Following this judgment, a claimant is likely to succeed in a damages action against the Commission in relation to a merger decision only in the most extreme of cases.

On 9 September 2008, the European Court of First Instance (CFI) rejected a claim for damages brought by MyTravel Group plc (MyTravel) against the European Commission for loss suffered as a result of the Commission’s incorrect decision to prohibit its merger with First Choice plc (First Choice). In doing so, it set out the circumstances in which the Commission could be liable for such loss for the first time. In the event, the CFI set a high threshold which will likely prove difficult for future claimants to satisfy in practice.

Background

In 1999, the proposed merger between MyTravel (then Airtours plc) and First Choice was blocked by the Commission. According to the Commission, the proposed merger would have created a collective dominant position in the relevant market. MyTravel appealed this decision and, in 2002, the CFI annulled the Commission decision on the grounds that the Commission had committed a series of errors of assessment. Subsequently, in 2003, MyTravel brought a damages action against the Commission arising from the delay to the merger caused by the incorrect decision. Specifically, it claimed for loss of profits, loss of synergy savings and abortive bid costs for the period between the decision and its subsequent annulment.

Analysis

MyTravel’s claim was based on two allegations: (1) that the Commission made serious failures in assessing the effects of the merger (so-called “tier-one” failures) and (2) that the Commission failed to take into account the evidence submitted and to provide adequate reasons (so called “tier-two” failures). In both cases, MyTravel lost on the following bases:

  • The right to damages existed in principle, but MyTravel needed to show a “sufficiently serious breach of a rule of law” to be successful. The fact that the CFI annulled the Commission’s decision did not mean in itself that a sufficiently serious breach had occurred.
  • Mere errors of assessment or a failure to consider certain evidence are not “sufficiently serious”. The fact that the Commission erred in its assessment or failed to consider certain information should be considered in light of the Commission’s onerous tasks in the merger process in question—specifically, the complexity and prospective nature of the analysis the Commission needed to undertake, as well as the short time frame within which it had to do it.
  • For a successful claim, there should be evidence that the Commission had made “manifest and grave defects” during its decision making process. The Commission had wide discretion in its decision making process, and will avoid liability where it is capable of explaining the reasoning behind its assessment and such reasoning is well founded, even if wrong.

Implications

Following this judgment, a claimant is likely to succeed in a damages action against the Commission in relation to a merger decision only in the most extreme of cases. It is clear that the CFI was mindful of the impact that a decision in favour of MyTravel would have on the day-to-day workings of the Commission’s merger team—namely, the risk that the Commission would adopt an overly permissive attitude to concentrations, for fear of exposure to large damages claims.

That said, since several “checks and balances” were put into place following criticism of the original Airtours/First Choice decision, and several other annulled decisions, the circumstances in which a claimant would feel the need to pursue a damages claim against the Commission has, in theory, been reduced. Specifically, in 2003, the Commission introduced a “panel” peer review system. Under this system, merger decisions are scrutinised by another department to ensure the soundness and accuracy of the reasoning involved. In addition, the Commission has the power to suspend the investigation timetable when requesting further information or considering commitments, which affords the Commission more time to consider all the evidence and review its decision making processes.

Finally, it should be noted that the principles of the case will likely apply to Commission decisions made under Article 81 or 82 EC. But given that those investigations are not subject to the same time constraints as those relating to merger control, it may be that the CFI will be less inclined to defend/protect the Commission’s liability for errors made in its decision making process.