- Antitrust Fines - The Inevitability of Parental Liability Revisited
- December 2, 2011 | Author: Simon Harms
- Law Firm: Greenberg Traurig Maher LLP - London Office
In September 2011, the Court of Justice of the European Union (the “CJEU”), handed down its judgment in the latest of a series of successful challenges to the European Commission’s (the “Commission”) practice of holding parent companies jointly liable for the antitrust sins of their subsidiaries.
The basic position in EU competition law was settled in 2009 in the case of Akzo Nobel v Commission in which the CJEU held that “[...] the conduct of a subsidiary may be imputed to the parent company in particular where, although having a separate legal personality, that subsidiary does not decide independently upon its own conduct on the market, but carries out, in all material respects, the instructions given to it by the parent company."
In addition, the case law has developed a rebuttable presumption that a parent company which owns 100% of the share capital of its subsidiary exercises a decisive influence over the commercial policy of the subsidiary. Accordingly, when it comes to setting fines for antitrust infringements, it is sufficient for the Commission to show that the parent company wholly owns the infringing company. It is then up to the parent company to rebut the presumption by producing evidence that the subsidiary in fact acted independently of the parent.
Parent companies have unsuccessfully been challenging findings of such joint liability for years - the most high-profile being the CJEU’s judgment in Akzo Nobel. However, in a reversal of fortunes, both the EU’s General Court and the CJEU have recently upheld appeals by parent companies against such fines.
Ensuring that the rebuttable presumption remains rebuttable
Most recently, in Elf Aquitaine v Commission, the CJEU annulled a fine of approx. €45 million jointly imposed on Elf Aquitaine SA and its then subsidiary Arkema SA for the participation of the subsidiary in a cartel on the market for monochloroacetic acid.
The CJEU held that while the Commission was entitled to apply the presumption that the parent company exercised decisive influence over its subsidiary, it found that in practice the Commission had not adequately addressed the evidence adduced by the parent company to demonstrate that the subsidiary had acted independently. The court ruled that whilst the Commission must not specifically address every single point raised, it must provide a reasoned response indicating why the evidence produced by the parent company is insufficient to demonstrate that the subsidiary was in fact acting independently. Mere negations or assertions will not do as otherwise the supposedly rebuttable presumption would in fact be rendered irrebuttable.
In a similar judgment, the General Court held in June 2011 that L’Air liquide SA was not jointly liable for the participation of its then subsidiary Chemoxal SA in a cartel on the market for bleaching agents.
In a further successful appeal, the General Court recently annulled a fine of approx. €33.7 million imposed on Koninklijke Grolsch for the participation in a beer cartel in The Netherlands. The parent company successfully argued that it had not directly participated in the cartel and that any involvement was by its wholly-owned subsidiary alone. The General Court held that the Commission had failed to include an adequate statement in its fining decision as to why it had decided to impose the fine on the parent company. A simple statement that it owned 100% of the share capital of the subsidiary would have been sufficient - but no such statement was included in the decision which was addressed to the parent company only and curiously failed to mention the subsidiary at all. To make matters worse, the Commission’s departure from its usual practice of addressing such decisions to both the subsidiary and the parent company meant that all fines for the participation of Grolsch in the cartel (which was not in doubt) have, as a consequence, been annulled.
Is there any point?
Appeals by parent companies against findings of joint liability with their subsidiaries do not usually bear any fruit. As indicated above, the Commission’s usual practice is to address the fining decision to both the infringing subsidiary as well as the parent company. In normal circumstances, therefore, avoiding parent company liability will only mean that a wholly-owned subsidiary will foot the bill - same trousers, different pocket. However, in certain circumstances such appeals may well be worthwhile. For instance:
if the subsidiary is no longer owned by the parent company (as in Elf Aquitaine and L’Air liquide) or has gone out of business;
if the level of fine imposed was set by reference to the size of the parent company and would have been lower had only the turnover of the subsidiary been taken into account (as in Elf Aquitaine);
if the subsidiary is not an addressee of the fining decision (as in Grolsch);
if the parent company has previously been implicated in cartel activity and the finding that it is jointly responsible for the cartelist behaviour of its subsidiary may result in additional fines being imposed on the parent company for recidivism; or
if the level of fine is greater than the value of the assets of the subsidiary, the parent may choose not to support the subsidiary.
In the short- to medium-term, the CJEU’s judgment is likely to have implications for a number of pending appeals. In the longer term, parent companies are increasingly likely to rely on evidence that their subsidiaries acted independently. Beyond legacy cases, however, it appears unlikely that a large number of parent companies will succeed in disassociating themselves in this manner from the actions of their wholly-owned subsidiaries because the Commission is certain to learn from its recent mistakes and will now go the extra mile and adequately address evidence adduced by parent companies that their subsidiaries acted alone.
That said, parent companies which are able to demonstrate that they genuinely did not influence the commercial policy of an infringing subsidiary may now get a proper hearing from the Commission. A refinement of the Commission’s analysis should eventually mean fewer of these kind of cases reaching the courts. Firstly, the Commission may now fine fewer parent companies which can demonstrate that they are genuinely innocent of their subsidiary’s wrongdoing. Secondly, where there is an attribution of liability against a parent company, expect fewer appeals because the Commission’s case will have been supported by an appropriate analysis of the links between parent companies and the commercial behaviour of their subsidiaries.
In summary, therefore, the extent of recent successes by parent companies in challenging the imposition of fines for the wrongdoing of their subsidiaries represents a temporary phenomenon. Expect normal service to be resumed very soon.
 In a separate judgment the court upheld the fine imposed on Arkema itself for the same conduct.
 The case is somewhat unusual in that the Commission could not impose fines on the two companies because their participation in the cartel had ended more than five years before the start of the Commission investigation. In such situations, the Commission remains entitled to find an infringement of EU competition law but is out of time as regards its ability to impose fines. Presumably, one of the reasons the claimant pursued the appeal was to avoid liability in follow-on damages actions as well being branded a cartelist - a fact which can result in increased fines for recidivism in the case of any future infringements.
 For instance, the General Court has dismissed further challenges by Elf Aquitaine against fines imposed jointly on it in respect of other cartels in which its then subsidiary Arkema participated. Appeals in these cases may well find their way to the CJEU in due course.