In the firing line

The notion of an 'undertaking' for the purposes of article 101 of the Treaty of the Functioning of the European Union (TFEU) '“ which prohibits anti-competitive agreements and concerted practices '“ does not necessarily respect the corporate veil. Related companies '“ although separate persons in law '“ may be a single 'undertaking' for the purposes of that article. This has various implications. One question it raises is: in what circumstances will a parent company be liable for infringements committed by a subsidiary?

That question arose on appeal from the General Court in Case C-90/09 P General Química SA (First Chamber, 20 January 2011). GQ manufactured rubber chemicals. It was a wholly-owned subsidiary of RQ, which was in turn owned by RYPF. Having found an infringement by GQ, the commission imposed a penalty of ‚¬3.38m on all three companies, jointly and severally. It contended that there was a 'presumption' that a parent company exercised decisive influence over the conduct of its subsidiaries, which could not be rebutted by showing that the parent company was not actively involved in '“ or even aware of '“ the subsidiary's unlawful conduct, and had delegated day-to-day management to the subsidiary.

Decisive influence

The General Court agreed. A parent company which owned 100 per cent of the capital of a subsidiary was in a presumed position of decisive influence, sufficient to engage joint and several liability. The fact that the parent company had not directed the anti-competitive practice did not matter;

it was sufficient that it could have stopped it. Moreover, there were 'links' (in terms of the ability to control, finances, and the flow of information) between the companies which supported the commission's conclusion.

On appeal, the ECJ took a slightly different approach, but essentially agreed on the main points of principle. The starting point was whether the parent exercised 'decisive influence' over the subsidiary. The ECJ agreed with the commission and the General Court that there is a presumption that a parent who own 100 per cent of the shares in a subsidiary exercises such influence. That applied equally to indirectly owned subsidiaries, so that it affects the ultimate parent company of a group of wholly-owned subsidiaries, as well as intermediate holding companies in the group.

However, the ECJ did not like the way the General Court had approached the evidence which might have rebutted or confirmed that presumption. The General Court had thought that giving directions, after the discovery of the infringement, to terminate it was itself a form of involvement in the infringement itself. Not surprisingly, the ECJ held that the General Court had not explained this odd conclusion. It also considered that the General Court had failed to carry out a sufficiently searching analysis of the evidence that showed that GQ's executives in practice conducted their operations without consulting the parent companies. By failing to consider that evidence in detail, the General Court had effectively deprived the parent companies of their ability to rebut the presumption.

The ECJ went on itself to examine the facts. It stressed that the question was not whether the parent company had participated in the infringement, but simply whether it formed a single economic unit with the subsidiary. To avoid liability, the parent must show not only that it was not involved in the particular infringement, but that it was not involved (generally) in the subsidiary's determination of its commercial policy '“ the subsidiary functioned in general independently of the parent. RQ had not been aware of, or involved in, or directed GQ's infringements '“ but it had in various ways intervened in GQ's commercial policy and decisions, and was therefore liable.

Anchor defendants

Similar issues arose before the Court of Appeal in Cooper Tire & Rubber Co Europe Ltd v Dow Deutschland Inc [2010] EWCA Civ 864. The question was whether a claim under article 101 could be pursued in England on the basis that some 'anchor' defendants were domiciled in England, and others joined as co-defendants under article 6 of the Judgments Regulation. The twist was that the anchor defendants were not parents, but subsidiaries. Are subsidiaries liable, with other members of the economic enterprise, for infringements within the group?

In the end, the Court of Appeal was able to resolve the case by concluding that there was a pleaded case that the subsidiaries were themselves actively involved in the alleged anti-competitive practices, which would certainly suffice. But the court noted that if they were, individually, innocent, it would be at least arguable that they would not be liable '“ that the principle of joint and several liability might work, as it were, 'upwards' but not 'sideways'.

Although it did not directly arise, General Química contains material which might help both sides of this argument. On one hand, the ECJ emphasised that the question being asked was not whether the parent was involved in the particular infringement, but simply whether it formed part of the same economic unit. That approach suggests that all members of the same unit (including other subsidiaries) could be liable.

On the other hand, the ECJ saw that question as depending on whether the defendant is capable of exercising 'decisive influence' over the activities of the infringer, and that way of looking at the issue suggests that innocent 'sibling' subsidiaries are not liable. The Court of Appeal in Dow (rightly) declined to make a reference to the ECJ, and the point remains open for future decision.