EWCA Civ 163; [2002] 2 P. & C.R. 25.8MRI Trading AG v Erdenet Mining Corp LLC [2013] EWCA Civ 156; [2013] 1 Lloyd’s Rep. 638.9Wah v Grant Thornton International Ltd [2012] EWHC 3198 (Ch); [2013] 1 All E.R. (Comm) 1226.

Dispute Escalation Clauses in England and Wales: A New High Water Mark 103


provisions were sufficiently certain, but held that, on thefacts before him, they were not. In particular, he held thatwhile certain steps, including a reference to the chiefexecutive and then to a panel, were prescribed, the contentof what the chief executive and the panel were intendedto do in order to resolve the dispute were not.On the face of it, the Emirates Trading judgment is

inconsistent with the decision in Wah, because it is notclear that the content of the “friendly discussion”contemplated in the contract between Emirates and Primewas any more clearly defined than that of the disputeescalation steps contemplated by the Grant Thorntonmaster agreement. Indeed, while Teare J stated that “anobligation to seek to resolve a dispute by friendlydiscussions in good faith has an identifiable standard,namely, fair, honest and genuine discussions aimed atresolving a dispute”,10 factual uncertainties are readilyidentifiable. For example: do the discussions need to bein person, or can they be by phone, or indeed writing?Must they be conducted by the parties, or delegated totheir legal representatives? Is one party permitted toimpose conditions upon its participation, for example awritten agreement that they held on a confidential and/orwithout prejudice basis, or that they are supervised by athird-party mediator? Is it necessary to offer some formof concession to satisfy the requirement to participate, oris simply stating one’s position sufficient?However, in the authors’ view, the Emirates Trading

decision is more consistent with the prevailing case lawtrends than the Wah decision, even if it extends theconcept of what is enforceable further than previousjudgments. This is not only because of the lines ofauthority beginning with the Cable & Wireless andPetromec decisions referred to above, but also becauseof the recent willingness of the court to imply duties ofgood faith into commercial contracts, especiallylong-term, complex arrangements, shown by the 2013decision in Yam Seng Pte Ltd v International Trade CorpLtd.11 Indeed, in this context Hildyard J’s decision inWahcan be explained as the judge’s way of avoiding settingaside an arbitration award on what was, in reality, a purelytechnical breach by the defendants. Generally speaking,the English courts will tend to find a way to give effectto the provisions of commercial arrangements, whetherin dispute escalation clauses or otherwise, in line withthe approach in Emirates Trading. Given this, Walford,although a decision of England’s highest court, is likelyto provide limited support. In the words of Teare J inEmirates Trading:

“[W]here commercial parties have entered intoobligations they reasonably expect the courts touphold those obligations. The decision in Walfordv Miles arguably frustrates that expectation.”12

The identification of uncertainties in the mechanics ofthe dispute escalation provisions may provide anotherway to attack enforceability, in line with the approach inWah, and also the Court of Appeal’s judgment inSulamerica v Enesa.13 However, uncertainty only takesone so far. As other members of the judiciary have noted,the provisions of the clause in Cable & Wireless were infact not particularly clear, because it was not specifiedwhether the CEDRADRprocedure to be followed shouldbe mediation or some other process.14 Unhelpfully forpractitioners seeking straightforward guidance, the variousjudgments are all expressed as being fact-specific. It istherefore vital to draft dispute escalation clauses carefully,considering judicial endorsement (or otherwise) of thedifferent forms of wording. However, bearing in mindthe trend towards seeking to give effect to contractualterms where at all possible, when the question ofenforcement arises it will, especially in light of what issaid in Emirates Trading, generally be safest to assumethat they will be given effect.

The international contextTeare J’s judgment in Emirates Trading touched uponthe international context. He noted that in the Australiancase United Group Rail Services v Rail Corp New SouthWales,15 a clause which provided that the parties should“meet and undertake genuine and good faith negotiationwith a view to resolving the dispute” prior to proceedingswas enforceable. He also referred to the decision inInternational Research Corp Plc v Lufthansa SystemsAsia Pacific Pte Ltd,16 in which the Singapore High Courtheld that a clause which referred to arbitration disputes“which cannot be settled by mediation” constituted anenforceable condition precedent to arbitration. In addition,hementioned the ICSID case Tulip Real Estate Investmentand Development Netherlands BV v Republic of Turkey,17in which the tribunal held a dispute escalation clause tobe binding.Indeed, this appears to a trend under many legal

systems. Based on a practitioner text published in 2013,dispute escalation clauses are enforceable not only inother common law jurisdictions, including Canada, Indiaand the US, but also in civil law jurisdictions, includingGermany, France and Japan.18 While some jurisdictions,including Estonia, Finland, Hungary, Israel andSwitzerland, were reported as not enforcing these types

10Emirates Trading [2014] EWHC 2104 (Comm); [2014] 2 Lloyd’s Rep. 457 at [64].11 Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 All E.R. (Comm) 1321.12Emirates Trading [2014] EWHC 2104 (Comm); [2014] 2 Lloyd’s Rep. 457 at [40].13 Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638; [2013] 1 W.L.R. 102.14A. Evans, “Forget ADR — think A or D” (2003) 22 C.J.Q. 230.15United Group Rail Services v Rail Corp New South Wales (2009) 127 Con. L.R. 202.16 International Research Corp Plc v Lufthansa Systems Asia Pacific Pte Ltd [2012] SGHC 226.17 Tulip Real Estate Investment and Development Netherlands BV v Republic of Turkey, ICSID Case No.ARB/11/28, Decision on Bifurcated Jurisdictional Issue (March 5,2013).18N. Beale, B. Lautenschlager, G. Scotti, and L. van den Hole (eds), Dispute Resolution Clauses in International Contracts (Zürich: Schulthess, 2013).



of clauses, either in whole or in part, often on the basisthat the parties may not contract out of their entitlementto bring court proceedings, the international trend appearsto be consistent with that in England and Wales inenforcing dispute escalation provisions.In light of the different approaches seen in different

jurisdictions, it will always be important to considerenforceability when considering dispute escalationprovisions in a contract between international parties. Ifenforceability is an issue under the governing law and/orjurisdiction specified in the contract, then ways tomaximise the prospects of successfully relying on theclause include ensuring that the provisions are expressed

in mandatory terms and specifying that both parties havefreely consented to their inclusion. It may also be prudentto stipulate arbitration as the final forum for proceedingsrather than court, on the basis that under some nationallaws it is easier to displace the jurisdiction of an arbitraltribunal in favour of a dispute escalation procedure thanthat of the court. However, ultimately where there is doubtover the enforceability of the clause, it will be preferablenot to include it at all, in order to avoid satellite litigation.If it is nevertheless included in this situation, it should beformulated as a separate and severable clause, in orderthat a successful challenge to that clause does not affectthe remainder of the contract.

Dispute Escalation Clauses in England and Wales: A New High Water Mark 105


Discriminationbetween National andForeign Investors inLebanese CorporateLawDr Khodr M. FakihLebanese American University Beirut,Lebanon

Dr Sarwat El ZaherLebanese University, School of Law,Beirut, Lebanon

Commercial agents; Discrimination; Foreigninvestment; Foreign nationals; Joint stock companies;Lebanon

IntroductionThe Lebanese legal system is considered one of the fewlegal systems that respects equality and does notdiscriminate between Lebanese and foreign investors withregard to all legal investments. However, suchdiscrimination does exist in Lebanese commercial law.In general, commercial laws and rules are flexible in

order to meet not only domestic commercial needs butalso international ones. Worldwide, commerce is nownot limited to be conducted only by individuals but alsoby juristic persons and legal entities, such as partnershipsand corporations.Legal entities can be divided into two types of

associations (associations of people and associations offunds). Each type of these associations has specificelements and characteristics. An association of people,or a partnership, is formed on the basis of a closerelationship among the partners themselves. Thepartnership enjoys many advantages such as

“the ease of organization and dissolution, informalityin management … the disadvantages are theunlimited liability of partners for partnership debts,difficulty of settling disputes among the partners,the difficulty in transferring a partnership interest,the lack of continuity and the danger of dissolutionif a partner withdraws or dies”.1

On the other hand, an association of funds, or acorporation, attracts investors based on the limitedliability of its investors, the issuance of securities, theease of transferability of the investors’ interests, and itsperpetuity.This trend was also adopted in Lebanon. Article 844

of the Lebanese Code of Obligations and Contractsdefines “partnership” as “a reciprocal contract betweentwo or more parties about a project with the intent to shareprofit”.2

The concept of an association of people lost out to theconcept of an association of funds, and especially to thejoint stock company. Article 77 of the LebaneseCommercial Code defines “joint stock company” as

“a corporation in which its capital is divided intonegotiable equal shares. Shareholders’ liability forthe debt of a corporation is limited to the sum theyhave invested in the corporation through theacquisition of shares.”3

The Lebanese law-makers have included a section thatlegislates and organises every single aspect that impactson the joint stock company from establishment untiltermination. This section includes matters that relate tothe majority of the board of directors and the process ofvoting/taking decisions in such a board. The notion ofthe majority of the board of directors has createddiscrimination between Lebanese and non-Lebaneseinvestors. The Lebanese law stipulates that in order toform a joint stock company board of directors, themajority of the board members must be Lebanese. Thediscrimination that is adopted by the Lebanese law-makersis not only applied within the corporation but is alsoimplemented by Legislative Decree 34/67, which dealswith commercial representation contracts in Lebanon.4

This decree has triggered many concerns in terms of thediscrimination between a Lebanese commercialrepresentative and a foreign one, and gives priority to theLebanese agent over a non-Lebanese principal.Accordingly, the following question should be asked:

can the Lebanese law be considered as a discriminatorylaw, or can such discrimination be justified since it is onlyimplemented in some laws (Decree 34/67) and in themostimportant type of corporation, which is the joint stockcompany?This article will describe many principles that are

deemed to be discriminatory in Lebanese commercial lawbetween Lebanese and non-Lebanese investors (in thefirst part) and the justification of such discrimination thatis considered necessary in certain situations (in the secondpart).

1Goldman Sigismond, Business Law Principles & Practices, 8th edn (Mason, OH: South-Western Cengage Learning, 2008), p.431.2Code of Obligations and Contracts [C. OAC] [Civil Code] art.844 (Leb.).3Code of Commercial Law [C. CL] [Civil Code] art.77 (Leb.).4Legislative Decree 34 of August 5, 1967 (Leb.).



The difference between Lebanese andforeign investors—a kind ofdiscriminationThe Lebanese legal system adopts a free economic policyespecially in the commercial sector. Thus, Lebaneselaw-makers issue laws that provide for equality amongall people. However, Lebanese corporation and joint stockcompany laws have some rules that discriminate amonginvestors. Such discrimination is based on the nationalityof the investors; therefore, it is important to identify thescope and the impact of such discrimination.

Scope of discriminationDiscrimination in the Lebanese legal system between aLebanese citizen and a foreigner is related to how aLebanese corporation and a commercial representativeoperate.

Concerning commercial companiesAccording to our observation of the Lebanese joint stockcompany laws, the Lebanese law-makers have imposedcertain discriminatory requirements in order to form orestablish a Lebanese joint stock company. Thisdiscrimination is implemented in the way the board ofdirectors of a JSC is formed and by whom the capital isto be raised.

Board of directorsA Lebanese joint stock company can only be managedby its own investors. In other words, shareholders throughthe general assembly have the authority to manage thecompany. However, since the number of the shareholdersis huge inmost JSCs, which precludes them from reachinga decision, and since shareholders lack the essentialknowledge and skills of management, a JSC is managedby a specialised board. That board is elected by thegeneral assembly from the investors and has the soleauthority to manage the daily operation of the company.The Lebanese Commercial Code imposes a

discriminatory condition upon the nationality of the boardmembers. Article 144 of the Lebanese Commercial Coderequires that the majority of the board of directors mustbe Lebanese. This article has established discriminationbetween Lebanese and non-Lebanese investors in thisregard.The discrimination stipulated by commercial law with

regard to the board of directors is not the only one. TheLebanese law has made an additional discriminationamong the investors themselves. This discriminationapplies to any JSC whose object is public service.

JSCs whose object is public serviceThe discrimination between Lebanese and non-Lebanesein a JSC does not stop at the board of directors: it hasbeen extended to the investors themselves. Article 78(2)of the Lebanese Commercial Code stipulates that “onethird of the corporation capital of the JSC that is createdto achieve public service must be owned by Lebanese”.In addition, the said article considers that it isunacceptable to transfer those shares to any investors butLebanese, otherwise the transaction will be deemed void.

Concerning commercial representationCommercial representation is considered one of the mostimportant contracts that impact on the Lebanese economy.The Lebanese law-makers have discriminated between aLebanese commercial representational agent and anon-Lebanese one. Thus, it is important to discuss thelegal framework of the commercial representationcontract, and the essential aspects of discrimination thatLebanese law-makers have introduced into Lebanesecommercial law to protect the Lebanese commercialagent.

The legal framework of the commercialrepresentation contractThe Lebanese Legislative Decree 34/67 that was issuedin August 5, 19675 is the Law that governs all the mattersthat deal with commercial representation. The LegislativeDecree defines the commercial representative as an agentwho

“according to his/her independent occupation andwithout being bound by an employment relationshipnegotiates to conclude transactions of selling,buying, renting, or rendering services in whichhe/she does such, when it is necessary, on behalf,under the name of, and for the account of othermerchants or manufacturers”.

In addition, art.1 of the Legislative Decree considers asa commercial representative “a merchant who, for hisown account, sells what he buys according to a contractthat gives the merchant the capacity of a sole agent ordistributor”. This Legislative Decree is considered aspecial law in terms of subject and exceptional in termsof substance. This Legislative Decree was implementedwithout any retroactivity upon the commercialrepresentatives who acquired such a contract before theissuance of Legislative Decree 34/67.

5Under French law, there are several laws concerning the commercial representation, such as art.L.134-11 of the Commercial Law, transposed from EU law, and DecreeNo.2010-1310 issued on November 2, 2010.

Discrimination between National and Foreign Investors in Lebanese Corporate Law 107


The essential aspect of discriminationbetween a Lebanese a non-Lebanesecommercial representativeThe Lebanese Legislative Decree 34/67 is considered oneof the most discriminatory laws in terms of favouring,protecting and giving advantages to Lebanese commercialrepresentatives in their commercial endeavour. Theconnotation of the Decree is protected by the notion ofpublic policy, which renders void any agreement thatbreaches or violates the Decree’s scope.Article 1 of the Decree stipulates that “a commercial

representative must be a Lebanese and must have aphysical address in Lebanon”. The strict nationalitydiscrimination between Lebanese and non-Lebanesecitizens that is imposed by this article has two exceptions.First, this article applies only to the future and preservesall rights and privileges that were acquired before theissuance of this decree. The consequences of excludingnon-Lebanese citizens from becoming a commercialrepresentative in Lebanon do not retroactively apply tothem if they had acquired their rights under the old law.Secondly, this article respects and honours reciprocaltreatment. Article 1 of the Legislative Decree legallyauthorises a non-Lebanese citizen to act in Lebanon as acommercial representative as long as reciprocity existsbetween Lebanon and the non-Lebanese citizen’scountry.6

The discrimination that is mentioned in the LegislativeDecree applies to all commercial representatives whetherthey are natural persons or legal entities. The Lebaneselaw distinguishes in this respect between an associationof people and an association of funds. Article 1 of theLegislative Decree stipulates that if the commercialrepresentative is a company and if the company is anassociation of people and/or a limited liability company,the majority of the partners must be Lebanese, themajority of the company’s capital must be owned byLebanese, and the manager who has the authority to signon the behalf of the company must be Lebanese. If it isan association of funds, the law requires that the sharesof the company are nominated ones, the majority of thecompany’s capital must be owned by Lebanese, one-thirdof the board must be Lebanese, and the chairman/chiefexecutive officer/the appointed person from the CEO andthe general manager who is responsible of all or part ofthe employing matters must be Lebanese.The Lebanese law places limits not only on the natural

person who is interested in acting as a commercialrepresentative, but also on all types of juristic persons aswell.The rationale behind requiring these components is to

guarantee that the making of decisions in the company isin the hands of a Lebanese citizen. This is because acompany could be owned by a majority of shareholders

who are Lebanese but the majority of the company’scapital could be owned by non-Lebanese, which wouldgive management control to the non-Lebanese. TheLegislative Decree requires with regard to the associationof funds that all the top management officers should beLebanese.In addition, art.5 of the Decree gives exclusive

jurisdiction to the Lebanese courts to view and settledisputes that arise from the commercial representationcontract regardless of any other agreement. This articlerestricts the autonomy of the parties7 to choose the lawand the court that are suitable to settle a dispute that mightarise from such a contract. This aspect will be discussedin detail in the following part.

The impact of the discriminationThe main inevitable outcome of the discriminationbetween a Lebanese and a non-Lebanese citizen is theexclusivity jurisdiction of the Lebanese court over allcorporations and commercial representation disputes.This outcome is worth discussing in the followingsections.

Concerning commercial companiesDiscrimination based on nationality among investors interms of managing the JSC has many consequences.Those consequences are clearly stated in some of theLebanese commercial articles, such as the exclusivity ofLebanese courts over any case in which a Lebanese SJCis a party to a dispute, or the voidance of the company’scontract as a sanction for not meeting the Lebanesemajority condition.

The exclusivity of Lebanese courtsIn any case involving a JSC, the court having jurisdictionover such case is based on the nationality of thecorporation. Since the corporation, as a legal entity, hasa nationality that differs from its shareholders, it isimportant to specify the nationality of the corporation inorder to: (1) know the extent of privileges of the companybased on rules and regulation stipulated in the law of thecountry where it is incorporated; (2) specify the countryin which it has the right to protect any given corporationin the international arena; (3) identify the law that thecorporation will abide by in terms of establishment,management, dissolution, liquidation and termination.Since the nationality of a corporation has paramountimportance, how can a corporation obtain citizenship?How can we identify the nationality of a corporation?A corporation, as a legal entity, will acquire the

citizenship of the country where its headquarters areregistered.8According to this concept, if the headquartersof any given corporation are in Lebanon, the corporation

6This legal norm that exists in Lebanon cannot be found in the French law. French law gives the possibility to a foreign commercial representative, specially a Europeancitizen, to perform his work on the French territory without any restriction.7 It is most likely that the commercial representation contract is formed by a Lebanese agent and non-Lebanese principal.8Mostafa K. Taha, The Principles of Commercial Law (Beirut: Al Halabi, 2006), p.315.



will be considered Lebanese. Article 78 of the LebaneseCommercial Code stipulates that “any JSC that isestablished in Lebanon must have its headquarters in theLebanese jurisdiction, thus, this corporation will beconsidered Lebanese corporation per se”.9

The main factors that determine the nationality of anygiven JSC in Lebanon are: (1) the establishment of theJSC in Lebanon according to Lebanese law/rules; and (2)the situation of the headquarters of the corporation inLebanon. Consequently, if a corporation has satisfied theabove two elements, such a corporation will be governedexclusively by the Lebanese courts based on art.78 of theLebanese Commercial Code. However, an importantquestion can be raised in this situation: what are theconsequences if a corporation does not honour thewording of art.78 in terms of headquarters or the Lebanesemajority?

Consequences of non-compliance with thelegal dispositionsArticle 144 of Lebanese Commercial Code does notclearly mention the sanction for not complying with therule related to the Lebanese majority condition inside theboard of directors. However, art.78 of the LebaneseCommercial Code states that any JSC that is establishedwith the object of public service will be void if one-thirdof the corporation capital is not owned by Lebanese orgiven to non-Lebanese investors.The voidance mentioned in art.78 of the Lebanese

Commercial Code is voidance that is based on sellingshares consisting of one-third of the corporation capitalto non-Lebanese investors. Unlike art.78, art.144 of theLebanese Commercial Code does not mention the typeof sanction that can be imposed in the case of violatingart.144. Article 144 only indicates that the majority ofthe board of directors must be Lebanese. Based on ourobservation, the sanction that should be invoked in sucha case is voidance, or dissolution, of the corporation. Thisis because the board of directors is considered the mostimportant constituency in any given corporation. As aresult, if the establishment of board of directors isdefective the corporation itself will be defective too.

Concerning commercial representationArticle 5 of Lebanese Legislative Decree 34/67 hasgenerated many arguments with regard to the rejectionof settling commercial representation disputes througharbitration. The said article mentions that “regardless ofany other agreement” the court where the commercialrepresentative conducts its business is competent to settleall disputes that are related to the commercialrepresentation contract. The connotations of art.5 prompt

many observations. First, this article is a public policyarticle, which no one is capable of challenging eventhough it restricts the autonomy of the parties. Secondly,restricting the competency to the court where thecommercial representative conducts its business that ismentioned in art.5 would be applied in conjunction withart.1. As mentioned before, art.1 requires that thecommercial representative must be Lebanese and his/hercommercial representation must be in Lebanon.Consequently, the Lebanese courts would havecompulsory jurisdiction over all commercialrepresentation disputes that may occur, regardless of anyother agreement. This conclusion triggers the followingquestion: what is the impact of the arbitration clause ina commercial representation contract? The leadingLebanese jurisprudential thought considers that arbitrationis unacceptable in a commercial representation dispute.It is considered that the exclusive jurisdiction of theLebanese courts to view cases that deal with commercialrepresentation is a public policy matter,10 a rule that isrelated to international private law11 and a rule that isbased on the public policy theory of protection anddirection.12

If arbitration is forbidden with regard to cases relatedto commercial representation, is this norm still appliedin the case of the existence of an international treatybetween Lebanon and a foreign country that acceptsarbitration in such a case?This difficulty is created on account of art.2 of the

Lebanese Code of Civil Procedure, which considers thatan international treaty overrules any positive nationallaw. In other words, in the case of a conflict of lawbetween an international treaty and a Lebanese nationallaw, the Lebanese Code of Civil Procedure considers thatthe international treaty prevails. Article 2 of the said Codeprompts the following questions. What would happen ifan international treaty between Lebanon and a foreigncountry allowed arbitration in matters related tocommercial representation? In this case, should we applyart.5 of Legislative Decree 34/67 since it is a public policyrule, or art.2 of the Lebanese Code of Civil Procedure,which gives the international treaty priority over thenational law?In order to consider this implication, it is important to

shed light on some of the Lebanese courts’ decisions.Recently, the Lebanese Northern Civil Court of Appeal13

issued a decision which reversed the verdict of theLebanese Northern Trial Court on the ground of violatingart.5 of Legislative Decree 34/67. The Lebanese trial courtconsidered that the Lebanese court has no jurisdiction tosettle a commercial representation dispute since there wasan arbitration clause in the commercial representationcontract between the parties. The trial court considered

9Code of Commercial Law art.78.10Maher S. Mahmassani, La Représentation Commerciale en Droit Libanais [Commercial Representation in Lebanese Law] (Beirut: Nemnom, 1972), p.252.11Nasri A. Diab, Le Tribunal Internationalement Compétent en Droit Libanais et Français [The International Competent Court in Lebanese and French Law] (LibrairieGénérale de Droit et de Jurisprudence, 1993), p.460.12 Jihad Rizkallah, “Commentary on a Decree of the 4th Chamber of the Lebanese Supreme Court” (2005) 3 Al-Adl L.J. 285, 285 (the refutation of arbitration in commercialrepresentation disputes).13Mahkamat al-Isteinaf [Isteinaf] [Court of Appeal], North, 4th Chamber, January 31, 2013, Majallat al-Adl [Al-Adl], 2013, p.1438 (Leb.).



that there is nothing mentioned in art.5 of the LegislativeDecree that forbids arbitration in cases related tocommercial representation. This is because arbitration isa legitimate legalised method of settling disputes inLebanon. The Court of Appeal reversed the trial courtdecision because art.5 of the Legislative Decree is acompulsory rule of law, since it is a public policy matter.The reason behind considering art.5 of the said decree asa public policy issue is to protect the interest of theLebanese commercial representative. It is also to providefair treatment to the Lebanese commercial representativeunder his/her national laws. The Court of Appealexpressly and entirely repealed any agreement/clause thatallows arbitration excluding the jurisdiction of theLebanese national courts in cases related to any types ofcommercial representations whether they are exclusiveor not, because it violates the compulsory implementationof art.5 of the Decree. The Court of Appeals reinforcedits decision by adding that

“the exclusivity of jurisdiction is obvious accordingto Article 828 of the Lebanese Code of CivilProcedure, Article 37 of the Code of obligations andContracts, and the well known arbitral rules that itis prohibited to arbitrate in matters related to issuesinalienable rights because they are public policyrules”.

In addition, the Court of Appeal considered that art.5 ofthe Legislative Decree does not distinguish betweenforeign courts or arbitration institutions. This is because,if the Lebanese law-makers had wanted to excludearbitration from the scope of art.5, they would haveamended or introduced rules of law that reflected suchan intention. The Court of Appeal stated that noamendment had been introduced and, based on the scopeof art.5 of the Decree, the court reversed the decision ofthe trial court and considered that the Court of Appealthat was considering the appeal had jurisdiction.In another case, the Beirut trial court considered that

art.5 of Legislative Decree 34/6714 is a mandatory rule oflaw that must be implemented with regard to disputesrelated to commercial representation regardless of anyarbitration clause of agreement between the commercialrepresentative and the principal.The above-mentioned court decisions are related to

decisions that forbid arbitration in cases related tocommercial representations without the existence of aninternational treaty between Lebanon (the country of thecommercial representative) and a foreign country (thecountry of the principal). However, the cases mentionedbelow deal with the validity of the arbitration clause withregard to commercial representation in the case of theexistence of an international treaty that allows arbitrationin commercial representation between Lebanon and thecountry where the principal is from. Article 711 of the1952 Commercial International Treaty between Lebanon

and the Republic of Chic (Czech Republic) created manycomplexities. The Treaty stipulates the validity andlegitimacy of the arbitrationmethod as a means of settlingall commercial disputes that might arise between aLebanese citizen and a Chic citizen. This complexity isevident in the disparity of the Lebanese court decisions.For instance, the Lebanese Supreme Court decision thatwas rendered in December 12, 1973 stated that theInternational Treaty between Lebanon and the Republicof Chic must be implemented regardless.15 That decisionwas significant at the time because it was rendered beforethe enactment of art.2 of the Lebanese Civil Procedure,which stipulates the hierarchy between an internationaltreaty and Lebanese national law. With regard to thefactual information of the case, the exclusive commercialrepresentation contract between a Lebanese agent and aChic principal was terminated; the Lebanese commercialrepresentative brought a lawsuit against the Chic principalbefore the Lebanese court requesting compensatorydamages because the Chic principal unjustly terminatedthe contract. The Chic principal’s counterclaim was thatthe Lebanese national court was not competent and hadno jurisdiction since the bilateral international treaty refersall commercial disputes to arbitration. In another disputebetween a Lebanese commercial representative and aChic principal, the 1994 Lebanese Supreme Court16

decision states that the scope of an international treatybetween Lebanon and the Republic of Chic must behonoured with regard to arbitration since Lebanon mustrespect international treaties with other countries. Incontrast, the Lebanese SupremeCourt rendered a decisionin 2005 that changed the precedent that was set by theabove-mentioned decision with regard to the validity ofimplementing an arbitration clause in the case of theexistence of an international treaty. The LebaneseSupreme Court considered that art.5 of the LegislativeDecree superseded the scope of the international treatybetween Lebanon and the Republic of Chic with regardto commercial representation. The court stated that art.5is a compulsory regulation that is enacted to protect theLebanese agents and no one is capable of choosing notto implement it. The Supreme Court in this decisionprotected the rights of the Lebanese agent, although theSupreme Court contradicted the scope of hierarchy ofart.2 of the Lebanese Code of Civil Procedure by givingsuperiority to national law (art.5 of the said decree) overan international treaty (art.711 of the 1952 CommercialInternational Treaty between Lebanon and the Republicof Chic). The Supreme Court made it clear that the benefitof the Lebanese agent comes first and it is above and

14Gurfat Mahkamat al-Darajat al-Ula [Chamber of First Instance], Beirut, September 30, 2010, Majallat al-Adl [Al-Adl], 2013, pp.990–993 (Leb.).15Mahkamat al-Tamiez [Tamiez] [Supreme Court], 1st Chamber, December 12, 1973, Majallat al-Adl [Al-Adl], 1974, p.277 (Leb.).16Mahkamat al-Tamiez [Tamiez] [Supreme Court], 4th Chamber, January 25, 1994, Majmouat Baz [Baz], 1994, p.333 (Leb).



beyond the benefit of any non-Lebanese principal. Thisis true even if the interest of the non-Lebanese principalis protected by an international treaty.17

Discrimination between Lebanese andforeign investors—a necessarydiscriminationIt could be valid to discriminate between the nationalitiesof the investors in a JSC based on its characteristics. Thisis because a JSC is considered one of the most importanttypes of business organisation in Lebanon in terms of theimpact of such a corporation on the Lebanese economicpublic interest.

The characteristics of a JSC—the firstdiscriminatory validationA JSC has more characteristics than any other types ofbusiness organisation. Among its importantcharacteristics, a JSC provides its shareholders withlimited liability and a limited affordable amount of capitalfor registration purposes.

Shareholders’ limited liabilityA JSC, as an association of funds, provides its investorswith one of the most important characteristics that notmany business organisations can provide: limited liability.Shareholders’ personal liability is limited to the amountof their contribution to the corporation. Lebanese lawdoes not provide such a characteristic, limited liability,to any type of association of people. For instance, theLebanese Partnership Law considers that partners haveunlimited joint and several liability for the partnership’sdebts. Partners have the ability to be involved in themanagement and the decision-making process. Inaddition, by operation of law, all partners are consideredmerchants; consequently, they will be bankrupt if thepartnership stops paying its debts.18 Partners will beaffected without limit by any decision that is taken by thepartnership. On the other hand, in the case of a JSC thatis based on accumulated capital more than on investors,Lebanese law-makers find that investors care less aboutthe corporation itself; however, they care more about theirinvestments. Accordingly, the corporation as an entitymust be protected from undependable investors who tryto becomemembers of the board of directors. In principle,a corporation is managed by the investors; however, basedon the number of investors and the free transferability ofshares, such management becomes difficult. As a result,management will be bestowed upon a small group ofLebanese people, the board of directors, who can easilymeet on in a regular basis.

Imposing a limited amount of capitalWhile observing the difference between a partnership anda corporation, it is important to make the followingobservations. First, commercial law does not dictate aspecific capital for registration purposes in the case of apartnership. This is because partners in a partnership areresponsible for covering all the partnership’s debts fromtheir personal assets. Unlike in a partnership, commerciallaw requires that all JSCs must deposit LBP 30 millionin a local bank for registration purposes. The minimumrequirement that is imposed by the Lebanese law isincorporated by the liability theory of the corporateinvestors. The major reason for imposing capital is toprovide minimum amount of accountability to thecorporate creditor and to limit the liability of the investors.Thus, the discrimination between Lebanese and foreigninvestors is not based on racism. However, such animposition of a limited amount of capital aims to protectthe JSC by limiting the investors from abusing theirauthority. In addition, such capital will serve as the onlyresort for the corporate creditors to collect their moneysince the corporate creditors are not allowed to claim theirrights from the investors’ assets. Accordingly, we cansay again that discrimination between Lebanese andforeign investors is not based on racism, but it is createdto safeguard the Lebanese public and economic interests.

Public interest concerns—the seconddiscriminatory validationIt has been clearly mentioned in this article that the majorreason for the discrimination between Lebanese andforeign investors is based on safeguarding the publiceconomic interest and respecting/abiding by the publicpolicy rules.

Economic public interestsThe condition that is imposed by art.144 of the LebaneseCommercial Code in terms of nationality of the board ofdirectors is an adequate condition. The rationale behindthis condition is to accommodate Lebanese publicinterests through Lebanese JSCs. In addition, Lebanesecitizens are the only ones who know the needs of theircountry and how investments can be implemented.In order to protect economic public interests, the

Lebanese Commercial Code art.148 requires everymember of the JSC board of directors to own a minimumnumber of fully pre-paid shares (security shares). Thisnumber of shares will be mentioned in the JSC byelawsas long as it is no less than 1 per cent of the capital. Therationale behind art.148 is to protect the corporatecreditors and the investors from any wrongdoingcommitted by any member of the board. Therefore,members of the board of directors are jointly liable forany mistakes made by them through the security shares.

17 Jean Pierre P. Nasr, “Encouraging Investment in Conflict Resolution through Arbitration: the Measures Taken by the Lebanese State and the Degree of Efficiency”(Dissertation, Saint Joseph University, 2007) (on file with the Saint Joseph University library) (Leb.).18Bankruptcy in Lebanon can only be triggered by a merchant who stops paying his/her commercial debts.



Furthermore, art.148 of the Lebanese Commercial Coderequires that every board member must be honest, loyal,act in the best interest of the corporation, and have a clearcriminal record. Thus, the condition of the majority aimsto have good Lebanese citizens in the JSC who are awareof the needs of the Lebanese economic public interest.

The Lebanese public interest“Public interest” is a collective term describing thevarious economic, political and social binding rules thataim to protect the public interest of any given jurisdiction.The majority condition stipulated by the LebaneseCommercial Code is considered to be public policy, inorder to make such a rule binding and obligatory.Lebanese law-makers have imposed many conditions

and requirements upon the JSC that are not applicable toany other types of Lebanese business organisation. Sucha corporation is under close scrutiny from the law-makersto protect the Lebanese public interest. A JSC has thecapability of collecting a huge amount of money fromthe public. Consequently, if any wrongdoing occurs withthe money collected, the Lebanese public/economicinterests will be enormously affected. In this regard, it isimportant to mention that, before 1977, the LebaneseCommercial Code used to subject the establishment of aJSC to a government permit. Article 80 of that lawstipulated that a JSC would only be established with apermit given by the Lebanese Government. However,Legislative Decree 54/77 removed such a requirement.19

ConclusionLebanese law is considered one of the legal systems thatmost respects human rights and equality. It also forbidsdiscrimination between people based on nationality,ethnicity and gender. However, it is obvious that this isnot the case with regard to commercial representation.Lebanese commercial law discriminates betweenLebanese and non-Lebanese parties in many respects. If

discrimination is adopted with regard to establishing andmanaging Lebanese corporations, it is more severe withregard to the laws that deal with commercialrepresentational matters. This discrimination includesmatters that relate to the majority of the board of directorsof the Lebanese joint stock company (the process ofvoting/making decisions in such boards). The majorityof the board of directors represents a kind ofdiscrimination between Lebanese and non-Lebaneseinvestors. In addition, Lebanese Legislative Decree 34/67,which addresses the issues of commercial representation,gives priority to the Lebanese agent over a non-Lebaneseprincipal. The Decree gives exclusive jurisdiction to theLebanese court to view any dispute in this regard, andapplies Lebanese law in the case of such a dispute. Thelegal trend of ignoring the autonomy of the parties inchoosing the law or the competent court is related topublic policy. This trend was clearly based on thenumerous court decisions that give the Lebanese courtsjurisdiction to settle these disputes. This exclusivejurisdiction given to the Lebanese courts was applied toprotect the interests of the Lebanese agent. It is clearlystated that the legislative decree rules, in case ofcontradiction, supersede any agreement between theparties or any international treaties.The discrimination that is implemented in the Lebanese

legal system might be acceptable in rare cases, but it isnot in many others. This discrimination is not acceptableand does not support international commercial activities.The Lebanese law-makers should amend some of thoselaws that create such discrimination for the sake of theLebanese economy. Article 144 and art.78(2) of theLebanese Commercial Code should be amended, alongwith arts 1 and 5 of Lebanese Legislative Decree 34/67.This amendment should put an end to discriminationunder the Lebanese law. In addition, it would end theinconsistency with regard to the Lebanese court’sexclusive jurisdiction over disputes and would restore theautonomy of the parties.

19Legislative Decree 54 of June 16, 1977 (Leb.).



BOOK REVIEW

APractical Guide to CorporateGovernance,5th edn, byMark Cardale (ed.), (London: Sweet& Maxwell, 2014), £225, ISBN:978-0-414-03097-8.

For any book to reach a fifth edition suggests that thereis a continuing demand for it from readers. That can befor a number of reasons—authority, comprehensiveness,readability or lack of competition. The Practical Guidescores highly on the first three qualities—and there is nolack of candidates for competition.Corporate governance texts have been a growth sector

for publishers over the past few years. Unfortunately thequantities of ink and paper expended have often notjustified the outcomes. Academics often have littleexperience but lots of opinions, and practitioners are oftennot able to give voice to their experience. The latestedition of this work is comprehensive, most assuredlyauthoritative and also readable.The Practical Guide scores highly on its ease of access

to information. The book is more than simply a repositoryof information located in one place since it offersauthoritative interpretation about the applicability andsignificance of laws and regulations. This is a particularlyvaluable feature for those who have to navigate throughthe thickets of ever-increasing regulation, when timemaybe at a premium.As might be expected, all the major legal issues are

covered, with succinct references to the appropriatelegislation and regulations in force at the time of writing.These are interwoven with useful glosses on how theregulations work and why they are of importance. Theinclusion of comparative information on otherjurisdictions’ approaches to similarproblems—particularly the US, where many companiesmay have trading links—also sheds light on thesignificance of the UK rules and provides a foundationfor further investigation where necessary.

Too many academics (probably misled by Cadbury’soriginal formulation and subsequent iterations by others)seem to believe that corporate governance is a disciplinethat belongs uniquely to the private sector. The PracticalGuide specifically avoids this pitfall by including threeuseful chapters on effective governance in the publicsector; the voluntary sector; and the NHS. There is alsoa useful—and probably necessarily relativelyshort—chapter on the governance of pension funds. Entirebooks have been written on this subject, to which readerscan refer if necessary; most will not need to. But itsinclusion in the Practical Guide is an indication of thecompleteness of approach the book adopts.The same is true of the small company sector, where

another strong chapter treads a judicious line betweendescription and application. There is a danger ofoverloading small businesses with unnecessaryadministrative loads if all the strictures that apply tocompanies that exist in the public arena are taken tooliterally to apply to private businesses. Nervous readersembarking on the subject from the point of view of smallcompanies might be reassured that the chapter is headed“Proportionate and Effective Corporate Governance”.But, as an investing director of a major venture capitalfund some time ago, I can safely certify the value ofensuring that companies are run to the highest applicablestandards of governance as a method of enhancing theirvalue to all their stakeholders.Despite my initial scepticism over the subject-matter

of the chapters on stewardship and social responsibility(I regard them as passing fads peripheral to the centralthrust of governance and so replete with internalcontradictions as to render them worthless as tools ofgovernance), the wisdom and sensible interpretations ofthe subject by the eminent contributing authors madethem useful additions to the text—and, to be fair, theirabsence would have been questionable.One of the particularly important aspects of the book

is how it demonstrates the link between risk managementand governance. This is an area that far too fewacademics—and some practitioners—understandsufficiently to be able to apply sensibly. Governance andriskmanagement is the subject of one specific and lengthychapter but the theme runs throughout the book.Nearly all the chapters include a few concluding

remarks summarising the salient points that have beencovered. There is no general summation, however, andwhile this is a fairly trivial point, a concluding “tour ofthe horizon” review might have provided a useful link tothe next edition. But this is almost insufficient to raise asa point of criticism.Mark Cardale, and his co-authors, are to be

congratulated on the job they have done.

Stephen Bloomfield FCIS

Book Review 113


News Section

Brazil

PUBLICCOMPANIESMarket regulationNew transparency rules—Securities and ExchangeCommission—Instruction 552/2014—issuers and tradedsecurities

Brazil; Disclosure; Relatedparty transactions

The Brazilian Securities and Exchange Commission (Comissão de ValoresMobiliários—“CVM”) decided to review the proposed criteria to determinethe information that must be reported by Brazilian publicly held corporations(issuers) whenever there is any transaction between related parties. Thematter is now regulated by Annex 30-XXXIII introduced by CVM InstructionNo.552, of October 9, 2014 (CVM Instr. 552/2014). Among other provisions,CVM Instr. 552/2014 amended CVM Instruction No.480, of December 7,2009 (CVM Instr. 480/2009), which deals with the registration of issuers ofsecurities admitted to trading on regulated markets of securities.The purpose of Annex 30-XXXIII is to allow shareholders of the issuer to

monitor the most relevant transactions more closely and immediately. Theterm “issuer” also comprises companies directly or indirectly controlled bythe issuer.The definition of “related party transaction” is the same as contained in

the applicable accounting rules that govern this subject, which are outlinedbelow.Therefore, a “related party transaction” is a transfer of resources, services

or obligations between related parties, regardless of whether a price ischarged. A “related party” is an individual (“person”) or legal entity (“entity”)that is related to the entity that is reporting the information (the “reportingentity”).A person or a close member of that person’s family is related to a reporting

entity if that person: (a) has control or joint control over the reporting entity;(b) has significant influence over the reporting entity; or (c) is a member ofthe key management personnel of the reporting entity or of a parent of thereporting entity.An entity is related to a reporting entity if any of the following conditions

applies:

(i) the entity and the reporting entity are members of the samegroup. This means that each parent, subsidiary and affiliate(fellow subsidiary) is related to the others;

(ii) one entity is an associate or joint venture of the other entity oran associate or joint venture of a member of a group of whichthe other entity is a member;

(iii) both entities are joint ventures of the same third party;(iv) one entity is a joint venture of a third party and the other entity

is an associate of the third party;(v) the entity is a post-employment defined benefit plan for the

benefit of employees of either the reporting entity or any entityrelated to the reporting entity. If the reporting entity is itself sucha plan, the sponsoring employers are also related to thereporting entity;

(vi) the entity is controlled or joint controlled by a person (asidentified in the previous paragraph);

(vii) a person (as identified in item (a) of the previous paragraph)has significant influence over the entity or is a member of thekey management personnel of the entity or of a parent of theentity;

NEW

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News Section N-17


(viii) the entity, or any member of a group of which it is a part,provides key management personnel services to the reportingentity or to the parent of the reporting entity.

Key management personnel are those persons having authority andresponsibility for planning, directing and controlling the activities of the entity,directly or indirectly, including any directors (whether executive or otherwise)of the entity.Annex 30-XXXIII clarifies that the following are not to be deemed

“transactions between related parties” and do not need to be disclosed:

(a) transactions between the issuer and its direct or indirectcontrolled companies, except in cases where there isparticipation in the share capital of the entity controlled directlyor indirectly by the issuer, its administrators or related persons;

(b) transactions between entities controlled directly or indirectly bythe issuer, except in cases where there is participation in theshare capital of the entity controlled directly or indirectly by theissuer, its administrators or related persons; and

(c) remuneration of the administrators.

The term “related transactions” is defined as the set of similar transactionsthat have a logical relationship to each other by virtue of their object or theirparties, such as: (a) subsequent transactions arising out of an initialtransaction already effected, provided that this initial transaction hasestablished its main conditions, including the amounts involved; and (b)continuous duration transactions covering periodic installments providedthat the amounts involved are already known.The need for disclosure applies:

(i) to the transaction or set of related transactions whose total valueexceeds the lesser of the following amounts: (a) R$ 50 million;or (b) 1% of the total assets of the issuer; and

(ii) at the discretion of the company’s administration, to thetransaction or set of related transactions whose total value isless than the parameters referred to in item (i) above, takinginto account: (a) the characteristics of the operation; (b) thenature of the relationship of the party related to the issuer; and(c) the nature and extent of the interest of the related party inthe operation.

The value of total assets referred to in item (i) above shall be calculated onthe basis of the latest financial statements or, whenever available, in thelast consolidated financial statements published by the issuer.The issuer must disclose to the market the following information relating

to transactions with related parties that fit the criteria defined in the previousparagraph:

(i) description of the transaction, including: (a) the parties and theirrelationship with the issuer; and (b) the object and the key termsand conditions;

(ii) if, when, how and to what extent the counterpart in thetransaction, its partners or administrators participated in theprocess of: (a) decision of the issuer about the transaction,describing such participation; and (b) negotiation of thetransaction with the issuer representatives, describing suchparticipation; and

(iii) detailed justification of the reasons why the administration ofthe issuer considers that the transaction noted commutationconditions or provides adequate compensatory payment, statingfor example: (a) if the issuer has requested proposals, performedsome procedure of making prices, or tried in any other way to

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carry out the transaction with a third party, explaining, if not, thereasons why it did not do so or, if so, the procedures performedand their results; (b) the reasons that led the issuer to performthe transaction with the related party and not with third parties;and (c) the detailed description of the measures taken andprocedures adopted to ensure the commutability of theoperation.

If the transaction in question is a loan granted by the issuer to the relatedparty, the above information must necessarily include: (i) the explanation ofthe reasons why the issuer has chosen to grant the loan, indicating theguarantees eventually required; (ii) a brief analysis of the credit risk of theborrower, including the independent classification of risk, if any; (iii) adescription of how the interest rate was fixed, considering the market risk-freerate and the credit risk of the borrower; (iv) a comparison of the rate ofinterest on the loan with other similar applications on the market, explainingthe reasons for any discrepancies; (v) a comparison of the interest rate ofthe loan with rates for other loans received by the borrower, explaining thereasons for any discrepancies; and (vi) a description of the impact of thetransaction on the condition of financial liquidity and the level of indebtednessof the issuer.This communication to the market must be made by the issuer within

seven working days of the occurrence of the transaction between relatedparties, pursuant to item XXXIII of art.30 of CVM Instr. 480/2009, as amendedby art.2 of CVM Instr. 552/2014.The new rules mentioned herein came into full force and effect as of

January 1, 2015.

Walter StuberWalter Stuber Consultoria Jurídica São Paulo, Brazil

Cyprus

LEGISLATIVEPROCESSReferences to SupremeCourtProposed legislation—streamlining forced sales ofmortgaged properties—presidential reference to court—Principles of Review

Charged property;Constitutionality; Cyprus;Foreclosure; Legislation; Saleof property

The current debate in Cyprus regarding new legislation to streamline theprocedure for the forced sale of mortgaged property illustrates the role ofthe courts in reviewing proposed legislation.The Memorandum of Understanding that Cyprus concluded with its

international creditors in 2013 committed the Government to introducing aso-called “foreclosure law”—legislation to amend the procedure for the forcedsale of mortgaged property to allow for private auctions. The initial targetdate was end-2013, but the deadline was extended to require legislation tobe enacted by mid-2014 and implemented by the end of the year.The existing system allows recalcitrant debtors to delay the realisation of

mortgaged property for years by making strategic applications to the courtsfor orders to cancel auctions, by objecting to the reserve price set by theLand Registry, or on a number of procedural grounds. As a result, it takes10 years on average to enforce a mortgage, and a determined debtor canextend the delay beyond that.Many politicians and others regarded the proposed foreclosure law as

draconian, warning that it could have severe social consequences, andsought to insert safeguards, for example, to protect family homes. Theproviders of international financial support had made it clear that they viewedthe enactment of the foreclosure law as a precondition for release of thenext tranche of funds, and after many delays the House of Representativespassed the foreclosure law on September 6, 2014. However, it simultaneouslyenacted six other laws that would inevitably attenuate its effects.

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Article 140 of the Constitution allows the President to refer any law ordecision passed by the House of Representatives to the SupremeConstitutional Court (since 1964 this jurisdiction has been exercised by theSupremeCourt) at any time prior to its promulgation for its opinion on whetherthe law or decision or any specified provision of it is inconsistent with anyprovision of the constitution.If, having heard the arguments on both sides, the Supreme Court decides

that the law or decision or any provision in it is inconsistent with any provisionof the constitution, the law, decision or provision may not be promulgated.On advice from the Attorney General’s office the President has referred

four of the laws passed on September 6, 2014 to the Supreme Court forreview, and the Supreme Court has undertaken to give the matter priority,recognising its importance.The President of the Supreme Court has summarised the methods the

court applies in assessing the legality of executive and legislative acts asfollows:

“(a) by examining the alleged inevitable urgency and need to takeemergency measures or the alleged exceptional circumstancesthat impose the need for restriction of enshrined individual rights,taking into account of course the broad powers of the Executivein this field,

(b) by reviewing the legitimacy of the extent of those measures,based on the principle of proportionality. The measures shouldbe proportionate to the situation at stake,

(c) by exercising judicial review based on the principle of goodadministration, and

(d) on the principle of equality, according to which dissimilarsituations are not to be equated and arbitrary differentiationsamong same situations are not to be made,

(e) by applying the principle of expected trust, i.e. that the citizenis entitled to expect from the Executive and the Administrationthat his or her case will be handled in a fair and equitablemanner, and

(f) by applying the principle that all taxpayers contribute to the taxburdens, in accordance with their capacity (powers).”

The Supreme Court has now decided that the draft laws referred to it areinconsistent with the constitution, but it has not yet released its detailedjudgment.

Maria KyriacouAndreas Neocleous & Co LLC


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Nigeria

FINANCIALMARKETSGovernanceTransparency—Central Bank ofNigeria—Guidelines for Whistle-Blowing and Other FinancialInstitutions 2014—mandatoryarrangements—institutionalpolicy frameworks—protection

Banks; Corporategovernance; Financialinstitutions; Guidelines; Nigeria;Whistleblowing

With effect from October 1, 2014 the Guidelines for Whistle-Blowing forBanks and Other Financial Institutions 2014 (2014 CBN WB Guidelines),issued by the Central Bank of Nigeria (“CBN”), became effective. The 2014CBN WG Guidelines arose from the Exposure Draft on the Guidelines forWhistle-Blowing for Banks and Other Financial Institutions released by theCBN in July 2012.Certainly, this is the most comprehensive guideline on whistle-blowing

applicable to banks and other financial institutions in Nigeria. In issuing the2014 CBN WB Guidelines, the CBN seeks “to encourage stakeholders tobring unethical conduct and illegal violations to the attention of an internaland/or external authority so that action can be taken to resolve the problem”.This is with a view to reducing the concerned organisation’s exposure to thepossible damage that could result from the circumvention of internalmechanisms.Accordingly, banks and other financial institutions under the regulatory

purview of the CBN are required to draw up their respective whistle-blowingguidelines in line with the 2014 CBN WB Guidelines and forward same tothe CBN for approval.

Highlights of the 2014 CBN WB GuidelinesThere are several distinguishing elements in the 2014 CBNWB Guidelines.In the first place, compliance with the 2014 CBN WB Guidelines iscompulsory for all banks and other financial institutions operating in Nigeria.Accordingly, banks and other financial institutions are required to render aquarterly report to the CBN on their level of compliance. Secondly, everybank or financial institution is required to draw up its own whistle-blowingpolicy in line with the 2014 CBN WB Guidelines and submit the same to theCBN within three months of its issuance. Thirdly, auditors are assigned rolesin the whistle-blowing mechanism. In the case of external auditors, they arerequired to report to the CBN annually the extent of compliance with the2014 CBN WB Guidelines by any bank or other financial institution theyaudit. In the case of internal auditors, it is provided that the head of theinternal audit function of the concerned organisation should review reportedcases and take appropriate actions as stipulated. Also, the head of theinternal audit function is required to provide the chairman of the board auditcommittee with a summary of whistle-blowing cases reported and the resultof their investigations. Fourthly, the facilities provided by the concernedorganisation for whistle-blowing shall include a dedicated email address andhotline to the organisation and to the CBN. Also, the facilities should be suchas can assure anonymity. Fifthly, there are provisions for the protection ofwhistle-blowers from detriment on account of any disclosure made by thewhistle-blower in accordance with the 2014 CBN WB Guidelines. Theprotection afforded a whistle-blower includes compensation and/orreinstatement. It is noteworthy that compensation or reinstatement is withoutprejudice to the right of the whistle-blower to take appropriate legal action.Finally, banks and other financial institutions are enjoined to review theirrespective whistle-blowing policies every three years.

Drawbacks of the 2014 CBN WB GuidelinesThere are a few issues which are considered to be the weak points of the2014 CBN WB Guidelines. In the first place, one wonders why thewhistle-blowing provisions are not made part of the Code of CorporateGovernance for Banks and Discount Houses in Nigeria 2014 (2014 CBNCG Code), which was released by the CBN and which would become

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effective the same time as the 2014 CBN WB Guidelines. This would havemade the 2014 CBNCGCode comprehensive, contemporary and complete.Perhaps the justification for extricating the 2014 CBN WB Guidelines fromthe 2014 CBN CG Code is because more organisations (banks and otherfinancial institutions) are covered by the 2014 CBN WB Guidelines thanthose covered by the CBNCGCode (banks and discount houses). Secondly,as noted earlier, the head of the internal audit function is required to rendera report to the chairman of the board audit committee of the concernedorganisation. However, there is no provision regarding what should happenwhere an organisation has no board audit committee but has the auditcommittee prescribed by s.359 of the Companies and Allied Matters Act,Cap. C20, Laws of the Federation of Nigeria 2004, or has no audit committeeat all. Thirdly, it is noted that a whistle-blower can get compensation wherehe suffers any detriment on account of disclosures made in accordance withthe 2014 CBN WB Guidelines. While the basis of the computation of thecompensation is clear and certain in the case of an employee whistle-blower,the situation is unclear in the case of other stakeholder whistle-blowers.Section 4.7 tenuously provides that in the case of “other stakeholders, thewhistle-blower shall be adequately compensated”. Fourthly, the 2014 CBNWB Guidelines did not provide for bounty compensation for whistle-blowersas is the case in the US, where the Securities and Exchange Commissionpays a bounty of up to 30 per cent of the fines or recoveries made on accountof disclosures made by a whistle-blower.

Concluding remarksWithout doubt, the CBN has clearly shown that it appreciates the importanceof whistle-blowing in curtailing wrongdoing and other improprieties in banksand other financial institutions operating in Nigeria. This is particularlyimportant on account of the strategic importance of such organisations tothe Nigerian economy. The 2014 CBN WB Guidelines is indeed acommendable document. However, the drawbacks highlighted are mattersto be taken into account in future reviews of the document with a view todeveloping a robust and reliable whistle-blowing framework for banks andother financial institutions in Nigeria.

Dr Nat OfoCollege of Law, Igbinedion University Okada, Nigeria


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Russia

EXCHANGECONTROLPermitted foreign currencytransactionsFederal Law No.218-FZ of 21July 21, 2014—legality oftransactions by Russianresidents in foreign currency inbank accounts held abroadwithout use of domestic bankaccount—circumstances inwhich restrictions can be eased—reporting requirements

Foreign banks; Foreigncurrency transactions; Russia

Federal Law No.218-FZ dated July 21, 2014 (“the Law”), which took effecton August 2, 2014, sets out the transactions which Russian residents forcurrency control purposes may lawfully undertake in foreign currency in bankaccounts held outside the Russian Federation, without using an accountwith a domestic bank. Amendments to the law on administrative offences,which took effect in February 2013, had inadvertently made certaintransactions technically illegal, and the Law rectifies and clarifies matters.Money may now be lawfully credited to an account held by a Russian

resident (natural or legal) held outside the Russian Federation arising fromthe following circumstances:

payment of interest on the balance in a deposit account;•• payment of the minimum balance required to open an account;• payment of cash into the account;• payment into the account of the proceeds of foreign exchange

transactions performed using funds in the account;• salary and associated amounts received from non-residents

under employment contracts relating to employment outsideRussia;

• foreign currency received as a gift from a spouse or other closerelative

• insurance payments from non-residents;• funds received from non-residents in accordance with the

decision of a foreign court other than the InternationalCommercial Arbitration Court;

• pensions, scholarships, alimony and similar receipts fromnon-residents;

• refunds from non-residents of payments made by the residentin error or for returned or defective goods or services.

If the account concerned is held with a bank located in a Member State ofthe OECD or FATF, individuals may also receive rent for property leased tonon-residents, grants and interest, dividends and other payments on foreignsecurities.In parallel with the easing of restrictions, the Law introduces an extended

reporting requirement. Currently, legal entities and individual entrepreneursare required to report to their local tax office transfers into and from theirforeign bank accounts, accompanied by the underlying document, on aquarterly basis. With effect from January 1, 2015 the obligation to reporttransactions has been extended to all resident individuals, but noannouncement has yet been made regarding the frequency of reports andthe documentation to be submitted.

Nana GuliyanAndreas Neocleous & Co LLC

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Ukraine

FOREIGNEXCHANGEMandatory sale andconversionNational Bank of UkraineResolution 515 on regulation ofthe foreign exchange market ofUkraine—compulsory sale andconversion of all foreigncurrency receipts into localcurrency—applications—exclusions

Foreign currencytransactions; Ukraine

On August 20, 2014 the National Bank of Ukraine (“NBU”) adopted Resolution515 “On regulation of the foreign exchange market of Ukraine” (theResolution), imposing the compulsory sale and conversion of all foreigncurrency receipts into local currency with immediate effect. Previously, therequirement applied to 50 per cent of foreign currency received.The Resolution was effective until November 21, 2014, when it was to be

reviewed and extended or modified. It applies to legal entities apart fromauthorised banks, individual entrepreneurs, foreign representative offices(except official representative offices), accounts opened in authorised banksfor conducting joint activity without incorporation of a legal entity and toforeign currency proceeds received in the accounts of residents openedabroad with the permission of the NBU. It also extends the validity of therequirement for currency proceeds from the export of goods and servicesto be credited to the exporter’s account within 90 days of customs clearancefor the export transaction or confirmation of service delivery, or the receiptof goods and services from overseas for which a prepayment has beenmade.The Resolution does not apply to funds received by the Government, to

funds received under international treaties to which Ukraine is a party or toforeign banks’ correspondent accounts held with authorised Ukrainian banks.The Resolution applies to a wide range of currencies including US dollars,

euros, British pounds and other freely convertible currencies, Russian roublesand precious metals. Authorised banks are required to carry out the saleand conversion on the domestic inter-bank currency market no later thanthe day following the receipt of relevant proceeds.The Resolution also empowers and requires the NBU tomonitor authorised

banks on a daily basis to confirm the validity of transactions carried out onbehalf of customers. The NBU may require banks to suspend operationsthat are susceptible to abuse and to require documentary evidence to supporttransactions.

Anna TsyvinskaAndreas Neocleous & Co LLC


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ICCLR15_26(3)_73-113

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