responsabildiad civil

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A Dutch court has ordered a former director of the shrimp company Heiploeg to pay its liquidators half of the 27 million euro fine imposed by the European Commission for participating in a price fixing and sales volume sharing cartel of North Sea shrimp in the European Union (EU). Although the decision is not final, the judgment marks an important development in the trend of European courts towards recognizing the civil liability of directors for damages caused to their companies by participating in anti-competitive conduct.

Background

In 2013, the European Commission (Commission) fined three Dutch companies, Heiploeg, Klaas Puul and Kok Seafood, together with the German company Stührk, almost 29 million euros for operating a cartel in the North Sea shrimp market between 2000 and 2009. The Commission found that the traders — who jointly hold 80% of the market share — collaborated in fixing retail prices, participated in market sharing and exchanged confidential commercial information. Heiploeg appealed the Commission’s decision but it was upheld by the General Court of the European Union in 2016 (see the judgment here).

As a result of the company’s prior financial position and the fine imposed by the Commission, Heiploeg was declared bankrupt in 2014.

During the insolvency proceedings, Heiploeg’s liquidators filed a civil liability claim against the former director, who managed several companies of the Heiploeg group until 2004, for breaching his fiduciary dutiesby infringing competition law and acting improperly vis-à-vis company´s creditors. They stated that the director’s management had been “deliberate and grossly negligent, conduct that cannot be considered as normal business risks.

The judgment

On September 25, 2020, the Noord-Nederland District Court (Court) resolved that the director of Heiploeg had acted negligently by actively participating in the collusion and was therefore personally liable for the damages caused to the company (the judgment in Dutch can be found here).

In its analysis, the Court stated that it could not solely rely on the Commission’s decision to determine whether the director acted negligently or not, and consequently conducted its own assessment of the facts. The Court concluded that the director played a continuous, direct and personal role in the anti-competitive conduct for at least half of the infringement, having participated in meetings and correspondence with other cartel members where commercially sensitive information on their business was exchange and which ultimately led to fixing prices in the market.

In its reasoning, the Court explains that the fiduciary duties of directors imply a higher standard of care, so that a diligent director should have known that the conduct in question infringed competition rules and could be subject to heavy sanctions, particularly since the company had already been fined for participating in a cartel in 2003.

On the other hand, the Court dismissed the director’s argument that competition rules do not serve to protect against the damage suffered by the infringing undertaking , since it follows from the case law of the European Court of Justice (cases C-295/04 – Manfredi and C-453/99 – Courage and Crehan), that any person is entitled to damages for a competition law infringement, notwithstanding that the rules of national law may prohibit an infringing company from relying on its own previous unlawful acts to obtain compensation.

On the basis of the foregoing, the Court upheld the claim based on the  liability of directors and concluded that there was a causal link between the negligent administration of the defendant and the fine imposed by the European Commission; consequently, it ordered the director to personally compensate 13 million euros.

A trend at international level

The judgment has been appealed before the Court of Appeal, whose decision is still pending. Meanwhile, the judgment marks a further development in a significant trend in recent years towards recognizing the liability of senior directors for participating in anti-competitive infringements.

In line with international civil law, as a general rule, third parties can bring both tort and individual liability actions against directors for damages caused to the company, although the case law on its use in competition law is still rather limited.

There are another two other cases that are pending resolution. One before the Court of First Instance in Lithuania and another before the competition section of the Dortmund Regional Court in Germany.

In the Lithuanian case, the Court of First Instance partially upheld the claim filed by a company sanctioned for a price fixing agreement against a former director and two members of the board of directors, accusing them of being personally responsible for the adoption of the agreement. However, the Court of Appeal stated that the company not only suffered damage but also obtained an economic benefit from the anti-competitive agreement, a fact that was not analyzed. As a result, it ordered the case to be sent back for a new ruling on the facts (available here). Although the legal analysis is not definitive, at least in principle, filing a personal liability claim against the responsible individuals personally liable does not appear to be prohibited if the factual circumstances so warrant.

In the German cases, the High Labor Court of Düsseldorf (Court of Appeal) dismissed the claims filed by the subsidiary of ThyssenKrupp and ThyssenKrupp GfT Gleistechnik seeking compensation from the former directors for the fines imposed by the Federal Cartels Office. In the first case, the Court of Appeal ruled that the former director could not be held personally liable for the sanction, as it was the company that initiated the anti-competitive conduct (available here). In the second case, the Court explained that German competition law distinguishes between sanctions imposed on companies and individuals, so that if the 191 million euro fine could be transferred from a company to an individual, such distinction would become irrelevant (available here).

Both cases are under review by the Regional Court of Dortmund after the Court of Appeal set aside the Federal Labor Court’s decision resolving that it lacked competence to decide on competition law issues. In both cases, the claimants attempt to argue that the fine for the competition law infringement is no different to any other damage and must not be treated differently. The final rulings remain to be seen.

More recently, and in anticipation of how the cases in Germany could be resolved, on November 20, 2020, the Regional Court of Saarbrücken (Regional Court) rejected two claims against former directors filed by a company that was fined over 70 million euros by the Commission for participating in a bathroom fittings and fixtures cartel in 2010 (press release available here). The Regional Court, in addition to considering that the action was time-barred, declared that directors cannot be sued for the damages resulting from cartel infringements, as the sanctions affect companies and not individuals, adding that if the fine was transferred to the directors, it would then be covered by their insurance policy.

In the UK, the possibility for companies to claim damages for competition law infringements has been excluded due to the ex turpi causa limitation. Specifically, in the Safeway Stores Limited & Others v. Twigger & Others case, the Court resolved that the company could not sue its formerdirectors for competition law sanctions since the damages resulted from its own criminal acts. However, it should be highlighted that, had the claim been filed by creditors or other third parties (as was the case in the Dutch judgment) and not the company itself, perhaps the judgment would be different. It will be interesting to see whether the prohibition on the company being compensated for its own illegal conduct will be applied in the same way in other jurisdictions.

Civil liability in Spain

In Spain, compensation claims for competition sanctions against directors are admissible under the Spanish Companies Act (Ley de Sociedades de Capital). The Companies Act provides for individual and corporate liability actions against directors that involve a special application of tortious liability in a corporate context.

These claims allow companies to pass on the harm caused to their directors as long as the director has not acted with the due dilligence expected of the “orderly entrepreneur” in performing his functions and has infringed a legal duty, as resolved by the Supreme Court (judgments available here and here). In this sense, the Supreme Court has highlighted that directors must “ensure compliance with this legal requirement, and that failure to do so is directly attributable to them.”

Although no rulings have yet been issued on the actions for damages for competition fines, the possibility of doing so was confirmed by the Provincial Court of Appeals in June 2018 (available here) in cases where there is a direct and personal responsibility of the director. The courts have also upheld actions for damages against directors as a result of other administrative fines, such as tax penalties,  the reasoning of which could be extended to competition law. Therefore, and although the debate on whether competition sanctions can be claimed through civil proceedings against the individuals responsible remains a controversial matter at international level, it cannot be ruled out that there will be developments in this area in the future possibly also under national law.

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