On 14 March 2019, the Court of Justice of the European Union ("ECJ") ruled that where a company acquires another business that previously participated in a cartel, it may be held liable in an action for damages caused by the cartel if it continues the commercial activities of that business even if the corporate legal entity of the acquired business no longer exists (Case C-724/17, Skanska Industrial Solutions and Others).
By way of background, the Finnish Competition Authority imposed fines on seven companies for participation in a cartel in the asphalt market in Finland. Even though three of those companies had been acquired, and later dissolved, by other firms which continued to exist at the time of the infringement decision, in 2009 the Finnish Supreme Court upheld that it was permissible to fine the successor companies based on the economic continuity test recognized in EU law. Under this rule, responsibility for payment of a fine for an infringement of EU competition law may apply to the person who continues to operate the underlying business assets, even if the legal person has ceased to exist.
It remained an open question whether a similar economic continuity test applied in the context of the private enforcement of Article 101 Treaty on the Functioning of the European Union ("TFEU"). This question was addressed in the follow-on damages action later brought by the Finnish City of Vantaa against three companies that had acquired legal entities that ceased to exist. The claimant argued that the successors were jointly and severally liable for the overpriced asphalt works resulting from the cartel. However, under Finnish law, only the legal entity that caused damage may be held liable, as it is only possible to lift the corporate veil if business owners use the corporate structure in a reprehensible or artificial manner. Thus, a preliminary question was referred to the ECJ as to whether liability for damages must be determined directly as a matter of EU law under Article 101 TFEU, or under national law.
In his Opinion of 6 February 2019, Advocate General Wahl noted that the determination of the persons liable to pay damages for anticompetitive conduct is a constitutive condition of the right to compensation which ought to be governed by EU law. The recent judgment of the ECJ is consistent with this approach. Referring to the Kone judgment (Case C-577/12, Kone and Others), the ECJ held that while national law lays down rules for the exercise of the right to compensation, the determination of the entity which is required to provide compensation for damage caused by an infringement of Article 101 TFEU is directly governed by EU law. As the concept of an 'undertaking' designates the perpetrator of an infringement, the undertaking which infringes the competition rules must answer for the damage caused by the infringement. Further, the ECJ reasoned that if an entity which committed a competition law infringement is subject to a legal or organizational change, this change does not necessarily create a new undertaking free of liability for the conduct of its predecessor that infringed the competition rules, when, from an economic point of view, the two are identical. As a result, where a purchaser takes over the business assets and liabilities of a target company, the purchaser may be held liable for a competition law infringement both for the purpose of imposing a fine under the Regulation on Procedure, and significantly, in an action for damages. In effect, the ECJ has aligned the notion of liability under Article 101 TFEU for both public and private enforcement of EU competition law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.