EU Cartel Fines; Ability to Pay Becomes Highly Relevant
On June 23, 2010, the European Commission recognized that even its flagship
policy (the fight against cartels) must take into account the financial crisis.
In adopting a decision fining 17 bathroom equipment manufacturers a total of EUR
622 million for a 12-year cartel covering six EU countries, the Commission took
into account that five of the companies were financially in “very bad shape
already,” and accordingly reduced the levels of their fines to “a level they
should be able to pay.” This approach is referred to in the Commission’s 2006
guidelines on fines, but only now has it become of real practical relevance.
Of the 17 companies, 10 claimed they would be unable to pay, but the
Commission found that only half of these claims were justified. This required a
case-by-case analysis of financial statements and projections, profitability,
solvency and liquidity, as well as the relations between the companies and their
banks and shareholders, and “the social and economic context of each company”
(which would appear to leave a wide discretion). The justification for
reductions in fines, where appropriate, is that pushing a company into
bankruptcy would inevitably reduce competition.
A further illustration of the new importance of this ability-to-pay analysis
was provided by the June 30, 2010, decision of the Commission in which it fined
17 producers of prestressing steel a total of more than EUR 518 million. Three
of the fines were reduced by inability-to-pay arguments, albeit a further 10
companies had these applications denied. Also of importance in this decision was
the finding that two companies did not fulfill their obligations to cooperate as
leniency applicants, and therefore did not receive any reduction in their fines.
European Commission Commitments Procedure Approved by European Court of
In a judgment described by the Commission as “very important,” on June 29,
2010, the European Court of Justice (ECJ) upheld the Commission’s use of
commitments to settle competition law investigations.
The case arose out of the Commission’s 2006 decision to accept De Beers’ (the
world’s largest rough diamond producer) offer of commitments to progressively
phase out by 2009 purchases of rough diamonds from Alrosa (the world’s second
largest rough diamond producer). This ended an investigation of De Beers under
Article 102 of the Treaty on the Functioning of the European Union (which
prohibits the abuse of a dominant position in the EU).
The essence of the ECJ’s judgment is that the commitments procedure is
voluntary and accordingly cannot be compared with a case in which the Commission
imposes remedies on a party: “undertakings which offer commitments consciously
accept that the concessions they make may go beyond what the Commission could
itself impose on them in a decision adopted by it.” It had not been shown that
the commitments manifestly went beyond what was necessary to address the
concerns expressed by the Commission.
The Commission will be relieved by this judgment, as it has been making
very wide use of the commitments procedure to settle cases, and it has become an
important tool in its armory.
UK Directors Face Further Compliance Challenges
On June 29, 2010, the UK Office of Fair Trading (OFT) published revised
guidance on director disqualification orders in competition law cases, signaling
its intent to use these sanctions to deter anticompetitive activity. In a
statement, the OFT said, "[the] guidance should be taken as a clear message that
we will actively seek disqualification of directors found to have engaged in
anti-competitive behavior or who ought have known it was going on"
(emphasis added). The intention is to increase the incentives on UK directors to
take responsibility for competition law compliance by their companies.
The guidance sets out how and when the OFT and certain UK sectoral regulators
will take action to disqualify directors where they uncover evidence a director
was responsible for, or ought to have known of, competition law breaches at a
company. The nature of the breach is relevant and action is "more likely . . .
in cases involving more serious breaches" (which principally means cartels).
Under the UK Company Directors Disqualification Act, a director can be
disqualified from acting as a director for up to 15 years if his company is
involved in a breach of competition law and the court considers that he is unfit
to be concerned in the management of a company as a result.
It can be noted that the OFT's specific powers to seek a disqualification
order for infringements of competition law have never been used. The three
individuals convicted in June 2008 of the UK cartel offence for their
involvement in the marine hose cartel were disqualified from acting as directors
under the general powers available to UK courts in relation to directors who
have committed a criminal offence.
Although concerning anticorruption, it is further interesting to note that
the new UK Bribery Act 2010 has also increased the compliance difficulties faced
by directors of UK companies. That act (which has a wide extraterritorial scope)
includes a strict liability offence with unlimited fines for commercial
organizations of failing to prevent bribery being committed. It is a defense for
the company to show that it has put in place "adequate procedures" (which is
undefined but will no doubt include competition law-type compliance programs)
designed to prevent persons associated with the company from undertaking corrupt
These developments provide further illustrations, as if they were needed, of
the ever-increasing importance of compliance programs and training covering
competition law and corruption issues in the UK.
Additional EU/UK competition law news coverage can be found in our
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