10 December 2015

Companies could face liability for anti-competitive practices of independent contractors

Companies could be held liable for the anti-competitive practices of their external contractors, says Advocate General Melchior Wathelet in his opinion on the VM Remonts and Others case, which was published on 3 December 2015. However, companies should be able to rebut this presumption of liability by showing that they took “all the necessary precautions” when they hired the external contractor, who went rogue, failing to follow the companies’ instructions.

The Advocate General's opinion follows a reference to the European Court of Justice (ECJ) by the Supreme Court of Latvia. The case examined companies' liability for the actions of third parties. In 2011, Latvia's Competition Counsel fined three companies, Pārtikas kompānija (Pārtikas), VM Remonts and Ausma grupa for engaging in illegal bid rigging through MMD lietas (MMD), an independent service provider that manipulated the bidding process for a public procurement contract to supply food to educational establishments.

On appeal, however, the decision against Pārtikas was overturned. Pārtikas’ successful appeal centred on the argument that MMD, as an external contractor, did not coordinate directly with officials from Pārtikas. However, the Competition Council disagreed with this reasoning, arguing that Pārtikas was nevertheless responsible for MMD’s behaviour as an external contractor. Latvia’s Supreme Court referred to the ECJ the question of whether a company can be held responsible under EU competition law, even where it can't be shown that an officer of the company consented to or was aware of a contractor's illegal activity.

Advocate General Wathelet states in his opinion that under EU competition law, the decision to fine the company employing the contractor does not require that someone within that company consented to or even knew about the contractor's behaviour. There should be a “rebuttable presumption” that companies are responsible for the actions of third party contractors that breach EU competition law. However, a company should be able to absolve itself of this liability if it can prove that the contractor was acting outside of its mandate, that the company took all necessary precautionary measures when engaging the contractor and that if, and when, it became aware of the contractor’s illegal actions, the company denounced this behaviour and reported it to the relevant authorities at the earliest opportunity. This reasoning effectively advocates a three step test around the issue of liability for the actions of third parties.

The ECJ's final decision is expected in mid-2016. In the meantime, some commentators have said that this approach would require companies to take a much more stringent approach to compliance programmes and have questioned whether too much liability would ultimately be placed on companies for the actions of independent contractors. Competition lawyers and companies alike will await the outcome of this case with interest, mindful of the potential ramifications for any company which employs third party contractors.

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