November 2019 marks the 5th anniversary of the adoption of the EU Competition Damages Directive on 26 November 2014. After many years of negotiation, the Directive introduced harmonised rules on numerous issues arising in competition damages claims, including limitation periods, liability, the presumption of harm, the value as evidence of a finding of infringement by a competition authority, loss, the relationship between direct and indirect purchasers from infringers, and disclosure of evidence.
Many Member States previously had no specific rules on these issues in the context of competition claims, or indeed (for example in the case of disclosure) in the context of any type of civil claim. It was precisely this lack of an effective private enforcement environment that led the European Commission to propose what eventually became the Directive. The intention was to eliminate barriers to private enforcement, with a view both to permitting the victims of anti-competitive practices to recover losses caused by breaches of competition law, and to complementing the public enforcement of the competition rules by competition authorities. The Directive has therefore effected a major transformation in the competition litigation landscape in a number of Member States. However, the timetable of the typical enforcement cycle means that it has taken some years for issues arising under the new rules to work their way through into judgments.
While the majority of competition damages claims have been brought in a small number of Member States (particularly the UK, the Netherlands and Germany) where there are courts with considerable experience in this area, one of the notable developments in private competition enforcement in recent years has been the increase in the number of claims brought in other Member States. That is to be expected of course – the Directive sought to introduce minimum standards so that claims could be brought effectively in all Member States rather than in just a few. And independently of the transposition of the Directive into national law, the greater awareness on the part of businesses of the availability of competition damages claims has increased the volume of claims across all Member States. Interestingly in fact the first two references for preliminary rulings decided by the Court of Justice were from Member States with a less established track record in private enforcement of the competition rules.
It is these two judgments that are the focus of this article. The principles set out in these two judgments are of interest both in Member States with a long history of private enforcement and in those with none. The judgments were issued within a fortnight of each other, in March this year. The first, on a reference from the Finnish courts, concerned the identity of undertakings liable to provide compensation. Strictly speaking, it fell outside the scope of the Directive, because the start of the claim predated the entry into force of the Directive, but the Court considered the provisions of the Directive that would have applied, and the judgment therefore provides a useful insight into the Directive. The second judgment, on a reference from the Portuguese courts, concerned limitation periods. Similarly the Court of Justice concluded that the Directive did not apply, but as in the Finnish reference, in doing so it set out some important points on the interpretation of the Directive. Both judgments set out wider principles of law that will no doubt be cited as authority for a range of propositions in future cases. At first sight it is surprising that both concerned claims based on decisions of the national competition authorities rather than decisions of the European Commission. But given the number of national authority decisions within the EU each year, compared with the number of Commission decisions each year, it should not be.
The first judgment, on 14 March, was in response to a reference from the Finnish Supreme Court, in a damages claim following an asphalt cartel in Finland.
Between 1994 and 2002, a number of companies fixed prices and allocated contracts for the supply of asphalt. There were then a number of consolidations and name changes as seen here.
The Finnish Supreme Court fined a number of successor companies, including Skanska Industrial Solutions, NCC Industry and Asfaltmix, for the involvement of their predecessors in the cartel. The City of Vantaa brought damages claims against those same companies for the losses that it had suffered as a result of overcharges in its asphalt contracts. The District Court at first instance ordered the three companies to pay damages. It held that it is practically impossible or unreasonably difficult in a situation such as this for the claimant to obtain compensation. The principle of effectiveness therefore required the court to apply the economic continuity test in order to determine liability for damages, in the same way that competition authorities frequently fine companies that have acquired the shares or businesses of infringers.
The Court of Appeal held the principle of effectiveness could not override national rules on civil liability and that the economic continuity test could not be applied to damages claims in the same way as it applied to proceedings for the imposition of fines. The Finnish Supreme Court noted that Finnish law provides that only the legal entity that caused the damage is liable to compensate for it. However, EU law provides that any person may claim compensation for loss caused by an infringement of Article 101. It was not clear whether the persons liable to provide compensation should be determined by the application of national law, or by Article 101. It therefore referred the question to the Court of Justice.
The Court of Justice began by recalling that in its important Kone  judgment in 2014, it had set out a broad principle of liability, ruling that "any person is… entitled to claim compensation for the harm suffered where there is a causal relationship between that harm and an agreement or practice prohibited under Article 101 TFEU." In that case it held that cartelists were also liable to compensate for "umbrella damages", ie. increased prices charged by non-cartelists following the higher market prices caused by the cartel. The detailed rules for the exercise of this right to compensation are governed by national law. However, the rules applicable to actions for safeguarding rights which individuals derive from the direct effect of EU law must not be less favourable than those governing similar domestic actions (the principle of equivalence) and must not make it in practice impossible or excessively difficult to exercise rights conferred by EU law (the principle of effectiveness).
The Court noted that the entity liable to pay compensation for damage caused by an infringement of EU law is determined in accordance with EU law. Article 101 refers to the concept of an "undertaking". The Court therefore held (at paragraph 32 of its judgment) that:
"It follows from the foregoing consideration that the entities which are required to compensate for the damage caused by a cartel or practice prohibited by Article 101 TFEU are the undertakings, within the meaning of that provision, which have participated in that cartel or that practice."
Interestingly, although the Court noted that the Competition Damages Directive did not apply in this situation (by virtue of Article 22, its substantive provisions do not have retroactive effect), it pointed out that Article 11(1) of the Directive, which requires Member States to provide for joint and several liability for competition infringements, does not confer on them the power to determine which entities are liable to compensate for the loss, but only to allocate liability between them. Furthermore, Article 1 of the Directive provides that those responsible for damage caused by competition law infringements are the "undertakings" which committed the infringement.
An undertaking is an economic unit which may consist of several persons, legal or natural. So a legal or organisational change will not necessarily create a new undertaking free of liability for the conduct of an infringing predecessor, if the two are identical from an economic perspective. A purchaser may therefore be liable for the conduct of a company that it has acquired. Indeed it may be necessary for the principle of effectiveness to consider it liable.
The Court also confirmed, very significantly, that damages claims are an integral part of the system for the enforcement of the competition rules, which are intended to punish and deter infringement. The objective of preventing infringement would be jeopardised if undertakings could avoid liability by changing their identity through restructurings, sale or other legal or organisational changes. This applies equally to the imposition of fines and to liability for damages.
The Court of Justice therefore concluded that Skanska Industrial Solutions, NCC and Asfaltmix, successors to Sata-Asfaltti, Interasfaltti, and Asfalttineliö respectively, had assumed liability for the damage caused by the cartel, as they had ensured that those companies were able to continue their economic activities.
In October, the Finnish Supreme Court gave judgment on the basis of the preliminary ruling by the Court of Justice. Repeating the key principles set out in the judgment of the EU Court, the Supreme Court concluded that the successor companies were liable for the conduct of the dissolved entities. It therefore referred the case back to the Court of Appeal to rule on the remainder of the issues in the proceedings.
The Court's conclusions are perhaps not surprising: rules on damages claims and rules on the imposition of fines form part of the same system of enforcement, principles should be interpreted consistently across private and public enforcement, claims for damages caused by competition infringements should be effective, and liability should attach to an undertaking rather than to a specific legal person. But as with the Kone judgment, it seems likely that the breadth of the statements by the Court will make them popular subjects for citation in future judgments of both EU and national courts. More specifically, the judgment will increase the scope for flexibility in identifying possible defendants in damages claims in the national courts.
Interestingly, the Court of Justice also leaned heavily on the principle of equivalence in this judgment, issued on 28 March 2019. This was another request for a preliminary ruling, this time from the Lisbon District Court. This concerned the vital issue of limitation periods.
Cogeco was a shareholder in Cabovisão, a Portuguese cable TV company. In 2008, Cabovisão entered into a distribution contract with Sport TV Portugal for a TV channel. In 2009, it filed a complaint with the Portuguese Competition Authority, alleging infringements of competition law by Sport TV Portugal and others. In 2013 the Competition Authority fined Sport TV Portugal €3.73m for an infringement of Article 102 TFEU and the corresponding national prohibition. On appeal, the Portuguese Competition Court partially annulled the decision, on the grounds that Article 102 did not apply, in the absence of an effect on trade between Member States. The Court of Appeal upheld this judgment on further appeal.
In February 2015, Cogeco brought a claim for damages against Sport TV Portugal and its parent companies. As part of its claim, it sought a ruling that the conduct did in fact also infringe Article 102.
The defendants argued that the claim was time-barred. The Portuguese law on non-contractual liability provides for a limitation period of three years, which the defendants argued began to run at the earliest in 2008 when Cabovisão entered into the distribution agreement with Sport TV Portugal, or at the latest in 2012 when Cogeco sold Cabovisão.
Cogeco argued that the limitation period did not start until 2014, when the Competition Authority adopted its decision. It was only at that point that it had all the necessary information and was able to exercise its right to claim compensation. Before the decision, a "mere suspicion" of infringement was raised.
The Lisbon Court noted that the claim was brought before the deadline for transposition of the Directive, and before the Directive had in fact been transposed.
The Court of Justice first considered whether the Directive applied. It noted that Article 22 of the Directive provides that national measures transposing substantive provisions of the Directive must not apply retroactively, and that Member States must ensure that measures transposing non-substantive provisions of the Directive do not apply to damages claims commenced before 26 December 2014. Member States therefore had a discretion to provide that procedural provisions apply to claims commenced after that date. Portugal had decided that the national rules transposing Article 22 would not apply to claims brought before the entry into force of those rules. The Directive therefore did not apply directly to the claim.
The Court of Justice then went on to consider the application of the principle of effectiveness to the relevant limitation rules. Citing the same paragraphs of the Kone judgment that it had relied on in Skanska, it noted that that the limitation rules were detailed rules governing the exercise of the right to claim compensation for competition law infringements and were therefore also subject to the principle of effectiveness. It commented that account must be taken of the specificities of competition law cases, and in particular of the fact that bringing a competition damages claim requires a complex factual and economic analysis. Limitation periods must be adapted to these specificities so as not to undermine the effectiveness of Article 102. The limitation period cannot be so short that, combined with the other limitation rules, it makes exercise of the right to claim compensation practically impossible or excessively difficult. The Court accordingly held that:
- the limitation period must allow the claimant sufficient time after it becomes aware of the identity of the infringer; and
- a short limitation period must also be suspended or interrupted for the duration of proceedings by a competition authority any subsequent appeal.
The Court also made an important observation (at paragraph 52):
"The appropriateness of a limitation period, having regard to the requirements of the principle of effectiveness, is of particular importance both in respect of actions for damages brought independently of a final decision of a national competition authority and for actions brought following such a decision. With regard to the latter, if the limitation period, which starts to run before the completion of the proceedings following which a final decision is made by the national competition authority or by a review court, is too short in relation to the duration of these proceedings and cannot be suspended or interrupted during the course of such proceedings, it is not inconceivable that that limitation period may expire even before those proceedings are completed. In that case, any person suffering harm would find it impossible to bring actions based on a final decision finding an infringement of EU competition rules."
The Court therefore concluded that a 3-year limitation period which starts to run from the date on which the injured party was aware of its right to compensation, even if the infringer is not known and, secondly, may not be suspended or interrupted in the course of proceedings before the national competition authority, renders the exercise of the right to full compensation practically impossible or excessively difficult.
The short limitation periods in many Member States have historically made claims difficult. It has been clear for the past 5 years that the rules are changing, as new claims start to fall within the scope of the Directive. The Directive itself provides that limitation periods must be at least five years, must not start until the claimant knows or can reasonably be expected to know the identity of the infringer and other relevant facts, and must be suspended until at least one year after the infringement decision has become final. However, this judgment applies similar principles to claims falling outside the scope of the Directive, forcing an extension of limitation periods. This will be welcomed by claimants, but not by defendants.
What is not clear is how, if at all, paragraph 53 will be applied in any future claims. Applying the logic, even quite long limitation periods might not meet the effectiveness test because they will expire before the proceedings are at an end, if they are taken as starting before the date of the decision.
No doubt this will not be the last word, either on the subject of limitation or on the Directive more generally.
C‑557/12 Kone and Others, EU:C:2014:1317.