EU law trumps national law when determining the entity liable for damages

Europe

On 14 March 2019, the Court of Justice of the European Union (CJEU) published a ground-breaking preliminary ruling in the case Skanska Industrial Solutions and Others (Case C‑724/17), finding that the determination of who is liable for damages for an infringement of EU competition law is governed by EU law, and not national law.

Given the wording of the EU cartel prohibition, the liability is not limited to a single legal entity, but extends rather to the entire economic unit consisting of several natural and legal entities.

In addition, the CJEU – following the principle of economic continuity – clarified that the successors of legal entities that violated the cartel prohibition can be held liable for the damages caused by their predecessors. This means that the restructuring of an entity cannot make it free of liability, especially if from an economic point of view the two are identical.

With a slightly different line of reasoning, the CJEU arrived at the same conclusion as Advocate General Wahl in his opinion of 6 February 2019. 

Background

The question about liability in private damages arose in a case surrounding a Finnish asphalt-market cartel. Some of the companies involved in the cartel had been dissolved, and their respective sole shareholders had acquired the subsidiaries' assets and continued their economic activity. Under local Finnish law however, only the legal entity that caused the damage is, in principle, liable to pay compensation.

When asked to rule on the liability of the successors, the Finnish Supreme Court referred the case to the CJEU to clarify the following:

  1. Whether EU or national law applies when determining the liable parties.
  2. In the event that EU law applies, the concepts of undertaking and economic continuity similarly apply to those liable for compensation.

How did the CJEU rule?

The CJEU ruled as follows:

  1. While it is true that in the absence of EU rules, it is for the domestic legal system of member states to lay down regulations, the determination of the entity required to provide compensation for damage caused by an infringement is directly governed by EU law.
  2. The wording of the cartel prohibition (Article 101 TFEU) clearly does not refer to legal entities, but to undertakings. Also, the EU Directive on rules concerning actions for damages under national law confirms that those responsible for damage caused by an infringement of EU competition law are specifically the undertakings which committed that infringement. As is well known, undertakings consist of the entire economic unit, including parent and sister companies.

The CJEU ruling makes it clear that the legal or organisational restructuring of an undertaking that committed the infringement does not necessarily change its liability. This is especially the case when the new undertaking continued the economic activities after acquiring all assets and liabilities and the former undertaking ceased to exist.

What does this mean for future national rulings?

Regardless of national laws on civil liability, undertakings that infringe EU competition law are liable for the damages caused by the infringement. The liability extends to all legal entities belonging to the same economic unit.

Contrary to what was ruled in a recent Dutch judgment on damages, it will no longer be necessary to provide evidence to prove the liability of parent companies. This liability can be assumed if the undertakings belong to the same economic unit.

Internal restructuring, sale or legal and organisational changes employed to ward off liability will not be easily accepted by the courts. Liability follows the economic activity that caused the infringement, not the legal entity.

For more information on this preliminary ruling and how it could affect your business, feel free to contact the following CMS local experts:

Annemieke Hazelhoff – Senior Associate CMS Amsterdam

Merle Temme – Associate CMS Amsterdam