UNFAIR TRADE PRACTICES – The European Court of Justice rules that an administrative fine imposed on a company for unfair trade practices may constitute a criminal penalty within the meaning of the ne bis in idem principle

ECJ, September 14, 2023, Case C-27/22

In a ruling dated September 14, 2023, the European Court of Justice (ECJ) ruled that a financial fine imposed on a company by the competent national consumer protection authority for unfair commercial practices constitutes a criminal sanction when it serves a punitive purpose and carries a high degree of severity. In such a situation, the ne bis in idem principle applies.

This case concerns the application of the ne bis in idem principle, which means that an individual cannot be punished twice for the same facts with criminal sanctions.  This principle is protected at the European level by article 50 of the Charter of Fundamental Rights of the European Union (“the Charter”), which states: “No-one shall be liable to be tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union in accordance with the law“.

In this case, the authorities of two Member States (Italy and Germany) initiated sanction proceedings against the same group of automobile companies based in Germany.

Firstly, in 2016, the Italian Competition Authority (AGCM) imposed a fine of five million euros on these companies for committing unfair commercial practices, notably for installing software to distort the measurement of nitrogen oxide emissions levels in vehicles during emissions tests. This ruling was taken under national provisions implementing Directive 2005/29/EC of the European Parliament and of the Council of May 11, 2005 concerning unfair business-to-consumer commercial practices in the internal market. The companies appealed against this ruling.

Secondly, while the Italian was still pending in 2018, the Brauschweig public prosecutor’s office in Germany imposed a fine of one billion euros on one of the companies, also sanctioned in Italy, for manipulating the exhaust gases from certain diesel engines belonging to the same group of companies. Investigations had revealed that emission standards had been circumvented. Part of the fine (five million euros) was to penalize the specific behavior, while the remainder aimed to deprive the company of the economic benefit derived from the installation of the aforementioned software. This German ruling became final on June 13, 2018.

Finally, as part of the proceedings in Italy, the companies invoked the subsequent illegality of the Italian ruling for breach of the ne bis in idem principle.

Ultimately, the Italian Council of State (the referring court) will ask three questions to the ECJ:

“1) Can the penalties imposed for unfair commercial practices under national legislations implementing Directive [2005/29] be classified as criminal administrative penalties?”

“2) Must Article 50 of the Charter be interpreted as precluding a national provision that makes it possible to uphold in court proceedings and make final a criminal financial administrative penalty against a legal person in respect of unlawful conduct in the form of unfair commercial practices, for which a final criminal conviction has been handed down against that person in the meantime in a different Member State, where the latter criminal conviction became final before the ruling in the judicial proceedings brought against the former criminal financial administrative penalty became res judicata“

“3) Can the provisions laid down in Directive 2005/29, with particular reference to Article 3 (4) and Article 13 (2) of that directive, justify a derogation from the principle ne bis in idem established by Article 50 of the Charter and by Article 54” of the Convention implementing the Schengen Agreement of June 14, 1985, between the Governments of the States of the Benelux Economic Union, the Federal Republic of Germany and the French Republic on the gradual abolition of checks at their common borders ?  [CISA]”

1. On the qualification of an administrative fine imposed for unfair commercial practices as a criminal sanction

Firstly, the ECJ points out that three criteria are relevant in assessing the criminal nature of the proceedings and penalties in question: the qualification of the offence under national law, the nature of the offence and the severity of the penalty.

Applying the aforementioned criteria, the ECJ concludes that a pecuniary fine imposed on a company by the competent national consumer protection authority for commercial practices constitutes a criminal penalty when it pursues “a punitive purpose and has a high degree of severity“, even if the penalty is classified as an administrative penalty by national regulations.

2. On bis and idem

To answer the second question, the ECJ outlines the two criteria for applying the ne bis in idem principle.

First of all, there must be a prior final ruling, meaning a decision that has definitively ruled on the facts subject to a second procedure, and that this ruling was made after an assessment of the merits of the case. This is the “bis” condition. The ECJ emphasizes that it does not necessarily follow that the subsequent rulings precluded by that principle can only be those which were adopted after that prior final ruling. Indeed, the ne bis in idem principle applies once a ruling of a criminal nature has become final. In this case, the ECJ states that the “bis” condition is satisfied (subject to verification by the referring court) since the German ruling became final during the appeal procedure of the contested Italian ruling.

Next, the ECJ assesses at the “idem” condition. The ECJ points out that Article 50 of the Charter prohibits the prosecution or punishment of the same person more than once for the same offence. It stresses that the criterion for assessing the existence of the same offence is the identity of the material facts ” understood as the existence of a set of concrete circumstances which are inextricably linked together and which have resulted in the final acquittal or conviction of the person concerned ”. Finally, it is essential to highlight that the ECJ states that for the ne bis in idem principle to apply, the facts must be “identical” and not merely “analogous” or “similar”, as explained by the referring court. This assessment falls within the competence of the national judge.

3. Restriction on the ne bis in idem principle

As a preliminary point, it should be noted that the ECJ dismissed the references to Article 54 of the CISA and Articles 3(4) and 13(2)(e) of Directive 2005/29 as irrelevant. Subsequently, the ECJ comments on the limitations placed on the ne bis in idem principle. In particular, Article 52 of the Charter provides that: “Any limitation on the exercise of the rights and freedoms recognized by this Charter must be provided for by law and respect the essence of those rights and freedoms. Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognized by the Union or the need to protect the rights and freedoms of other”.

Regarding the condition related to objectives of general interest, the ECJ states that duplication can be justified by pursuing distinct objectives through the imposed sanctions. Thus, it points out that the German ruling is based on ensuring that companies and their employees act in accordance with the law, and sanctions the duty of supervision in the course of business. The Italian ruling, on the other hand, is based on a breach of the Consumer Code (transposing Directive 2005/29), the purpose of which is to protect consumers and thus contribute to the proper functioning of the internal market. Thus, in this case, the ECJ considers that the two regulations in question pursue legitimate objectives that are distinct.

Next, the ECJ addresses the proportionality criterion, which is also laid down in Article 50 of the Charter. With regard to this criterion, the ECJ states that the duplication of proceedings and penalties provided for by national legislation does not exceed the limits of what is appropriate and necessary to achieve the legitimate objectives pursued. It states that the duplication of proceedings and penalties can be considered justified if three conditions are met. The cumulation must not represent “an excessive burden for the person concerned“, there must be “clear and precise rules making it possible to predict which acts or omissions are liable to be subject to a duplication” and, lastly, the proceedings in question must have been conducted “in a manner that is sufficiently coordinated and within a proximate timeframe“.

Regarding the first condition, the ECJ notes that the amount of the fine imposed by the Italian authority corresponds to 0.5% of the amount of the fine imposed in Germany, and that the company on which the German fine was imposed accepted this fine. The ECJ concludes that this calls into question the excessive nature of the accumulation.

Regarding the second condition, the ECJ notes that there is no evidence to suggest that the company in question could not have predicted that its conduct was liable to give rise to proceedings in at least two Member States.  Moreover, the clarity and precision of the texts in question do not appear to be called into question.

With regard to the third and final condition, concerning the coordination of proceedings, the ECJ points out that there appears to have been no coordination between the proceedings. Additionally, it is noted that the German prosecutor’s office took steps with Eurojust to prevent the duplication of criminal penalties. However, the Italian authorities did not abandon criminal proceedings, and the AGCM did not participate in this coordination attempt. While the ECJ recognizes that coordination, especially involving different Member States, can be challenging, it clearly emphasizes that this coordination requirement cannot be disregarded.