On December 3, 2015, Advocate General (AG) Wathelet handed down his opinion in the VM Remonts case (C-542/14 – in French). The opinion addresses an important issue: to what extent may a company be held liable for the anticompetitive behavior of one of its service providers?
AG Wathelet suggests that the EU Court of Justice (CoJ) deals with the issue in a rather radical way, by creating a brand new rebuttable presumption of liability for third-party infringement. While rebuttable presumptions are not unusual in the field of competition law, this one – if eventually endorsed by the CoJ – may raise a number of serious concerns for businesses.
On October 21, 2011, the Konkurences padome (Latvian Competition Authority, hereinafter LCA) found that three companies - Pārtikas kompānija, DIV un Ko, and Ausma grupa – had engaged in bid rigging activity, in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU). According to the LCA’s investigation:
- Pārtikas kompānija set its bidding prices independently. In order to deal with the technical aspects of the bid offering, it then hired a third party contractor, Juridiskā sabiedrība ‘B&Š partneri’ SIA, which in turn hired another third party contractor, MMD lietas;
- DIV un Ko and Ausma grupa hired MMD lietas to set their bidding prices and prepare their bid offerings. MMD lietas did not inform Pārtikas kompānija of these assignments;
- MMD lietas used Pārtikas kompānija’s bidding prices as a reference to set DIV un Ko and Ausma grupa’s bidding prices, thereby coordinating the bids of the three companies.
In a judgment dated July 3, 2013, the administrative court annulled the LCA’s decision insofar as it found that Pārtikas kompānija had engaged in anti-competitive behaviour. The administrative court noted that, while the level of prices clearly showed that the bidding process was rigged, there was no evidence that Pārtikas kompānija had been associated in any way to the bid rigging.
DIV un Ko, Ausma grupa and the LCA then brought the case before the supreme court, which referred the following question to the CoJ:
“Must Article 101(1) TFEU be interpreted as meaning that, in order for it to be established that an undertaking has participated in an agreement restricting competition, it must be shown that an officer of the undertaking has personally engaged in conduct or been aware of, or consented to, conduct by persons providing an external service to the undertaking and at the same time acting on behalf of other parties to a possible prohibited practice?”
The AG’s Suggestion: Creating a Rebuttable Presumption of Liability for Third Party Infringement
As a starting point, the AG recalled the existing case-law regarding liability for infringements committed by a third party. In several cases (notably Minoan Lines/Commission, T-66/99, and voestalpine et voestalpine Wire Rod Austria/Commission, T‑418/10), the EU Courts ruled that a principal may be held liable for the anticompetitive behaviour of its agent, even if it was not aware of nor consented to such behaviour. According to that case-law, this will be the case where the principal and the agent form a single economic unit, because the latter: (i) bears an economic risk, (ii) provides services to the undertaking on an exclusive basis (the conditions under i and ii being cumulative), and/or (iii) acts within the perimeter of its mandate. The case at hand did not meet any of these conditions: MDD lietas did not bear any economic risk; it did provide services to other undertakings, and it did not act within the perimeter of its mandate. Accordingly, Pārtikas kompānija could not be held liable for the conduct of MMD lietas – at least not on the basis of the existing case-law.
In the absence of any relevant precedent, AG Wathelet then turned to the analysis of the case at hand. According to the AG, two conflicting principles had to be taken into account: on the one hand, the principle of the individual nature of penalties (i.e. Pārtikas kompānija should not be held liable for an independent third party’s wrongdoing); and on the other hand, the principle of effective enforcement of competition, which implies that “it would be too easy to hide behind a third party in order to go unpunished under competition law.”
As a result of the above, the AG suggested that the CoJ creates a brand new rebuttable presumption of liability for competition law infringements committed by sub-contractors or service providers. This presumption would apply broadly, regardless of: (i) whether the third party acted within the perimeter of its mandate, and (ii) whether the undertaking was aware of the third party’s behavior. According to the AG, the undertaking may, however, rebut the presumption by showing that it took all the necessary precautions to prevent competition law infringements. The undertaking should take precautions at three stages:
- First stage: when hiring the third party service provider, the undertaking shall carefully select it, define the scope of its missions, make clear whether sub-contracting is authorized and, if yes, under which conditions, etc.;
- Second stage: during the execution of the mission, the undertaking shall make sure that its third party service provider remains strictly within the boundaries of its missions such as defined in the contract; and
- Third stage: when an infringement of competition law is uncovered, the undertaking shall not remain passive. Instead, it shall publicly distance itself from the infringement, make sure it does not happen again and report it to the authorities – this last point being somewhat redundant, since it is consistent with the case-law on concerted practices.
Furthermore, the AG noted that additional elements may also be taken into account when rebutting the presumption. These include: (i) the fact that the third-party provider acted outside of the perimeter of its mission, or (ii) the fact that the undertaking did not benefit from the infringement. However, the AG appears to understand this restrictively: the mere fact that Pārtikas kompānija eventually lost the bid was irrelevant, as the companies may have allocated bids between themselves. Rather, the circumstance under (ii) relates to the absence of participation of Pārtikas kompānija in any negotiation that may have allowed it to benefit from a competition law infringement.
Why the CoJ Should Not Follow the AG’s Opinion
While this opinion is in line with a number of recent judgments of the EU Courts which have expanded the boundaries of competition law (e.g. liability for cartel facilitators - see our briefing on the AC-Treuhand case), it is nonetheless worrying insofar as it distorts the principles of personal liability and individual nature of penalties.
Firstly, the AG makes clear that the presumption may apply regardless of whether the undertaking was aware of the third party’s behavior. This statement appears to be in direct contradiction with existing principles relating to the attribution of liability for an anticompetitive conduct. Two examples illustrate this point. The first one relates to the liability for cartel conduct where the undertaking did not participate in all the constitutive events and actions undertaken by other cartel participants. Under the concept of single and continuous infringement – which is highly controversial – an undertaking may be held liable for acts in which it did not directly participate where it is established that, by its contributive conduct, it was aware of or could have reasonably foreseen that other cartel participants would commit those additional illicit acts. This knowledge requirement is at the core of any finding of liability for competition law violations. The second example relates to how third party involvement may render a finding of liability more complex. Specifically, in the context of a hub and spoke cartel, the participation of a third party hub, – usually the supplier – in a conspiracy among retailers requires that the competition authority adduces evidence that retailers sharing their pricing intentions to the supplier knew or should have anticipated that such information would be passed on to other retailers. Again, the knowledge requirement may not simply be presumed. In this context, we fail to see how the suggested presumption could apply to undertakings for which there is no evidence on record that they knew or should have known or could have reasonably anticipated that the service provider would engage in anticompetitive behavior.
Secondly, while, admittedly, the presumption merely shifts the burden of proof on the undertaking, rebutting it may amount to a “Catch-22:”
- According to the test set out in the opinion, businesses would have to prove that they have taken a number of “necessary precautions” in the course of their contractual relationship with the third party provider. These precautions are not only numerous and burdensome; they may also prove very difficult to observe: for instance, how to make sure that a service provider remains strictly within the boundaries of its mission?
- Experience shows that rebuttable presumptions under EU law (e.g. presumption of parental liability for the infringement of a subsidiary company) are actually almost impossible to overturn – to the extent that they are often referred to as “probatio diabolica.”
In light of the above, a new “probatio diabolica” for infringements committed by third party providers would most likely be bad news for businesses – in addition to being inconsistent with a well-established line of case-law. Therefore, we can only hope that the CoJ does not follow its AG when it adopts its judgment on the case.
Note that, as of December 2015, no date of delivery of the judgment has been set.