Spain has recently provided the international media with more than just one news story worthy of making frontpage headlines. From a competition law perspective, the next big thing could just have been launched from Barcelona. The Audiencia Provincial de Barcelona, has decided to present the European Court of Justice with some interesting questions as it requests a preliminary ruling on matters of liability for cartel damages. Here is a report by Hans-Markus Wagener.

Referring court and the background of the case

First of all, a very quick debriefing briefing on the relevant court system: Spain consists of 16 comunidades autónomas (“CA”), which represent the administrative hierarchical counterpart to the German Länder. A CA in turn consists of several provincias, of which there are a total of 50. Barcelona is one of them. At this level of state organization, the Audiencia Provincial is the highest judicial body. As such, it is responsible, among other things, as a second instance for all civil appeal proceedings that have previously been decided by a subordinate court in its area.

Thus, the 15th Chamber of the Audiencia Provincial de Barcelona (“APB”), in the course of the proceedings at issue here, has to rule on an appeal initiated by the plaintiff (APB Sección 15^a, Order of 24 October 2019, Rollo n^o 775/2019-2^a, previously unpublished; in the following references to paragraphs not otherwise specified below refer to this order). The plaintiff is asserting a payment of damages for additional cartel-related costs against the Spanish branch of a German parent company. The former is constituted under Spanish law as sociedad de responsabilidad limitada (SL). The case concerns the Trucks cartel, against whose participants the EU Commission imposed fines totalling EUR 2.93 bn. by decision of 16 July 2016. According to the official notice, one of the companies fined at the time was the defendant’s parent company. However, the plaintiff did not bring its action against the German parent, but rather against its Spanish subsidiary.

Why sue subsidiaries in the first place if you have their parents?

This is remarkable in so far as the parent company is often perceived as the target of choice in cartel damages litigation. Thus, harmed parties regularly turn to the parent company even if it was not one of the officially established cartel members. The reason for this is usually the higher attractiveness of the parent’s assets compared to those of subsidiaries. Nevertheless, the assertion of a claim against a (non-participating) subsidiary may under certain circumstances be favorable from the plaintiff’s perspective – e.g. if it is the national subsidiary of a parent company incorporated abroad. In particular, when the domestic subsidiary is considered as an equally reliable debtor due to its financial situation, bringing an action against it is better in line with the plaintiff’s interests. In principle, because it avoids additional costs and considerable delays that otherwise may result from the participation of parties domiciled abroad (e.g. by translating the procedural documents). Hence, the overall litigation risk is significantly lower.

However, the court with jurisdiction at first instance had dismissed the case as inadmissible (Juzgado de lo Mercantíl nº 7 de Barcelona, judgment of 23 January 2019, ECLI: ES:JMB:2019:981 – Sumal SL v. Mercedes Benz Trucks España SL). It argued that the defendant was not capable of being sued for cartel damages because the Spanish company itself had not been officially implicated in the infringement as the Commission’s decision only established a wrongdoing of the parent company. This defense is the gold standard in antitrust damages cases whenever the defendant is a group company which has not by name been the subject of an official decision. This line of argument goes back to the principle of distinct corporate bodies (as in the Salomon principle in English law). Put into a scheme it looks like this:

• (i) The Commission has identified an infringement of Art. 101 TFEU and established it by decision.
• (ii) The finding of a fine is expressly addressed only to the parent company.
• (iii) The defendant is neither included in the Commission’s findings nor is it identical as a legal person with the parent. From the defendant’s point of view, the violation of antitrust law thus constitutes an external conduct from which no liability arises according to the principle of personal responsibility.
• (iv) Since the defendant has no control or decisive influence over its parent company, the latter’s infringement is not imputable to the former. Therefore, the defendant is not liable.

At first glance, this chain of reasoning appears to be conclusive, at least in the isolated context of national liability law. An attribution of conduct giving rise to liability is in any case necessary insofar as the infringement in question does not constitute the defendant’s own conduct. If mother and daughter are regarded as separate legal entities in accordance with the principle of separation, the criterion of control (decisive influence) could be taken into account as an imputable fact. A subsidiary which, according to its nature, never controls the parent company, would then be de facto excluded from any liability in cartel damages cases if it did not commit the infringing behavior by itself. Nor would a sister company, which belongs to the same economic unit as the infringing company, be liable for cartel damages for lack of imputability via the criterion of control.

Antitrust infringements are the very own behavior of the economic unit

Against the background of the European Union law principle of economic unity it seems highly doubtful that an infringement can constitute behavior of its own on the part of one group company, but an external behavior on the part of the others. The APB also notes this by referring to the inconsistent handling of such constellations by Spanish courts. While a subsidiary’s capability of being sued for cartel damages caused by the parent company’s infringement is partially rejected as described above, there are also contradictory decisions which, in contrast, provide for an extension of civil liability to subsidiaries or even sister companies in the light of economic unity (para. 11). To the extent that in the latter sense the liability of the subsidiary for the parent company’s infringement is recognized, this can be legally justified considering the settled concept of economic unity under EU law (arguing in this sense and consequently also for the liability responsibility of sister companies cf. Kersting, Liability of Sister Companies and Subsidiaries in European Competition Law, available on SSRN; Wagener, Follow-up to Skanska – The ‘Implementation’ by National Courts So Far, available on SSRN).

With “undertaking”, the rules of EU competition law address a legal subject that – in deviation from the separation principle under national company law – is determined solely by economic considerations. The consistent application of this doctrine inevitably leads to the responsibility of all companies of the economic unit for a cartel infringement of the others (with further references Kersting, Liability of Sister Companies and Subsidiaries in European Competition Law, available on SSRN.). Since according to Artt. 101, 102 TFEU it is not a single company but rather the undertaking that commits the infringement, the legislator consequently assigns the resulting burden to the economic unit instead of an individual legal entity as defined by corporate law. This applies to fines as well as damages claims.

The referral questions: (caught) between separation principle and effective protection of competition

The area of conflict between the two approaches described now prompts the APB to refer the following specific questions to the ECJ for some answers (para. 16):

A) Does the principle of economic unity developed by the case law of the European Union allow for an extension of parent company’s liability in such a way that its subsidiaries can be held liable in the same way, or does the concept only apply in the reverse case of an extension of the subsidiary’s liability onto the parent for the conduct of the former?

B) Is the extent to which the concept of economic unity must be applied when dealing with intra-group relations to be exclusively determined considering circumstances of control or can it also be traced back to other criteria, such as the fact that the subsidiary may have benefited from the infringement?

C) If the extension of liability from the parent company to its subsidiaries is permissible, what conditions must be fulfilled to assert it?

D) If the above questions are answered in the affirmative and subsidiaries should therefore be responsible for infringements committed by their parent company, are those provisions of national law which require control in order to extend a subsidiary’s liability to its parent company compatible with Union law?

Liability as the flip side of the economic benefits (silently) drawn from the infringement

Without clearly positioning itself in this respect, the APB states in this context that it considers it quite possible not to identify the economic unit solely on the grounds of internal control mechanisms (para. 24). Rather, the ECJ ruling in the Skanska case (ECJ, judgment of 14 March 2019, C-724/17) in particular suggests that the corresponding doctrine of economic unity has to be applied much more widely (para. 17, 24). In concrete terms, against the background of this principle a competition law infringement by an individual group company could very well be interpreted as tortious act of all the other legally autonomous parts of the undertaking. As a consequence, each individual company of a bigger group could be held liable for an infringement by another company. This means that the need for imputability would no longer play any role in cartel damages litigation targeting member of the undertaking that is an economic unit out of which the infringement was committed. The legal principle of personal responsibility would not stand in the way of this, assuming that each member of the economic entity has in fact (if unconsciously) benefited from the infringement precisely because it forms part of the same. In this respect, liability is the flip side of corporate affiliation (Wagener, Follow-up to Skanska – The ‘Implementation’ by National Courts So Far, available on SSRN).

The (civil) liability of a group company would therefore not further depend on whether it, as legal entity, had made its own (direct or indirect) contributions to the infringement as long as it was a member of the economic unit by which the infringement was committed. That is because any group company (silently) profited of the infringement (para. 17). Ultimately, the bare affiliation to the undertaking involved in the cartel – that is the economic unit – would be sufficient ground to establish the liability of each individual legal entity (for this, Kersting, Liability of Sister Companies and Subsidiaries in European Competition Law, available on SSRN; Wagener, Follow-up to Skanska – The ‘Implementation’ by National Courts So Far, available on SSRN).

Extended liability under Spanish law

However, the order for reference also shows that the Chamber by no means considers the principle of separation as such to be outdated. Rather, it emphasizes its essential significance as a source of legal certainty and “decent order” in a rule of law state (para. 26). It was precisely for this reason that Spanish national law allows for a breach of this principle only in exceptional cases. Thus, Spanish law provides for an extension of liability if the legal person by whom a tortious act has been committed is merely an empty shell which a third party uses as a vehicle to conceal its own activities in order to ultimately benefit from limitations of liability under company law (“levantamiento del velo societario“, para. 26; this legal figure originates from the Anglo-Saxon legal tradition, where it is referred to as lifting/piercing the veil doctrine, cf. Gevurtz, Piercing Piercing: An Attempt to Lift the Veil of Confusion Surrounding the Doctrine of Piercing the Corporate Veil, available on SSRN). In a(n alleged) departure from the principle of separation, this legal figure thus extends liability to the persons behind the vehicle in order to ensure that legal entities do not provide a safe haven for abusive, in particular fraudulent, activities.

General liability of non-participating companies or only in case of economic unity plus X?

On the basis of this consideration, the Chamber expresses doubts as to whether the follow-on constellations under antitrust law could be regarded as exceptional in nature per se or only in individual cases with regard to the (perceived) breach of the separation principle. On the one hand, the practice of the EU courts on the liability of legal successors is implicitly based on the same considerations under whose consideration the Spanish legal practice already permits the extension of liability to intervene (para. 26). This would argue for a general extension of liability for cartel damages to all legal entities of economic unity.

On the other hand, the order for reference raises the question of whether further circumstances must not be added to the simple existence of group companies’ economic unity – e.g. “extraordinary difficulties resulting from an assertion of liability against the actors that have been considered in the previous administrative proceedings” (para. 26) – so that an action against group companies other than those would only then be admissible. The fact that in such “extraordinary difficulties” the court does not have in mind excessively high hurdles in the sense of unreasonable hardship (außergewöhliche/unbillige Härte) under German law is shown by the fact that the risk of time delays or additional costs due to the involvement of foreign parties in the court proceedings is cited as an example of such circumstances (para. 26).

The reader can guess how pointless meaningful the judges themselves consider this requirement to be on the basis of the immediately following remarks in their order. Thus, they point out that the additional time as well as the additional financial effort, which civil court proceedings against foreign parties entail for all parties involved, is usually completely useless for the cause. Especially in cartel damages litigation, the general defense in all proceedings before both domestic and foreign courts is ultimately coordinated centrally by the same law firms and attorneys in accordance with the interests of the entire company. In view of this circumstance, the additional expense does not create any added value for the judicial process (para. 27). In other words, the rejection of cartel damages cases or the group companies’ capability of being sued could not be reconciled with the principle of procedural efficiency.

To the extent that the Court’s reasoning implies that, in general, only those companies which are mentioned by name in the fining decision are capable of being sued, this must be countered independently of the ECJ’s upcoming answers to the questions now referred for a preliminary ruling. The starting point for the obligation to pay for cartel damages is, after all, neither the participant status in the administrative proceedings nor the mention in the decision, but rather the commission of a corresponding violation of competition law. This becomes clear in the differentiation of the types of cartel damages actions between follow on and stand alone. What actually crossed the judges’ minds was most probably the facilitation of evidence which a procedure based on the official findings entails. Of course, the respective content of a decision de lege lata is only binding for a court if the defendant is one of the legal entities listed in it by name. However, the fact that a plaintiff does not enjoy these facilitating benefits due to the lack of a corresponding decision is simply irrelevant for the question if a specific company is capable of being sued for cartel damages.

Private enforcement as an instrument for effective protection of competition

Apart from that, the referral court rightly recognizes that SMEs in particular would be badly hit if they were forced into a legal dispute with foreign entities for purely formal reasons. This is because the increased risk associated with lower amounts in disputes can come across as a factual “barrier to entry” with regard to the assertion of their rights (para. 27). By erroneously recurring to the principle of separation, private enforcement would be seriously weakened and EU competition law would be deprived to a large degree of its behavioral control effect for purely formalist legal reasons.

It is therefore already clear today that the replies sent back to Barcelona by the ECJ, if it responds to the submission in detail, could have a trend-setting character for the future of the entire European competition law practice.

Hans-Markus Wagener is a researcher and doctoral candidate at the chair of Prof. Dr. Christian Kersting at Heinrich Heine University Düsseldorf.