Procopé & Hornborg competition blog: ECJ rules that liability for damages for competition infringement follows assets in corporate acquisitions
15.03.2019 | By Lotta Uusitalo
The principle of economic continuity is confirmed to apply in private competition enforcement proceedings.
On 14 March 2019 the European Court of Justice has passed a judgement C-724/17 regarding the Finnish asphalt cartel case ending long-running saga concerning the competition infringement liability of the successor companies in private competition enforcement proceedings. The court held that the principle of economic continuity applies also in private competition enforcement proceedings.
The judgement brings significant clarifications unifying the concept of economic continuity in public and private competition enforcement. Furthermore, the question of successor’s liability in private competition enforcement has not been determined in the Directive 2014/104/EU or the case-law of EU until now.
The principle of economic continuity has been developed in the context of public enforcement of EU competition law. As Advocate General Wahl has pointed out the principle of economic continuity is an expression of the broad definition of an undertaking in EU competition law. It is applied, where the infringing company ceased to exist, either in law or economically. From the perspective of EU competition law, a legal or organizational change does not create a new undertaking free of liability for the conduct of its predecessor that committed the infringement, when from an economic point of view the two are identical.
Extended liability of the company that has continued the activities of the infringing company is justified by the idea that undertakings could otherwise escape penalties by changing their identity through restructurings, sales or other legal or organizational changes. Otherwise this would endanger the objective of suppressing infringing conduct and preventing its reoccurrence by means of deterrent penalties.
In the judgement the Court has held that:
“Article 101 TFEU must be interpreted as meaning that, in a case such as that in the main proceedings, in which all the shares in the companies which participated in a cartel prohibited by that article were acquired by other companies which have dissolved the former companies and continued their commercial activities, the acquiring companies may be held liable for the damage caused by the cartel in question.”
The Court has agreed with Advocate General Wahl that actions for damages for infringement of EU competition rules are an integral part of the overall competition law system and it would jeopardize the functioning of the system and deterring effect if the companies could avoid paying damages through restructuring.
According to the judgement the determination of the liable entity which is required to provide compensation for damage caused by an infringement of Article 101 TFEU is directly governed by EU law. Ultimately, the Court has taken a view that concept of “undertaking” has the same scope in the proceedings involving the imposition of fines by the Commission (public enforcement) and in actions for damages for infringement of EU competition rules (private enforcement).
In addition to contributing much required clarification to the private competition enforcement proceedings, the decision has also brought substantial considerations for the field of mergers and acquisitions. Notably, a defendant in the case has unsuccessfully requested the Court to limit the temporal effects of the judgement claiming that such an interpretation would have the financial consequences on economic operators having engaged in company acquisitions. The rules on civil liability in Finnish law are based on the principle that only the legal entity that caused the damage is liable. However, the judgement of the Court has brought deviation to the national principle forcing the parties in the merger proceedings to consider the possible risks of the competition infringements caused by the object of acquisition.
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