Schneider Floodgates Open for Claims against Commission?

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Sebastian McMichael, John Schmidt, Aug 07, 2007

Introduction

On July 11, 2007 the European Court of First Instance (CFI) ruled that Schneider Electric SA should be compensated for some of the losses suffered following the European Commission’s unlawful prohibition of its merger with Legrand SA in 2001. The CFI’s decision is undoubtedly historic. It is the first case in which damages have been awarded against the Commission for getting a merger wrong. The question is whether this will herald a change in the court’s hitherto restrictive approach to non-contractual liability of the European institutions.

The original case

Schneider/Legrand forms one of the trio of mergers that the Commission controversially prohibited in quick succession in 2002; decisions which were subsequently overturned on appeal by the CFI. The CFI quashed the Schneider decision with scathing criticism of the Commission’s inadequate reasoning (“several obvious errors, omissions and contradictions”) and procedural irregularities. Unlike the other cases, it upheld parts of the Commission’s dominance finding.

As Schneider had already acquired the Legrand shares on the basis of the public bid exception, the Commission also ordered the divestiture of almost the entire shareholding. Even though Schneider appealed both the prohibition and the divestment order, it had agreed to sell its shares to a third party. It seemingly negotiated a deferral of the sale when a court victory looked increasingly likely, but finally sold Legrand in the course of the Commission’s second merger review.

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