The German Federal Court of Justice (FCJ) recently issued a decision on the liability of a parent company for the antitrust offences of its subsidiary [FCJ, decision of 18 November 2014, KZR 15/12 – Calcium carbide Cartel II] that will be of particular importance for cases in which the parent and the subsidiary are part of the same company group during the time an antitrust offence has taken place and the subsidiary is sold during or after the infringement.
The decision addresses this question: is there is a general rule that the parent is always internally fully liable for an EU antitrust fine, or are the facts of an individual case decisive?
Parent company is not in any case fully internally liable for fines
In antitrust proceedings in 2009, the European Commission imposed fines on several companies active in the calcium carbide sector that had concluded cartel agreements since 2004. Fines of more than €13 million were jointly and severally imposed on a subsidiary that was a member of the cartel and its direct and group parent companies. Before the cartel was uncovered, the group parent company had listed the subsidiary at the stock exchange and had sold its shares. Subsequent to paying its part of the fine, the group parent company brought an action against the direct parent company and the subsidiary seeking reimbursement of the sum already paid. The group parent company argued that it had not been involved in the cartel and was thus internally not liable for the fine.
The Higher Regional Court (HRC) dismissed the claim. It was of the opinion that the group parent company internally had to bear the total fine.
The HRC’s decision was set aside by the FCJ. The FCJ tied its decision to a recent decision of the European Court of Justice [ECJ, 10 April 2014, C-231/11 p and C 233/11 P – Siemens AG Austria]. In its judgment, the ECJ pointed out that, within the framework of national law, it was up to the national courts to decide on internal liabilities. According to the FCJ, the parent company is not in any case fully internally liable for fines jointly and severally imposed by the European Commission on the parent and its subsidiary in an antitrust procedure.
Facts of the individual case are decisive, no general rule available
Rather, it emphasized that in cases where the parties have not concluded an agreement (such as a profit transfer agreement on the basis of which the liability ultimately remains with the parent) regarding internal liabilities, no general rule that the parent has to bear the total fine applies. Rather, all circumstances of the concrete case are decisive.
In particular, the individual contribution to the antitrust infringement and the degree of fault in that regard as well as the facts relevant for the calculation of the fine have to be taken into account. As regards the individual contribution, the FCO stressed that the subsidiary that is solely responsible for the misconduct acts against good faith if it invokes the insufficient exercise of the parent’s duty to supervise. In addition, the economic profit that each joint debtor has gained from the misconduct, as well as the respective economic capacity and the volume of the sales involved in the antitrust infringement have to be considered.
High practical relevance of the decision in M&A and for foreign companies
As a consequence of the FCJ’s decision, companies selling their subsidiaries or former parent companies of undertakings listed on the stock exchange will in future even more try to shift a European Union antitrust fine to their subsidiaries and their current owner. It is likely that the subsidiaries will need to prove that the parent company was also participating in any antitrust infringement or turned a blind eye on the issue. In addition, it will likely have to be demonstrated by the subsidiary that the parent (potentially) profited from the cartel infringement.
In M&A transactions, it is therefore more important than ever to agree on sufficient wraps and warranties in order to secure an adequate contractual protection against the potential risk that acquirers may, years later, be exposed to claims for compensation relating to EU antitrust fines. In addition, this decision will be of importance for foreign companies which may encounter, or already face, allegations of antitrust-relevant misconduct in Europe.