Irish subsidiary companies should be aware that they may be ordered to pay fines or compensation as a result of a parent company breaching competition law, and corporate groups should take this risk into account in the design of intra-group operations and competition law compliance programmes.
We explain below the latest EU Court development of this principle, known as ‘bottom-up liability’.
On 15 April 2021, Advocate General Pitruzzella issued an opinion on a reference to the Court of Justice of the European Union (CJEU) (Case C-882/19 Sumal, S.L. v Mercedes Benz Trucks España S.L.) arising from Spanish competition litigation. The result of the Spanish litigation was that damages were awarded to a claimant affected by the so-called Trucks Cartel, which was found to breach competition law in a legally binding decision of the European Commission.
The opinion states that a national court may attribute liability to a subsidiary for the harm resulting from its parent company’s anticompetitive conduct (‘top-down liability’), by applying economic unit theory. Economic unit theory has long since been used by the CJEU to penalise parent companies for the anticompetitive conduct of their subsidiaries (‘bottom-up liability’). The opinion states that the following are conditions which must be satisfied before imposing ‘top-down liability’:
- decisive influence must be exercised by the parent company over the subsidiary; and
- the subsidiary must act jointly with the parent company on the market such that the companies constitute a single economic unit and the subsidiary contributed to the realisation of the object or effect of the relevant breach of competition law by the parent.
In terms of the process for imposing ‘top-down liability’, the opinion states that liability must first be attributed to the economic unit which perpetrated the breach, and then afterwards to the specific companies in the economic unit who are liable to pay (jointly or severally) any fines or compensation.
While the opinion is not legally binding and we await a CJEU judgment on the case, it provide a strong indication of further broadening of the EU competition law rules on attributing liability for competition law fines and compensation. This follows the CJEU judgment in Goldman Sachs Group Inc. v European Commission on 27 January 2021, which holds that financial investors can be liable for competition law breaches by portfolio companies (see this previous Matheson article.
It is also interesting to note that the theme of ‘top-down liability’ is being considered in other contexts lately, including in the recent High Court of England and Wales ruling that a subsidiary may be ordered to produce their parent company’s documents as part of a litigation discovery process (Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWHC 849 (Ch)).
Matheson will be closely watching competition law developments in relation to corporate group liability, including any indication of the Irish Courts’ approach which may be gleaned from on-going damages claims in relation to the Trucks Cartel.