In today's economy, the observance and enforcement of fair competition is not only essential to guarantee the protection of consumers' interests, but it is also a crucial process for market operators and national economic indicators," says Domantas Velykis, Junior Associate at AVOCAD.
According to him, unfair competition law infringements must be subject to proportionate and dissuasive penalties. And when is joint and several liability applicable for competition infringements?
In practice, it is not uncommon for a company that owns all the shares of another company to exercise decisive influence over such a subsidiary, which may result in the parent company taking decisions that determine the subsidiary's actions on the market, which may meet the criteria for an infringement of competition law. In order to ensure that a parent company exercising decisive influence and taking decisions for a subsidiary does not escape liability, the Court of Justice of the European Union (" CJEU") has established the rule that, once the circumstances of decisive influence have been established and proven, such companies are considered to be a single economic entity and, therefore, the parent company and the subsidiary are held jointly and severally liable for infringements of competition law.
In the EU, competition law is characterised by strict levels of fines and the application of joint and several fines. The scope for joint and several liability has been particularly extended by the CJEU in the 2021 case The Goldman Sachs Group Inc. v Commission. The parent company owned only 33% of the shares in the subsidiary, but these shares conferred 100% of the voting rights. This subsidiary owned the shares of two other companies which committed competition law infringements by participating in the electricity cable cartel. The European Commission's investigation of the infringement revealed that the parent company was able to exercise a decisive influence over the two infringing subsidiaries, resulting in a joint and several fine of as much as €37,303,000 being imposed on the three legal entities. Following an appeal against the imposition of such a penalty, both the General Court of the European Union and the Court of Justice of the European Union upheld the lawfulness of the imposition of such a joint penalty.
In Lithuania, the legal regulation establishing the right of the Competition Council to impose joint and several liability has entered into force only at the end of 2020. The Competition Law provides that where two or more natural or legal persons carrying out economic activities act as a single economic entity, the parent company and the subsidiary shall be jointly and severally liable for infringements of this Law, as well as the other persons carrying out economic activities forming the economic entity. This aligned the national legal framework with the application of joint and several liability inherent in European Union competition law and the case law of the CJEU interpreting it.
Until this period, the possibility of joint and several liability for competition law infringements had been established exclusively in case law, first by the CJEU and later, with exceptions, by the Lithuanian administrative courts.
The CJEU has established the rule that the concept of an economic entity covers all entities engaged in an economic activity, irrespective of that entity's legal status and the way it is financed, and must be understood as meaning an economic unit, even if that unit is legally composed of several natural or legal persons, so that, if a legal person constituting an economic unit commits an infringement of competition law, the other legal persons constituting the economic unit may also be jointly and severally liable for the infringement.
Of particular importance for the application of joint and several liability is the development of the presumption of decisive influence in the case law of the CJEU - where a parent company owns all or almost all of the shares of a subsidiary that has committed an infringement of the competition rules, the parent company is able to exercise a decisive influence over the market behaviour of the subsidiary, and therefore there is a rebuttable presumption that the parent company in question does in fact exercise a decisive influence over the behaviour of its subsidiary.
In order to impose joint and several liability for competition law infringements, it is sufficient to establish and prove that the parent company owns the entire capital of the subsidiary, and the burden of proving that the presumption of decisive influence is rebuttable rests with the infringing parties. In order to rebut this presumption, the person liable must rebut the actual exercise of decisive influence not only by reference to the relationships within the scope of company law, but also by assessing all relevant economic, organisational, legal and even personal relationships. The grounds for rebuttal of such a presumption are problematic, but are recognised as proportionate to the objectives of joint and several liability for competition law infringements.
Having examined the case law of the administrative courts, the most important conclusions for businesses when joint and several liability for competition law infringements is excluded, which are not directly related to the rebuttal of the presumption of decisive influence, are as follows:
- when considering the application of joint and several liability for infringements committed before the amendment to the Competition Law entered into force on 1 November 2020, the administrative courts have systematically stated that at the time the infringements were committed, the Lithuanian legislation did not provide for the possibility of applying joint and several liability, and that therefore, joint and several liability is not applicable, in accordance with the principle provision of the Constitution that punishment may be imposed or applied only on the basis of the law;
- if the competition law infringement committed before 1 November 2020 does not fall within the scope of Article 101 TFEU, i.e. The courts may not rely on the case law of the CJEU, which in such a case has only the value of an additional, non-binding source of interpretation of the law, and therefore, the courts of the Republic of Lithuania may interpret the application of joint and several liability in competition law in the national context, in accordance with the court's prerogative to individually develop the practice of application of joint and several liability in the Republic of Lithuania for infringements of the law on competition;
- in the case of an infringement of competition law committed before 1 November 2020, i.e. when this type of liability is not provided for by the law, the application of joint and several liability to an undertaking, for example, a parent company and a subsidiary, violates the principle of individualisation of the fine, as the provisions of Articles 35 and 36 of the Law on Competition in force at the time of the commission of the infringement could not be interpreted in such a way that the legal entities constituting the undertaking could be subject to a joint (joint) fine rather than an individual fine.
In view of the above amendment to the Competition Act, which will enter into force at the end of 2020, administrative courts will not be able to apply the above reasons for not imposing joint and several liability on competition law infringements committed after 1 November 2020. Therefore, it should be appreciated that parent companies seeking to avoid joint and several liability for infringements of competition law committed by their subsidiaries later than 1 November 2020 will, in principle, only have the possibility to seek to rebut the presumption of decisive influence by proving that the subsidiary was not subject to decisive influence. However, the case-law of the administrative courts on the application of joint and several liability for competition law infringements committed after 1 November 2020 has not yet been established, and it is therefore left to await such case-law.