HSBC v Commission: EU General Court gives leeway to the Commission in application of fundamental rights of defence

What has happened?

In December 2016, HSBC was fined €33.6 million by the European Commission for its role in the alleged Euro Interest Rates Derivatives (EIRD) cartel – an off-shoot of the regulatory scrutiny of LIBOR manipulation. On appeal to the EU General Court – HSBC v Commission of 24 September 2019 – HSBC’s fine was annulled for insufficient reasoning, but the infringement finding was upheld (and therefore a fine could be reassessed and imposed). The judgment highlights the continued vulnerability of Commission cartel fines to appeal. The more important story is the decision of the General Court to give the Commission leeway when applying key legal principles – the presumption of innocence, the obligation of impartiality and respect for the rights of defence – in cartel cases where some parties agree to settle with the Commission but others do not – so-called ‘hybrid’ settlements.

The Commission introduced the settlement procedure in 2008 to speed up the decision-making process in cartel cases. The procedure provides that where the parties under investigation are prepared to admit liability, they will receive a 10% reduction of any fine. Ultimately it is for the Commission to decide whether to offer settlement as an option for the parties, taking into account the likelihood of achieving the desired procedural efficiencies. Whilst the ideal outcome for the Commission is to settle with all parties, there have been a number of hybrid cases, including the EIRD investigation, where some parties have agreed to settle but others have contested the case.

This has led to the important question of how the Commission should conduct such cases, so as not to prejudice the investigation of the parties that do not wish to settle. In such cases, the practical options available to the Commission are: (i) abandon settlement discussions, and conduct the full investigative procedure, leading to one decision for all parties, (ii) stagger its infringement decisions, with an initial settlement decision and a subsequent infringement decision, and (iii) synchronise the adoption of the settlement and infringement decisions, so that both are decided at the same time.

The Commission’s practice to date has been inconsistent. In the first such case, it synchronised the settlement and infringement decisions, but since then it has tended to stagger its decisions. In those cases, the Commission has issued settlement decisions that describe the participation in the alleged cartel of a non-settling party, often before the non-settling party has exercised its right to be heard – on the allegations against it or indeed those against the settling parties. This is what happened in EIRD, which led HSBC to appeal, arguing that the Commission had breached its fundamental rights. In particular, it argued that the Commission: (i) breached the presumption of innocence and HSBC’s rights of defence by issuing a settlement decision that implicated HSBC; and (ii) breached the obligation of impartiality by then issuing an infringement decision against HSBC. 

HSBC v Commission is the third judgment by the General Court on this point. The first judgment was ICAP v Commission in November 2017, which concerned the Yen Interest Rate Derivatives cartel. The second was Pometon v Commission, in March 2019, concerning the Steel Abrasives cartel. In all three cases the General Court confirmed that the fundamental rights of the parties should be respected. In ICAP, the General Court emphasised that the Commission must take all necessary steps to safeguard the principle of the presumption of innocence, such as by synchronising the settlement and infringement decisions. Nevertheless, in both ICAP and HSBC, the court ruled that any bias that may have arisen as a result of the settlement decision did not vitiate the subsequent infringement decision, so long as the latter was properly supported by evidence.

In HSBC, the General Court stated that “the irregularity relating to a possible lack of objective impartiality on the part of the Commission would lead to annulment of that decision only if it is established that the content of that decision would have differed if that irregularity had not occurred.” The court concluded that “the Commission had established to the requisite legal standard HSBC’s participation in the infringement at issue. Therefore, there is no reason to assume that, if the settlement decision had not been adopted before the contested decision, the content of the latter would have been different.

Why does this matter?

The General Court’s judgment in HSBC endorses the Commission’s practice of staggering infringement decisions in hybrid cases. This will hearten the Commission, which prefers this approach as it brings rapid closure to proceedings against some, if not all, parties. It may also be welcomed by settling parties that wish to see financial liabilities associated with a Commission investigation crystallised, so that they can move on. In addition, earlier decisions mean that follow-on claims for damages can proceed sooner, as the wait for an actionable decision will be shorter. On the other hand, non-settling parties will feel aggrieved that they may be heard by officials and an institution that has already made up its mind.

It is surprising that the court, in assessing legality, has disregarded the process by which the Commission reached its ultimate decision. Instead, it has focussed simply on whether the Commission’s decision is properly supported by evidence. The standard of proof in such cases is the balance of probabilities, and there will surely be instances involving borderline questions of fact, and where an open-minded Commission would find differently to a Commission that has already finalised a settlement decision. The courts are not in a position to carry out the assessment of evidence afresh, as judicial review is limited to assessing the legality of the decision. This makes protection of the process just as important as conducting a review of the decision on its face.

It will also be disappointing to non-settling parties that the General Court in HSBC did not emphasise the obligation on the Commission to take all necessary steps to safeguard the presumption of innocence. It did so in ICAP and suggested that the Commission should consider in future whether to synchronise, rather than stagger, its decisions. However, the court was silent on this point in HSBC. As such, the Commission appears to be free once again to take a staggered approach to hybrid cases without fear of judicial reprimand.   

The General Court will have a further opportunity to rule on the practice in Scania v Commission, which concerns the Trucks cartel. However, absent a prior judgment of the higher EU Court of Justice, it seems unlikely that the General Court will materially diverge from the position expressed in HSBC.

Pometon has appealed the point to the Court of Justice. It remains to be seen if HSBC will do likewise, but for the reasons highlighted above such an appeal might be worthwhile – not only for HSBC but to clarify, at the highest level, the legality of the Commission’s practice.

What happens next?

HSBC now has until the end of November to decide whether it wants to appeal the matter to the Court of Justice. In a separate case, Pometon has appealed the point to the Court of Justice.

The Commission may decide to appeal the General Court judgment annulling HSBC’s fine, or instead simply clarify the calculation and basis of the fine, and reissue its decision accordingly.

How can Cadwalader help?

Cadwalader’s antitrust team is one of only a few to focus on the financial services sector. We regularly represent companies before the EU, UK and US antitrust authorities, and are specialists in offering ‘end-to-end’ advice on antitrust investigations and related litigation in this sector, working closely with our financial regulatory, white collar and litigation colleagues.

If you would like to discuss the issues arising in this alert, or how we can help you more generally, please contact Vincent Brophy and Tom Bainbridge.

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