European Union: Blocking Mergers Unlawfully: Following The Schneider / Legrand Decision, The Commission Now Risks Liability In Tort

Last Updated: 30 May 2008
Article by Simon Holmes and Dr. Gordon Christian

Originally published in Competition Law Insight, September 2007

This article looks at how a merger launched in January 2001 and prohibited by the European Commission a year later has led to a landmark judgment in which the European Court of First Instance has confirmed for the first time that the Commission can be liable in tort for loss caused by an illegal merger prohibition decision.

The year 2002 was widely acknowledged as an annus horribilis for DG Comp at the Commission, then under the stewardship of Competition Commissioner Mario Monti. Having pushed the boat out with some bold prohibition decisions in a number of important merger cases, the Commission was brought back to earth by a series of significant defeats at the CFI.

Over the course of the summer and autumn of 2002, the CFI overturned three Commission decisions blocking mergers notified under the EC Merger Regulation (ECMR): in June 2002, the CFI annulled the prohibition of the Airtours/First Choice merger, and, within the space of three days in late October 2002, the CFI also annulled the Tetra Laval/Sidel and Schneider/Legrand decisions.

Although the reasons why the CFI overturned the three prohibition decisions were slightly different in each case, the shortcomings in the Commission's decision-making process were serious enough to trigger a root-and-branch revamp of how the Commission assesses mergers.

Among the procedural reforms initiated by the Commission around that time were independent peer review panels, earlier access to the file, the introduction of state-of-play meetings and greater access for the merging parties to third party comments on the proposed merger. Finally, a chief economist post was introduced to beef up the Commission's economic capability.

However, up until recently, a question that had been untested at CFI level was whether the Commission's annulled prohibition decisions under the ECMR could give rise to liability for damages to compensate for loss arising from such decisions. As the law stands at present, the answer to that question (in relatively limited circumstances) is yes.

Schneider/ Legrand Background

Schneider Electric SA (Schneider) and Legrand SA (Legrand) are two large French industrial groups. Schneider notified its proposed acquisition of Legrand to the Commission on 16 February 2001. Following completion of the acquisition in August 2001, the Commission published its decision on 10 October 2001, stating that the merger was "incompatible with the common market". The markets that caused most concern were the markets for electrical switchboards, where the merged parties had combined market shares of between 40% 70% in a number of countries, and the market for wiring accessories, with combined market shares in certain countries up to 90%. Although the Commission found that France was likely to be the country with the most severe competition issues, concerns were also raised in Denmark, Spain, Greece, Italy, Portugal and the UK.

The Commission then issued a second decision on 30 January 2002, ordering Schneider to divest itself of Legrand. Schneider brought an action for annulment of each of these two decisions; however, it prepared itself for the likelihood of having to divest Legrand in any event by entering into a contract for the sale of Legrand to the consortium Wendel/KKR on 26 July 2002, which had to be executed by 10 December 2002 at the latest.

First CFI Judgment

The CFI annulled both the Commission prohibition decision and the divestment decision in its judgment of 22 October 2002. In relation to the prohibition decision, the CFI held that by advancing one of its objections to the merger for the first time in the decision itself, rather than in its statement of objections, the Commission had failed to have regard to Schneider's rights of defence, and had therefore committed a "serious procedural irregularity" and acted illegally.

Legrand Sale

Following the annulment of its October 2001 prohibition decision and its January 2002 divestment decision, the Commission reopened its investigation into the merger in October 2002. However, due to the Commission's persistent doubts as to whether Schneider's proposed undertakings would be adequate to protect against a substantial lessening of competition, Schneider decided (despite having initially offered undertakings to remedy the Commission's concerns) to abandon the merger and execute the contract with Wendel/KKR on 10 December 2002. This was a move that cost Schneider, it claimed, up to €2bn.

Schneider then sued the Commission for damages under article 288(2) of the EC treaty (which regulates the non-contractual liability of Community institutions) for the loss caused to Schneider due to the illegal merger prohibition decision under article 8(3) ECMR.

Conditions For Non-Contractual Liability

Article 288(2) of the EC treaty sets out the cumulative conditions that must be fulfilled before a Community institution can be held non-contractually (ie tortiously) liable for conduct by which it has caused loss to a third party.

First, the conduct alleged against the Community institution in question must be unlawful. This is usually the most difficult threshold to meet, as established case law provides that the conduct in question will not be unlawful within the meaning of article 288(2) of the EC treaty unless the Community institution has caused a "sufficiently serious breach" of a legal rule designed to confer rights on individuals. In turn, the breach will not be classed as "sufficiently serious" unless the Community institution in question "manifestly and gravely disregards the limits of its discretion". However, and, as will be seen below, importantly in this case, breaching a procedural requirement can also be a "sufficiently serious" breach.

Second, the party alleging loss must prove the extent of the loss caused by the allegedly unlawful behaviour. And third, the party claiming damages must prove the causal link between the allegedly unlawful behaviour and the loss suffered.

Applying Article 288(2) Conditions In Schneider/ Legrand

After the CFI annulled the merger prohibition decision in October 2002, Schneider sued the Commission for €1.66bn in damages that Schneider claimed to have suffered as a result of the illegal decision. Schneider put forward a host of reasons to support its case, including analytical errors made by the Commission and breach of procedural rights.

First, the CFI examined whether any of the allegations made by Schneider constituted a "sufficiently serious" breach of a legal rule designed to protect individuals. In this regard, the CFI disagreed with most of Schneider's arguments for example, the CFI did not accept that the faulty economic analysis, which had been a contributory factor for the merger prohibition annulment decision, was "sufficiently serious" to give rise to non-contractual liability under article 288(2) of the EC treaty.

However, the CFI held that the Commission's failure to put an argument on which it partially based its merger prohibition decision to the merging parties in the statement of objections was a "flagrant and unjustifiable failing" of the Commission, and therefore constituted a breach which was "sufficiently serious" to satisfy the first condition of article 288(2) of the EC treaty. In taking this view, the CFI was heavily influenced by the specific protection in article 18 ECMR that each objection on which the Commission relies in its decision must be put to the parties. The CFI took the view that the Commission's failure to do so was one of the situations in which a "mere" procedural breach can fulfil the "sufficiently serious" test.

The CFI concluded that the Commission had an obligation to compensate Schneider for the harmful consequences of denying the merging parties their right of defence. The Commission was therefore obliged to compensate Schneider for the two heads of loss which the CFI considered sufficiently closely connected to the Commission's unlawful conduct (thereby fulfilling the second condition of article 288(2) of the EC treaty), namely:

  1. the expenses incurred by Schneider in participating in the Commission's investigation following the annulment of the Commission's decision on 22 October 2002; and

  2. the reduction in the divesture price that Schneider had to concede to Wendel/KKR in order to obtain a postponement of the divesture.

However, when considering the third condition of article 288(2) of the EC treaty namely, the causal link between the unlawful conduct and the loss suffered the CFI held that only two-thirds of the divestiture price reduction was payable, since Schneider had itself contributed to its loss in part by assuming the real risk that the merger would be declared incompatible even during the second Commission review, and that the divestment of Legrand would be inevitable.

A Commission spokesman has recently been quoted in the press as saying that on the basis of the CFI judgment, and taking into account the various heads of loss claimed but refused by the CFI, the Commission's final bill is likely to be substantially less than the €1.6bn claimed, possibly somewhere around €400m.

Possible Consequences Of The Schneider/ Legrand Judgment

In terms of novelty, the Schneider/Legrand judgment providing for an entirely new category of Community non-contractual liability for loss caused by illegal decisions under the ECMR rivals cases such as Francovich in 1992, which provided for the first time that member states could be liable to individuals for wrongful implementation of directives. That said, its practical impact is likely to be limited for a number of reasons.

First, although there is one similar case pending at the CFI (the case formerly known as Airtours, now Mytravel, which is seeking over Ł500m), it involves allegations of analytical errors by the Commission rather than procedural errors (as in Schneider/Legrand). As the CFI set out in great detail in the Schneider/Legrand judgment, the Community institutions have a margin of discretion when dealing with complex economic issues such as Phase II merger reviews, so MyTravel may find it somewhat harder to be awarded damages. Second, the list of possible claimants is very short, as only two mergers have been prohibited during current Competition Commissioner Kroes' period in office, namely the ENI/EDP/GDP merger in 2004 and the Ryanair/Aer Lingus merger this summer. A more likely outcome is that the Commission will be even more wary than it already is to prohibit mergers.

The Commission has recently announced its intention to appeal the CFI judgment to the European Court of Justice, as it queries both the classification of the breach as "sufficiently serious" (a point on which, as article 18 of the EC Merger Regulation is clear on this issue, the Commission seems unlikely to succeed) and the causal link between the unlawful conduct and the loss Schneider suffered. After years of being on the back foot in front of the Court of First Instance on merger control cases (including not only the 2002 CFI defeats but the European Court of Justice's judgment in the Tetra Laval case in 2005 which rejected many of the Commission's complaints that the Court of First Instance had been overzealous when setting the standard of proof the Commission had to reach in merger review cases), it will be interesting to see if the ECJ will enable the Commission to win back some lost ground in this regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.