Analysis: “The Court of Justice Rules Once More On Parent Company Liability” by Patricia Pérez Fernández
The concept of parental liability makes a parent company responsible for antitrust infringements committed by its subsidiaries. The European Commission and European Courts have historically applied this principle broadly. It was further extended by a judgment of 27 January 2021 in case C-595/18 P, The Goldman Sachs Group Inc v European Commission, to cover situations where a parent company controls 100% of the voting rights in a subsidiary.
In this case, the appellant’s (The Goldman Sachs Group) holding in its subsidiary (Prysmian) was initially 100% of the shares. The level of that holding decreased, following two divestments, to 84.4%, while continuing to control 100% of the voting rights of the subsidiary.
The appellant had argued that the presumption of actual exercise of decisive influence only applies where a parent holds all or virtually all the shares of a subsidiary. In its opinion, the General Court was wrong in admitting that the parent company should be considered as the sole owner of that subsidiary when holding all the voting rights of its subsidiary together with a very high majority stake in the capital of that subsidiary. The appellants argued that the presumption of actual exercise of decisive influence cannot apply in these circumstances, based on the core principle that presumptions must apply restrictively.
The Court of Justice recalled that when a parent company holds directly or indirectly all or almost all of the capital in a subsidiary which has infringed competition law, the parent company can exercise decisive influence over the conduct of the subsidiary. Moreover, there is a rebuttable presumption that the parent company does in fact exercise such influence. In those circumstances, it is enough for the Commission to prove that the entire or virtually the entire capital of a subsidiary is held by its parent company. The Commission can presume that the parent company exercises decisive influence over the behaviour of that subsidiary. The Commission can also regard the parent company as jointly and severally liable for the payment of the fine imposed on its subsidiary for having violated competition law. The parent company has the burden of rebutting that presumption, in order to prove that its subsidiary behaves independently on the market.
This judgment introduces a new element. It is not the mere holding of all or nearly all the capital of the subsidiary in itself that gives rise to the presumption of the actual exercise of decisive influence. It is rather the degree of control of the parent company over its subsidiary. The Court of Justice confirms the General Court’s approach when considering that a parent company which holds all the voting rights related to the shares of its subsidiary would equate to a company controlling the capital of the subsidiary. According to the Court of Justice, in both cases the parent company is able to determine the subsidiary’s economic and commercial strategy. Consequently, the Court of Justice confirms that if a parent company holds all the voting rights of its subsidiary, the Commission can rely on a presumption that the parent company actually exercises decisive influence over the behaviour of its subsidiary in the market.
During the last two decades (basically since Stora), the attribution of liability for competition law infringements to parent companies of infringing entities has become a widely discussed issue amongst competition law practitioners and academics. The wide-reaching EU concept of undertaking allows an entity to be made responsible for the behaviour of a different one, as long as they are part of the same economic unit. The Goldman Sachs Group judgement extends this presumption to cases where parent companies control all the voting rights associated with their subsidiaries’ shares. More about the concept of undertaking and the single economic unit is to come soon: we are currently awaiting the judgment of the Court of Justice in Sumal. In that preliminary ruling request, the question is if subsidiaries can be considered liable for the market conduct of their parent companies, and what would be the conditions in that case – can a subsidiary decisively influence and control its parent company?
Patricia Pérez Fernández is a Spanish and European competition lawyer. She holds a PhD and is Adjunct Professor at IE Law School and the University of Castilla-la Mancha. She has published a book on private enforcement of competition law (‘Acciones de responsabilidad civil por ilícitos anticompetitivos’, Wolters Kluwer, 2019).