Liability of Enterprise Group Members for Other Group Entities’ Anticompetitive Conduct

On 6 October 2021, the European Court of Justice (‘ECJ’) rendered its judgment in the Sumal case (Case C-882/19 Sumal, S.L. v Mercedes Benz Truck España, S.L. (ECJ, 6 October 2021)). The case is of great significance for private enforcement of EU competition law, but raises questions regarding the normative foundations for liability of one group member for other group entities’ wrongful conduct. As the judgment was rendered after 31 December 2020, the English courts are not bound by the judgment, but they may have regard to it (see s.6 of the European Union (Withdrawal) Act 2018).

Facts

Between 1997 and 1999, Sumal — a Spanish customer — bought two Mercedes trucks from Mercedes Benz Trucks España (‘MBTE’), a Spanish subsidiary of the Daimler group. The European Commission later established that between January 1997 and January 2011, the Daimler group had infringed Article 101 of the Treaty on the Functioning of the European Union (TFEU). The Commission fined Daimler AG, the parent company of the group, for this conduct. MBTE belonged to the Daimler group, but the infringement decision was not addressed to MBTE, nor did it establish any involvement of MBTE in the anticompetitive conduct. Yet, Sumal brought an action for damages against MBTE before the Spanish courts relying on the infringement decision, arguing that MBTE was liable for the losses allegedly suffered by Sumal simply because it belonged to the undertaking that was fined by the European Commission. MBTE, on the other hand, argued that the principle of limited liability prevented MBTE from being liable for another group member’s conduct. On appeal, the Spanish court referred several questions to the ECJ for a preliminary ruling, all relating to the extension of liability from a parent company to a subsidiary within the same economic unit.

Judgment

In its judgment, the ECJ rules that ‘the victim of an anticompetitive practice by an undertaking may bring an action for damages, without distinction, either against a parent company who has been punished by the Commission for that practice in a decision or against a subsidiary of that company which is not referred to in that decision, where those companies together constitute a single economic unit’ (para 67). The court’s reasoning consists of three steps.

The first step in the ECJ’s reasoning is that an infringement of Article 101 TFEU may give rise to an action for damages, thereby boosting private enforcement of EU competition law in addition to public enforcement (paras 32-37).

The second and most important step relies on the interpretation of the concept of an ‘undertaking’. Article 101 TFEU is not addressed at legal persons but at undertakings, which ‘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). With regard to liability for fines, the ECJ had already established a rule for ‘upstream’ attribution of anticompetitive conduct, ie a subsidiary’s infringement being attributed to a parent company so the latter can also be fined (Case C‑97/08 P Akzo Nobel NV and Others v Commission of EC [2009] ECR I-08237). Upstream attribution can be justified with reference to the fact that the subsidiary ‘does not determine independently its own conduct on the market, but essentially carries out the instruction given to it by the parent company’ (Sumal, para 43). Liability for another entity’s conduct may also arise when the legal entity which infringed competition law no longer exists, but its economic activities are being continued by another legal entity. If so, the new legal entity can be fined and can be liable to compensate for losses caused by the infringement (the doctrine of ‘economic continuity’, see inter alia Case C-724/17 Vantaan kaupunki v Skanska Industrial Solutions and Others [2019] ECLI 204, para 38ff).

The Sumal case, however, does not concern upward attribution, nor the application of the doctrine of economic continuity. The court, without even noticing the difference with other forms of attribution, just considers that if a parent company and a subsidiary form part of the same undertaking (an ‘economic unit’), it is ‘the very existence of that economic unit which committed the infringement that decisively determines the liability of one or other companies making up that undertaking for the anticompetitive conduct’ (para 43). There could be many undertakings within the same group (paras 45-47), but if it is proven that the subsidiary belongs to the same undertaking as the parent company which has been fined, the subsidiary is liable for losses caused by the parent company’s conduct (see para 52ff).  

The third and last step in the reasoning of the court, is that such liability ‘automatically [entails] the application of joint and several liability amongst the entities of which the economic unit is made up at the time that the infringement was committed’ (para 44), precluding any national laws limiting such liability (paras 68-75).

Reflections on the Judgment

As a result of the court’s judgment, MBTE is jointly and severally liable for the harm caused by Daimler AG’s infringement if it is proven that they form part of the same undertaking, regardless of MBTE having profited from the infringement or even being aware of the anticompetitive conduct. The judgment gives rise to many questions. In my view, the most important one concerns the normative foundations of the interpretation adopted by the court.

In the reasoning of the court, MBTE’s liability is based on the mere fact that MBTE belongs to the same undertaking as Daimler AG. In the court’s view, there is only one perpetrator: the undertaking to which both legal entities belong. From a tort law perspective, however, there are (at least) two entities liable for the damage caused by the infringement, as besides Daimler AG also MBTE is liable. What justifies MBTE being liable for the infringement committed by its parent company? This question is especially relevant where transnational conglomerates are concerned, as just one ‘undertaking’ may consist of a large number of legal entities.

Tort law provides several examples of persons being legally responsible (liable) for someone else’s conduct. Such liability could be based on a fault committed by the person being held accountable, eg an employer being liable for inducing his employee to commit a tort. In this case, the own fault of the employer justifies the employer being liable. Vicarious liability entails liability for another’s conduct which is not fault-based, in the sense that it is no defence that all reasonable care was taken to prevent the damage from occurring. Such liability therefore requires another justification. Scholars have sought for justifications, and although there may not be one single explanation, justifications often brought forward are that the employer conducting business for his own benefit should also take the downside of his business if an employee tortiously causes harm in the course of his employment, the deeper pockets of the employer, and the employer’s ability to be insured against the risk of being liable (see inter alia Paula Giliker, Vicarious Liability in Tort: A Comparative Perspective (CUP 2010), 230ff; Cees van Dam, European Tort Law (2nd edn, OUP 2013), 1607-2; and James Goudkamp & Donal Nolan, Winfield & Jolowicz on Tort (20th edn, Sweet & Maxwell 2020), 21-006)). These and similar justifications may be equally applicable to upstream attribution for anticompetitive conduct (cf van Dam (2013), 1608-2), especially if one considers that abuse of legal separateness should be prevented (cf Skanska, para 46). They do, however, not make much sense with regard to downstream – or ‘cross-stream’ – attribution (see in the same vein Cooper Tire & Rubber Company v Dow Deutschland [2010] EWCA Civ 864, 45 (Longmore LJ)). Generally speaking, subsidiaries do not have any influence over their parent company’s conduct, do not have deeper pockets, nor is it possible that they establish their parent company in order to create legal separateness. It should be noted that the claimant does have another defendant at his disposal to seek recourse from, but the shares the parent company (directly or indirectly) held in the subsidiary, are already available to him due to the parent company being liable. The mere fact that the subsidiary, whilst not being aware of any infringement by the parent company, may have profited from the higher prices that may have resulted from the infringement cannot justify its liability either, as other innocent actors on the market could have benefited from the price increases as well, although they are not themselves liable (cf Case C‑557/12 Kone AG and Others v ÖBB -Infrastruktur AG  [2014] ECLI 1317).

Final Remarks

Maybe the outcome of the judgment should just be justified with reference to other policy considerations, such as, for instance, the deterrent effect of liability for anticompetitive conduct (cf para 37). The problem with such justifications, however, is that the judgment does not bring forward any arguments in favour of them. If deterrent effect were indeed the leading principle for liability of the subsidiary, one needs an explanation as to why liability of the subsidiary would deter the undertaking from engaging in anticompetitive conduct. The mere fact that the subsidiary’s assets are available for recovery of the damages claim, does not provide an answer to that question, as from an economic perspective, a party entitled to damages from the parent company could already attach the shares it holds in the subsidiary. It is therefore questionable why imposing liability on a subsidiary that did not commit a wrong would contribute to a better functioning single market. In my view, liability to pay damages always requires an answer to the question ‘What should the defendant have done differently to avoid liability?’. The answer can be different depending on the type of liability involved. The answer ‘Not being part of the same undertaking as your parent (or sister) company’, as the ECJ’s position seems to be, is not a satisfying one to me, as it is generally beyond the control of a subsidiary to whom its shares belong or with whom it forms a group.

Daniël Stein is a PhD Candidate and Lecturer in Private Law at Radboud University.