Note 34 - Litigation
In the normal course of its business, the Group is involved in a number of disputes. The main disputes currently in progress are described below. Where necessary, the Group sets aside adequate provisions to cover risks arising from both general and specific disputes. The total amount of these provisions is set out in note 27.2.
Investigation by the Swiss Competition Commission
Following the rejection – by way of a referendum on 11 March 2012 – of measures to introduce a single price for books in Switzerland, the Swiss Competition Commission (Comco) reopened an investigation into imports of French-language books by distributors.
Subsequent to the investigation procedure, Comco made a final decision on 27 May 2013 under which Diffulivre (Lagardère Publishing division) was held liable for territorial exclusivity with the intention or effect of partitioning the Swiss market (one of the three original charges).
This decision was upheld by the Federal Administrative Court on 30 October 2019.
On 13 January 2020, Diffulivre filed an appeal with the Federal Court, which suspended the effects of the ruling pending the Court’s forthcoming decree.
Competition investigations in the school textbook market in Spain
Following a complaint filed by a publisher, the Spanish competition authority (CNMC) carried out searches at the premises of the ANELE (the school textbook publishers’ trade association) and three publishers (including Anaya, a subsidiary of Hachette Livre), and subsequently launched a sanction procedure in October 2017.
On 30 May 2019, the CNMC issued its ruling which followed the recommendation of its investigating officers, and ordered Anaya and a number of its subsidiaries to pay total damages of approximately €8 million for:
- discussions held between publishers – with a view to promoting ethical behaviour and ensuring buyers’ independence – about providing for a special clause in an ANELE Code of Conduct that limits the bonuses and gifts offered by publishers to buyers’ organisations when those organisations order textbooks; and
- discussions between publishers about the terms and conditions for selling digital versions of textbooks when negotiations are carried out with certain regions.
Anaya has filed an appeal against this decision with the Spanish national court (Audiencia Nacional), which had the effect of suspending payment of the fine.
Class action against Hachette Book Group
In the United States, class action suits were brought against Amazon and certain e-book publishers, including Hachette Book Group, in January and February 2021. The suits allege a breach of US anti-trust law, specifically in relation to price fixing. Hachette Book Group disputes these allegations along with the admissibility of the class action.
Tax reassessments at Lagardère Duty Free and LS Travel Retail Italia
Lagardère Duty Free and LS Travel Retail Italia jointly received a tax reassessment notice in December 2015 relating to registration duties for an amount of €7.6 million, including late-payment interest, relating to the reclassification of the sale of an investment between the two parties as a sale of business assets (fonds de commerce). This amount had to be paid since there was no possibility of delaying payment without incurring a fine. The Group did not believe that the reclassification was legally founded and the reassessment was appealed before the courts, which handed down contradictory decisions in the first instance. All appeal decisions were handed down in favour of the Company in 2017 and 2018, and in March 2020 LS Travel Retail Italia obtained a refund of the €7.6 million paid. The tax authorities have filed an appeal with the Supreme Court against these decisions.
In December 2019, LS Travel Retail Italia received a “Report of Verification” (tax reassessment notice) for a tax basis of €4.3 million relating to fiscal year 2016. The notice disputes the tax deductibility of notional interest on equity at the time of the €230 million capital increase carried out upon the acquisition of the company. The tax inspection has been extended to cover fiscal years 2014 to 2018. The Group considers it has solid arguments in its defence and will challenge the reassessment.
Monla/Lagardère Travel Retail & Chalhoub arbitration
Between end-2016 and early 2017, Lagardère Travel Retail (“LTR”), Monla Group SAL Holding (“Monla”) and Chalhoub Group Limited (“Chalhoub”) began talks regarding a potential joint response to a request for proposals for a Duty Free concession at Beirut airport.
On 10 May 2017, Monla had filed an arbitration claim against LTR and Chalhoub with the International Chamber of Commerce, asserting wrongful behaviour in the conduct and suspension of their three-party discussions. Monla was seeking damages (plus miscellaneous expenses) from the respondents for the alleged harm caused, in particular to its image, and for loss of opportunity. At the end of December 2019, the arbitration tribunal dismissed all of Monla’s claims. Monla may submit an action for annulment of the decision, subject to the applicable legal deadlines.
Call on the vendor warranty granted in connection with the sale of distribution businesses in Belgium to the bpost group
Lagardère Travel Retail granted a vendor warranty in connection with the sale of the integrated distribution and retail subsidiaries to bpost in November 2016. Although the bpost group had sought to enforce the warranty on several occasions, Lagardère Travel Retail had considered its specific demands to be both inadmissible and unfounded and had responded to bpost to this effect. The bpost group launched arbitration proceedings before the International Chamber of Commerce on 27 March 2019. The case is ongoing.
Litigation with photographers
Disputes are in process with freelance and salaried photographers who contributed to magazines published by the Group. Most of these disputes concern returns of analogue photographic archives and retaining photographs, as well as the resulting operating losses. The proceedings are still ongoing and are progressing in a manner generally favourable to the Group; the related financial claims still seem excessive however.
Dispute with former employees of Matra Manufacturing & Services (formerly Matra Automobile)
Following the termination of automotive manufacturing operations at Matra Manufacturing & Services (MMS), and the ensuing redundancy plans set up in 2002 and 2003, a number of former employees filed a claim with the employment tribunal alleging that they had been unfairly dismissed. The basis for this claim was that MMS had not complied with its obligations (i) to redeploy the employees in-house, as it did not provide each of them with a written individual proposal to take up positions that had become available as a result of departures from the Spare Parts Department (departures to which MMS had agreed at the request of the Works Council), and (ii) to properly inform the Regional Employment Authorities in relation to its external redeployment requirement.
MMS disputed this allegation on the grounds that it had respected all of its obligations.
On 14 January 2014, the section of the Blois employment tribunal responsible for cases concerning industry ordered MMS to pay 305 former employees a sum of €18,000 each in compensation, plus €300 each in costs in accordance with Article 700 of the French Civil Procedure Code (Code de procédure civile). However, no provisional enforcement order was issued for this judgement.
On 21 March 2014, the section of the Blois employment tribunal responsible for cases concerning managerial employees ordered MMS to pay seven former employees sums ranging between €15,000 and €17,800 each in compensation, but with no costs payable under Article 700 of the French Civil Procedure Code. No provisional enforcement order was issued for this judgement either.
MMS has appealed these judgements. The cases were joined before the Court of Appeal and on 16 September 2015, based on the arguments put forward by MMS, the Court overturned the employment tribunal’s judgements and rejected all of the former employees’ claims.
The former employees appealed this decision before the Court of Cassation, which on 26 October 2017, partially overturned the rulings made by the Court of Appeal concerning the internal redeployment obligation. The case was referred to the Bourges Court of Appeal, which on 31 January 2020 upheld the rulings of the Blois employment tribunal but modified the compensation payable to the employees. The total compensation represents around €4.3 million (excluding Article 700 of the French Civil Procedure Code).
Legal proceedings against Amber Capital
On 8 November 2019, Lagardère SCA and Lagardère Capital & Management initiated proceedings before the Paris Commercial Court seeking damages from Amber Capital as compensation for the respective harm caused by numerous cases of abuse of minority shareholder powers, smears and acts of harassment. Lagardère SCA’s losses are currently estimated at almost €84 million.
Disputes that continue to be managed by the Group following the sale of press operations to the CMI group and of the Sports division to H.I.G. Capital
- Commercial disputes resulting from the shutdown of LA Webco
On account of a vendor’s warranty granted to the CMI group in connection with the sale to CMI of press operations, the Group remains bound by the outcome of certain disputes relating to the 2013 shutdown of LA Webco, a former Lagardère Active subsidiary responsible for operating the Elle and BE e-commerce businesses. In one of these disputes, the Paris Court of Appeal handed down a ruling on 3 July 2020 ordering the Group to pay €2.7 million in damages to a former supplier of logistics services.
The Group has appealed the decision. Another dispute between the Group and a provider of e-commerce solutions is currently pending before the Paris Court of Appeal. - WSG India and WSG Mauritius/Indian Premier League contracts
In 2007, the BCCI (Board of Control for Cricket in India) launched a call for tenders for the worldwide rights to its new cricket competition, the Indian Premier League (IPL), until 2017.
WSG India – which became a subsidiary of Lagardère Sports and Entertainment in May 2008 – was awarded most of these rights in early 2008, with the remainder awarded to an unrelated operator, MSM.
A global reorganisation of the distribution of these rights took place in March 2009 at the initiative of the BCCI. In the context of the negotiations, the BCCI granted to WSG India the IPL rights worldwide, excluding the Indian subcontinent, for the period from 2009 to 2017.
In June 2010, the BCCI terminated the 2009/2017 contract to market IPL rights worldwide, excluding the Indian subcontinent, and WSG India immediately began proceedings in order to preserve its rights.
In spring 2011, the Indian Supreme Court took a series of interim measures that — without calling into question the marketing already carried out by WSG India and without prejudging the substance of the case — temporarily granted the BCCI, under the supervision of the Court and pending the final ruling, media rights to the IPL outside the Indian subcontinent that are not already marketed by WSG India, as well as recovery of the amounts owed by the broadcasters and held in escrow. An arbitration award was handed down on 13 July 2020 in respect of the proceedings on the merits of the case, dismissing WSG India’s compensation claim. Based on this award, the BCCI recovered the amounts held in escrow. WSG India has filed an appeal for annulment of the award on the grounds that it has no legal basis, and has applied to the competent Indian courts to have the sums concerned taken back into escrow.
On 13 October 2010 the BCCI filed a criminal complaint with the Chennai police authorities in India against seven individuals, including the former President of the IPL and four managers of WSG India, alleging breaches of the Indian criminal code in connection with the attribution to WSG India in March 2009 of certain IPL media rights for the 2009-2017 seasons. The investigation has not progressed since 2010.
After the Indian tax authorities’ audit of WSG India’s operations, the company was issued with tax reassessment notices representing an overall liability of around €11.4 million at 31 December 2020. WSG India has paid a deposit for part of the amount and launched an appeal.
Lastly, as part of an investigation by the Indian authorities into money-laundering allegations concerning the former managers of the BCCI and its commercial partners in the IPL, on 24 May 2016 WSG Mauritius received a notification from Mauritius’ Attorney General requesting it to provide certain documents. The hearings before the Attorney General took place in July 2016. WSG India’s managers have since received requests for information and documentation, to which WSG India has responded.
WSG India and WSG Mauritius are subsidiaries of Lagardère Participations. They are not part of the scope sold to H.I.G. Capital. - Competition proceedings in Africa concerning the commercialisation of the rights of the Confederation of African Football
On 3 January 2017, the Egyptian Competition Authority (ECA) issued a decision against the Confederation of African Football (CAF) in which it alleged that the CAF was abusing its dominant position concerning the commercialisation of its media rights in Egypt through its agency agreement, in force until 2028, with Lagardère Sports (now Sportfive). This decision contained a number of injunctions, including the cancellation of the agency agreement for the Egyptian market. The case was subsequently referred to the Cairo Economic Court on the grounds of alleged anti-competitive behaviour by CAF’s former Chairman and its Secretary General.
Meanwhile, in February 2017, the CCC (the Competition Commission entrusted with merger regulation in COMESA – the Common Market of Eastern and Southern Africa) opened an investigation into the commercialisation of the media and marketing rights for the CAF’s tournaments, notably covering the above-mentioned agency agreement and the other contracts entered into between the CAF and its various partners (three broadcasters and two sponsors) through Sportfive. Sportfive received notification from the CCC on 16 April 2019, conferring on it the status of respondent in the Commission’s investigations.
The CCC’s investigating officers subsequently sent their report to the parties on 23 July 2019. The report considers that the aforementioned contracts would have anti-competitive effects and recommends several measures affecting in particular the term of said contracts. Sportfive submitted its response to the report on 31 October 2019, disputing the CCC’s analysis. The investigating officers’ report and the parties’ replies are to be submitted to a CCC committee which will take a decision only after a hearing. This decision may be appealed.
In this respect, on 28 October 2019 the CAF notified Sportfive that it considered its agency contract with Sportfive to be terminated. Sportfive strongly contests this decision, which, in its view, is unreasonable and has no legal basis. On 6 December 2019, Sportfive therefore initiated arbitration proceedings in which it is seeking damages for the harm caused.
In accordance with the agreements signed with H.I.G. Capital, Lagardère is managing this dispute on behalf of Sportfive.
Tax authorities/Lagardère
A number of the Group’s companies have received tax reassessment notices – relating to several different fiscal years – as part of the routine tax audits carried out by the French and foreign tax authorities. Provision has been made to take account of the reassessments accepted by the companies, and also for the amount estimated as the risk corresponding to disputes over challenged reassessments. Other than those described above, the Group is not aware of any dispute in process that concerns amounts which could have a significant impact on the consolidated financial statements.