Litigation risk

Antitrust Authority investigation of the acquisition of Publiacqua

On 8 June 2006 Acea was informed that Italy’s Antitrust Authority was about to start an investigate on of an alleged violation of article 81 of the Treaty of Rome (anticompetitive agreements) in relation to the acquisition, in partnership with Suez, of a 40% stake in Publiacqua, which manages water services in the Florence area.

On the same date ACEA submitted the documentation relating to the transaction.

The investigation saw a number of key developments during the first half of 2007, with several Company representatives giving evidence during hearings held at the Authority’s offices and deposition of defence briefs (prepared with the assistance of the consultants hired by the Company). The most important event took place during the second half of July, when the report containing the results of the investigation was passed to the Antitrust Authority Board for its final decision.

On 28 November 2007, ACEA was notified of the Antitrust Authority’s ruling, in which it:

  • deemed that a horizontal agreement existed between ACEA and SUEZ in the integrated water services sector, which is managed by a public-private partnership in which the private partner is selected via a tender process;
  • ruled that the parties should take actions to avoid repetition of the sanctioned behaviour, with the Authority to be notified of the nature of such actions within 90 days, and also amend the rules governing the partnership regarding the part deemed to be in violation of competition regulations;
  • ordered ACEA and SUEZ to pay fines of 8.3 million euros and 3 million euros, respectively (the difference in the amounts derives from their respective turnovers in the relevant sector in Italy).

ACEA appealed the Authority’s decision before the Regional Administrative Court of Lazio, with the hearing on the merits of the case held in April: on 7 May 2008 the court announced the related sentence, finding in ACEA’s favour and cancelling all the rulings and the fine imposed. Details of the sentence, upholding all of the appellant’s arguments, were published at the end of June.

The favourable ruling passed down by the Regional Administrative Court of Lazio in 2008, which met to hear the appeals filed by ACEA and Suez Environnement, was executed by the Ministry of Economy and Finance that, on 11 June 2009, ordered the return of the penalty of 8.3 million euros paid by ACEA in February 2008.

The Antitrust Authority filed an appeal against the decision of the Regional Administrative Court of Lazio. A hearing is yet to be set.

Antitrust Authority Investigation on ACEA Distribuzione

Towards the end of the year, the Antitrust Authority started an investigation against ACEA Distribuzione and other Italian utility companies on the alleged violation of Article 82 of the Treaty of Rome in relation to switching activities allegedly prevented in the event the customer decides to switch to another wholesaler.

ACEA Distribuzione asked for the implementation of the so-called leniency programme to prevent the burden of abuse and remove any relevant consequence related to it.

The company is still waiting for the final decision to be taken by the Antitrust Authority.

By means of the provision adopted at the meeting on 8 September 2010, the Antitrust Authority accepted the commitments presented by ACEA Distribuzione, making them binding; as a result of closing the preliminary investigation of ACEA and ACEA Distribuzione, without verifying the breach, pursuant to art. 14-ter, paragraph 1, Law 287/90; that ACEA Distribuzione must submit reports, the first one after 120 days and subsequent reports on a six-monthly basis, for a period of two years, to actually prove that what was proposed was carried out as a “commitment”; that ACEA, with the same frequency, must present reports on actions taken to ensure the logical and physical unbundling between distribution and sales. The first of these reports was delivered to the Antitrust Authority on 18 January 2011.

The deadline for any interested party to present an appeal to Regional Administrative Court of Lazio regarding the above-mentioned provision has expired, and said decision is final and binding.

The essence of the commitments can be summarised into two strands: the first, of a temporary nature while awaiting the realisation and entry into operation of the new system, currently in progress as part of the so-called Programma Volta (Volta Programme), to guarantee the strengthening of current procedures for the provisioning of end users/activations for access to the current NSIU system according to criteria which require more rigorous functional selection/unbundling, while A. Distribuzione initiated and made available new and more complete functionalities in its portal in which wholesalers manage switching requests; the second, a permanent type, shall occur with the realisation and entry into operation of the system included in the aforementioned Volta Programme.

E.ON. Produzione S.p.A. proceedings launched against ACEA, ACEA Ato2 and AceaElectrabel Produzione

These proceedings were launched by E.ON. Produzione S.p.A., as successor to Enel regarding a number of concessions for the abstraction of public water from the Peschiera water sources for electricity production, to obtain an order against the jointly and severally liable defendants (ACEA, ACEA Ato2 and AceaElectrabel Produzione) for payment of the subtension indemnity (or compensation for damages incurred due to illegitimate subtension), which remained frozen in respect of that defendant in the 1980s, amounting to 48.8 million euros (plus the sums due for 2008 and later) or alternatively payment of the sum of 36.2 million euros.

The question of the amount and the assumptions appears to be based on dubious grounds and, in any case, the early stage of the proceedings does not allow for forecasts.

The only significant development of note is the decision of the TRAP (Regional Court of Public Waters), before which a ruling is pending regarding the matter in question, to arrange for a CTU (court-appointed expert) as regards the values of subtension for branching off, and subsequent reduction in hydroelectric production, and indemnities due. The development phases of the court-appointed expert are at the initial stages.

Minority shareholder of ACEA Ato5

In October 2009, one of the minority shareholders of ACEA Ato5, which holds roughly a 5% stake in the company, filed a claim against ACEA for an alleged breach of shareholders' agreements. The minority shareholder claimed that this breach led to a reduction in the value of its shares amounting to roughly 40 million euros and, therefore, is requesting the payment of damages for the aforementioned amount.

In the second half of 2010, and in January 2011, several attempts were made by the plaintiff to reach a successful conclusion of the dispute, given the accumulation of interests that has seen the parties involved on other fronts. ACEA recently officially noted how the counterparty's claim lacks any grounds, and the only amicable solution of the litigation may therefore be the renunciation of the partner, also whereas, in response to the exorbitant demand, the plaintiff sent a conciliatory proposal for a few hundred thousand euros, thus undermining the grounds for the credibility of the claim. Acea's defence counsel repeatedly reiterated its absolute conviction in obtaining a rejection of the opposing claims.

IPSE 2000

On 29 December 2006, Capitalia (now incorporated into Unicredit) purchased equity investments in IPSE 2000 previously involving other Strategic Shareholders, including ACEA. On said occasion, Capitalia issued the assignors a letter of indemnity on the basis of which it accepted any liabilities toward minority shareholders deriving from its management of acquired equity investments. Eighteen months have passed since that time to the end of June 2008 without Capitalia/Unicredit taking further advantage of said equity investments. As a result, the minority shareholders have repeatedly complained of the occurrence of one of the conditions (as such, sufficient) for their payment of the First Earn-out.

Unsatisfied with the replies – despite always being promptly produced - to said requests, in December 2009 the minority shareholders notified the Strategic Shareholders, including ACEA, of an “arbitrator appointment deed" to have their earn-out claims recognised and asserted.

In conformance with the letter of indemnity in our possession, also in agreement with the other strategic shareholders benefiting from the same protection, ACEA therefore urged Unicredit, as successor regarding the obligations assumed by Capitalia, to accept liability for any outcomes of prejudice that the arbitrator should reach and, in that sense, also assume any costs and take responsibility for coordinating the appropriate defence during arbitration proceedings. Based on the letter of indemnity, it is held that the legal initiative of the minority shareholders will not have any prejudicial effects on the company’s financial statements.

While Unicredit immediately acknowledged, by confirming it, the request for application of indemnity in the unlikely event of being the losing party, and subsequently took on the job of organising the defence, the board of arbitrators appointed in the meantime – by definitively pronouncing with arbitration award issued midway through July 2010 – fully rejected all the plaintiff’s claims, including preliminary, although compensating the expenses between the parties given the complexity of the point in question.

Acea Luce

By means of the act notified on 7 February 2011, the companies Manutencoop Facility Management (“MFM”) and SMAIL (formerly ACEA Luce) presented an application for arbitration as regards ACEA and ARSE, pro-quota sellers of 100% of the share capital of ACEA Luce: the applicants are requesting a ruling against ACEA and ARSE due to non-fulfilment or negligence as regards contractual obligations and, therefore, the termination of the purchase contract and subsequent return of the sum paid (3 million euros), plus additional costs, and compensation for damages of roughly 7 million euros.

In support of the requests, MFM essentially believes that the elevated number of claims raised by said party after the transfer, due to an alleged breach of the contractual guarantees, would demonstrate actual divergence between the facts in the summary obtained and the contents of first the due diligence and later the contract.

It can only be pointed out that ACEA and ARSE, in checking the claim notices presented by the acquiring party from the acquisition until the present day have, in some cases, accepted responsibility for the facts revealed therein, by paying, or undertaking to pay at the time the associated obligation assumes a definitive nature, some amounts, although modest in said context.

Otherwise, the purchase contract for the equity interest envisages, on one hand, that the financial compensation constitutes the only solution actionable by the acquiring parties in the event of an incomplete or incorrect declaration and, on the other, that the associated liability of the grantors is restricted to a maximum limit of 1,250,000 euros, to be enforced in accordance with the methods and timeframes better detailed in said act.

The question of the amount and the assumptions appears to be based on dubious grounds and, in any case, the early stage of the proceedings does not allow for forecasts.

Moratorium

With reference to the community dispute launched as a result of the final decision of the European Commission, adopted in June 2002, on 11 June 2009, the European Court of First Instance, before which the Italian State and the companies involved filed appeals for the cancellation of articles 2 and 3 of the Commission’s decision dated 5 June 2002, 2003/193/EC, rejected the appeal and forced ACEA to pay its own legal costs and those of the Commission.

The company has filed an appeal.

With reference to recovery actions there have been no changes with respect to the previous year: total aid returned by ACEA in the 2007-2009 period amounted to 119,279 thousand (including interest).

ACEA deems that the payments made bring the matter to a definitive end.

SAO tax inspection

In October 2008 the tax authorities issued two notices of assessment to SAO, amounting to 5.8 million euros in taxes and 5.7 million euros in penalties.

These notices of assessment regard the 2003 and 2004 tax years and derive from criminal proceedings launched by the Orvieto District Attorney’s Office. This action, which is still pending before the Court of Perugia, regards transfers of waste from the Campania region in the aforementioned 2003-2004 period, based on a planning agreement executed at that time by the presidents of the Campania and Umbria regional authorities and the subsequent management of the Orvieto landfill.

Although one of the years involved in the tax assessment notices (2004) was already subject to a tax inspection, the Tax Authorities deemed that it was possible to re-open the inspection, following the ruling under which the Court of Orvieto, in criminal proceedings, declared the Court of Perugia to instead hold competence.

The notices of assessment regard taxation of the costs incurred during the two years in relation to the above transfers of waste, based on the fact that such transfers are now considered illegal on the basis of the mere existence of criminal proceedings and despite the absence of provisions from the Judge regarding the verification of the existence of the offences for which to proceed.

On 12 December 2008 the company submitted separate appeals against the notices of assessment.

In May 2009, the tax commission upheld the requests for the suspension of the notices of assessment submitted by the company and, in November 2009, at the first hearing on the matter, combined the two appeals and, in upholding the objection raised, asked the Constitutional Court to rule on the issue of legitimacy regarding the legislation which generated the costs, non-deductible for tax purposes, incurred in the years 2003 and 2004 (article 14, paragraph 4 bis, Law of 537/93).

The hearing at the Constitutional Court, with ruling published on 3 March 2011, declared said question of constitutional legitimacy to be inadmissible, also on the basis of the assumption that the presiding judge did not consider the tax assessment notices involved in the main combined rulings to have been contested by SAO S.p.A, for a number of reasons, including therein, among others, the incorrect interpretation of the aforementioned provision, according to which, it would be sufficient, for the non-deductibility of costs, that the latter were attributable to facts recorded in the register of offence notices and to offences ascertained under a definitive provision of the judge.

In fact, in the opinion of the Court, said grounds for the appeal, ending in the denial of the possibility of considering as non-deductible the costs originating from taxation with the notices challenged, are logically and legally priority with respect to the questions of constitutional legitimacy of the denounced paragraph 4 bis, likewise presented by the claimant. As a result, the remitting tax commission, in raising these questions, would have had to preliminarily confirm – also by solely providing a brief justification on the matter – the lack of grounds of the repeatedly cited grounds for the appeal, because, if upheld, would have led to the cancellation of the tax assessment notices contested and the subsequent irrelevance of said matters.

It has been deemed that the acts of the Tax Authorities are illegitimate and that there is a remote risk of payment of the entire sum for which the previous shareholder is liable (Enertad now Erg Renew) on the basis of the guarantees issued in the purchase/sale contract and the provisions in the arbitration award issued by the Board of Arbitrators set up, upon request of ACEA S.p.A., in accordance with said contract.

Tax inspection on Marco Polo

On 23 June 2010, the Tax Authority notified the associated company Marco Polo of a Report of Findings relating to the general tax inspection started in March 2010. The irregularities found by the Tax Authority totalled 6.4 million euros, plus interest and fines and essentially concern objections to the equalisation calculation method of fees due to Shareholders of ACEA and Ama, based on the service contracts entered into. As for these objections, the Company deems that its approach is largely defendable.

AceaElectrabel Trading tax inspection

On 15 September 2010 the Guardia di Finanza – Nucleo Polizia Tributaria di Roma (Italian Financial Police – Rome Tax Squad) opened a tax inspection relating to direct taxes for 2008, subsequently extended to the years 2005, 2006, 2007 and 2009 with reference to the so-called off-balance sheet transactions (article 112 of the Income Tax Consolidation Act).

In November 2010, tax inspections were concluded for the 2005 tax year and the Guardia di Finanza notified AceaElectrabel Trading and ACEA, as the consolidating entity, of a Report on Findings, ascertaining a higher taxable base, (Ires and Irap – Corporate income tax and regional business tax) of 14.2 million euros, relating to the fair value of hedging instruments subscribed in 2005 producing effects over subsequent years. In substance, the tax inspector confirmed that the disclosures made by no IAS adopters - AceaElectrabel Trading is one – in their financial statements in compliance with OIC 3 assume tax relevance pursuant to and in accordance with article 112 of the Income Tax Consolidation Act. Inspections are currently being performed for other years.

As for these objections, the Company deems that its approach is largely defendable.

On the basis of the Framework Agreement signed in December by ACEA and GDF Suez Energia Italia, ACEA is indemnified and held harmless in relation to any amount it is required to pay, also temporarily, as consolidating entity.

Aria Group

The disputes involving companies in the Environment and Energy (formerly waste-to-energy) market can be divided into three types:

  • normal commercial (customers and suppliers), labour and tax disputes that any business might encounter;
  • disputes over authorisations, deriving from actions brought, normally before administrative courts, by persons or entities affected by the activities of the Companies in this segment;
  • administrative disputes deriving from the application of environmental regulations and the related fines.

With regard to the S. Vittore del Lazio waste-to-energy plant owned by EALL S.r.l., a number of administrative actions brought by third parties in 2002 are pending before the Regional Administrative Court of Lazio. The plaintiffs have contested the Master Plan for waste management, insofar as it applies to waste-to-energy plants, approved by the Lazio Region in January 2002 and by the Managerial Decision issued by the Province of Frosinone in April 2002, which authorised construction and operation of the said plant. The requests for preliminary injunctions filed by the plaintiffs have been rejected by the Regional Administrative Court of Lazio, and, where appeals were filed, by the Council of State. Starting from 2007 the Commissioner assigned responsibility for the environmental emergency in the Lazio region issued a specific Integrated Environmental Authorisation, pursuant to Legislative Decree 59/2005, covering the activities carried out by the waste-to-energy plant, and its upgrade and repowering. The Authorisation was subsequently extended in the first half of 2008.

An action brought in 2003 before the Court of Cassino against EALL S.r.l., by a company acting on behalf of a consortium of municipalities, is still pending. The action regards an alleged breach of contract by EALL and the related claim for damages amounting to 9,916,800 euros. During 2005, the Consortium, which had in the meantime been converted into a joint-stock company, brought an action supporting the claims put forward by the original plaintiff. With Ruling dated April 2010, the Court rejected the appeal filed by the plaintiff and the Consortium, and forced the counterparty to pay legal costs borne by EALL.

A company has brought an action in September 2007 with a view to obtaining payment, from EALL S.r.l, of the sum of 233,933 euros, plus expenses, for services provided and the related costs. EALL S.r.l. has appealed the injunction granted by the Court of Terni at the request of the plaintiff and notified to EALL S.r.l. in September 2007. Based on the sentence dated 27 October 2008, the Court of Terni revoked the injunction, declaring that it did not have jurisdiction and referring the case to arbitration.

In April 2008, a number of companies brought an action before the Regional Administrative Court of Lazio, requesting cancellation of the provisional and final award of a contract by the nominally opposed companies, citing both the Parent Company and the temporary consortium of companies that had been awarded the contract. The contract regarded the executive planning and subsequent upgrade and repowering of the existing waste-to-energy and RDF plant in San Vittore del Lazio.

The appellants also brought a claim for damages, quantified by them, pursuant to Article 35 of Legislative Decree 80/1998 and Article 7 of Law 205/2000, at 10% of the minimum tender price, in addition to tender costs, revaluation, interest and legal costs. By means of a ruling handing down in August 2010, the Regional Administrative Court of Lazio rejected the appeal, declaring it to be inadmissible due to a delay in the notification. The counterparty submitted an appeal to the Council of State.
 
In September 2008, two companies filed injunctions against EALL, for 52,000 and 30,000 euros respectively, for payment of activities carried out in the 1999-2001 period, during the construction of the San Vittore del Lazio plant. This was opposed within the prescribed terms, with full rejection of the claims of the plaintiffs. In one of the proceedings, by ruling 183/10, the Judge, in upholding all exceptions proposed by our company, revoked the injunction opposed, forcing the counterparty to pay costs. The other proceedings are still ongoing.

In October 2008, a former company employee launched legal proceedings against EALL for the recognition, in the form of performance-related pay, expenses and various fees and compensation for damages from de-skilling and environmental damage, of the sum of 156,443 euros plus legal interest, monetary revaluation and expenses. The proceedings are ongoing.

An appeal brought by TERNI ENA before the Umbria Regional Administrative Court in March 2004, against the resolution passed by Terni Provincial Council in December 2003, is still pending. The resolution approved, pursuant to Article 20 of Legislative Decree 22/97, the identification of areas not suitable for the location of a waste treatment and recycling plant, introducing a complex procedure that should also be applied to plants, such as the one owned by Terni En.A. S.p.A., already approved and located. Umbria Regional Authority, with Managerial Directive 11879 of 19 December 2008, issued the related Integrated Environmental Authorisation, pursuant to Legislative Decree 59/2005. This is valid for 8 years and covers the activities of the above waste-to-energy plant in Terni.

A civil action is still pending, brought in January 2005 against Terni En.A S.p.A. by a company that had business dealings with the latter, and that deems that it is due damages, of roughly 300,000 euros, due to lost earnings, as a result of the early withdrawal, deemed by the plaintiff to be illegitimate, from a contract for the transfer of waste. By ruling 620/10, the Court of Terni forced the company to pay 254,000 euros to the plaintiff, as compensation for damages, and pay legal costs. The company submitted an appeal, also with reference to the profile of calculation of the damages, which appears to be particularly open to censure. In January 2011, the Perugia Court of Appeal, by means of a provision taken without hearing the other party, suspended the executive effective date of the first instance ruling as requested by the company, setting a hearing for the parties in February 2011.

In the first two months of 2011, Terni EN.A. contested with IBI S.p.A. the loss of the requirements for fulfilment of the full executive planning contract and works for the revamping of the existing Terni EN.A. energy recovery plant (lot 1): technological measures, and formalised the resultant withdrawal from the relevant contract. The aforementioned company filed an appeal to said provision before the Umbria Regional Administrative Court in the first few months of March. The subsequent actions are being carried out for the legal protection the company, and the necessary activities are being prepared, to ensure the proper implementation of revamping works.