EU General Court confirms that competition liability may be attributed by the criterion of economic continuity only exceptionally

What if a cartelist sells the business that was responsible for the competition infringement to a third party? Who should be liable for the infringement under EU competition law? The transferor or/and the transferee? The general rule for attribution of competition liability under EU law is the principle of personal liability whereby it is the transferor if it still exists to be liable for the infringement committed by the transferred business. The principle of personal liability does not apply in a situation where the transferor or the original infringer is still in existence though no longer operating in the relevant market affected by the cartel and is connected with the transferee by structural links. In this case, the competition liability is allocated to the transferee on the basis of the criterion of economic continuity as an exception to the principle of personal liability.  

This approach was followed by the General Court of the EU (GC) in its judgment recently delivered in Coveris Rigid France v European Commission (judgment of 6 December 2018, T-531/15). Upholding the appealed decision made by the European Commission, the GC ruled that the competition liability of the appellant was correctly grounded on the general principle of personal liability because the conditions for the application of the exceptional criterion of economic continuity were unmet.

The appellant, Coveris Rigid France (CRF), was one of the undertaking that according to the Commission implemented a cartel affecting several national markets of EU Member States for the production of polystyrene trays (decision of 24 June 2015, case AT.39563 Retail food packaging). CRF and Huhtamäki Oyj (HO) were then found liable for the portion of cartel concerning the French market over the September 2004/November 2005 period. Accordingly, the Commission levied a € 4,7 million fine on them and for CRF and HO were jointly and severally liable.

CRF and Huhtamäki Embalagens Portugal (HEP), later renamed as ONO Packaging Portugal (ONO PP), were both part of the Huhtamäki group until 19 June 2006. On that date the Coveris’ assets used for the production of polystyrene trays were sold to ONO Packaging (ONO P), whereas all the shares in HEP were sold to ONO Développement (ONO D), the parent company of ONO P. Following the sale of the above assets, CRF exited the market for polystyrene trays.

Before the GC, CRF contended that only ONO P should be held liable for the competition infringement in question on the basis of either a holistic approach or the principle of economic unity. According to the holistic approach, the share transfer and asset transfer transactions of 19 June 2006 should be considered as one mixed transaction. As a result, the transferee in these transactions could not be split up on the basis of purely formal criterial. The result was that the liability for the cartel was to be fully imputed to the legal entities that after the transactions formed only one and the same undertaking, in this case ONO D.

The GC observed that CRF only sold certain assets to ONO P though it continued operating as part of the Huhtamäki group. When a competition infringer sells its assets to a third party, liability follows those assets only in exceptional cases where the transferor ceased to exist in law or ceased all its economic activities. This was not the case with CRF. Extending competition liability to transferees of those assets is allowed only where the transferors and the transferee have been under the control of the same person due to close economic and organisational links between them. CRF did not provide any evidence for such links between it and ONO P and that the transfer of Coveris’s assets was an intra-group transaction. In addition, the Commission had a wide margin of discretion to establish liability in cases of intra-group economic succession. Therefore, the GC rejected the holistic approach submitted by CRF.

As for the criterion of economic continuity, the GC reminded that this a supplement to the principle of personal liability for the allocation of competition liability and should apply exceptionally. One of these exceptional circumstances for the criterion of economic continuity to apply arises when the transaction was put in place by independent undertakings acting in bad faith, with the intention of avoiding penalties levied pursuant to the EU competition rules. From the available information the GC could not infer that there were specific machinations with the aim of avoiding competition fines.

The GC ruled out that the facts in Coveris Rigid France v Commission constituted an exceptional circumstance justifying the application of the criterion of economic continuity. Indeed, at the time of the adoption of the challenged decision CRF still existed in law and economically. For this reason, the Commission was right in finding CRF liable for the infringement found in Retail food packaging. Neither whether the business sale and share sale transaction of 19 June 2016 may constitute one and the same transaction according to the EU merger control is relevant for the assessment of competition liability. All that is important, instead, is determining which is the undertaking liable for the competition infringement committed in France. Finally, whether the share capital of two firm is owned by the same holding is insufficient to establish that the subsidiaries constitute an economic unit and that, accordingly they can be held jointly and severally liable for the ensuing competition f