We previously wrote on the General Court’s (GC) ruling in the Deutsche Bahn (T-289/11, T-290/11 and T-521/11, see our briefing).  In this briefing we look at the Court of Justice’s (CoJ) ruling (C-583/13P), which overturns a critical point of appeal on rights of defense and invalidates dawn raids carried out by the European Commission (EC) as a result.

Background

In March 2011, the EC carried out inspections at the premises of Deutsche Bahn (DB) on the basis of evidence that led it to believe that DB might have abused its dominant position by granting its subsidiaries certain preferential rebates for the supply of electric traction energy. While briefing its officials before the inspection, the EC disclosed to them that DB was also the subject of an unrelated complaint by a third party concerning a different abuse by another of its subsidiaries in a different sector.

During the inspection initiated on the basis of the first inspection decision, EU officials found documents pointing to this other possible infringement of Article 102 TFEU that formed the subject of the complaint. In order to legally gather evidence of this possible second infringement, the EC adopted a second inspection decision whilst its agents were still at DB’s premises. After the first and second inspections ended, the EC adopted yet another, third, inspection decision in July 2011, allowing it to return to DB’s premises to seek further evidence.

Reminder on the General Court’s Judgement

DB contested the legality of the three inspection decisions on a number of grounds including the fact that the second and third inspections were based on information obtained illegally during the first inspection.  It argued that documents outside the scope of an inspection decision cannot be used by the EC in evidence and should not have been collected in the first place.

The GC dismissed the argument on the basis that there was no evidence that the EC officials had specifically searched for documents unrelated to the initial inspection decision.  The documents in question were uncovered while the officials were busy executing the initial inspection decision.  The GC reminded that while the EC cannot purposefully seek out documents unrelated to an inspection decision, it does not have to ignore potentially incriminating evidence that it may stubble upon while executing the decision.  DB appealed the GC’s judgment.

The Court of Justice rejects the “Fortuitous” Character of the Evidence Discovered and Sanctions What Is in Essence a “Fishing Expedition”

Although the CoJ agreed with the GC on a number of points, including on the fact that EC dawn raids do not require prior judicial authorisation, the CoJ sided with DB on its “fishing expedition” challenge.

Going back to basics, the CoJ laid out the procedural and case-law landscape:

  • Under Article 20(4) of Regulation 1/2003 and supporting case-law (including Nexans and Nexans France v. Commission – see our briefing), the EC must state reasons for a decision ordering an investigation by specifying the subject-matter and the purpose.
  • In addition, under Article 28(1) of Regulation 1/2003 and supporting case-law, the EC cannot use information obtained during investigations for purposes other than those indicated in the inspection decision.
  • But the EC can nevertheless initiate an inquiry in order to verify or supplement out of scope information that it “happened” to obtain during a previous inspection if that information indicates anticompetitive conduct (Dow Benelux v. Commission).

And in the DB case, precisely, the CoJ decided that the EC did not just happen to discover some new information while executing its inspection decision. The EC had previously shared with its officials information about a complaint that was not part of the general background on the case:  it was about a totally separate complaint.  Since the complaint was unrelated to the subject-matter set out in the first inspection decision, the EC had failed in its obligation under Regulation 1/2003 to state reasons for the investigation and had infringed DB’s rights of defense: “it is manifestly clear that such provision of information does not fall within the subject-matter of the first inspection decision and therefore disregards the safeguards forming the framework for the Commission’s powers of inspection” (para.67).

Applying something like a “fruit of the poisonous tree” approach to the matter, the CoJ held that the second inspection decision was illegal too since it relied on information discovered during the first inspection.  And this “domino effect” also caused the illegality of the third inspection decision, which partially relied on information from the first and second inspections decisions.

Final Thoughts

The immediate impact of this judgement is rather limited. First, for the parties to the case, since it was closed through commitments prior to the CoJ’s judgement and will therefore not change the course of things. Secondly, it is also limited in terms of direct impact on the EC’s inspection powers, (i) since the case very much turns on its own narrow set of facts and (ii) since most companies are unlikely to be able to raise a similar point in the future given that they are not generally privy to the content of pre-inspection briefings.

However, the judgement is a useful reminder to the EC that its inspection powers are not unfettered and that the European courts will hold it to a certain standard when it comes to ensuring that the scope of the inspection decision is respected. During a dawn raid, ensuring that the officials remain within the strict boundaries of the scope of the investigation as defined in the inspection decision, even though generally widely drafted, is obviously always crucial. To some extent, this judgement gives a renewed importance to this fundamental right of defense and may go some way to facilitate discussions on scope between the EC and the company during dawn raids.