On 6 October 2021, the Court of Justice of the European Union (‘CJEU’) rendered its judgment in Case C-882/19, Sumal SL v Mercedes Benz Trucks España SL. Following the Opinion of Advocate General (‘AG’) Pitruzzella, the CJEU has confirmed that, under certain conditions, a subsidiary which is not the addressee of the administrative decision can be held liable for the damages caused by the infringement for which the parent company has been fined.
In 2016, the European Commission (‘Commission’) adopted a settlement Decision (‘Decision’) imposing a record fine on several truck manufacturers for participating in a cartel and, thus, infringing EU competition rules. During the cartel period, the Spanish transport company Sumal acquired two trucks from Mercedes Benz España, the subsidiary of the German Daimler AG.
Sumal brought a follow-on antitrust action for damages against Mercedes Benz España before the courts of Barcelona. Contrary to its parent company Daimler AG, Mercedes Benz España was not an addressee of the Commission’s Decision.
The first instance court dismissed the action for damages arguing that only the addressees of the Decision could be held liable for damages caused by the infringement, but not their subsidiary companies. Sumal appealed the judgment and argued that Mercedes Benz España should be held equally responsible for the harm caused by the infringement of its parent company with whom it forms a single ‘undertaking’ within the meaning of the single economic unit doctrine in EU law. Subsequently, faced with divergent Spanish case law on the issue, the appeal court of Barcelona decided to refer a question for a preliminary ruling to the CJEU. It essentially asked whether the single economic unit doctrine applies not only in the ‘bottom-up’ direction – i.e., from subsidiary to parent company –, but also ‘top-down’ from a parent company to its subsidiary.
The judgment of the CJEU
The CJEU recalled that Art. 101 TFEU and its full effectiveness create direct effects on individuals who have direct rights to claim compensation for the harm caused by the breach of Art. 101 TFEU (para 32-33). Moreover, the CJEU stressed that the determination of the entity liable for damages caused by the anticompetitive infringement is governed by EU law, as previously found in the Skanska judgment (para 34). More generally, the CJEU confirmed that private enforcement completes and strengthens the public enforcement of the EU competition rules. Both form an integral part of the system for enforcement of EU competition rules (para 35).
Therefore, the concept of undertaking needs to be interpreted similarly in both public and private enforcement actions with regard to the imposition of administrative fines and liability for damages (para 38). The use of a common concept of an undertaking is also illustrated in EU legislation such as Art. 23(2) of Regulation 1/2003 and Art. 2(2) of the Damages Directive as both EU legislative acts mention the notion of undertaking and identify similarly the entity liable for the administrative fine or civil law damages (para 39-40). The CJEU recalled that the notion of undertaking ‘covers any entity engaged in an economic activity, irrespective of the legal status of that entity and the way in which it is financed, and thus defines an economic unit even if in law that economic unit consists of several persons, natural or legal’ (para 41). According to established case law of the CJEU, a subsidiary forms an undertaking with its parent company when the parent company has ‘decisive influence’ over such subsidiary, meaning that the subsidiary does not independently determine its market conduct. Once it is established that a subsidiary forms together with the parent company an undertaking within the meaning of Art. 101 TFEU, the very existence of this undertaking determines the liability (para 43). The CJEU pointed out that this undertaking leads to joint and several liability of the entities forming the economic unit at the time of the infringement (para 44). It thus prejudices certain groups of companies that form an economic unit, but which differ from one another given they operate in various markets with no connection to each another (para 45).
Following AG Pitruzzella’s Opinion, the CJEU found the functional concept of an undertaking to be most appropriate. Given that an economic unit is made up of the parent company and its subsidiaries depending on the economic activity at issue (para 47), the parent and all its subsidiaries can be affiliated to several economic units in parallel (in different combinations). The functional concept of an undertaking is therefore particularly relevant in such cases. The subject matter of the agreement and economic activity at issue help to establish the liability of the subsidiary for antitrust damages concerning its parent’s breach of competition rules (para 47-48). Without this functional understanding of the concept of an undertaking, a subsidiary within one economic unit could be held liable for antitrust damages committed in sectors of economic activity totally unrelated to its own activity and in which it was not (even indirectly) implicated (para 47).
Therefore, the claimant should prove not only (i) the link(s) uniting the subsidiary and the parent company but also (ii) the specific link ‘between the economic activity of that subsidiary company and the subject matter of the infringement for which the parent company has been held responsible.’ This can be proven by establishing that the anticompetitive agreement concerned the same products (or services) marketed by the subsidiary (para 52).
The CJEU recalled that, during the proceedings before the Commission, the statement of objections were only sent to the legal entities the Commission intended to fine and that were party to the administrative proceedings (para 56). It can therefore also be possible, as in the case at hand, that the statement of objections is not addressed to the subsidiary company forming part of the same undertaking as the parent company fined by the Commission. The CJEU nevertheless stressed that, even in that particular circumstance where the subsidiary itself had not received the statement of objections, the subsidiary company’s right of defence must be safeguarded (para 53) and it must be able to invoke arguments that it ‘could have raised if it had participated in the proceedings brought by the Commission against its parent company’ (para 54). The subsidiary company must, therefore, have the opportunity to refute its liability by proving it does not form part of the same undertaking (para 54). However, it cannot challenge the very existence of the infringement established by the Commission, which is binding on the national court deciding on the applicable damages caused by the infringement (para 55).
Thus, the fact that the subsidiary company is not explicitly mentioned in the Commission’s decision as an addressee does not impact the assessment of whether such subsidiary forms part of the same undertaking as the parent company (the addressee of the Decision). Moreover, the CJEU recalled that the Commission is free to choose what legal entities belonging to an undertaking are held liable for the infringement and administrative fines (para 63).
Concerning the application of EU rules on international jurisdiction, the CJEU recalled that the notion of ‘where the harmful event occurred’ mentioned in Art. 7(2) of the Brussels I bis Regulation covers both the place where the damage occurred and the place of the infringement (para 65). Moreover, according to the Tibor-Trans judgment, in which the affected market was determined as the Member State on whose territory the alleged damage occurred (i.e., where the artificially high prices arose), that Member State must be regarded as the place where the damage occurred (para 66).
With its Sumal judgment, the CJEU clarifies a highly controversial question on the liability for antitrust damages. The CJEU applies the notion of ‘undertaking’ in the field of private enforcement and develops the Skanska judgment further. It confirms that where both parent company and subsidiary act as one undertaking on the market, liability not only applies in the ‘bottom-up’, but also in the ‘top-down’ direction.
However, the CJEU imposes certain conditions in establishing the subsidiary’s liability for the harm caused by its parent company to whom the administrative decision was addressed. Firstly, the subsidiary and the parent company must form part of the same economic unit within the meaning of the notion of ‘undertaking’ under EU law. Secondly, it is necessary to establish a specific link ‘between the economic activity of that subsidiary and the subject matter of the infringement for which the parent company was held to be responsible’ (para 51). Therefore, the mere fact of belonging to an undertaking is not sufficient. However, contrary to the AG, the CJEU does not demand that the subsidiary company’s conduct on the affected market must have contributed substantially to the objective of the infringement and/or the realisation of the effects of such breach. According to the CJEU, it is sufficient that the infringement ‘concerns the same products as those marketed by the subsidiary’ (para 52).
The judgment strengthens both the uniform application and the private enforcement of competition law. The CJEU provides further legal certainty by confirming that a subsidiary company – without being an addressee of the cartel decision but forming an integral part of the undertaking as well as being active in the same relevant market – can be held liable for the damages caused by the infringement. The argument that the principle of autonomy of legal persons under corporate law would prevent the attribution of responsibility from one entity to another, jointly and severally, within the same undertaking (‘piercing the corporate veil’), is finally rejected, in line with settled case law (e.g., Eni).
The decision also confirms the wider possibilities for victims of competition law infringements regarding both the choice of the defendants and the choice of competent jurisdictions.
By Juraj Siska, Vera Keraudren, Carsten Krüger, and Martin Seegers