Buyers Beware: EU Competition Law Concept of “Undertaking” Is Applicable in Actions for Damages as well

By Kristina Povazanova

In its preliminary ruling procedure under Article 267 of the Treaty on the Functioning of the European Union (“TFEU”), the Court of Justice of the European Union (“the CJEU”) issued a landmark judgment on March 14, 2019. According to C-724/17 Vantaan kaupunki v Skanska Industrial Solutions Oy and Others [1], parent companies cannot use corporate restructuring to circumvent their liability for the damage incurred due to a competition law infringement committed by their subsidiaries (based on Article 101 TFEU and equivalent national provisions) in cases where the parent company continues the economic activities of “in-the-meantime” dissolved subsidiaries.

The CJEU answered two fundamental questions: a) Who are the parties that are liable for damages and b) is the determination of which parties are liable to be made directly based on Article 101 TFEU or on the basis of national legal provisions?

 

Facts in a nutshell

The case stems from a cartel that was set up in the Finnish asphalt market between 1994 and 2002. Amongst others, Sata-Asfaltti Oy, Interasfaltti Oy, Asfalttineliö Oy, Asfaltti-Tekra Oy, and Lemminkäinen Oyj, were considered to be the cartelists concerned.

In 2000, Asfaltti-Tekra Oy changed its name to Skanska Asfaltti Oy and acquired all the shares of Sata-Asfaltti Oy. Two years later, the latter entered into a voluntary liquidation and all its business was transferred to Skanska Asfaltti Oy, which continued to participate in the cartel activities. In 2017, Skanska Asfaltti Oy changed again its legal name to Skanska Industrial Solutions (“SIS”).

Similar restructuring happened in 2003 to Interasfaltti Oy, which was dissolved in a voluntary liquidation procedure and its commercial activities were transferred to NCC Roads, later renamed NCC Industry (“NCC”).

Last but not least, Asfalttineliö Oy was acquired in June 2000 by Siilin Sora Oy, which later changed its name to Rudus Asfaltti. Asfalttineliö Oy’s voluntary insolvency procedure took place in January 2002 and its business was transferred to Rudus Asfaltti, known as Asfaltmix since 2014.

 

Actions for damages filed based on Finnish law

In 2009, the Supreme Administrative Court of Finland imposed fines on seven companies for the violation of Article 101 TFEU and equivalent national provisions (“2009 Decision”).

The fines were imposed on:

• “SIS for its own conduct and that of Sata-Asfaltti Oy;
• NCC for the conduct of Interasfaltti Oy; and
• Asfaltmix for the conduct of Asfalttineliö Oy”. [2]

Based on the 2009 Decision of the Supreme Administrative Court of Finland, the City of Vantaa filed an action for damages before a District Court in Finland claiming that all of the abovementioned companies were jointly and severally liable for the additional costs that were incurred as a result of the cartel overpricing. On the other hand, SIS, NCC, and Asfaltmix believed that they were not liable for the damage caused by formerly independent companies and that all claims should have been made during the liquidation proceedings.

In order to ensure the effectiveness of EU competition law enforcement according to Article 101 TFEU, the District Court in Finland, applying the economic continuity test, ordered SIS, NCC, and Asfaltmix to compensate the City of Vantaa for damages. to the extent of personal scope mentioned above. The Court of Appeal of Finland, however, later upheld the District Court’s decision insofar as it concerned the conduct of dissolved subsidiaries. The City of Vantaa appealed the Court of Appeal’s decision to the Supreme Court of Finland, which was confronted on one side with its national legal provisions based on the assumption that only the legal entity that caused the damage is liable for it, and, on the other side, with the settled case law of the CJEU stating that any person may claim compensation for damage resulting from a violation of Article 101 TFEU. Therefore, the Supreme Court referred the following questions to the CJEU for a preliminary ruling:

1) Is the determination of which parties are liable for the compensation to be made directly based on Article 101 TFEU or on the basis of national legal provisions?

2) If the answer to the first question is “directly based on Article 101 TFEU”, should the concept of “undertaking” as recognized by EU competition law be applied, hence the same principles considered relevant when determining the entities liable for fines?

3) If the answer is “on the basis of national legal provision”, does the EU law requirement of effectiveness require that the parent companies in the case at hand are to be held liable for the damage caused by their dissolved subsidiaries?

The findings of the CJEU

The reference to the CJEU highlighted an important question regarding the applicability of EU competition law concepts and principles with respect to public and private enforcement of EU competition law. The situation at hand was particularly tricky, given the apparent conflict between EU competition law principles and national legal provisions on civil liability, pursuant to which only the legal entity that caused the damage is liable. Moreover, according to the Finnish legal order, the corporate veil can only be lifted if the corporate restructuring is used to circumvent or avoid legal liability.

The CJEU began its reasoning with a reference to C-557/12 Kone AG and Others v ÖBB-Infrastruktur AG. In that case, the CJEU reaffirmed that both Article 101 and Article 102 of the TFEU have direct legal effect and hence create rights for the individuals, which national courts and authorities must protect. Even more importantly, it stressed that any person is entitled to claim compensation for the damage suffered, provided that a causal link exists between the harm suffered and the prohibited practice or agreement and that this right is essential in ensuring the full effectiveness of EU competition law enforcement. [3]

In concert with the Advocate General Wahl’s opinion [4], the CJEU answered the first of the referred questions pointing out that the determination of which parties are liable for the compensation is “directly governed by EU law.” [5] EU competition law applies the concept of “undertaking” under Article 101 TFEU to “designate the perpetrator of an infringement” [6] of this provision. It is these “undertakings” which have infringed Article 101 TFEU that “must answer for the damage caused by the infringement.” [7]

There are not many judgments of the CJEU on the application of EU competition law that would not make a reference to C-516/15 Akzo Nobel NV and Others v EU Commission. Reestablishing the “Akzo Nobel” concept of “undertaking” under Article 101 TFEU, the CJEU emphasized that “undertaking” covers “any entity engaged in an economic activity, irrespective of its legal status and the way it is financed.” Moreover, it designates “an economic unit even if in law that economic unit consists of several persons, natural or legal.” [8]

With respect to the situation at hand, the CJEU answered the second referred question clarifying that the same principles should be applied in the context of public enforcement in accordance with Article 101 TFEU, as well as in relation to actions for damages (private enforcement). Specifically, an undertaking should not be allowed to avoid liability by corporate restructuring when the undertaking and its predecessor are identical from an economic point of view. It continued that “if the undertakings responsible for damage caused by infringement of the EU competition rules could escape penalties by simply changing their identity through restructurings . . . the objective of suppressing conduct that infringes the competition rules and preventing its reoccurrence by means of deterrent penalties would be jeopardised.” [9]

This is mainly because private enforcement of competition law forms an “integral part of the system for enforcement of those rules” [9] and aims at the same objective, which is to punish the anticompetitive behavior and to deter repeated misconduct.

 

Concluding Remarks

The CJEU judgment in the case at hand is significant in many ways. We can definitely conclude that it has extended existing rules and settled case law of the CJEU with respect to private enforcement of EU competition law. As both Advocate General Wahl and the CJEU concluded, public enforcement and private enforcement of EU competition law form an integral system and the consistent application and interpretation of these rules is essential in ensuring its effective enforcement. It is worth mentioning that it seems implicit from the judgment that the same rationale should be applied to actions for damages under Article 102 TFEU.

Secondly, as Advocate General Wahl pointed out, private enforcement of EU competition law and actions for damages serve a dual role–to offer compensation for the harm suffered and to deter “undertakings” from repeated wrongdoing. This is where EU competition law goes beyond what some of the legal orders of EU Member States offer–only compensation for the harm caused.

Thirdly, even though the judgment clearly affirms that the determination of which parties are liable for the compensation is directly governed by EU competition law, there is no clarification on how actions for damages should be brought before courts. This continues to fall under the scope of national legal provisions. On the other hand, one has to bear in mind that because the CJEU relied on the EU law concept of “undertaking,” successful claims will depend on a number of factors which are to be determined in accordance with EU competition law. These include the existence of a violation of EU competition law, identification of a person liable for the breach, and a causal link between the harm suffered and the infringement of EU competition law.

Moreover, the CJEU in this judgment went further and stressed that the principle of economic continuity applies to private enforcement of EU competition law. This follows the reasoning of Advocate General Wahl, who stated in relation to corporate restructuring that “liability is attached to assets, rather than a particular legal personality.” [10]

As the title of this Article indicates, the judgment of the CJEU at hand increases the risk (related to competition law) for entities interested in various forms of corporate restructurings. It should, therefore, be indispensable for entities to invest in full-featured due diligence and in-depth research to avoid potential adverse consequences of previous EU competition law infringements.

 

References

[1] Case C-724/17 Vantaan kaupunki v Skanska Industrial Solutions Oy and Others

[2] Ibid, p. 10

[3] Ibid, p. 24-26

[4] Opinion of Advocate General Wahl delivered on 6 February 2019 in Case C-724/17 Vantaan kaupunki v Skanska Industrial Solutions Oy and Others

[5] Ibid [1], p. 28

[6] Ibid, p. 29

[7] Ibid, p. 31

[8] Ibid, p. 36-37

[9] Ibid, p. 45-46

[10] Ibid [4], p. 80

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