Hybrid Settlements and Presumption of Innocence: The Conundrum of Verdict Under Veil

[Ishita Mishra is a fourth-year B.B.A. LL. B (Hons.) student at Symbiosis Law School, Pune]

The European Commission (‘Commission’) issued its decision to establish the participation of Barclays, Deutsche Bank, RBS, and Société Générale in a cartel in the market for Euro Interest Rate Derivatives (‘EIRD’). The decision was adopted through a settlement procedure wherein the banks received a 10% reduction in fines on admission of facts presented by the Commission. In parallel, the investigation surrounding HSBC, Crédit Agricole, and JP Morgan was finalized under the standard sanctioning proceedings.

HSBC later challenged the decision of the Commission establishing the participation of HSBC, Crédit Agricole, and JP Morgan in the EIRD cartel before the General Court (‘GC’) on the violation of presumption of innocence and the right of defence which was consequently dismissed. Subsequently, HSBC appealed on the same basis before the European Court of Justice (‘ECJ’).  

A pattern discernible from the European Union’s (‘EU’) experience is the hesitance and the cautious approach towards hybrid settlements: a bifurcated procedure adopted within a single proceeding wherein the Commission makes a decision against certain parties who follow the settlement procedure, alongside a separate decision against other parties that discontinue the settlement procedure. Non-settling parties in such instances appeal against the standard Commission decision, citing violations of the presumption of innocence, the right to defence, and the right to a fair trial. In contrast, India has recently introduced settlements through the Competition (Amendment) Act, 2023 (‘Amendment Act’), aiming to enhance efficiency of the Competition Commission of India (‘CCI’) on the enforcement front. 

The post delves into the well-established antitrust framework of the EU and the inherent challenges in the inevitable case of hybrid settlements. It explores the primary obstacle of the ‘staggered’ approach in the hybrid settlement decisions and what the CCI could take from the deficiencies observed within the EU’s antitrust regime to harmonize procedural efficiency and non-settling party rights in the hybrid settlement mechanism. 

Hybrid Settlements Within the Settlement Mechanism

The Commission uses settlement methods to make anti-competitive decisions expeditiously. Parties must admit misconduct and reach a ‘common understanding’ on facts and legality, with a 10% fine reduction if successful. This procedure grants the Commission swifter administrative processing, thereby conserving resources and minimizing appeals. It was introduced in the EU by Regulation 1/2003 for vertical infringements and cartels. In 2016, its application was broadened to cover the incidence of abuse of dominance.

Hybrid settlements involve a dual process: the Commission adopts a settlement decision for cooperating parties and a standard decision for non-cooperating parties. Procedural safeguards are critical for the non-settling party’s presumption of innocence and right of defence. Hybrid settlements are a product of a mature and developed competition regime in the EU in contrast to the Indian regulations, which have more recently introduced the settlement mechanism through the Amendment Act through the addition of section 48A to the Competition Act, 2002.

The introduced mechanism enables implicated entities in alleged anti-competitive vertical agreements and abuse of dominance cases to propose settlements after the Director General’s investigative report, preceding the final CCI adjudication. This process necessitates admission of guilt under section 48A(3), contrasting with the section 48B(3) commitment proceedings using ‘alleged contravention’. The CCI has the discretionary ability to approve or reject settlements with no appeals. It is undisputed that the new mechanism will help the CCI on its enforcement front. However, it also lacks application in cartel cases. 

The inevitability of encountering hybrid settlement scenarios places the CCI in a pivotal position, necessitating a cautious approach. The CCI must judiciously approach the situation, maintaining harmony between the interests of both settling and non-settling parties, in order to enhance the overall effectiveness of the settlement procedure.

The EU Approach

In the case of Pometon SpA , the ECJ established that the Commission can refer to a non-settling party in a settlement decision if such reference is necessary to prove the liability of the settling party. Consequently, the Commission must exercise due diligence and precision when formulating settlement decisions in hybrid settlements.

The determination of whether the Commission violated the presumption of innocence centres on a case-specific assessment of whether appropriate precautions were taken during the formulation and drafting of the settlement decision. Similarly, the decision to disclose information about the non-settling party must be meticulously examined, and such disclosure should only be made to the extent necessary to establish the liability of the settling party.

Implementing such precautionary measures is pivotal to ensure a fair trial with the essential principle of presumption of innocence and the right of defence. In Pometon, the ECJ drew upon a judgement by the European Court of Human Rights and its own jurisprudence. These cases pertained to criminal proceedings wherein several accused could not be tried together.

The ECJ highlighted that referencing separately prosecuted individuals can be deemed ‘necessary’ only while ascertaining the guilt of those on trial, given the potential violation of the presumption of innocence for co-suspects. This emphasizes the necessity principle, requiring judicial constraint within strict confines solely to establish the culpability of the individual being tried. In this context, judicious language selection during decision formulation is critical. Precision and accuracy are required to avoid potential premature judgment that can jeopardize the fair examination of the third parties.

The Court applied this precedent mutatis mutandis to hybrid settlement cases in competition law proceedings. The assessment of whether the Commission maintained the presumption of innocence for non-settling parties in hybrid settlements must be determined on a case-specific basis, considering distinct reasoning, facts, and circumstances. Similarly, in the HSBC case, the ECJ ruled that the presumption of innocence would be compromised if the authority, lacking a final conviction, explicitly asserts the non-settling party’s involvement. Consequently, the settlement decision should incorporate only information strictly essential regarding the non-settling party.

To determine such an ‘explicit declaration by the authority’, the ECJ scrutinized whether adequate drafting safeguards were in place to preserve the presumption of innocence for non-settling parties. The Court additionally examined public statements by the Commissioner responsible for competition policy when the order was issued. Ultimately, the ECJ determined that necessary precautions were taken to safeguard the right to a fair trial, leading to the dismissal of action taken by HSBC.

In Scania, which involved a hybrid settlement, the GC examined every reference to Scania, a non-settling party, within the settlement decision. References to Scania using terms like ‘amongst others’ were subject to analysis, and the Court determined that these references did not constitute a definitive assertion of the non-settling party’s liability. The Court’s reasoning drew upon Pometon, affirming that the admission of wrongdoing by a settling party does not automatically transform the references made to said party into explicit declarations. Thus, measures are taken against a settlement decision being equated to a verdict under veil for the non-settling party. 

The ‘Staggered Approach’ and Concurrent Adjudication

Within the EU, such hybrid decisions are commonly structured in a ‘staggered’ manner. Under such an approach, the standard decision is adopted subsequent to the settlement decision. This bifurcated procedure leads to intricacies as the settling parties are found to have engaged in competition infringement. These intricacies ripple through the effect of such a decision on non-settling parties, both from the perspective of the settlement order and the ensuing standard decision. Consequently, appeals arise from the non-settling parties with the settlement order being perceived as a verdict under veil: the authorities connecting the settlement order of the settling parties with a presumption of guilt for the non-settling parties in the standard procedure. Thus, how the non-settling parties and their conduct is characterized under it and the conduct of the Commission subsequent to such verdict as once a settlement order has been passed, maintaining a strictly impartial attitude of the authorities in the standard procedure can be a difficult task. 

Therefore, complexities arise in maintaining the presumption of innocence against such non-settling party while drafting the final settlement order and in the Commission ensuring strict impartiality in its actions following the issuance of such an order. The ECJ has upheld the validity of this staggered approach while emphasizing the importance of the presumption of innocence and guaranteeing a fair trial. 

Accordingly, the CCI can contemplate aligning its procedural framework with a unified approach, departing from the staggered EU model. This shall entail a concurrent adjudication of the settlement order and the standard decision, enduring efficiency, and safeguarding non-settling parties from a prejudiced proceeding, as it may be difficult to correctly measure the settling parties’ involvement without considering the non-settling parties. Moreover, the CCI should closely analyze the procedural efficiency of following a hybrid approach in a particular case prior to its application to avoid complexities and can entirely decide to discontinue such process under such circumstances.

Adopting such concurrent procedure shall also offer a solution to the intricate challenge of discerning the necessity of references to the non-settling party within the settlement order. As held in Pometon, the non-settling party cannot assert based on the presumption of innocence for the Commission to completely ignore or avoid facts that the settling party has already admitted. 

Hence, the viability of adopting a concurrent decision hinges upon the ability to preserve the delicate equilibrium between the interests of both settling and non-settling parties. This approach strives to maintain the expeditious and efficient advantage of the settlement procedure while protecting the presumption of innocence of the parties and guaranteeing them a fair trial. If not maintained, the quest to resolve the right of fair trial of the non-settling party can impede the effective enforcement of competition law or vice versa. 

Furthermore, alongside the practice of a concurrent decision or even in the absence of it, the CCI could implement a preliminary strategy of designating separate teams for the bifurcated process. While this might necessitate increased resource allocation and comparative efficiency losses, with both the teams taking more time to be familiar with the case at hand, it constitutes a sacrifice the CCI shall have to undertake to dispense any doubt regarding an impartial examination of the case. 

Way Forward

Against the backdrop of the recent introduction of the settlement mechanism in India, it brings forth a novel dimension; however, the incorporation and the inevitable issue of a hybrid settlement shall present a clear impediment to its effective enforcement. Thus, it is imperative for the CCI to take a cue from the limitations of the EU’s mature competition framework and approach this arena with prudence. Such a stance is indispensable to safeguard the presumption of innocence, the right to defence, and a fair trial. 

A potential departure from the contentious staggered approach adopted in the EU could offer the CCI a viable alternative, provided the balance between the interests of settling and non-settling parties is diligently preserved. Nonetheless, achieving such a balance is a formidable task that could potentially undermine the foundational efficiency value of the settlement procedure. Being a more moderate and less drastic approach, the CCI can allocate distinct teams to handle the settlement and standard procedures. Although this resolution might need additional allocation of CCI’s resources, it must be deemed imperative to enhance the effectiveness of the hybrid procedure. The most effective resolution for determining the optimal balance between hybrid settlements and procedural efficiency remains an ongoing discourse in the mature competition regime of the EU.

Ishita Mishra

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