Recent cases dealing with ultimate liability for competition abuses has again highlighted the increasing levels of enforcement of competition law. It is therefore essential that directors and all levels of management understand where legal liability can fall.
Authorities routinely look beyond the strict legal form of a corporate structure in order to ‘get to the bottom’ of who is ultimately responsible for abuses. Time and again we see authorities disregarding corporate structures and conclude that a subsidiary, a JV or an agent was implementing someone else’s cartel, and imposing fines on parents.
Parental Liability
It is settled law that parents have liability for subsidiaries’ competition abuses. The principle being the parent and subsidiary are in reality the same economic undertaking, and also that it would be easy to avoid liability if the strict separate legal entity principle were applied.
For example, in 2014 a private equity fund that exercised decisive influence over an investment was held liable for the investment vehicle’s abuses. The authorities emphasized that even though the fund was not alleged to have participated in, been aware of or facilitated the cartel in any way, it was liable.
This also has a large effect on the fines – the maximum fine that can be imposed is 10% of worldwide turnover. If a parent is liable, the 10% can be calculated on consolidated group turnover.
This case was a stark reminder of the need for funding documents, JV agreements and competition compliance programmes to be in place. It also highlights the need for investors to be actively involved in ensuring competition compliance systems are in place and implemented.[1]
Facilitation
The courts have confirmed that firms that facilitate a competition abuse, where it actively contributes in full knowledge of the relevant facts, is liable along with the main cartelists.
The range of facilitating behaviour is almost limitless, as is the range of facilitators: organising meetings, collecting and supplying market data, offering to act as a conciliator in the event of disagreements, serving as a communications channel and disseminating misleading information to non-cartelists.
Principal–Agent Relationships
It is settled law that principals are liable for an agent’s anticompetitive behaviour, even if it was not aware of nor consented to such behaviour. The same reasons for this liability apply as to subsidiary-parents. Many cartels are implemented through agent-salesmen, so this seems a sensible position.
A key point in principal liability is that the agent must act within the perimeter of its mandate and provide services solely to the principal.
A new liability – outsourcing (?)
A recent non-binding opinion suggests that the above categories should be substantially widened, to impose liability on companies that outsource services to a third party.[2]
According to the Opinion a presumption of liability on the company would apply regardless of:
- whether the third party acted within its mandate, and
- also whether the company was aware of the third party’s[3]
The company may rebut the presumption by demonstrating that it took precautions to prevent infringements by the third party.
This is highly controversial and at present the legal profession does not know whether this is a step too far. If, however, the court prefers the policy that “it would be too easy to hide behind a third party”, to the factual responsibility it will create an increased burden on outsourcing companies.
What You Can Do
The above has shown that there are a number of ways in which liability for competition law abuses can be incurred, which reflects the ever-increasing enforcement by regulators in the EU.
In order to minimize the risk of incurring penalties you should undertake a review of your practices and implement a competition compliance policy throughout the group, and so-called ‘independent’ companies that work for you.
The Competition and Markets Authority, wants to ‘embed’ competition compliance throughout the economy, which reflects the levels of awareness that needs to be achieved.
[1] For investment houses it is straightforward to see immediately how a lack of competition compliance measures could, with a bit of “bad luck”, receive large fines and key individuals could be prevented from acting in a board capacity.
[2] It is important to note that the conditions in the final paragraph of the ‘Principal-Agents’ section did not apply.
[3] Briefly, the facts are that a bidder (B1) engaged an independent consultant to help write its bid. It later came to light that the consultant had also worked with two other bidders (B2 & B3) – through the consultant’s knowledge of B1’s pricing, B2 and B3 amended their bids. The court found that there was no evidence that B1 had been involved in or even knew of the bid rigging. Undeterred, the case has been referred to the EU courts on the matter of B1’s liability.
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