CJEU confirms Pirelli’s parental liability in Power Cables Cartel

On 28 October 2020, the Court of Justice of the EU (CJEU) dismissed in its entirety an appeal brought by Pirelli & C. SpA (Pirelli) against a General Court ruling which confirmed Pirelli’s joint and several liability in the 2014 power cables cartel.

The CJEU confirmed the General Court’s findings that the Commission was entitled to rely on the presumption of decisive influence to attribute liability on Pirelli as the parent company of two entities that participated in the power cables cartel from 1999 to 2005, on the basis of its almost 100% shareholding in those companies.

In doing so, the CJEU confirmed the case law of the Court according to which, in decisions relating solely to a rebuttal of the presumption of decisive influence, the Commission must only show in its decision the reasons why the elements put forward by the undertakings in question are insufficient. However, the Commission is not required to discuss each of the elements put forward by the undertakings concerned, especially those elements that are manifestly irrelevant, meaningless or clearly secondary.

This case is a reminder that the bar to rebut the presumption of decisive influence that parent companies exercise over their subsidiaries is quite high. There are only a handful of cases in which such arguments were successful and the large majority of cases are dismissed. One notable example is the Spanish raw tobacco case (Joined Cases C-628/10 and C-14/11), in which the CJEU held that when the Commission adopts a particular method to attribute joint liability on parent companies for cartel infringements of their subsidiaries, the principle of equal treatment requires that the same criteria are applied to all other parent companies whose subsidiaries participated in the cartel.

The Pirelli judgment is the latest in a string of cases brought by the participants in the power cables cartel. Both Pirelli and Goldman Sachs were held jointly and severally liable as former parent companies of Prysmian, one of the cartel participants. The appeal brought by Goldman Sachs – which is slightly different from the Pirelli case in that Goldman Sachs owned less than 100% of the share capital in Prysmian but held 100% of the voting rights – is currently pending before the Court (please see our briefing here).

Background to the case

The Commission Decision of April 2014

In April 2014, the Commission imposed fines totalling €302 million on 11 producers of underground and submarine high voltage power cables which are typically used to connect generation capacity to the electricity grid. The Commission found that these companies shared markets and allocated customers between themselves from 1999 to 2009 (see here).

Among the cartel participants were six European, three Japanese and two Korean producers of submarine and underground power cables. However, the Commission also held jointly and severally liable several other companies, either because they were part of joint ventures with some of the infringing companies or because they were exercising decisive influence over these companies as parents companies. This was the case of Pirelli and Goldman Sachs.

According to the Commission, between 1999 and 2005, Pirelli was the parent company of Pirelli Cavi e Sistemi SpA (PirelliCS) and later Pirelli Cavi e Sistemi Energia SpA (PirelliCSE); two companies active in the submarine and underground electrical cable sector. In 2005, Pirelli sold PirelliCSE to GSCP Athena Energia Srl, an indirect subsidiary of Goldman Sachs. Following this sale, PirelliCSE was renamed Prysmian Cavi e Sistemi Srl (PrysmianCS) which is currently part of the Prysmian Group and 100% owned by Prysmian SpA.

The Commission concluded that since Pirelli owned almost 100% of the shares in PirelliCS and PirelliCSE, it was presumed to exercise decisive influence over its subsidiaries. Similarly, Goldman Sachs was held liable  because one of its funds, GS Capital Partners V Funds (GSCP V Funds), had a majority shareholding in Prysmian at the time of the infringement (i.e. from 2005 to 2009).

On this basis, the Commission imposed fines of €104.6 million on Prysmian of which Pirelli was held jointly and severally liable for €67.3 million and Goldman Sachs for €37.3 million.

The General Court’s ruling of 12 July 2018

Most of the power cables manufacturers as well as the companies that were held jointly and severally liable brought actions before the General Court seeking annulments of the Commission Decision and annulments or reductions of the fines. On 12 July 2018, the Court dismissed those actions (see here), including the claims brought by Goldman Sachs and Pirelli (see here and here).

In the case of Goldman Sachs, the General Court held that, when an investment bank is able to exercise all the voting rights in combination with a very high majority stake in the share capital of a subsidiary, it can be presumed that the parent company determines the economic and commercial strategy of that subsidiary, even if it does not hold all or virtually all of the subsidiary’s shares.

The case of Pirelli was even more straightforward. In that case, the Court held that the Commission was right to presume that Pirelli exercised decisive influence over its subsidiaries PirelliCS and PirelliCSE because it held close to 100% of the share capital.

Both, Goldman Sachs and Pirelli lodged appeals against the General Court’s rulings. While the CJEU recently confirmed Pirelli’s joint and several liability in the cartel, the appeal brought by Goldman Sachs is currently pending before the Court.

CJEU confirms Pirelli’s parental liability

Pirelli put forward a number of arguments against the General Court’s ruling which had confirmed the Commission Decision according to which Pirelli exercised decisive influence over PirelliCS and PirelliCSE between 1999 and 2005.

First, Pirelli argued that the General Court failed to give sufficient reasons to conclude that the Commission was correct in applying the presumption of decisive influence. The CJEU rejected this argument. According to the Court, in decisions solely relating to a rebuttal of the presumption of decisive influence, the Commission must show in its decision the reasons why it considers that the elements put forward are insufficient. However, according to settled case law, the Commission is not required to discuss each of the elements put forward by the companies concerned, especially if those elements are “manifestly irrelevant, meaningless or clearly secondary”.

In this regard, the Court agreed with the General Court that the following arguments raised by Pirelli were clearly insufficient to call into question the presumption of decisive influence and that the Commission was not obliged to discuss each of these elements as it already showed that Pirelli did not successfully rebut the presumption of decisive influence mainly because of its 100% shareholding: (i) the fact that PrysmianCS had a corporate structure that enabled it to operate autonomously; (ii) that Pirelli acted exclusively as a financial holding company, controlling over 100 different companies in different sectors, with limited managerial activities; and (iii) that Pirelli was not aware of the activities of its subsidiaries because the monthly reports it received were of a purely informative and administrative nature.

Second, Pirelli claimed that the General Court breached its fundamental rights and failed to state reasons by wrongly rejecting its complaints alleging infringements of the principles of legality and personal responsibility, the presumption of innocence and the principle of proportionality. The CJEU also rejected these arguments and recalled well-established case law according to which a parent company can be held liable for breaching EU competition rules if its subsidiaries do not autonomously determine their behaviour on the market but instead follow instructions from the parent. According to the Court, these instructions can be inferred from economic, organisational and legal ties between the subsidiaries and the parent company because in essence, they are part of the same undertaking.

The CJEU also recalled case law according to which where a parent company directly or indirectly holds all or almost all of the capital of its subsidiaries, there is a rebuttable presumption that the parent company exercises decisive influence over its subsidiaries. In such circumstances the Court held that it is sufficient for the Commission to provide that all or almost all of the capital of a subsidiary is held by its parent company. The parent company is able to rebut the presumption by providing sufficient evidence. Consequently, the CJEU confirmed that the General Court was right to rely on the presumption of decisive influence because at the time, Pirelli owned nearly 100% of the shares in its subsidiaries involved in the cartel and did not provide sufficient evidence to rebut the presumption.

Third, the CJEU also rejected Pirelli’s arguments that the General Court breached the principles of joint and several liability, proportionality and equal treatment in holding Pirelli jointly and severally liable for the purpose of paying the fine. According to the Court, Pirelli’s joint and several liability stems simply from the fact that both Pirelli and its subsidiaries were part of the same economic entity that infringed EU competition law, which is sufficient to attribute liability.

Finally, the CJEU dismissed Pirelli’s arguments that imposing a fine on it – jointly and severally for the behaviour of its subsidiaries, instead of imposing the fines on the subsidiaries alone – weakens the deterrent effect of the fines. According to the Court, such an argument is based on the incorrect premise that sanctions should focus on the subsidiary instead of the parent company. The Court held that it is clear from the case law that there is no priority regarding the imposition of the fine on either of these entities. In addition, the Court pointed out that the fact that fines are imposed jointly and severally on a parent company, does not preclude that this company may ask its subsidiary to reimburse the total or part of this sum.