On 14 March 2019, the European Court of Justice ("ECJ") handed down its preliminary ruling in response to a request made by the Finnish Supreme Court in a domestic action for damages, resulting from a cartel in the Finnish asphalt market. The questions referred to the ECJ related to the fact that three of the fined companies were not participants in the cartel themselves, but rather the acquirers of cartel participants which had since themselves been dissolved. Applying the same principles as those applicable in the context of imposition of fines, the ECJ ruled that the acquirer companies could be liable for the damage caused by anti-competitive conduct of their dissolved subsidiaries.
| what you need to know - practical takeaways |
- The ruling may widen the scope for private damages actions in future, with infringing companies unable to escape liability for historic cartel participation through later group restructurings or acquisitions.
- Purchasers of companies need to ensure that their due diligence is sufficiently robust to ensure that they are not acquiring the risk of liability for cartel fines and therefore any resulting damages claims.
- When a parent company is considering whether one of its acquired subsidiaries should apply for leniency for historic conduct, a parent company needs to consider that it may also be liable for any resulting damages claims, notwithstanding that it might receive leniency in relation to any fine.
- More generally, parent companies should ensure that competition law compliance programmes extend to the whole of their group (from top to bottom) and are not just focused on the parent entities.
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Background
Between 1994 and 2002, a cartel operated in Finland in the asphalt market. Three of the companies that participated in this cartel were Sata-Asfaltti Oy, Interasfaltti Oy and Asfalttineliö Oy, all of which were liquidated between 2002 and 2003 and had their shares and commercial activities transferred to their sole shareholders: Skanska Industrial Solutions ("SIS"), NCC Industry and Asfaltmix respectively. In September 2009, the Supreme Administrative Court of Finland imposed penalty payments on seven companies for anti-competitive conduct in relation to the asphalt cartel, including these three parent companies.
Action for damages
On the basis of this judgment, in December 2009 the Finnish City of Vantaa brought an action for damages against, inter alia, SIS, NCC Industry and Asfaltmix, maintaining that all cartel members were jointly and severally liable for the additional cost Vantaa had paid as a result of the cartel. The District Court ordered the three companies to pay damages, including in respect of the conduct of their now dissolved subsidiaries. Noting that it was otherwise practically impossible for the party who had suffered damage to obtain compensation, the District Court maintained that the economic continuity principle must apply in order to ensure the effectiveness of Article 101 TFEU.
On subsequent appeal, the Finnish Court of Appeal found that this principle should not be applied to actions for damages, and that the effectiveness of EU law should not override the fundamental characteristics of Finnish civil liability rules; namely, the national rule that only the legal entity that caused the damage is liable. Vantaa's claims were dismissed to the extent that they applied to the three parent companies.
Vantaa appealed to the Finnish Supreme Court, which in turn made a preliminary reference to the ECJ. The preliminary reference posed three questions to the ECJ:
- whether the determination of the parties that are liable for the compensation of harm caused by conduct contrary to Article 101 TFEU is a matter for EU law or domestic law;
- if the determination of entities liable for damage is a matter for EU law, whether the concept of 'undertaking' as defined in Article 101 TFEU and the principle of economic continuity as used when determining liability for fines should be applied; and/or
- if the determination of entities liable for damage is a matter for domestic law, what the balance should be between the requirement of effectiveness of EU law, and national rules which would not attribute liability to a parent company in these circumstances.
ECJ ruling and implications
The ECJ held that, while the rules governing the right to claim compensation for the harm resulting from an infringement of Article 101 TFEU are a matter of domestic law, the determination of the entity required to provide compensation for this harm is directly governed by EU law. The ECJ noted that the broad definition of 'undertaking' as provided in Article 101 TFEU should apply in this context, and that an organisational change in the entity could not be regarded as creating a new undertaking when the two remained identical from an economic perspective.
The ECJ rejected Asfaltmix's contention that this principle of EU law had until now only been applied in relation to the imposition of fines and could not therefore be applied in actions for damages. The ECJ stated that the right to claim compensation for damage caused by an agreement or conduct prohibited by Article 101 TFEU ensures the full effectiveness of that provision. Allowing undertakings to avoid penalties through a company restructuring would jeopardise the proper enforcement of EU competition rules. Having ruled on the first two questions, the ECJ did not need to consider the third question referred.
The ECJ's ruling confirms the authority of EU law over national rules when determining the parties that are liable for damages for EU competition law infringements. The ruling that liability for cartel damages should be attributed in the same way as liability for Commission fines may widen the scope for private damages actions in future, with infringing companies unable to escape liability for historic cartel participation through later group restructurings or acquisitions.
With thanks to Helen Chamberlain of Ashurst for her contribution.
