The Court of First Instance (CFI) has published its judgment today in the MyTravel damages case. The CFI held that in this case the EC Commission is not liable in damages, as it did not 'manifestly and gravely infringe Community law'.

Under EU law, liability of the Community in cases other than for breach of contract, arises following unlawful conduct by its institutions or servants in the performance of their duties, to the extent that 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 both its appraisal and in the application of rules such as the competition law provisions. Where an institution in question only has considerably reduced or no discretion, the mere infringement of that rule may be sufficient to establish a sufficiently serious breach. Where the measure involves a complex and delicate analysis and is subject to a considerable degree of discretion, but is not incompatible with the normal conduct of an institution, the threshold for liability will not be met.

Background to the case

In April 1999 Airtours plc (since rebranded MyTravel Group plc) publicly announced its bid for First Choice plc. The merger was blocked by the EC Commission on the basis that, following the merger, the combined group would, together with Thomson and Thomas Cook, hold a collective dominant position in the UK market for short-haul foreign package holidays, and that this would significantly impede competition.

Airtours appealed against the Commission's decision and the CFI annulled the decision on the basis that it had been 'vitiated by a series of errors of assessment' and the Commission had failed to prove that the merger would have adverse effects on competition. The CFI was highly critical of the Commission's reasoning in this case and of the evidence which it cited as supportive of its findings of a position of collective dominance. Although there was no disagreement as to the relevant test for collective dominance under the Merger Regulation, the CFI found that the Commission had failed to produce convincing evidence that the merger should be blocked on the grounds that it would create a collective dominant position.

Following the CFI's annulment of the Commission's prohibition decision, MyTravel brought an action seeking damages from the Commission for the harm it caused by blocking the proposed Airtours/First Choice merger. It claimed damages to cover the costs of its unsuccessful bid for First Choice, the loss of First Choice's profits between 1999 and 2002, and the cost savings that would have been generated had the deal been allowed to proceed.

The CFI's analysis on the Commission's liability for damages (Case T-212/03)

The CFI accepts that it cannot be ruled out in principle that manifest and serious errors in the Commission's economic analysis underlying a decision prohibiting a merger could constitute a sufficiently serious breach to trigger a right to damages. The complexity of any analysis to be carried out in merger control cases, where the Commission is in addition subject to strict time constraints, must however be taken into account in assessing whether there has been a sufficiently serious breach on the Commission's part.

The Court found that none of the errors committed by the Commission in its analysis of the transaction were, either considered individually or as a whole, sufficient to give rise to a manifest and grave infringement of the limits imposed on its discretion in the control of concentrations and in the presence of a complex monopoly situation.

The Court also made it clear that this test is much higher than the one which is required in an action for annulment, where the Court needs only examine the lawfulness of the contested decision in order to satisfy itself that the Commission has correctly appraised the different elements of the merger. It does therefore not follow that, where the courts find that the Commission has made a serious error in its assessment of a merger which results in an annulment of that decision, such an error will necessarily be sufficient to trigger a right to compensation under the Community's non-contractual liability rules.

The CFI ruling in the Schneider/Legrand case

In July last year the CFI ruled for the first time on damages under the Merger Regulation in the Schneider/Legrand case. Schneider had brought an action for damages against the Commission, claiming compensation for the harm it suffered as a result of the Commission blocking its merger with Legrand. In that case the Court found that the Commission's failure to respect Schneider's rights of defence was a serious and manifest failure, which met the threshold for non-contractual liability and entailed an obligation to make compensation for its harmful consequences. The deficiencies in the Commission's analysis of the impact of the merger were however not held to be a sufficiently serious breach to give rise to damages, and the only unlawful conduct of the Commission which could give rise to damages was therefore the breach of Schneider's rights of defence.

The Commission has appealed the CFI's ruling in the Schneider damages case. It is not known at this stage whether MyTravel will appeal today's ruling before the ECJ.