European briefing | Ignorance is bliss: lawyers' advice as justification for non-compliance

'Can proceedings be brought against an undertaking for a cartel offence if that undertaking erroneously assumed that its own conduct was lawful?' That is how Advocate General Kokott summarised the issue in Case C-681/11 Schenker (Grand Chamber, 18 June 2013). English lawyers, brought up on the principle that ignorance of the law is no defence, may not be surprised to hear that the essential answer given by the ECJ was that such an assumption is not an excuse. The main interest in the case is in the difference of approach between the ECJ and the Advocate General.

Schenker was a reference from an Austrian court, which was considering whether to penalise various freight forwarding companies who had participated in a price-fixing cartel. The freight forwarders had taken advice from specialist competition lawyers in Austria who had allegedly advised that all would be well so long as the cartel was restricted to Austria where, under the then-prevailing Austrian law, it was apparently permissible because of market shares. They had also made applications in the Austrian courts which, while they were focused on domestic issues, had made orders which the freight forwarders thought implied that their price-fixing had no effect on trade between member states. They relied on these facts to show that any infringement had been neither intentional nor negligent, so that it should not attract penal sanctions.

One can start with the ECJ's decision, which appeared to be categorical: a lawyer's advice that conduct will not breach Article 101 is no defence; and a national authority's decision that it does not do so is equally no defence, since only the European Commission has power to decide that there has been no breach of EU competition law. (Under the decision in Case C-375/09 Tele2 Polska [2011] ECR I-3055, decentralised competition enforcement is a one-way street: national authorities can decide that there have been breaches, but not that there have not been.)

This seems simple enough: breach of competition law is a strict liability administrative offence. But Regulation 1/2003 expressly says that fines should be imposed only where they infringe competition law "intentionally or negligently". Does that not require fault? And does bona fide reliance on legal advice not negate that fault?

The ECJ's answer was that there was fault so long as the person concerned knew or ought to know that his conduct was anti-competitive. If I know my conduct is anti-competitive but believe that it is lawful (for instance, because I wrongly believe it has no effect on trade between member states, or I wrongly think that EU law only applies to cross-border cartels), then I have no defence.

This opens up the chink of a possible defence, if the advice of lawyers (or, presumably economists) is not merely that conduct is lawful but that conduct is not anticompetitive. But it is a very narrow chink, especially because it is clear that the standard required to show negligence is very low. It also requires one to ask a rather odd question, and not necessarily an easy one, since deciding whether conduct is anticompetitive can be notoriously hard.

Advocate General Kokott would have reached the same result in the particular case, but for quite different reasons. Her starting point was general principle: she considered that the principle nulla poena sine culpa (no punishment without fault) is a general principle of EU law. If the ECJ had agreed, this would have been an important development; for while the case law contains hints of the principle, it has not been explicitly endorsed. It is therefore notable that the ECJ did not endorse this invitation to accept the principle as a general principle, choosing to adopt a far more limited holding and one which was based on legislative text rather than general principle. So although the decision does not exactly reject the principle, it certainly offers no encouragement to see it as forming part of EU law.

Having referred to the principle, the Advocate General went on to consider '¨its application. She regarded it as axiomatic that if an undertaking excusably believed that its conduct was lawful, then it could not be punished: an error of law - provided it was an excusable error of law - could indeed be a defence. Clearly the ECJ was not willing to follow her that far. Indeed, the judgment went out of its way to say that an understanding of the legal consequences of the act is totally irrelevant to punishment: all that matters is negligence with respect to the question whether competition is restricted. An honest and reasonable belief that it is permissibly restricted is '¨no defence.

Finally, the Advocate General considered whether the errors in this case were excusable. This was a high standard, and she found that there was not any excuse, since neither the lawyers nor the national authorities had really been focussing single-mindedly on EU law issues. So she would have reached the same result as the ECJ, but by a quite different process.

That approach would have had the advantage of being principled. It was not, by any means, a scoundrel's charter. It would have offered a defence only rarely and under strict limits. In contrast, however, the ECJ's approach, while it allowed for an easy resolution of this particular case, may require a difficult question to be asked without any clearly principled basis to explain why it is the right question.