Diamonds are forever - but what about supply? - International Law Office

In a recently published decision the president of the Competition Council approved a request for preliminary measures from Belgian diamond merchant Diamanthandel A Spira against De Beers, the world's leading diamond mining and trading company.

In 2003 De Beers introduced new criteria for choosing the clients to which it would sell rough diamonds - an arrangement that was termed the 'supplier of choice' system. Spira had been buying rough diamonds from De Beers since 1935. However, after the introduction of the supplier of choice system it qualified as an approved buyer only once, in 2005, failing to qualify in 2004 and every year since 2005. Spira claimed that as a result of De Beers' refusal to supply, it could no longer obtain enough rough diamonds and risked being excluded from the market. Spira requested, as a preliminary measure, that De Beers be obliged to continue to supply it until the outcome of the pending proceedings on the merits. In approving the request, the president of the council followed the competition prosecutors' conclusion that De Beers' refusal to supply amounted to prima facie abuse of a dominant position. He ordered De Beers to continue to supply Spira until one month after a decision on the merits, and imposed periodic penalty payments of €1.5 million for each infringement.

The decision is particularly significant because of the order in a preliminary measures case to continue a contractual relationship while awaiting the outcome of proceedings on the merits which have been pending at national and EU level for many years. The president also addressed a wide range of procedural matters.

In 2001 De Beers applied to the European Commission for an Article 81(3) exemption in respect of the supplier of choice system. The commission required De Beers to make several changes to the system, following which the company received a comfort letter on January 16 2003. Spira objected to the supplier of choice system, but its first complaint against De Beers was rejected by the commission on January 27 2007. Spira filed a second complaint, which was rejected on June 5 2008. Spira appealed both decisions to the General Court.

Spira also initiated proceedings against De Beers before the Belgian ordinary courts. After a complex sequence of judgments and appeals, Spira obtained a court order that required De Beers to continue deliveries to Spira until December 31 2008.

In the case before the president of the council, the first part of the ruling deals with Spira's claim that as a claimant and an applicant for preliminary measures, it had a right of access to the council's case file. The president's ruling states that, in principle, Spira did not have access to the file, either as a complainant or as an applicant. However, it had a right to request a list of the file's contents and to request access to specific documents. Spira had specifically requested access to a letter which De Beers had written to the council in response to a letter from Spira to the council; the letter set out De Beers' arguments based on the new evidence in the file. The ruling stated that Spira, as the complainant, did not have the same rights as the defendant. Whereas De Beers had full access to the case file, Spira could be given access only if the president believed this to be necessary in order for Spira to set out its arguments on the practices under investigation and their anti-competitive effects. The president refused Spira's request for access, as he believed that Spira had already been given sufficient opportunities to set out its arguments.

The second part of the ruling deals with De Beers' claim that its rights of defence had not been respected because:

• it had been given only a short period (ie, two weeks) in which to respond to the commission's decisions to reject Spira's claims;
• the formal case file was allegedly incomplete and De Beers had been refused access to the informal investigation file; and
• De Beers had been refused access to the Article 7(1) letters(1) that the commission had issued before rejecting Spira's complaints.

The president rejected all of De Beers' claims and held as follows:

• Two weeks was sufficient time for De Beers to have studied the letters and composed its response.
• The file did not need to contain the written transcripts of the conversations between members of the council and Spira's representatives about Spira's proceedings against De Beers before the commission; nor was it required to contain documents relating to the informal contact between the council and Spira before the latter filed its formal complaint and initiated proceedings against De Beers.
• De Beers did not require access to the Article 7(1) letters to be able to prepare its defence against Spira's application for preliminary measures.

De Beers had also complained that the prosecutor's investigation had been incomplete and biased, as only a limited number of information requests had been sent, and that the prosecutor's report contained phrases such as "there are indications" and "it can be assumed". The president's ruling states that such facts are not considered problematic in a preliminary measures case, which is normally on a smaller scale - and of more limited scope - than an investigation of a case on the merits.

With regard to Spira's request for preliminary measures, the president stated that:

• there was serious and immediate prejudice, as it was impossible for Spira to obtain the same quantity of diamonds from other suppliers; and
• the preliminary measures could still be granted and considered urgent, even though more than seven years had passed since the introduction of the supplier of choice system, because the measures would still be useful to Spira and because the company had fought against the system since its introduction.

The president agreed with the prosecutor's assessment that the commission's rejection of Spira's complaints did not prevent the granting of the preliminary measures requested.

The president therefore ordered De Beers to continue supplying rough diamonds to Spira from January 1 2011 until one month after the date on which:

• the General Court rejects Spira's appeal against the commission's decisions of January 27 2007 and June 5 2008, rejecting its complaints; or
• the competition prosecutor dismisses Spira's complaint in the proceedings on the merits.

For further information on this topic please contact Carmen Verdonck or Louise Depuydt at ALTIUS by telephone (+32 2 426 1414), fax (+32 2 426 2030) or email (carmen.verdonck@altius.com or louise.depuydt@altius.com).

Endnotes

(1) Based on Article 7(1) of the EU Conduct of Commission Proceedings Regulation (773/2004).