Update on litigation for alleged abuse in the procedure for acquiring ATA
On December 20, 2013, the Anti-trust Authority (AGCM) initiated proceedings in response to the complaint by Cedicor Sociedad Anonima ("CEDICOR"), charging SEA with abusing its dominant position in the course of tendering for the acquisition of ATA (Ali Trasporti Aerei SpA - now SEA Prime SpA), and imposing a fine for the amount of Euro 3,365,000.
Although it paid the fine, SEA filed an appeal with the Regional Administrative Court (“TAR”) against the ruling. This Court partially upheld SEA’s appeal and requested the revaluation of the fine from the Authority, which established the correct amount at Euro 936,320.
The receipt of the transfer by the Ministry for Economic Development was recorded on June 29, 2018. This position is therefore closed.
Action brought by ATA Handling
In May 2015, ATA Handling, in liquidation and subject to administration, notified SEA SpA and the Municipality of Milan of a citation, by which ATA Handling, referring to the decision of the European Commission of December 19, 2012 concerning alleged State Aid awarded in favour of SEA Handling, requested compensation for damages suffered as a result of the above State Aid issued in the form of share capital increases, which would have gravely undermined ATA Handling’s operations and quantifying them through a differential analysis of two scenarios (SEA Handling with share capital increases and SEA Handling without share capital increases) at Euro 93.1 million. SEA has already produced the documentary evidence disproving the charge of predatory pricing. ATA Handling then challenged jurisdiction before the Court of Cassation, asking the latter to rule on whether jurisdiction for damages pertained to the regular courts or to the administrative courts. The Court of Cassation ruled that the regular courts had jurisdiction, and the case was then referred to the regular courts for a decision on the merits.
Once jurisdiction of the regular courts had been ruled, ATA Handling moved for resumption of the trial before the court which, as it still had no decision from the Court of the European Union, firstly adjourned the case until April 2018 and subsequently to July 2018, and then further moved the hearing to January 22, 2019.
During this hearing, the Court noted the filing of the EU Court’s decision and then set deadlines for the filing of submissions pursuant to Art. 183, paragraph VI of the Code of Civil Procedure, deferring the case for the discussion on the preliminary motions to the hearing of May 22, 2019.
Proceedings are still in the initial stage since only the introductory petitions have been exchanged. In light of the content of the EU Court’s ruling, which rejected the Municipality’s complaint with regard to the Commission’s decision on the existence of state aid, the automatic application of this investigation within the framework of our law remains in any case contentious, as is, above all, the existence of a causal link between the circumstances ascertained by the Commission and the damage alleged by the plaintiff company, as well as the quantification of said damages. Whilst considering the possible risk, the Directors of the company did not apply specific provisions in view of the above observations. For the purposes of possible provisions, any negative developments, which to-date are neither predictable nor definable, will undergo a consistent assessment on the outcome of the additional and more in-depth technical assessments that are underway.
Action brought by Emilio Noseda before the Court of Buenos Aires
In 2005, an action was filed against SEA by Mr. Emilio Noseda before the Court of Buenos Aires to compel fulfilment of alleged commitments made in 1997 by SEA to Delta Group S.A., a Uruguayan company of which Mr. Noseda had been legal representative. Delta Group S.A. supported SEA’s tender for the Argentine airports concession.
Mr. Noseda, as assignee of Delta Group’s rights, sought a judgment ordering SEA to:
- transfer 2% of the shares of AA2000 against payment of their current market value;
- compensate Delta Group for the loss of chance it sustained because it was unable to resell the shares during the time when their value was greater than the price then paid (USD 2 million). No damage amount was specified.
- compensate Delta Group for the expected profit that failed to materialise because Delta Group was not awarded concessions at three Argentine airports. No damage amount was specified.
Once the evidentiary stage of the trial had ended, we awaited the announcement of the judgment. A new judge was appointed. Noseda requested legal aid, which was granted. SEA then proposed a settlement in the amount of USD 500,000 which was rejected. Noseda demanded the amount of USD 3.5 million plus court costs.
On December 30, 2016 Commercial Court No. 2 of Buenos Aires entered judgment, which was served on February 2, 2017, dismissing Mr. Noseda’s action to compel fulfilment of the aforesaid commitments made in 1997, and ordering him to pay court costs. Mr. Noseda appealed against the judgment. The case is now waiting to be transferred to the Court of Appeal; judicial proceedings are currently suspended due to the death of one of the third parties cited to the case.
In its financial statements, SEA posted an adequate amount as a provision for risks and charges to cover the risk.
Judgment 3553/2015 issued by the Milan Court of Appeal and Cassation Court Judgment 23454/2018
The decision by the Milan Court of Appeal published in September 2015 relates to the ongoing dispute with customs for non-payment of fees for the use of space made available to SEA. This decision confirms the grounds cited in the judgment at trial, which ordered customs to pay SEA the sum of Euro 5,591,000. In December 2016 customs appealed the aforementioned judgment to the Supreme Court of Cassation, disputing the amount set by the appeal court. With judgment 23454/18, the Court of Cassation rejected the appeal filed by the Customs Agency, confirming the ruling of the Court of Appeal which established SEA’s right to rental fees for the Customs Agency’s occupation of its spaces. Since all levels of judgment have been completed, revenue of Euro 5,631 thousand (of which Euro 5,591 thousand is share capital and Euro 40 thousand legal interest) was recognised in these Annual Financial Statements.
Civil litigation between SEA and ENAV
These proceedings concern SEA’s claim to assets mistakenly assigned to ENAV by means of provisional delivery memoranda in the course of 1983 and 1984. By overturning the judgment entered at trial, the Court of Appeal granted SEA’s motion and voided the transfer of the aforementioned assets to ENAV. Judgment 3406/2015 acknowledges SEA’s right to use the state-owned premises under concession at the airports of Milan Linate and Milan Malpensa, and therefore temporary ownership of the goods produced/ benefits obtained.
In February 2016, both the Prosecutor’s Office on behalf of the Ministries and ENAV appealed to the Court of Cassation against judgment on appeal 3406/2015, which granted SEA’s claims in full. In April 2016 SEA moved for service of the counter-appeal with contingent cross-claims against both the Ministries and ENAV. Currently the dispute is pending before the Court of Cassation, awaiting scheduling of the hearing on the merits.
- In addition a lawsuit is pending before the Court of Milan on SEA’s claim against ENAV for the assets covered by Ministry Decree 14/11/2000; the hearing for final argument had been scheduled for December 5, 2017 but was postponed to May 29, 2018. At this hearing, the Judge further referred the case to July 17, 2018. During this last hearing, it was agreed to further defer the case to February 12, 2019.
Currently, an attempt is underway to reach a settlement between the parties to the case. This would lead to the termination of the existing litigation described above. In the hearing of February 12, 2019, the Court noted the agreement between the parties and, in anticipation of the settlement’s formalisation, deferred judgment to April 30, 2019. The closure of all pending judgments should be approved in this hearing.
Ruling on fees for fire-fighting services
The law of 27/12/2006 no. 296 (2007 Finance Act) article 1, paragraph 1328, established a fire-fighting fund financed by airport companies in proportion to the traffic generated by each, in the amount of Euro 30 million a year, in order to reduce the State’s expenses for the fire-fighting service provided at airports by the National Fire-Fighting Service. However, as a result of the entry into force of the provisions of paragraph 3 bis of article 4 of Legislative Decree 185 of November 29, 2008, introduced with the Conversion Act of 28/1/2009 no. 2, the resources of the fund were also allocated to purposes completely unrelated to those initially envisaged by the 2007 Budget.
SEA objected, alleging unlawfulness, and challenged the law both before the Regional Administrative Court and before the regular Court of Rome.
Over the years considerable case law has accumulated, some of which has become final. All judgments have found that “the tax was instituted by the law as a tax earmarked for a specific purpose". Until now the courts have also observed that ever since law no. 2/2009 entered into force, all monies in the fire-fighting fund have been allocated to cover costs and purposes totally unrelated to those initially intended, namely that of reducing the costs incurred by the State for fire-fighting services at airports.
It should be noted that the following provision was added to the Stability Act of 2016, which came into force on January 1, 2016:
"Article 39-bis, paragraph 1, of the Decree-Law of October 1, 2007, no. 159, as converted with amendments by the law of November 29, 2007, no. 222, after the words: ‘of the law of December 24, 2003, no. 350’ the following words are inserted: ‘and of fees charged to airport operating companies for fire-fighting services at airports, pursuant to article 1, paragraph 1328, of the Law of December 25, 2006, no. 296’."
The amended law redefines the contribution to be paid to the fund as consideration for the service rendered by the fire brigade, in order to eliminate the objections concerning the nature of the tax that were raised by airport operators and to return the matter to the jurisdiction of the regular courts, notwithstanding the judgments previously entered on this issue. By a judgment published on January 26, 2018, the Court of Rome ruled that the regular courts have no jurisdiction and that the case must revert to the Tax Commission.
The Court of Cassation, by order 27074/16, applied to the Constitutional Court for review of the constitutionality of this provision.
On July 20, 2018, the judgment of the Constitutional Court of July 3, 2018 was published declaring the unconstitutionality of Article 1, paragraph 478 of Law No. 208 of December 28, 2015 implementing “Provisions for the drawing up of annual and multi-year budgets of the State (2016 Stability Law)”.
The aforementioned provision established that the fees charged to airport management companies for fire-fighting services at airports, as per Art. 1, Paragraph 1328, of Law 296 of 2006, are not subject to taxation.
The established taxation status of the fire-fighting fund and the condition of exclusive tax jurisdiction were subsequently confirmed by the Court of Cassation on 15/1/2019. Therefore, in relation to the proceedings brought by SEA, and pending before the Court of Appeal of Rome, confirmation of the lack of jurisdiction of the ordinary court in favour of the validity of the jurisdiction of the competent Tax Commission, which may reinstate the judgement, is likely. The preliminary hearing, initially fixed for November 2018, was adjourned to May 17, 2019.
Report from the Energy Services Operator as a result of an audit of the green certificates for district heating at the Linate power plant
In December 2016, the Energy Services Operator (GSE) sent to SEA’s energy subsidiary a report on its audit (carried out in March 2016) to verify the information provided for an application for green certification of the district heating supplied by Linate power plant. The GSE demanded the return of 17,106 green certificates for the period 2010-2014 (of which 12,435 for the Company and 4,671 for A2A), as a result of which a provision for future charges in the amount of Euro 1,049 thousand was recognised, since those certificates were paid at December 31, 2016. The Company, assisted by its lawyers, lodged an appeal in timely fashion. Nonetheless in May 2017 it returned the green certificates requested by the agency and recognised an additional provision to cover the green certificates for the period 2015-2016, which had been fully paid at the end of the 2017 financial year.
Audit by the Energy Services Operator on the assignment of white certificates for the period 2012-2015
During 2017 the Energy Services Operator audited white certificates assigned for the period 2012-2015. The GSE assessed that no subsidies should be paid for heating and cooling energy used by certain internal departments; as a result, a provision for future charges of Euro 500 thousand was recognised, since such certificates had been fully collected at the end of the 2017 financial year. Notice was received in reference to the unit named CC2, regarding the restitution of white certificates amounting to Euro 75,000, to be returned to the airport manager in February 2019. To date, resolutions regarding the unit named CC1 are still to be made by the Italian national grid operator, GSE.
Update on judgment 7241/2015 of the Civil Court of Milan concerning airport fees
On January 26, 2017, the Milan Court of Appeal upheld trial court ruling 7241/2015 of the Court of Milan ordering the Ministry of Transport to compensate SEA for Euro 31,618 thousand in addition to revaluations according to the ISTAT [cost of living] indices and interest at the legal rate. An enforceable copy of the judgment was served on the Ministry and the Prosecutor’s Office in February 2017. On April 14, 2017, the Ministry of Transport appealed to the Court of Cassation, reiterating the grounds stated in the appeal without any substantial change.
SEA on June 9, 2017 filed at the Court of Cassation: A response and a cross-appeal
In light of recent regulatory measures aimed at accelerating legitimacy judgments, the discussion hearing and the court’s decision are likely before the end of 2019.
Writ of summons initiated by Architect Colombo against SEA SpA, SEA Prime SpA, and others held jointly and severally
On December 21, 2018, SEA, SEA Prime and others held jointly and severally liable were served a writ of summons in which the Architect Nicoletta Colombo formalized his claim for compensation in pecuniary damages of Euro 65,136,114.15 and non-pecuniary damages to be quantified during proceedings.
Colombo cites an alleged violation of copyright law and of terms of engagement, by which she claims that copy and ownership rights be legally reserved to her as per articles 2575-2578 of the Italian Civil Code.
The estimated risk regarding this position has been duly defined, as of today, as “possible”. Indeed, the claim has been assessed to be totally without merit.
In light of that above, the Directors of the company did not make specific provisions. Relevant provisions have not been accrued as yet, as they remain subject to the emergence of any negative developments, currently unforeseeable or indeterminable, to be assessed on the outcome of further and more detailed ongoing assessments.
Tax Agency – VAT assessment notices
The local customs office at Linate and Malpensa airports audited SEA to ascertain whether excise duty had been correctly paid on the electricity used to operate Linate and Malpensa airports. As a result of this audit and of the notes, on November 16, 2016, SEA received service of an assessment notice for 2011 concerning the VAT profiles in the matter. An appeal was filed against the assessment at the Provincial Tax Commission of Milan, which ruled in favour of the Tax Agency. On December 11, 2017, judgment No. 6835/2017 was filed, against which an appeal was lodged with the Regional Tax Commission. The fixing of the hearing before the Court of Appeal is currently awaited. On August 9, 2017, the Tax Agency served four more assessment notices for the subsequent years from 2012 to 2015. The Company filed separate appeals against each of them with the Provincial Tax Commission which were rejected with judgment No. 3573/12/2018. An appeal was lodged at the Regional Tax Commission against this judgment.
Tax Agency - Notice of assessment for registration tax
Several assessments were received for registration tax relating to the application of the tax on the refund of sums as ordered in the judgments entered by the regular Court of Milan. The Company objected to the Tax Agency that the tax had been mistakenly applied as a proportional tax instead of at a flat rate. The first appeal filed and argued at the Provincial Tax Commission of Milan was granted. The Company’s request was deemed reasonable and the Tax Agency was ordered to reimburse the expenses. On December 28, 2017, the Tax Agency lodged an appeal with the Regional Tax Commission, whereupon the Company joined the proceedings and for which the hearing date is still awaited. During 2018, six other appeals were also discussed by the Provincial Tax Commission of Milan, the first-instance outcome of which was fully in favour of the company and ordered the Tax Agency to pay litigation expenses. During 2019, two new appeals will be discussed regarding two Settlement Notices issued during the last few months of 2018.
The sum total of the aforesaid contingencies and those relating to the disputes with the Tax Agency were fully reflected in the provision for tax risks accrued for these items.
ENAC administrative and accounting audit
Within the scope of the supervisory powers of the entity, with Note No. 35187-P of April 5, 2018, the General Director of ENAC ordered an administrative and accounting audit of the company in order to ascertain economic, financial and management regularity and the fulfilment of concessionary contractual obligations.
Following the audit, carried out by the appointed professionals at the offices of SEA from April 10, 2018 to May 18, 2018, a conclusive report, detailing some observations for the company, was prepared and forwarded to the company on November 23, 2018. SEA is preparing a detailed and timely response to all the observations raised.
Since the findings of ENAC indicated no potential liabilities, relevant provisions have not been accrued in the financial statements for the year ending December 31, 2018.