European Union: EU Court Of Justice Sends Marine Hose Cartel Case Back To General Court

On 18 December 2014, the Court of Justice of the European Union ("ECJ") handed down a judgment on an appeal by the European Commission against a judgment of the General Court ("GC") that reduced the fine imposed on Parker ITR and Parker Hannifin Corp. for participating in the marine hose cartel. The ECJ annulled the GC's judgment and referred the case back to the GC for a ruling on the merits.

In the 2009 decision under appeal, the Commission imposed fines totalling over € 131 million on 11 undertakings for having participated in a cartel in the marine hoses market with the objectives of market-sharing, price-fixing and the exchange of commercially sensitive information. The cartel was found to have lasted between 1986 and 2007 (see VBB on Competition Law, Volume 2009, No.1, available at www.vbb.com). On appeal, the GC reduced the fine imposed on Parker ITR (formerly known as ITR Rubber) and Parker Hannifin Corp. (the ultimate parent company of Parker ITR) from € 25.6 to € 6.4 million on the ground that Parker ITR was not liable for the infringement prior to January 2002.

The case arose from Saiag SpA's sale of its marine hoses business to Parker Hannifin Corp. in January 2002. In anticipation of and shortly prior to this sale, Saiag Spa (through its subsidiary ITR SpA) had established a subsidiary, ITR Rubber srl, to which it transferred its entire marine hoses business. In January 2002, Parker Hannifin Corp. acquired ITR Rubber srl (and renamed the company Parker ITR srl). In its decision, the Commission had found Parker ITR srl to be liable for the entire period of the infringement from 1986 to 2007, even for the period during which Saiag SpA and ITR SpA had owned and operated the marine hoses business.

On appeal, the GC overturned the Commission's finding, reasoning that, for the period prior to January 2002, it was for the legal persons operating the marine hose business to answer for that infringement (Saiag SpA and ITR SpA), even though at the date of the infringement decision the operation of the marine hoses business was the responsibility of another undertaking (Parker Hannifin). The GC further reasoned that this conclusion could not be called into question by the principle of economic continuity in cases where an undertaking involved in a cartel (Saiag SpA and ITR SpA) transfers a part of its business to an independent third party and there is no structural link between the transferor and the transferee (see VBB on Competition Law, Volume 2013, No. 5, available at www.vbb.com). The Commission challenged that finding and subsequently appealed to the ECJ.

Ruling on the Commission's appeal, the ECJ recalled that the principle of personal responsibility (according to which an infringement is attributed to the natural or legal person operating the undertaking participating in the cartel) is subject to the principle of economic continuity (according to which liability may be imputed, not to the initial operator, but to the new operator in cases of restructuring or other changes within a group of undertakings). In light of the above principles, the main point of dispute between the parties was whether a situation of economic continuity existed between the previous owner (ITR SpA and Saiag Spa) and current owners (Parker Hannifin Corp) of Parker ITR for the purposes of defining the scope of its liability.

In that regard, the ECJ criticised the GC for having failed to examine Saiag SpA/ITR SpA's transfer of its marine hoses business to ITR Rubber separately from the subsequent sale of ITR Rubber to Parker Hannifin and, as a result, for having failed to assess the evidence of economic continuity between the different entities involved (i.e., between, on the one hand, ITR Rubber and, on the other hand, ITR SpA) for the purposes of determining whether there were structural links between the transferor and the transferee. As a result, the ECJ decided to set aside the judgment of the GC and referred the case back to it to determine whether the principle of economic continuity was properly applied.

In addition, the ECJ dismissed a challenge from the Commission that the GC had ruled ultra petita when reducing the fine of € 100,000 imposed on Parker ITR for which the parent company, Parker Hannifin Corp., was held jointly and severally liable. However, the ECJ criticised the GC for failing to provide the information necessary to enable the parties to understand why such an amount of reduction was granted and, in addition, to enable the ECJ to review the lawfulness of that reduction. As a result, the GC judgment was also set aside on these grounds.

Based on the above findings, the case has been sent back to the GC which will rule on the merits of the case based on the ECJ's guidelines.

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