The principle of economic continuity’s application on private enforcement: Case 724/17 Skanska

Introduction

With two major decisions, March 2019 was an interesting month with regard to the ECJ’s case-law on the private enforcement of competition law: Skanska (C-724/17) and Cogeco (C-637/17).  This post will comment on the judgment in Skanska, whereas a later post will analyse Cogeco.

Skanska is a challenging judgement that confirms that the competition enforcement system must be viewed as a coherent system where both public and private enforcement play a crucial and complementary role, which is demonstrated by the application of the principle of economic continuity to private enforcement. Moreover, it addresses one of the several issues that has not yet been harmonised regarding private enforcement: the responsibility for damages in private enforcement legal procedures. As such, Skanska may be a leading case in a private enforcement’s possible second stage of development in the aftermath of Directive 2014/104/EU.

Summary of the judgement

In a nutshell, the main question that the ECJ had to answer in Skanska was if determining who is liable to compensate those who were harmed under a breach of Article 101 TFEU was a matter of EU or national law.

In addition to this question, the Finnish Supreme Court referred two alternative ones. On one hand, if it was a matter of EU law, the ECJ must also clarify if the principle of economic continuity was applicable in the context of private enforcement. On the other hand, in the event that it was up to national law to determine such liability, the Court of Justice should  examine if the inapplicability of the principle of economic continuity could be framed as a violation of the principle of effectiveness.

The case concerned a cartel in the asphalt market in Finland between 1994 and 2002 which was condemned by the Finnish Competition Authority in 2004 and had as participants, among others, the following companies: Lemminkäinen Oyi, Sata-Asfaltti Oy, Interasfaltti Oy, Asfalttineliö Oy and Asfaltti-Tekra Oy.

Meanwhile, several of these companies not only changed their names, but were also acquired by others under a voluntary liquidation process in which their businesses were transferred to the acquirers. As such, Asfaltti-Tekra (Skanska Industrial Solutions, since 2017) acquired Sata-Asfaltti Oy inheriting its business; the same happened with Interasfaltti and Asfalttineliö whose business was continued by NCC Industry and Asfaltmix, respectively.

By a decision of 2009, the Finnish Administrative Supreme Court, applying the economic continuity test, imposed fines on Skanska for its own behaviour and that of Sata-Asfaltti, on NCC for the conduct of Interasfaltti, and on Asfaltmix for the conduct of Asfalttineliö. Based on that judgment, private enforcement proceedings were initiated by the City of Vantaa against those companies which led to contradictory decisions from the District and Appeal courts.

Confronted on one side with its own legal order, which is based on the assumption that only the legal entity that caused the damage is liable for it, and, on the other side, with the ECJ case-law which clearly states that any person may claim compensation for damage resulting from an infringement of Article 101 TFEU, the Finnish Supreme Court decided to stay the proceedings and referred the above-mentioned questions to the CJEU for a preliminary ruling.

The Court’s interpretation was, in sum, that this was a matter of EU law and that the effectiveness of Article 101 would be jeopardised if the principle of economic continuity could not be applied in a case like the one at hand (paras. 28 and 46).

Comment

The Skanska judgment is based both in the Court’s case-law regarding the fundamental principles of the private enforcement system which have been developed since Courage/Creehan1 and, prior, in the very specific notion of undertaking in competition law. Moreover, it must be noted that the AG Wahl’s Opinion  is crucial in order to fully understand the reasoning of the ECJ, in particular, regarding why this is a matter of EU law.

It is important to bear in mind that, in the light of the ECJ’s case law, the constitutive conditions of the right to be compensated for harm caused by a breach of competition law must be analysed under EU law, since Article 101 produces direct legal effects in the relations between individuals2. On the other hand, in the absence of harmonised rules3, EU law recognises the principle of procedural autonomy of Member States, insofar as they respect the principles of equivalence and effectiveness4.

In this context, AG Wahl raised a crucial question: is the determination of the persons liable to pay compensation a constitutive condition of the right at hand or, otherwise, is it a detailed rule governing its exercise? In an answer which was not consensus5, the AG’s understanding was that such determination is a constitutive condition of the right to be compensated (AG Wahl’s Opinion, para. 60).

It seems difficult to disagree with the AG’s position. The constitutive conditions are prerequisites that affect the very existence of the right to be compensated deriving directly from Article 101 TFEU. This means that, in opposition with the detailed rules, they are not subject to national law, but, instead, they are governed by EU law.

Detailed rules are those concerned with the concrete application of the claim as, for example, the limitation period or the rules governing the access to documents. They are important for the materialization and exercise of the right, although they do not constitute prerequisites for the existence of such right. On the other side, the determination of who is liable to compensate those who were injured is a prerequisite of such a right, since, without an offender, there cannot exist a right for compensation6. Furthermore, due to the direct legal effect of Article 101 TFEU, these constitutive conditions need a uniform interpretation which can only be provided by handling it as a question of EU law. As said before, the Court agreed with the AG’s understanding (para. 28), even though, in what can be seen as a lost opportunity, it did not elaborate specifically on this topic.

Once the Court decided that the question at hand was a matter of EU law, the next step was to clarify if the principle of economic continuity could be applicable in the context of private enforcement.

Firstly, one must note that the competition notion of undertaking covers any entity engaged in an economic activity, irrespective of its legal status and the way in which it is financed7. Additionally, this notion  must also be understood as designating an economic unit even if in law that economic unit consists of several persons natural or legal8.

From this specific concept of ‘undertaking’ in EU law derives the idea that the “liability is attached to assets, rather than to a particular legal personality”.9 This is a core difference from classical rules of civil liability where only those who caused the harm are liable for it. Notwithstanding, as both the AG10 and the Court11 reasoned, if those who are liable for damages caused by an infringement of the EU competition rules could escape penalties by simply changing their identity through corporate restructuring, the deterrent effect of competition rules would be jeopardised and a situation both unfair and illegal would result from it.

Recognising the application of such principles to private enforcement implies assuming that both public and private enforcement have complementary functions of deterrence which, even though it is settled ECJ case-law, is not consensus among the literature. An opposite understanding would, however, lead to an intolerable situation: the EU autonomous concept of undertaking would have a different meaning depending on the kind of competition law enforcement at hand. This reasoning also reinforces the Court’s idea that the competition law enforcement system (with all its principles, rules and functions) must be regarded as a whole in order to foster deterrence and to promote, among all the stakeholders, a more solid culture of competition. Therefore, the principle of economic continuity must be applied in the private enforcement context as it is in public one.

Had the Court reasoned otherwise, deciding that the determination of this specific liability was a matter of national law, some dangers could eventually arise, in particular for the uniformity of the application of EU competition rules. It could also lead to the spread of forum shopping throughout the Member-States. Moreover, national provisions like the Finnish ones – according to which only the legal entity that caused the damage is liable – could lead to situations where the victims of anticompetitive behaviour would not be compensated, in violation of the principle of effectiveness. In that scenario, the principle of effectiveness would play its role guarantying the disapplication of such national rules, if they were conducive to a situation where the exercise of such right was practically impossible or excessively difficult.

As such, it is possible to sustain that, independently of the Court’s reasoning in the first question, the principle of economic continuity would always have to be applied: either due to the holistic perception of the competition law enforcement system, or under the application of the principle of effectiveness. The Court’s decision, however, not only makes sense being in accordance with the fundamental principles of the EU legal order and with its own case-law, but it is also a much safer decision for the interests of the injured parties and for the development of the private enforcement which is in its early years. Therefore, this case confirms the Court’s sympathetic perspective towards this “arm” of the competition law enforcement system.

Skanska is a very interesting decision. It reaffirms, once again, that both public and private enforcement are crucial to a correct and complete enforcement of competition law. This makes clear, for the few who still have doubts, that the paradigm of the application of competition rules has changed for good and, as such, there are fundamental principles of public enforcement which also apply to private enforcement. Nonetheless, it should not be ignored that this judgment accentuates the peculiarity of these legal actions, since it will imply that national courts must apply the principle of economic continuity when determining who is liable for compensation, even though the national civil law provisions they apply do not accommodate this possibility. Just like Kone – a case that approached the concept of a causal link and was decided after the proposal of the Damages Directive, but before its adoption as Directive 2014/104/EU -, Skanska addresses matters of private enforcement not harmonised in the mentioned Directive. This could be the flourishing of private enforcement’s second stage which, similarly to the first one, will most probably have its biggest ally in the CJEU.