On 15 April 2021 the CJEU’s Advocate General (AG) Pitruzzella handed down his opinion (‘Opinion’) in the preliminary ruling procedure relating to the LKW cartel litigation in Spain. The Barcelona Provincial Court (‘Barcelona Court’) requested the CJEU to interpret EU law on the question of whether a subsidiary company is liable for damages where the Commission has only fined the parent company for anticompetitive behavior. The AG in Case C-882/19 takes the view that, subject to conditions, a subsidiary without being addressee of the cartel decision can be held liable for the damages caused by the infringement. The Opinion, when confirmed by the CJEU, has as well implications on the question of where victims of Europe-wide cartel behavour might bring claims for damages.
Background and context
AG Pitruzzella issued his Opinion following a request for a preliminary ruling from the Barcelona Court in December 2019. Before the first instance court an action for damages was introduced by Spanish transport company Sumal against Mercedes Benz Trucks España, seated in Madrid, namely a subsidiary of Daimler AG, seated in Germany, one of the participants in the Trucks cartel fined by the Commission in July 2016 (‘Decision’). Contrary to the parent, Mercedes Benz Trucks España was not an addressee of the Decision.
The first instance Court had dismissed the action introduced by Sumal considering that only addressees of the Decision could be held liable for the infringement. Sumal appealed the judgment and argued that following the application of the EU law doctrine of single economic unit, Mercedes Benz Trucks España is as well liable for the harm caused by the infringing undertaking to which it is part of together with parent company Daimler. Spanish case law is divergent when it comes to applying the single economic unit doctrine to the liability of subsidiaries for the anticompetitive behavior of their parent companies. Thus, the Barcelona Court requested the CJEU to assess whether the single economic unit doctrine does not only apply in the “bottom-up” direction – i.e. from subsidiary to parent company –, but also “top-down” from a parent company to its subsidiary.
Relevance of the subsidiary‘s contribution to the cartel’s implementation
AG Pitruzella, firstly, reminds that the notion of undertaking in Art. 101 TFEU concerns the economic unit’s functionality and not its legal form. Several legally independent companies may form a single undertaking within the meaning of EU law when they act together as one single economic unit. The question of the parent company’s liability – i.e. the “bottom-up” direction – has already been confirmed by the CJEU and is subject to the question of whether a subsidiary conducts independent market behavior or whether the parent company has decisive influence over it (see judgment of 27 January 2021, C‑595/18 P – Goldman Sachs, para 31). The notion of undertaking is as well applicable in the field of the private enforcement of competition law (see judgment of 14 March 2019, C-724/17 – Skanska, para.32). Where a parent company has control over the market behavior of its subsidiary, it is therefore liable for the infringement of the competition rules, including the harm caused by its subsidiary with whom it forms a single economic unit.
According to AG Pitruzella, there is no reason not to apply the liability also in the “top-down” direction, as both the parent and subsidiary company act as one undertaking on the market. The AG refers (para. 38) to the CJEU’s case law pursuant to which the “condition for the attribution of anticompetitive acts constituting the cartel as a whole to all the parts of the undertaking is satisfied where each part of that undertaking has contributed to its implementation, even in a subsidiary, accessory or passive role” (see judgment, 12 December 2018, T-677/14 – Biogaran, para 225). However, while the notion of decisive influence can be applied to determine whether a parent company can be held liable for the anticompetitive behavior of its subsidiary, it cannot be used in the opposite direction. Thus, the AG considers it crucial whether the subsidiary’s activity on the market was objectively necessary to realize the anticompetitive practice in question (para. 57).
Secondly, AG Pitruzella formulates two conditions that have to be fulfilled in order to consider a subsidiary liable for civil damages caused by an infringement of Art. 101 TFEU for which solely its parent company was fined by the Commission. According to the AG civil liability is given where:
- the subsidiary and the parent company in light of the economic, organizational and legal links existing between those companies formed at the time of infringement a single undertaking within the meaning of Art. 101 TFEU; and
- the subsidiary company’s conduct on the affected market has contributed substantially to the objective of the infringement and the materialization of the effects of such infringement.
Comment and outlook
When fining undertakings in administrative proceedings, the Commission chooses the addressees among the entities that have been involved in the cartel or excercised decisive influence. This typically led to fines imposed on the direct participant and their parent companies exercising decisive influence. However, civil liability is rightly not limited to the addressees of the Commission decisions. The question of determining the entity liable for the private damage caused by the breach of competition rules has to be determined by EU law (see Skanska, para. 28). Even though AG Pitruzzella stresses the conclusion of the CJEU in Skanska, he argues that the simple fact of belonging to an undertaking shall in general not be sufficient. But the subsidiary is liable without being addressee of the decision when it is part of the undertaking and contributed substantially to the implementation of the cartel.
The Opinion is a further important step in clarifying the liability for damages of legal entities that have not been fined by the Commission, although forming part of the infringing ‘undertaking’ and thus the economic unit that has committed the competition law infringement. Equally, it further clarifies after Skanska the relationship of public and private enforcement in follow-on situations. The Opinion provides more legal certainty, in particular to companies damaged by infringements of Art. 101 and 102 TFEU. If followed by the CJEU, the conditions as formulated by AG Pitruzzella will allow victims of Europe-wide cartels to claim damages from all companies which constituted the economic unit operating on the relevant market, and which effectively implemented the cartel. Under these conditions the liability of subsidiary companies is the counterpart of the scope of the undertaking’s infringement. This facilitates the enforcement of claims for damages, following the geographic operation of the cartel.
By Martin Seegers and Juraj Siska