European Court holds that Companies are now liable for Joint Ventures they control

The concept of a joint venture has been a difficult issue for legislators and legal professionals alike since time immemorial. Every time a joint venture is created a great variety of issues arise, primarily with respect to the way that such a joint venture will affect the market from the perspective of competition. Many times, the joint venture will find itself under the scrutiny of national or EU competition authorities, having to disclose a good deal of documentation in order to attain the consent of such authorities to proceed.

The main advantage of such joint ventures is the creation of a separate company which benefits from the initial investment of the companies forming the joint venture while often limiting each company’s liability in respect to the actions of the joint venture. The European Court of Justice has recently watered down this advantage through the cases “Dow Chemical Co v European Commission (T-77/08)” and “El du Pont de Nemours & Co v European Commission (T-76/08) (Appeal Pending)”.

The main point of discussion in these cases is that the Court of First Instance held that a company can be liable for the anti-competitive actions of a joint venture in which it is involved where it holds 50% or more interest in that company. Although the court actions are separate they both refer to the act of illegal price fixing and market fixing by both companies through their joint venture called “DDE”.

The court stated that the decisive element necessary to incur such liability was “Decisive Influence”. While owning a 50% share in a company is certainly prima facie evidence of such control, the court took a broad view of the matter and attributed liability on account of other matters as well. These included:

• The fact that DDE’s Members Committee was established to supervise and manage the business, yet it transpired that DuPont and Dow each had an absolute right of veto over decisions made by the Committee.
• Top individuals in the structure of DDE also held positions of senior management in the parent companies.
• At a certain point in time, the Members Committee of DDE agreed to the closure of one of its production plants. This could not have taken place without the agreement of the parent companies, which appeared to be acting through the Members Committee.

These decisions stand to create a precedent which is binding to courts throughout the European Union. It also effectively creates a situation where companies must tread more carefully in the creation of a joint venture unless they wish to maintain liability for anti-competitive actions by such a joint venture.

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