Under EU competition rules, companies cannot escape fines for competition law breaches by changing their identity through restructuring the undertaking. The principle of economic continuity has developed to prevent exactly this.
Last week the Court of Justice of the European Union (CJEU) confirmed that this principle also applies in the context of follow-on damages claims. (C-724/17 Skanska Industrial Solutions and others). The judgment of the EU’s highest court widens the circumstances in which entities can be held liable for damages caused by past infringements of acquired businesses.
Background: the cartel
Between 1994 and 2002 a number of market players were involved in a cartel in the asphalt market in Finland. Towards the end of the cartel period and beyond, there was significant consolidation in the market. Three cartel participants each acquired one other cartel participant (six players became three). In each of the three cases, the acquired company was liquidated but the economic activity was continued by the acquiring company.
In 2009, following an investigation by the Finnish competition authority, the three acquiring companies were fined by the Finnish Supreme Administrative Court. Two of the companies were fined for the conduct of the cartel participant they had acquired and one company was fined for its own involvement as well as the involvement of the cartel participant it had acquired. The Finnish Court applied the principle of economic continuity in order to hold the acquiring companies liable.
But what about follow-on damages actions?
Following the fining decision of the Finnish Court, customers sought compensation by bringing follow-on damages actions before the Finnish civil courts. One customer wanted to claim for loss caused by a cartel participant that had subsequently been acquired (by another cartel participant) and liquidated. This customer sought redress from the acquiring company, which had carried on the economic activity of the acquired company post liquidation.
It is worth noting here that under EU law any person may claim compensation for damage resulting from a cartel if there is a causal link between the damage and the infringement. Such claims are brought before national courts and it is for each member state to set out detailed rules which enable that right to be exercised.
However, under Finnish law only the legal entity that caused the damage can be held liable (with exceptions in some cases). Applied in the present case, this would mean that the customer would be left without adequate redress.
As a result, the question arose whether it was domestic or EU law which applied to the determination of the person responsible for payment of compensation in antitrust damages. This question was appealed all the way up to Finland’s highest court and then referred to the CJEU for a preliminary ruling.
What did the Finnish Court ask the CJEU to clarify?
The CJEU was asked, inter alia, whether Finnish civil law rules or Article 101 applied for the determination of the entity liable to pay compensation for antitrust damages. It was also asked whether, if Article 101 did apply directly, would the concept of an “undertaking” also be applicable.
The purpose of these questions was to establish whether the principle of economic continuity could apply in antitrust damages actions (as it does in competition law fining cases) for the purpose of determining liability. In the present case, all of the shares of the companies which participated in the cartel were acquired by other companies. The acquiring companies dissolved the former companies and carried on their commercial activities – and so there was economic continuity. If the concept of an “undertaking” under Article 101 were to apply here, the acquiring companies could be held liable for the damage caused by the cartel.
The CJEU’s finding
The CJEU found that EU law applies: it is clear from the wording of Article 101(1) that the concept of an “undertaking” is used to designate the perpetrator of an infringement. It follows, then, that the entities liable to compensate customers for the infringement are the same “undertakings”. The concept of an undertaking is an autonomous concept of EU law and cannot have a different scope with regard to the imposition of fines by the European Commission as compared with actions for damages for infringement of EU competition rules.
The CJEU found that the right to claim compensation for damage caused by anticompetitive conduct ensures the full effectiveness of the EU competition rules and is an integral part of the system for enforcement. If undertakings could escape penalties by changing their identity, the objective of deterrence would be jeopardised.
What does it all mean?
What this means is that the doctrine of economic continuity applies to both the imposition of fines for competition infringements and in follow-on damages actions, in the same manner. That is, economic successors can be held liable for the payment of cartel damages in follow-on actions.
How this works out in practice, given the various different facts that may arise in economic succession cases, and how principles of liability under national law will accommodate the CJEU ruling, remains to be seen.