CJEU upholds ‘gun-jumping’ fine

A recent case shows that companies contemplating acquisitions (even of minority shareholdings) should confirm whether the proposed transaction triggers a merger-control filing before proceeding with the transaction.

Earlier this year, the Court of Justice of the European Union (CJEU) rejected an appeal by Marine Harvest ASA against a 2017 judgment of the General Court upholding an infringement decision of the European Commission regarding its acquisition of business rival, Morpol ASA.

Marine Harvest failed to notify the acquisition of Morpol, under the EU Merger Regulation (EUMR), on time. In addition, the purchaser/appellant completed this transaction prior to receiving clearance from the commission.

Marine Harvest is the largest salmon-farming company in the European Economic Area, whereas Morpol is the leading salmon processor in the same region – both companies were, at the relevant time, listed on the Oslo Stock Exchange.

The CJEU’s judgment in Case C-10/18 P Mowi ASA (formerly Marine Harvest ASA) v Commission (4 March 2020) contains some interesting lessons for the application of merger control rules to the acquisition of minority stakes in listed companies.

Merger control

EU and Irish merger control rules apply in Ireland. Both regimes apply to changes in control, provided the relevant jurisdictional thresholds are met. Under both sets of rules, ‘control’ is defined as the capability of exercising decisive influence over the strategic business affairs of the relevant target company or business.

Control may be either de jure (for example, by contract) or de facto (such as through voting patterns at shareholder meetings). The EUMR – like its Irish equivalent, part 3 of the Competition Act 2002 (as amended) – operates an ex ante suspensory regime.

In other words, if a particular transaction triggers a mandatory notification to the commission, article 4(1) of the EUMR provides that it must be notified prior to completion.

In addition, article 7(1) of the EUMR stipulates that any transaction that is notifiable to the commission must not be implemented until it is cleared (or deemed) cleared. Article 7(1) is often referred to as the standstill provision – a breach of this provision is usually referred to as ‘gun-jumping’.

Article 7(2) provides for a derogation from the standstill provision where the transaction involves either a bid for a listed company or a series of share transactions on a stock exchange where control is acquired from various vendors.

Article 14 of the EUMR allows the commission to impose fines both for failure to notify and also for completing a transaction in advance of clearance.

Transaction timetable

In December 2012, Marine Harvest completed a share purchase agreement (SPA) with two Cypriot companies controlled by the founder and former CEO of Morpol. Through the SPA, Marine Harvest acquired an interest in Morpol amounting to approximately 48.5% of Morpol’s issued share capital.

The same month, Marine Harvest opened pre-notification engagement with DG Competition of the commission in respect of the Morpol acquisition. At the same time, Marine Harvest informed DG Competition that the December 2012 acquisition had been closed and that it would not exercise its voting rights in Morpol, pending the commission’s review of the substance.

According to the provisions of Norwegian law, an acquirer of more than one-third of the shares in a listed company is obliged to make a mandatory public bid for the rest of the shares in that company.

Therefore, in January 2013, Marine Harvest made an offer for the remaining 51.5% of Morpol’s issued share capital. Meanwhile, the parties’ pre-notification engagement was continuing – with DG Competition focusing on whether the December 2012 acquisition gave Marine Harvest de facto sole control over Morpol.

As part of the completion of the public bid in March 2013, Marine Harvest purchased an additional 38.5% of Morpol’s shares. In August 2013, Marine Harvest formally notified the commission of its proposed acquisition of Morpol.

Scottish salmon

In early September, DG Competition expressed concern that the acquisition of Morpol would give rise to serious competition concerns in the market for the farming and primary processing of Scottish salmon.

With the enlarged Marine Harvest’s combined high market share, the commission was worried that the merger would lead to price increases in the sale of Scottish salmon. Indeed, DG Competition’s market investigation showed that a significant number of customers do not consider salmon farmed in other countries (such as Norway) as a substitute for Scottish salmon.

In September 2013, Marine Harvest committed to divest a significant part of Morpol’s Scottish salmon farming operations in order to secure EUMR approval. The transaction was duly cleared, subject to the relevant remedies, later that month. The acquisition of the remaining shares in Morpol was completed in November 2013.

In its September 2013 clearance decision, the commission also signalled that it could not exclude that Marine Harvest had already acquired de facto sole control over Morpol in December 2012 and, therefore, the purchaser should have made the notification under the EUMR (and, of course, received clearance) prior to completing this acquisition.

After a six-month investigation, the commission (in a July 2014 decision) found Marine Harvest to be in breach of both article 4(1) and article 7(1). DG Competition stated that Marine Harvest was, subsequent to the December 2012 acquisition, highly likely to achieve a majority at shareholder meetings given its 48.5% stake and based on the turnout of other shareholders at such meetings in recent years.

Separately, the commission also found that the article 7(2) derogation did not apply because Marine Harvest’s shares in Morpol were acquired from a single vendor. The commission accordingly imposed a fine of €10 million for each infringement.

In early October 2014, Marine Harvest brought an action for annulment of the July 2014 decision before the General Court. This action was dismissed in its entirety by the General Court in October 2017. In January of the following year, Marine Harvest appealed to the CJEU on two grounds.

The first related to whether the General Court misinterpreted the concept of a ‘single concentration’ in recital 20 of the EUMR. The second addressed whether the General Court erred in law by upholding the commission’s decision to fine Marine Harvest for both failure to notify and ‘gun-jumping’.

Single concentration

Recital 20 states that the EUMR should apply to ‘single concentrations’ – that is, transactions that result in a lasting change to the market and that are either linked by condition or take the form of a series of transactions in securities taking place within a reasonably short period of time.

Marine Harvest argued that the General Court erred in law by failing to consider that recital 20 has been reflected in a legally binding provision, namely article 7(2), which refers to public bids and to a series of transactions in securities.

The appellant claimed that, as the acquisition in December 2012 and the subsequent public bid were linked de jure by mutual conditionality (the requirement under Norwegian takeover rules to make an offer for the remaining shares in Morpol), they were, therefore, steps in a ‘single concentration’.

As such, the standstill obligation was only triggered once the mandatory public bid for the remainder of Morpol’s shares was announced in January 2013.

The CJEU rejected this argument. It found the derogation in article 7(2) (and recital 20) to apply only to a series of transactions where all of them are necessary before a change of control occurs.

Article 7(2) is irrelevant in a situation in which control is conferred in the context of an initial private transaction (for example, the December 2012 acquisition), even if that transaction is followed by a public bid, since the latter is not necessary to achieve a change of control of an undertaking concerned by the relevant transaction.

Double jeopardy

Marine Harvest also argued that the General Court had erred in determining that the principle ne bis in idem (that is, the prevention of double jeopardy) does not apply to a situation in which the commission imposes two fines in a single decision for the same conduct.

Marine Harvest argued that, irrespective of whether it is imposed in the same or separate proceedings, this principle covers any double punishment. The CJEU reasoned that ne bis in idem protects undertakings from being found liable or proceedings being brought against them afresh on the grounds of anti-competitive conduct for which it has already been penalised or declared not liable by an earlier decision that cannot be challenged.

However, the CJEU held that this principle does not apply to a situation where a company has been fined for both failing to notify and for ‘gun-jumping’.

Marine Harvest also appealed on the basis of the principle governing concurrent offences. This general principle of EU law provides that, where conduct is governed by two or more legal provisions, the primary applicable provision excludes the application of all other provisions.

The appellant argued that failure to notify to the commission under article 4(1) is a more specific breach and, therefore, should be subsumed into the more general ‘gun-jumping’ infringement contained in article 7(1).

The CJEU noted that there are no specific rules governing concurrent offences in EU competition/merger control law. The court also upheld the General Court decision that the EU legislature has not defined one offence as being more serious than the other since, under article 14(2), the maximum penalty for both is the same.

The CJEU also found that, while an infringement of article 4(1) will automatically result in an infringement of article 7(1), the converse is not true. In other words, if a company implements a notified transaction prior to clearance, it infringes article 7(1) only, whereas if it completes a notifiable concentration in advance of approval, it breaches both article 4(1) and article 7(1).

Therefore, given the separate objectives of both provisions, the CJEU found that the General Court correctly held that the commission is entitled to issue a separate fine for each infringement.

The court also held that, since a breach of article 4(1) is instantaneous, whereas an infringement of Article 7(1) is continuous, the latter does not subsume the former. Accordingly, the CJEU dismissed Marine Harvest’s appeal and upheld the judgment of the General Court in its entirety.

Wider issues

From a statutory interpretation perspective, the CJEU’s judgment in Marine Harvest is interesting in that it confirms that recitals to an EU regulation or directive have no binding legal force and, therefore, cannot be relied upon either as a ground for derogation from the actual provisions of EU law or for interpreting those provisions in a manner clearly contrary to the relevant wording. The role of a recital is solely to cast light on the interpretation of a legal provision.

On the substantive issue, the CJEU’s judgment sends a strong signal that companies must be careful to make sure that any acquisition of a minority shareholding does not trigger an obligation to notify.

In a similar case in 2009, the commission fined Belgian electricity producer Electrabel €20 million for failing to notify its December 2003 acquisition of a minority (controlling) stake in Compagnie Nationale du Rhône until August 2007.

Completing a notifiable transaction in advance of regulatory clearance is also a breach of Irish law. In 2019, after an investigation by the Competition and Consumer Protection Commission, Armalou Holdings Limited trading as Spirit Motor Group pleaded guilty before Dublin District Court to completing the acquisition of its fellow Dublin motor retailer, Lillis-O’Donnell Motor Company Limited, without obtaining the necessary mergers clearance.

This was the first time a prosecution for alleged ‘gun-jumping’ came before the Irish courts.