Op-Ed: “Defendants’ right to be heard vs. finality of administrative offence findings – the Court of Justice’s judgments in FN and Adler” by Allison Östlund
On 9th September 2021, the Court of Justice delivered two preliminary rulings relating to the national imposition of fines for breaches of procedures for acquiring majority shareholding pursuant to the Takeover Bids Directive 2004/25 and the Transparency Directive 2004/109. Both cases stemmed from preliminary references made by the Austrian Federal Administrative Court (Bundesverwaltungsgericht) and concerned Austrian procedures for enforcing the public EU-based legislation at issue against a formation of individual corporate defendants.
In the first ruling, Adler and Others (C-605/18), the Court of Justice found that since the Austrian Financial Markets Authority was not designated and mandated in compliance with the Takeover Bids Directive, the Austrian legislation’s relatively stricter requirements for notification of takeover bids was contrary to the more lenient EU secondary legislation.
The referring court had additionally asked the Court of Justice about the extended finality of the Austrian Takeover Commission’s preliminary factual findings, insofar as they precluded factual review in subsequent criminal proceedings. The Court of Justice, however, declined to answer whether attaching binding force to the initial decision was in compliance with Article 47 of the Charter of Fundamental Rights of the EU (paragraphs 42-48). Although the stated reason was that the Court of Justice had found the Financial Markets Authority to lack necessary competence for enforcement, it had in fact, in another reference, been asked an equivalent question with respect to pending administrative proceedings relating to the same course of events. This Op-Ed focuses on the preliminary ruling in response to this latter reference (FN and Others C-546/18), since it bears implications for respect of the rights of defence that reach far beyond the auspices of EU financial law.
The reference in FN and others
The background of this case can be summarised as follows. The Austrian Takeover Commission had issued a preliminary finding on ‘objective facts’, establishing the defendants’ failure to submit a public takeover bid when effectively acquiring a controlling interest of shares in another company. Having become final upon appeal to the Austrian Federal Supreme Court, the decision formed the basis for the Commission’s subsequent imposition of fines on the board members of Adler AG and other co-defendants in a second round of administrative proceedings.
The problem was, according to the referring court, that in the initial administrative proceedings, the board members were only present in their capacity as corporate representatives, the legal entities being the actual offenders and thereby the defendants with standing in the proceedings. In other words, the representatives did not – to their own knowledge – have personal stakes in the initial procedure. Yet, the Takeover Commission’s ‘final preliminary decision’ laid the subsequent ground for holding the physical persons primarily responsible and the legal entities only ‘accessorily’ liable for the issued fines – based on the objective findings of the first administrative round.
Res judicata or scope of review?
Once established, according to Austrian administrative practice, the findings in the ‘final preliminary decision’ could not – at least presuming the existence of issue and party identity – be reversed or substituted upon appeal (‘extended binding effects’). The identity test is mainly used to establish res judicata – that is, to block subsequent legal challenges against judgments that have become final (see for example A. Kornezov, 2014). By contrast, the degree to which lower administrative decisions bind courts upon their appeal is rather a matter of scope or intensity of judicial review and administrative discretion (cf. Torubarov, C-556/17). The present proceedings – divided into two interlinked administrative procedures – finds itself conceptually between the two categories. Although there is much overlap, the Opinion of Advocate General Bobek to a greater extent considered the reference in terms of access to court with ‘full jurisdiction’ (points 61-76), whereas in the Court of Justice’s reasoning, the rights of defence were evoked in support of revocation.
Effectiveness or judicial protection?
The questions posed by the referring court also in an interesting way juxtaposed the principles of effectiveness and effective judicial protection. Let us entertain this, keeping in mind that it is perhaps primarily in administrative offence-proceedings, in which EU law is being enforced against individuals, that effectiveness of EU law and effective judicial protection serve opposing interests (see M. Dougan, 2017, A. Östlund, 2019, chapters 184.108.40.206 and 5, cf. FN and Others, C-546/18, paragraph 39):
- The Austrian Federal Administrative Court first asked whether granting the defendants a right to full review would run contrary to the effectiveness of the Directive of which enforcement was sought (referred questions 1 and 2).
- If, on the contrary, the effectiveness of the EU financial law regime did not require national courts to sustain the finality of the decision, the referring court additionally wished to know whether Article 47 of the Charter meant it was obliged to re-open the decision in order to let the defendants challenge it in law and fact – that is, argue it anew (questions 3 and 4).
Taking its starting point in the procedural autonomy of the Member States, the Court of Justice found that neither the two-tier administrative procedure, nor the extended binding force of the final outcome of the first round, in and of itself ran contrary to the Takeover Bids Directive (paragraphs 36-39). Quite the contrary. Although the Court of Justice did not as clearly as the referring court juxtapose effectiveness and effective judicial protection (cf. for example J. Krommendijk, 2016), it did acknowledge that while the effective enforcement of EU law was indeed promoted by the binding force of the initial decision, the ensuing applicability of the Charter meant that the EU fundamental rights regime also had to be respected in the context of national implementation (paragraphs 39-42). The Court of Justice accordingly dealt with all referred questions together, in reference to the rights of defence and Articles 47 and 48 of the Charter.
The rights of defence
In applying the rights of defence to the circumstances in the national litigation, the Court of Justice noted that the pecuniary sanctions at issue were of a substantial size, while the defendants had not been represented as such in the first round of proceedings. Had they (hypothetically) been present in their status as parties, the Court of Justice would have been prepared to accept the binding nature of the preliminary decision, assuming that the requirements stemming from Article 48 of the Charter were also overall satisfied (paragraphs 56-57).
Taking into account, however, that their personal interests as defendants might well be at odds with any interests that had guided them when acting as corporate agents, the Court of Justice found that the Takeover Commission was in fact obliged to disregard the outcome of the first round of proceedings in order to carry out a new assessment into both the objective and subjective side of the infringement criteria (paragraph 60). The Court of Justice also noted that, by having participated in the initial proceedings wearing a different hat, the defendants would have risked incriminating themselves, undermining their personal right to remain silent. The proceedings remaining quasi-criminal in nature, the presumption of innocence was also repudiated (paragraphs 61-62).
The right to an independent and impartial court
With respect to judicial independence, the Court of Justice deviated from prior customs, aligning with the more sceptical stance displayed in the recent judicial independence line of case law (Commission v Poland, C-619/18). The Court conceded that the Takeover Commission fulfils national constitutional requirements of impartiality, independence, constitution by law, and other conventional criteria for ‘courts and tribunals’ to be considered as such. Yet it concluded, according to the below reasoning, that the impartiality criterion was encroached upon (paragraph 64, referring to paragraph 52):
‘The second aspect is linked to the notion of impartiality and envisages the court’s equal distance (‘l’égale distance’) with respect to both parties of the litigation and to their respective interests concerning its object.’
The take on impartiality, familiar from Commission v Poland (C-619/18), appears to promote equal treatment and a level playing field in tune with adversarial traditions (see also Online Games, C-685/15, paragraph 61). It makes some sense in a quasi-criminal setting where – should the playing field slant – it is expected to slant in the favour of the defendant and not vice versa. It is therefore a welcome turn of phrase, albeit in reference to the Takeover Commission. Since not even the judicial review in the first round of proceedings was of law and fact (Opinion in FN and others, C-546/18, point 29), the finding is in line with the Court of Justice’s jurisprudence in competition cases concerning the EU Courts’ review of fines imposed by the Commission (for example KME Germany AG, C-272/09 P). Yet, may it be extrapolated that administrative courts cannot start out any round of judicial proceedings with any presumption other than that of the administrative offender’s innocence? This is all very well in traditional criminal proceedings where the prosecutor brings the proceedings and therefore naturally bears the burden of proof. But – and here is the potential controversy – how can this be received by EU courts (centralised and decentralised) when transposed to administrative enforcement proceedings? Administrative court proceedings are often initiated by offenders on appeal, in which individual parties would traditionally bear a burden of proof in their capacity as appellants. Moreover, are the EU Courts in competition proceedings – also brought by the offending parties by appeal – ready to abandon the remnant responsibility of adducing evidence borne by the individual appellants (KME Germany AG, C-272/09 P, paragraph 105), in order to place it fully on the Commission? I somehow doubt it.
Allison Östlund is Lecturer at the School of Public Administration of the University of Gothenburg. Her PhD in European Law from the University of Luxembourg formed the basis for her current research specialisation on procedural autonomy and procedural equity in a European administrative law setting.