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News & Media

Infringement of competition rules may become significantly more expensive

Date: 18/01/2017

Effective as of 27 December 2016, there is a new Act in Slovakia on certain rules for the liquidated damages caused by the infringement of competition law (the “Act“).

The motive for its adoption was the transposition of the Directive 2014/104/EU of the European Parliament and the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union (the “Directive“).

Adoption of the Directive and of the Act is the culmination of long-term efforts of the European Commission (the “EC“) to encourage and facilitate the seeking of compensation by injured parties for damages sustained as a result of a competition law infringement. Private law recovery of damages, in addition to a public sanction, should be the second pillar, which would provide a disincentive for businesses to violate competition law rules, since the compensation for damages may eventually be more costly for the offender than the actual imposition of fines by the Antimonopoly Office of the Slovak republic (“AMO“) or by the EC.

Despite the fact that, even before the adoption of the Act, it was possible to claim such damages under the general law contained in the Commercial Code or the Civil Code, such damages have only exceptionally been sought via the judicial route. The reason for the sparsity of claims has not only been the difficulty of proving the unlawfulness of the conduct (in the absence of an AMO decision), but also of the causal link and the calculation of damages based on a hypothetical calculation of how the market and the behaviour of entrepreneurs would have developed in the absence of the disputed unlawful conduct, which is a highly speculative exercise, since the market competition is influenced by a variety of factors.

The Act therefore retreats from the status quo of claimant-defendant equality and by the introduction of several new principles and rebuttable presumptions, it tilts more strongly in favour of claimants.

The right to compensation of damages under the Act may be claimed by any person (e.g. other competitor, direct or indirect customer, including consumer), regardless of whether there was a direct contractual relationship between that person and the offending entity. A decision on the violation of competition law in another EU Member State is an example of what constitutes rebuttable evidence of unlawful conduct for the purposes of the Act. The Act also introduces the rebuttable presumption that a cartel, being the most serious type of an agreement restricting competition between competitors, always causes damage. The Act expressly allows the court to determine the amount of damage by estimation if its determination is possible only with disproportionate difficulty or it is not possible at all.

The Act provides special rules regarding the statutory limitation period. These are significantly more advantageous to the claimant, such as a 5-year limitation period which begins once the claimant has the possibility of the knowledge of all of the following: i) the damage; ii) the offender; but also the knowledge of iii) the fact that the conduct in question amounts to a breach of competition law. Without the decision of the AMO, EC or the court in this case, any demonstration of such knowledge would be problematic, which may mean that the limitation period will not begin to run until numerous years after the potential breach. The interruption of the limitation period in case of an investigation by the competition authority, as well as the resumption of the passage of a new limitation period to a year after the competition authority issues a decision in the matter are further novel tools introduced by the Act. These provisions can significantly prolong the running of the subjective limitation period, while it is not expressly clear from the Act, whether this special regulation excludes the application of the general objective ten-year limitation period under the Commercial Code or not.

The Act also establishes a special way of joint and several liability for damage in case of an infringement of competition rules by several entities, where the injured party may claim full compensation of damage from any involved offender, while retaining a right of recourse against the others. The compensation amount should be determined according to the infringer’s turnover, the role of the infringer in the cartel and its market share, i.e. businesses with larger turnovers and market positions shall pay more than smaller violators. However, the Act does not specify how this recourse shall be determined in a case that does not involve a cartel, e.g. in case of a vertical distribution agreement.

The Act seeks to limit the liability of persons who voluntarily admit unlawful conduct and submit evidence of unlawful conduct to the AMO (Leniency Program); they are consequently exempt from the imposition of a fine. In reality, however, this limitation is minimal and, in practice, it is likely to mean that businesses will cease to take advantage of the Leniency Program. Such violators in fact remain liable for damage caused to their direct/indirect customer/vendor, and at the same time they are also accountable to other injured persons, unless they “can get damage compensation” from other violators. This formulation is an illustration that the legislature did not thoroughly consider the terms of the Act, but its purpose was rather to adopt “some” law to fulfil the obligation of the transposition of the Directive. It is, however, not clear at all, from the used text, when exactly damage compensation becomes payable – in the event of the impossibility to file an action against the other violators? Or is it when the action is rejected? Without a more detailed provision in the Act, it could equally become payable only when the enforcement of the judgement against another violator becomes impossible. Provisions of similar vagueness can be found throughout the Act.

The Act also caters for the issue of the passing on of price increases. It seeks to enable the defendant to successfully defend against the claim for damage compensation by claiming that the claimant transferred the price increases to their customers, therefore, not sustaining damage from the conduct of the defendant. It also, on the other hand, allows indirect customer to claim damages against the infringer of the competition law. We believe that in practice, it will pose a major problem for courts to make a decision on the extent to which the price increase was transferred to a specific stage of the supply chain, since pricing is affected by many factors, a breach of competition law potentially being just one of them. This is partly implied in the Act itself, since it provides that if it is not possible to detect the passing on of the price, the court determines it by estimation.

Since damages from a breach of competition law is based largely on the sensitive business data of affected parties (e.g. pricing), enough information is an essential prerequisite for litigation for damages. For this reason the Act extensively regulates making available (also sensitive) business information between the parties, as well as the disclosure of information from the administrative file maintained by the AMO. Failure to submit information may lead to, inter alia, that the court will consider a certain fact to be established, or disregard the claims and statements.

The new Act will apply to damages caused after 26 December 2016 and the legal proceedings initiated after that date.

Adoption of this Act is very likely to cause that any decision of the AMO will in the future be sought by “injured businesses” to obtain either “damage compensation”, or at least information about their competitors. We believe that it will take a longer time, until due to application practice the meanings of individual principles and notions used by the Act will establish, which in some cases are rather a transcript of the Directive than its transposition into the Slovak legal environment and its terminology. It would be interesting to see how in practice the individual provisions of the Act are applied by its authors. The adoption of this Act does not deviate from the quite frequent Slovak practice, when the objective is the formal transposition of the Directive and not creating clear and indisputable rules.

Mgr. Michal Kohn
Senior Associate
E michal.kohn@rc-cms.sk
T + 421 (0) 2 32 333 432