Widening the Net: The General Court Extends the Principle of Successor Liability in EU Competition Law 1
Widening the Net: The
General Court
Extends the Principle
of Successor Liability
in EU Competition
Law
Adrian Brown
Of Counsel, Herbert Smith Freehills LLP
Morris Schonberg
Associate, Herbert Smith Freehills LLP
Anti-competitive practices; Cartels; EU law; Parent
companies; Successor companies
Introduction
European Commission infringement decisions in cartel
cases have increasingly tended to concern conduct (and
sometimes even markets) that may be considered historic
by the time the infringement decision is ultimately taken.1
Although the limitation period for the Commission to
impose a fine in respect of infringing conduct is only five
years,2 in respect of a continuing infringement this period
only begins to run when the infringement ceases,3 and
the period is paused by any action taken by the
Commission or a national competition authority to
investigate the infringement.4 In any event, the limitation
period is only applicable to fining, and not the imposition
of liability for an infringement by the Commission which
is theoretically unlimited in duration.5 Furthermore, the
development of the concept of the “single and continuous
infringement” in the decisional-practice of the
Commission, and confirmed by the EU General Court,
has enabled the Commission to combine various strands
of infringing conduct, sometimes over successive periods
of time, into participation in a single continuing
infringement, thereby preventing penalties in respect of
earlier instances of infringing conduct from being
time-barred.6
All this means that there may be a significant gap
between the end of the infringing conduct and the date
when the Commission actually takes the infringement
decision.7 For instance, looking at the 13 cartel
infringement decisions taken by the Commission since
2010 alone,8 the average time between the cessation of
the infringement and the infringement decision, was
around 5 years and 9 months,9 a not insignificant interval.
Moreover, if one looks at the average time between the
actual commencement of the infringement and the
infringement decision, this increases to around 14 years.10
During this time there may have been significant
changes in the ownership, organisation or legal form of
the entities that are liable for the infringing conduct. An
entity that originally committed the infringement may
have been sold to another company by way of a share
sale, where it may have been left intact as an operating
company, or may have been simply absorbed into the
acquirer, having been dissolved as a legal entity.
Alternatively, the relevant business division of the entity
that committed the infringement may have been sold to
another company (an asset sale), meaning that the entity
responsible for the infringement no longer possesses the
business materials (assets and personnel) with which the
infringement was committed. Such issues raise significant
difficulties as a matter of practice, particularly in the
merger and acquisition context, where due diligence and
warranties must be carefully calibrated to adequately
reflect the risk borne by each party. Speaking publicly,11
Advocate General Kokott of the Court of Justice has
1
A notable example is the Commission’s infringement decision in Case 39.605 CRT Glass on October 19, 2011 which concerned a cartel which existed during 1999–2004
in relation to cathode ray tube glass, used in traditional televisions and monitors. Most high-end production of CRT televisions and monitors had ceased by 2010, replaced
by LCD flat panel technology.
2
Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules of competition laid down in Articles 81 and 82 of the Treaty, OJ L1/1, January 4,
2003.
3
Regulation 1/2003 art.25(2).
4
Regulation 1/2003 art.25(3).
5
Under art.7(1) of Regulation 1/2003 the Commission may make a declaratory finding of an infringement in respect of past conduct if it has a legitimate interest in doing
so and on several occasions the Commission has taken an infringement decision without imposing a fine in cases where the limitation period has expired, for example: Case
37.512 Vitamins (November 21, 2001) in respect of Sumitomo Chemical and Sumika Fine Chemicals (upheld by the General Court on appeal in Sumitomo v Commission
(T-22 and 23/02) [2005] E.C.R. II-4605); Case 38.337 Thread (September 14, 2005); Case 37.860 Morgan Stanley/Visa International and Visa Europe (October 3, 2007).
In such cases, while the levying of a fine may be time-barred, the imposition of liability may still serve as the basis for follow-on claims in damages, as well as a basis for
a fine uplift for recidivism in the case of future infringements by the same undertaking.
6
See for example, the Commission’s finding of a single and continuous infringement in Case 39.899 Gas Insulated Switchgear (January 24, 2007), upheld by the General
Court in Siemens v Commission (T-110/07) [2011] E.C.R. II-477 at [236]–[255] and Siemens Österreich and VA Tech & Distribution v Commission (T-122/07-124/07)
[2011] E.C.R. II-794 at [86]–[102], where the Commission contended with arguments from the parties that the cartel comprised two separate infringements.
7
Quite apart from the matter of the enforcement of fines, damages actions and consequent contribution proceedings have the potential to bite many years down the line
after the infringement decision. While succession issues in respect of such actions would at first glance fall to be determined by national, rather than EU law, it is possible
that EU law may well also influence the development of national laws in this area.
8
This takes into account cartel infringement decisions from January 1, 2010 to November 18, 2012. This does not include the infringement decisions in respect of Bolloré
in Case 36.212 Carbonless Paper (June 23, 2010) and Mitsubishi and Toshiba in Case 39.966 Gas Insulated Switchgear (June 27, 2012), which were re-adopted by the
Commission following successful challenges by these parties before the EU courts. Successful challenges and the re-adoption of infringement decisions further increase
the potential for a significant “gap” between the Commission of the infringement and the ultimate imposition of liability.
9
The largest gap occurred in Case 38.511 DRAMs—around 7 years and 11 months, notwithstanding that the Commission closed the proceedings with a settlement decision.
The infringement came to an end on June 15, 2002 and the Commission issued its infringement decision on May 19, 2010.
10
The largest gap occurred in Case 38.866 Animal Feed Phosphates—around 41 years and 4 months. The infringement commenced on March 19, 1969 and the Commission
issued its infringement decision on July 20, 2010.
11
At the International EU Competition Law Forum, organised by Studienvereinigung Kartellrecht in Brussels, March 14, 2012.
[2013] 34 E.C.L.R., Issue 1 © 2012 Thomson Reuters (Professional) UK Limited and Contributors
2 European Competition Law Review
highlighted this issue as one which requires greater
judicial consideration, in particular cases where a
purchaser of a company unearths past cartel “skeletons”
after the transaction is completed.
While the EU courts have developed principles to
govern succession to liability in such circumstances, in
two recent cases, SNIA v Commission12 and Uralita v
Commission,13 the General Court has arguably applied
these principles over-expansively and has extended the
scope of succession to liability to the point where it may
raise significant problems as a matter of legal principle
and practice. This article will provide an overview of how
the existing principles apply to a share sale and an asset
sale, and then consider these two judgments and the
problems they raise.
The principles of “personal
responsibility” and “economic
continuity”
Under the settled case-law, the EU courts have developed
two main principles that govern succession to liability,
the principles of “personal responsibility” and “economic
continuity”.
Under the principle of “personal responsibility”,
liability is to be attributed to the legal person who
operated the undertaking at the time that it committed the
infringement. As a legal person can be held liable only
for its own acts, so long as that legal person remains in
existence, it retains its liability—referred to as the
so-called “Anic rule”, after the case in which the principle
was articulated by the Court of Justice, Commission v
Anic.14 Where, however, the legal person that is liable for
an infringement is no longer in existence, under the
principle of “economic continuity”, the Commission may
identify the “combination of physical and human elements
which contributed to the commission of the infringement”
and then impose liability on the legal person which has
become responsible for their operation.15 The stated
rationale for this latter principle is to ensure proper
deterrence—the principle of economic continuity avoids
the result that the undertaking committing an infringement
may fail to answer for it due to the disappearance of the
legal person responsible for the undertaking’s operation.16
For this reason, it has been confirmed that the principle
of economic continuity applies where the entity ceases
to exist, either at law or economically, since a penalty
imposed on a legal person which is no longer
economically active is likely to have no deterrent effect.17
This deterrence rationale has also led to exceptions to
the principle of personal responsibility being applied,
particularly in the case of intra-group restructuring within
a group where liability has been found on the basis of
economic continuity even in cases where the transferor
entity has remained in existence as an economically active
legal entity. These exemptions are designed to ensure the
effective enforcement of competition law—if there was
no possibility of imposing a penalty on an entity other
than the one which committed the infringement,
undertakings could escape penalties by simply changing
their identity through restructurings, sales, or other legal
or organisation changes.18
Two factors accorded significance in the case law are
the existence of “structural links” between the transferor
and transferee following the asset transfer, and whether
the transferee is existing or newly-formed. Thus in
Aalborg Portland v Commission, the Court of Justice
pointed out that
“it is true that in Commission v Anic (paragraph 145)
the Court held that there can be economic continuity
only where the legal person responsible for running
the undertaking has ceased to exist in law after the
infringement has been committed. However, that
case concerned two existing and functioning
undertakings one of which had simply transferred
part of its activities to the other and where there was
no structural link between them.”(Emphasis added).19
In that case, Aalborg was newly-formed and the structural
link was a 50 per cent shareholding in the new company
retained by the transferor. Similarly, in Jungbunzlauer v
Commission, the General Court held (with reference to
Aalborg Portland v Commission) that economic continuity
applied in the context of an intra-group transfer where
the transferor had retained the production activities of the
relevant undertaking, but had transferred the management
and governance of that undertaking to the transferee group
company.20 In that case, the transferee was also
newly-formed and was the sister company of the
transferor.21
It appears that deviation from the principle of personal
responsibility may be more likely if there is evidence of
a strategy adopted for the specific purpose of avoiding
12
SNIA v Commission (T-194/06) judgment of June 16, 2011.
Uralita v Commission (T-349/08) judgment of October 25, 2011.
14
Commission v Anic (C-49/92 P) [1999] E.C.R. I-4925 at [145]; see also ETI v Commission (C-280/06) [2007] E.C.R. I-10893 at [39]-[40].
15
Enichem v Commission (T-6/89) [1991] E.C.R. II-1623 at [237].
16
Enichem v Commission (T-6/89) [1991] E.C.R. II-1623. See also ETI v Commission, Opinion of AG Kokott at [80], where the Advocate General argues that the principle
of economic continuity therefore ensures that the person held responsible is the one who gains from any profits and increases in value of the undertaking due to the cartel,
and that, as the economically active new operator, this person will conduct itself in future in compliance with competition law.
17
ETI v Commission at [40]; NHM Stahlwerke v Commission (T-134/94) [1997] E.C.R. II-2293 at [135]–[137], referred to in HFB v Commission (T-9/99) [2002] E.C.R.
II-1487 at [106].
18
Hoechst v Commission (T-161/05) [2009] E.C.R. II-3555 at [51]; ETI v Commission at [41].
19
Aalborg Portland v Commission (C-204/00 P) [2004] E.C.R. I-123 at [359].
20
Jungbunzlauer v Commission (T-43/02) [2006] E.C.R. II-3435 at [122]–[134].
21
In a further case, ETI v Commission, in the context of entities under the control of a public authority, the court reasoned that economic continuity may be made out where
two entities, “have been subject to control by the same person within the group and have therefore, given the close economic and organisational links between them, carried
out, in all material respects, the same commercial instructions.” (At [49]).
13
[2013] 34 E.C.L.R., Issue 1 © 2012 Thomson Reuters (Professional) UK Limited and Contributors
Widening the Net: The General Court Extends the Principle of Successor Liability in EU Competition Law 3
the imposition of penalties for the infringement.22
Arguably, the two factors mentioned above, existence of
‘structural links’ between the transferor and transferee,
and whether the transferee is existing or newly-formed,
are aimed squarely at this point.
Closely linked to the principle of personal
responsibility, is the principle of “legal continuity” under
which a company that “absorbs” another company by
merger, also absorbs any liability held by the latter for
an infringement.23
to transfer liability for an infringement cannot be relied
upon against the Commission to apportion liability
between companies.28
Where the transferred assets continue the infringement
under the responsibility of the new owner (and the
company previously responsible for those assets remains
in existence), in accordance with the principle of personal
responsibly, liability is only to be attributed to the new
owner from the time which it acquires control over the
assets.
Application to a share sale and an asset
sale
Share Sale
To illustrate the operation of these principles, we apply
them below to the succession issues arising in a share
sale and an asset sale:
Asset Sale
Where assets involved in an infringement are transferred,
the company previously responsible for those assets
continues to be liable as long as it remains in existence,
in accordance with the principle of personal
responsibility.24 It is only when that company no longer
exists that the company that has acquired the assets
responsible for the infringement attracts liability for the
infringement on the basis of economic continuity.25 As
noted above, this is however subject to potential
exceptions in certain cases, particularly in the context of
intra-group restructuring. Indeed, in her opinion in ETI
v Commission, Advocate General Kokott proposed that
even where there is no “structural link” between the
transferee and the transferor, an exception to the principle
of personal responsibility should be made out whenever
there is an element of “abuse”, i.e. the intention of
avoiding the fines for an infringement.26 The potential for
future exceptions being identified therefore remains open,
meaning that there remains a degree of uncertainty in this
area.
In addition, a separate, very limited exception exists
where an acquirer makes an express written statement to
the Commission in the context of the administrative
procedure that liability for the past infringements of the
former owner of the transferred business should be
attributed to it, as was the case in Krupp Thyssen v
Commission.27 On the other hand, it has been established
that contractual arrangements by which a party intends
Where a company that is liable for the infringement is
sold to another legal person by way of share sale and
remains in existence, continuing its activity as a subsidiary
company, it retains its liability in accordance with the
principle of personal responsibility.29 This is the case
irrespective of whether or not the infringement has ceased
before the transfer.
However, the former parent also remains liable
(usually, jointly and severally) after the transfer for the
infringing conduct of the subsidiary company during the
period of its ownership, should the conduct of the
subsidiary be attributed to it in accordance with the rules
governing parental liability.30
Where such a subsidiary company continues the
infringement after the transfer and liability can be
attributed to the new parent, the new parent can only be
held responsible for the conduct of its subsidiary with
effect from the date of acquisition.31
However, where upon a share sale the infringing
company ceases to exist but is “absorbed” into the
purchaser, the purchaser succeeds to the acquired
company’s previous liability in accordance with the
principle of legal continuity.32
The SNIA and Uralita judgments
While the precise facts are complex, both of these cases
concerned situations where the parent company of a
subsidiary that had committed an infringement was,
following the cessation of the anti-competitive conduct,
“absorbed” by another company. The successor company
was then held liable by the Commission for the
infringement. In both cases, the Commission’s approach
was upheld by the General Court on the ground that the
parent company itself had been personally liable for the
22
HFB v Commission (T-9/99) [2002] E.C.R. II-1487 at [107].
Raiffieissen Zentralbank Osterreich v Commission (T-259/02-264/02 and 271/02) [2006] E.C.R. II-5196 at [326].
24
SCA Holding v Commission (C-297/98 P) [2000] E.C.R. I-10101 at [27]–[28].
25
Commission v Anic (C-49/92 P) [1999] E.C.R. I-4925 at [145].
26
ETI v Commission Opinion of AG Kokott at [81]–[84].
27
Krupp Thyssen Stainless and Acciai speciali Terni v Commission (T-45/98 and T-47/98) [2001] E.C.R. II-3757, upheld on appeal in Joined Cases C-65/02 P and C-73/02
P [2005] E.C.R. I-6773. The acquirer will not be able to revoke such a statement after the Commission has actually imposed a fine in reliance on the statement, nor is the
acquirer able to challenge the Commission’s interpretation of the statement where it already had several opportunities to do so before the limitation period for imposing a
fine on the transferor expired, ThyssenKrupp Nirosta GmbH v Commission (C-352/09 P) judgment March 29, 2011 at [153]–[154].
28
Hoechst v Commission (T-161/05) [2009] E.C.R. II-3555 at [65].
29
Case C-279/98 P Cascades v Commission [2000] ECR I-9693 at [78]–[80].
30
For example, Areva v Commission [2011] E.C.R. II-633 at [116]–[120].
31
Stora Kopparbergs Bergslags v Commissions (C-286/98 P) [2000] E.C.R. I-9925 at [37]–[39].
32
Raiffieissen Zentralbank Osterreich v Commission at [326].
23
[2013] 34 E.C.L.R., Issue 1 © 2012 Thomson Reuters (Professional) UK Limited and Contributors
4 European Competition Law Review
infringement on the basis of parental liability. When the
parent company was then absorbed, this liability had been
transferred to the successor company.
Interestingly, in both cases the successor company
itself held a significant proportion of shares in the former
parent company during the period of the infringement
and prior to the absorption—in the SNIA case, this holding
was 53–59 per cent, while in the Uralita case it was
around 50 per cent. In the SNIA case, this fact was
accorded significance by the General Court as
“reinforcing” its conclusions.33 The court stated that the
absorption should be considered part of an internal
restructuring within a group of companies united by a
structural link, corroborating the existence of “economic
continuity”. In the Uralita case, however, the successor
company’s existing shareholding in the former parent
company during the period of the infringement was not
mentioned as being relevant, and therefore the General
Court’s conclusions in that case should be considered as
standing on their own—the Commission is able to impute
liability to a successor company which “absorbs” a parent
company whose subsidiary commits an infringement for
which it would have been liable through parental liability.
This represents a significant expansion of the “absorption
principle” mentioned above.
While this development may seem like a
straight-forward application of the existing succession
rules in the context of parental liability, it clearly raises
a number of difficulties both in principle and in practice.
First, the rationale for parental liability is founded on the
basis of personal responsibility and effective enforcement
of the competition rules—that liability is to be attributed
to the legal person who operates the undertaking that
committed the infringement, i.e. the principal of the
undertaking (the parent company), which is also most
likely to ensure that in future the undertaking conducts
itself in compliance with competition law.34 It is difficult
to see how these reasons may apply in circumstances
where the parent company has been absorbed by an
unconnected purchaser which was not part of the
infringing undertaking at the time of the infringement,
and in circumstances where the infringing subsidiary is
no longer part of the undertaking.
The conclusion also appears questionable from the
perspective of ensuring adequate deterrence more
generally in the market (and the principle of economic
continuity). Where the company directly responsible for
operating the undertaking concerned—the former
subsidiary—is still in existence, fining this company alone
should provide sufficient deterrent effect for other market
participants. This will not be a case where the
anti-competitive conduct is allowed to go unsanctioned.
This development also clearly raises a number of
problems in practice. First, it opens up the possibility that
an unconnected purchaser may acquire liability that had
been imposed upon a former parent company through the
Akzo Nobel presumption35 (i.e. the presumption that a
parent company that has a 100 per cent shareholding (or
close to 100 per cent)36 in its subsidiary, exercises decisive
influence over the subsidiary and therefore may be held
jointly and severally liable for its infringement). Indeed,
this was the case in both SNIA and Uralita, although, as
noted above, the successor entities were not unconnected,
having held significant shareholdings in the former parent
companies prior to their merger. Under the established
case-law, the Akzo Nobel presumption is meant to be just
that—a presumption only, that can be rebutted by the
parent company, “adducing sufficient evidence that its
subsidiary acts independently on the market.”37 Since
there has yet to be a case where an exception to this
presumption has been successfully pleaded, clearly an
unconnected purchaser which absorbs a parent company
that would have been held liable for its subsidiary’s
infringement under the Akzo Nobel presumption,
realistically is not going to be in a position to rebut the
presumption. This adds credence to the argument that the
Akzo Nobel presumption leads to a system of “strict
liability”.
Secondly, in the context of an actual transaction, this
development significantly increases the scope of due
diligence required. Purchasers of a parent or intermediate
holding company will not only have to check for the
involvement of that company in a cartel but also for the
involvement of any of its subsidiaries (past and present).
This would extend to both direct and even indirect
subsidiaries, as the case-law has established that the Akzo
Nobel presumption applies in both cases.38
Conclusion
While the SNIA and Uralita judgments may at first glance
appear like straight-forward applications of the existing
succession rules in the context of parent companies, when
considered more carefully, it is clear that they raise
significant difficulties both as a matter of principle and
practice. It would appear that, up to now, the
33
The General Court also highlighted the successor company’s ability to appoint all the directors of the former parent company’s board, as well as actual evidence of
involvement in the decision-making of the parent and subsidiary companies; SNIA v Commission at [65].
34
See the discussion in the Opinion of AG Kokott in Case C-97/08 P Akzo Nobel v Commission [2009] E.C.R. I-8237 at [39]–[41].
35
Akzo Nobel v Commission [2009] E.C.R. I-8237 at [60]–[61].
36
See, e.g. Elf Aquitaine v Commission (T-299/08) judgment of May 7, 2011 at [55]–[56] where the General Court held that a 97% shareholding was sufficient to raise the
presumption.
37
Akzo Nobel v Commission [2009] E.C.R. I-8237 at [61]. While there remains no actual case where the Commission or the EU courts on appeal have deemed that the
parent company adduced sufficient evidence to rebut the presumption, the potential for doing so has been underlined by the General Court and the Court of Justice: in L’Air
Liquide v Commission (T-185/06) and Edison v Commission (T-196/06) judgments of June 16, 2011 and Elf Aquitaine v Commission (C-521/09) judgment of September
29, 2011, the General Court and the Court of Justice annulled the Commission’s infringement decisions in respect of these companies for failure to state reasons as to why
the detailed evidence put forward by the companies aimed at rebutting the presumption had been rejected. In Ballast Nedam Infra v Commission (T-362/06) judgment of
September 27, 2012, the General Court partially annulled the Commission’s infringement decision on the ground that the Commission had not adequately indicated in the
statement of objections that it intended to hold the applicant liable on the basis of the presumption, thus depriving the applicant of the ability to effectively exercise rights
of defence in respect of rebutting the presumption.
38
General Quimica v Commission (C-90/09 P) [2011] E.C.R. I-1 at [84]–[89].
[2013] 34 E.C.L.R., Issue 1 © 2012 Thomson Reuters (Professional) UK Limited and Contributors
Widening the Net: The General Court Extends the Principle of Successor Liability in EU Competition Law 5
jurisprudential lines concerning parental liability and
succession have been developed independently, without
reference to each other. Combination of the two regimes
can therefore lead to problematic results. Indeed the
applicants in Uralita argued that it was, “wrong to
combine two causes for the imputation of liability”39—this
criticism has some force so long as the two regimes
remain disjointed.
39
40
The applicants in SNIA have appealed the General
Court’s judgment to the Court of Justice.40 While
Advocate General Kokott clearly has the issue of the
refinement of the succession rules on her radar and
uncertainties remain to be addressed in the application of
the rules, it is the interaction between the succession
regime and the parental liability regime which presents
the more pressing problem. It remains to be seen whether
the Court of Justice will take the opportunity to lay down
a more coherent approach.
Uralita v Commission at [23].
The appeal was lodged on August 31, 2011 and has been assigned case number C-448/11 P.
[2013] 34 E.C.L.R., Issue 1 © 2012 Thomson Reuters (Professional) UK Limited and Contributors