Can a company be held liable for the actions of a third-party contractor when the third party is not an agent of the company and has infringed competition rules by taking initiatives that have exceeded the tasks assigned to it by the company? In December 2015 the advocate general to the European Court of Justice (ECJ) issued an opinion on this new issue. The proposal is bold and radical – it is a rebuttable presumption that a company is liable for competition law infringements committed by subcontractors.
The European courts have previously considered the circumstances in which third parties can implicate another entity, but these cases were concerned with employees, subsidiaries, joint ventures or agents. This is the first time that the ECJ has considered whether a third party acting outside its mandate, and in a manner unforeseen and unknown to the company, can put the contracting company on the hook for a fine (and follow-on damages).
If the ECJ follows this (non-binding) opinion, the presumption would have enormous implications, including financial ones, for the manner in which contractors are appointed and used.
Companies must think carefully about which processes they will follow (and document) for vetting, selecting and managing third-party contractors, including during the contract period, which could be lengthy and present logistical challenges. In-house lawyers would also need to be alert to the need to publicly distance themselves from any wrongdoing which has emerged.
Obviously, there would be a cost to this. However, the presumption is rebuttable in the event of it being invoked against the company. European competition law presumptions are notoriously difficult to rebut and the fact that the European Commission has been resistant to calls to evaluate the veracity of compliance efforts undertaken by companies should not be lost sight of. Plus, a rebuttal in this case may require proof that there was no knowledge.
The opinion begins to move European competition law towards a compliance system which is common in Western anti-bribery and corruption systems. In these systems, liability based on the actions of third parties is quite common, since the desire to eliminate corruption is powerful. Suppliers of goods and services are required to take responsibility over the supply of their goods or services to the end market. Suppliers are regularly held liable based on the acts of third parties where those actions produce some benefit to the supplier. In order to reduce the scope of this liability, some countries, including the United Kingdom, provide a defence to that strict liability offence where the supplier has taken adequate procedures to ensure that third parties in the supply chain do not act corruptly. In order to make out this defence, UK companies now have detailed, onerous and complex compliance procedures.
In legal terms, the presumption is controversial. While presumptions in European competition law are relatively common, they should be used only sparingly and always be capable of rebuttal. In any event, the notion that a third-party contractor involved its principal in a violation is hardly intuitive, and it should be a pre-condition for using presumptions to prove legal points. Even the commission argued for a more moderate approach, which would see no attribution of liability to the company in situations where the third party has acted in excess of the tasks assigned to it by the company, unless it can be proven that the company knew what the third party was doing.
It is unclear how this approach would square with parent-joint-venture liability under European competition law. For example, if a company used one of its joint ventures to perform services and that joint venture broke competition rules, which test should be applied? Efforts taken by the company to educate its joint venture on compliance could, on the one hand, be used to rebut the presumption being put forward by the advocate general in this case. However, on the other hand, the same efforts (under existing case law on the attribution of liability for joint-venture conduct) could be used to demonstrate the exercise of control and therefore justify the attribution of liability to the parent.
It could also be argued that a rogue employee who has broken his or her contract and ignored compliance advice should not implicate the employer.
The facts are unusual. Partikas kompanija responded to a bid but used a third-party contractor which hired another party, MMD lietas, to prepare its bid. Two other companies sought to respond to the bid and hired a company called MMD lietas, which used Partikas's prices (without Partikas's knowledge) to set the prices of the other two bidding companies.
When the Latvian court annulled the competition authority's decision (which had found Partikas liable), the two other companies appealed and the issue of Partikas's involvement and knowledge (or lack thereof) was referred to the ECJ for consideration.
The advocate general reversed the case law on the issue of liability for violations caused by a third party, recalling cases in which a company had been held to be liable for the acts of its employees, subsidiaries and third parties that were not part of the corporate structure of the company. In relation to this third category, the courts have imputed liability to an undertaking for the actions of a third party, but only in cases where that party was an agent of the company and its actions (which infringed the competition rules) were within the tasks assigned to it by the company.
However, this particular case was different. The third party in question was not an agent and it had clearly taken initiatives (eg, using the contracting company's bid as a basis for tender offers of rivals) which exceeded the tasks assigned to it. Additionally, there was no evidence that the 'principal' company knew anything about the actions of the third party.
Against this factual background, the advocate general had to choose between three approaches:
- automatic attribution of liability to the company for the actions of the third party (an approach supported by the Latvian Competition Authority);
- no attribution of liability to the company in situations where the third party has acted in excess of the tasks assigned to it by the company unless the competition authority can prove that the company knew what the third party was doing (the commission supports this approach); and
- a rebuttable presumption that the company knew what the third party was doing.
The advocate general elected for the third approach. To rebut that presumption, the advocate general suggested that the company would need to prove that it knew nothing about the behaviour of the third party (though no guidance was given on how to prove this), and that it did everything within its powers in order to prevent the infringement at the following points:
- when it hired the third party;
- when the third party was offering its services; and
- when the company discovered that the third party was infringing competition rules (at which point the company must publicly distance itself from that behaviour and/or report it to the competition authorities).
The role of third parties and their potential to implicate others seem to be a recurring theme in European competition law. It has been seen in:
- AC Treuhand, when the ECJ confirmed that a company can be fined for supporting and organising a cartel, even if it does not operate on the cartelised market; and
- Eturas, when the ECJ confirmed that a third party sending an automated message to competitors (relating to a price cap) could, in certain circumstances, put the recipients on the hook for cartel conduct.
The case at hand involving 'rogue' third-party contractors deserves close attention. If the presumption is adopted by the ECJ, it will have major implications (including financial) on how third parties are selected and managed.
For further information on this topic please contact Ross Denton or Grant Murray at Baker & McKenzie by telephone (+32 2 639 36 11) or email (email@example.com or firstname.lastname@example.org). The Baker & McKenzie website can be accessed at www.bakermckenzie.com.
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