Our newsletter of December 2010 set out the EU rules relating to parental liability for competition law infringements by wholly-owned subsidiaries. In short, there is a rebuttable presumption that parent companies, including parent companies in Japan, exercised a “decisive influence” over the subsidiary and so bear joint and several liability for any fines.
In a recent case involving the bleaching chemicals cartel, in which seven companies had received fines of more than EUR 388 million in 2006, two parent companies for the first time successfully escaped liability for the anti-competitive conduct of their wholly owned subsidiaries by showing, at an EU Court appeal, that the Commission had failed to consider detailed evidence put forward by the companies aimed at rebutting the presumption that they exercised a decisive influence over the conduct of their wholly owned subsidiaries.
The parental liability presumption
The European Court of Justice (ECJ) ruling in the Akzo case (Akzo Nobel NV and others v Commission, Case C-97/08) in September 2009 provided clarification on the issue of liability of a parent company for the involvement of its subsidiary in anti-competitive behaviour, even where the parent company itself did not participate in the infringement. The Court confirmed that a 100% shareholding of a parent company in a subsidiary creates a rebuttable presumption that the parent company exercises decisive influence over the commercial policy of the subsidiary and thereby enables the Commission to hold the parent company liable for the infringement committed by the subsidiary.
It is therefore sufficient for the Commission to prove that the subsidiary is wholly owned by the parent company in order to presume that the parent exercises a decisive influence over the commercial policy of that subsidiary. The Commission will be able to regard the parent company as jointly and severally liable for the payment of the fine imposed on its subsidiary, unless the parent company provides sufficient evidence to demonstrate that its subsidiary acted independently on the market.
Although the presumption of parental liability is rebuttable, following the Akzo ruling it was widely accepted that it will be a very difficult test for a parent company to meet, as it basically involves proving a negative fact (lack of effective control).
Indeed, the EU courts have recently rejected several appeals containing arguments that the parent companies should not be held liable on the basis that it had not been proven that they exercised decisive influence over their subsidiaries. In two recent cartel cases, involving acrylic glass and bleaching chemicals, (CasesT-206/06 and T-190/06), the General Court upheld the Commission's decision attributing liability for Arkema's infringement to its parent companies Total and Elf Aquitaine despite the fact that the parent companies did not hold 100% of the shares in their subsidiary. It was deemed sufficient that the parent companies held substantially all the shares in order to satisfy the presumption of decisive influence. The Court also held that the parent companies failed to raise adequate arguments in order to rebut this presumption. Elf Aquitaine is now challenging the General Court's finding that it can be held liable for the conduct of its former subsidiary before the ECJ.
The developments in the L'Air Liquide and Edison cases
Also in the context of the bleaching chemicals cartel, two parent companies for the first time successfully escaped liability for the anti-competitive conduct of their wholly owned subsidiaries. The General Court annulled the Commission's decision against L'Air Liquide (L'Air Liquide SA v Commission, T-185/06) and Edison (Edison SpA v Commission, T-196/06), on the basis that the Commission had failed to consider detailed evidence put forward by the companies aimed at rebutting the presumption that they exercised a decisive influence over the conduct of their wholly owned subsidiaries.
The Commission had held L'Air Liquide jointly and severally liable for the participation in the cartel by its wholly owned subsidiary Chemoxal, despite a range of evidence put forward by L'Air Liquide aimed at demonstrating that Chemoxal had acted independently on the market. L'Air Liquide had for example argued that the companies did not have common managers, that Chemoxal's executive director had full powers to run the company and that Chemoxal had all the necessary services of its own in order to implement its commercial policy. The General Court held that all the points raised by L'Air Liquide were relevant and should have been considered by the Commission.
Edison put forward similar arguments in order to rebut the presumption that it was liable for the anti-competitive conduct of its subsidiary Ausimont. Edison argued that, during the period relating to the infringement, it operated purely as a holding company, leaving Ausimont with total autonomy over its commercial strategy. Documentary evidence including statements from the former president of the board were submitted to the Commission in order to support Edison's argument that Ausimont did indeed have complete autonomy and had totally independently determined its own commercial policies. The Commission also failed to consider the evidence provided by Edison and the Court annulled the Commission decision to the extent that Edison was held liable for Ausimont's conduct.
The General Court's rulings in respect of L'Air Liquide and Edison are therefore encouraging and demonstrate that, where appropriate, parent companies should aim to put together a well argued case demonstrating that the subsidiary was in charge of its own commercial behaviour in order to rebut the presumption that they should be held jointly and severally liable for anti-competitive conduct by that subsidiary.
This may, however, be more difficult in the case of subsidiaries of Japanese companies, where those subsidiaries may be tightly integrated into the corporate group and have management seconded from the Japanese headquarters of their parent. Each case will need to be assessed on its own specific facts and the situation reviewed in the round to determine whether the parent company exercised decisive influence in practice.
The ruling unfortunately does not provide guidance as to the type of evidence that will be required in order to rebut the presumption, as the Commission decision was annulled for failure to adequately consider the evidence put forward by the parent companies. Other recent cases (in the Elf Aquitaine and Arkema cases mentioned above) show that the presumption will be difficult to rebut and that detailed evidence will be required.
The issue of parental liability is clearly very sensitive, and an unnamed Dutch company has recently asked the European Court of Human Rights (ECHR) to consider whether the presumption is in fact legal on the basis that it may be in breach of the fundamental right to be presumed innocent until proven guilty. It is not clear at this stage whether the ECHR will take on the case, but there is little doubt that the Edison and L'Air Liquide cases will result in further challenges to the presumption of parental liability under EU competition law.