An order of the European Court refusing to grant interim relief to Nuctech, a Chinese maker of security scanners, has highlighted the European Commission’s (the Commission) extensive powers to access company information following unannounced inspections, or “dawn raids”.
The order confirmed that:
The Commission can inspect the EU premises of a company that is incorporated in another jurisdiction, such as China
The Commission must be allowed to access information from such companies even if it is held on servers outside the EU
Although, in principle, a company can argue that complying with a data request would infringe foreign laws and expose it to criminal sanctions, the burden of proving this has been set very high and it is unlikely to be argued successfully
Companies are also unlikely to get interim relief by arguing that an ongoing investigation exposes them to either reputational harm or financial damage
The Nuctech Dawn Raids
On 23-26 April 2024, the Commission conducted unannounced inspections at the Dutch and Polish premises of Nuctech, a leading supplier of security equipment such as baggage scanners and body scanners for ports and airports. The Dutch and Polish entities are subsidiaries of Nuctech Hong Kong Co. Ltd, which is ultimately controlled by a Chinese state-owned company.
The inspections were the first time that the Commission has used dawn raids in an investigation under the EU Foreign Subsidies Regulation (FSR), which came into force in 2023. Under the FSR, the Commission can open ex officio investigations if it suspects that a business active in the EU has received foreign financial assistance that distorts competition in the EU, for instance, by allowing that business to offer artificially low prices. The Commission can also impose either fines of up to 1% of a business’ annual worldwide turnover, or daily penalties of up to 5% of its average daily turnover, for failing to cooperate with its investigation. You can read more on the Nuctech dawn raids here, and find further information on the FSR in our previous update here.
During the inspections, the Commission requested access to the mailboxes of several employees based at Nuctech’s Dutch and Polish premises. Nuctech informed the Commission that the emails of those employees, all of whom were Chinese citizens, were stored not on local servers, but on the parent company’s servers in China, and it refused to grant the Commission access. The Commission requested Nuctech to place a legal hold on the mailboxes in question and, following the inspections, reiterated its request for Nuctech to make the data available as soon as possible.
Nuctech subsequently brought an action before the lowertier General Court of the EU seeking the annulment of the Commission decision mandating the inspections and of any subsequent requests for data, as well as the legal hold requests. At the same time, Nuctech applied for interim relief in the form of the immediate suspension of the Commission decision and related requests, pending the outcome of its main application. On 12 August 2024, the General Court issued an order denying Nuctech interim relief.
Interim Relief Under EU Law
Case law has established that the European Court will only grant interim relief from a Commission decision in exceptional circumstances. An applicant must show that an interim order is justified, prima facie, in both fact and law, and that granting the order is urgent, meaning that the applicant cannot await the outcome of the main proceedings without suffering serious and irreparable damage. The court must also undertake a balancing exercise, weighing the need to protect the applicant’s interests against the public interest in upholding the Commission’s measure.
Nuctech’s Case
Nuctech relied on five pleas in its application for interim relief; however, the court only considered two of them, and ruled the other three inadmissible. The court addressed Nuctech’s arguments, firstly, that the Commission had infringed EU law and public international law by compelling it to produce documents stored on servers in China, and secondly, that the Commission’s decision was unlawful as complying with it would force Nuctech to infringe Chinese law, including criminal law.
The court did not consider Nuctech’s pleas that the Commission infringed its right to the inviolability of business premises and its right to privacy, that the Commission’s decision was arbitrary and not supported by adequate evidence, and that the decision infringed Nuctech’s rights of defence. The court ruled that these three pleas had not been suffciently argued.
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