We have previously covered the EU General Court’s (GC) judgment in European Commission vs. Parker ITS Srl and Parker-Hannifin Corp (T-146/09), which dealt with the interplay between (i) personal liability (or responsibility) and (ii) economic continuity (or succession) and the EU Court of Justice’s (CoJ) judgment on appeal (C-434/13 P), which set the grounds for an extensive interpretation of the economic continuity principle.  In this briefing, we look at the CoJ’s most recent take on personal liability through economic continuity in European Commission vs. Versalis and Eni (Joined Cases C-93/13 P and C-123/13 P).

  1. The Family Tree and Initial Proceedings

Like so many undertakings, the Eni Group moved various business units around within its organization.  In this case, it was the chloroprene rubber (CR) business that was at issue.  From 1993 onward, the CR business was internally transferred in the following manner:

Click here to view table.

* EniChem & EniChem Elastomeri merged

In its Chloroprene Rubber decision, the European Commission (EC) found that a number of undertakings involved in the chloroprene rubber market, including Eni - as the parent company - and Polimeri, participated in a cartel from 1993 until 2002.  As a result, Eni and Polimeri (now Versalis) were jointly and severally liable for a fine of € 132.16 million.  Eni and Versalis challenged the EC’s decision on 11 grounds (T-103/08) before the GC and were successful in decreasing their fine to € 106.2 million.  Both the EC and Eni and Versalis appealed the GC’s judgment.

  1. The CoJ Case:  Transfer of Personal Liability Through Economic Continuity

One of Eni’s and Versalis’ grounds of appeal was that the GC had derogated from the principle of personal liability when it should not have done so.  The entity formerly known as EniChem should have been responsible for the infringing behavior, not Versalis.  EniChem still existed and had been in control of the CR business during the majority of the cartel’s lifetime, so it should been in the firing line.  The CoJ disagreed.

In one of its easier-to-read judgments, the CoJ clearly spells out how it is that personal liability can shift to Versalis:

  1. EU competition law refers to the activities of “undertakings.”
  2. An “undertaking” is any entity that engages in an economic activity:  it is not important how the entity is structured or financed.
  3. When the “undertaking” infringes competition law, according to the principle of personal liability, it must answer for the infringement.
  4. When an undertaking is made up of two or more entities, the fact that the entity that committed the infringement still exists does not prevent the EC from imposing a penalty on the entity to which the economic activities (that infringed competition law) were transferred.

In this case, this meant that while the Eni group was made up of a number of entities, the fact that the company formerly known as EniChem still existed did not prevent the EC from imposing a penalty on Versalis since it held at the time the CR business.

The CoJ goes on to say that this approach is definitely not a problem when all of the entities are controlled by the same legal person and therefore “given the close economic and organizational links between them, carried out, in all material aspects, the same commercial instructions.”  In this case, all of the companies that were responsible for the CR business were linked via Eni, the parent company, which held more than 99% of the share capital in all of the companies.  This provided the economic continuity between the transferor company involved in the cartel (formerly known as EniChem) and the transferee, Versalis.  Therefore, Versalis could be fined for the CR business’s indiscretions.

  1. Parting Thoughts

EU competition law has become rich in case law on parental liability with the EC moving upward in business structures to find the parent liable for the infringing behaviour.  Here, we see the European courts and EC looking in the opposite direction.  The CoJ started at the control at the top of the business structure and then worked its way downward to see which subsidiaries could be held responsible for the infringing business unit.  It appears that, if a particular business unit within a business organization has been involved in cartel, no one is untouchable.  The EC can fine whichever company it feels is best placed to create the greatest level of deterrence.  Thus, it will bring in the parent company, but it also appears to mean that any number of the subsidiaries who have been in contact with the business unit may also be on the line for a hefty fine.