European Union: EU General Court Clarifies Parental Liability Of Financial Investors For Competition Breaches

Last Updated: 10 December 2018
Article by Richard Ryan, Florence Loric and Patrick Horan
Most Read Contributor in Ireland, December 2018

On 12 July 2018, the EU's General Court handed down an important judgment which clarified the basis on which the European Commission can impose antitrust fines on financial investors for the activities of their subsidiaries, even if the investment is largely passive in nature.

Background

The case concerned a cartel in the power cables market. From February 1999 until January 2009, European, Japanese and South Korean producers of submarine and underground power cables participated in a network of multilateral and bilateral meetings and established contacts aimed at restricting competition for their products in specific territories, by allocating markets and customers, thereby distorting the normal competitive process.

The European Commission imposed a fine of €104.6 million on Prysmian, the world's largest cable maker, for its participation in the cartel. At the relevant time, a Goldman Sachs-managed fund, GS Capital Partners, owned a significant majority stake in Prysmian, through a number of managed funds. During the period of infringement, Goldman Sachs' ownership interest in Prysmian fluctuated between 84% and 91%. Leaving aside 41 days when its shareholding was 100%, Goldman Sachs' holding in Prysmian was no more than between 84.4% and 91.1% until 3 May 2007, the date on which shares in Prysmian were offered to the public in an initial public offering on the Milan Stock Exchange.

Although the investment bank did not hold 100% of the shares, it indirectly controlled all the voting interests associated with Prysmian's shares up to the date of the IPO. Following this date, although Goldman Sachs no longer had absolute control over the voting rights, it continued to exercise control over the board of directors (evidenced by the fact that that board continued to have the same composition). Notwithstanding its substantial equity interest, Goldman Sachs maintained that its investment in Prysmian was essentially financial in nature and that Goldman Sachs was not, in any commercial sense, Prysmian's "parent".

The European Commission found that, as a result of its ownership interest, Goldman Sachs had "decisive influence" over Prysmian for a substantial period during which the infringement occurred. Applying the long-established principle that one undertaking may be held jointly and severally liable for the anti-competitive conduct of another where those undertakings form part of a "single economic unit", the Commission held Goldman Sachs' to be jointly and severally liable for the Prysmian's conduct and imposed a fine on Goldman Sachs of €37.3 million. The Commission based this decision on two grounds: (i) a presumption arising from EU case law that Goldman Sachs had exerted a decisive influence over Prysmian due to its shareholding; and (ii) an analysis of Goldman Sachs' economic, organisational and legal links with its subsidiaries which demonstrated that it did in fact exert a decisive influence over the market conduct of Prysmian. Goldman Sachs appealed the Commission's decision to the General Court.

The General Court Decision

The General Court upheld the Commission's decision and dismissed Goldman Sachs' appeal. Central to the appeal being rejected was the level of general influence which the Court and the Commission found that Goldman Sachs held over Prysmian.

The General Court referred to the decision of the Court of Justice in Akzo Nobel v Commission, and noted that the conduct of a subsidiary may be imputed to the parent or investor company where, although having a separate legal personality, the subsidiary does not decide upon its own conduct on the market, but follows the instructions of the parent company in all material respects. Where this is the case, the parent company and its subsidiary form a single undertaking within the meaning of Article 101 TFEU. On this basis, the Commission may impose fines on the parent without having to establish its personal involvement in the conduct in question or the infringement. Where a parent company has a 100% shareholding in a subsidiary, this is sufficient to presume that the parent exercises a decisive influence over the subsidiary. Where a company holds almost all of the capital of a subsidiary of its group, there is a rebuttable resumption that the company exercises a decisive influence over the conduct of the subsidiary. In order to be able to impute the conduct of a subsidiary to the parent company, it must further be established that the decisive influence was actually exercised over the subsidiary, not just that the parent was merely in a position to do so.

Decisive Influence

In the present case, the application of the presumption of actual exercise of decisive influence was not based on the level of Goldman's holding, but on the fact that it controlled 100% of the voting rights associated with the company's shares, giving it comparable ability to that which it would have enjoyed as sole owner. The General Court recognised other factors relating to the economic, organisational and legal links between Goldman Sachs and Prysmian to support the finding of decisive influence, including the power to appoint the members of the various boards of directors of Prysmian, the power to call shareholder meetings and to propose the revocation of directors or of entire boards of directors, Goldman Sachs' actual level of representation on Prysmian's board of directors, management powers of Goldman Sachs' representatives on the board of directors, the receipt of regular updates and monthly reports, the measures to ensure continuation of decisive control after the IPO date, and evidence of behaviour typical of an industrial owner.

The General Court noted that it is possible to rebut the presumption that a parent company had decisive interest by providing evidence that the subsidiary acted independently of the parent company. However, the Court found that the presumption had not been rebutted in this case.

Analysis

The Prysmian case reaffirms the well-established principle in EU case law that parent companies can be found liable for the anti-competitive behaviour of their subsidiaries. However, the decision of the Commission, affirmed by the General Court, has highlighted that institutional investors may also be held liable for the conduct of companies in which they have invested, event where that investment is relatively passive or where the investor has limited direct involvement in the actual operation of the subsidiary in question. As the European Commission noted in its response welcoming the General Court's ruling, the case recognises that institutional investors are treated "like other corporate parents, by attributing parental liability to them in exactly the same way" and the legal and factual analysis will turn on whether the parent/investor is capable of exercising decisive influence over the subsidiary. The nature of the investment, whether financial or more strategic, is not relevant in this regard.

Conclusion

The case highlights the importance for investors and parent companies generally in ensuring that their subsidiaries comply with applicable competition law rules, and that subsidiaries have robust policies in place to minimise the risk of infringement arising. In addition, the case provides further impetus for acquiring parties to conduct relevant due diligence in relation to competition law risk and to obtain appropriate protection from vendors in transaction agreements (through warranties/indemnities etc.) to address potential historic competition law liabilities that may arise.

For further information, please contact a member of the Competition and Regulated Markets Group.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Eversheds O'Donnell Sweeney
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Eversheds O'Donnell Sweeney
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions