Advocate General calls for antitrust damages liability to follow corporate acquisitions

D&I Alert

Posted on

7 Feb

2019

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Dittmar & Indrenius > Insight > Advocate General calls for antitrust damages liability to follow corporate acquisitions

On 6 February 2019, Advocate General Nils Wahl of the European Court of Justice (“ECJ”) gave an opinion that may significantly expand companies’ exposure to antitrust damages claims following corporate acquisitions. AG Wahl argued that liability for damages for a breach of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) should be based on EU law and not national law. He further argued that the EU competition law principle of economic continuity should be applied in antitrust damages claims in the same way as it is applied in fines imposed by competition authorities. This means that companies which did not breach competition law may nonetheless be held liable under certain circumstances if they have acquired the assets of a company that did breach competition law. If the ECJ follows AG Wahl’s opinion, it may expose companies to new avenues of liability for antitrust damages.

Background

In 2009, the Supreme Administrative Court found that seven companies had formed a cartel in the Finnish asphalt paving market in breach of national competition law and Art. 101 TFEU, and imposed record fines of EUR 83 million. Following the judgment, several municipalities and the Finnish state filed claims for damages.

Among the companies found to have participated in the cartel were Sata-Asfaltti Oy, Interasfaltti Oy and Asfalttineliö Oy. These cartel companies were acquired by Skanska Industrial Solutions Oy, NCC Industry Oy and Asfaltmix Oy. The new owners were fined by the Supreme Administrative Court for the conduct of the cartel companies they had acquired, whether the new owners had participated in the cartel or not.

The new owners transferred the assets of the cartel companies to themselves, continued the business activities of the cartel companies, and liquidated the empty cartel companies. A number of municipalities claimed damages from the new owners, arguing that they had to bear liability for the harm caused by the cartel companies they had acquired. The new owners denied liability by arguing that they were separate legal entities from the cartel companies they had acquired, and that the damages claims should have been directed at the liquidated cartel companies and/or their previous owners.

Following contradictory judgments from the District Court and Court of Appeal, the Finnish Supreme Court on 19 December 2017 filed a request for a preliminary ruling from the ECJ asking whether the parties liable for antitrust damages are determined on the basis of national law or EU law, and whether in a private law action for damages a company which has continued the economic activity of a cartel participant may be liable to pay compensation for harm caused by a breach of Article 101 TFEU.

Finnish and EU law on damages

Under Finnish law, as with most national laws, liability for damages is attributed only to the party that caused the harm, and every limited liability company is a separate legal person. Except for mergers, Finnish law does not contain provisions to enable an injured party to recover compensation from a company that receives the assets of a cartel company and continues its business activities.

According to the economic entity doctrine under EU law, liability for infringements of EU competition law is attached to the “undertaking”, i.e., the economic activity and the assets within which the infringement has taken place. Legal form, such as separate companies, can be ignored when attributing liability. Following the principle of economic continuity, in the event of restructuring or other changes in corporate structure, liability may be imposed on any entity that is identical, in economic terms, to the entity that infringed EU competition law. This can cause a non-infringing company that acquired an infringing company to become liable for the infringement. So far, these principles of EU competition law have only been used for fines imposed by competition authorities but not for damages claims by private claimants.

Opinion of AG Wahl

AG Wahl suggests that attribution of liability for antitrust damages should be determined on the basis of EU law. He notes that detailed rules governing the exercise of the right to claim damages are to be laid down by the Member States. However, the determination of the persons that may be held liable to pay compensation is not a question regarding the details of the concrete application of a claim, but a constitutive condition of liability that is fundamental to the right to claim damages. Such constitutive conditions should be uniform throughout Member States, and therefore governed by EU law.

With regard to the principle of economic continuity, AG Wahl considers that not applying it for antitrust damages would considerably weaken the deterrent element of competition law. Moreover, undertakings could avoid their liability by means of corporate restructurings. While the defendants argued that the claimant could have sought compensation from the dissolved companies, AG Wahl dismissed such arguments by remarking – as he did also in the oral hearing in Luxembourg a few weeks ago – that it is “well-known that one cannot pick the pockets of a naked man”. He finally concludes his opinion by stating that the principle of economic continuity is to be applied so that, in a private law action for damages before a national court, an individual may seek compensation from a company that has continued the economic activity of a cartel participant.

Implications of the opinion

AG Wahl’s opinion, if followed by the ECJ, raises a number of implications. First, it means that under certain conditions a non-infringing company that acquired the assets of a cartel company may find itself liable for the anticompetitive conduct. While this has been settled law with regard to fines for competition infringements, liability for damages could significantly increase the potential exposure in corporate acquisitions and may need to be taken into account in the purchase agreement.

Second, if liability is attributed to an economic entity (an “undertaking”), that entity can cover a number of separate companies in different countries. For example, competition authorities typically hold parent companies jointly and severally liable for fines even if they did not directly participate in the anticompetitive conduct of their subsidiaries. Could parent companies be held similarly liable for antitrust damages? AG Wahl’s opinion does not directly deal with this question but the logic of his opinion implies the outcome that liability for antitrust damages should be attributed in the same way as liability for fines. This could potentially widen the scope for damages claimants to choose which legal entities to take to court and in which jurisdictions. This would, for example, enable claimants to claim damages from the wealthiest legal entities of an undertaking and to choose jurisdictions that are favourable for claimants.

On a more general level, AG Wahl’s opinion illustrates that the European antitrust damages regime is still very much work in progress, and that even well-established national law concepts may be called into question as this new field of law slowly takes form.

Dittmar & Indrenius represents a number of claimants in the asphalt cartel damages cases.

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