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Europe Extends Parental Liability for Anti-Competitive Behaviour of Subsidiaries

AUTHORs: Kate McKenna DATE: 01/05/2017

In a recent decision, the Court of Justice of the European Union (the “CJEU”) affirmed that a parent company is liable for the competition law breaches of its subsidiaries, including where the European Commission (the “Commission”) is time-barred from fining the subsidiary.  This decision re-affirms and extends the controversial principle of parental liability which the CJEU has applied in many cases.

Relevant Facts

In Akzo Nobel NV and Others v European Commission (Case C-516/15 P), Akzo Nobel appealed a decision of the Commission in which Akzo Nobel (the “Parent”) was fined for the participation of itself and its subsidiary companies Akzo Nobel Chemicals GmbH and Akzo Nobel Chemicals BV (together the "Subsidiaries”) in a heat stabilisers cartel from 1987 to 1993.

The Commission decision found the Parent liable for the Subsidiaries’ participation in the cartel on the basis that the Parent and the Subsidiaries formed a single economic unit or ‘undertaking’.

The Subsidiaries, but not the Parent, left the cartel in 1993 and this meant that the Commission was time-barred from fining the Subsidiaries.  The question which the CJEU was asked to consider was whether this time-bar meant that the Parent could no longer be held liable for the Subsidiaries’ participation in the cartel?

The Court’s Decision

The CJEU re-affirmed the general principle of parental liability and found that it is not disapplied where the Commission’s power to impose fines is time-barred in relation to the infringing subsidiary.   Applying this principle to the relevant facts of this case, the CJEU found that the fact that the Parent was involved in its own right in the cartel justified assessing its liability differently to that of the Subsidiaries and imposing on it a fine on account of the Subsidiaries’ cartel behaviour.

Impact on Parent Companies

This decision acts as a reminder to parent companies of their liability for anti-competitive behaviour by a subsidiary.  The principle of parental liability has a huge impact on the level of exposure to competition law fines.   Fines of up to 10% of turnover can be levied and parental liability (ie, including a parent company’s turnover) can radically increase the maximum fine under this calculation.

Authored by Helen Kelly and Kate McKenna.