EU UPDATE – Jumping the Gun: Marine Harvest Fined and Electrabel Appeal Rejected
Executive Summary: The European Commission has fined Marine Harvest, a Norwegian seafood company and salmon processor, €20 million for acquiring Morpol without prior clearance and not long before, the Court of Justice rejected an appeal against a General Court judgment which upheld a fine imposed, also €20 million, on Electrabel for its acquisition of Compagnie Nationale du Rhône. The recent fines indicate that the Commission takes the notification obligation and the ‘stand-still’ obligation very seriously and will penalise parties who fail to comply, even if failure to do so is due to negligence.
The European Commission has fined Marine Harvest, a Norwegian seafood company and salmon processor, €20 million for acquiring Morpol without prior clearance. The decision comes in the wake of the Court of Justice (“ECJ”) rejecting an appeal against a General Court judgment which upheld a fine imposed on Electrabel for its acquisition of Compagnie Nationale du Rhône (“CNR”). The Electrabel fine also amounted to €20 million.
Under Article 4(1) EUMR, a concentration which falls within the scope of the EUMR must be notified to the Commission before completion. This requirement is reinforced and completed by Article 7(1) which prohibits a concentration from being implemented until it has been declared compatible with the internal market. Implementing a merger before obtaining clearance is known as ‘gun-jumping’, and the prohibition on completion before clearance is often referred to as the ‘suspensory’ or ‘stand-still’ obligation.
The Commission can impose fines of up to 10% of the concerned undertakings’ aggregated turnover if these requirements are breached intentionally or negligently. In setting the level of the fine, the Commission takes into account the nature, the gravity and the duration of the infringement.
On 18 December 2012, Marine Harvest acquired a 48.5% stake in Morpol, one of the largest salmon processors in the EEA. Marine Harvest only notified the acquisition to the Commission on 9 August 2013. On 30 September 2013, the Commission gave clearance on condition that Marine Harvest divest a number of Morpol’s assets, including salmon farming operations in Scotland. The acquisition was therefore implemented eight months before the Commission was notified and nine months before clearance had been given.
On 23 July 2014, the Commission imposed a fine of €20 million on Marine Harvest for breach of the ‘stand-still’ obligation, which constitutes a serious infringement of the merger control rules. By acquiring a 48.5% stake in Morpol, it found that Marine Harvest had acquired de facto sole control. The Commission concluded that Marine Harvest had a stable majority at shareholders’ meetings due to the wide dispersion of the remaining shares and previous attendance rates. As Marine Harvest had completed the acquisition before notifying the Commission (and before the Commission gave clearance) it was found to have breached both Article 4(1) and Article 7(1) EUMR.
The Commission stated that, as a large company, Marine Harvest should have been aware of its notification obligations, and so it had been negligent by not seeking prior clearance. Further, Marine Harvest’s breach was deemed serious as the acquisition raised such concerns as to require significant divestment conditions. As such, completion of the acquisition before its conditional clearance could have given rise to competition problems.
The Commission also considered mitigating circumstances, which included the fact that Marine Harvest had not exercised voting rights in Morpol after acquiring control. In addition, the Commission recognised that Marine Harvest had informed it through pre-notification contacts shortly after completion of the acquisition.
The Commission clarified that its conditional clearance decision was not impacted as the breach related only to the ‘stand-still’ obligation and did not alter the Commission’s market analysis.
On 23 December 2003, Electrabel, a producer of electricity, natural gas and other energy services, acquired approximately 50% of CNR, another electricity producer. The acquisition gave Electrabel around 48% of the voting rights in CNR. Electrabel notified the Commission of the acquisition on 26 March 2008, some four years after completion had occurred.
On 10 June 2009, the Commission decided that a serious breach of the ‘stand-still’ obligation had been committed and fined Electrabel €20 million. The Commission found that Electrabel had become CNR’s main shareholder on 23 December 2003 and so had acquired de facto sole control which required prior clearance.
Electrabel appealed the Commission’s decision to the General Court. The appeal was dismissed on 12 December 2012, and was made on grounds that the Commission had incorrectly characterised the acquisition as a concentration. Electrabel also alleged that the Commission had made a number of errors in its finding of sole control, and that the proposed penalty was time-barred.
In dismissing the appeal, the General Court held that breach of the ‘stand-still’ obligation was not merely procedural, and that, although the acquisition raised no competition concerns, this was not relevant to determining the gravity of the breach. Although the breach occurred through negligence, this did not reduce the penalty.
On 21 February 2013, Electrabel appealed to the ECJ.
On 3 July 2014, the ECJ also rejected Electrabel’s appeal, stating that Electrabel had submitted new arguments which the ECJ did not have jurisdiction to consider.
Electrabel’s further appeal had several grounds which included the allegation that the duration of its breach should not have been relevant to the General Court’s or Commission’s assessment. Further, Electrabel alleged that the General Court and Commission had applied the law retroactively in that it had erroneously applied the provisions of the EUMR, Regulation 139/2004, before it had come into force. Electrabel submitted that the EUMR’s predecessor, Regulation 4064/89, should have been applied instead.
Dismissing the appeal, the ECJ affirmed settled case law which establishes that it is not permitted to introduce new arguments in an appeal since this would inappropriately seize the appeal court of a wider ambit than had existed in lower tribunals.
The recent €20 million fines indicate that the Commission takes the notification obligation and the ‘stand-still’ obligation very seriously and will penalise parties who fail to comply, even if failure to do so is due to negligence. The Commission expects commercial entities to be aware of the notification obligations and will further expect the diligent performance of them.
 Case M.7184, 23.07.2014.
 Case C-84/13 P, judgment of 03.07.2014.
 Concentrations will fall within the EUMR if they have an EU dimension, i.e. if they meet certain turnover thresholds (per EUMR, Article 1(2)).
 EUMR, Article 14(2).
 Case M.6850, 09.08.2013.
 Case M.4994, 26.03.2014.
 Case T-332/09, 12.12.2012
 Case C-84/13 P, above.