CJEU: companies can be held liable for anti-competitive conduct of service providers in some circumstances

Out-Law News | 26 Jul 2016 | 8:11 am | 2 min. read

A company can be held liable for anti-competitive practices carried out by a service provider, but only in certain circumstances, the EU's highest court has ruled.

For the company to be liable, the service provider must have been acting under the direction or control of the company; or the company must have been aware of the anti-competitive objective pursued by the service provider and intended to contribute to it by its own conduct, or must have reasonably foreseen the conduct and was prepared to accept the risks, according to the Court of Justice of the European Union (CJEU).

The CJEU rejected the advice of its advocate general, who had suggested last year that there should be a rebuttable presumption that companies take responsibility for external contractors that breach competition rules. Competition law expert Caroline Janssens of Pinsent Masons, the law firm behind Out-Law.com, said that businesses which relied on third party service providers would welcome the ruling.

"Although the circumstances of this case are very specific to bid-rigging, the advocate general had very worryingly suggested to the court a rebuttable presumption that 'client' companies be held responsible for the anti-competitive conduct of their external contractors even if there was no evidence that those 'client' companies had knowledge of the infringement or consented to them," she said.

"Very sensibly, the court decided not to follow the advocate general's opinion and instead ruled that although a company can be held liable for the anticompetitive conduct of contractors, it can only be so in very limited circumstance," she said.

The CJEU was ruling on a referral for preliminary ruling from the Latvian Supreme Court, in a case involving three Latvian food companies that had been accused of breaching national competition law. The three companies had all submitted bids to a tender for the supply of food products to educational establishments by the city of Jurmala.

Unknown to them, all three companies had been using the same legal adviser; and an employee at the firm used one of the tenders as a point of reference when preparing the other two. The employee "drew up those two tenders on the basis of the prices" given in the first tender, with the effect that one tender was for a markedly lower price than the others. The Latvian Competition Council imposed a fine on all three companies for a "concerted practice", the companies appealed.

Under EU competition law, a company's senior managers do not need to be aware of anticompetitive behaviour that is carried out by "a person who is authorised to act on behalf of" the company in order for the company to be liable. However, the CJEU ruled that this did not extend to the situation where "a service provider offers, in return for payment, services on a given market on an independent basis".

The CJEU said that it was possible that, in certain circumstances, "a service provider which presents itself as independent is in fact acting under the direction or control of an undertaking that is using its services". If this was the case, then "the undertaking using the services could be held liable for the possible unlawful conduct of the service provider". However, assuming the service provider was "genuinely independent", liability could only be passed on to the engaging company if it was aware of that conduct, or if it could "reasonably have foreseen it and was prepared to accept the risk", the CJEU said.

It was a matter for the referring court whether the service provider was in fact genuinely independent and, if so, whether the engaging company met the conditions for liability, the CJEU ruled.