The European Court of Justice's (ECJ) ruling in Elf Aquitaine (Case C-521/09) of 29 September 2011 confirms that parent companies are able to rebut the presumption of their liability for anti-competitive behaviour by their subsidiaries and that the Commission needs to provide adequate reasons where it decides that the facts or legal arguments relied on by the parent company are not sufficient to rebut the presumption.

The principle of this rebuttable presumption is of course not new and was clarified by the ECJ in the Akzo case (Case C-97/08). 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 that subsidiary and can therefore be jointly and severally liable for the fine imposed on the subsidiary, unless the parent company provides sufficient evidence to demonstrate that its subsidiary acted independently on the market. It has always been accepted that in practice it will be difficult to rebut this presumption, as it involves proving a negative. The ECJ has now made it clear that this does however not mean that the Commission can dismiss serious arguments out of hand without any consideration or without providing reasons as to why the evidence is inadequate, as this would make the presumption de facto irrebuttable.

Comment

Over the last months we have seen a number of cases that seem to limit the wide application of the parental liability presumption established in the Akzo case.

In two recent cases, l'Air Liquide and Edison (see our e-bulletin), the General Court annulled the Commission's decision holding the parents liable for conduct of their subsidiaries because the Commission had failed to consider the detailed evidence put forward by the respective parent companies in order to rebut the presumption.

In Koninklijke Grolsch NV (Case T 234/07 of 15 September 2011) the General Court annulled a Commission decision that was solely addressed to the parent company and completely failed to distinguish between the parent company and the subsidiary, despite the fact that only the officers of the subsidiary had been involved in the alleged cartel behaviour. The Court found that the Commission's failure to provide any reference to the economic, organisational and legal links between the companies did not provide the parent company with an opportunity to rebut the parental liability presumption and affected its rights of defence.

Although the case law to date is still largely limited to procedural aspects rather than providing guidance as to the type of evidence and arguments that will be sufficient to rebut the presumption, a clearer picture as to the boundaries of the parental liability presumption is slowly emerging and further guidance can be expected as there are currently a number of cases on the issue of parental liability in the pipeline.

Background to the case

In 2005 the Commission imposed fines on three companies, one of which was Arkema (then Atofina) for participating in cartel activity on the market for the chemical monochloracetic acid (MCAA). The Commission held Elf Aquitaine and Arkema jointly and severally liable for the infringement, on the basis that Elf Aquitaine held 98% of the shares in Arkema, which was sufficient to attribute liability to the parent company for illegal conduct by its subsidiary.

Elf Aquitaine appealed this decision before the General Court and one of the key arguments it raised was the Commission's inadequate reasoning for finding it liable for the actions of its subsidiary purely on the basis of its shareholding as well as the Commission's failure to respond to Elf Aquitaine's rebuttals of liability. This was particularly important as the Commission's decision in this case pre-dated the ECJ's Akzo ruling, in which the principle of parental liability was clarified, and the finding of liability on the basis of ownership of capital was therefore a novel point.

The General Court dismissed the appeal and considered that the Commission had correctly applied the parental liability principle. It also agreed with the Commission's finding that the documents provided by Elf Aquitaine aimed at rebutting its liability were insufficient and not supported by evidence.

The ECJ's ruling

The ECJ has now annulled the Commission's decision, overruling the General Court, on the basis of the Commission's duty to consider relevant arguments put forward by a parent company in order to rebut the parental liability presumption. The ECJ found that the Commission's statement of reasons on the arguments put forward by the parent company consisted merely of a series of assertions and negations, which were repetitive and lacked any detail. These statements did not explain to Elf Aquitaine the legal basis on which the decision against it was adopted nor did they allow for the General Court to assess whether the reasoning was adequate.

The Commission's decision was worded in such a way that it was impossible for Elf Aquitaine to determine whether the body of evidence it had submitted in order to rebut the presumption of liability was unconvincing, or whether the Commission simply held it liable for the conduct of its subsidiary on the basis of its 98% shareholding in its subsidiary, regardless of any evidence it had submitted to the contrary.

The Court further held that detailed reasoning by the Commission was particularly important in this case given that, in an earlier decision (relating to the organic peroxides cartel), it did not consider that Elf Aquitaine and Arkema were part of the same undertaking for the purposes of EU competition law.