Parental Liability: Goldman Sachs v Commission (T-419/14)

Infringement

On 12 July 2018, the General Court (the GC) upheld an infringement decision of the European Commission (the Commission) made on 02 April 2014, in which the Goldman Sachs Group Inc (GS) was found jointly and severally liable with its indirect subsidiary Prysmian for violating Article 101(1) TFEU.

The Commission’s initial decision concerned a cartel (involving market and customer sharing) for (extra) high voltage submarine and underground cables. The commission imposed on GS a fine of around €37m, jointly and severally with Prysmian (because, inter alia, a GS-owned funds had high shareholdings therein).

In its infringement decision, the Commission applied the principles set out in the Court of Justice’s ruling in Akzo Nobel, which provide that a parent company that exercises “decisive influence” over a subsidiary can be held liable for the competition law infringements of that subsidiary. Decisive influence depends on the level of equity a parent has in a subsidiary and/or whether it is functionally controlling the actions of the subsidiary (eg, by appointing board members).

The current case law imposes a rebuttable presumption of decisive influence in two cases: the first is where a parent, directly or indirectly, holds 100% of the shares in a subsidiary (found in Akzo) and the second is where a parent holds all or almost all the shares in an intermediary company, which in turn owns all or almost all the shares in a subsidiary of its group (found in the Court of Justice ruling in Eni v Commission). Historically, the threshold to qualify for “all or almost all” has never been lower than 93%.

In its decision, the Commission found the rebuttable presumption arose since GS held 100% of the voting rights in Prysmian and its subsidiaries, and so held GS liable for the actions of Prysmian.

GS appealed the decision, claiming that (i) the Akzo presumption could not apply in this case, since the GS funds’ shareholding in Prysmian was not 100% and (ii) that Eni presumption could not apply either since the historic threshold had not been met (GS’s fund hovered between 84 and 91% through the period of infringement).

Ruling

The GC rejected these arguments and, relying on a series of (largely unpublished) decisions, found that the Akzo presumption can apply in cases where the parent has less than 100% shareholding, but where it is able to exercise all the voting rights and therefore conduct company business independently of any other interests in the company. Given that GS, in this case, was able to exercise all the voting rights over Prysmian, the GC held that the Commission had not erred in applying the Akzo presumption had been met. The GC also held that the Commission rightly noted other factors demonstrating decisive influence, including GS’ ability to appoint board members call shareholders meetings, and remove directors from office.

The General Court further held that, although GS’s ownership of Prysmian was through a fund vehicle (GSCP V Fund), the Commission was correct in finding that GS was not a pure financial investor (which otherwise acts as a safeguard against parental liability). The court noted that the concept was not a legal criterion but rather a set of circumstances through which a parent could attempt to rebut the Akzo presumption, and that the circumstances were not present in this case.

Comment

This case underlines a trend towards a broad application of parental liability in EU competition law and, combined with the rest of the case law, should serve as a reminder to companies active in the investment space that it has become increasingly difficult to avoid liability for competition law infringement.

It is a call for greater due diligence at the point of acquisition and for greater levels of compliance monitoring and risk management during ownership, regardless of whether they consider these assets to be pure financial investments.

For example, private equity houses with relatively moderate shareholdings (eg 35%) should still ensure proper compliance with competition law within their portfolio companies, especially where they hold certain rights, giving them the possibility of intervening in company affairs (for example, negative veto rights, and the right to appoint or dismiss board members). Such shareholders with the possibility of exercising decisive influence over the business strategy of a subsidiary may be presumed, in the absence of proof to the contrary, to have the possibility of influencing compliance with competition law. Therefore, a failure to exercise such power of supervision cannot be ground to decline liability later.