Competition across EU

By Bianca Cernitoiu

Joint ventures and the theory of single economic entity – not a classical perspective

Parental liability seems to become the rule in competition EU-cases regardless of the shareholding of the mother company

Under EU competition law, parent companies are held liable for the behaviour of their subsidiaries, whereas the notion of a single economic entity may entail more than one legal entity interlinked due to the mother company’s decisive influence over the group or a certain subsidiary.

Thus, “the subsidiary, although having a separate legal personality, does not decide independently upon its own conduct on the market, but carries out, in all material respects, the instructions given to it by the parent company”.[1]

The above was presumed for mother-companies with more than 90% shareholding in their subsidiaries, however in 2008, the European Commission held jointly liable the parent companies (i.e. El du Pont and Dow Chemical) of a joint venture (i.e. DuPont Dow), each parent holding 50% shares (and the case seemed a major deviation from the court precedents available to date). The competition accusation was that DuPont Dow, the joint venture company, participated in a cartel with other third parties.

In september 2013, the European Court of Justice upheld the Commission’s decision, holding El du Pont and Dow Chemical jointly and severally liable for the cartel conduct performed by DuPont Dow.

But how can a parent can exercise decisive influence with only 50% of the shares…?

As opposed cases in which the high shareholding allows the competition authority to presume decisive influence over the subsidiary, in the above reference case, the European Commission argued that the parent companies actually exercised decisive influence over their joint venture on the market of chloroprene rubber based on the following:

• Top management of the parents were the same individuals appointed as top management of the joint venture and enjoyed large administration powers over the joint venture’s business;
• Top management of the parents did in fact decide a certain market conduct for the joint venture – closure of a production facility in UK (that resulted in the alleged cartel infringement).

The argument of the European Commission was that, even if the parent companies were not able to impose decisions on their joint venture, they were present enough so that to be able to prevent the joint venture from acting in the cartel and thereby exercised decisive influence over its business strategy. In fact, these parent companies had the power to reject strategic decisions regarding their joint venture and so had to reach a common understanding in order to determin its commercial policy.

The novelty of the case… Not only a majority ownership of the share capital implies a decisive influence and so a possible joint liability of the parent companies, but also the aptitude of blocking the commercial activity of the daughter company. And let’s be honest, mother companies will have a hard time setting apart this corporate feature in relation to their subsidiary.

---

[1] ICI v Commission , 1972