The European Court of Justice’s judgment in Skansa was anticipated with excitement. This damage claim case has the potential to change European competition law – since it deals with the question whether the definition of undertaking is the same for damage claims as for fining. Patrick Hauser and Jörn Kramer report on one of the top cases in 2019.
The Skanska decision has been highly anticipated, as it has/had the potential to shape antitrust tort law to a considerable degree. We have already taken discussed the request for a preliminary ruling and the Opinion of Advocate General Wahl on D’Kart (see also Hauser, WuW 2019, 123 or WUW1288470).
At first glance, the request for a preliminary ruling revolved around the question whether the principle of economic continuity that the ECJ applies in cases concerning fines applies also in antitrust tort law (more detailed information on the facts of the case here. The applicable Finnish law does not lay down rules that provide for an equivalent liability of the legal or economic successor. The referring court, therefore, asked (i) whether such a liability in antitrust tort law results from a direct application of Art. 101 TFEU or (ii) whether the EU law requirement of effectiveness demands such a liability in national law. However, the implications of the decision exceed the cases of (economic) succession: Essentially the question was, to what extent the notion of undertaking also claims validity in antitrust tort law.
Surprisingly quick (possibly in order to release Advocate General Wahl from his office) the ECJ has now decided. And a landmark decision it is:
Liable persons are determined directly by EU law
The ECJ follows the Opinion of Advocate General Wahl. The persons liable to provide compensation for damages are to be determined by direct application of Art. 101 TFEU.
It has been recognised since the Courage decision that Art. 101 TFEU provides for the right of any individual to claim compensation for damages arising from a cartel. However, in the absence of relevant Community rules, it is for the domestic system of each Member State to lay down the detailed procedural rules governing the exercise of the right to claim compensation (paras. 24 et seq.). The ECJ (apparently) does not count the determination of the liable entity among these detailed rules:
‘However, as the Advocate General has pointed out in points 60 to 62 of his Opinion, 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.‘ (para. 28)
The ECJ emphasises that the prohibition under Art. 101 TFEU addresses ‘undertakings’ (in the sense of the economic unit). According to settled case law, EU competition law also refers to the activities of undertakings. The perpetrator of the infringement is therefore any entity engaged in an economic activity, irrespective of its legal status and the way in which it is financed. In the opinion of the ECJ, the undertaking (in the sense of the economic unit) that infringes competition law must also be liable under civil law for the damage caused by the infringement.
The concept of undertaking constitutes an ‘autonomous concept of EU law’ which cannot ‘have a different scope with regard to the imposition of fines as compared with action for damages’ (para. 47). According to the ECJ, this follows from the fact that the deterrent effect of damages contributes to the maintenance of effective competition. Actions for damages, therefore, constitute an ‘integral part of the system for enforcement’ of the competition law rules (para. 45).
It has been established in the case-law on fines that in cases of ‘restructuring of an undertaking in which the entity which committed the infringement has ceased to exist … this change does not necessarily create a new undertaking free of liability … when, from an economic point of view, the two are identical’ (para. 38). Such (successor) liability is not contrary to the principle of personal responsibility (para. 39). Rather, liability of the purchaser may even be necessary to ensure effective implementation of the EU competition rules where the undertaking responsible no longer exists ‘by reason of the fact that it has been taken over by the purchaser, which as the acquiring company, takes over its assets and liabilities, including its liability for breaches of EU law’ (para. 40).
Damages Directive does not contradict these conclusions
This conclusion is not in conflict with the Damages Directive which is not applicable in the present case anyway. In particular, Art. 11 (1) does not confer on the Member States the power to determine the party liable to pay damages, but merely demands that Member States ensure joint and several liability between the ‘undertakings’ liable to pay damages. On the contrary, the provision confirms, as does Art. 1 (1), ‘that those responsible for damage caused by an infringement of EU competition law are specifically the “undertakings” which committed that infringement’ (see already Kersting, WuW 2014, 564, 565 or WUW0661876).
Effects of the judgment not limited in time
The judgment also affects legal relationships that have already been entered into before the ruling. After all, the ECJ ‘clarifies and defines the meaning and scope of [the rule in question] as it must be or ought to have been understood and applied from the time and its entry into force’ (para. 55). Such a limitation (to future cases) is therefore only possible in exceptional circumstances. The relevant request had already not been sufficiently substantiated (paras. 56 et seq.).
It does not come as a surprise that the ECJ applies the EU-notion of undertaking to antitrust damages as well (see already here and Hauser, WuW 2019, 123 or WUW1288470). However, it might have been advisable to transfer the notion of undertaking into national law via the principle of effectiveness, as put forward in the third and consequently unanswered preliminary question. The Commission possibly suggested the same during the oral hearing (see para. 33).
Art. 101 TFEU does not explicitly determine the persons’ liable for compensation of cartel damages. At the same time it appears persuasive that the infringer of the prohibition and the liable entity are to be the same. However, there are no provisions in EU law that provide for rules regarding civil liability. The situation, therefore, differs from the law on fines (cf. Art. 23 Regulation 1/2003).
It is clear now, that according to primary law the ‘undertaking’ is liable for cartel damages. As European Law takes precedence, any opposing Member State regulations are irrelevant. How this liability (dogmatically) fits into the national antitrust regulations remains open, however.
The questions referred focused on the principle of economic continuity. But the implications of the ruling extend beyond that. Due to the direct application of Art. 101 TFEU, the law on fines and cartel damages are now in sync, as the direct application of Art. 101 TFEU leads to a comprehensive transfer of the principles regarding the liable person established in fine law to damages law. Thus, in any case the parent company is also liable for damages caused by the subsidiary’s infringement in the economic unit.
The decisions’ implications are, however, not limited to cartel damages, but also effect the law on fines. Ultimately, it should follow from the equal treatment of fines and damages regarding the notion of undertaking that the addressee of a fine is equally derived directly from Art. 101 TFEU. Thus, this would also be the case if the national cartel authorities impose fines for an infringement of Art. 101 TFEU.
Therefore, Directive (EU) 2019/1 (ECN Plus Directive) only has clarifying effect insofar as it requires Member States to ensure that fines can also be imposed on ‘undertakings’ and that the notion of undertaking applies for the purpose of parent and successor liability (cf. Art. 13 (1), (5) and recital 46). Likewise, there is (probably) no longer need for Section 81 (3a-3e) of the German Act against Restraints of Competition (GWB) and the related transitional provisions, as far as infringements of EU antitrust law are concerned.
In addition, as the effects of the decision are not limited in time, it may be possible that fine proceedings that were discontinued due to the lack of (solvent) addressees of the fine could be reopened and continued against the parent company or the economic successor.
Particularly in the course of mergers and acquisitions, it is now advisable to be (even more) thorough during due diligence. Due to the civil liability of the (economic) successor, even asset deals may result in further antitrust liability risks if the original company (economically) ceased to exist.
The decision raises a variety of further questions which will probably concern legal practitioners in the Member States for some time to come:
- How does the claim for damages under EU law fit in the legal framework of the Member States from a doctrinal point of view when EU law demands the claim’s existence and determines the liable persons, but the further conditions are (probably) governed by Member States’ law?
- Are there further prerequisites for damage claims that are to be derived directly from EU law? AG Wahl stated in his Opinion (paras. 38 et seq.) that the requirements of a causal link were also governed by Article 101 TFEU and not domestic law, which (only) had to be assessed by reference to the principle of effectiveness. However, this seems at least questionable in light of the Kone decision. The ECJ did not address this issue in Skanska.
- Which entities have to be at fault? Can the negligence or intent of individual entities be imputed to the group’s other entities as a result of the concept of the economic unit? As regards the purchase of an undertaking, the ECJ does not seem to presuppose any fault on the part of the purchaser. Rather the purchaser ‘takes over … the liabilities including its liability for breaches of EU law’ of the offending (acquired) company’ (para. 40).
- Does the application of the notion of undertaking also entail group liability, i.e. in particular liability of the subsidiary for infringements of the parent company or a liability for sister companies? (Kersting, ZHR 2018, 8 ff.; Kersting, in: Jahrbuch 2018: Referate und Beiträge der FIW-Veranstaltungen, 2019, p. 113, 115 ff.)
- Under which circumstances will the principle of economic continuity be applied? This question is likely to become even more significant in the future as it impacts not only the legal liability for fines but also civil liability.
The ECJ´s decision has clarified that the notion of undertaking is applicable in antitrust tort law as well. However, many questions remain unanswered which will likely lead to further requests for preliminary rulings. It is possible that the (dogmatic) implementation of the notion of undertaking would have been easier if the ECJ had deduced this requirement from the principle of effectiveness rather than directly from Art. 101 TFEU. Nevertheless, cartel victims may rejoice. The ECJ has significantly strengthened their position regarding a critical aspect.