In his Opinion of 3 December 2015 in case VM Remonts and Others, C-542/14, EU:C:2015:797 (not yet available in English), Advocate General Wathelet advised the Court of Justice of the European Union (CJEU) on issues concerning the subjective elements (ie mens rea-like requirements) of the prohibition of anticompetitive behaviour in Art 101(1) TFEU.
In particular, the case addresses issues concerning the imputability of anticompetitive practices in which a third party services provider is engaged to the 'client' undertaking that hired those services (ie how to make the 'client' undertaking liable for the anticompetitive behaviour of one of its services providers). In my view, AG Wathelet's proposal is clearly excessive (see critical assessment below) and deserves closer inspection.
The case is quite convoluted because it concerns the imputability of a bid rigging offence to a supplying company that engaged a consultant to help it formulate a bid in a tender for a public contract. After the fact, it became apparent that the consultancy engaged in collusion with other tenderers in the same bid. The question was, thus, to what extent the bidder should be liable for the collusion that resulted from the allegedly independent activity of the consultancy (third party services supplier) and, in any case, what level of proof of anticompetitive intent would be necessary to impose liability on the 'client' undertaking.
In AG Wathelet's Opinion, it is not necessary to prove a personal behavior of any corporate officer of the 'client' undertaking, or his knowledge or consent to the behavior of the external services provider that also acted on behalf of other participants in a possibly prohibited agreement. AG Wathelet proposes to create a presumption of (vicarious?) liability, so that it is incumbent upon the 'client' undertaking to adduce sufficiently convincing evidence to rebut that presumption and escape liability.
In particular, AG Wathelet considers that the necessary proof concerns (i) evidence relating to the fact that the third party (services provider) has acted outside the scope of the functions that had been entrusted to it, (ii) evidence regarding the precautionary measures taken by the 'client' undertaking at the time of designation of the third party and during the monitoring of the implementation of the functions in question, and (iii) evidence regarding the 'client' undertaking's conduct upon becoming aware of prohibited behavior.
AG Wathelet's VM Remonts Opinion follows the expansive/strict interpretation of the subjective elements in the prohibition of Art 101(1) TFEU in recent cases such as AC-Treuhand v Commission (C-194/14 P, EU:C:2015:717, re liability of a cartel facilitator, see an interesting comment here); Schenker and Others (C-681/11, EU:C:2013:404, re reliance on third party advice, see comments here); or Kone (C-557/12, EU:C:2014:917, re extension of 'umbrella' liability for damages to third parties to a cartel, see comments here).
This is a very relevant opinion, with potentially very significant effects commensurate to those of the presumption of liability of the parent company, which has shaken competition law enforcement in the EU for the last 5 years or so.
Therefore, it is interesting to look at AG Wathelet's reasoning in some more detail:
60. In my view, two extreme positions must be rejected. On the one hand, the automatic imputation of responsibility to the undertaking for the actions of a third party, regardless of the degree of involvement of the undertaking, which would go against fundamental principles governing the imposition of competition law sanctions (in particular the principles of personal responsibility and legal certainty), and, on the other hand, the obligation of the competent competition authority to demonstrate convincingly that the undertaking receiving the services from the third party was aware of the criminal acts committed by the latter or had consented to them, which would create a risk of seriously undermining the effectiveness of competition law.
61. Indeed, "... the prohibition on participating in anti-competitive practices and agreements and the penalties which infringers may incur are well known, it is normal that the activities which those practices and agreements involve take place in a clandestine fashion, for meetings to be held in secret, frequently in a non-member country, and for the associated documentation to be reduced to a minimum. " Therefore, it would be too easy to "hide" behind a third party in order to go unpunished under competition law.
62. Moreover, the importance of keeping free competition allows for companies that entrust third parties with functions such as those at issue in the present case [ie public procurement consultancy services] to be required to take all possible precautions to prevent such third parties from infringing competition law, avoiding, in particular, any negligence or recklessness in the definition or in the monitoring of these functions.
63. In line with this, the solution I propose for cases such as that in the main proceedings is to establish a rebuttable (iuris tantum) presumption of liability of the undertakings for acts contrary to competition law committed by a third party whose services it has engaged and which cannot be considered its subsidiary or ancillary body. Such a presumption can maintain the balance between, on the one hand, the objective of effectively suppressing behavior contrary to the competition rules, in particular to Article 101 TFEU, and to prevent their recurrence bearing in mind that respect for these rules requires an active corporate behavior at all times and, on the other hand, the requirements arising from the fundamental rights regarding the imposition of sanctions. Such a presumption would apply even if the acts performed by the third party were different from the functions entrusted to it, and even when it was not possible to demonstrate that the undertaking that used the services was aware of the acts of the provider or consented to them.
64. This presumption should apply to an undertaking from the moment the authority responsible for the enforcement of competition rules proves the existence of an act contrary to competition law committed by a person working for (or providing services to) the undertaking but which does not, directly or indirectly, form part of its organisational chart.
65. In order to respect the balance to which I referred in point 63 of this Opinion, the undertaking may rebut the presumption of liability by submitting all elements supporting its claim that it was unaware of the illegal behavior in which the third party service provider engaged, and by demonstrating that it took all necessary measures to prevent such a breach of competition law precautions, and this in three stages.
66. The first is when his appointment or hiring occurs. It refers in particular to the choice of supplier, the definition of the functions and the monitoring of its implementation, the conditions (or exclusion) of recourse to subcontracting, obligations to ensure respect for the law, in particular, competition, and the sanctions for breach of contract, as well as whether authorization was required for any act not provided for in the contract.
67. The second stage includes the period of execution of the functions entrusted to the third party, ensuring that the latter strictly sticks to its functions as defined in the contract.
68. The third stage is when the third party commits a breach of competition law, even if committed at the back of the undertaking. The undertaking cannot simply ignore that behaviour, it should distance itself publicly from the forbidden act, prevent its repetition or report it to the administrative authorities. Indeed, as stated by the Court: "... passive modes of participation in the infringement, such as the presence of an undertaking in meetings at which anti-competitive agreements were concluded, without that undertaking clearly opposing them, are indicative of collusion capable of rendering the undertaking liable under Article [101(1) TFEU], since a party which tacitly approves of an unlawful initiative, without publicly distancing itself from its content or reporting it to the administrative authorities, encourages the continuation of the infringement and compromises its discovery" (C-542/14, paras 60-69, references omitted, own translation from Spanish, emphasis added).
In my own opinion, the creation of the presumption proposed by AG Wathelet goes way too far. In simple conceptual terms, it excessively erodes the principle of personal responsibility and falls short of meeting the desirable balance that the AG presents himself. The 'client' undertaking and the third party service provider are, in these cases, completely independent undertakings and the creation of the presumption would go beyond the acceptable limits of expansion of the concept of (functional) single economic entity.
Plainly, it is excessive to impose this type of burden of proof (probatio diabolica) on undertakings that simply lack the knowledge and manpower required to monitor the execution of the activities contracted out to the third party to the standard created by AG Wathelet. This applies at least in stages one (design of the contract) and two (monitoring of execution), where the 'client' undertaking will in many cases be affected by significant asymmetries of information and gaps in human capital. Otherwise, what would be the economic rationale for contracting out something the undertaking could carry out on its own?
I would thus prefer the CJEU to deviate from the proposal of AG Wathelet in this case and to reject the creation of such rebuttable presumption of liability for the anticompetitive behaviour of third parties to which a 'client' undertaking has outsourced certain types of functions. The competent competition authority should always be obliged to demonstrate, at least at the level of sufficient indicia (balance of probabilities, but for?), that the recourse to the third party aimed to circumvent the prohibition of Art 101(1) TFEU--ie, that there was an anticompetitive agreement (by object) between the 'client' undertaking and the third party services provider because the outsourcing had the object of creating further restrictions of competition (on the issue of prohibitions by object, see here). Thus, if the contracting out arrangement was not genuine or if there are indications that the outsourcing aimed at a restriction of competition, then the burden of proof could be reversed. But to create a presumption of liability in the way that AG Wathelet proposes is excessive.