Industrial plastic-bag makers lose out on EUR 800,000 at European Court of Justice

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Companies awaiting the outcome of appeal proceedings should carefully consider whether to pay the imposed fine by bank guarantee or direct payment. The European Court of Justice recently ruled that companies cannot blame the EU for losses incurred from having to pay extra bank guarantee costs as a result of excessively long appeal proceedings.

Amsterdam

As companies are free to replace the payment by a bank guarantee, they are also free to terminate it once they foresee that proceedings may take longer than initially anticipated.

On 13 December 2018, the European Court of Justice ruled on three separate appeals against the General Court judgments in actions for damages brought by industrial plastic-bag makers Gascogne, Kendrion, ASPLA and Armando Álvarez (joined cases). The Court of Justice overturned the General Court decision awarding more than EUR 800,000 in compensation for material damages for the breach of the obligation to adjudicate within reasonable time, upholding only EUR 16,000 for compensation for non-material damages suffered by the companies as a result of the delay.

In 2017, the General Court awarded the companies compensation for the damage that they had suffered as a result of excessively long court proceedings on their challenges to cartel fines [see our February 2017 Newsletter for the Gascogne appeal]. The companies argued that the delay led to higher costs to fund the bank guarantees covering the cost of the unpaid fines, as well as compensation for non-material damage. The General Court ordered the EU to pay compensation to the companies for (i) the material damage resulting from having to pay the costs of the bank guarantee during the period in which the reasonable time for adjudication had been exceeded; and (ii) the non-material damage arising from the prolonged state of uncertainty in which they found themselves during the proceedings. 

The EU and the companies, with the exception of Kendrion, appealed the General Court's judgments. The Court of Justice upheld the EU's appeal finding that there was no causal link between the fault committed by the General Court and the damage suffered by the companies. Under Article 340 TFEU, the EU may incur in non-contractual liability if three cumulative conditions are met: (i) the conduct of the EU institution is unlawful, (ii) there is damage to an individual, and (iii) there is a causal link between such conduct and the damage.

The Court of Justice considered that the EU was not liable for the costs that the plastic-bag makers incurred as a result of providing and maintaining the bank guarantees in favour of the Commission, which they had chosen for the payment of fines. Nothing prevented the companies from terminating the bank guarantee at any time, especially when the companies were aware that the judgment would be delivered later than initially expected, resulting in higher costs. According to the Court of Justice, there was not a sufficiently direct causal link between the breach of the obligation to adjudicate within a reasonable time and the losses incurred by the companies as a result of paying the bank guarantee charges during the extended period.

This judgment sends a clear message that damages claims will be carefully reviewed by EU courts and provides guidance on the circumstances under which damages can be awarded. Even if it is accepted that the EU violated its obligation to adjudicate within reasonable time, in cases where companies choose to pay by a bank guarantee, establishing a causal link between potential damages and the illegality of excessive length in EU proceedings appears to be almost impossible.

This article was published in the Competition Law Newsletter of January 2019. Other articles in this newsletter: