On 15 April 2021, Advocate General Giovanni Pitruzzella handed down an opinion in a preliminary reference before the Court of Justice of the European Union (“ECJ”) (Case C-882/19 Sumal, S.L. v Mercedes Benz Trucks España S.L), in relation to whether a subsidiary company can be held liable for the anti-competitive conduct of its parent company under the single economic entity principle.
Under the single economic entity principle, a parent company and its subsidiary are considered one and the same economic entity where the parent company can, and does in fact, exercise decisive influence over the subsidiary company, having regard to the economic, organisational and legal links which tie the subsidiary to the parent company. Where a parent company holds 100% shareholding in the subsidiary, there is a rebuttable presumption that it does exercise decisive influence over the subsidiary.
To date, the single economic entity principle has been used by the European Commission and UK Competition and Markets Authority to hold a parent company liable for the anti-competitive conduct of its subsidiary and to hold both the parent and subsidiary company jointly and severally liable for the payment of fines resulting from the anti-competitive conduct of the subsidiary (‘bottom-up' liability).
In the preliminary reference (Sumal), a Spanish court has asked the ECJ whether, inter alia, the single economic entity principle could provide grounds to extend liability from a parent company to a subsidiary (‘top-down’ liability) in the context of a follow-on damages action where the Commission issued a fine solely against the parent company.
The Advocate General’s opinion is that the single economic entity principle could be used to impute ‘top-down’ liability where:
- the subsidiary operates in the same market as that in which the parent company has engaged in the anti-competitive conduct; and
- the subsidiary is able, through its conduct on the market, to give effect to the infringement.
On this basis, the Advocate General considers that each of the companies comprising a single economic entity will have joint and several liability for the payment of fines and for the payment of compensation in an action for damages brought by a private individual.
It is yet to be seen whether the ECJ will follow the Advocate General’s opinion. The ECJ’s preliminary ruling is expected in due course.
Written by Sandra Mapara