Australia: Compensation Awarded To French Company For Loss Resulting From Wrongful Prohibition Of Merger

Last Updated: 12 September 2007

On 11 July 2007, the European Court of First Instance (CFI) delivered its long-awaited judgment in the appeal of Schneider Electric S.A. (Schneider) against the decision of the European Commission (Commission).1

The CFI ruled for the first time that a merging party can be compensated for losses sustained as a result of the illegal prohibition of its merger.

Background

In October 2001, the Commission prohibited Schneider’s acquisition of Legrand and ordered the divestment of Legrand. Schneider appealed the Commission’s decision. In the meantime, in anticipation of not succeeding in its appeal, Schneider prepared for its divestiture of Legrand. In July 2002, Schneider concluded a contract of divestiture with the Wendell-KKR consortium which had to be executed by 10 December 2002 at the latest.

However, in October 2002, the CFI annulled the Commission’s decision prohibiting the merger. In its decision, the CFI found that the Commission had failed to have regard to Schneider’s rights of defence, since the Commission had advanced for the first time in its decision, an objection to the merger that Schneider had not had an opportunity to comment on. The Commission re-examined the merger and in November 2002, it informed Schneider that it was beginning an in depth (stage two) investigation of the merger. However, this was closed in December 2002 when Schneider voluntarily sold Legrand to the Wendel-KKR consortium.

Standard for awarding compensation

In its judgment on the compensation claim, the CFI considered the standard, set out in its case law, for determining whether the European Community should incur liability for damages for unlawful conduct by its institutions or its officers in the performance of their duties. The standard of review is whether there was ‘a grave and manifest disregard of the limits of their powers of assessment’.

The rule takes into account the complexity of the situations to be regulated, difficulties in the application or interpretation of the legislation, and the margin of discretion available to the Commission in its appraisal and in the application of rules such as the competition law provisions. Where the Commission’s actions can be explained by the objective constraints of the merger control procedure, the Commission is not liable. For example, the CFI reiterated that the Commission shall be afforded some latitude in its forward-looking analysis and in its interpretation of complex economic data, and that logical and consistent application of sound economic theory should not be susceptible to a successful action for damages. Therefore, it is less likely that a damages action would succeed on substantive grounds. However, in cases where there is a considerably reduced or even no discretion, the mere infringement of law may be enough to establish the existence of a sufficiently serious breach.

Basis for compensation award

European law provides that, before taking any decision, the Commission must, at every stage of the procedure, give the parties concerned the opportunity of making known their views on the objections against them. Further, the Commission must base its decision only on objections on which the parties have been able to submit their observations.

The CFI found that the infringement of Schneider’s right to be heard before the Commission made its decision was a straightforward procedural measure, and failure to observe this requirement could not be justified by any particular constraints to which the Commission was subject or by any margin of discretion. The Commission’s failure to respect Schneider’s rights of defence was therefore in itself a serious and manifest failure, which entailed an obligation to make compensation for its harmful consequences.

The CFI decided that Schneider had a right to compensation in respect of two categories of financial loss:

  • Expenses incurred in relation to the merger control procedure when the Commission re-examined the merger following the CFI's annulment ruling.
  • The reduction in the divestiture price which Schneider had to concede to Wendel-KKR in order to obtain a postponement of the execution of that divestiture. The CFI decided that only two-thirds of this loss should be compensated, as it considered that Schneider had itself contributed to its own loss.

This case is unusual because Schneider had already acquired the Legrand shares at the time of the prohibition decision. In many circumstances, offers are conditional on regulatory approval meaning the second type of loss will not arise.

Next steps

The precise amount of the losses will now be assessed. Schneider initially claimed €1.66 billion (AU$2.77 billion). The CFI gave Schneider three months to submit evidence on the first category of loss and an expert will be appointed to assess the second category of loss.

The Commission has appealed to the Court of Justice on the basis that firstly, it was Schneider’s decision to sell Legrand and secondly, the error was not significant enough to prompt a compensation claim. There is a similar compensation case being brought against the Commission by Airtours (now MyTravel).

While corporations can seek review of merger clearance decisions by the ACCC in Australia, no company has ever been awarded compensation following an adverse ACCC decision.

Footnotes

1 CFI case number T-351/03.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions