Insights

In the case Sumal SL vs. Mercedes Benz Trucks España SL, holding case number Case C-882/19 and decided on 6 October 2021, the Court of Justice of the European Union delved into whether damages may be sought against subsidiary companies where the parent company infringes EU competition law.

Facts of the Case

Mercedes Benz Trucks España SL (‘the subsidiary’) is a subsidiary of Daimler group, the parent company of which is Daimler AG (‘the parent’). Between 1997 and 1999, Sumal SL acquired two trucks from Mercedes Benz Trucks España. The Commission, on 19 July 2016, adopted a decision^[1] (the ‘Commission’s Decision’) concluding that 15 European truck producers, including Daimler AG, participated in a cartel (which took the form of a single continuous infringement of Article 101 of the TFEU and Article 53 of the EEA Agreement). For Daimler, the infringement took place between 17 January 1997 and 18 January 2011. Following the Commission’s Decision, Sumal brought an action for damages in Spain. Sumal sought to obtain a payment of EUR 22,204.35 from Mercedes Benz Trucks España, which amount corresponds to the additional cost of acquisition that Sumal bore due to the cartel in which Daimler (as Mercedes Benz Trucks España’s parent company) had taken part. The action was rejected since the Commission’s Decision referred to Daimler alone, inferring that Daimler should be held solely responsible for the infringement at hand. Sumal appealed. The court hearing the appeal made a preliminary reference to the Court of Justice of the European Union (‘the Court’) asking whether actions for damages may be brought against subsidiary companies which are not referred to in decisions finding the parents responsible for the infringement. The four questions referred to the Court were as follows:

• Does the doctrine of the single economic unit developed by the Court itself provide grounds for extending liability from the parent company to the subsidiary, or does the doctrine apply solely in order to extend liability from subsidiaries to the parent company?
• In the context of intra-group relationships, should the concept of single economic unit be extended solely on the basis of issues of control, or can it also be extended on the basis of other criteria, including that the subsidiary may have benefited from the infringing acts?
• If it is possible to extend liability from the parent company to the subsidiary, what would be required?
• If a subsidiaries’ liability is extended to cover acts of the parent company, would a provision of national law which provides only for liability incurred by the subsidiary to be extended to the parent company, and this only where the parent company exercises control over the subsidiary, be compatible with the Court’s case‑law?

Ruling of the Court of Justice

To answer the first three questions, the Court makes the argument that the authors of the Treaties used the functional concept of an ‘undertaking’, rather than a ‘company’ or ‘legal person’, to refer to an infringer of competition law. ‘Undertaking’ contributes to the understanding that there exists a unity of conduct on the market between individual companies for the purpose of applying the competition rules, putting aside the formal separation between the companies. The concept of an ‘undertaking’ thus defines an economic unit, regardless of whether it consists of multiple persons (whether natural or legal).

When an economic unit infringes the competition rules, that economic unit must answer for that infringement. Thus, the conduct of a subsidiary may be attributed to the parent company when that subsidiary does not determine independently its own conduct on the market but carries out instructions given to it by the parent company, and, having regard to the economic, organisational and legal links between the two entities, such entities form part of the same economic unit and form one undertaking responsible for the anticompetitive conduct. The concept of ‘undertaking’ and ‘economic unit’ automatically require joint and several liability among the entities which up an economic unit at the time of the infringement. However, there may be no connection between one company and another within an economic unit. Thus, a subsidiary company will not always be liable for the conduct of a parent company targeted by a Commission decision finding infringing conduct. Rather, regard must be had to the subject matter of the agreement at issue.

Therefore, where a Commission decision finds an infringement of Article 101 TFEU, a legal entity which is not designated in that decision as having committed the infringement may nevertheless be held liable on the basis of that decision where the two entities form part of the same economic unit and constitute an undertaking which is the perpetrator of the infringement. It follows that a victim who suffers harm as a result of an anti-competitive practice of a parent company may bring a damages action against a legal entity in the economic unit, such as a subsidiary company.

However, the Court makes an important qualification. Where the infringement of Article 101 TFEU has been established against the parent company, the victim may bring a damages action against the subsidiary only if the victim successfully proves that having regard to (1) the economic, organisational and legal links between the two entities, and (2) the existence of a specific link between the subsidiary’s economic activity and the subject matter of the parent company’s infringement, that subsidiary, together with its parent company, constituted an economic unit. Practically speaking, the victim must establish that the anticompetitive agreement concluded by the parent company (deemed anticompetitive by a Commission decision) concerns the same products as those marketed by the subsidiary.

Naturally, the right to an effective remedy and to a fair trial, as guaranteed by the Charter of Fundamental Rights, must be observed so that the subsidiary (as a defendant to an action for damages) is able to defend its rights before the national court by refuting its liability for the harm alleged. In so doing, the subsidiary may rely on any ground which it could have raised had it participated in the proceedings brought by the Commission against the parent, such as disputing that it belongs to the same undertaking as the parent company. The defendant subsidiary, however, cannot challenge the existence of an infringement by the parent company since this would have been established by the Commission. On the other hand, where the Commission has not made a finding of infringement, the subsidiary may also dispute the existence of the parent company’s alleged infringement.

The Court explains that, in the case at hand, the victim could have also brought the claim for compensation before the Spanish courts against (a) the parent company who has been punished by the Commission for its conduct, or (b) against the parent and subsidiary companies jointly.

To answer the fourth question, the Court maintains that the national law provision which provides for the possibility of imputing liability for the conduct of the subsidiary to the parent company but not vice versa is precluded by the EU competition law rules. In the case at hand, the referring court must therefore disregard the national provision and apply Article 101 TFEU directly so as to allow the victim to bring an action for damages against the subsidiary whose parent infringed the competition rules. Otherwise, where possible, national law should be interpreted in conformity with the interpretation of EU law given above, in keeping with the principle of primacy of EU law.

Comment

This ruling contributes towards the full effectiveness of the EU competition law rules by allowing individuals to proceed against subsidiary companies when claiming damages for losses caused by the parent companies’ unlawful conduct. The judgement goes a step forward in safeguarding a person’s right to seek compensation and to dissuade and discourage anti-competitive agreements or practices. The ruling thus ensures that private enforcement is a practical possibility to victims of competition law infringements, working hand in hand with the existing public enforcement carried out by competition authorities, thereby creating a robust system to combat the infringement of EU competition rules.

This article was authored by Laura Aquilina and first published in the Malta Independent. 

^[1]  Commission Decision of 19 July 2016 relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the EEA Agreement