News Update Competition Litigation
5 November 2020
A recent ruling by the Dutch District Court of Noord-Nederland (the "District Court") shows the possible far-reaching consequences for directors if they are personally involved in cartel infringements. In its judgment of 23 September 2020, the District Court held a former director of one of the participants in the North Sea shrimp cartel (the "Director") personally liable to pay approximately EUR 13 million to the bankruptcy estate.
BackgroundIn its decision of 27 November 2013, the European Commission (the "Commission") imposed cartel fines totalling nearly EUR 29 million on North Sea shrimp trading companies for fixing prices, share markets and exchanging competitively sensitive information from June 2000 to January 2009 (the "Decision"). The Dutch company Heiploeg (the "Company") received the biggest fine of approximately EUR 27 million. The Company appealed, but the General Court of the European Union upheld the decision on 8 September 2016. This was not the Company's first fine. It was fined in 2003 by the Dutch Authority for Consumers and Markets (the "ACM") for another cartel infringement.
In 2014, the Company was declared bankrupt. After the Company's bankruptcy, the trustees sought recourse against the Company's directors and supervisory directors who were involved in the infringement. Most directors and supervisory directors settled out of court, except for the Director. The trustees sued the Director for damages in the District Court on the basis of a tort under Article 6:162 of the Dutch Civil Code (the "DCC") and directors' liability under Article 2:9 DCC. They claimed damages consisting of (i) the deficit in the bankruptcy that was allegedly the result of the fine, and (ii) the fine that was allegedly the result of the Director's involvement in the infringement.
District CourtReliance on Commission findings
First, the District Court considered the Director's defence that the trustees did not meet the burden of proof or their obligation to furnish facts because they based their claims on the Commission's findings. The District Court noted that even though personal liability cannot automatically follow from the Commission's determination of an infringement, the District Court can rely on findings in the Decision regarding the Director's role in the infringement. Moreover, the trustees did not solely rely on the Decision but also submitted a separate memorandum with additional evidence.
Claim based on tort fails
The District Court first found that the Director acted wrongfully and negligently and that this conduct constituted a serious personal fault. According to the District Court, the Director had a long-term, active and personal role in the Company's anti-competitive practices. The Director knew or should have known that his conduct could lead to large fines and other financial and reputational damage for the Company, especially after being 'warned' about the unlawful nature of the conduct by the earlier ACM decision.
The District Court then assessed whether the Director could be held liable for his unlawful conduct under Article 6:162 DCC and/or 2:9 DCC. The District Court explained that the trustees did not prove that the allegedly suffered damage – consisting of the full deficit in the bankruptcy – was the result of the Director's unlawful conduct, as the Company was already in a very critical financial position before the fine was issued. The District Court ultimately rejected the claim based on Article 6:162 DCC because the required causal connection between the damage and the conduct was missing.
Successful directors' liability claim
Since the District Court already established that the Director acted unlawfully and that he was personally seriously at fault, the District Court ruled that severe mismanagement within the meaning of Article 2:9 DCC could be assumed. This time, the District Court ruled that there was a direct link between the Director's unlawful conduct (the severe mismanagement) and the damage allegedly suffered (the fine). According to the District Court, the Company would not have infringed the competition law rules and no fine would have been imposed on the Company if the Director had acted lawfully and had managed the Company properly.
The Director unsuccessfully argued that the breached standard (the EU cartel prohibition) does not serve to protect against the damage suffered: this is the DCC's 'relativity' requirement. According to the Director, the EU cartel prohibition is designed to protect a company's customers, not the company itself or its creditors. Referring to European Court of Justice case law (Courage Crehan and Manfredi), the District Court reiterated that anyone should be able to claim damages that flow from an EU cartel prohibition infringement. The District Court noted that the right to damages could possibly be denied if the claimant was significantly responsible for the competition law infringement. According to the District Court, there was no ground for denial of the trustees' claims on this basis in this case. After all, the trustees represented the Company's estate, whereas the Director had breached his duty of due care to the Company due to his severe mismanagement. Based on this, the District Court ruled that the Director could not escape liability by invoking a lack of relativity.
Calculation of damages
The District Court found that the Director was not liable for the total amount of the fine. Part of the fine was not attributable to him because he was not involved as a director for the entire infringement period. Therefore, considering he was a director of the Company for 48.05% of the infringement period, the District Court awarded 48.05% of the fine as damages, amounting to approximately EUR 13 million. This amount will be increased with statutory interest with effect from the day following the date on which the fine should have been paid to the Commission.
Other interesting issues
The District Court also discussed a number of other interesting issues that go beyond the scope of this update, such as (i) the admissibility of the trustees' claim, (ii) the moment that limitation periods commence, (iii) the Director's discharge from liability and (iv) the question of whether the involvement of the other directors and supervisory directors in the infringement should reduce the Director's liability. Please do not hesitate to contact us if you have any questions relating to the merits of this case or to these other issues.
According to the media, the Director is appealing the judgement.
Key takeawaysThe judgment is interesting for, amongst other things, the following reasons:
- Unlike the ACM, the Commission is not entitled to impose fines on natural persons. This judgment shows that – based on Dutch civil law – directors can still be held personally liable if the Commission imposes a fine on an undertaking for an EU competition law infringement, if the directors' involvement in the infringement was personal, lengthy and direct.
- The judgment provides guidance on how directors' liability for a company's EU competition law infringements can be established under the Dutch rules for liability, including corporate liability, and compensation. The District Court gives helpful insights into, inter alia, (i) the evidentiary value of the Commission's findings for assessing personal liability in a national civil procedure, (ii) the assessment of the causal connection for claims against directors under Article 6:162 DCC and Article 2:9 DCC, (iii) the application of the relativity requirement (Article 6:163 DCC) and (iv) the calculation of damage.
- In this case, the District Court ruled that there was a causal connection between the Director's severe mismanagement and the damage as a result of the established infringement (i.e. the fine). In follow-on damages proceedings, the damages claimed by the infringer's customers may also be the result of that established infringement. This judgment therefore raises the question of whether it would be possible for the infringing company – or in this case, the trustees – to also recover part or all of the losses arising from a successful follow-on damages claim from a director who was personally and directly involved in that infringement for a long period. Food for thought!