Court of First Instance rejects MyTravel damages claim

The European Court of First Instance (CFI) ruled on 9 September 2008 that the European Commission is not liable to pay damages to MyTravel Group plc (formerly Airtours) for prohibiting its acquisition of First Choice Holidays in 1999.

The background

In April 1999 the UK travel company Airtours (since renamed MyTravel Group), announced its intention to acquire one of its competitors, First Choice, and applied to the Commission for approval of the merger.

In September 1999 the Commission prohibited the merger, on the grounds that it would lead to Airtours holding a collective dominant position in the UK short-haul foreign package holiday market.

In response, Airtours appealed to the CFI, which ruled in June 2002 that the Commission had not shown to the requisite degree that negative effects on competition would arise due to the merger, and annulled the Commission’s decision. Following that judgment, Airtours (by then MyTravel Group) brought a further action before the CFI to claim £517 million in damages plus interest for the loss it argued it had suffered due to the merger being prohibited.

The CFI’s damages judgment

The CFI stated that in order for non-contractual liability of the Commission to arise, there must be unlawful conduct amounting to a manifest and grave disregard for the limits on its discretion.

Overall, the CFI held that these factors were not proven in the Airtours/MyTravel case. It found that the Commission did not commit a sufficiently serious infringement of a rule of law in analysing the merger and therefore is not obliged to pay damages to MyTravel Group.

A significant amount of analysis in the judgment focuses on whether or not the Commission gave sufficient weight to the commitments put forward by Airtours in response to the Commission’s original prohibition decision of June 1999 (legally binding commitments may be offered by a company in an attempt to make a merger acceptable under EU merger control rules). The CFI has held that the Commission did not infringe its duty of diligence in regard to the analysis of Airtours’ commitments submitted to resolve the competition problems. Therefore the CFI took the view that the Commission did not deprive Airtours of all possibility of having the merger cleared, and as such the Commission did not infringe its duty of diligence.

The decision in the MyTravel case has been keenly anticipated since the ruling in the Schneider Electric/Legrand case last year, in which Schneider Electric was awarded damages for certain losses incurred after it was incorrectly prohibited from acquiring Legrand (this is currently under appeal by the European Commission). However, in this latest decision the CFI has reduced hopes of making it easier to claim damages from the Commission. While the CFI did not rule out the possibility of damages ever being available in this type of case, it noted that the Commission must make its decision in the midst of tight administrative deadlines, while considering complex situations, and accordingly a higher standard must be set for the award of damages than for the annulment of a Commission decision.

Going forward

MyTravel is able to bring an appeal against the decision to the European Court of Justice. However, it remains to be seen whether MyTravel will follow this course.

Please click here for the CFI press release and here for the full text of the CFI judgment.