Competition Law Enforcement and Corporate Group Liability

20 Pages·2014·0.39 MB·English

68 EuropeanCompetitionLawReview
liability,3namelythatshareholders(whethercorporateor
Competition Law individual)areshieldedfromthedebtsandliabilitiesof
thecompanyinwhichtheyhaveinvested,forwhichthat
Enforcement and
company alone is responsible. The EU and English
judgmentsunderconsiderationindicatethatshareholders
Corporate Group
(inparticularcorporateshareholders)incompaniesthat
failtocomplywithEUorUKcompetitionlawmaysee
Liability—Adjusting
a significant erosion of the benefits afforded by these
the veil principles. The cases demonstrate the capacity of EU
competition law to impose much greater risks on a
corporateshareholderwherethelatterexercisescontrol
Paul Hughes* ordecisiveinfluenceoverasubsidiaryandaconcomitant
needfordirectoversightbytheparentofthatsubsidiary’s
activities. Recent English cases indicate that, the more
parentcompaniesseektoensuregroup-widecompliance
Cartels; Competition law; Corporate governance;
in order to avoid fines, the greater the risk at common
Corporatepersonality;Enforcement;EUlaw;Groupsof
law that a duty of care may have been assumed by the
companies;Limitedliability;Tortiousliability
parent to ensure the efficacy of that compliance
programme.Whereashareholderordirectorprocuresa
Introduction
breachofcompetitionlaw,tortiousliabilitycanbedirect.
Recent English and European Court judgments have
highlightedhowtortiousliabilitymayerodetheprotection EU and UK competition law
affordedbythetwinnotionsofseparatelegalpersonality
ThetwoprincipalEUcompetitionlawprovisionsofthe
and limited liability in the context of corporate groups.
TreatyontheFunctioningoftheEuropeanUnion(TFEU),
This judicial erosion reflects the differing efficiency
arts 101 and 102, prohibit “undertakings” (an entity
claims of corporate structures on the one hand and, on
“engagedinaneconomicactivityregardlessofthelegal
the other, the markets within which corporate groups
statusoftheentityandthewayinwhichitisfinanced”)4
operate. The scope of this tortious liability hinges on
fromenteringintoanti-competitiveagreementsorabusing
differing concepts of corporate control under EU and
apositionofdominance.5Whilsttheterm“undertaking”
English law. These judgments make a significant
was not defined in the original EEC Treaty (or in any
contributiontotheacademicdebateastowhethernotions
successorTreaties),theCourtofJusticeoftheEuropean
offairnessorwiderpublicpolicygoalsshouldrendera
Union(CJEU)hasdefinedthetermasan“economicunit”
parentcompanyliablefortheactsofitssubsidiary.
thatcanconsistofnaturalorlegalpersons.6AsWilshas
The impact of these judicial developments will be
pointed out, “the concept of [an] undertaking is an
analysedinthecontextoftheexposurefacedbymembers
economicone.”7
of a corporate group, should a member of that group
EU competition law acknowledges that companies
engage in anti-competitivepractices in breach of either
EU or UK competition law.1 This article assesses the withinacorporategroupmay,inreality,compriseasingle
enterprise. The CJEU has ruled that undertakings can
increasinglyurgentneedtoensurefullcompliancewith
compriseasingleeconomicentityifthey:
competitionlawonagroup-widebasisandtheresultant
impact on corporate group liability and corporate
governancearisingfromthosecomplianceefforts.
Thejudicialdevelopmentsunderconsiderationappear
tobeatoddswiththelong-standingconceptofseparate
corporate personality2 and the principle of limited
*PaulHughesMA(Oxon)LLM(Essex)PhD(Cantab),Solicitor,SeniorLecturerattheUniversityofEssexandEuropeanCompetitionCounselwithSteptoe&Johnson
LLP,BrusselsandLondon.TheauthorwouldliketothankDrJanetDine,ProfessorofInternationalEconomicDevelopmentLawatQueenMary,UniversityofLondon,
forherextremelyhelpfulcommentsonanearlierdraft.Theauthorremainswhollyresponsibleforanyerrorsandomissionsinthepresenttext.Thelawisstatedasat
September1,2013.
1Thisarticlewillnotaddresstheissueofpotentialcriminalliabilityarisingfromcompetitionlawviolations.Forinstance,anemployeewhodishonestlyengagesinthe
“hardcore”carteloffenceofbid-riggingpricefixing,customerormarketsharingrisksacustodialsentenceofuptofiveyearsandanunlimitedfineunders.188ofthe
EnterpriseAct2002;Section188hasbeenamendedbytheEnterpriseandRegulatoryReformAct2013soastoremovethedishonestyrequirement,subjecttopotential
defencesrelatingtothedisclosureofrelevantarrangements.
2IncorporationpursuanttoanenablingstatutewasfirstintroducedinEnglandbytheJointStockCompaniesAct1844,withlimitedliabilityfollowingundertheLimited
LiabilityAct1855;priortotheselegislativedevelopmentscorporaterecognitioninEnglandgenerallyrequiredtheconferralofacharterfromtheCrownoranActof
Parliament.
3SalomonvSalomonandCoLtd[1897]A.C.22upheldtheconceptofseparatelegalpersonality,distinctfromthatoftheshareholdersunderEnglishlawandthishasbeen
reaffirmedinnumerouscasessuchasLeevLee’sAirFarming[1961]A.C.12andAdamsvCapeIndustriesPlc[1990]Ch.433.
4HöfnervMacrotron(C-41/90)[1991]E.C.R.I-1979at[21].
5Theterm“undertaking”hasthesamemeaningunderbotharts101and102TFEU:SocieteItalianoVetroSpAvCommissionoftheEuropeanCommunities(T-68/89)
[1992]E.C.R.II-1403at[357]–[358].
6HydrothermGeratebauGmbHvCompactdeDottIngMarioAndreoli&CSAS(170/83)[1984]E.C.R.2999;anundertakingcomprises“…aunitaryorganizationof
personal,tangibleandintangibleelementswhichpursuesaspecificeconomicaimonalongtermbasis…”:ShellvCommission(T-11/89)[1992]E.C.R.II-757at[312].
7WouterP.J.Wils,“TheundertakingassubjectofECcompetitionlawandtheimputationofinfringementstonaturalorlegalpersons”[2000]E.L.Rev.99.
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CompetitionLawEnforcementandCorporateGroupLiability 69
“… form an economic unit within which the whenever it implements a group company-initiated
subsidiary has no real freedom to determine its anti-competitivearrangement,notwithstandingthatitmay
courseofactiononthemarket,andiftheagreements nothaveexplicitknowledgeofanyunderlyingillegality.
orpracticesareconcernedmerelywiththeinternal Underadifferentconceptofparentcompanycontrol,
allocationoftasksasbetweentheundertakings.”8 theEnglishcourtsmayconcludethatgrouppolicy-setting
and compliance arrangements constitute an assumption
InVihovCommission9theCJEUexplainedtheconcept
of liability to third parties. This may expose the parent
ofthe“singleeconomicunit”asbeingbasedonthelack
company to tortious claims at common law from those
ofautonomyenjoyedbyawholly-ownedsubsidiary,the
towhomithasassumedthisresponsibilityifthosegroup
commercialbehaviourofwhichisdirectedbyitsparent.
policiesorcomplianceprogrammesprovedefective.
The EU Commission’s guidance relating to horizontal
co-operation agreements10 emphasises that a company
The nature of English tortious liability
exercisingdecisiveinfluenceoveranother(andallother
for breaches of EU and UK competition
companiesoverwhichsuchinfluenceisexercisedbythat
law
parent)formasingleeconomicunitandhencecomprise
oneundertaking.Agreementsenteredintobetweensuch BoththeEUCommissionandtheUnitedKingdomOffice
controlling and controlled companies, as a single ofFairTrading(OFT)12enjoythepowertoimposefines
undertaking,arenotsubjecttoart.101TFEU.However, onundertakings(mostcommonlycompanies)13inbreach
anyanti-competitiveagreemententeredintowithathird ofcompetitionlawofupto10percentofgroupglobal
party by any such companies (or, where the companies turnover.14
inquestionenjoydominance,anyabusepractisedbysuch Inadditiontotheimpositionofadministrativefinesby
acompany)areonesforwhicheachsuchcontrolledand the EU Commission or OFT, under English law any
controllingcompanyisjointlyandseverallyliableunder violationofarts101and102TFEU15willberegardedas
thesamedoctrine.Thus,aparentcompanywhichenjoys a statutory tort.16 Section 2(1) of the European
“decisive influence” over a subsidiary is at appreciable CommunitiesAct1972providesthatall“rights,powers,
riskofbeingdeemedatfaultforcompetitionlawbreaches liabilities,obligationsandrestrictionsfromtimetotime
engaged in by that subsidiary and hence jointly and createdorarisingundertheTreaties”,are“inaccordance
severallyliablewithitfortheconsequentadministrative withtheTreaties…withoutfurtherenactmenttobegiven
finesthatthelatterincurs. legal effect …” in the United Kingdom. The House of
There is a resultant issue, namely the degree of Lords held in Garden Cottage Foods Ltd v Milk
exposuretocivilactionsfacedbymembersofacorporate MarketingBoard,17thataremedyindamagesisavailable
group in respect of breaches of competition law. This tocompensatethoseindividualswhohavesufferedlosses
question is gradually being determined through an by virtue of a breach of EU competition law. This
evolvingandcrab-likemovementbytheEnglishjudiciary principlewasreaffirmedinCrehanvInntrepreneurPub
towards acceptance of the EU single economic unit Co CPC18 and in a subsequent High Court judgment,
doctrine, with its attendant group liability. Pursuant to ProvimiLtdvAventisAnimalNutritionSA.19
these judicial developments, a member of a corporate Articles 101 or 102 TFEU confer directly effective
group (where that group relationship falls within the rights on individuals20 and the CJEU confirmed, in its
single economic unit concept) will seemingly be liable judgmentinCourageLtdvCrehan,21thatdamagesmust
in tort11 for breaches of EU and UK competition law be available for breaches of EU competition law. The
8BodsonvSAPompesFunèbresdesRégionsLibéréesSA(30/87)[1988]E.C.R.2479at[19].
9VihoEuropeBVvCommissionoftheEuropeanCommunities(C-73/95P)[1996]E.C.R.I-5457.
10Guidelinesontheapplicabilityofart.101oftheTreatyontheFunctioningoftheEuropeanUniontohorizontalco-operationagreements[2011]OJC11/1,para.11.
11InR.vSecretaryofStateforTransportExp.FactortameLtd(No.7)[2001]1W.L.R.942JohnToulminQCdefinedatortas“abreachofnon-contractualdutywhich
givesrisetoaprivatelawrighttothepartyinjuredtorecovercompensatorydamagesatcommonlawfromthepartycausingtheinjury”.
12Establishedasacorporatebodyresponsibleforcompetitionlawenforcementunders.1oftheEnterpriseAct2002.TheOFTistobeabolishedunderPt4oftheEnterprise
andRegulatoryReformAct2013(itwillbereplacedbytheCompetitionandMarketsAuthorityestablishedunderthe2013Act).
13Althoughindividualscanalsobeundertakingswheretheyengageinindependentcommercialactivity:seeforinstanceCaseIV/28.996Reuter/BASF[1976]OJL254/40.
14CouncilRegulationof16December2002(EC)1/2003[2003]OJL1/1,art.23ofwhichenablestheEUCommissiontofinecompaniesupto10%ofworldwidegroup
turnoverforbreachesoftheprincipalcompetitionlawprohibitions,arts101and102TFEU;ss.36and38oftheCompetitionAct1998togetherwithTheCompetitionAct
1998(DeterminationofTurnoverforPenalties)Order2000((SI2000/3090(asamendedbyTheCompetitionAct1998(DeterminationofTurnoverforPenalties(Amendment)
Order2004(SI2004/1259))specifythattheOFTmayimposepenaltiesofupto10%ofgroupworldwideturnoverinrespectofviolationsofeitherarts101and102TFEU
ortheChsIandIIprohibitionscontainedinthe1998Act.
15WhichhavebeenheldtobedirectlyenforceableTreatyprovisionsinBelgischeRadioenTelevisievSABAMSV(127/73)[1974]E.C.R.313.
16Namelytortiousliabilityarisingunderobligationsimposedbystatute,ratherthanthecivilcourts.InLondonPassengerTransportBoardvUpson[1949]A.C.155,Lord
Wrightobservedthatabreachofstatutoryduty“…isacommonlawactionbasedonthepurposeofthestatute…”.InR.vSecretaryofStateforTransportExp.Factortame
Ltd(No.7)[2001]1W.L.R.942thejudgeheldthatthecombinationofabreachofanEUTreatyprovisionrelatingtofreedomofestablishment(whichhaddirecteffect)
ands.2(1)oftheEuropeanCommunitiesAct1972wasabreachofstatutoryduty.AsregardsthecategorisationofformsofEnglishstatutorytort,inX(Minors)vBedfordshire
CC[1995]2A.C.633itwasheldthatbreachesofstatutorydutyaredivisibleintofourcategories.Thesecategoriescomprisestatutorystrictliability,arightarisingfrom
thecarelessperformanceofastatutoryduty(existingindependentlyofacommonlawright),astatutorydutygivingrisetoacommonlawrightofactionandmisfeasance
inpublicoffice.Incategorisingthedutymuchwilldependonthepurposeofandlanguageusedwithinthestatute.
17GardenCottageFoodsLtdvMilkMarketingBoard[1983]3W.L.R.143.
18CrehanvInntrepreneurPubCoCPC[2004]EWCACiv637at[156].
19ProvimiLtdvAventisAnimalNutritionSA[2003]E.C.C.29at[23].
20BelgischeRadioenTelevisie[1974]E.C.R.313.
21CourageLtdvCrehan(C-453/99)[2001]E.C.R.I-6297.
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70 EuropeanCompetitionLawReview
CJEU held in Manfredi v Lloyd Adriatico22 (citing its for”theinfringement.TheEnglishHighCourtnotedin
decisioninCrehanvCourage)thatart.101(1)TFEUhas Arkin v Borchard Lines (No.4), when considering
directeffectandcreatesrightsforindividualsharmedby allegations that a liner conference had operated a price
anyinfringementofitsprovisions,whichanationalcourt fixingcartelinbreachofart.101TFEU,thattheissueof
mustsafeguard.TheCJEUobservedintheManfredicase causationshouldbeapproached:
thatart.101(2)TFEUrendersanyagreementsprohibited
“…onthebasisofcommonsense,therebeing…an
pursuant to art.101 automatically void and that the
overarchingconceptthatthechainofcausationcan
prohibitiononanti-competitiveagreementsisabsolute.23
bebrokenonlyifitisconcludedthattheclaimant’s
Thus,anyindividualcanrelyonabreachofart.101TFEU
ownconductdisplacedthatofthedefendantasthe
beforeanationalcourtandseekcompensationforlosses
predominantcauseoftheclaimant’sloss.”33
caused by an anti-competitive agreement, including
economic loss,24 where the agreement restricts EU The informational asymmetries, legal costs, risks and
inter-statetradebyobjectorbyeffectanddoesnotmerit procedural hurdles which claimants must surmount are
anexemptionunderart.101(3).25 significant,34 aspects acknowledged by the EU
Section60oftheCompetitionAct1998furtherrequires Commission, which has been seeking to encourage a
English courts to apply EU legal principles (including greater use of private actions by third parties whose
that of the single economic unit) when applying the interests have been harmed by violations of EU
similar prohibitions relating to anti-competitive competitionlaw.35Currently,competitionlawactionsare
agreements or abuse of dominance (having a territorial usually brought by large companies that have suffered
impact restricted to the United Kingdom) contained in losses through being charged cartelised prices by their
Chs I and II of the Competition Act 1998.26 A further suppliers. Despite existing procedural difficulties, civil
effectofs.60istoimporttheEUrighttodamagesinto claims are on the increase. Thus, an errant subsidiary
theUKcompetitionlawregime. company can expose its corporate group to significant
Todate,Englishcivilclaimshavebeenrelativelyfew regulatory fines and the prospect of civil litigation,
in number, with most private damages cases27 being financialriskswhichdirectorsofEnglishcompanieshave
“follow-on”ones,namelycasesfiledintheaftermathof adutytoavoid.36
adecisionbytheEUCommissionorOFT.28Anexample Theserisksmaybecomeevenmorepronouncedinthe
is that of Devenish Nutrition v Sanofi-Aventis,29 where future,astheUKGovernmenthasrecentlypublisheda
damages were sought in a follow-on action subsequent draftConsumerRightsBilldesignedtoassistconsumers
totheEUCommission’sfindingthataninfringementof and businesses, in bringing competition law claims.37
art.101(1) TFEU had occurred (in its decision in the Whetherthesereformswillbringaboutthedesiredresult
vitamins cartel case).30 In Devenish, the English High andexpandthenumberofEnglishcivilactionsbrought
Court31 and Court of Appeal32 confirmed that damages bylesswell-fundedclaimantsis,asyet,uncertain.
awarded for violations of EU competition law are
tort-basedcompensatorydamageswhichshouldrestore
the claimant to the position it would have been in “but
22ManfredivLloydAdriaticoAssicurazioniSpA(C-295/04)[2006]E.C.R.I-6619.
23Manfredi[2006]E.C.R.I-6619at[56]and[57].
24Manfredi[2006]E.C.R.I-6619at[58]–[60].
25Article101(3)exemptsagreementsthatmightotherwiseinfringeart.101(1)wheretheypromotedistributionortechnologicaladvancement,benefitconsumers,contain
proportionaterestrictionsanddonotsubstantiallyeliminatecompetition.
26Section60CompetitionAct1998providesthat,inordertoachieveconsistencyinthemannerinwhichcompetitionlawissuesareaddressedwherethereisanimpacton
tradewithintheUKtheEnglishcourtsmusthaveregardto“theprincipleslaiddownbytheTreatyandtheEuropeanCourt,andanyrelevantdecisionofthatCourt,as
applicableatthattimeindetermininganycorrespondingquestionarisinginCommunitylaw”relatingtocompetitionwithintheEU.Thecourtmust,inaddition,haveregard
toanyrelevantdecisionorstatementoftheEUCommission.
27SeeAshurst,StudyontheconditionsofclaimsfordamagesincaseofinfringementofECcompetitionrules,Brussels,2004,p.1;andCentreforEuropeanPolicyStudies,
ErasmusUniversityRotterdamandLUISSGuidoCarliUniversity,MakingantitrustdamagesactionsmoreeffectiveintheEU:welfareimpactandpotentialscenarios,
Brussels,RotterdamandRoma,2007.
28Section58AoftheCompetitionAct1998stipulatesthatdecisionsoftheOFTandtheCompetitionAppealTribunal(aspecialistbodycreatedbythe1998Acttohear
appealsfromdecisionsoftheOFT)arebindingonEnglishcourtsinthecontextofdamagesactions.Section47AoftheCompetitionAct1998establishesastatutory
procedurethatallowstheCompetitionAppealTribunaltodeterminethequantumofmonetaryclaimsarisingfromdecisionsreachedbytheEUCommissionorOFTthat
breachesoftheCompetitionAct1998orarts101and102TFEUhaveoccurred.ThisstatutoryprocedureisinadditiontothejurisdictionoftheEnglishcourtstodetermine
damagesarisingfromanysuchbreaches.
29DevenishNutritionvSanofi-Aventis[2008]EWCACiv1086.
30EUCommissiondecisionof10January[2003]OJL6/1.
31DevenishNutritionvSanofi-Aventis[2007]EWHC2394(Ch).
32Devenish[2008]EWCACiv1086.
33ArkinvBorchardLines(No.4)[2003]EWHC687(Comm)at[536].
34See,theweaknessesinthejudicialproceduresofMemberStatesidentifiedinthestudy“CollectiveRedressinAntitrust”releasedonJune13,2012byPaoloBuccirossi
andMassimoTognoni(bothofLEARSAS)andMicheleCarpagnano,lawprofessoratTrentoUniversityavailableat:http://www.europarl.europa.eu/committees/en/econ
/home.html[AccessedNovember26,2013].
35SeetheEC’sGreenandWhitePapersondamagesactionsforbreachoftheECantitrustrules(respectivelyCOM(2005)672finalDecember19,2005andCOM/2008/0165
finalApril2,2008)respectivelyavailableat:http://eur-lex.europa.eu/LexUriServ/site/en/com/2005/com2005_0672en01.pdf;http://eur-lex.europa.eu/LexUriServ/LexUriServ
.do?uri=COM:2008:0165:FIN:EN:PDF[AccessedNovember26,2013]andProposalforaDirectiveoncertainrulesgoverningactionsfordamagesundernationallaw
forcompetitionlawinfringementsStrasbourgJune11,2013Com(2013)404Final.
36Undertheirstatutorydutyofcare:sees.174CompaniesAct2006.
37ThedraftBillisavailableat:https://www.gov.uk/government/publications/draft-consumer-rights-billandtheConsultationResponseto“PrivateActionsinCompetition
Law”isavailableat:https://www.gov.uk/government/consultations/private-actions-in-competition-law-a-consultation-on-options-for-reform[AccessedNovember26,
2013].
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CompetitionLawEnforcementandCorporateGroupLiability 71
Corporate governance shareholderapathy,collectiveactionproblems,thelack
of sufficient economic benefit to justify shareholder
Given the danger of administrative fines, together with
monitoringcostsandtheproblemoffreeridingbypassive
theassociatedprospectofdamagesactions,compliance
shareholders all render that separation an “essential
with competition law is an increasingly urgent
economic characteristic” of the corporation and the
preoccupationatboardlevelforEnglishcompanies.UK
creationof“acentraldecision-makingbodyvestedwith
legislation and the enforcement activities of the OFT
thepoweroffiat”anefficientsolution.Freemanetal.44
requiredirectorstosecurecompliancewithcompetition
adopt a more nuanced approach, placing the agency
law. The risks faced by directors should be reflected in
problem in its historical and societal context. Their
their approach to governance, with these fears at board
in-depthanalysisofearlyformsofcorporategovernance
level liable to spur directors to introduce corporate
leadsthemtoconcludethat:
complianceprogrammes.However,governancemodels
mustresultineffectivecompliance,sincetheEUGeneral “…thesocialandpoliticalcontextinwhichafirm
Court(GCEU)hasstressedthateffectivecompliancewith operates plays an important role in creating the
EUcompetitionlawismoreimportantthancompliance conditions for the emergence of particular
withcorporategovernancerulesandthatcompliancewith governanceforms.Thisiswasastruein1800asit
nationalgovernancerulesoffersnodefencetotheriskof istoday.”45
group-basedcompetitionlawliability.38
Corporategovernanceisacombinationofastate’slegal
Thepressurecreatedbythisexternalregulatorythreat
frameworkandvoluntarilyintroducedcorporatepractices,
andthelegislativemovesdesignedtofacilitatecivilaction
designedtoensuredirectoraccountabilityandavertrisk
reinforcing its potency, is underpinned by the
whilststillencouragingentrepreneurialactivity.TheEU
Parliamentary attention being paid to governance. The
Commission’s approachto corporategovernance(in its
UKGovernment,inthecontextofitsrecentscrutinyof
2003 Action Plan)46 acknowledges the unique and
the significant failures in oversight within the banking
path-dependentnatureofMemberStatemodelsandthe
sector, has observed that effective governance has
needtorespecttheirdifferencesundertheprinciplesof
importantsocietalbenefits.Goodgovernanceisperceived
proportionality and subsidiarity. The EU Commission
tobe“acriticalcharacteristicofabusinessenvironment
has recoiled from seeking to introduce the concept of
thatpromotessustainablegrowthandmakestheUKan
group liability,47 whilst endeavouring to strengthen the
attractiveplaceforbusinessinvestment.”39
rightsofshareholders.48Conversely,theEUcompetition
Ingeneralterms,inacommonlawcontext,itisforthe
lawdevelopmentsunderconsiderationmoveentirelyin
directorsofacompanytomanageitsaffairs.Asiswell
the opposite direction. They impose corporate group
known, Berle and Means40 identified the problems
liability, show no deference to the importance attached
associatedwiththeseparationofownershipandcontrol,
toadherencetonationalcorporategovernancerulesand
particularly in companies with a large capital base and
leave open the prospect of a greater focus on a wider
dispersedshareholdings.41Corporategovernancehasoften
rangeofstakeholderinterests.
beenregardedasameansofaddressingtheproblemof
It is not possible to review the concept of corporate
principalandagent,withitsattendantriskthatdirectors
governancecomprehensivelyinthecontextofthisarticle
mayadvancetheirowninterestsattheexpenseofthose
and, in particular, it will not address the specific
of the shareholders.42 This perspective has been
challenged,forinstancebyBainbridge,43whoarguesthat
38DowChemicalCovEuropeanCommission(T-77/08)[2012]4C.M.L.R.19.
39TheGovernment’sresponsetotheParliamentaryCommissiononBankingStandardsCm8661July2013,para.3.6availableat:https://www.gov.uk/government/uploads
/system/uploads/attachment_data/file/211047/gov_response_to_the_parliamentary_commission_on_banking_standards.pdf[AccessedNovember26,2013].
40BerleandMeans,TheModernCorporationandPrivateProperty,2ndedn(NewYork:Harcourt,BraceandWorld,1967).
41TheubiquityofwhichamongUKlistedcompaniesisreferredtobyJohnArmour,SimonDeakin,andSuzanneKonzelmann,“ShareholderPrimacyandtheTrajectory
ofUKCorporateGovernance”(2003)41(3)BritishJournalofIndustrialRelations513.
42AndreiShleiferandRobertW.Vishny,“ASurveyofCorporateGovernance”(1997)52(2)TheJournalofFinance737.
43StephenM.Bainbridge,“ShareholderActivismintheObamaEra”inF.ScottKieffandTroyA.Paredes(eds),PerspectivesonCorporateGovernance(Cambridge
UniversityPress,2013).
44MarkFreeman,RobinPearsonandJamesTaylor,ShareholderDemocracies?CorporateGovernanceinBritain&Irelandbefore1850(UniversityofChicagoPress,
2012).
45Freeman,PearsonandTaylor,ShareholderDemocracies?CorporateGovernanceinBritain&Irelandbefore1850(2012),p.7.
46CommunicationfromtheCommissiontotheCouncilandtheEuropeanParliament-ModernisingCompanyLawandEnhancingCorporateGovernanceintheEuropean
Union-APlantoMoveForwardCOM/2003/0284finalof21May2003availableat:http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52003DC0284:EN:NOT
[AccessedNovember26,2013].
47TheEUCommissioncirculatedadraft“NinthCompanyLawDirectiveontheConductofGroupscontainingaPublicLimitedCompanyasaSubsidiary”amongMember
StatesinDecember1984forconsultation.TheDirectivewouldhaveappliedwhenapubliclimitedwasasubsidiaryofanotherundertaking(eitheranotherpubliclimited
companyoranaturalorlegalperson).Itcontaineddetailedrulesastotheconductofa“parentundertaking”towardsapubliclimitedcompanysubsidiary(includingthe
liabilityoftheparentundertakingfordamagetothatsubsidiaryandforitsdebts).Therewasverylittlesupportforsuchagroupliabilitylawanditwaswithdrawn.
48TheEUCommissionhassoughttostrengthenshareholder’srightsthroughtheadoptionofDirective2007/36/ECoftheEuropeanParliamentandoftheCouncilonthe
exerciseofcertainrightsofshareholdersinlistedcompanies,implementedintheUnitedKingdombytheCompanies(Shareholders’Rights)Regulations2009(SI2009/1632);
theEUCommissionhasalsoadoptedRecommendationsaimedatpromotingtheroleofindependent,non-executive,directorsandondirectors’remuneration—see
CommissionRecommendationof15February2005ontheroleofnon-executiveorsupervisorydirectorsoflistedcompaniesandonthecommitteesofthe(supervisory)
board(2005/162/EC);CommissionRecommendationof14December2004fosteringanappropriateregimefortheremunerationofdirectorsoflistedcompanies(2004/913/EC)
[2004]OJL38/55;CommissionRecommendationcomplementingRecommendations2004/913/ECand2005/162/ECasregardstheregimefortheremunerationofdirectors
oflistedcompaniesBrussels,30/4/2009C(2009)3177;thefocusoftheEUCommissionhasprincipallybeenongovernancewithincompanieswhosesharesarelistedon
regulatedmarkets.
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72 EuropeanCompetitionLawReview
governance rules applicable to public companies. governanceasbeing“…notjustaboutprocess,butabout
Nonetheless, certain key relevant elements will be how managementexercisejudgement,the practicalities
highlighted. of risk management, and behaviour of the wider
Corporategovernance,inverybroadterms,relatesto organisation.”57
management accountability. The EU Commission has The significant economic harm that poor banking
indicatedthat: governancecaninflictonsocietyatlargehighlightsthe
need to identify those for whose benefit corporate
“Corporate governance, which can be defined in
governance should operate. Freeman and McVea58
manyways,isusuallyunderstoodasthesystemby
recognisethatstakeholdershavebeendividedintothose
whichcompaniesaredirectedandcontrolled…”.49
whoseinterestsaresocietalandenvironmentalinnature
TheOECD50hasidentifiedgovernanceastherelationships and those where the company has a commercial
between a “company’s management, its board, its relationship. They call for a pragmatic, strategy-based
shareholdersandotherstakeholders”51andascomprising approach that is focused on the analysis of “concrete
business situations” and which pays regard to “the
“… elements of legislation, regulation,
operating environment of a firm.” Thus, for them, the
self-regulatory arrangements, voluntary
categorisationofstakeholderswhoseinterestsshouldbe
commitments and business practices that are the
recognised by directors is a fluid exercise, based on
resultofacountry’sspecificcircumstances,history
companystrategyandcanbecorporatevalue-based.
andtradition.”52
One factor relevant to the issue of how shareholders
In addition to theories which emphasise the role of or stakeholders can be assured of benefiting from a
governance in protecting the interests of shareholders, governance regime is the degree of legal protection
stakeholder theory has focused on a wider range of afforded to their rights. As Vives has noted, “[l]egal
constituents, although defining the exact parameters of protectionmeasurestheequalityofcorporategovernance
the stakeholder constituency is a far from certain inatleastthreeways…”namely,shareholderrights(such
exercise53andembracingtoobroadarangeofstakeholders asvotingrightsonmergersandboardappointments),the
has been criticised as undermining the relevance of rights of creditors and the “level and quality of law
stakeholdertheory.54 enforcement”.59AlthoughtheEUCommissionwouldlike
The regulatory environment can contribute to good toseegreaterconvergencebetweenMemberStatesinthe
governance.Deakinhasobservedthat: field of corporate governance, as noted earlier, it has
largely focused on strengthening shareholders rights,60
“Employment law, insolvency law and tax law …
whilst leaving the general design and enforceability of
interfacewithcompanylawatnumerouspoints,and
governanceframeworksasamattertobedeterminedby
thelawofthebusinessenterprisecannotbeviewed
nationallaw.
in the round unless the interactions between these
Johnston believes that the route out of historic path
areasoflawaretakenintoaccount.”55
dependency and divergence in national governance
Recently, the regulatory focus has been firmly on the modelsisthenatureofcorporatedecisiontakingandthat
bankingsector.TheUKGovernmenthasemphasisedthe the governance focus should be on actors and their
relationshipbetweengovernanceand competitionin its interests,61apositiontosomedegreeechoedbyrelatively
response to the Parliamentary Commission on Banking recent English company law reforms. Under the
Standards.56IthasproposedthatthePrudentialRegulation CompaniesAct2006,theUnitedKingdomhasoptedfor
Authorityshouldhaveasecondarycompetitionobjective the retention of shareholder primacy in specifying the
in order to improve banking standards. It describes scope of directors’ legal obligations, albeit in
49CommunicationfromtheCommissiontotheCouncilandtheEuropeanParliament-ModernisingCompanyLawandEnhancingCorporateGovernanceintheEuropean
Union-APlantoMoveForwardCOM/2003/0284finalof21May2003,p.10,availableat:http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri
=CELEX:52003DC0284:EN:NOT[AccessedNovember26,2013].
50TheOECDPrinciplesofCorporateGovernance,firstissuedin1999andrevisedin2004,availableat:http://www.oecd.org/corporate/corporateaffairs
/corporategovernanceprinciples/oecdprinciplesofcorporategovernance.htm[AccessedNovember26,2013].
51TheOECDPrinciplesofCorporateGovernance,firstissuedin1999andrevisedin2004,p.11,availableat:http://www.oecd.org/corporate/corporateaffairs
/corporategovernanceprinciples/oecdprinciplesofcorporategovernance.htm[AccessedNovember26,2013].
52TheOECDPrinciplesofCorporateGovernance,firstissuedin1999andrevisedin2004,p.29,availableat:http://www.oecd.org/corporate/corporateaffairs
/corporategovernanceprinciples/oecdprinciplesofcorporategovernance.htm[AccessedNovember26,2013].
53SeeAndrewKeay,TheCorporateObjective(EdwardElgar,2011),p.139.
54SimonDeakin,andAlanHughes(eds),EnterpriseandCommunity:NewDirectionsinCorporateGovernance(Blackwell,1997),p.4.
55S.Deakin,“Corporategovernanceandthefinancialcrisis”inC.WilliamsandP.Zumbansen(eds),TheEmbeddedFirm:CorporateGovernance,LaborandFinance
Capitalism(CambridgeUniversityPress,2011),p.21.
56TheGovernment’sresponsetotheParliamentaryCommissiononBankingStandardsCm8661July2013,p.6),availableat:https://www.gov.uk/government/uploads
/system/uploads/attachment_data/file/211047/gov_response_to_the_parliamentary_commission_on_banking_standards.pdf[AccessedNovember26,2013].
57TheGovernment’sresponsetotheParliamentaryCommissiononBankingStandardsCm8661July2013,para.3.5,availableat:https://www.gov.uk/government/uploads
/system/uploads/attachment_data/file/211047/gov_response_to_the_parliamentary_commission_on_banking_standards.pdf[AccessedNovember26,2013].
58EdwardR.FreemanandJohnMcVea,“AStakeholderApproachtoStrategicManagement”,DardenGraduateSchoolofBusinessAdministrationUniversityofVirginia
WorkingPaperNo.01-02,availableat:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=263511[AccessedNovember26,2013].
59XavierVives(ed.),CorporateGovernance:TheoreticalandEmpiricalPerspectives(CambridgeUniversityPress,2000),pp.3–4.
60CommunicationfromtheCommissiontotheCouncilandtheEuropeanParliament-ModernisingCompanyLawandEnhancingCorporateGovernanceintheEuropean
Union-APlantoMoveForwardCOM/2003/0284finalof21May2003,p.11–13,availableat:http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri
=CELEX:52003DC0284:EN:NOT[AccessedNovember26,2013].
61AndrewJohnston,ECRegulationofCorporateGovernance(CambridgeUniversityPress,2009).
[2014]35E.C.L.R.,Issue2©2014ThomsonReuters(Professional)UKLimitedandContributors
CompetitionLawEnforcementandCorporateGroupLiability 73
circumstances where the interests of shareholders must potentially harmful impact of non-compliance with
be assessed by reference to the possible impact of competition law on those with whom the company
company behaviour on a wider range of constituents. interactscommercially.
Section172oftheCompaniesAct2006imposesaduty
ondirectorstoactinawaytheyconsider,ingoodfaith, The interaction of governance with
would be most likely to promote the success of the compliance
company.Indoingsotheyarerequiredtohaveregardto
Governance operates as a mechanism for increasing
the long-term consequences of their decisions, the
directoraccountabilityand,atthesametime,envisages
interestsofthecompany’semployees,relationshipswith
theintroductionofsystemsofcontrolandriskavoidance.
suppliers and with customers and the impact of the
Corporate compliance programmes seek to minimise
decision on the community and environment and the
corporate risk more specifically. Such programmes are
desirabilityofmaintainingareputationforhighstandards
designed to safeguard a company from administrative
ofbusinessconduct.62
sanctions or civil actions arising from breaches of the
Competitionlawcancreateaconsiderableimpacton
regulatory environment in which it operates. However,
boarddecisiontaking.EuropeanUnioncompetitionlaw
there is an increasing recognition that the two overlap
is concerned with a business’s relationships with
significantly. For instance, prospective directors,
customers, suppliers, consumers and competitors, but
unfamiliar with the operational history of a company,
onlytotheextentthatanyharmfulbehaviourisinjurious
may well be unwilling to accept an appointment to the
to“consumerwelfare”.63Theriskoffinesandcorporate
board unless they receive assurances regarding the
civil liability are significant and thus are factors which
company’s attitude to compliance. This is particularly
should weigh heavily on board deliberations. As to
trueof non-executivedirectors,who havea monitoring
individual liability, a director is not normally regarded
ratherthananoperationalrole.TheInstituteofChartered
asanundertakingifemployed64andthusisnotdirectly
Secretaries has issued a Guidance Note for prospective
subject to sanction under arts 101 and 102 TFEU.
directorswhich,whilstprincipallyconcerningitselfwith
However, a director can be disqualified under the
governance issues, also draws the incoming director’s
Company Directors Disqualification Act 1986 (as
attention to matters such as the company’s competitive
amended by the Enterprise Act 2002), which provides
position,itsmarketshare,whetheritundertakesactivities
forthedisqualificationofadirectorwhoisdemonstrated
inaregulatedsector,itsrelationshipwithanyregulator,
tobe“unfit”inthecontextofcompanybreachesofUK
thecompany’scultureandvaluesandtheprincipalrisks
orEUcompetitionlaw.65Inaddition,theUnitedKingdom
itfaces.67
hasoptedtocreatethehard-corecarteloffence,forwhich
An undertaking is vulnerable to competition law
executives can be criminally liable under s.188 of the
challengewhereemployeesengageinactivitiesthatare
EnterpriseAct2002.66Thesemeasuresshouldincentivise
in breach of the prohibitions contained in arts 101 and
directorstobevigilantinseekingtoavoidadoptingany
102 TFEU whilst acting within the scope of their
marketforeclosingoranti-competitivepracticesthatare
employment.Thisisthecaseeveniftheseactionsbythe
harmfultocorporatecustomers,suppliersandcompetitors
employee are against company policy, since any “…
and thus have a tendency to embed compliance within
actionbyapersonwhoisauthorisedtoactonbehalfof
governance. All this suggests that, the more actively
the undertaking suffices …” to create this regulatory
competitionlawisenforced,bothpubliclyandprivately,
exposure.68Theremaybelittleprospectofrecoupingthe
the more the directors will need to bear in mind the
regulatoryfinesthatthecorporateemployerhasincurred
fromtheemployeeswhohavetransgressedsince,under
62Section172oftheCompaniesAct2006(whichspecifiesthedirector’slegaldutytopromotethesuccessofthecompany)providesthat:
“(1) Adirectorofacompanymustactinthewayheconsiders,ingoodfaith,wouldbemostlikelytopromotethesuccessofthecompanyforthebenefitofits
membersasawhole,andindoingsohaveregard(amongstothermatters)to—
(a) thelikelyconsequencesofanydecisioninthelongterm,
(b) theinterestsofthecompany’semployees,
(c) theneedtofosterthecompany’sbusinessrelationshipswithsuppliers,customersandothers,
(d) theimpactofthecompany’soperationsonthecommunityandtheenvironment,
(e) thedesirabilityofthecompanymaintainingareputationforhighstandardsofbusinessconduct,and
(f) theneedtoactfairlyasbetweenmembersofthecompany.”
Thisobligationis,however,ultimatelyonlyenforceablebyoneofthestakeholders,namelytheshareholders.
63“Economicwelfareisthestandardconceptusedineconomicstomeasurehowanindustryperforms.Itisameasurewhichaggregatesthewelfare(orsurplus)ofdifferent
groupsintheeconomy…Ineachgivenindustry,welfareisgivenbytotalsurplus,thatisthesumofconsumersurplusandproducersurplus…”:MassimoMotta,Competition
Policy:TheoryandPractice(CambridgeUniversityPress,2004),p.18.Thefactthatonaperfectlycompetitivemarketthemarketpriceequalsthemarginalcostissaidto
maximiseconsumerwelfarebyleadingtoallocativeandproductiveefficiency,seeA.JonesandB.Sufrin,ECCompetitionLaw:Text,CasesandMaterials,3rdedn(Oxford
UniversityPress,2008),p.8.
64“Dependent”labourisnotconsideredtobeanundertaking:seeAlbanyInternationalBVvStichtingBedrijfspensioenfondsTextielindustrie(C-67/96)[1999]E.C.R.I-5751
andCriminalproceedingsagainstBecu(C-22/98)[1999]E.C.R.I-5665.
65Section204oftheEnterpriseAct2002amendedtheCompanyDirectorsDisqualificationAct1986byaddingss.9A-E.Section9Aallowsthecourttomakeadisqualification
orderagainstands.9BallowsregulatorstoseekavoluntaryundertakingfromanydirectorwhosecompanywasinvolvedinanybreachofUKorEUcompetitionlawand
whoseconductrendershim“unfit”toactasadirector.
66Asindicatedearlier(seefn.1above)thisarticlewillnotaddresstheissueofpotentialcriminalliabilityarisingfromcompetitionlawviolations.
67TheGuidancewasformerlyavailableat:http://www.icsaglobal.com/policy-guidance/guidance-and-reports/guidance-notes-form?doc=4072andisnowreferredtoat:
https://www.icsaglobal.com/about-icsa/latest-from-icsa/article/ddpress/[AccessedNovember26,2013].
68MusiqueDiffusionFrançaiseSAvCommissionoftheEuropeanCommunities(100/80)[1983]E.C.R.1825at[97].
[2014]35E.C.L.R.,Issue2©2014ThomsonReuters(Professional)UKLimitedandContributors
74 EuropeanCompetitionLawReview
theEnglishdoctrineofexturpicausa,thesemustremain adequate steps have been put in place, the OFT will be
with the fined entity if competition law enforcement prepared to contemplate reducing any competition law
policiesaretobeeffective.69 fine to which the company is ultimatelyexposed by up
Compliance programmes are directed at all those to10percent.72
employees operating within the company whose The EU Commission’s current guidance on
operational activities may expose the company to risk. compliance73 stresses74 that the involvement of senior
They tend to be delivered on a “top-down” basis, with executivesisvital.However,whilsttheEUCommission
seniorexecutivesanddirectorspubliclyexpressingtheir encouragestheestablishmentofcompetitioncompliance
support for the corporate compliance programme. The programmes, it does not regard the mere existence of
OFT has stressed the responsibilities of directors for compliance programmes as being a mitigating factor if
ensuringeffectivecomplianceinthefollowingterms: violationsoccurandfinesareimposed.TheCommission
made this explicit in its decision in relation to the
“The OFT considers that directors play a key role
Professional Videotape cartel.75 Wils has argued that
in establishing and maintaining an effective
companiesareprofit-maximiserswhoarebestplacedto
competition law compliance culture within their
prevent competition law infringements. In his opinion,
company.Withoutthefullcommitmentofindividual
the onus for competition law compliance should lie
directors to compliance with competition law, any
squarelyonthecompanyanditscomplianceprogramme,
compliance activities undertaken by the company
which must be fully effective. Companies (and not the
areunlikelytobeeffective.”70
EUCommission)arebestplacedtodeterminewhethera
Compliance programmes are not aimed expressly at corporate programme represents a genuine effort at
directors,noraretheygeneratedspecificallyinorderto complianceandtheonlyrewardforitsintroductionshould
accomplishgreatershareholderaccountability.Theyare beitseffectiveness.76
designedtominimiserisktothecompaniesinrespectof Wils’ arguments stress (and the guidance issued to
which they have been implemented and to protect the directorsbyboththeOFT77andtheInstituteofChartered
assets and profits of those companies. Since company Secretaries78underline)theimportanceofengenderinga
shareholders and creditors ultimately rely on these culture of corporate compliance in the context of
corporateprofitsandassetsfortheirreturnoninvestment, governance. The EU Commission, whilst not offering
andemployeesfortheircontinuedemployment,theyall anymitigationoffinesfortheintroductionandoperation
benefit from compliance programmes designed to ofcomplianceprogrammes,alsoplainlyseesacultureof
safeguardthesecorporateassets. compliance as being important. It is clear that both
regulatorsandindustryareincreasinglyawareoftheneed
The attitudes of the OFT and of the EU forbusinessestoinculcateacultureofcompetitionlaw
Commission to corporate compliance compliance.79
Compliance programmes are significant, not only in
The OFT has published guidance designed to assist
seeking to avert competition law breaches, but also in
companies in their efforts to comply with competition
ensuring prompt detection of any such breaches should
law.71 This guidance stresses that each compliance
theyoccurandofthenprovidingthecompanywiththe
programmeneedstobetailoredtothemarketinwhicha
opportunity to seek leniency from fines80 and directors
companyoperates,itscommercialpractices,marketpower
with the possibility of avoiding disqualification, since
and concomitant regulatory risk. Appropriate policies,
whether a company has sought leniency is a factor the
proceduresandtrainingshouldbeimplementedinorder
OFT will take into account when assessing whether to
to mitigate this risk effectively. These compliance
applyforadisqualificationorder.81
programmes should be reviewed regularly and, where
69InSafewayStoresLtdvTwigger[2010]EWHC11(Comm)itwasheldthatacartelistcouldnotpassonthefinesithadsufferedtotheemployeeswhohadcausedthem
(inbreachoftheirdutiestotheemployer,Safeway)asthiswouldallowSafewaytoavoidtheconsequencesofitsownegregiousbehaviour.
70“Companydirectorsandcompetitionlaw”OFTGuidanceJune2011(OFT1340)atpara.1.2,availableat:http://www.oft.gov.uk/OFTwork/competition-act-and-cartels
/competition-law-compliance/guidance-for-directors/[AccessedNovember26,2013].
71“Howyourbusinesscanachievecompliancewithcompetitionlaw”OFTGuidance,June2011(OFT1341)availableat:http://www.oft.gov.uk/OFTwork/competition-act
-and-cartels/competition-law-compliance/;jsessionid=A3A926198C30D1C017FC1708A8F4426A[AccessedNovember26,2013].
72Howyourbusinesscanachievecompliancewithcompetitionlaw”OFTGuidance,June2011(OFT1341),para.7.4availableat:http://www.oft.gov.uk/OFTwork/competition
-act-and-cartels/competition-law-compliance/;jsessionid=A3A926198C30D1C017FC1708A8F4426A[AccessedNovember26,2013].
73Availableat:http://ec.europa.eu/competition/antitrust/compliance/index_en.html[AccessedNovember26,2013].
74Availableat:http://ec.europa.eu/competition/antitrust/compliance/index_en.html,p.16[AccessedNovember26,2013].
75CaseCOMP/38.432—ProfessionalVideotape[2008]OJC57/10whentheEUCommissionobservedthat:“(241)Sonyhasfurtherarguedthatitshouldreceiveareduction
ofthefineforhavingintroducedacomplianceprogrammeandaseriesofmeasurestoincreasestaffawarenessinrespectofcompetitionlawin2005.WhilsttheCommission
welcomesmeasurestakenbyundertakingstoavoidtherecurrenceofcartelinfringementsinthefuture,suchmeasurescannotchangetherealityoftheinfringementandthe
needtosanctionitinthisDecision,themoresoastheinfringementconcernedisamanifestbreachof[Article101TFEU].”
76SeeWouterWils,“AntitrustComplianceProgrammes&OptimalAntitrustEnforcement”(2013)1(1)JournalofAntitrustEnforcementandavailableat:http://papers
.ssrn.com/sol3/papers.cfm?abstract_id=2176309[AccessedNovember26,2013].
77Seefnn.70and71above.
78Seefn.67above.
79See,forinstanceAnneRileyandMargaretBloom,“AntitrustComplianceProgrammes—CanCompaniesandAntitrustAgenciesDoMore?”[2011]CompLaw21.
80ForinstanceundertheEUCommissionNoticeonImmunityfromfinesandreductionoffinesincartelcases[2006]OJC298/17.
81“Directordisqualificationordersincompetitioncases”anOFTguidancedocument,June2010,para.4.2(3)availableat:http://www.oft.gov.uk/shared_oft/business_leaflets
/enterprise_act/oft510.pdf[AccessedNovember26,2013].
[2014]35E.C.L.R.,Issue2©2014ThomsonReuters(Professional)UKLimitedandContributors
CompetitionLawEnforcementandCorporateGroupLiability 75
Separate corporate personality and liability”,whereasthepresenceofcorporatecontrolwill
limited liability ensure that parent companies are not deterred from
making investmentsin their subsidiaries.91 Dignum and
Theprincipleofseparatecorporatelegalpersonalityhas
Lowrybelievethatallowingcorporategroupstobenefit
beenafoundationstoneinthedevelopmentofcorporate
fromlimitedliability“representsanenormousextension
law in common law countries, with investors being
oftheSalomonprinciple”,theappropriatenessofwhich
protectedbytheconceptoflimitedliability.Theevolution
thejudiciaryshouldquestion.92
of the limited liability company as a vehicle for
Muscat argues that much of the debate concerning
investmenthasbeencreditedbysomewithunderpinning
limitedliabilityhasrelatedtoitslegitimacybasedonthe
moderneconomicdevelopment.82AsKeayhasnoted:
abilityofthirdpartiestoprotectthemselvesbycontractual
“All companies, whether they are large or small, meanswhendealingwithacompany.However,heasserts
multinational or local, play a fundamental, that “[l]imited liability … conflicts with some
multidimensional and evolving role in promoting fundamental objectives of tort law …” through
economicgrowth…”.83 underminingthelatter’scompensatoryanddeterrentgoals
byallowingacompanyto“…externalizetherisksofits
Easterbrook and Fischel have advanced a number of
morehazardousventuresbyestablishingsubsidiaries.”93
economicjustificationsforlimitedliability.84Theyhave
Limitedliabilityunfairlyshiftstheriskontoconsumers
arguedthatlimitedliabilityisefficient,sinceitreduces
andawayformtheentitywiththeresourcesavailableto
theneedforshareholderstomonitormanagers.Itreduces
remedy the wrongdoing. A similar stance is taken by
theshareholders’costofmonitoringthewealthofother
Blumberg,whoarguesthattheuseoflimitedliabilityin
shareholders. It also induces managers to direct their
a tortious context is inefficient, because it can lead to
companies’ activities efficiently, since any inefficiency
excessive risk taking and can cause unacceptable
willbepunishedbytheshareholders,whowillselltheir
externalities.94
shares. The transfer of those shares is facilitated by
Henderson95 has argued that public interest-based
limited liability, which protects incoming shareholders
regulation is misguided and “pre-economic”.96 He
andallowsthemtogaugetheworthofthecompanyon
contends that governments which apply public welfare
thebasisofitsperformance,ratherthanthenetworthof
criteriainregulatingcompaniesareseekingto“internalise
othershareholders(towhomrecoursemightbenecessary,
externalities”andthatcorporateprofitabilityisexplained
absent limited liability). Limited liability allows
byandthechiefbadgeofcorporateefficiency.Heaccepts
shareholders to diversify their investments, rather than
the role of competition in this equation (his notions of
limitthemtoafewcompaniestheywouldneedtomonitor
profitability assume the existence of rivalry and the
closely. It also allows shareholders to demand lower
possibilityofmarketentry).Nonetheless,theremustalso
returns,sincetheydonotneedcompensatingforpersonal
belimitstotheexternalisationofriskbycorporategroups
risk.Lastly,limitedliabilityallowsmanagerstoengage
in the interests of efficiency. Whilst the corporate form
inhigherriskventures,suchasthedevelopmentofnew
benefits society through inducing investment and, as
products“withoutexposingtheinvestorstoruin”.85This
Coasehasdemonstrated,97theinternalisationoffunctions
issociallyusefulandabeneficialdeploymentofcapital.
within companies (rather than the execution of
Muscat86andBlumberg87havearguedthattheextension
transactionsonthemarket)willbeundertakenonlywhen
oflimitedliabilityfromthe“one-mancompanysituation”
this is efficient, the abuse of limited liability wrongly
evidentinSalomonvA.SalomanandCoLtd88tocontrol
shiftscostsontothepublic.Inthecaseofanti-competitive
byaparentcompanywasbothaccidentalandunwitting.89
practices, that wrongdoing subverts the operation of
They contend that, in order to foster investment, it was
marketrivalryandthegenerationofconsumer-beneficial
less necessary to confer limited liability on corporate
efficiencies.Inadditiontotheprotectionofinvoluntary
shareholders, since individual shareholders in a parent
creditors such as tort victims, it is also fair that
companywouldbeprotectedbylimitedliability.90Muscat
competitionlawshouldprotectthosevoluntarycreditors
argues that “the absence of control justifies limited
who have suffered an involuntary risk, for instance
82JohnMicklethwaitandAdrianWooldridge,TheCompany:aShortHistoryofaRevolutionaryIdea(London:Phoenix,2005).
83Keay,TheCorporateObjective(2011),p.3.
84FrankH.EasterbrookandDanielR.Fischel,TheEconomicStructureofCorporateLaw(HarvardUniversityPress,1996),pp.41–44.
85EasterbrookandFischel,TheEconomicStructureofCorporateLaw(1996),p.44.
86AndrewMuscat,TheLiabilityoftheHoldingCompanyfortheDebtsofitsInsolventSubsidiaries(Dartmouth,1996).
87PhillipI.Blumberg,TheMultinationalChallengetoCorporationLaw:TheSearchforaNewCorporatePersonality(OxfordUniversityPress,1993).
88SalomonvA.SalomanandCoLtd[1897]A.C.22.
89SeeMuscat,TheLiabilityoftheHoldingCompanyfortheDebtsofitsInsolventSubsidiaries(1996),pp.155and156andBlumberg,TheMultinationalChallengeto
CorporationLaw(1993),pp.58–59.
90SeeMuscat,TheLiabilityoftheHoldingCompanyfortheDebtsofitsInsolventSubsidiaries(1996),pp.62–176andBlumberg,TheMultinationalChallengetoCorporation
Law(1993),pp.123–124.
91SeeMuscat,TheLiabilityoftheHoldingCompanyfortheDebtsofitsInsolventSubsidiaries(1996),p.164.
92AlanDignumandJohnLowry,CompanyLaw,7thedn(OxfordUniversityPress,2012),p.50.
93Muscat,TheLiabilityoftheHoldingCompanyfortheDebtsofitsInsolventSubsidiaries(1996),pp.180–181.
94Blumberg,TheMultinationalChallengetoCorporationLaw(1993),pp.134–135.
95DavidHenderson,TheRoleofBusinessintheModernWorld:Progress,PressuresandProspectsfortheMarketEconomy(TheInstituteofEconomicAffairs,2004).
96Henderson,TheRoleofBusinessintheModernWorld(2004),p.176.
97R.H.Coase,“TheNatureoftheFirm”(1937)4(16)Economica386.
[2014]35E.C.L.R.,Issue2©2014ThomsonReuters(Professional)UKLimitedandContributors
76 EuropeanCompetitionLawReview
customers dealing with a cartelist, as the customer is Isoplus were deeply involved in a very serious cartel.
sufferingfromtheinformationaldisadvantagesinherent Although the EU Commission contended that the
in transacting with an entity engaged in covert Henss/Isoplus companies formed a single undertaking,
price-fixing. it was not able to identify a group holding company. It
The EU single economic unit doctrine adopts the wasatleastapossibilitythattheEUCommissionmight
approachespousedbyMuscat.Itdoessointheinterests havesoughttocategorisetheprincipalHenssshareholders
of ensuring that anti-competitive activity, harmful to asundertakings,giventhekeyrolethecorporateowners
rivalryandeconomicefficiency,isdeterredandpunished. playedintheHensscompanies’activities.At[157]ofits
TheEnglishcourts,whilststrugglingwiththeerosionof Decision,theEUCommissionasserted:
limited liability required by the single economic unit
“ItisapparentfromthefactthatitwasDr.W.Henss
doctrine,haveneverthelessbeenpreparedtomakeparent
who always attended the directors’ club meetings
companiesdirectlyliablefortortiousinjuryonastatutory
thathewasthepersonwhoexercisedmanagement
basis. A common law liabilitymay also arise from that
and control over Isoplus and that the Henss and
parent company’s influence over its subsidiary’s
Isopluscompaniestogetherformedadefactogroup.
policy-making,onthegroundsthatsuchliabilityhasbeen
ItwascommonknowledgeintheindustrythatHenss
assumed. This approach is not based on arguments of
wasthepowerbehindIsoplus.”
efficiency,butratheronajudicialacceptancethatthere
arelimitstotheexternalisationofriskthroughtheuseof Nevertheless,theEUCommissionbalkedatreachingthis
limitedliability. conclusionanddidnotcategoriseDrHenssasbeingan
Ageneralfeatureoftheagencyproblemthatcorporate undertakingsubjecttofines.
governanceseekstoaddressistheassumptionthat,not InlinewiththeHydrothermcase,104directinvolvement
only do shareholders lack control over day-to-day byashareholderinmanagementcanresultintherelevant
managementdecisions,butthebenefitsoflimitedliability shareholder being categorised as indirectly involved in
disincentivise them from exercising a more active economicactivityandthusitselfanundertaking.Asthe
monitoring role. Wittman has indicated that directors CJEUheldintheCassadiRisparmiodiFirenzecase105
enjoy“acomparativeadvantageindecisionmaking”and (acaseinvolvingstateaid):
shareholders“inrisk-taking”.98Shareholdersarelikelyto
“111. …itmustbepointedoutthatthemerefact
focus on diversifying their share portfolio in order to
of holding shares, even controlling
hedgetheirinvestmentrisks,ratherthanonchallenging
shareholdings,isinsufficienttocharacterise
thedirectors,despiterecentprotestsoverexecutivepay
as economic an activity of the entity
in shareholder general meetings (the so-called
holdingthoseshares,whenitgivesriseonly
“shareholder spring”), the much-trumpeted impact of
totheexerciseoftherightsattachedtothe
whichseemstohavebeenoverstated.99
status of shareholder or member, as well
One issue is whether individual shareholders might
as,ifappropriate,thereceiptofdividends,
constituteundertakings.Asindicatedearlier,100itisclear
whicharemerelythefruitsoftheownership
thatthisislegallypossible.Forinstance,inHydrotherm
ofanasset.
GeratebauGmbHvAndreoli101itwasheldbytheCJEU
112. Ontheotherhand,anentitywhich,owning
that an economic unit can consist of several persons,
controlling shareholdings in a company,
natural or legal. In that case an engineer, who was an
actuallyexercisesthatcontrolbyinvolving
individualcontrollingmemberwithpersonalliabilityin
itself directly or indirectly in the
respect of a limited partnership, comprised a single
management thereof must be regarded as
undertakingwiththepartnershipforthepurposesofthe
takingpartintheeconomicactivitycarried
then applicable block exemption regulation relating to
onbythecontrolledundertaking.”
exclusivedealing.102
However, there is little evidence that the EU In order to confer the status of an undertaking on the
Commissionisseekingtotargetindividualshareholders, relevant shareholder, the controlling stake must be
asisevidentfromthedecisioninthePre-insulatedPipe accompanied by direct or indirect involvement in
Cartelcase.Inthatcase,103theHenssfamilycontrolleda corporatemanagement.Thecontrollingshareholdercan
number of companies involved in the manufacture and alsocompriseasingleeconomicunitwiththecompany
sale of pre-insulated pipes The Henss companies and overwhichthatcontrolisexercised.
98DonaldWittmann,EconomicFoundationsofLawandOrganization(CambridgeUniversityPress,2006),p.314.
99SeethearticleintheFinancialTimesAugust26,2012“‘Shareholderspring’muted”availableat:http://www.ft.com/cms/s/0/0a1e41c4-ed42-11e1-95ba-00144feab49a
.html#axzz2eV8FN8uV[AccessedNovember26,2013].
100Seefn.13above.
101HydrothermGeratebauGmbHvAndreoli(170/83)[1984]E.C.R.2999.
102Regulation67/67oftheCommissionof22March1967ontheapplicationofart.85(3)ECTreaty(nowart.101(3)TFEU)tocertaincategoriesofexclusivedealing
agreements[1967]OJ57/849,whichwasonlyapplicabletoexclusivedealingarrangementstowhichnomorethantwoundertakingswereparties(seeart.1(1)(a)).
103Decision1999/60relatingtoaproceedingunderart.85oftheECTreaty(IV/35.691/E-4:-Pre-InsulatedPipeCartel)[1999]OJL24/1upheldonappealinLRAF1998
A/S(formerlyLogstorRorA/S)vCommission(T-23/99).132IV/35.691/E-4:-Pre-InsulatedPipeCartelat[15].
104HydrothermGeratebauGmbH[1984]E.C.R.2999.
105Ministerodell’EconomiaedelleFinanzevCassadiRisparmiodiFirenze(C-222/04)[2006]E.C.R.I-289.
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CompetitionLawEnforcementandCorporateGroupLiability 77
Where shareholders are not undertakings, the latter “… the undertakings pursue the same market
maybetargetedmoreindirectly,byexposingthecompany strategy,whichisdeterminedbytheparentcompany
inwhichtheyhaveinvestedanditsgrouptotheriskof … The mere fact that [companies] belong to the
fines,witharesultantlossofshareholdervalue.Former same group of undertakings is not decisive in that
EU Competition Commissioner Neelie Kroes regarded regard.Accountmustbetakenofthenatureofthe
this loss of value as sufficient incentive to enhance relationshipbetweentheundertakingsbelongingto
shareholder monitoring. As she observed in her press thatgroup.”111
releaseannouncingtheEUCommissionDecisionwhich
Substantialminorityparticipationshavebeenheldnotto
fined participants in a rubber chemical cartel €75.86
rendermembersofagrouppartofasingleeconomicunit.
millionin2005:
InGosmel/Martell-DMP,112theEUCommissiondidnot
“Cartelsareascourge.Iwillensurethatcartelswill acceptthatthe50percentinterestwhichMartellenjoyed
continue to be tracked down, prosecuted and in DMP rendered Martell and DMP part of a single
punished.Withthislatestdecision,Iamsendinga economic unit. Whilst each of Martell and
verystrongmessagetocompanyboardsthatcartels Piper-Heidsieckhad50percentofDMP’ssharecapital
willnotbetolerated,andtoshareholdersthatthey andcouldappointhalfitssupervisoryboard,Martellwas
should look carefully at how their companies are notabletocontrolthecommercialactivitiesofDMP.
beingrun.”106 In Irish Sugar v Commission113 the EU Commission
wasreluctanttoconcludethata51percentshareholding
Forshareholderslackingcontrol(andthevalueofwhose
byIrishSugarintheintermediateholdingcompanySugar
shares will be affected by regulatory fines), the agency
Distribution(Holding)Ltd(wheretherewasalsoalack
problemwillpersist.Goodgovernanceandtheassociated
ofmanagementcontroloveritsdownstreamcommercial
taskofensuringcomplianceshouldthereforebecrucial
subsidiarySugarDistributorsLtd)wassufficienttoconfer
preoccupations.
control.ThisobligedtheEUCommissiontoassertthat
the three entities engaged in the manufacture and
The single economic unit doctrine and
distribution of sugar were in a position of joint vertical
its application in the context of liability
dominance (rather than being a single dominant
for fines
undertaking)inordertoprohibitthemarketforeclosing
As indicated earlier, two or more undertakings can be practiceswhichtheywerepursuingunderart.102TFEU.
treatedasasingleundertakingiftheundertakings“form Bywayofcontrast,intheCommercialSolventscase,114
aneconomicunitwithinwhichthesubsidiaryhasnoreal the CJEU held that where a parent held a 51 per cent
freedom to determine its course of action on the shareholding in its subsidiary (which was listed as its
market”.107 Any agreement into which such a company subsidiaryintheparent’sauditedaccounts)andwhere5
anditscontrollingshareholderenterwillnotbesubject out of 10 of the subsidiary’s directors were senior
to scrutiny under art.101 TFEU108 (although it may still executivesoftheparent(includingthepresidentandchief
besubjecttotheprohibitioncontainedinart.102TFEU). executiveoftheparent),thiswassufficienttorenderthem
In Viho Europe BV v Commission,109 the GCEU treated part of the same economic unit and hence one
a parent company and its 100 per cent subsidiary as a “undertaking”.Thustheparentwasjointlyandseverally
singleentityforcompetitionlawpurposesinthefollowing liable for the subsidiary’s refusal to supply an essential
terms: ingredienttoacustomeraspartofamarket-foreclosing
strategythatviolatedart.102TFEU.
“… for the purposes of the application of the
Theabovelawalsoneedstobeexaminedinthelight
competitionrules,theunifiedconductonthemarket
oftheexpansionofthenotionofasingleeconomicunit
of the parent company and its subsidiaries takes
in the context of liability for fines imposed by the EU
precedenceovertheformalseparationbetweenthose
Commission.
companies as a result of their separate legal
InboththeStora115andAkzoNobelcases116theCJEU
personalities.”110
heldthatthereisarebuttablepresumptionthataparent
As regards lesser interests, members of a group of companyandasubsidiaryinwhichithasa100percent
companieshavebeenheldonlytoformpartofasingle shareholding are part of a single economic unit. In the
economicunitifitcanbeestablishedthat: lattercase,AkzoNobel’swholly-ownedsubsidiarieshad
106“Competition:Commissionfinesfourfirms€75.86millionforrubberchemicalcartel”(IP/05/1656ofDecember21,2005),availableat:http://europa.eu/rapid
/pressReleasesAction.do?reference=IP/05/1656&format=PDF&aged=1&langage=EN&guiLanguage=en[AccessedNovember26,2013].
107Bodson[1988]E.C.R.2479at[19].
108Bodson[1988]E.C.R.2479at[21].
109VihoEuropeBVvCommissionoftheEuropeanCommunities(T-102/92)[1995]E.C.R.II-17.
110VihoEuropeBV[1995]E.C.R.II-17at[50].
111Bodson[1988]E.C.R.2479at[20].
112[1991]OJL185/23.
113IrishSugarvCommissionoftheEuropeanCommunities(T-228/97)[1999]E.C.R.II-2969;upheldonappealbytheCJEUin (C-497/99P)[2001]E.C.R.I-5333.
114IstitutoChemioterapicoItalianoSpAvCommissionoftheEuropeanCommunities(6/73)[1974]E.C.R.223.
115StoraKopparbergsBergslagsABvCommissionoftheEuropeanCommunities(C-286/98P)[2000]E.C.R.I-9925.
116AkzoNobelNVvCommissionoftheEuropeanCommunities(C-97/08P)[2009]E.C.R.I-8237.
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