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)