Source: https://www.houthoff.com/insights/News-Update/Competition-Litigation-April-2019
Timestamp: 2019-08-24 17:34:10
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Recent CJEU rulings on civil actions for damages based on infringements of EU competition law
Recently, the Court of Justice of the EU ("CJEU") issued two preliminary rulings on civil actions for damages based on infringements of competition law. On 14 March, in the landmark ruling of Vantaan kaupunki/Skanska Industrial Solutions and Others ("Skanska"), the CJEU clarified the concept of economic continuity. It ruled that the buyer of an entity that infringed EU competition law can be held liable for the damage caused if the infringing entity has ceased to exist. Then, on 28 March, the CJEU ruled in Cogeco Communications/Sport TV Portugal and Others ("Cogeco") on the temporal application of Directive 2014/104 of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union (the "Damages Directive"). It also decided whether the Portuguese limitation period for damages actions was compatible with Article 102 TFEU and the principle of effectiveness.
On 14 March, the Court of Justice of the EU ("CJEU") issued a landmark judgment that may have important implications for the range of entities that can be held liable for damage caused by EU competition law infringements. The CJEU pointed out in Skanska that the decision on who is liable in EU competition law damages actions is directly governed by EU law and not by national law. The CJEU found that the entities that must compensate for the damage caused by a cartel or concerted practice prohibited by Article 101 TFEU are the undertakings, within the meaning of that provision, that participated in that cartel or practice. The concept of 'undertaking' has the same meaning in the context of fines imposed by the European Commission as in the context of civil actions for damages, according to the CJEU. This means that the principle of 'economic continuity' also applies in the context of civil damages claims based on EU competition law. The CJEU ruled that in a situation where all the shares in the companies which participated in the cartel were acquired by other companies which dissolved the infringing companies and continued their commercial activities, the acquiring companies may be held liable for the damage caused by the cartel.
The Skanska preliminary ruling was delivered after the Finnish Supreme Court referred preliminary questions to the CJEU in a case about a Finnish asphalt cartel that was active between 1994 and 2002. Other companies had subsequently acquired the shares of the cartel member companies. The acquiring companies took over the commercial activities of the infringing companies and then liquidated the companies themselves. The Finnish competition authority fined the acquiring companies under the principle of economic continuity. This principle is developed in EU case law, expressing the broad definition of 'undertaking' in EU competition law. Under this principle, an infringing company that has ceased to exist and its successor can be seen as one and the same undertaking within the meaning of EU competition law, if they are identical from an economic point of view. The acquiring company can then be fined for the unlawful conduct of its predecessor. In Skanska, the municipality of Vantaa, which claimed to have suffered damage due to the cartel, filed a damages claim against the acquiring companies. Under Finnish law, only the entity that caused the damage (which in this case no longer existed) can be held liable. So the key question was whether the principle of economic continuity applies not only when imposing fines, but also when determining civil liability for cartel damage. If so, the acquiring companies might be held liable as well.
The CJEU's preliminary ruling
The CJEU recalled that Articles 101(1) and 102 TFEU create rights in relationships between individuals. These rights must be protected by the national courts. The right to compensation of parties injured by competition law infringements requires Article 101 TFEU to be fully effective. The national legal system of each Member State must lay down the detailed rules governing the exercise of this right. However, following the opinion of Advocate General ("AG") Wahl, the CJEU stressed that EU law directly governs the decision on which entity is liable for the damage caused by a violation of Article 101 TFEU. AG Wahl had pointed out that the decision on the liable entity is a constitutive condition of liability and does not relate to the exercise of the right to compensation, which is governed by national law.
The CJEU also recalled that EU competition law refers to the activities of undertakings. Since the liability for damage caused by infringements of EU competition law is personal, the undertaking that infringes those rules is liable for the damage. Therefore, the entities that must compensate for the damage caused by a cartel agreement or concerted practice prohibited by Article 101 TFEU are the entities constituting undertakings, within the meaning of that provision, which were involved in that cartel agreement or concerted practice. Within that scope, the CJEU recalled that an undertaking can consist of several persons, legal or natural, if they form a single economic unit. A single economic unit is formed when a company exercises decisive influence over another company. When an infringing entity is being restructured, like it was in this case, this does not necessarily create a new undertaking if the infringing company and its successor are identical from an economic point of view. This case law, settled in the context of the public enforcement of EU competition law, also applies in private cartel damages actions. Following AG Wahl, the CJEU held that cartel damages actions are an integral part of the enforcement system that serves to punish anti-competitive behaviour and deter others from doing the same. If undertakings could escape penalties through restructuring or by making other legal or organisational changes, these objectives would be jeopardised.
Following these considerations, the CJEU concluded that the concept of 'undertaking', within the meaning of Article 101 TFEU and in the context of public enforcement has the same meaning in private actions for damages for infringement of EU competition law. In Skanska, this meant that Article 101 TFEU must be interpreted in the way that the acquiring companies may be held liable for the damage caused by the infringing companies.
Parental liability in damages actions
Until this landmark ruling had been issued, it was not clear whether the 'undertaking liable for damages' had to be construed on the basis of EU law or national law. The idea that the liable party or parties in civil damages actions must be determined by national law was widespread, including in the Netherlands. At the hearing in Skanska, the European Commission also argued that it is clear from Article 11(1) of the Damages Directive, which requires Member States to ensure that undertakings which have infringed EU competition law through joint behaviour are jointly and severally liable for any harm caused, that each Member State must decide which entity must compensate the damage in accordance with the principles of equivalence and effectiveness.
The CJEU held that this provision only applies to attributing liability between those jointly and severally liable entities but not to identifying and defining the entities that must pay compensation. The provision concerned, like Article 1 of the Damages Directive, confirms that those responsible for damage caused by an infringement of EU competition law are specifically the 'undertakings' which committed that infringement. This judgment makes it clear that the constitutive conditions of liability, such as the entities liable for cartel damage but also the causal relationship between the infringement and the damage, must be construed based on EU law. National law must decide the 'detailed rules' on the concrete exercise of the right to claim compensation. This includes prescription periods, the amount of damages and, as follows from the European Commission's argument, the attribution of liability between jointly and severally liable parties.
The CJEU focused on applying the principle of economic continuity in cartel damages actions and concluded that acquiring companies may be held liable depending on the specific circumstances of the case. The fact that restructuring the participating companies could help companies to avoid paying penalties or damages played an important role. It remains to be seen how the court will deal with other cases of parental liability. As said, a parent company can only be held liable if it has exercised decisive influence over the infringing subsidiary. If so, the parent company and its subsidiary form a single economic unit and therefore, one and the same undertaking under Article 101 TFEU. This is settled case law in public enforcement. The European Commission has not yet imposed fines on subsidiaries for the unlawful conduct of their parent companies or their 'sister' companies. The question now is whether the European Commission will be able to do so based on this decision and if so, under which conditions.
In Cogeco, the CJEU explained the meaning of Article 22 of the Damages Directive. This states the temporal conditions for applying the Damages Directive. According to Article 22(1), national rules transposing substantive provisions of the Damages Directive do not have retroactive effect. According to Article 22(2), national rules transposing procedural provisions do not apply to civil damages actions brought before 26 December 2014. But what about procedural provisions in damages actions that were brought after 26 December 2014 but before the Damages Directive was transposed or, at the latest, before the expiry of the period prescribed for its transposition? The CJEU ruled that Member States enjoyed a measure of discretion in deciding whether procedural measures have no retroactive effect at all, or if they apply to actions brought in the period from 26 December 2014 to the date that the Damages Directive was transposed or the expiry date.
The CJEU also found that the Portuguese limitation period for damages actions that applied to this case – which fell outside the temporal scope of the Damages Directive – was not compatible with Article 102 TFEU and the principle of effectiveness. The limitation period of three years started to run from the date on which the injured party was aware of its right to compensation. The injured party (i) did not have to know the identity of the liable person and (ii) could not ask for the limitation period to be suspended or interrupted during proceedings before the national competition authority. This meant that the limitation period could end before a final decision on the infringement was made by the national competition authority or by a review court. These circumstances made it practically impossible or, at the very least, excessively difficult to claim full compensation for infringements of EU competition law.
In 2013, the Portuguese Competition Authority fined Sport TV Portugal for abuse of its dominant position on the basis of Article 102 TFEU and the corresponding Portuguese provision. In the annulment proceedings, the Portuguese Court of Appeal found that Article 102 TFEU did not apply and reduced the fine. On 27 February 2015, Cogeco Communications ("Cogeco") brought a civil damages claim in the Portuguese District Court against Sport TV and its parent companies because of Sport TV's anti-competitive behaviour. Sport TV argued that Cogeco's claim was time-barred. The District Court asked the CJEU if the Damages Directive applied and if not, if the national limitation period was compatible with EU law. The District Court was allowed to ask preliminary questions because, as AG Kokott pointed out, the civil court in the damages proceedings does not have to follow the Court of Appeal's decision that Article 102 TFEU does not apply. Cogeco could still prove that the anti-competitive practices affected trade between Member States.
Under Portuguese law, the limitation period for damages actions expires three years after the date on which the injured party was aware of its right to compensation, even if it does not know the identity of the liable person or the full extent of the damage. The injured party cannot suspend or interrupt the limitation period during proceedings before the national competition authority. The Damages Directive, which entered into force on 25 December 2014, had not been transposed in Portugal when Cogeco brought its claim, nor had the period of transposition expired.
The Damages Directive contains a special provision on the temporal application of the substantive and procedural provisions of the Damages Directive. Under Article 22(1), national measures adopted to comply with substantive provisions do not apply retroactively. Under Article 22(2), national measures adopted to comply with the procedural provisions of the directive do not apply to actions for damages brought before 26 December 2014. It follows from this provision, according to the CJEU, that Member States could choose whether the national rules transposing the Damages Directive's procedural provisions would apply to actions brought between 26 December 2014 and the date of transposition or the expiry of the transposition period. They could also decide that procedural rules would not apply retroactively at all. The Portuguese legislature had chosen not to grant retroactive effect to the procedural provisions. So the CJEU ruled that the Damages Directive does not apply. This means that only national rules that were already in force before the transposition of the Damages Directive apply, under the principles of equivalence and effectiveness.
The District Court also asked if the Portuguese limitation period was compatible with EU law. The CJEU first recalled the full effectiveness of Article 102 TFEU in relationships between individuals. The right to claim compensation strengthens the working of the EU competition rules. In the absence of EU rules that apply, each Member State must lay down the detailed rules governing the exercise of the right to claim compensation, including those on limitation periods, provided that they observe the principles of equivalence and effectiveness. This is settled case law (Kone). The CJEU pointed out that in order to decide whether those principles are observed, all elements of the Portuguese rules on limitations must be taken into account, as well as the complexity of anti-competitive damages actions which involve a complex factual and economic analysis.
The CJEU found that the principle of equivalence was not compromised, because the Portuguese limitation period applies to all damages actions irrespective of such action being based on alleged infringements of EU or national competition law. However, the CJEU found that the limitation period does not comply with the principle of effectiveness. National rules on limitation periods must be adapted to the specificities of competition law. Otherwise, they undermine the full effectiveness of Article 102. The limitation period must be appropriate for both stand-alone and follow-on proceedings. Therefore, the CJEU ruled that the circumstances of the Portuguese limitation period of three years made it practically impossible or excessively difficult to exercise the right to full compensation.
Please contact Albert Knigge or Rick Cornelissen from Houthoff's Competition Litigation team for any questions regarding the judgment or cartel damages claims.
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