Austria: Principal’s Liability for Service Providers’ Conduct
In daily business, companies often turn to the services of dependent or independent service providers. In fulfilling their duties, these service providers may encounter or even participate in conduct that infringes competition law. Principals must therefore ask whether and subject to what conditions the service provider’s conduct may be imputed to them and exposes them to liability for fines and damages. Two recent judgments may shed light on this critical issue.
Imputation of service providers’ conduct
It has long been an established decisional practice at the EU level that companies acting as principals are not only liable for their own conduct, but might also be liable for the conduct of their service providers. The core question concerns the conditions subject to which the (potentially) infringing conduct of the service provider might be imputed to the principal. Looking at the case law of the EU courts, one can differentiate between “dependent” and “independent” service providers with respect to the requirements of imputation.
Dependent service providers
The imputation of dependent service providers’ conduct to the principal has been subject to settled case law in the past. Dependent service providers, such as employees, false self-employed persons, sales agents, subsidiaries and other controlled entities are viewed as auxiliary bodies, forming an integral part of the principal’s undertaking. It is therefore not surprising that the conduct of these service providers is attributable to the principal without the need for the principal to have instructed the dependent service provider to participate in an infringement or to have been aware of the dependent service providers’ involvement. A glimmer of hope that might limit the extent of the principal’s liability is the scope of the service providers’ authorisation to act on behalf of the principal.
This point was recently clarified by the General Court of the EU with respect to the imputation of a sales agent’s conduct to his principal (Case T-418/10, voestalpine AG and voestalpine Wire Rod Austria GmbH v European Commission, Judgment of the General Court of 15 July 2015). The General Court held that a sales agent’s conduct going beyond the scope of the entrusted activity (authorisation) generally cannot be imputed to the principal (assuming the lack of knowledge and intent on the part of the principal). Might the EU courts also be ready to accept a limitation of the principal’s liability for the conduct of its employees (or other dependent service providers), if the latter clearly act beyond their authorisation? Regardless, the authorisation does not limit the principal’s liability if the sales agent’s conduct is qualified as part of an overall conduct by several participants (eg the sales agent responsible for one country takes part in a European-wide infringement). Contrary to the previous case law, it is irrelevant to the principal’s liability whether the sales agent provides services exclusively, let alone whether the agent generates a major share of his income with a particular principal (unless multiple representations disqualify the sales agent as a dependent service provider).
Independent service providers
The imputation of independent service providers’ conduct to the principal was only recently addressed by the Court of Justice of the EU (Case C-542/14, SIA ‘VM Remonts’ and Others v Konkurences padome, Judgment of the Court of Justice of 21 July 2016). Independent service providers are normally legal or physical persons who provide their services independently on a given market. Points of contact between the activities of in-dependent service providers and competition law sensitive matters are numerous. The exposure is substantial in scenarios where independent service providers handle sensitive information of or for several principals. The most prominent example is the preparation of tender documents by an independent service provider for several bidders. Should the independent service provider use the information and data received by all principals as a reference point to secure that one predestined bidder wins, the question arises under what conditions this infringing conduct may be attributable to the principals.
The Court of Justice foresees a two-tier test for the imputation of the independent service provider’s conduct to the principal. First, for the purposes of the imputation, the principal (i) must be aware of the anti-competitive objective pursued by the independent service provider and other participants and (ii) must have the intent to contribute to them by its own conduct. If these conditions are not met, the imputation might still materialise, provided the principal (i) could have reasonably foreseen that the service provider will engage in anti-competitive conduct and (ii) was prepared to accept the risk which that entailed. In neither case is it required that the principal authorise the service provider’s conduct. The limiting effects of the authorisation have not been discussed by the Court of Justice in this respect.
As for proof of knowledge on the part of the principal, it might be presumed (subject to a rebuttal) that the principal was aware of its service provider’s anti-competitive conduct already based on an incriminating message/statement that the service provider/other participant communicated towards the principal. In such an event, the principle should verifiably distance itself from the conduct or report the conduct to the Competition Authorities to rule out its liability.
Prevention and limitation of the principal’s liability
The first way that principals can avoid liability is by means of compliance training and contractual safeguards, such as commitments on the part of the service provider to com-ply with applicable competition laws, a precise definition of the scope of the authorisation, reporting obligations with respect to anti-competitive behaviour, obligations not to disclose confidential information internally (eg “Chinese walls”) or to third parties, and contractual penalties. While these measures might not prevent the service provider from participating in an infringement, and hence might not prevent the imposition of a fine on the principal, they might minimise the risk or at least the extent of the liability. In any event, the recent case law warrants closer scrutiny of the contractual relationships with and the actual conduct of dependent and independent service providers entrusted with activities that are competition law sensitive.