Potential subsidiary liability for infringement of competition law
Advocate General at the Court of Justice of the European Union proposes that, under certain circumstances, it should be possible to find subsidiaries liable for infringement of competition rules committed by their parent companies. If the Court follows the proposal, it will mean that companies may become liable to pay fines and to pay compensation for infringements of both EU competition rules and Danish competition rules without having had any knowledge of such infringements. It means that the subsidiaries can potentially be used as a so-called “anchor” in actions for compensation.
For many years, the European Commission has been able to impose a fine on a company (the parent company) for infringement of EU competition rules committed by a group company (the subsidiary) if the parent company has exercised decisive influence over the subsidiary in general. This principle was introduced into Danish law on 4 March 2021, and accordingly this also applies in matters investigated and sanctioned by the Danish competition authorities and courts, both in relation to infringements of EU competition rules and in relation to infringements of Danish competition rules (read Plesner’s previous Insight here).
A Spanish court has now made a reference for a preliminary ruling to the Court of Justice of the European Union as to whether liability may also be imposed in the opposite relation to the effect that a subsidiary can be held liable for an infringement of the competition rules by its parent company.
The reference results from a cartel-related case where the applicant has brough an action against a Spanish subsidiary of a German company which was found to take part in a cartel. The Spanish subsidiary had resold the products covered by the cartel but was not found to have participated in or had any knowledge of the cartel.
The opinion of the Advocate General
The Advocate General proposes that it should be possible to find a subsidiary liable of infringement by its parent company of the EU competition rules, even if the subsidiary did not participate in or had any knowledge of such infringement. When the parent company has exercised decisive influence over the subsidiaries the two companies should, according to the Advocate General, be considered a single unit and joint and several liability should be imposed. This applies to fines as well as compensation.
However, the Advocate General proposes that a subsidiary can only incur liability for infringement of the competition rules committed by the parent company if the subsidiary has participated in the financial activity which is the subject of the parent company’s infringement. This includes for instance that a parent company has resold products produced by the parent company which is covered by a cartel. On the other hand, if the subsidiary’s activities exclusively take place outside the economic area in which the parent company has committed the infringement, it should not be possible for the subsidiary to incur liability.
Read the opinion of the Advocate General here.
If the Court of Justice of the European Union follows the Advocate General’s proposal, subsidiaries may in future, under the mentioned conditions, incur liability to pay fines or compensation for infringements committed by their parent companies.
It may not only affect cases concerning infringement of the EU competition rules investigated and sanctioned by the European Commission and related actions for compensation but also (i) cases concerning infringement of the EU competition rules investigated and sanctioned by the Danish competition authorities and courts, (ii) cases concerning infringement of the Danish competition rules, and (iii) actions for compensation before the Danish courts concerning infringement of both the EU competition rules and the Danish competition rules (the latter only if committed after 4 March 2021).
We consider it less likely that the proposal – if it is followed – will have any significant impact in cases concerning fines. Therefore, both the European Commission and national competition authorities will probably be reluctant to bring actions against subsidiaries who have not had any knowledge of an infringement, even if it might be possible according to the Court of Justice of the European Union.
However, it is possible that the proposal will have a big impact in competition-related actions for compensation. Many applicants seeking compensation will probably prefer to bring an action against a subsidiary domiciled in the same country (if it must be assumed to have sufficient funds to pay compensation) rather than a parent company domiciled in another country, including in order to avoid having difficulties serving the writ and potential subsequent enforcement of the judgment abroad.
In addition, it will be possible to use a subsidiary as a so-called “anchor” for an action for compensation in future. It may be relevant in situations where the claimant has suffered losses in several countries, as the claimant cannot, if that is the case, bring an action for the total loss in its home Member State under the rule on tortious jurisdiction. However, if a subsidiary of a parent company which has committed the infringement is located in the same country, the claimant clan bring an action for the full claim against the subsidiary in their common home country and, under another rule, involve the parent company and any other participants in the infringement from other EU and EFTA Member States.
A claimant will also be able to use a subsidiary in another country to bring an action against both the subsidiary and its parent company (and any other participants in the infringement) domiciled in other EU or EFTA Member States, if the claimant finds that it an advantage to conduct the case in the Member State of the subsidiary. During recent years, there has been a tendency for many claimants to prefer, for various reasons, to bring actions in the UK, Germany or Holland. The proposal will increase the possibilities of such “forum shopping”.
The Court of Justice of the European Union is expected to hear and determine the case within a few months.