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ECJ sets criteria for the application of the principle of economic continuity

The European Court of Justice (“ECJ”) elaborated on the principle of economic continuity on 18.12.2014 in its case C-434/13 P, European Commission vs Parker Hannifin Manufacturing Srl and Parker-Hannifin Corporation (together “Parker”).

The European Commission (“Commission”) confirmed in its decision COMP/39406 from 28.01.2009 the participation of Parker ITR Srl (“Parker ITR”) in the marine hose cartel from 01.04.1986 to 02.05.2007. Consequently, the Commission imposed a fine of EUR 25 Mio. against Parker ITR, a subsidiary of Parker. Parker was held jointly and severally liable for the infringement of its subsidiary for the period from 31.01.2002 to 02.05.2007 with an amount of EUR 8.3 Mio.

ITR SpA is a subsidiary of Saiag SpA. ITR SpA created ITR Rubber Srl (“ITR Rubber”) in 2001 in order to sell its marine hose business. The transfer became effective on 01.01.2002. Parker acquired ITR Rubber to 100% on 31.01.2002 converting it to Parker ITR.

However, the court of first instance (“the Court”) ruled in its case T-146/09 on 17.05.2013 that the Commission did not provide sufficient evidence to establish that ITR Rubber had exercised any business activities before 01.01.2002, especially regarding marine hoses. Thus, it could only be liable for the infringement as of that date.

In addition, the Court held that the principle of economic continuity is not applicable in cases in which a cartel participant sells its business unit to an independent third party if there is no structural link between them. In contrast, the principle of personal responsibility would be applied in order to establish the liability in such cases.

According to the principle of economic continuity, a legal successor of an infringing company can be held liable and imposed a fine if it is under the same control of the infringing company and thus, has a structural link. The ECJ has stated in earlier cases that if a company sells a certain business unit to another independent third party, this principle is only applicable if the company responsible for the management of the sold unit has ceased to exist after the infringement. However, the ECJ has added with its current judgement that the bare existence of the business unit that committed an infringement does not preclude imposing a fine against the entity to which the relevant business unit was transferred to.    

The ECJ stated that the Court had erred in law by not applying the principle of economic continuity. An internal restructuring or sale of an infringing business unit does not exempt the controlling company from its liability as long as the successor is economically identical. The Court did not regard the structural link between ITR SpA and ITR Rubber at the time of the transfer of the business unit. Parker ITR could therefore be held liable for the whole period of the infringement.

The ECJ referred the case back to the Court in order to determine if the presumption of an economic unit with Parker applied by the Commission in its original decision is rebuttable.

Authors:

Dr. Christina Hummer
Ori Kahn