Tag: Breaking seals

Andrea Redondo

LL.M in European Law and Economic Analysis, College of Europe; BSc Economics and Finance, LSE; LLB, Université Paris 1 Panthéon-Sorbonne and Universidad Complutense of Madrid

 

In the judgment, delivered on 22 November 2012, the Court of Justice of the European Union (hereafter “CJEU”) had to resolve, for the first time, a conflict between a company and the European Commission pertaining to the application of Article 23(1)(e) of Regulation 1/2003. The conflict concerned the scope of the Commission’s powers when imposing fines on companies breaking the seals which have been affixed in their premises during the course of antitrust investigations.

The facts

It all began on 29 May 2006, when some officials of the European Commission, together with their counterparts from the German competition authority, arrived by surprise at the premises of E.On in Munich in order to gather documentary evidence, which would allow them to prove E.On’s anticompetitive conduct (in this case, a potential abuse of its dominant position). Some of the documents which were gathered during the course of the day were deposited in a room which the company had facilitated so that these could be analysed in greater detail the following day. The agent in charge of conducting the investigation locked the door of the room and affixed on the frame of the door an official seal.

For those readers who are not familiar with dawn raids, the seal includes a plastic sticker which allows determining whether, during the absence of the Commission officials, a non-authorised access to the room occurred. In case the seal in broken, the seal which is originally blue and contains the yellow stars of the European flag becomes transparent and the sign “VOID” appears written on it. These signs appear even if the seal is placed back in its original position.

The next morning, when the Commission officials returned to the room, they noticed the “VOID” sign on the totality of the seal. Furthermore, the seal had been displaced by 2mm upwards and sideways, which entailed that there were visible traces of adhesive from the rear of the seal. The seal had however not been torn, although it should also be noted that when the Commission representatives opened the door themselves, the seal did not torn apart either.

The Commission considered that the state of the seal was sufficient to claim that E.On had committed a procedural infringement, even if it did not prove that some documents had been removed from the room – something which we will never know given that the documents which were placed in the room had not been photocopied nor catalogued, which means that it is materially impossible to determine if anything was removed from the room. Consequently, on 30 January 2008, the Commission imposed a fine of EUR 38 million on E.On for obstructing the Commission’s investigation, even if, at the end of the day, the Commission considered that E.On had not committed any substantive infringement of competition rules.[i]

This was the first time the European Commission employed the powers conferred to it by Article 23(1)(e) of Regulation 1/2003[ii] in order to impose a fine going up to 1% of the company’s total turnover in the preceding business year for a procedural infringement such as the breach of a seal.[iii]

The ruling of the General Court

It is no wonder that E.On appealed the Commission’s decision before the General Court. In order to justify the state of the seal, E.On presented various alternatives as to what might have happened during the absence of the Commission officials. On the one hand, E.On alleged that the seal had been broken as a consequence of the vibrations of the walls of the building, given that renovation works were being carried out in neighbouring rooms. On the other hand, E.On claimed that the cleaning personnel may have washed the frame of the door with products which would have caused the displacement of the seal. Finally, E.On tried to justify its conduct arguing that the seal had exceeded its shelf life (i.e. it’s expiry date was set later than the period for which the producer could certify its reliability and correct functioning).

The General Court was unimpressed by these – original, to say the least – arguments and consequently dismissed the appeal in full in a judgment adopted on 15 December 2010.[iv] The General Court held that “the Commission was fully entitled to take the view that this case concerned at least a breach of seal through negligence”.[v] Furthermore, the Court ruled that the fine imposed by the Commission was not disproportionate given the particularly serious nature of the infringement, E.On’s size and the need to ensure that the fine had a sufficiently deterrent effect.[vi]

The ruling of the Court of Justice

Again, it comes as no surprise that E.On appealed to the Court of Justice the General Court’s judgment in an attempt to seek more coherence in the field of the Commission’s powers with respect to the imposition of fines for seal breaching conducts.

This was a much-awaited judgment as it was going to set the grounds for future antitrust investigations. Yet, the Court merely confirmed the General Court’s judgment and its findings without going into particular great detail nor making any statements of principle. There are, however, two issues discussed in the judgment which are worth mentioning here.

The first one is the burden of proof. While confirming that in the field of competition law, it is for the Commission to prove the infringement and to adduce evidence capable of demonstrating to the requisite legal standard the existence of the circumstances constituting an infringement, the CJEU stated that when the Commission relies on evidence which is sufficient to demonstrate the infringement, the company cannot merely raise the possibility that a circumstance arose which might affect the probative value of that evidence. Instead, the company must – with the exception of those cases where such proof cannot be provided by the company due to the Commission’s conduct – prove both the existence of the circumstance relied on by it as well as that the circumstance calls in question the probative value of the evidence relied upon by the Commission.[vii] In the case at stake this meant that the burden of proof laid with E.On and it was thus for it to adduce evidence challenging the Commission’s finding of the breach of seal, which it did not.

The second one is the proportionality of the fine. The CJEU started off by arguing that whilst the General Court has unlimited jurisdiction with regards to the fines imposed by the Commission (i.e. it can decrease – or increase, although this is much more exceptional in practice – the level of the fine imposed on the undertaking if it deems it appropriate), the CJEU – to the extent that it is a court of appeal – doesn’t enjoy such powers. The CJEU hence recalled that it can therefore only find that the General Court erred in law when the fine is excessive to the point of being disproportionate. Thereafter, the CJEU confirmed that the breach of a seal must be regarded as a particularly serious infringement by its own nature, independently of whether or not the room was opened. The Court ruled in this sense because the objective of Article 23(1)(e) of Regulation 1/2003 is to protect the inspections from the threat that comes from the fact that the seal has been broken, which may be an obstacle to the integrity of the evidence contained in the sealed room. Finally, the CJEU held that procedural fines ought to be set at a sufficiently high level – within the limit of the 1% impose by Regulation 1/2003, of course – in order to ensure deterrence as otherwise companies would be able of escaping a much higher fine for a substantive infringement – going up to 10% of their annual turnover – by breaking the seal and removing the evidence gathered by the Commission.

The implications of the judgment for future antitrust investigations

The judgment of the CJEU deserves, at least, two comments, one negative and one positive.

On the one hand, the Court confers to the Commission a great – too great maybe – discretion when it comes to assessing and sanctioning procedural infringements such as the breach of seals, given that at no point during the judicial review was it questioned that E.On had opened the door of the conflictive room. Therefore, and given that the CJEU has held that it belongs to the Commission to proof the breach of the seal even if it does not however need to demonstrate that the room was actually accessed or that any documents stored in the sealed room had been removed or manipulated, this is tantamount to considering this type of procedural infringements as entailing an objective liability for undertakings. In other words, the mere appearance of the “VOID” message is sufficient to find an infringement. Consequently, it is not necessary for the Commission to prove the effects of the conduct – in this case the effects would have been that the documents were removed or manipulated – which significantly reduces the burden of proof on the Commission. Additionally, the objective liability of undertakings when it comes to seal breaking infringements entails that any justification on the side of the company, independently of how sincere and valid this may be, is useless to make it escape the fine. The judgment is thus to be disapproved in this respect given that competition authorities and courts applying EU competition law should analyse in detail the effects of the conduct at stake – and this goes for both substantive infringements as well as for procedural infringements – instead of limiting themselves to appreciating the mere existence of the conduct.

On the other hand, however, the judgment is to be welcome to the extent that it considers that the EUR 38 million fine was not disproportionate. Although this amount is impressive and may sound excessive, it “only” amounts to 0.14% of E.On’s annual turnover. This is a ridiculously low amount when compared to the fine that E.On could have faced for a substantive infringement – which could have been as high as EUR 2.7 billion, i.e. 10% of E.On’s annual turnover – which might have been found on the basis of incriminating evidence which could have disappeared during the Commission officials’ absence. It is only by deterring such potential document-destructing conducts that a higher number of substantive infringements will be found, in fine reverting in the consumers’ interest, which is the ultimate aim of competition law.

All in all, this novel judgment of the CJEU should be welcomed, although it is regretful that it did not proclaim an effects-based approach for procedural infringements. Having said that, even if the Commission has been granted extensive powers (given that the burden of proof is not particularly stringent) and that fines for procedural infringements are very high in order to ensure deterrence, it is likely that more cases will arise in the future where “[companies] want to break free” as, unfortunately, the reward for doing so still is significantly greater than the price they have to pay to break free.