Posted by Chantal Lavoie on 18 April 2016
This appeal from the General Court has provided Advocate General Kokott with an opportunity to give her opinion on two important practical issues:
(i) the turnover to be taken into account by the European Commission when setting the amount of a cartel fine; and
(ii) the exchange rate to be used for converting turnover in cases where the financials of the infringing party are not published in euros.
The views expressed by AG Kokott are pragmatic and in line with existing case-law. It is likely that the Court of Justice will follow her opinion in this case.
By decision of the European Commission dated November 2008, Pilkington and other businesses active in the automotive glass market were found guilty of entering into a cartel consisting in agreeing pricing and supply strategies of the cartel participants. Pilkington was fined 370 million euros, an amount which was later corrected due to calculation errors to 357 million euros.
Like other addresses of the decision, Pilkington appealed the European Commission's decision to the General Court. The General Court dismissed Pilkington's grounds of action. Pilkington lodged a further appeal to the Court of Justice to challenge the General Court's judgment on grounds solely related to the method of calculation of the fine.
In its appeal, Pilkington argues that sales of automotive glass which occurred during the period of the cartel, but on the basis of contracts concluded prior to the start of the cartel, should habe been excluded from the sales taken into account for purposes of the turnover calculation. This is because these contracts were negotiated under normal competitive conditions and therefore the ensuing sales were not affected by the cartel.
Another ground of appeal formulated by Pilkington is that the exchange rate used for purposes of converting Pilkington's sterling turnover to euros should have been the daily exchange rate of the European Central Bank (ECB) on the day on which the Commission adopted its decision. In this instance, the exchange rate used by the Commission was the average exchange rate of the ECB during Pilkington's last financial year preceding the decision. Had the exchange rate proposed by Pilkington been used, the fine would have been lower. This is because, as per Article 23(2) of Regulation 1/2003, the fine imposed cannot exceed 10% of Pilkington's total turnover in the financial year preceding adoption of the decision. If the daily exchange rate of the ECB on the day of the adoption of the decision had been used, the fine imposed would have exceeded by EUR 40 million the 10% upper limit (and therefore would have had to be cut by EUR 40 million).
Finally Pilkington also argues that the General Court's judgment infringed the principles of equal treatment and proportionality.
Opinion of AG Kokott
AG Kokott concludes that the General Court did not make any error in law in reviewing the method for the calculation of the fine. Particular points worth mentioning are:
- AG Kokott's rejects the argument that there must be a proven causal connection between the cartel and the sales to be taken into account for purposes of the turnover calculation. According to AG Kokott, "it is not necessary positively to prove that the elements of turnover individually brought into account as the basis of calculation were actually affected by the infringement". As previously held by the Court of Justice, the sales of products relating to the cartel infringement are best able to reflect the economic importance of that infringement. By requiring evidence of a connection between individual sales and the cartel infringement, this would reduce unduly the amount of the fine and accordingly the economic importance of the cartel. Also, it would impose a significant administrative burden by having to assess whether each individual transaction is affected by the cartel before it can be included in the turnover to be taken into account for purposes of setting a fine. As a result, AG Kokott concludes that it suffices for the sales to have been made on the relevant market in order to be included in the turnover calculation used as the basis for setting the fine.
- As regards the plea on the exchange rate, AG Kokott concludes that using the ECB's average exchange rate for the last financial year preceding the decision does not infringe the purpose of the 10% upper limit rule set out in Regulation 1/2003 nor the principles of equal treatment and legal certainty. AG Kokott rejects Pilkington's plea for a 'looking forward' approach according to which the amount of the fine to be paid should be set at the closest possible time to the adoption of the European Commission decision and therefore the daily exchange rate applicable at the time of adoption of the decision should have been used. AG Kokott recognises that the objective of the 10% upper limit is to take into account the infringing party’s capacity to pay. Whilst this may be best reflected by calculating the fine at the time the decision is adopted, it presents a number of practical difficulties and ultimately is not the reference period which was adopted by the European Union legislature for calculating the 10% upper limit of a fine. Indeed, paragraph 23(2) of Regulation 1/2003 provides rather for the reference period to be the financial year preceding the adoption of the decision. On that basis, it is closer to economic reality and the objective of paragraph 23(2) of Regulation 1/2003 to apply the average exchange rate prevailing during that same reference period.
- AG Kokott considers that businesses having established themselves outside the euro area and therefore holding financial accounts in a currency other than the euro should bear themselves the risks linked to currency fluctuations, whether favourable or unfavourable. The principle of equal treatment cannot be relied upon in such a case as the rules regarding the calculation of turnover are applied in the same way to all undertakings.
The opinion is in line with existing case law (including the recent judgment of the Court of Justice of April 2015 in LG Display) as regards the turnover to be taken into account for setting a fine, namely all the sales made on the relevant market, without the need to show that the turnover was affected by the cartel. AG Kokott also adopts a practical stance in relation to the exchange rate to be used for calculating the turnover of parties whose financial data is not published in the euro. The 10% upper limit rule contained in Regulation 1/2003 provides for the limit to be calculated by reference to the ‘total turnover in the preceding business year’. The approach consisting in applying the average exchange rate prevailing during that same reference period is consistent with the reading and purpose of this rule.
Businesses are reminded with this opinion that cartel infringements can impose a significant financial burden on infringing parties. The burden will vary as between infringing parties not only depending on the specific role played by each party in the cartel but also depending on the varying effect of the turnover calculation in determining the fine. Businesses holding financial accounts in currencies other than the euro should keep in mind that currency fluctuations and therefore the relevant exchange rate applied for calculating the relevant euro turnover to be used for purposes of calculating a fine can have an upward or downward impact on the amount of the fine to be paid. The financial burden on infringing parties will also vary depending on the diversification of its business and product range. A cartel fine will obviously impose a heavier financial cost on businesses having most of their sales on the market in which the cartel operated. As demonstrated in this case, the Courts of the European Union are rarely receptive to arguments regarding the financial burden of a fine on an infringing party, particularly given the serious nature of a cartel infringement and the need for the fine to be appreciable to have the necessary deterrent effect.