European Union Law

Skanska: Parent Companies Are Liable for Cartel Damages Caused By Their Liquidated Subsidiaries

Jordan GalbraithPosted by

In a landmark judgment on March 14, 2019 (Case C‑724/17, Vantaa vs. Skanska Industrial Solutions and others), the Court of Justice of the European Union (CJEU) ruled that companies cannot use corporate restructuring to escape their liability for cartel damages, setting an important precedent for future claims for damages under Article 101 TFEU.

Facts

The case concerns a cartel in the asphalt market in Finland. Seven companies were fined for their participation in the cartel. After the cartel became public, the municipality of Vantaa, which had bought asphalt during the cartel period, requested compensation from the cartelists. However, several companies had already been dissolved in voluntary liquidation procedures. Their sole shareholders (among them Skanska) had then acquired the dissolved companies’ assets and continued their economic activity.

The District Court found the successor companies to be liable for the conduct of their predecessor companies and therefore jointly and severally liable for the conduction of the cartel members.  However the Court of Appeal of Finland refused to apply the economic continuity principle to an action for damages.  On appeal, the Supreme Court stayed the proceedings and made a preliminary reference to the CJEU for a preliminary ruling to answer the question whether or not these shareholders may be held liable for damages caused by these subsidiaries.

Judgment

Stressing the need for the full effectiveness of the right to damages under EU competition law, the Court held that it is for EU law to determine the entity that is liable for damages resulting from infringements of Article 101 TFEU. In doing so it followed Advocate General Wahl’s Opinion, in which he stressed that the full effectiveness of Article 101(1) TFEU would be unduly diminished of its deterrent function if liability could be escaped simply by corporate re-structuring.

Furthermore, it held that the principle of economic continuity applies to private enforcement (in this case, follow-on actions for damages as well as the public enforcement of competition law). The Court therefore held that the companies can be held liable for damages resulting from infringements of Article 101 TFEU by subsequently-acquired businesses should they continue the predecessor’s economic activity.

Practical Implications

This is an important decision, which further develops and articulates the right to damages under EU competition law through the Courage, Manfredi and, most recently, Kone decisions. First of all, the Court makes clear that attribution of liability under this right is a matter of EU law, and not of national domestic law.

In an important Opinion, further articulating the contours of the private right to damages under EU competition law, AG Wahl states that “public and private enforcement of EU competition law together form a complete system of enforcement, albeit with two limbs, that should be regarded as a whole.” By following AG Wahl’s reasoning, the judgment demonstrates that there should be a harmonious and consistent interpretation of competition law concepts in both private and public enforcement.

Equally, the Court not only clarifies that the EU concept of “undertaking” should be relied upon to determine the persons liable in an action for damages under EU competition law rules but also that the principle of economic continuity applied in the area of public enforcement should also apply in the context of private enforcement. It was previously unclear whether the principle of economic continuity in particular, could be relied upon in private damages claims. This has created probably caused uncertainty and a reluctance in raising claims. However, as AG Wahl states, “under EU competition law, “liability is attached to assets, rather than a particular legal personality.” In this light, perhaps the most crucial practical implication of this judgment is that a company cannot rely on the “corporate veil” of their domestic private law and may be held liable for infringements of group companies to a far greater extent than previously thought.  In other words, the same entities that have breached EU competition law rules are liable for sanctions by a competition authority and for compensation in a private damages action.

For a potential claimant, this increases the attractiveness of bringing claims for breaches of competition law given the wider scope of liability that can attach to “undertakings” in an action under EU law than to domestic laws. On the other hand, this underlines and perhaps heightens the risks of non-compliance of competition law for businesses. In particular, potential buyers will need to carry out a full diligence exercise of potential competition law breaches before any merger and acquisition.

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One comment

  1. Really interesting and useful, Jordan, thanks. What do you think we can glean from the judgment as regards the “threshold” at which the continuity principle will kick in? Take the example of the acquirer taking on some but not all of the assets, or a situation in which a single business is divided up and sold in parts. On a similar topic, do you have a sense of when (if ever) the continuity principle might be interrupted if, for instance, there is a period during which the business closes down?

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