Landmark Supreme Court ruling on single economic entity doctrine regarding joint ventures | Austria

28 January 2020 | austria newsletters

In a recent judgment, the Austrian Supreme Court found that the concept of the "single economic entity" (wirtschaftliche Einheit) may also apply to jointly controlled undertakings. The judgment entails an interesting discussion on the applicability of the antitrust group privilege in the relationship between a joint venture and its shareholders.

     1  Background

The case at hand (OGH 6 Ob 105/19p) originates from a corporate lawsuit stemming from a shareholder resolution. The plaintiff, an Austrian food retail group, holds a 32 % stake in the defendant, an Austrian drugstore undertaking.

Pursuant to the defendant's articles of association, a shareholders' resolution on the annual investment plan requires a qualified majority for investments exceeding a rather moderate threshold, which from an antitrust perspective together with other factors confers joint control. On this basis, the plaintiff made use of its blocking rights for planned investments in 2018. Since the defendant refused to recognise the outcome, the plaintiff filed a declaration suit for judicial confirmation that the investment had not been approved. The defendant, however, argued that the plaintiff is a competitor from an antitrust point of view, meaning that its mere participation in the vote would constitute a breach of the cartel prohibition (Art. 101 TFEU).

      2  Outcome

The first- and second-instance courts approved the action. The ruling was also upheld by the Supreme Court. While the ruling also features corporate law aspects, it discusses important antitrust principles regarding the single economic entity concept, also referred to as the antitrust group privilege. Generally, the cartel prohibition applies to independent undertakings. Under the concept of the single economic entity restrictive arrangements between a controlling and a controlled undertaking fall outside Art. 101 TFEU, as the subsidiary does not enjoy economic independence. This is rebuttably presumed and has been generally accepted by the ECJ in situations where a parent company holds 100 % (or close to 100 %) of the shares in a subsidiary.

In the case at hand, the Supreme Court further reasoned that the concept of the single economic entity may also apply in relation to a jointly controlled undertaking ("JV"). In other words: The merely "negative" nature of the control exercised by one parent company does not preclude in itself the finding of an economic entity. Therefore, a JV may form a single undertaking with each of its JV partners.

However, the judgement also clearly cautions. The concept of the single economic entity cannot be applied infinitely as regards JVs. The Supreme Court confined its reasoning to those aspects that are effectively encompassed from the joint decisive influence. Thus, the concept does not apply to such elements where the JV retains an independent sphere. For instance, in the case at hand the management could act independently from the plaintiff's instructions in terms of its day-to-day business.

Ultimately, the antitrust arguments of the case were decided by a different logic: Pursuant to the judgement a JV partner's exercise of rights regarding the JV (e.g. strategic investments) results from its jointly controlling stake and, in principle, is not subject to Art. 101 TFEU, since it represents an immanent element of the structural connection between the JV and its parent companies.

     3  Comment

The sensitivity of this judgement requires it to be handled with care. On the one hand, the Supreme Court has clarified that the concept of the single economic entity also applies to jointly controlled undertakings (i.e. negative control might suffice to invoke the antitrust group privilege). On the other hand, it has established a clear limitation of its ruling to such aspects that effectively confer joint/negative control. In brief, certain other aspects, where the JV has sufficient autonomy from a JV partner, are still covered by Art. 101 TFEU. In this context, the reasoning cannot be construed abstractly in the sense that each link between a JV and a JV partner would fall outside Art. 101 TFEU.

Interestingly, the Austrian Federal Competition Authority ("FCA"; Bundeswettbewerbsbehörde) has recently published a well-drafted guidance paper on the applicability of the group privilege (see link). The FCA takes the stance that the possibility of blocking decisions by the exercise of minority rights (negative control) would be insufficient for the group privilege to apply (at least in terms of the shareholders' rights of instructions). The group privilege would rather require sole control in the sense that there is only one (controlling) parent company. It remains to be seen how the FCA will interpret the Supreme Court's ruling.

In any event, the ruling strikes a new path. It has consistently been argued that if parent companies can be held liable for antitrust infringements of their JV (which is well-established by the case law of the ECJ), they also may benefit from the group privilege regarding their JVs. In the current decision, the Supreme Court, however, qualifies the autonomy of the management in the day-to-day business as an argument for the applicability of the cartel prohibition.