In a judgment handed down this week by its Grand Chamber, the European Court of Justice (“ECJ”) decided that, under certain circumstances, a subsidiary can be held liable for cartel activity engaged by its parent company. This judgment has potentially far-reaching consequences and may give an additional impetus to private damages litigation.
On 24 October 2019, Sumal (an alleged victim of the Trucks cartel) brought a claim for damages in follow-on litigation in front of a Spanish Court. The claim was against Mercedes Benz Trucks España, a subsidiary of the German company Daimler AG to whom the infringement decision in the Trucks cartel was not addressed. Under the well-established single economic entity doctrine, parent companies can be held liable for their subsidiaries’ anticompetitive conduct under certain circumstances. However, the question of whether a subsidiary can be held liable for the anticompetitive conduct of its parent company has not been addressed before by the EU Courts.
The Spanish Court therefore referred several questions to the ECJ for a preliminary ruling. Essentially the ECJ was asked (i) whether the single economic entity doctrine allows holding a subsidiary liable for the damages caused by its parent company and, if so, (ii) which are the requirements for such extension of liability.
The ECJ, siding with the Advocate General, answered that a subsidiary can be held liable for the damages caused by its parent company when they form part of a single economic unit. For that to happen the claimant (the victim of the cartel) needs to prove that:
- There are economic, organisational and legal links that unite the parent company and the subsidiary. This probably means that the parent company must have the ability to exercise decisive influence over the market conduct of the subsidiary (although the Court was not particularly clear on that point).
- There must be a specific 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. This condition will be fulfilled when the claimant establishes, in principle, that the anti-competitive agreement concluded by the parent concerns the same products as those marketed/sold by the subsidiary.
The ECJ was clear that the claimant does not need to prove that the subsidiary has exercised ‘decisive influence’ over the parent company as is the case when liability is attributed to a parent company for the actions of its subsidiary. Actually the ECJ went further and said that Article 101(1) TFEU precludes a national law which provides for the possibility of imputing liability for one company’s conduct to another company only in circumstances where the second company controls the first company (Spain had such a law).
Why is this important/what are the implications?
The judgment makes it easier to bring damages claims over cartel activity by large multinationals and affords victims of infringements significant freedom of choice around which entity to bring a claim and where.