A subsidiary company may be ordered to pay compensation for the harm caused by the anticompetitive conduct of its parent company, Advocate General Pitruzzella has recently opined.
EU law prohibits, subject to limited exceptions, horizontal and vertical agreements between two or more independent market operators which restrict competition. The most flagrant example of illegal conduct infringing EU anti-trust rules is the creation of a cartel between competitors, which may involve price-fixing and/or market-sharing.
Along the years, jurisprudence has provided an insight into certain aspects associated with breaches of competition law, such as whether a parent company can be held responsible for the behaviour of its subsidiaries and fined directly for a breach of competition laws by its subsidiaries. The EU courts have, on the basis of the economic unit theory, upheld the imposition of penalties on a parent company for the anticompetitive conduct of its subsidiaries.
The facts of this case were briefly as follows. In 2016, the commission imposed fines on a number of companies in the automotive sector, including Daimler AG, in respect of collusive arrangements on the pricing of trucks.
Following this decision, a Spanish company asked the Spanish courts to order a subsidiary company of Daimler to pay it the sum of approximately €22,000 in compensation. According to the plaintiff, such an amount corresponded to the increased price paid by it to the subsidiary company when purchasing certain trucks manufactured by the Daimler Group, as compared with the lower market price that it would have paid in the absence of any collusive arrangements.
Each individual company may be required to pay the fine’s entirety or the compensation being claimed
The Spanish court seized of the case filed a preliminary reference before the Court of Justice of the European Union (CJEU), requesting guidance as to whether a subsidiary can be held liable for an infringement of the EU competition rules by its parent company and the conditions which must be satisfied for such liability to arise.
With reference to the above facts, Advocate General Pitruzzella has now opined that the economic unit theory, which serves as the basis for the courts’ decision to allow the imposition of penalties on a parent company for the anticompetitive conduct of its subsidiaries (‘bottom-up’ liability), may also be the basis for a decision to find a subsidiary liable for harm caused by the anticompetitive conduct of its parent company (‘top-down’ liability).
The AG focused on the two factors which give rise to ‘bottom-up’ liability, namely the decisive influence which the parent company must exercise over its subsidiary, and whether the parent company and the subsidiary constitute an economic unit and act jointly on the market, despite the formal ‘veil’ of their separate legal personalities.
In the AG’s opinion, the basis of a parent company’s liability for the anticompetitive conduct of its subsidiary lies in the unity of the economic activities of the companies, namely, the fact that they constitute a single economic unit. Decisive influence is a necessary condition for the existence of an economic unit and, consequentially, for attributing liability for anticompetitive conduct.
Once these factors subsist, liability for infringement of the competition rules can then be attributed to the entire economic unit which caused the infringement. Such liability is then, specifically, allocated to the individual companies comprising the undertaking. According to the AG, the basis for such an allocation is the fact that only the individual companies constitute legal persons, whereas the undertaking, understood as being the economic unit, does not.
The AG maintained that, where the parent company commits the infringement, the subsidiary’s ‘top-down’ liability results not only from the decisive influence exercised by the parent company, but also from the fact that the subsidiary’s business is in some way necessary to give effect to the anticompetitive conduct. This is the case if, for example, the subsidiary sells the goods which are the subject of the cartel. Therefore, in the AG’s opinion, for ‘top-down liability’ to be incurred, the subsidiary must operate in the same area as that in which the parent company has engaged in anticompetitive conduct and must have been able, through its conduct on the market, to give effect to the infringement.
The AG emphasised that in all such cases, the liability of the companies comprising the same economic unit is joint and several. This means that each individual company may be required to pay the entirety of the fine or the compensation being claimed. In this way, private individuals who have suffered damages due to anti-competitive practices have the option to file an action against a subsidiary domiciled in that individual’s member state rather than in the jurisdiction where the parent company is established. This eliminates practical procedural difficulties relating to the legal proceedings, such as serving documents in another jurisdiction.
Moreover, allowing the injured party to choose the company against which the action is brought increases the chances that the claims for compensation will be satisfied in full.
The AG’s opinion is not binding on the court and, therefore, one must now await the decision of the CJEU for a definitive decision on the matter. Nonetheless, considering that both private and public enforcement are deemed by the EU courts as being essential tools for bolstering the effectiveness of enforcement against anticompetitive practices, it will come as no surprise should the CJEU embrace the conclusions reached by the AG.
Mariosa Vella Cardona, freelance legal consultant