It may sound counterintuitive: Striking a deal with a regulator to conclude a cartel investigation, only to later challenge the very same decision in court. The General Court recently had to deal with this situation in relation to the Ethylene cartel and clarified some important aspects of the European settlement procedure. Here is what companies facing similar situations should strategically consider in the future.
In July 2020, the European Commission imposed a fine of EUR 260 million on three companies for running a purchasing cartel in the ethylene merchant market. The case garnered attention not only due to the substantial fine but also because it is only one of very few cartel decisions relating to purchasing activities.
The Commission found that the companies coordinated their price negotiation strategy vis-à-vis suppliers to influence the monthly contract price to their advantage. One company received full immunity for exposing the cartel while the three others benefited from reductions of their fines for their cooperation with the Commission. So far, so good.
A settlement – not always the end of the road
However, Clariant, the company subjected to the highest fine by the Commission, a staggering EUR 155 million, did not stop there. It decided to challenge the Commission’s decision in court, despite having accepted a maximum fine of EUR 159 million during the settlement proceedings.
In its complaint to the Court, Clariant inter alia argued that the Commission breached principles of proportionality and sound administration and requested a reduction of the fine. More specifically, it disputed the Commission’s increase of the fine applied pursuant to points 28 (recidivism) and 37 (deterrence) of the Guidelines on the method of setting fines. This was ultimately rejected by the Court (the decision can be found here; the reasoning for the rejection of Clariant’s claim contains very interesting details, in particular on the similarity of conduct, but would go beyond the scope of this post).
The Commission, on the other hand, filed a counterclaim asking the court to increase the fine by not granting a reduction of 10% for Clariant’s cooperation during the administrative procedure as foreseen under the settlement notice. This was based on the following key arguments:
- Clariant’s actions during the administrative proceedings were purely strategic and aimed solely at securing a reduction of the fine, with the intent to later challenge the decision based on the same facts and matters agreed upon, in order to obtain further reductions from the Court.
- The objective of the settlement procedure was to expedite the resolution of cartel cases and handle a greater number of cases with the same resources. Clariant’s behavior during the settlement procedure and the subsequent litigation phase undermined this goal.
- The Commission drew a parallel to court decisions related to the withdrawal of fine reductions under the leniency notice, where reductions can be rescinded if an applicant challenges, for the first time, facts established during the administrative proceedings.
- Finally, withdrawing the 10% reduction was not a punishment for exercising the right to judicial review, but a consequence of applicants questioning facts they had previously acknowledged and confirmed.
No harm in trying
The Court, however, also rejected the counterclaim by the Commission. In its reasoning, the Court first sets out the key principles of a settlement proceeding, highlighting that the settlement decision is based in essence on the fact that the parties have unquestionably acknowledged their liability, have not disputed the statement of objection and have kept their commitment to achieve a settlement.
The Court further stressed its unlimited jurisdiction, allowing it to increase fines. Nevertheless, the Court ruled that the Commission failed to demonstrate that such an increase was warranted for the following main reasons:
- Parties must only accept a likely range or maximum amount of the fine to enter into the settlement procedure, but not all of its parameters such as adjustments for recidivism or deterrence. Clariant did not accept these specific increases. Accepting a maximum fine is not the same as accepting the final fine amount, the method of calculation, and the Commission’s reasoning.
- The Court noted that Clariant consistently expressed its disagreement with the application of these two points. Therefore, the Commission could not argue that it was misled by Clariant but was well aware of Clariant’s legal position. A change in the applicant’s attitude cannot be assumed.
- Finally, the Commission could choose to discontinue settlement discussions at any time during the procedure. The Commission also benefited from the settlement procedure by having to produce a simplified version of the statement of objections and the disputed decision only.
Raise your voice
While Clariant did not succeed in this case, the ruling illustrates that under specific circumstances, it might be advantageous for companies to engage in settlement negotiations and accept a settlement decision, even if they find some legal details unconvincing. Companies pursuing this strategy should ensure that they voice their concerns during negotiations with the regulator and attempt to exclude these points from the final decision.
Photo by Vlad Sargu auf Unsplash
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