The notion of undertaking after AG Pitruzzella’s Opinion in Sumal (case C-882/19). Towards (eventual) ‘downward’ liability for competition law breaches? (by Marcos Araujo Boyd)
On 15 April 2021, AG Pitruzzella issued his much awaited Opinion in Sumal (not available in English at the time of writing, see here for the text in various language versions), which concerns the question of whether damages may be sought from affiliates of the entities identified in a previous public enforcement decision.
Sumal is one of the four preliminary references submitted by Spanish commercial courts in the context of the flurry of claims following the Trucks decision of the European Commission, together with case C-30/20 Volvo seeking clarification on territorial jurisdiction and Article 7(2) of Regulation (EU) No 1215/2012, case 267/20 Volvo and DAF Trucks on the retroactivity of the Directive 104/2014 and the recently submitted case 163/21, PACCAR, on rules of evidence. These claims have been followed by multiple authors in Spain, notably Fernando Díez, Francisco Marcos and Juan Ignacio Ruiz Peris and raise many issues of interest in the field of private enforcement.
The interest on these matters of course goes beyond this country. Back to affiliate liability, as reported by Caroline Caufmann, a Dutch court has enforced a decision against an affiliate. In Germany, Christian Kersting has discussed in D’Kart a decision pointing at that direction from the Dortmund Landsgericht. I refer the curious reader to my article published earlier this year by the Journal of Competition Law & Practice (draft available on SSRN).
This post provides a brief introduction to the Opinion. The comments follow the document’s structure.
Procedure (paras 4-10). The initial paragraphs of the Opinion recall the context of the preliminary reference and the main procedural steps at the Court, which will hear the case in Grand Chamber, the observations formulated by two Member States (Italy and Spain) and the decision not to hold an oral hearing, replaced by written submissions on specific questions placed by the Court. (para 10).
Admissibility (paras 11-18). AG Pitruzzella opines that the admissibility objections raised by the defendant in the original case, Mercedes Benz Trucks España, S.L.(MBTE) should be dismissed, save in respect of the fourth question, for lack of sufficient information. That question (‘If the answers to the earlier questions support the extension of subsidiaries’ liability to cover acts of the parent company, would a provision of national law such as Article 71(2) of the Ley de Defensa de la Competencia (Law on the Protection of Competition), which provides only for liability incurred by the subsidiary to be extended to the parent company, and then only where the parent company exercises control over the subsidiary, be compatible with that Community doctrine?’) may arguably be responded anyway through the general principles on primacy and direct applicability of EU law.
General observations (paras 19-22). The Opinion proposes to address the three questions jointly and then summarises the main arguments of the parties. The interesting bit there is in paragraph 21, where AG Pitruzzella notes that the initial position of the Commission in the case was contrary to affiliate liability, a position that evolved in the last written statements, where the Commission would have conceded that the subsidiary could be made liable (i) if there is a ‘link’ between its conduct and an essential element of the infringement or (ii) if a direct claim against the parent company was impossible or excessively difficult. This second element is not discussed further in the Opinion.
The notion of undertaking (paras 23-31). This section recalls the case-law on the doctrine of ‘economic unit’ under EU competition law, starting with ICI (case 48/69, EU:C:1972:70) and stressing its functional nature. This part hovers around the idea that an ‘economic unity’ or undertaking is based on organisational, economic and legal links defined by control. A good summary, but nothing revolutionary.
The foundations of upward liability (paras 32-47). This part looks at the parental liability doctrine. This might surprise, given that this is clearly not an issue in Sumal; it could be said it would be the exact opposite. The intention is clearly to discuss ‘downward’ liability by contrast to the established notion of ‘upward’ or parental liability.
At the outset, the Opinion notes that parental liability as found in case-law might be understood to be based on two constructions (para 33). One would be that parent companies are liable because of their capacity to determine the conduct of an affiliate. Another is based on the idea that all legal entities form an economic unit. AG Pitruzzella notes that the answer to the questions formulated in this case may determine the answer to be given, and resolutely opts for the second alternative (para 36), finding support in the recent jurisprudence of the Court which has stressed that the principle of personality applies to the undertaking, not to each legal entity (para 46). This section ends with candid comments on the evolution that is perceived in various fields of law towards some form of ‘enterprise liability’ or similar tools based on the true economic nature of groups of companies (para 47).
Economic unit and ‘descending’ liability (48-53). The discursive section on upward liability contrasts with the brief comments on the downward dimension. That is understandable, since the latter is built on the prior section. However, two elements in this part of the Opinion deserve a mention.
One is the four-step intellectual process proposed to impute a legal entity in both upward or downward situations, aimed at presenting them as identical (paras 48-52). It ultimately defends that the identification of the legal entity is just a last step in the logic process of attribution.
The other is the reliance on the General Court decision in Biogaran (case T-677/14, ECLI:EU:T:2018:910), for want of a better (ie, from the CJ) precedent. That case had been mentioned by the referring court and is helpful in defending the liability of subsidiaries with unproven knowledge of the infringement. At the same time, however, is a remarkably weak foundation for a principle with the importance of the one at stake here.
In the end, and this should be stressed, the discussion does not address ‘why downward liability exists in law’ but rather ‘whether there are logical reasons to discard it’ (para 52). By so doing, Sumal evades addressing the question as an obligation based on EU law, but as a tool that EU law would tolerate in certain conditions. It is difficult to overestimate the importance of that approach for the solution proposed to this case.
The conditions for declaring joint liability of the affiliate (paras 54-59). This is arguably the most interesting part of the Opinion. In it, AG Pitruzzella notes that, in ‘upward’ (parental) liability scenarios, the fact that the parent company determines the conduct of the affiliate suffices to impute the conduct to the former; however, in ‘downward’ liability cases, the mere existence of control would not suffice, it being necessary that the activity carried out by said legal entity is necessary for the implementation of the conduct. That would be the case where the affiliate is involved in the specific economic activity under consideration, for example, by selling the goods object of the cartel (para 57). In this respect, the Opinion relies on several UK cases starting with Provimi (fn 70) and ENI (case T‑39/07, EU:T:2011:356). As mentioned above, this link had been required in the written submissions filed by the Commission.
When explaining this logic, the Opinion argues that a subsidiary carrying activities in other areas would fall outside the functional notion of undertaking for these purposes. The consequences of this logic are difficult to anticipate and will require further reflection.
Extension of these principles to private enforcement (60-69). Paragraphs 60 ff of the Opinion move away from logic of public enforcement and build on Skanska (case C-724/17, ECLI:EU:C:2019:204). AG Pitruzzella recalls that the determination of the liable entity is directly governed by EU law and notably that it may not have a different meaning in public and private enforcement, linking the discussion in the prior sections to the case, and concluding that downward liability is as acceptable in private as it is in public enforcement.
The reliance on Skanska is understood; it is however noted that, unlike Sumal, that case was based on the principle of effectiveness, displacing national rules when it would stand in the way of EU law. In contrast, as above noted, the Opinion discusses if EU law would permit, not require, such ‘inverse’ claims. In other words – the Opinion does not advocate that EU law would impose downward liability, treating an eventual failure to do so as a breach of EU principles (as in Skanska), but proposes confirming that EU law would not impede such attribution of liability within certain conditions. Consequently, the procedural obstacles faced by claimants are acknowledged (para 68), but in no way considered a barrier that would stand in the way of the rights granted by EU law and that national courts should disarm.
While this logic is understandable, it leaves unanswered the question of what principle of law, either EU or national, would require affiliates to be held liable for these damages, despite offering a construction that would ultimately impose legal obligations on legal entities. That, of course, is just one out of many questions that arises from this case and will require further reflection.
Binding nature of the determination in the public enforcement decision (70-76). The last section of the Opinion discusses whether the determination of the legal entity made in the public enforcement decision would bind the referring court. If so, national courts would, out of respect to the decision of the Commission under Art 16 of Regulation 1/2003, be prevented from imposing liability in a follow-on case on entities other than those specifically identified in it.
This is a tricky issue on which there is limited authority. In Martinair (case T-67/11, ECLI:EU:T:2015:984, 37) the GC declared noted that the identification of an entity in the public enforcement decision would bind national courts. AG Pitruzzella does not mention that case and moves swiftly to proclaim that the national judge can determine a different legal entity, provided that that entity meets the above criteria of participation in the infringement (para 74). At this point, the Opinion quotes the Commission as having accepted this logic in its written submissions, creating the impression that these statements may have played a role.
Conclusion The Opinion concludes that, in a claim for damages as that before the national court (ie, a follow-on claim), a legal entity may be held liable despite the fact that only its parent company has been sanctioned by the Commission provided that the economic, organisational and legal links at the time of the infringement have been established, and that the conduct of the controlled entity has contributed in a substantial manner to the illicit behaviour and to the effects of said infringement.
The matter is now laid before the Grand Chamber of the Court of Justice. An eventual acceptance to the proposals formulated by AG Pitruzzella would facilitate private enforcement claims. Some additional clarity on the requirements that affiliates must meet to be liable in these situations will be needed over time. The potential weakening of the binding nature of the identification of the liable entity seems a price the Commission is happy to pay. However, questions shall be raised on the legal basis for this solution. Time, and indeed the Court, will tell.
Chillin'Competition 
I guess that if the Commission is “happy to pay” a price (see conclusion on “weakening”) it may be due to the fact that such price simply does not exist. This is a free lunch. If judges “out of respect” do not want to do certain things, maybe they should leave politeness aside and do law. The choice of addressees in a Commission decision does not have to take into account enforcement issues, as the Commission’s powers are the same throughout the EU, and will try to limit the multiplicity of addressees (something that case law has very well understood). National enforcement (public or private) has different needs, which are largely complementary, not “running counter” (art 16 dixit), to that decision. Not being an addressee of a decision is not a “negative clearance” and never was. This is not really new or “tricky”, in my view.
Joan
16 April 2021 at 11:57 am
Many thanks for your comment Joan. I guess the question you raise is whether identifying specific legal persons in the decision matters at all. Case-law suggests it could – a subsidiary might be cleared eg because of not having been heard (as in TradeARBED) or because of statute of limitations (eg Akzo 2017). Would that entity find itself paying the fine down the road if Sumal goes ahead? I would argue that the identification of the entity in the decision (as an infringer or as cleared from the infringement) would carry some weight.
As to other subsidiaries, I find the fact that they have not been heard in the public enforcement procedure (a right that clearly corresponds to the legal entity, not the ‘undertaking’) disturbing in follow-on claims. Reading the law as their having been somehow ‘represented’ by another affiliate or even their parent and ‘heard’ already is some pill to swallow. I acknowledge this might be an inevitable casualty in the construction of the undertaking as a ‘person’, but find it tricky enough…
Again, many thanks for your thoughts!
Marcos
16 April 2021 at 1:23 pm
Marcos, let’s not try to read/interpret by implication things which are neither said nor implied (in my comment or in the AG Opinion). The subsidiary which is not addressee of the decision is not liable for the fine, of course, and nothing in prior comment suggests that it would be. The binding effect of the decision extends only to addressees, but this binding effect does not prevent others (another legal entity in same group, or an undertaking which was not addressee at all) from being held liable (by national authority/court) for the infringement, on the basis of evidence before a different authority. The subsidiary which is not addressee was not “cleared from the infringement”, I am afraid. The entity was probably not even investigated as such (no need for that), so there is nothing to be “cleared” of. There is no such a thing as “binding value of non-decisions”, even if I see the advantage practitioners (and their clients) may try to draw from such rather novel category. And no, rights of defence are not a problem, as they will be ensured at the appropriate national level of enforcement (public or private), since, as you rightly say, the rights of defence typically relate to the legal entity (and, again, my comment did not suggest the opposite), so there is nothing “disturbing” or to worry about on that side. The national authority/court may have to apply certain rules on limitations as well, which may not be identical to the ones applicable at EU level.
Joan
16 April 2021 at 2:27 pm
Thanks again for your reaction. On the points you raise:
– I was not referring to liability in respect of the the payment of the fine, but to the damages, but your comment raises an interesting question – why should the subsidiary pay the damages but not the fine? After all, both are consequences of the same infringement and serve a parallel goal under Skanska.
– With respect to the binding nature of the decision, I had in mind a (as I believe is the case in Sumal) a ‘classic’ follow-on claim, where the court would have limited powers to review on the infringement as declared by the Commission, and mentioned the eventual power to extend the binding force of that decision to other entities as in tension with that principle. You seem to suggest (hope not being misreading you) that this later procedure might have a relatively wide scope than I was assuming, hearing evidence on that extension in a manner consistent with the need to protect the rights of defence of the legal entities involved. That was actually my point – if Sumal goes ahead, national courts will have to reopen elements of attribution that one would have thought determined by the decision of the Commission. That is the ‘price’ I meant, so I believe we are on the same page there.
– Finally, I note we disagree on the value of a decision of the Commission specifically clearing a subsidiary (my Akzo 2017 example). I promise to reflect on it, let’s keep in touch!
Marcos
16 April 2021 at 3:26 pm
Marcos, consider a different angle. Art 16 “codified” Masterfoods. In Masterfoods the national court could not “run counter” the decision or, if intended to do it, it had to raise a preliminary reference of validity of the decision first. If one were to consider now that the court is “bound” by the “alleged clearance” (ie not being an addressee), the court should have in turn as counterpoint the possibility to “remove” the obstacle by raising a preliminary reference of validity. Now, if a court considers that it cannot held a subsidiary liable because it’s not the addressee, as this “runs counter” the “decision”, how can it raise a problem of validity of the decision? How can it remove the “obstacle”? The decision is surely not invalid just because it did not include some addressees. The solution to that is simple: art 16 is irrelevant here. There is no implicit clearance decision. I am not denying that there may be a debate about the value of certain elements of the reasoning of the decision, even if the operative part is the only binding part, but that’s a different matter, potentially for a future preliminary reference.
Joan
16 April 2021 at 4:14 pm
I wonder if the nullity argument adds much. Imagine a decision sanctioning a cartel, and a national court that comes to the conclusion that another competitor, either unmentioned or mentioned but not identified as a having participated in the illegal conduct in the operative part of the decision, took part in the cartel, and that court wishes to derive whatever conclusion (eg damages) from that infringement.
In that scenario, the fact that the decision of the Commission did not include the new infringer would not make it invalid. The Commission has discretion to limit its investigation to certain companies. The question is if under Article 16 Reg 1/2003 (or Art 9 Directive 2014/104) national courts should have the the power to supplement the list of addressees of a Commission decision in a follow-on case (whether it could do so in a standalone claim raises other issues that might be fact-specific and are not addressed here for brevity). I do not have a strong opinion on that. My comment merely noted that this is questionable. I still believe it is, especially if the new ‘infringer’ had been expressly cleared in the decision.
Many thanks, as ever, for your comments, much appreciated!
Marcos
16 April 2021 at 6:16 pm
Marcos, “questionable” it may be, but if the whole point of your comments was to say that things are simply questionable, I think we could have spared the time of the reader ;-). I think certain things are not questionable, I am sorry. Lawyers have to make calls about what’s right or wrong, ultimately. Raising questions is good with students and academics (just questioning things has the advantage that one is never really wrong), but ultimately real world is about taking decisions (sorry for digression).
If the case you have in mind is about somebody “expressly cleared in the decision”, then we are talking about different cases, as this is not the case in Sumal and I thought we were talking about Sumal. And I do not think Sumal is about “supplementing the list of addressees” of the decision, as nothing of the kind is at issue in that case. This is not merely a semantic issue. The decision will not be “supplemented” by the national court, and none of the legal effects normally attached to a Commission decision will be predicated of the judgment of the national court in a civil case.
The point in my last comment was a bit different, but probably not well explained. If the national court interprets that it is bound not to held liable a subsidiary, but there is no possible review of such “alleged” finding of “implicit clearance”, the plaintiff in the national court is left without a legal remedy, as the decision would deploy an alleged binding effect that would lead to direct dismissal of its case, but nobody can review the legality of such alleged effect (unlike the findings as regards the addressees). In a Union of law, I think that’s not possible. The plaintiff would have the case dismissed without a judge (normally, the EU court if it concerns the effect of a Commission decision) having a look at the substance of the alleged implicit acquittal. The problem is that the premiss was wrong: the national court was simply not so bound. There was no acquittal, or something to that effect. The problem is solved. There may be some other practical/legal issues involved, but that’s another matter.
Generally, the pre-1/2003 literature tended to consider that the “old” negative clearances did not bind national courts, but case-law was not yet univocal on that. Paras 24-25 of Tele2 Polska are clear about the exceptional nature of a negative/inapplicability decision in the system set up under 1/2003, so I do not think that “implicit” negative decisions (as regards to certain entities within an undertaking) have a place in the system. Anyway, I hope this is the last one, by now readers are probably bored. Maybe the ECJ will ultimately say that I am wrong, but that’s the risk of having a view, instead of just raising doubts.
NB: I am not sure if we agree or disagree on “Akzo 2017”. If the Commission was time-barred to impose a fine, this limitation only applies to the Commission, so I dare to say that this does not prevent others from doing something different, if their limitations rules are different. Generally I do not see any art 16 issue there: (a) if there is a finding of infringement, there is no a contradiction, and the impossibility to impose a fine does not prevent the granting of damages, of course; (b) if there is not even a finding of infringement, since the Commission did not consider that there was a legitimate interest to find an infringement for the past, there is no contradiction either, since clearly the Commission did not “acquit” the undertaking or intended to prevent others from doing it. To suggest that if the Commission does not impose a fine because it’s time-barred then no authority/court can find infringement and grant damages would mean that the EU limitation rules are also applicable at national level.
Joan
16 April 2021 at 9:01 pm
Again, many thanks for your very valuable ideas. A brief reaction:
– I do not know how to read your suggestion that questioning potential weaknesses in AG Pitruzzella’s Opinion would be useless in a debate between lawyers. That said, my comments were intended as academic.
– On the entities eventually cleared in the administrative decision, while our last exchanges had Sumal in the background we had moved to a different question – the potentially binding nature of the determination of specific legal entities in the decision of the Commission. I note your statement that the list of addressees would not be ‘supplemented’ either if later applied unmentioned or acquitted entities but I beg to differ – if a decision is applied in a follow-on case to entities other than those identified in its operative part, the decision would materially become as if addressed to those other entities. It is not a semantic issue but a legal one: it would produce legal effects in respect of addressees other than those initially identified. I understand some may not have a problem with that. I have my doubts, as explained.
– As to your last argument, I am unsure what you mean with the plaintiff not having a valid remedy. AG Pitruzzella’s Opinion does not defend downward enforcement because the plaintiff being left without a remedy. We are assuming here that the plaintiff could always have claimed against the parent company identified in the decision. Were that not the case there would probably be a good argument on effectiveness but that is not discussed either in the Opinion or on my post, and it would seem difficult that the Court took that perspective given EU rules on enforcement of judgments in the EU.
– Finally, on Akzo 2007 I wonder if the confusion comes from my assumption that we are discussing follow-on claims. In a standalone claim the judge may certainly identify other entities (provided its findings did not interfere with a decision of the Commission). However, in a follow-on action I find it questionable (no pun intended) that the national court would enforce the administrative decision against a formally acquitted legal entity as Akzo’s 2007 affiliate. I agree there might be arguments for that however – as noted in an earlier comment you seem to have a much more flexible perspective than I on what a judge may do in a follow-on claim.
Again, Joan, a real pleasure to correspond on this matter. I promise to reflect on your ideas and eventually revert bilaterally, since as you say blog readers may be bored by now (not me however). Many thanks again!
Marcos
16 April 2021 at 11:23 pm
Marcos, I think we are just having parallel monologues here. If I refer to the binding nature of decisions is because you made a point about it in your post. I am not shifting debates here. As I said I did not intend to continue this, but I will point out (really last one), as regards what you call now “Akzo 2007” (which was previously “Akzo 2017” in your literature) (a) that I was indeed referring to “follow-on” claims, as it is obvious to any reader, so no confusion about that, and (b) that, if you are referring to heat stabilisers cases (now I do not know any more with your moving dates and so many Akzo cases), the GC annulled the fine (art 2), but not the finding of infringement (art 1) (all confirmed in the 2017 ECJ judgment I thought you were referring to). The subsidiaries were, therefore, not “cleared” or “acquitted” (to use your expression) under any reasonable interpretation one may give to that expression. If your point is that impossibility to impose a fine to a legal entity (as expressly noted in a decision, due for example to limitation periods – applicable only to the Commission) translates into general impossibility to grant damages by a national court (as regards the same entity), I respectfully disagree. That could also mean, if one were to follow that logic, that granting immunity prevents granting damages. I understand the appeal of that approach for companies, but I respectfully submit that it does not have any basis whatsoever in law.
Joan
17 April 2021 at 8:53 am
Many thanks Joan. Yes, I meant Akzo 2017, apologies if anyone was confused. I take your point on that case. In the end, I gather that much of our debate boils down to what powers should national courts have in follow-on cases, especially when, as in Sumal, there is no obstacle to be removed through the principle of effectiveness. Very much looking forward to the judgment of the Court!
Marcos
17 April 2021 at 12:34 pm
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