Since the introduction of the European Commission’s (EC) settlement procedure in 2008, just over one in five of all its settlement cases have involved at least one party dropping out of the settlement procedure. This has usually led to settlement and standard infringement proceedings being pursued in tandem against the various participants of the same cartel. Such hybrid cases have turned out to be a more frequent occurrence than “the exception” that the EC had initially envisaged.
Settlement negotiations, particularly if certain parties are at risk of dropping out, entail complex and strategic decision-making by the parties. The EC’s future procedural practice in its hybrid cases, i.e., whether it decides to run the settlement and non-settlement proceedings in parallel or by way of the adopting the settlement decision followed by the standard ordinary infringement decision, will have a significant influence on parties’ settlement strategies in the future. The General Court’s judgments in ICAP and Pometon have provided diverging assessments as to the legality of the EC’s historical preference to run hybrid cases in a staggered procedure. The EC’s apparent practice in its first hybrid case since these judgments, Forex, suggests that the EC has been comforted by the more recent Pometon judgment in order to continue running hybrid cases in a staggered format in the future.
THE GENERAL COURT’S JUDGMENTS IN ICAP AND POMETON
ICAP, an interdealer broker, withdrew from settlement negotiations with the EC in relation to the Yen Interest Rate Derivatives (YIRD) cartel case in November 2013. In December 2013, the EC settled with all of the other banks and another broker involved in the same case. The EC reverted to standard infringement proceedings, sent a Statement of Objections to ICAP and then eventually fined ICAP in February 2015 for facilitating the cartels that had been established in the 2013 settlement decision.5
In ICAP’s application for annulment against the EC’s standard infringement decision, the General Court held that the EC had breached ICAP’s rights of defense and, in particular, the presumption of innocence, by describing ICAP’s role as a facilitator in the 2013 settlement decision6 which was not addressed to ICAP. The EC had, in effect, prejudged the outcome of its investigation against ICAP prior to even formally starting its proceedings against it and ICAP had not been granted an opportunity to defend itself against the EC’s allegations in the 2013 settlement decision. Nevertheless, the Court ruled that this did not vitiate the legality of the EC’s infringement decision against ICAP as its substance would have been the same absent this breach of ICAP’s rights of defense. The EC has appealed the General Court’s judgment but only in respect of the General Court’s annulment of the EC’s fines imposed on ICAP on the grounds of insufficient reasoning for the EC’s fining methodology.7
In Pometon, the General Court was again considering an appeal from the only nonsettling party, Pometon, in relation to the EC’s hybrid case against a steel abrasives cartel.8 In contrast to ICAP, the Court rejected Pometon’s allegations that the EC had infringed Pometon’s rights of defense by referring to Pometon’s involvement in the cartel in the settlement decision prior to Pometon being granted the formal opportunity to defend itself as part of the EC’s standard infringement proceedings.
JUDICIAL DEBATE OVER THE STAGGERED HYBRID PROCEDURE
In five out of six of its hybrid cases to date, the EC has concluded its settlement negotiations as quickly as possible and it has then, usually several months later, sent statements of objections to the non-settling party as part of its ordinary infringement proceedings.
Even if in ICAP the General Court’s partial annulment of the EC decision was not due to a breach of the rights of defense from the staggered procedure, prior to the General Court’s Pometon judgment it was believed that the EC may abandon its practice of running staggered hybrid proceedings as a result of the General Court’s criticisms of the procedure. In ICAP, the General Court found that staggered procedures may be problematic since the EC’s belief that ICAP had facilitated the YIRD cartel’s collusion “could easily be inferred” from the earlier settlement decision.9 The Court also held that any such inferences of liability cannot be remedied by the EC merely disclaiming that its settlement decision does not make any legal findings against the non-settling parties.
Given the series of events that can make up a cartel’s infringement and the interdependence of cartelists’ actions and of their common objectives, settlement decisions usually describe the participation of all of the cartelists and not just those of the settling parties. This leads to the question as to whether it is possible for the EC to set out the facts of a settlement decision without alluding to the involvement of cartelists that have dropped out of settlement negotiations.
In Pometon, the General Court may go some way towards answering this question by permitting the references to Pometon’s involvement in the cartel in the EC’s settlement decision as they were necessary to provide the complete factual description of the cartel and as the EC did not legally qualify Pometon’s conduct or indicate that Pometon had already infringed Article 101 of the TFEU. After reviewing each of the references to Pometon in the EC’s settlement decision, the Court did not find that any of them infringed the presumption of Pometon’s innocence. According to the Court, the fact that the settling parties had admitted their participation in the cartel did not transform the references to Pometon into a “disguised verdict” of Pometon’s guilt by the EC.10 The Court therefore dismissed Pometon’s ground of appeal that the EC had infringed its procedural rights of defense as unfounded.
As a consequence, the General Court’s findings in Pometon are likely to encourage the EC to continue conducting staggered hybrid procedures. Indeed, the Court specifically proclaimed that a party dropping out from the settlement procedure does not require the EC to delay the adoption of its settlement decision against the remaining settling parties.11
DO PARALLEL HYBRID CASES HAVE A FUTURE IN EC ENFORCEMENT?
The General Court emphasized the importance of the procedural safeguards of the presumption of innocence and the right to a fair trial in both ICAP and Pometon, and in the former judgment, it stated that these considerations supersede the procedural efficiencies gained from settlement cases.12 In cases where the EC considers that it will be difficult to establish the liability of settling parties without also taking a view on the participation of non-settling parties, the General Court advised that the EC should run hybrid cases in parallel in order to respect the essential procedural safeguards of the undertakings involved.13 Given the potential difficulties of ensuring the protection of parties’ rights of defense in staggered proceedings and that they are prone to legal challenges, it is possible, despite the Pometon judgment, that in some future cases the EC will prefer the more cautious approach of parallel cases.
Nevertheless, the EC has not yet repeated its parallel approach to hybrid cases since its first ever hybrid case in Animal Feed Phosphates — in this case, both the EC’s settlement and standard infringement decisions were adopted on July 20, 2010.14 In its most recent judgment in Pometon, the General Court provided a sturdy defense of staggered hybrid cases.
Moreover, in the EC’s first hybrid case since Pometon (Forex), regarding alleged cartels in the foreign exchange market implemented via trader chatrooms, the EC’s procedural practice appears to have the characteristics of a staggered procedure. The EC has adopted two settlement decisions in relation to two chatrooms whilst continuing “other ongoing procedures” in the same Forex case.15 By concluding its settlement procedures in advance of other proceedings, the Forex case may be interpreted as the EC resurrecting the staggered hybrid procedure notwithstanding the criticisms of the procedure in the General Court’s ICAP judgment.
Staggered hybrid procedures are therefore the likely future direction of EC practice given the significant benefits provided by the flexibility of staggered hybrid procedures both to EC enforcement and to parties considering settlement.
THE IMPLICATIONS OF THE EC’S FUTURE PROCEDURAL PRACTICE IN HYBRID CASES
One of the principal reasons behind the introduction of the settlement procedure was to allow the EC to swiftly conclude cases in order to free up its resources to take on additional cases. Hybrid cases run in parallel, however, may lead to a loss of the procedural efficiencies of settlement. Even if just one party drops out of settlement negotiations, the EC’s settlement efforts will have been wasted as it will have to wait for the full standard proceedings to conclude prior to adopting the settlement decision. This may diminish the initial attractiveness of entering into settlement negotiations for both the EC and for undertakings, which may lead to fewer settlement cases overall in the future. In addition, under a pure settlement or parallel hybrid dilemma, parties threatening to withdraw from settlement may have a stronger bargaining position. This is the opposite of the original aim of hybrid cases to allow the EC to “use the settlement procedure without being held hostage” to holdouts.16
On the other hand if, as appears more likely following Pometon, the EC continues with its staggered hybrid approach, this may pose difficulties for addressees to the EC’s cartel decisions whilst potentially assisting claimants pursuing follow-on damages litigation against the cartelists. Splitting a factually and legally interwoven cartel into staggered EC decisions in accordance with the addressees’ procedural preferences represents an inherent risk to the non-settling parties’ rights of defense. By allowing the EC to publish an earlier settlement decision that includes references to the non-settling parties, the burden of proof is, in effect, shifted onto the non-settling parties to prove that the references to it in the settlement decision are unjustified. The subsequent standard proceedings then start on the basis of the facts of the earlier settlement decision and so a non-settling party may find it very difficult in practice to defend itself properly or to reverse or restrict the EC’s publicized starting position. An early settlement decision also potentially opens up the non-settling party to damages claims that rely on the information provided in the early settlement decision.
The General Court in ICAP held that the earlier settlement decision had breached ICAP’s presumption of innocence but it stopped short of annulling the later standard infringement decision against ICAP on this ground. Whereas in its later judgment in Pometon, the Court concluded that the earlier settlement decision did not breach Pometon’s rights of defense as there was no indication that the EC had already concluded that Pometon had infringed Article 101 of the TFEU — the Court confirmed that the EC may refer to the nonsettling party in the settlement decision and that the EC is not precluded by EU law to run staggered hybrid procedures.17 The EC’s apparent adoption of a type of staggered procedure in Forex — its first hybrid case since the Pometon judgment — suggests that the EC relies on Pometon in order feel able to continue with its more historically frequent trend of running hybrid cases in staggered processes.
Nonetheless, the General Court’s ICAP and Pometon judgments illustrate that earlier settlement decisions in staggered procedures will require careful handling in order to uphold the settling parties’ rights of defense. It is not inconceivable that standard infringement decisions adopted later in staggered procedures will be subject to further judicial appeals in the future. The General Court will provide further guidance on the legality of staggered hybrid procedures in the upcoming appeals of non-settling parties in the staggered hybrid cases in Euribor and Trucks.18