General Court orders EU to pay Gascogne Sack damages action for excessively long court proceedings | Practical Law

General Court orders EU to pay Gascogne Sack damages action for excessively long court proceedings | Practical Law

On 10 January 2017, the General Court handed down a ruling ordering the European Union (EU) to pay Gascogne Sack Deutschland and Gascogne damages of more than EUR50,000 because of the excessive length of the proceedings before the General Court.

General Court orders EU to pay Gascogne Sack damages action for excessively long court proceedings

by Practical Law Competition
Published on 10 Jan 2017 • European Union
On 10 January 2017, the General Court handed down a ruling ordering the European Union (EU) to pay Gascogne Sack Deutschland and Gascogne damages of more than EUR50,000 because of the excessive length of the proceedings before the General Court.
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On 10 January 2017, the General Court handed down a ruling ordering the European Union (EU) to pay Gascogne Sack Deutschland and Gascogne (together Gascogne Sack) damages of more than EUR50,000 because of the excessive length of the proceedings before the General Court.
In 2006, Gascogne Sack brought actions before the General Court seeking the annulment of a decision adopted by the Commission in a case concerning a cartel in the industrial plastic bags sector. In November 2013, the European Court of Justice (ECJ) handed down a judgment dismissing Gascogne Sack's appeal against the cartel decision. However, the ECJ found that the General Court had failed to adjudicate within a reasonable time in this case. In 2014, Gascogne Sack brought an action to claim damages for harm suffered as a result of delay by the European Courts in adjudicating its appeal against the industrial bags cartel.
The General Court has now handed down its judgment, partially upholding the actions of by awarding damages of EUR47,064.33 to Gascogne Sack Deutschland for the material harm suffered and damages of EUR5,000 to each of Gascogne Sack Deutschland and Gascogne for the non-material harm. The General Court considered that the right to adjudication within a reasonable period, enshrined in the Charter of Fundamental Rights of the European Union, was breached as a result of the excessive length of the proceedings (five years and nine months).
The General Court also found that Gascogne Sack suffered actual and certain material harm because, during the unjustified period of inactivity of the General Court, it suffered losses due to the costs that it had to pay in relation to the bank guarantee provided to the Commission.

Background

On 30 November 2005, the Commission announced that it had fined 16 firms, including Gascogne Sack, a total of EUR290.71 million for operating an illegal cartel in the plastic industrial bags market for over 20 years (see Legal update, Commission imposes fines on members of industrial bags cartel).
Gascogne Sack, along with other cartel participants, challenged this decision before the General Court. The General Court dismissed Gascogne Sack's appeal in its entirety in November 2011 (see Legal update, General Court judgments in industrial bags cartel appeals).
Gascogne Sack appealed further to the ECJ. In November 2013, the ECJ dismissed Gascogne Sack's appeal (see Legal update, ECJ dismisses three appeals against General Court's judgments on industrial bags cartel).
The ECJ, in particular, held that a claim for compensation for the damage caused by the failure by the General Court to adjudicate within a reasonable time may not be made directly to the ECJ in the context of an appeal. It must be brought before the General Court itself, by way of an action for damages. In such an action, it will be for the General Court to examine, in the light of the circumstances specific to each case, whether it observed the reasonable time principle, and whether the parties concerned have actually suffered harm because their right to effective legal protection has been breached.
The ECJ stated its view that, in this case, the length of the proceedings before the General Court did breach the right of the parties to have their cases heard within a reasonable time (in accordance with Article 47 of the Charter of Fundamental Rights of the European Union). The breach of that right was sufficiently serious and may, therefore, give rise to liability on the part of the European Union for the damage arising from it.
In 2014, Gascogne Sack brought an action before the General Court seeking damages resulting from the excessively long proceedings (see Legal update, Gascogne Sack brings damages action for excessively long court proceedings).

Judgment

The General Court began by considering the admissibility of the action, making the following observations in particular:
  • The Court of Justice submitted that the appeal should be inadmissible because it lacked clarity and precision as regards the victims of the material and non-material harm. The General Court dismissed this argument, finding that the contents of the appeal allowed the Court to Justice to prepare its defence and the General Court to adjudicate.
  • The Court of Justice also submitted that the appeal should be declared inadmissible because it sought to recovery non-material harm from before 4 August 2009 (more than five years ago).
    The General Court recalled that the length of the limitation period is by taking into account, in particular, the time that the party which has allegedly suffered harm needs to gather the appropriate information for the purpose of a possible action and to verify the facts likely to provide the basis of that action. It is settled case law that period begins to run once the requirements governing the obligation to provide compensation for damage are satisfied and, in particular, once the damage to be made good has materialised.
    It is appropriate to interpret Article 46 of the Statute of the Court of Justice as meaning that limitation cannot constitute a valid defence to a claim by a person who has suffered damage in the case where that person only belatedly became aware of the event giving rise to it and thus could not have had a reasonable time in which to submit his application before the expiry of the limitation period.
    However, the conditions to which the obligation to pay compensation for damage under Article 340 of the Treaty on the Functioning of the European Union (TFEU) is subject and, therefore, the rules on limitation periods which govern actions relating to that compensation for such damage may be based only on strictly objective criteria. Therefore, exact and detailed knowledge of the facts of the cause is not one of the conditions which must be met in order for the limitation period to begin running. Similarly, the subjective appraisal of the reality of the damage by the victim cannot be taken into consideration for the purpose of determining the moment at which the limitation period begins to run in proceedings brought against the European Union for non-contractual liability.
    In this case, the fact which gave rise to the action against the EU is a procedural irregularity. The five-year time limit set by Article 46 of the Statute of the Court of Justice must take this into account. The starting point should therefore be set as the date when the decision was adopted because it is based on objective criteria and therefore respects the principle of legal certainty and protects the rights of the applicants.
    Gascogne Sack is seeking damages for harm allegedly suffered as a result of a delay in judgment in Cases T-72/06 and T-79/06. These cases were closed with the General Court's judgment of 16 November 2011. Gascogne Sack lodged its claim on 4 August 2014, less than five years after 16 November 2011. Therefore, the General Court concluded that the action was admissible.
As regards the substance of the case, Gascogne Sack put forward a single plea alleging infringement of the second paragraph of Article 47 of the Charter of Fundamental Rights of the European Union owing to the excessive duration of the proceedings before the General Court, that is, infringement of their fundamental right to a hearing within a reasonable time.
The General Court noted that the EU may incur non-contractual liability when three cumulative conditions are fulfilled:
  • The institutions’ conduct must be unlawful.
  • Actual damage must have been suffered.
  • There must be a causal link between the conduct and the damage pleaded.

Unlawful conduct

As regards the first condition (the unlawfulness of the conduct of the Court of Justice as an EU institution), the General Court found that the right to adjudication within a reasonable period, enshrined in the Charter of Fundamental Rights of the European Union, was breached as a result of the excessive length of the proceedings in Cases T-72/06 and T-79/06. The proceedings lasted for more than five years and nine months and this cannot be justified by any of the specific circumstances of those cases.
The General Court began by commenting that in the case of proceedings concerning infringement of competition rules, the fundamental requirement of legal certainty on which economic operators must be able to rely and the aim of ensuring that competition is not distorted in the internal market are of considerable importance not only for an applicant himself and his competitors but also for third parties, in view of the large number of persons concerned and the financial interests involved.
In particular, in the field of competition law (a field which is characterised by a greater degree of complexity than that of other types of cases), a period of fifteen months between the end of the written part of the procedure and the opening of the oral part of the procedure generally constitutes an appropriate period.
In this case, a period of approximately three years and 10 months (46 months) separated those two parts of the procedure in Cases T-72/06 and T-79/06 (see Industrial bags cartel).
Nevertheless, the General Court considered that the parallel treatment of related cases may justify an increase in the length of the proceedings, by a period of one month per additional related case. Thus, in this case, the parallel treatment of 12 actions brought against the same Commission decision justified an increase of 11 months in the length of the proceedings in Cases T-72/06 and T-79/06.
The General Court found that a period of 26 months (15 months plus 11 months) between the end of the written phase of the procedure and the opening of the oral part of the procedure would have been appropriate in order to deal with Cases T-72/06 and T-79/06, given that the degree of factual, legal and procedural complexity of those cases did not justify a longer period.
Therefore, the period of 46 months that actually passed between the end of the written part of the procedure and the opening of the oral part of the procedure showed an unjustified period of inactivity of 20 months in each of the two cases.
The General Court noted that, as regards the rest of the procedure in those two cases, there was no unjustified period of inactivity.

Actual damage suffered

The General Court began by noting that is first and foremost for the party seeking to establish the EU's liability to adduce conclusive proof as to the existence or extent of the damage alleged and to establish the causal link between that damage and the conduct complained of on the part of the EU institutions.
The principles common to the laws of the member states to which Article 340 of the TFEU refers cannot be relied upon to find an obligation on the EU to make good every harmful consequence, even a remote one, of conduct of its institutions.
In this case, Gascogne Sack alleged that it had suffered loss linked to its payment of bank guarantee costs during the period corresponding to the excessively long court proceedings and also because of interest applied to the fine imposed by the Commission's 2005 decision. Further, Gascogne Sack was deprived of the right to find an investor at an earlier stage.

Interest on fine and bank guarantee

Gascogne Sack submitted that when they appealed Cases T-72/06 and T-79/06, they decided not to pay the fine imposed by the Commission's 2005 decision. Rather, they accepted an interest rate of 3.56% on the fine and to pay in relation to a bank guarantee provided to the Commission. Therefore, Gasocgne Sack argued that the judgment in Cases C-40/15 and C-57/12 should have been handed down around 30 May 2011.
The General Court made the following comments as regards the interest on the fine:
  • Under Articles 299 and 278 of the TFEU, the fine was due despite the appeal lodged against the decision. Therefore, the interest payments on the amount are late payments.
  • During the court proceedings for Cases T-72/06 and T-79/06, the applicants did not pay the fine or the interest on the fine.
  • Gascogne Sack did not present any information to show that during the period that surpassed that of normal court proceedings, the late interest payment were more than the fine and interest due on the fine. Therefore, Gascogne Sack did not suffer any real harm because of the late interest payments.
The General Court then considered the bank guarantee payments, finding that Gascogne suffered actual and certain material harm as a result of the fact that, during the unjustified period of inactivity of the General Court, it suffered losses due to the costs that it had to pay in relation to the bank guarantee provided to the Commission.

Investor

The General Court also did not accept that Gascogne Sack was deprived of the opportunity of finding an investor earlier. The General Court found in particular:
Gascogne Sack received at least five indications of interest when it starting its search for an investor in January/February 2013.
However, only two of these noted the fine imposed by the Commission's 2005 decision and it was clear that both of these potential investors noted that the fine could be an obstacle to investment. One potential investor indicated that the French government should take on the fine or otherwise find a solution with the Commission so that the investor was not liable to pay the fine.
Many other potential investors indicated that non-liability for the fine was a condition of their interest.
The General Court concluded that Gascogne Sack had not shown that it had a serious opportunity to find an investor "earlier". Therefore, Gascogne Sack had not lost its chance to find an investor because of the excessively long court proceedings and this situation cannot therefore constitute actual harm.

Causal link between conduct and damage pleased

The General Court noted that the third condition necessary for the EU to incur non-contractual liability (a causal link between the conduct and the damage pleaded) was also fulfilled in this case.
Clearly, if the proceedings in Cases T-72/06 and T-79/06 had not exceeded the reasonable period for adjudication, Gascogne would not have had to pay bank guarantee costs during the period corresponding to that excess.
The General Court therefore awarded Gascogne damages amounting to EUR47,064.339 as compensation for the material harm it suffered as a result of the failure to adjudicate within a reasonable time in Cases T-72/06 and T-79/06, consisting in the payment of additional bank guarantee costs.

Non-material harm

The General Court recalled that it is settled case law that where an applicant does not put forward any evidence to support its claims of non-material harm, the applicant nevertheless must establish that the harmful conduct was, by its seriousness, of a nature to cause harm.
In this case, the General Court found that Gascogne Sack Deutschland and Gascogne suffered non-material harm as a result of the excessive length of the proceedings in Cases T-72/06 and T-79/06. The failure to adjudicate within a reasonable period in those cases placed the two companies in a situation of uncertainty which went beyond the degree of uncertainty usually caused by litigation. That state of prolonged uncertainty necessarily had an influence on the planning of decisions to be taken and on the management of those companies and therefore constituted non-material harm.
Gascogne Sack estimated the non-material harm suffered to amount to EUR500,000 as a minimum. However, the General Court noted that the applicants had not provided any evidence to support this amount.
The General Court added that having regard to the need to ensure that the competition rules of EU law are complied with, the Court of Justice cannot allow an appellant to reopen the question of the validity or amount of a fine, on the sole ground that there was a failure to adjudicate within a reasonable time, where all of its pleas directed against the findings made by the General Court concerning the amount of that fine and the conduct that it penalises have been rejected.
The General Court therefore partially upheld the actions by awarding damages of EUR47,064.33 to Gascogne Sack Deutschland for the material harm suffered and damages of EUR5,000 to each of Gascogne Sack Deutschland and Gascogne for the non-material harm.
In addition, the General Court held that the damages of EUR47,064.33 awarded to Gascogne must be increased by compensatory interest, as from 4 August 2014 until 10 January 2017, at the annual rate of inflation reported by Eurostat for the period concerned in France (the member state in which Gascogne is established).
Similarly, the General Court held that late payment interest must be added to both the damages of EUR47,064.33 and the damages of EUR5 000 awarded to each of the two companies, as from the delivery of the General Court's judgment of 10 January 2017 until the damages are paid in full, at the rate set by the European Central Bank for its main refinancing operations, increased by two percentage points.

Comment

The ECJ has in a number of recent cases confirmed that excessive delay in proceedings before the EU Courts is an actionable breach, which can only be addressed by bringing a damages action before the General Court under Article 268 and Article 340 of the TFEU.
Kendrion was the first appellant in long running cartel proceedings, also involving the industrial bags cartel, to have taken up this opportunity (see Legal update, Kendrion brings damages action for excessively long court proceedings). Gascogne Sack was the second such appellant.
On 6 January 2015, the General Court rejected the Court of Justice's claim that Kendrion's damages action was inadmissible. The General Court rejected the Court of Justice's claim that Kendrion's damages action was inadmissible as being directed against the Union represented by the Court of Justice, and not against the Union represented by the Commission. The Court of Justice appealed that order to the ECJ. However, the ECJ subsequently withdrew this appeal (see Legal update, Court of Justice withdraws appeals against General Court orders in damages actions by Kendrion, Gascogne Sack and Aalberts Industries for excessively length of proceedings).
Source: Case T-577/14 - Gascogne Sack Deutschland and Gascogne v Court of Justice judgment of 10 January 2017 and General Court press release.