Court cancels $300 million EC fines of TACA carriers
Trans-Atlantic Conference Agreement shipping lines and their lawyers have won their long-running battle against the European Commission to cancel 273-million-euro (about $300 million) fines imposed on TACA carriers by the EC in 1998.
The Court of First Instance of Luxembourg on Tuesday annulled all the fines, following an appeal by the carriers. It refused to uphold some of the findings of the EC against alleged competition abuses of TACA carriers, while confirming other EC allegations of carrier abuses, notably those on the restriction of service contracts with shippers. The court also upheld the Brussels-based body’s decision to refuse to grant an exemption from competition rules to TACA carriers.
The carriers, who have denied for years that they abused their dominant position in the transatlantic trade, will now be relieved of the need to pay the high fines. In 1998, the fines against the TACA carriers were the highest ever imposed by the EC on a group of companies for collectively breaking European competition rules.
“The (TACA) lines are very happy with the judgement,” said Matthew Levitt, lawyer representing TACA carriers. “The annulment of the fines is really the most important, from their point of view.”
The court found that TACA carriers did commit certain abuses of competition, but that these did not justify the heavy fines for various reasons of procedure and of lack of sufficient evidence.
In a decision regarded as a landmark case, the court has essentially upheld the EC’s finding that “the restrictions in relation to service contracts constitute an abuse” — described as the first abuse. But it “set aside” that part of the EC decision concerning measures inducing competitors to join the conference and allegedly designed to neutralize competition — described as the second abuse — citing lack of evidence and infringement of the rights of defense.
The first abuse, according to the EC, concerned certain restrictions on the availability and content of service contracts, in particular a prohibition on member companies entering into individual contracts, and restrictive clauses applied to individual service contracts from 1996, in particular the ban on multiple contracts and contingency clauses.
“The court has confirmed the incompatibility of the practices which the commission found constituted the first abuse, with the exception of the exchange of information between companies in the conference, which the court did not find to be abusive since that information was published in the United States,” the Court of First Instance said.
Because TACA carriers notified their agreement to the EC and benefited from a regulation on the immunity of companies while the commission reviewed their agreement, the court also decided to “set aside the fines determined on the basis of that regulation.”
The portion of the EC decision rejected by the court involved an attempt by TACA to get competitors to join the conference. The “second abuse” concerned measures “seeking to induce potential competitors to join the TACA rather than take part in the transatlantic trade as independent lines,” the court said.
The court concluded that the EC “had not demonstrated that the specific measures, rather than particular commercial considerations, had induced the only two shipping companies who joined the conference between 1994 and 1996 — Hanjin and Hyundai — to become members of the conference.”
The alleged measures to induce new market entrants to join TACA were cited by the EC as the most serious abuse by carriers and the reason for 90 percent of the fines. But the court annulled the commission’s decision in so far as it found the TACA parties had abusively altered the structure of the market, together with the fines imposed in respect of the second abuse.
As for the inland part of the contracts for transport services, for which there is no immunity in the European Union, the court said it “found that the cooperation of the companies in question, and the legal uncertainty over the finding of abuse and the potential penalties constitute mitigating circumstances which justify no fine being imposed.”
An official at the EC said that the commission was disappointed that the fines were annulled, but he said that the court has confirmed the EC’s policy on inland transport, freight forwarder compensations and service contracts. The court has vindicated its views on the need for freely negotiated service contracts, which form part of the commission’s new framework for carrier agreements, the EC official said.
The EC “has not lost” the whole case, he insisted.
Levitt, at TACA, said “the commission lost on some points and won on others.” Yet, overall, it was not “a 50/50 outcome” and the fines were annulled, he added.
The court reported that it had to examine thousands of pages of arguments and annexes presented by the parties. The lengthy court ruling itself runs to 1,648 articles and over 200 pages.
The TACA carriers involved in the court case were Atlantic Container Line, Cho Yang Shipping (now bankrupt), DSR-Senator Lines (now known as Senator Lines), Hanjin Shipping, Hapag-Lloyd AG, Hyundai Merchant Marine, A.P. Moller-Maersk Line (now Maersk Sealand), Mediterranean Shipping Co., Orient Overseas Container Line (UK) Ltd., Polish Ocean Lines, P&O Nedlloyd, Sea-Land Service Inc., Neptune Orient Lines, Nippon Yusen Kaisha, Transportaci'n Mar'tima Mexicana and Tecomar.
The European Shippers’ Council supported the EC in the court battle against TACA carriers.
The Luxembourg court ordered each party to bear its own legal costs.
Commenting on the practices of the TACA that were criticized by the EC and upheld by the court of first instance, Levitt said that the judgement does not require the TACA lines to modify their current agreement or practices. Restrictions on service contracts, freight forwarder compensation and inland rates in Europe were removed to form the revised TACA agreement of 1999. The revised agreement was cleared by the EC in November 2002.
“We are pleased by this result,” said Olav Rakkenes, the outspoken, long-standing chairman of TACA and former president and chief executive officer of Atlantic Container Line. “The lines now wish to work with the commission in its review of Regulation 4056 in establishing an appropriate framework for the regulation of liner shipping for the future,” he added.
Asked whether TACA expected the decision of the EC to quash the fines, Rakkenes replied: “You never know. We, of course, hoped that was the decision we were going to get.”
Rakkenes said that he has been involved in battling with the EC for “about 11 years,” since 1992-1993.
“It’s sad that we have spent so much time and legal battles on this,” he told American Shipper.
The U.K.-based Freight Transport Association, which represents British shippers, said that it hopes that the EU court ruling “will draw a line under the decade-long dispute and enable both sides to reflect and learn from the last 10 years as the industry looks now to the future shape of deep-sea container shipping.”
“The world has moved on; individual service contracts are widely used on the North Atlantic routes in particular, and although we still have concerns with the conference system things have improved from the early 1990’s when all this began,” the British association said.