Last Updated on November 21, 2019 by LawEuro
Information Note on the Court’s case-law 233
October 2019
Carrefour France v. France (dec.) – 37858/14
Decision 1.10.2019 [Section V]
Article 6
Article 6-2
Presumption of innocence
Civil fine imposed on the surviving company in respect of an infringement committed by its merged subsidiary, in the context of business continued by the parent: inadmissible
Article 6-1
Criminal charge
Fair hearing
Civil fine imposed on the surviving company in respect of an infringement committed by its merged subsidiary, in the context of business continued by the parent: inadmissible
Facts – In 2005 a store run by the company Carrefour Hypermarchés France (at the time a wholly owned subsidiary of the applicant company) was audited by officials of the Ministry of Economic Affairs, which identified anti-competitive practices. In 2006 the Ministry brought proceedings before the Commercial Court seeking the imposition of the relevant civil-law fine on the company.
In January 2009 Carrefour Hypermarchés France was merged into the applicant company (which thus continued all its ongoing business and became the employer of its staff). In a judgment of 2012, the Court of Appeal ordered the applicant company to pay a civil-law fine of 60,000 euros.
The applicant company argued that the fine breached the principle that punishment should only be applied to the offender and not to other persons. The Court of Cassation dismissed its appeal on the ground that, as the merger had entailed the economic and functional continuity of the merged subsidiary, a sanction imposed on the surviving company for an infringement previously committed in the context of its former subsidiary’s activity was not incompatible with this principle.
Law – Article 6 §§ 1 and 2
(a) Applicability (“Engel” criteria) – While in domestic law the infringement was not classified as a criminal offence, the Constitutional Council had explained that the civil-law fine in question was a “pecuniary sanction in nature” and that the principle that punishment should only be applied to the offender was applicable. The sanction imposable was also very harsh (up to two millions euros). Therefore, Article 6 was applicable in its criminal limb (see also Produkcija Plus storitveno podjetje d.o.o. v. Slovenia, 47072/15, 23 October 2018).
(b) Merits
(i) General considerations – In the Court’s view, the approach of the domestic courts based on the economic and functional continuity of the company, seeking to take account of the specific situation created by the merger of one company into another, did not contravene the principle that punishment should only be applied to the offender, as guaranteed by the Convention (see, among other authorities, E.L., R.L. and J.O.-L. v. Switzerland, 20919/92, 29 August 1997, and A.P., M.P. and T.P. v. Switzerland, 19958/92, 29 August 1997).
In the event of the merger of one company into another, the business of the merged company, with all its assets and liabilities, passed to the surviving company and its shareholders became shareholders of the latter. The activity that had been formerly carried on by the merged company, and which had constituted its core business, was thus continued by the company benefitting from the operation.
As a result of the continuity from one company to another, the merged company was not really “another” in relation to the surviving company. Thus to fine the latter on account of a competition infringement committed by a subsidiary before the merger did not appear to contravene the principle that punishment should only be applied to the offender (whereas that principle would be patently flouted where an individual was convicted for an offence committed by another).
The choice made in French law was therefore driven by the imperative of ensuring the effectiveness of pecuniary sanctions, which would be negated by the systematic application to legal entities of the principle that punishment should only be applied to the offender (since it would be sufficient for companies to use operations such as mergers to avoid any pecuniary sanctions for economic infringements).
European Union competition law followed a similar approach, driven by the same concern: to avoid companies evading the Commission’s power of sanction by the mere fact that their identity had been changed following restructuring, divestment or other legal or organisational changes; and to ensure the effective implementation of the competition rules.
Moreover, the Constitutional Council had noted that, except for the entity taking over the assets and liabilities of a company that had been wound up without liquidation, the fine in question was not imposable on any other person.
(ii) Considerations specific to the case – The company Carrefour Hypermarchés France had been merged into the applicant company after being wound up and its entire assets and liabilities had passed to the latter. The decision to carry out the merger had been taken by the applicant company itself, which at the time had been the parent company and sole shareholder. The decision had been taken after an audit had been carried out by the relevant Ministry and after court proceedings had been brought by the latter, shortly before the judgment at first instance.
While it was true that the merged company had formally ceased to exist following the operation in question, its business had been continued by the applicant company; it was the same business with merely a change in legal structure. It was precisely for anti-competitive acts committed in the context of that very business that the legal proceedings had been brought against the former company.
The principle that punishment should only be applied to the offender had therefore not been breached.
Conclusion: inadmissible (manifestly ill-founded).
(See also, on the scope of the corporate veil, vis-à-vis company directors: G.I.E.M. S.r.l. and Others v. Italy [GC], 1828/06 et al., 28 June 2018, Information Note 2019, and, vis-à-vis shareholders: Albert and Others v. Hungary, 5294/14, 29 January 2019, Information Note 230, case referred to the Grand Chamber)
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