It goes without saying that liability is one of the crucial issues in competition law enforcement. From the perspective of antitrust regulators, it makes no sense to conduct longstanding investigations and to impose fines if undertakings may easily escape liability. Fines imposed by regulators are meant to deter the undertaking concerned as well as other undertakings from engaging in or continuing illegal behaviour. Whilst the EU has powers to also hold parent companies liable, the same is not true for every jurisdiction, as the example of Ukraine shows.
One of the key principles of cartel enforcement in the EU is that the the European Commission is able to hold parent companies as jointly and severally liable for antitrust infringements of a subsidiary. This is much more difficult in other jurisdictions including, for example, in Ukraine. But nowadays, more than ever, a political will seems to exist in Ukraine to align local competition law with the rules in the EU.
To recap, in the EU, there is an established concept of decisive influence and parental liability, which has seen an important clarification not so long ago:
The “standard” presumption of decisive influence
The so-called parental liability doctrine implies that the conduct of a subsidiary may be imputed to its parent company as long as the parent exercises decisive influence over the infringing subsidiary, i.e., can determine the subsidiary’s economic and commercial strategy.
EU courts have held that there is a hardly rebuttable presumption that a parent company does in fact exercise decisive influence over its subsidiary where it has a 100% (or near 100%) shareholding in the subsidiary.
The “innovative” presumption of decisive influence
In its Goldman Sachs judgement, the European Court of Justice (ECJ) dealt with a decision by the European Commission which found that Goldman Sachs was liable for infringements of one of its portfolio companies, which Goldman held for about 3.5 years. The court found that:
- It is not the mere holding of all or virtually all the capital of the subsidiary in itself that gives rise to the presumption of the actual exercise of decisive influence, but the degree of control of the parent company over its subsidiary. Decisive influence may arise when the company holds all voting rights.
- Decisive influence can be based on a range of factors, among others, the ability to appoint the members of the boards of directors, power to call for shareholders meetings and powers to receive regular updates and monthly reports.
Neither the European Commission nor the ECJ accepted Goldman Sachs’ argument that it was a purely financial investor and was only involved in high-level, non-operational matters not concerning the conduct of the portfolio company.
Thus, when the judgement came down in 2021, commentators found that it was a clear signal to financial investors that they could not as easily escape fines as some of them might have assumed.
The concept of liability in Ukraine
Ukrainian competition law does not explicitly recognize parental liability. That means that parent companies are not jointly and severally liable for illegal conduct of their subsidiaries.
In practice, fines are imposed on the entity which was involved in the illegal conduct and consequently said entity is liable for the payment of that fine. This leaves room for escaping liability, when, for example, the entity that has committed an infringement is liquidated or has transferred the business and assets to another entity. This is not a mere theoretical possibility, but an option which defendants actually use in practice (which, I learnt, was similarly possible in Germany when the so-called Wurstlücke – translates to “sausage gap”, an important new German word! – still existed).
As you might imagine, this situation has led to some frustration at the Ukrainian antitrust regulator AMC. The need for changes has been widely discussed by legal experts and international organizations, including the OECD. So, in 2021, a draft law was indeed registered with the Ukrainian Parliament, stipulating for numerous changes to competition law. The said draft law is, inter alia, supposed to introduce the concept of joint and several liability.
However, under the new law, and different from the EU, joint and several liability would apparently not depend on whether a shareholder holds decisive influence but instead on whether a company (i.e., any group company) commits any acts leading to the infringement and obtains or may obtain competitive advantages and other benefits as a result of the infringement.
In these times, it is of course difficult to foresee when the new law might be adopted. But even if the law enters into force as currently drafted, it is likely to not be the last change to the liability concept in Ukraine. Discussions are already ongoing whether one should introduce decisive influence as a ground for joint and several liability.
Outlook
The EU’s parental liability concept seems to be an effective instrument for ensuring enforcement of antitrust regulators’ decisions. Jurisdictions that face legislation gaps in this regard and strive to bring their laws in line with EU law are likely to follow the EU’s concept. However, when it comes to parental liability, there might be other solutions, as the current Ukrainian draft law shows.
Yevgen Blok is a competition lawyer and foreign associate at ROCAN.
Antitrustpolitics.com 