French Supreme Court rules that the notion of economic entity is not applicable to torts resulting from unfair competition conduct

Written on 26 Jul 2018

On 14 February 2018, the French Supreme Court confirmed the Paris Court of Appeal's recent interpretation of "single economic entity" (or "undertaking"), finding that a parent company cannot be held responsible for its subsidiaries' wrongdoings in tortious damages claims deriving from anti-competitive conduct. The Supreme Court, therefore, confirmed that competition law principles do not interfere with the principle of personal liability under civil law.

Background

A company managing a network of affiliated stores and franchisees in the optical-equipment market claimed that certain stores in a competing network had breached competition law, including charging customers an increased price for lenses and a decreased price for frames in order to offer more attractive prices, making up the balance with insurance.

The company brought an action before the Paris Commercial Court against four companies that were part of this competing network:

  • the retail traders' cooperative society (which ensured the supply of products and services to opticians in the network);
  • the company managing the network of affiliated stores;
  • the company managing the franchise network; and
  • the economic interest group that provided administrative and financial services to the network's companies.

The claimant submitted evidence of the stores' alleged breaches of competition law and claimed compensation for damage suffered on the basis of civil liability in tort, in accordance with the French Civil Code.

On 22 December 2014, the Commercial Court of Paris held that the two defendants in charge of operating stores were liable for the breaches, and excluded the other two from liability as they did not operate any stores and only provided services to the network. It awarded the claimant €30 million in damages.

The single economic entity

All four defendants appealed the judgement, arguing that they were not personally liable for the alleged competition law breaches, which were carried out by individual stores. The defendants argued that they had put appropriate compliance measures in place in these stores to guard against such breaches.

The claimant argued that the four companies within the network should be regarded as a "single economic entity", by reference to competition law analysis, given the complementarity in their respective corporate objects, addresses, services and management, and the contractual and financial ties between them. As a result, the claimant concluded that all four companies should be jointly liable for the alleged conduct.

On 6 September 2016, the Paris Court of Appeal dismissed the Commercial Court's judgment, reversing the finding for the two defendants previously held responsible for the anti-competitive conduct and confirming the judgement for the other two.

Justifying its findings, the Court of Appeal affirmed that the concept of a "single economic entity" is specific to competition law and cannot be applied to civil liability in tort, which apportions liability based on individual action. In this case, however, the Court of Appeal found that there was no evidence that any of the four companies had personally engaged in anti-competitive conduct.

The French Supreme Court decision

The claimant lodged an appeal before the French Supreme Court, arguing that the individual stores, regarded as affiliates of the four companies, had not behaved autonomously in the market as they essentially followed instructions given by their parent companies. Therefore, the parent companies should be found jointly liable for the conduct of their affiliates/members as if they were a single entity.

The Supreme Court rejected this analysis and upheld the Court of Appeal's decision, confirming that the concept of "single economic entity", specific to competition law, cannot apply to civil liability in tort that results from anti-competitive conduct. As a result, a legal entity cannot be held liable in tort for the faults of others as though they were one single economic entity.

Comment

The Supreme Court decision clarifies this element of the relationship between French Civil Law and competition law. Under French law, the right to bring a follow-on action for damages in a civil or commercial court is not subject to separate legislation (as it is in the UK, for example) but instead must follow the general rules relating to tort or contractual claims. This decision will therefore have implications for any business seeking to bring a damages action against a parent company where it is the subsidiary or group company that has committed the competition law breach.