Schneider Electric Damages Judgment: A New Era in EC Merger Control?

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Juan Rodriguez, Aug 06, 2007

The judgment of the Court of First Instance (CFI) of July 11, 2007 awarding damages to Schneider Electric is unlikely to lead to a flood of merger-related damages litigation against the European Commission. But, unless it is overturned on appeal, the judgment has broken new ground in the Community Court’s case law under Article 288(1) of the EC Treaty. Schneider’s claim gave the CFI its first opportunity to apply Article 288(1) to a merger investigation under the EC Merger Regulation. Given this novelty, the Court was faced with the task of applying a body of law derived largely from cases involving agriculture and external trade to a complex merger control situation.

Article 288(1): Law and Policy

The CFI and ECJ’s case law under Article 288(1) stretches back to the late 1960s and shows consistently that claimants have to discharge a heavy evidential burden in order to obtain damages. They must prove, first, that the conduct at issue amounts to a “grave and manifest disregard” of the limits of the institution’s discretion, and second, that the losses claimed flow directly from the erroneous conduct. The “grave and manifest” test has been used by the Court to distinguish “excusable” errors, which do not trigger liability under Article 288(1), from errors that are of such gravity as to call for pecuniary compensation. In applying the test for causation, the Court has found the requisite causal link only in cases of clear and direct linkage between the error and alleged damage. Through its strict application of the causation test, the Court has limited the types of loss that can be compensated under Article 288(1).

No doubt, the Court’s narrow formulation of the tests to be met under Article 288(1) is intended to shield the Community institutions from the risk of frequent and frivolous claims for damages which could undermine their ability to carry out their tasks. The evidential standard is particularly exacting for damages claims that relate to decisions under the EC Merger Regulation. As the Community Courts have consistently pointed out in actions for the annulment of Commission merger control decisions, the Commission enjoys a broad margin of discretion when assessing the competitive effects of mergers notified under the Regulation. Given the breadth of its discretion, only the most egregious errors leading directly to loss would seem capable of meeting the evidential standard.

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