The wide understanding of the notion of “undertaking” affords the European Commission (“Commission”) broad discretion when identifying the entities liable for competition law infringements, enabling it to attribute liability to all companies that constitute a single economic unit, such that a parent company can be liable for the wrongdoings of its subsidiary. The Commission also relies on the principle of economic continuity to establish liability when corporate groups are reconstructed.
With the increase of private competition law enforcement, the question arises whether individuals may rely on these concepts when establishing liability in private lawsuits. The recent Sumal and Skanska cases confirm that EU Courts are in favour of extending the doctrine of “undertaking” to private damages claims. In his opinion of 15 April 2021 in Sumal, Advocate General (“AG”) Pitruzzella proposes that a national court can order a subsidiary to pay compensation for the harm caused by anticompetitive conduct of its parent company. In March, the CJEU decided, in Skanska, that the principle of economic continuity applies in the context of follow-on damages claims.
The case concerned Sumal’s claim against Mercedes Benz Trucks España SL (“MBTE”), part of the Daimler AG Group (“Daimler”), for damages of EUR 22,204.35 arising from an infringement of Article 101 TFEU. The damages claim was a follow on to the Commission’s decision establishing that MAN, Volvo/Renault, Daimler, Iveco, and DAF participated in a cartel for medium and heavy trucks, colluding on truck pricing and passing on the costs of compliance with stricter emission rules required by the Euro III to Euro VI environmental standards.
Sumal’s claim was not against Daimler, which was found liable by the Commission for the violation, but against its Spanish subsidiary, MBTE, which marketed Daimler trucks in Spain. Sumal claimed that MBTE constituted a single undertaking with Daimler, such that it was jointly and severally liable for Daimler’s violation of EU competition law, and the lawsuit could be pursued in Spain. It was unclear to the Barcelona Provincial Court whether the doctrine of “undertaking” applies in the context of private claims or whether a subsidiary could be liable for infringement by its parent company.
In the context of the Barcelona Provincial Court’s request for a preliminary ruling, AG Pitruzzella’s opinion stated that claims for damages are an integral part of effective enforcement of EU competition law. Consequently, the “undertaking” concept applies in both public and private enforcement. Once the boundaries of an undertaking are established, they apply consistently in the Commission’s decision and private claims. The more entities that are within the scope of a single economic unit, the easier it is for victims of anticompetitive conduct to pursue claims in their own jurisdiction and increase their chances of receiving compensation.
AG Pitruzzella proposed that a subsidiary can be held liable for harm caused by the anticompetitive conduct of its parent company (so-called “top-down” liability). He stated that two key elements are necessary to establish top-down liability. First is the requirement that the parent company exercise decisive influence over its subsidiary, such that the latter simply executes the instructions of the former. Second is the requirement that the two entities constitute a single economic unit and therefore act jointly on the market, irrespective of corporate law principles pertaining to separate legal personality.
The CJEU’s reasoning concerning the principle of economic continuity in Skanska was very similar to that of AG Pitruzzella in Sumal. Skanska concerned a cartel in the asphalt market in Finland, in which, among others, Lemminkäinen Oyi, Sata-Asfaltti Oy, Interasfaltti Oy, Asfalttineliö Oy and Asfaltti-Tekra Oy (which later became Skanska) were found to have participated. Towards the end of the cartel period, significant market consolidation occurred, in which three of the asphalt cartel participants each acquired another cartel participant.
In 2009, following an investigation by the Finnish Competition and Consumer Authority (“FCCA”), the Finnish Supreme Administrative Court applied the principle of economic continuity and imposed fines totalling EUR 82.5 million on the three acquiring companies, fining Skanska EUR 4.5 million. Vantaa, one of the cartel victims, subsequently claimed compensation from Skanska. It sought to rely on the principle of economic continuity to hold Skanska liable for the harm caused by its dissolved subsidiary. Skanska’s position was that it could not be held liable for the alleged harm because the principle of economic continuity does not exist in Finnish law. The Finnish Supreme Court commenced a preliminary reference procedure.
The CJEU established that EU competition law requires the principle of economic continuity to be applied in private claims for damages, regardless of the position in national law. According to the CJEU, “the concept of ‘undertaking’, within the meaning of Article 101 TFEU, […] cannot have a different scope with regard to the imposition of fines by the Commission under Article 23(2) of Regulation No 1/2003 as compared with actions for damages for infringement of EU competition rules.”.
The CJEU also stated that the right to claim damages is a fundamental aspect of EU competition law given its deterrent effect on companies engaging in such conduct. The importance of this principle would be significantly undermined if companies could escape liability simply by restructuring.
These decisions of the EU Courts have confirmed the application of the doctrine of “undertaking” to private claims for damages.
Under these decisions, private claimants can therefore benefit from joint and several liability of all companies that are part of a single undertaking, suing the entity from which they can obtain compensation most conveniently. They can target companies with large financial assets or those in preferred jurisdictions. For instance, they can pursue an action in a more claimant-friendly jurisdiction or against a subsidiary domiciled in their own jurisdiction, thereby avoiding the practical difficulties associated with serving documents abroad and enforcing foreign judgments.
Further, these decisions indicate that claimants may use the doctrine of subsidiary liability to sue parent companies. While the final CJEU judgment is awaited in Sumal, the cases signalthe increasing role of deterrence in private competition law enforcement, which enables claims against entities other than those originally engaged in an infringement.