Certified Legal Translations
and Parent Liability of EU Subsidiaries
and Joint Ventures

Legal Document Translation
for EU Joint Ventures

Legal Translation Services for EU Subsidiaries

The European Community has 23 official languages. Professional language translation services from and into these foreign languages are very important when dealing with the topic of parent liability in cartel infringement proceedings, which has been the focus of numerous commentaries and discussions, particularly in the EU. This in a large part is due to a recent European Court of Justice (ECJ) ruling holding that when a parent company has 100 percent shareholding in a subsidiary, it is presumed that:

  • The parent company has decisive influence over the subsidiary, and
  • The parent company in fact exercises this decisive influence over the subsidiary’s conduct.

This ruling has since been expanded to include shareholdings that are something short of complete, although as of now the ‘how much less’ remains unclear.

What is being referred to as the ‘decisive influence’ test is important primarily because it means that two companies are part of the same undertaking, which in turn means inter alia that the base amount of the fine for infringing Article 101 of the Treaty on the Functioning of the European Union includes both the parent’s and subsidiary’s turnovers and that both can be held jointly and severally liable for any fine imposed by the European Commission.

Needless to say, many companies have started to look at the joint venture as a ‘safe’ alternative. However, the European Commission has also been turning its focus on joint ventures, finding that parent companies will be held liable for their joint ventures’ transgressions.

This of course is a significant change from how joint ventures have been traditionally viewed. In the past, joint ventures were generally classified as being a separate undertaking and not lumped together with the undertakings of their controlling parents – particularly when it came to attributing liability and collecting fines. The only true exception to this was the landmark Avebe case, which was generally seen as an outlier due to the fact that the joint venture was unincorporated and jointly managed by the parent companies. Instead the courts tended to favor the Rubber Chemicals standard, which held that in a case of a subsidiary jointly owned by its parent companies, and over which neither parent company had either de facto or de jure sole control, the joint venture could be presumed to be autonomous from its parent companies. In other words, it could be presumed that the joint venture would constitute a separate undertaking with respect to its parent companies.

This all changed with the later Dow/DuPont decision, which set up the Decisive Influence test and which has since been applied to joint ventures, treating them much like a 100 percent subsidiary. The only defense this approach leaves room for is for a parent company to try to convince the European Commission that it does not, in fact, exercise the decisive influence attributed to it. That being said, this is a very limited defense as the courts have stated that a parent company can be found to have exercised its decisive influence by doing next to nothing.

Thus, in summary a parent company can be held liable for 100 percent subsidiaries and 50/50 joint ventures. Unfortunately, due to the elasticity of the decisive influence test, the Commission has room to start looking at shareholders with equity interests falling well below the 50 percent threshold.

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