CJEU confirms Goldman Sachs’ liability in power cables cartel

On 27 January 2021, the Court of Justice of the EU (CJEU) dismissed in its entirety an appeal brought by the Goldman Sachs Group (Goldman Sachs) against a General Court ruling which confirmed Goldman Sachs’ joint and several liability in the 2014 power cables cartel (judgment here).

The CJEU confirmed the General Court’s findings that the Commission was entitled to rely on the presumption of decisive influence to attribute liability to Goldman Sachs for the conduct of its subsidiaries, Prysmian and PrysmianCS, which had participated in the power cables cartel between 2005 and 2009. In a significant expansion of the prior case-law concerning parental liability in relation to subsidiaries, the CJEU ruled that the presumption of decisive influence arose from the fact that Goldman Sachs held all the voting rights in Prysmian and not necessarily as a result of its shareholding in Prysmian.

In doing so, the CJEU confirmed that when a parent company 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.

This case is a reminder that the bar to rebut the presumption of decisive influence that parent companies exercise over their subsidiaries is high. There are only a handful of cases in which such arguments were successful and the large majority of cases have been dismissed.

The CJEU also rejected Goldman Sachs’ argument that the General Court did not take into account the changes brought about by an initial public offering (IPO) to assess whether Goldman Sachs still exercised decisive influence over Prysmian’s market conduct after this IPO. The CJEU confirmed that the General Court had correctly examined the elements on which the Commission relied: Goldman Sachs’ ability to appoint and revoke board members, to call shareholders meetings and its role in Prysmian’s Strategic Committee.

The consequence of this ruling is that, for any financial investor that holds all the voting rights associated with a portfolio company’s shares, it will be very difficult to successfully rebut the presumption of decisive influence and escape liability for any antitrust infringement by said portfolio company.

The Goldman Sachs judgment is the latest in a string of cases brought by the participants in the power cables cartel. Both Goldman Sachs and Pirelli were held jointly and severally liable as former parent companies of Prysmian, one of the cartel participants. The CJEU recently ruled on the appeal brought by Pirelli and confirmed the latter was jointly and severally liable because it held close to 100% of Prysmian’s share capital between 1999 and 2005 (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 parent companies. This was the case for Goldman Sachs and Pirelli.

According to the Commission, between 2005 and 2009, Goldman Sachs was the indirect parent company of Prysmian through GS Capital Partners V Funds LP (“GSCP V”) and other intermediate companies. While Goldman Sachs’ holding in Prysmian was initially 100% of the shares, the level of that holding decreased following two divestments made in September 2005 and July 2006, initially to 91.1% and then to 84.4% until May 2007, the date on which some of the shares in Prysmian were offered to the public in an initial public offering (the IPO).

The Commission held Goldman Sachs liable for the conduct of its subsidiary on the basis of its decisive influence by virtue of: (i) the level of shareholding held in the company, and (ii) its economic, organisational and legal links which resulted in decisive influence over Prysmian's conduct between July 2005 and January 2009.

On this basis, the Commission imposed fines of €104.6 million on Prysmian for which Goldman Sachs was held jointly and severally liable for €37.3 million and Pirelli for €67.3 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 a parent company is able to exercise all the voting rights in combination with a very high majority stake in the share capital of a subsidiary, the parent company is in a similar position to that of the sole owner of that subsidiary, even if it does not hold all of the share capital of that subsidiary. In such circumstances 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.

Parental liability does not extend to purely financial investors who hold shares in the company in order to make a profit but are not involved in its management or control, but whether or not an investment is purely financial depends on the facts and circumstances of each case. ln light of its findings on decisive influence, the General Court held that Goldman Sachs had failed to demonstrate that its shareholding in the Prysmian group had been a purely financial investment and that it had no involvement in the management and control of the company.

The case of Pirelli was even more straightforward. 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.

CJEU confirms Goldman Sachs’ parental liability

Goldman Sachs put forward a number of arguments against the General Court’s ruling.

Firstly, Goldman Sachs claimed that the General Court was wrong in holding it liable for an infringement of Article 101 TFEU, in respect of the pre-IPO period (i.e. before 2007), by relying on the presumption that it actually exercised decisive influence over Prysmian.

The CJEU recognised that before the IPO, Goldman Sachs did not hold all of Prysmian’s capital. However, the relevant case law makes it clear 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 that this holding implies.

Consequently, the General Court did not err in law when it considered that a company which holds all the voting rights associated with its subsidiary’s shares is in a similar position to a parent holding all or virtually all the capital of the subsidiary, and which is able to determine the subsidiary’s economic and commercial strategy.

Hence, as Goldman Sachs held all the voting rights in Prysmian, the CJEU confirmed that the Commission was entitled to rely on the presumption that Goldman Sachs actually exercised decisive influence over Prysmian. The CJEU also agreed with the General Court that the burden of proof to rebut that presumption was on Goldman Sachs which in this case did not manage to rebut the presumption.

Secondly, Goldman Sachs claimed that, regarding the post-IPO period, the General Court had erred in law by relying on factors relevant for the pre-IPO period and by merely asserting that the IPO had not changed anything.

The CJEU confirmed that in order to determine whether the parent company is able to exercise decisive influence over the market conduct of its subsidiary, the General Court can rely on elements relating to a prior period.

The CJEU also held that the General Court, far from finding that the IPO had not changed anything, carefully took into account the elements relied on by the Commission and drew a clear distinction between the pre-IPO period and the post-IPO period. According to the CJEU, the General Court carefully examined the elements on which the Commission relied when considering whether Goldman Sachs had exercised decisive influence over Prysmian’s market conduct during the whole period. Among the elements relating to the entire infringement period, the General Court examined the power to appoint members of the board of directors of Prysmian, and the power to call shareholders’ meetings and to propose the removal of directors or the entire board of directors.

Thirdly, Goldman Sachs also claimed that the General Court was wrong in finding that Goldman Sachs had the required level of representation on Prysmian’s board of directors to influence Prysmian’s market conduct.

The CJEU held that the General Court had sufficiently identified the existence and relevance of links between Goldman Sachs and the members of Prysmian’s board of directors and could consider those links to be an element on which the Commission could rely to demonstrate Goldman Sachs’ decisive influence over Prysmian’s conduct. The CJEU confirmed that the existence of an economic entity formed by the parent and its subsidiary can be evidenced not only by formal links but also based on informal relationships such as personal links between the legal entities constituting such an economic unit. Hence, the General Court had correctly applied the relevant case-law.

Finally, other arguments questioning the General Court’s assessment of facts and evidence were rejected as inadmissible because Goldman Sachs could not establish that the General Court had distorted any relevant evidence.

Contacts