In Short

Background: Following excessive delays before the General Court, Gascogne, Kendrion, and ASPLA claimed compensation after waiting some five years each in their appeals of the "industrial bags" cartel fines.

The Result: For the first time, the EU General Court awarded damages for delayed proceedings within its own chambers. The General Court also set out what constitutes undue delay in cartel cases.

Looking Ahead: Both the European Union and Gascogne initiated appeals before the EU's highest court in challenge of the General Court's decision. The Court of Justice's rulings are not anticipated before early 2018.

The controversy continues over damages for excessively lengthy proceedings at the European Union ("EU") General Court. In March 2017, both the EU and Gascogne initiated appeals before the EU's highest court in challenge of the General Court's first-ever damage award in Gascogne for delayed proceedings within its own chambers. This Gascogne ruling of 10 January 2017 was quickly followed by two additional damage awards for delayed proceedings in Kendrion and ASPLA. The General Court found that the claimants in all three cases satisfied the test for invoking the EU's non-contractual liability, incurred in the context of delayed rulings on their appeals of cartel fines imposed by the European Commission. In particular, the General Court set out what constitutes undue delay in this type of cases.

Background

In 2013, the Court of Justice ("CoJ") upheld fines against Gascogne and Gascogne Germany (together, "Gascogne"), as well as Kendrion, for their involvement in the "industrial bags" cartel but determined that the appeal proceedings had taken too long before the General Court (more than five years). In 2014, the CoJ again determined that the General Court untimely ruled (more than five years) in ASPLA's and Almando Alvarez's (together, "ASPLA") challenge of the Commission's decision in the same "industrial bags" cartel.

In determining the remedy for delayed proceedings, the CoJ refused claims for a reduction in the fines imposed. However, it indicated that the General Court's failure to adjudicate within a reasonable time gave rise to the remedy of a separate action for damages before the General Court, invoking the non-contractual liability of the EU (pursuant to Article 340 TFEU), as represented by the Court of Justice of the European Union ("CJEU").

Pursuit of Damage Claims for Delayed Proceedings

In three separate actions for damages, Gascogne, Kendrion, and ASPLA claimed compensation for the General Court's delay in ruling on their appeals of the cartel fines. Judges from the General Court, sitting in a composition differing from the one implicated in the delayed ruling, awarded damages against their own court in these three cases.

The claimants argued that the General Court had violated their right to a fair trial by taking an unreasonable time to rule on their appeals. In each case, the claimants sought compensation for both material damages (arising essentially from the costs of financing their exposure to the fine) and non-material damages, including the harm caused by reputational damage and uncertainties caused by the delay.

Material Harm. In Gascogne v. European Union (Case T-577/14 of 10 January 2017), the General Court found that the EU's non-contractual liability was engaged, based on meeting the three cumulative conditions below, and awarded €47,064 for material harm:

  1. The unlawful conduct of the institution resulted from an infringement of the fundamental right to a fair trial within a reasonable time, as guaranteed by Article 47 of the Charter of Fundamental Rights of the EU. This was evidenced by the 46 months that elapsed between the written and oral proceedings before the General Court, which could not be justified by any of the specific circumstances of the case and far exceeded the General Court's own calculation that the proceedings should have taken 26 months (i.e., 15 months between written and oral arguments in litigation concerning the application of competition law, such as the Gascogne case, with an extension of 11 months in view of the parallel review of 11 other related proceedings), thereby constituting an unjustified delay of 20 months;
  2. An actual and certain damage occurred, due to the additional payment of bank guarantee costs covering the unpaid cartel fine during the period in which the reasonable time for adjudicating was exceeded; and
  3. A causal link existed between Gascogne's damages suffered and the untimely proceedings, given the additional costs incurred from Gascogne's prolonged bank guarantee costs. In this respect, the General Court emphasized that the causal link could not, contrary to the CJEU's claim, have been severed by Gascogne's initial decision against immediately paying the fine imposed by the Commission and to instead provide a bank guarantee.

More specifically, the material harm recognized by the General Court did not actually correspond to the unjustified 20-month delay. Rather, Gascogne was compensated for a far shorter period of delay of about six months, based on two determinations:

  1. Start of Damage Period. First, the General Court could not deviate from Gascogne's own claim as to the start of the period of damage (i.e., 30 May 2011, the date on which the CoJ should have ruled on the appeals against the General Court's judgments of 16 November 2011, making the Commission's decision final). Allowing Gascogne to nonetheless recover damages prior to such date would result in an impermissible ultra petita ruling.
  2. End of Damage Period. Second, the General Court determined that the damage period ended once it finally issued its delayed judgment upholding the Commission's fine on 16 November 2011. It rejected Gascogne's claim that the damage period ran until when it actually paid its fine on 12 December 2013. The General Court indicated that it was Gascogne's own choice to defer payment of the fine and instead to appeal its case before the CoJ.

Furthermore, the General Court dismissed Gascogne's claim for compensation for the alleged loss of an opportunity to find an investor sooner. The General Court also rejected the applicants' claim of some €1.2 million for payment beyond a reasonable period of default interest of 3.65 percent on the amount of the fine, as Gascogne did not demonstrate that such interest exceeded the benefit of having the amount of the fine at its disposal during such period.

Non-Material Harm. Concerning non-material harm, Gascogne claimed that the breach of the obligation to adjudicate within a reasonable time gave rise to non-material damage of several kinds (including reputational harm and uncertainty in business planning), amounting to "at least" €500,000. While acknowledging that these claims were set out in a cursory and unsupported manner, the General Court conceded that the extended state of business uncertainty faced by the companies exceeded what normally ensues from litigation and ordered the EU to pay compensation of €5,000 to each of the two applicants for non-material harm.

Based on the need to ensure compliance with the rules of EU competition law, settled case law dictates that the failure to adjudicate within a reasonable time when examining a legal action brought against a Commission decision imposing a fine cannot lead to the annulment, in whole or in part, of the fine imposed by that decision. Interestingly, the General Court further stretched this principle in Gascogne. It pointed out that the extent of the compensation sought by the applicants as reparation for non-material damage suffered would, if awarded, have the effect of reopening the question of the amount of the fine imposed by the Commission. It remains to be seen whether such a statement is to be interpreted as a general (and somewhat questionable) rule limiting the potential non-contractual liability of the EU, in view of preserving the effectiveness of EU competition law and the deterrent effect of fines imposed by the Commission.

Thus, the total award of some €57,000 (corresponding to €47,064 for material harm and a total of €10,000 for non-material harm) fell well below Gascogne's claim of €3.89 million in damages. The EU nonetheless filed an appeal on 17 March 2017, against the General Court's judgment before the CoJ, challenging the legitimacy of such damage award (European Union v. Gascogne Sack Deutschland and Gascogne (Case C-138/17 P)). Gascogne also initiated an appeal on 22 March 2017, reportedly challenging the insufficiency of the award in terms of the short time-frame used to calculate the bank guarantee costs and the low amount of damages for non-material harm (Gascogne Sack Deutschland and Gascogne v. European Union, (Case C-146/17 P)).

Kendrion and ASPLA. The Gascogne ruling was followed by the General Court's judgments in Kendrion v. European Union (T-479/14 of 1 February 2017) and ASPLA v. European Union (T-40/15 of 17 February 2017). These cases affirmed the General Court's approach to determining the EU's non-contractual liability for excessively lengthy proceedings.

In these cases, the General Court also found undue delay, again measuring the reasonableness of the time elapsed between the written and oral phases of the contested proceedings before its chambers:

  • In Kendrion, which sought some €13.35 million in damages, the General Court awarded nearly €600,000 in material damages. This corresponded to Kendrion's bank guarantee costs (€588,769), under the same time-frame of damages as calculated in Gascogne. The non-material damage award of only €6,000 reflected, once again, inadequate proof of reputational harm and uncertainty costs.
  • In ASPLA, which claimed some €3.5 million in damages, the General Court awarded €155,993 in material damages, corresponding to bank guarantee costs for a period calculated according to the same method as in Gascogne and Kendrion.

In an additional case of delayed proceedings at the General Court, Aalberts Industries (T-725/14 of 1 February 2017), the claimant waited four years for the General Court to overturn the Commission's fine imposed in the "copper fittings" cartel, with the CoJ affirming the General Court's ruling in 2013. However, the General Court rejected Aalberts's subsequent claim for damages, finding that there was no unjustified period of inactivity during the contested proceedings.

Impact of Rulings

Gascogne sets out a measuring stick for determining a reasonable time-frame for treating cartel proceedings before the General Court—i.e., the timespan between written and oral arguments should be limited to 15 months. This period can be extended, taking into consideration various factors particular to each case (such as complexity of the dispute, conduct of the parties, review of parallel proceedings, and so on). The General Court confirmed this method of determining the reasonable length of proceedings in the subsequent Kendrion, ASPLA, and Aalberts rulings.

While the EU can clearly be held liable for delayed cases, it must also be kept in mind that the General Court nonetheless dismissed most of the claimed damages, largely restricting its awards to bank guarantee costs, based on a carefully drawn-out time-frame. Non-material damages were awarded on a nominal basis, largely due to inadequate proof of such damages.

A similar damage claim remains pending in Guardian (Case T-673/15), where the General Court took nearly 4.5 years to rule on the appeal in the flat-glass cartel, including a period of almost 3.5 years that elapsed between the written procedure and the oral procedure. In the face of the General Court's four recent judgments, damages awards would appear likely, but again, restricted amounts may be expected.

For parties who have endured long waits before the General Court, it appears from these first rulings on damage claims that potential litigants should, in particular, be well-armed with evidence in the face of a scrutinizing court and carefully delineate the time-frame of harm to align with the contours set out in these rulings.

However, as the appeals of the initial damage award in Gascogne remain pending, potential litigants will be watching to see whether such award is upheld. The two rulings would not be anticipated before early 2018.

Three Key Takeaways

  1. The General Court has established what constitutes undue delay in cartel cases. The timespan between written and oral arguments before the General Court should be limited to 15 months but can be extended depending on the particular factors of each case.
  2. The damage award by the General Court for delayed proceedings in its own chambers is significant. But even if the award is upheld, the European Courts likely will heavily scrutinize damage claims, which will probably be restricted to well-defined damages on a carefully delineated time-frame of harm.
  3. Pending the appeals to the Court of Justice in Gascogne, with rulings not expected until early 2018, the fate of these first-ever damage awards for delayed proceedings remains in suspense.