Is the standard of claiming damages from the EU insurmountable? EU Court Refuses to Recognize Damages UPS Suffered from EC’s Unlawful Ban on Proposed UPS/TNT Transaction | White & Case srl
On February 23, 2022, the General Court of the EU (GC) dismissed a claim for damages of 1.7 billion euros brought by United Parcel Service Inc. (UPS) against the European Commission (EC).1 UPS requested compensation for losses resulting from the EC’s decision to block the merger of UPS with TNT NV (TNT).2 The General Court, which had annulled the EC’s merger ban decision, found that the EC’s violation of UPS’s rights of defense constituted a serious breach of EU law, but dismissed the request for compensation from UPS, finding that there was no causal link between the breach and the damages claimed.
- January 2013: The EC has blocked UPS’s proposed acquisition of TNT because it would significantly impede competition in the market for international express small parcel delivery services in 15 EEA member states. In these Member States, the number of competitors would have been reduced to three – perhaps two – with DHL remaining the only real alternative to UPS. The EC also concluded that the merger would have resulted in higher prices for customers and, in this regard, relied heavily on economic analysis contested by the parties.
- January 2016: The EC cleared the merger between UPS competitor FedEx and TNT Express, closing the way for any consolidation for UPS.3
- March 2017: The GC reversed the EC ban decision, on the grounds that the EC violated UPS’s rights of defense because it did not share the final version of its economic analysis used to analyze the increases in price allegedly resulting from the transaction.4 The GC felt that UPS should have had the opportunity to comment on all the elements on which the EC intended to base its decision, and that this meant that it should have been able to review and comment on the changed business model.
- February 2018: UPS sued the EC, claiming €1.7 billion in compensation for the loss suffered as a result of the EC’s unlawful banning decision.
- January 2019: The Court of Justice of the European Union (CJEU) upheld the 2017 GC judgment.5 See our judgment alert here.
- February 2022: The Court has issued its judgment on UPS’s claim for damages.
Non-contractual liability of EU institutions
The GC has recognized that an individual’s right to seek damages in the event of a breach of law by a public administration (as set out in Article 340 of the Treaty on the Functioning of the European Union (TFEU )) is an essential guarantee of fundamental rights in the EU.
For EU institutions to incur non-contractual liability, three cumulative conditions must be met:
(i) the rule of law violated must have as its object the conferral of rights on individuals and the breach must be serious enough;
(ii) actual damage must be shown to have occurred; and
(iii) there must be a direct link causality link between the breach of the obligation and the damage suffered.
Breach of UPS’s procedural rights was a serious breach of EU law
The GC specified that a violation of a rule of law by the EC is sufficiently serious when the latter has manifestly and seriously disregarded the limits of its discretion. The standard is high, as a balance needs to be struck between protecting individuals against illegal EC behavior and the leeway that needs to be given to EU institutions so as not to paralyze their actions, especially when the CE must conduct complex economic transactions and legal assessments.
The EC argued that the breach of UPS’s rights of defense was not serious enough because the case law was not yet clear on the EC’s obligation to disclose business models to the parties. In any case, before finalizing the economic model, many exchanges on the model had taken place between the EC and UPS. Furthermore, the EC noted that it had been subject to the short and strict deadlines of the EU Merger Regulation and that the case at issue had been particularly complex.
The GC disagreed. If the imperative of administrative efficiency can be taken into account to assess the seriousness of the violation of the rights of defense of the parties, this cannot justify the non-disclosure of the final economic model to UPS.
The GC emphasized that the parties’ right to have access to the file is a necessary corollary of the rights of defense and can only be restricted to protect the legitimate rights of the parties concerned (for example, to prevent the disclosure of commercially sensitive information ). As economic analyzes are important tools for identifying the possible effects of the transaction, they must be made available to the parties before the adoption of the final decision.
Moreover, the economic model was available months before the ban decision was adopted. The EC had no discretion to communicate them to UPS; he just had to provide it. By failing to do so, the EC not only avoided a procedural constraint intended to preserve the legitimacy and fairness of EU merger control proceedings, but also placed UPS in a position where it did not was able to understand some of the reasons for the decision. Accordingly, the first condition of EC liability was met.
However, the General Court found that the EC’s failure to communicate the final business model to UPS resulted in an erroneous substantive assessment of the merger. While acknowledging that the EC had disregarded its own rules and had used an economic model that deviated significantly from current economic practice, the General Court did not find a sufficiently serious breach of the right to the EU giving rise to a non-contractual liability of the EU in this respect.
Consequently, the sufficiently serious breach was limited to a breach of procedural rights and did not extend to the substantive assessment of the concentration. This result may have influenced the GC findings on causation, as described below.
Absence of causal link between the alleged prejudice and the failure of the EC
UPS sought damages of 1.7 billion euros due to the EC ban decision. It included: (i) a shortfall of €1.6 billion, reflecting the net value of the synergies from the proposed UPS/TNT transaction; (ii) a payment of €200 million to TNT as a severance payment for not having concluded the transaction; and (iii) costs associated with UPS’s participation in the merger process of the subsequent FedEx/TNT transaction.
The General Court dismissed all of UPS’s claims on the basis of the absence of a causal link between the damages sought and the breach of UPS’s procedural rights by the EC.
According to the GC, it could not be assumed that the UPS/TNT transaction would have been approved if UPS’s procedural rights had not been violated. In particular, the Tribunal concluded that UPS had failed to provide evidence that the errors made by the EC in the economic model were sufficient to invalidate it entirely and that the outcome of the case would have been different if the errors had not been committed.
This imposes a very high burden of proof on the party seeking damages. Essentially, for the EC to be liable, the EC’s error must be serious enough to indicate that, but for the error, the outcome of the case might have been different. This is a very high standard, which UPS said was in fact insurmountable. Presumably, the Tribunal’s conclusions would have been different if the serious violation had not been limited to a violation of procedural rights but had extended to the assessment on the merits.
The Tribunal also noted that the EC’s decision was not based solely on the business model and therefore the violation of the rights of defense was unlikely to have a decisive impact on the outcome of the examination. merger control. Furthermore, the Court held that UPS’s decision not to proceed with the proposed transaction following the EC prohibition decision and not to submit a new offer for TNT had the effect of severing all direct causal link between the breach of procedural rights and the alleged harm. The GC relied on Schneider Electric, where the CJEU overturned the previous GC decision which had found a sufficient causal link between the illegality of the EC and the damages claimed.6
FedEx/TNT transaction breakage and intervention fees
The Tribunal also found that the payment of the severance fee and UPS’s intervention in the FedEx/TNT transaction resulted from UPS’s business decisions and not from a breach by the EC of UPS’s procedural rights.
According to the GC, the payment of the severance fee to TNT resulted from a contractual obligation arising from the agreement between UPS and TNT and reflected the willingness of the parties to share the risk that the EC would not approve the transaction considered. Similarly, UPS’s participation in the merger control procedure of the subsequent FedEx/TNT transaction was the result of UPS’s free choice. Thus, the EC’s violation of UPS’s procedural rights could not “constitute the determinative cause” of the damages sought.
This effectively rules out the possibility that the EC may be liable for severance or transaction fees, even if it commits a serious breach of law and even if the parties are able to demonstrate that the outcome of the review of the EC could have been different if this breach.
Take away food
The judgment confirms that while the EC can, in principle, be held liable for damages if it infringes the rights of defense of the parties when examining the concentration, the criterion for proving such damages and above all their causal link with the authority’s error is practically insurmountable, because one already necessary to suspect based on the Schneider Electric judgment of 15 years ago. The judgment thus raises the question of whether any error made by the EC in the context of merger control can give rise to liability for the losses suffered by the parties.
The T&Cs effectively exclude the possibility of the parties being reimbursed for transaction fees, break fees or any other losses resulting from the parties’ “free choice” to enter into the transaction and to allocate the antitrust risk between them. Such a standard seems to ignore business reality.
Similarly, obtaining damages for lost profits is equally difficult, as the plaintiff is required to prove that the merger would have been approved had there not been a procedural error on the part of the company. ‘authority. For the non-contractual liability of the EU to be more than illusory, it must be reassessed whether the burden of proof must be reversed so that the EC has to prove that its procedural errors had no effect on the result. of its merger decision.
Giulio Preti (Legal trainee, White & Case, Brussels) is co-author of this publication.
1 Judgment of 23 February 2022, United Parcel Service v Commission, T-834/17, EU:T:2022:84 (the judgment).
2 Commission decision of 30 January 2013 in case M.6570 – UPS/TNT EXPRESS.
3 Commission decision of 8 January 2016 in case M.7630 – FEDEX/TNT EXPRESS.
4 Judgment of 7 March 2017, United Parcel Service v Commission, T-194/13, EU:T:2017:144.
5 Judgment of 16 January 2019, Commission v United Parcel Service, C-265/17 P, EU
6 Judgment of 16 July 2009, Commission v Schneider Electric, 440/07 P, EU:C:2009:459.