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Could you be liable for your independent contractors’ breach of competition law?

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Summary: ECJ case clarifies legal position - On 21 July 2016, the European Court of Justice (ECJ) confirmed that a company will be held liable for the anti-competitive actions of its contractors if it was aware of the conduct, or could reasonably have foreseen it. This is a significant decision for all businesses that rely on independent contractors to undertake bidding and similar services on their behalf.

The infringement

The case in question concerned a 2011 bid rigging cartel in Latvia, in which three companies had been fined for an illegal “concerted practice” to collude in respect of tenders for the supply of food to kindergartens. The companies had all subcontracted work in preparing their tenders to contractor MMD Lietus (MMD), which had used pricing information from each company to manipulate the tender process. The infringement decision was subsequently annulled in respect of one company, Partikus kompanija (Partikus), on the basis that its staff had not authorised or been aware of the relevant conduct of MMD.

On appeal, the Latvian Supreme Court asked the ECJ to confirm the position under EU law regarding the liability of Partikus for the conduct of MMD.

The decision

The ECJ confirmed that unlike an employee, whose actions can be attributable to the company for which he is employed, an independent service provider is a separate undertaking from those companies for which it provides services. As such, the contractor’s actions cannot automatically be attributed to that company.

Accordingly, a company may only be held liable for the acts of an independent contractor if one of the following conditions is met:

  • The contractor was in fact acting under the direction or control of the company; or
  • That company was aware of the anti-competitive objectives pursued by its competitors and the contractor and intended to contribute to them by its own conduct; or
  • That company could reasonably have foreseen the anti-competitive acts of its competitors and the contractor and was prepared to accept the risk which they entailed.

Comment

In a welcome (and rare) move, the ECJ did not follow the opinion of the Advokat General, who considered that there should be a “rebuttable presumption” that companies take responsibility for external contractors that break the law. Rather, the ECJ has adopted a narrower position.  A “concerted practice” in circumstances involving collusion by competitors and a common contractor requires an element of direction or awareness for there to be an agreement between the company and the contractor. The decision should give comfort to firms that they will not automatically be presumed responsible for the anti-competitive conduct of an independent contractor.

However, it is worth noting that in including a condition of “reasonable foreseeability”, the ECJ appears to have extended the test for the finding of a concerted practice between independent undertakings further than that currently applied in relation to a “hub and spoke” information exchange case. “Hub and spoke” collusion involves competitors coordinating behaviour by sharing information via an independent third party, such as a supplier or contractor. In a “hub and spoke” scenario, a company can infringe competition law by sharing information with an independent third party, only where it intends for that party to share that information with a competitor.

It remains to be seen how the courts and competition authorities will interpret the meaning of  “reasonably foreseeable” in this context. It would therefore be prudent for companies to maintain vigilance in their commercial dealings with contractors and exercise caution, particularly with regards to the flow of commercially sensitive information.

If a business becomes aware that a contractor has potentially engaged in, or facilitated anti-competitive conduct with that business’s competitors, it is important to respond quickly and decisively to distance the business from that conduct and review the scale of potential unlawful conduct as soon as possible.

Get in touch

BLP’s award-winning Antitrust & Competition team has extensive experience advising on all aspects of competition law, including cartel conduct and competition compliance. 

If we can help your business navigate the competition law landscape, please get in touch with one of the authors.  

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