Hamilton Perspectives Newsletter

European Court of Justice defines liability in damages for successor companies

In a re­cent judg­ment the European Court of Justice (“ECJ”) has shed light on an ac­quir­er’s po­ten­tial li­a­bil­i­ty for dam­ages re­sult­ing from an ac­quired ac­tiv­i­ty’s pre­vi­ous in­fringe­ments of com­pe­ti­tion law.

Between 1994 and 2002, a num­ber of com­pa­nies ac­tive in the Finnish as­phalt mar­ket had been en­gaged in a car­tel arrange­ment. In 2004, three of these com­pa­nies were ac­quired by oth­er par­ties ac­tive in the same mar­ket (“the Acquiring par­ties”); they were then wound up and their ac­tiv­i­ties trans­ferred to the re­spec­tive Acquiring par­ty. The same year, the Finnish com­pe­ti­tion au­thor­i­ty im­posed fines on the Acquiring par­ties re­lat­ing to in­ter alia the in­fringe­ments com­mit­ted by the ac­quired busi­ness­es.

In 2009 a pur­chas­er of as­phalt lodged a claim in dam­ages be­fore the Finnish courts against a num­ber of com­pa­nies, in­clud­ing the Acquiring par­ties, for in­jury suf­fered as a re­sult of the in­fringe­ments, in­clud­ing in­fringe­ments com­mit­ted by the ac­quired busi­ness­es. The Acquiring par­ties ar­gued that they were not li­able in dam­ages for the con­duct of the lat­ter com­pa­nies.

It may be re­called that there is an es­tab­lished prac­tice in EU com­pe­ti­tion law as re­gards a suc­ces­sor’s li­a­bil­i­ty for fines im­posed for in­fringe­ments of com­pe­ti­tion law. In a sit­u­a­tion as that at is­sue, where the com­pa­ny that has com­mit­ted an in­fringe­ment is sub­se­quent­ly ac­quired and ceas­es to ex­ist as an in­de­pen­dent en­ti­ty, the ac­quir­er is deemed to have as­sumed the in­fringer’s as­sets and li­a­bil­i­ties, in­clud­ing the li­a­bil­i­ty for com­pe­ti­tion law fines. Indeed, the Finnish com­pe­ti­tion au­thor­i­ty ap­pears to have ap­plied this case law when im­pos­ing fines for the car­tel at is­sue.

The key is­sue of the case be­fore the ECJ was thus whether one should ap­ply the same prin­ci­ples of suc­ces­sor li­a­bil­i­ty in the con­text of li­a­bil­i­ty for dam­ages in ac­tions be­fore na­tion­al courts.

The ECJ, seized of a re­quest for a pre­lim­i­nary rul­ing from the Finnish Supreme Court, an­swers that ques­tion in the af­fir­ma­tive. The Court starts by re­call­ing the in­ter­est of the full ef­fec­tive­ness of EU com­pe­ti­tion law, and the abil­i­ty of an in­di­vid­ual to claim dam­ages as a corol­lary there­to. It finds, with­out fur­ther ado, that the ques­tion of which en­ti­ty is li­able in dam­ages for breach­es of com­pe­ti­tion law is a ques­tion of EU, rather than na­tion­al, law. On this ba­sis, the Court finds that a com­pa­ny is li­able in dam­ages for in­fringe­ments com­mit­ted by a busi­ness that has been ac­quired and sub­se­quent­ly ceased to ex­ist.

The par­ties’ ar­gu­ment that such rea­son­ing re­flects the case law on li­a­bil­i­ty for fines un­der EU law and should not be ap­plic­a­ble to dam­ages ac­tions at a na­tion­al lev­el is brushed aside on the ba­sis that ac­tions for dam­ages con­tribute to ef­fec­tive com­pe­ti­tion, as part of the sys­tem for en­force­ment of EU com­pe­ti­tion rules.

On this ba­sis, the ECJ finds that in a case such as that un­der con­sid­er­a­tion an ac­quir­ing par­ty is li­able in dam­ages for the in­fringe­ments com­mit­ted by the ac­quired busi­ness.

The ECJ’s con­clu­sion po­ten­tial­ly ex­tends an ac­quir­er’s risk of be­ing found li­able not on­ly for fines, but al­so for dam­ages, re­lat­ing to in­fringe­ments com­mit­ted by the tar­get. It al­so rais­es the ques­tion whether, in a case where the ac­quired busi­ness would con­tin­ue to ex­ist, the ECJ would fol­low a sim­i­lar log­ic and ap­ply its case law on par­ent com­pa­ny li­a­bil­i­ty, i.e. that the par­ent com­pa­ny would share li­a­bil­i­ty in dam­ages with its sub­sidiary: such a con­clu­sion could be con­tro­ver­sial from the per­spec­tive of na­tion­al laws.

In prac­ti­cal terms, the judg­ment re­calls the need for care­ful due dili­gence of tar­gets and care­ful­ly draft­ed trans­ac­tion doc­u­men­ta­tion.

 

(Case C-724/17, Vantann kaupun­ki ./. Skanska Industrial Solutions Oy, NCC Industry Oy, Asfaltmix Oy, judg­ment of 14 March 2019)

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