CN01 - UPS loses 174 billion damages claim against European Commission
19 April 2022
On 23 February 2022, the General Court dismissed UPS's damages action for EUR 1.74 billion against the European Commission for the losses and costs resulting from the annulment of the UPS/TNT merger prohibition decision.
Key takeaways
- Annulment of a merger prohibition decision will not necessarily lead to an award of damages to the notifying parties.
- The General Court confirmed that failure to communicate to UPS the final version of an econometric model amounted to a "sufficiently serious breach" of UPS's rights of defence.
- To establish a causal link between the damages claimed and the breach of rights, the burden is on the claimant to prove that, absent the breach, the transaction would have been cleared by the Commission.
- Transaction break fees are not considered to be damage resulting from a merger prohibition.
Background
On 30 January 2013, the European Commission prohibited the proposed acquisition of TNT by UPS because it would significantly impede competition in the market for international express small package delivery services in a number of EEA Member States.
UPS challenged the prohibition decision before the General Court in April 2013. On 7 March 2017, the General Court quashed the Commission's decision, finding the Commission had failed to communicate to UPS the final version of the econometric model used for the analysis of price increases resulting from the transaction, thereby breaching UPS's procedural rights of defence. The Court of Justice upheld the General Court's ruling in a judgment on 16 January 2019 (see our previous article).
In the meantime, the Commission cleared the acquisition of TNT by FedEx in 2016.
On 29 December 2017, UPS brought a claim for damages against the Commission, seeking EUR 1.74 billion compensation for its financial loss and costs resulting from the merger prohibition. This included:
- loss of profits reflecting the net value of the synergies of the proposed acquisition (estimated at EUR 1.638 billion);
- compensation paid to TNT under a termination clause (EUR 100 million); and
- legal fees relating to UPS's participation in the merger clearance procedure for the FedEx/TNT deal (EUR 3.7 million).
Judgment of the General Court
In in its judgment rejecting UPS's damages claim, the General Court reiterated established case-law regarding the three cumulative conditions for the non-contractual liability of the European Union to be triggered, namely: a sufficiently serious breach of a rule of law conferring rights on individuals; evidence of actual damage having occurred; and a causal link between the breach of law and the damage sustained. It analysed each of these conditions in turn.
First, the Court found that the Commission's failure to communicate to UPS the final version of its econometric model, which had led to the prohibition decision being quashed, amounted to a sufficiently serious breach of UPS's rights of defence. However, the Court rejected UPS's other allegations of procedural and substantive errors by the Commission.
Secondly, the Court could not establish a direct causal link between the breach and the losses suffered by UPS. The Court considered that:
- the payment of a termination fee to TNT was the direct consequence of the contractual agreement between the parties, and not of the infringement of UPS's rights of defence by the Commission;
- the legal fees incurred by UPS in relation to the FedEx/TNT merger procedure resulted from UPS's free choice to participate in that process; and
- in relation to the alleged loss of profit sustained by UPS, it cannot be presumed that the UPS/TNT transaction would have been approved by the Commission had UPS's procedural rights not been infringed, and UPS did not provide evidence to support such a conclusion.
Thirdly, any direct causal link between the infringement and the damage was broken when UPS decided not to go ahead with the proposed acquisition as soon as the prohibition decision at issue was announced in 2013.
The Court rejected UPS's claim for damages entirely. However, it ordered the Commission to bear its own legal costs and one third of UPS's costs.
Comment
The General Court's judgment confirms that, while a breach of the merger parties' rights of defence can lead to the annulment of a Commission prohibition decision, it will not necessarily lead to an award damages for losses suffered as a result.
In particular, the standard of proof to be satisfied by claimants in respect of the causal link is particularly high, and possibly unattainable: they must prove that, in the absence of a breach, the Commission would have authorised the transaction.
This case also exemplifies the timing issues where parties to corporate transactions seek to have a Commission decision overturned before the EU Courts: by the time the UPS/TNT prohibition decision had been quashed at first instance in 2017, TNT had already been acquired by FedEx.
Finally, to avoid breaking the causal link between the breach and the damage claimed, the General Court judgment effectively requires parties to "revive" the merger process pending the outcome of their claim, which is likely to be burdensome and not in the parties' commercial interests.
With thanks to Maëlle Vannet-Deprugney of Ashurst Europe for her contribution.
