Redefining Attribution Of Liability In The Curious Case Of A Single Economic Entity
[Shivansh Shukla is a fourth year law student at NALSAR University of Law, Hyderabad]
Competition Law carves out an exception to the principle of separate legal personality in the form of Single Economic Entity (‘SEE’). The SEE takes into account circumstances wherein the conduct of one entity is attributable to another and both of the entities can be considered to be acting as one entity in the market. However, there seems to be no clear guidance on how to attribute liability in cases where a parent company is held responsible for the anti-competitive conduct of its subsidiary or sister companies. The Hong Kong High Court fears that companies can now be held liable for the actions of other companies in the same group, even if they are not directly involved in the infringement. This article aims to examine these concerns and determine their validity based on established competition law principles. It aims to propose an approach that can effectively address these concerns and provide clarity on the issue of liability attribution for SEE.
I. Development of Jurisprudence
The European Court of Justice (‘ECJ’) in Akzo Nobel v Commission (‘Akzo’) has acknowledged that the term ‘undertaking’ under Article 101 of Treaty on the Functioning of the European Union (‘TFEU’) includes an economic unit even if in law that economic unit consists of several persons, natural or legal. It thus, envisages holding a SEE liable in itself as an economic unit. However, the European Union (‘EU’) has been reluctant in attributing liability directly to the SEE and has engaged in what the author calls the ‘dichotomization’ of the SEE.
In Imperial Chemicals v Commission (‘Imperial Chemicals’), ECJ emphasized on the principle of parental liability and held the parent company liable for the conduct of its subsidiaries, merely on the grounds of decisive influence and despite the parent being wanting in involvement. Similarly, the parent was held jointly and severally liable in Akzo for concerted practises of its subsidiaries concerning price fixing and market sharing. It aligned the principle of parental responsibility with that of personal responsibility. A parent company that enjoys decisive influence over its subsidiary can be held liable for the anti-competitive conduct of its subsidiary since it failed to use its influence to ensure the latter’s compliance with the law. Thus, the EU has adopted an upward liability of model.
However, it has shied away from taking a similar stance with respect to attribution of liability to subsidiaries. In Imperial Chemicals, the ECJ did not hold subsidiaries liable despite their involvement in the anti-competitive conduct on the market and directed its decision only towards the parent company. The general position asserts that being in a SEE with its parent is not sufficient for attribution of downward liability to a subsidiary. Thus, the EU approach taken with regard to the attribution of liability to the subsidiary fails to align itself with the approach taken against parent companies.
The Competition Commission of Singapore (‘CCS’) considers an ‘undertaking’ as an economic unit and envisages the possibility of an undertaking comprising several legal persons. The section 34 of the Singapore Competition Act includes a SEE within its ambit. Additionally, it is willing to make use of the definition as opposed to the ECJ. The CCS in Re: CCS Imposes Penalties on Ball Bearings Manufacturers Involved in International Cartel (‘Ball Bearings’), unlike the Commission in Imperial Chemicals, found the subsidiaries liable for their involvement in an international cartel alongside their Japanese parents. The CCS rightly justified it on the grounds that the subsidiaries had no intention of denouncing the cartel or ceasing their participation. It further highlighted their failure to distance themselves from the cartel. The CCS opined that a company can be held liable for anti-competitive conduct of another company with which it forms a SEE since the SEE as a whole is responsible for the negative impact on the competition. It then proceeded with upwards liability to hold the parents liable for the conduct of their subsidiaries.
Additionally, the CCS has also employed the use of downward liability model. In Infringement of the Section 34 Prohibition in Relation to the Provision of Air Freight Forwarding Services for Shipment from Japan to Singapore (‘Freight Forwarding’), the CCS held subsidiaries to be liable despite there being no evidence to establish the involvement of subsidiaries in the meetings and concerted practises. It reiterated the observations made in Ball Bearings that a SEE is responsible as a whole for breach of competition law.. . Hence, it held the subsidiaries responsible as part of the SEE under the Competition Act despite them being not involved on the impugned conduct. The CCS, thus has used the doctrine of SEE to attribute liability downwards from parents to subsidiaries, diverging from the European parental liability model.
The primary fear in this issue is that SEE can lead to innocent companies being held liable for the conduct of other companies. For instance, a parent company being held liable for the anti-competitive of a rogue subsidiary or one, in which it is merely a holding company. However, the jurisprudence of SEE, as put forth in Delhi Jal Board v Grasim Industries Ltd., emphasizes on the idea of ‘perception’ alongside decisive influence. Therefore, an innocent subsidiary that knew nothing and did nothing that operates in an entirely different market cannot be held liable since it does not constitute a SEE with its parent. Similarly, a parent cannot enjoy decisive influence over a rogue subsidiary. Thus, the definition of SEE in itself takes into consideration the extreme possible scenarios and offers reasonability in attribution of liability.
The EU presumption of parental responsibility unnecessarily complicates the framework for attribution of liability and is a result of the needless dichotomization between the parent and the subsidiarySince both the companies are acting as a single unit in the market, they must be treated as one.The CCS in Freight Forwarding case has opened up this possibility by suggesting that it is open for the competition authorities to directly impose fines on the SEE without having to establish the personal liabilities of its constituents in the infringement. The ECJ in Sumal, S.L. v Mercedes Benz Truck España (‘Sumal’) has also followed the approach to hold that it is the single economic entity that commits the conduct and a subsidiary, if part of the unit, is liable for the losses caused by its parent. While the position of the EU is far from settled, it is a welcome change in the EU approach that brings it closer to the approach taken in Freight Forwarding. This approach equips competition watchdogs with both, upward and downward liability models and enhances their flexibility to deal with different facts and circumstances without engaging in needless dichotomization of a single economic entity.
Moreover, the downward attribution of liability to subsidiaries (domestic) also helps in foreign enforcement. It incentivizes foreign parent companies to cooperate with competition watchdogs and work towards resolving any competition law issues. It also acts as a bulwark against foreign parent companies acting with impunity by relying on the complex enforcement mechanism of alien decisions. It thus creates a level playing field in the market.
III. Harmonization with the Company Law
The attribution of liability in a SEE is in harmony with the company law. Generally, shareholders are not held responsible for the actions of a company. Hence, a holding company won’t be liable under the discussed approach. However, the extent of involvement is much higher in a SEE. Article 101(1) TFEU has thus deliberately used the term "undertaking" instead of "company" or "legal person" to bring the responsible entity within its ambit. This demonstrates a shift from an entity-based approach to an enterprise-based approach. The sphere of scrutiny has thus shifted from legal persona to the economic assessment of control and unity in action. Moreover, the EU has expanded the idea of enterprise approach to hold distinct companies jointly and severally liable if they act as part of a single economic entity, thereby increasing the liability of the entire group. As a result, the law not only shares liability between two companies but also holds the group as a whole accountable for anti-competitive conduct.
The approach taken by the CCS in Ball Bearings and Freight Forwarding, and the ECJ in Sumal go a long way to settling the troubled waters. It provides the competition watchdog with much-needed flexibility to tackle different kinds of cases and relies on the narrow interpretation of a SEE to inject reasonability in the attribution of liability. Additionally, a defendant company can evade the liability only if it can demonstrate that it did not constitute a SEE with the infringing company. This approach of holding the SEE liable as one entity saves much litigation on the issue of attribution of liability between two companies of the same group. This approach shall also help the competition watchdogs to impose greater fines on an infringement since turnovers of the entire group would be taken into account for the calculation of fines, and in easier enforcement of orders.