Case Update | The Supreme Court Ruled on the Legal Grounds of Liability of Parent Companies for Competition Infringements in the Context of the Finnish Asphalt Cartel Damages Case
25 October 2019
Supreme Court Decision 2019:90
The Supreme Court of Finland ruled on the scope of liability for damages for breach of Article 101 TFEU in the so-called asphalt cartel case on 22 October 2019. Based on the preliminary ruling by the European Court of Justice (ECJ), the Supreme Court found the parental companies which had acquired the shares and continued the commercial activities of their subsidiaries liable for the damages caused by the subsidiaries included in the cartel.
The damages case ensues from the Finnish Supreme Administrative Court’s cartel finding in the Finnish asphalt market in the years 1994-2002. The follow-on damages litigation before the civil courts has involved claims by the State of Finland and 52 municipalities against seven defendant companies. In November 2013, the District Court of Helsinki issued its decisions dismissing some of the claims and partially accepting others. Most of the decisions were appealed to the Court of Appeal, which ruled on the claims in 2016 partly accepting some of the claims and dismissing some in their entirety. On the legal question decided by the Supreme Court, the Court of Appeal dismissed the plaintiff’s claim against the three defendants. The Court of Appeal found, at the time, that the EU competition law principles cannot call into question the fundamental characteristics of the Finnish rules on civil liability and that the economic continuity test applied in relation to the imposition of fines cannot be applied to actions for damages in the absence of detailed rules or more specific provisions. Consequently, the Court of Appeal did not find the defendants liable for the damages.
Question in Dispute
The key question in dispute in the Supreme Court related to the liability of the parental companies for the damage caused by independent, but later acquired and dissolved, subsidiaries included in the cartel. The Supreme Court assessed whether the parental companies are liable for the damages caused by competition law infringements of acquired and later dissolved companies, the commercial activities of which the parental companies continued.
Judgement of the Court
The Supreme Court noted that it was not clear based on the prior legal practice of the European Court of Justice (ECJ), whether the party liable for the damages for breach of Article 101 TFEU should be determined by directly applying said article and which parties such liability could be allocated to. Therefore, the Supreme Court requested a preliminary ruling from the ECJ on how the liable party should be determined. In its preliminary ruling on 14 March 2019 (Case C-724/17), the ECJ ruled that ‘Article 101 TFEU must be interpreted as meaning that, in a case such as that in the main proceedings, in which all the shares in the companies which participated in a cartel prohibited by that article were acquired by other companies which have dissolved the former companies and continued their commercial activities, the acquiring companies may be held liable for the damage caused by the cartel in question’.
Based on the preliminary ruling by the ECJ, the Supreme Court noted that the party liable for damages for a competition law infringement must be determined by applying Article 101 TFEU and the concept of ‘undertaking’ therein, which refers to an economic unit. Therefore, in a corporate restructuring situation, where the party that has breached Article 101 TFEU has ceased to exist, the company that has acquired and continued the commercial activities of the aforementioned party can be held liable according to the principle of economic continuity for the damage caused by the restraint on competition.
According to the Supreme Court, in the case at hand, the corporate restructurings of all three parental companies were based on the acquisition of the entire share capital of their subsidiaries. All acquired companies were later wound up in a voluntary liquidation procedure after which the parental companies continued the commercial activities of said subsidiaries. The Supreme Administrative Court held in its judgement 2009:83 concerning administrative fines resulting from the cartel that the fines could be imposed on the parental companies in accordance with the economic continuity test. The Supreme Court held, in turn, that as the ECJ stated in its preliminary ruling, the concept of ‘undertaking’ cannot have two different dimensions when considering fines and damages.
The Supreme Court noted that each parental company and its subsidiary were part of the same economic unit within the meaning of Article 101 TFEU when the commercial activities of the companies that participated in the cartel were transferred to the parental company. Subsequently, the subsidiaries ceased to exist in the hands of the parental companies. The Supreme Court found the parental companies liable for the damage caused by the infringement of competition law caused by the acquired companies.
The Supreme Court repealed the judgement and referred the case back to the Court of Appeal for evaluation of other prerequisites for liability and the amount of damage.
Case Update by Anna-Maria Tamminen and Julia Kaalikoski