Category: Uncategorized

Greece has suffered six years of deep recession, which has led to a significant decrease of the GDP by approximately 25% and to unprecedented unemployment rates exceeding 27%. The political situation has been tenuous for a long time, while the banking system has been unable to finance companies and individuals. 

Because of these factors, the surrounding financial environment has heavily affected M&A activity, and there have been only a few recent deals, mainly in the category of ‘rescue mergers’ (i.e., to ensure the viability of the involved enterprises).

Needless to say, periods of crisis are periods of opportunity. The current crisis will function to a great extent as a corrective measure to the past ‘evils’ of the Greek economy. Measures and changes that appeared inconceivable in the past due to their political cost will become inevitable. The structural inefficiencies of the Greek economy, even if not entirely cured, will improve; the unproductive cost of labour will be reduced; inflationary trends will be harnessed, and a lot of other disincentives, including the negative climate for enterprises and entrepreneurs, should improve. The new conditions will necessarily improve the country’s poor productivity ranking. 

At last, it seems that a turnaround in M&A activity is now starting, taking advantage of the above opportunities.

1. Banking sector. In the banking sector, consolidation through M&A activity has been long awaited, and this year there have been significant movements due to the deteriorating circumstances of the Greek economy and the Greek banks.  

Following several previous attempts and schemes (Alpha Bank and EFG Eurobank, NBG and Eurobank Ergasias SA), which were finally abandoned and/or not completed, the final combinations for the four “systemic” banks of the Greek banking system have progressed as follows:

• NBG acquired Probank (Hellenic Competition Commission decision no. 576/VII/2013) and FBB Bank (HCC 568/VII/2013),
• Alpha Bank acquired Emporiki Bank from Credit Agricole (HCC 556/VII/2012),
• Piraeus Bank acquired state-owned Agricultural Bank of Greece (its “healthy” part), Geniki Bank (a member of Societe General Group), Millenium Bank and Cyprus Popular Bank (the Greek business).  All the above acquisitions by Piraeus Bank have been already cleared by the HCC (decisions no. 549/VII/2012, 553/VII/2012, 566/VII/2013 and 574/VII/2013 accordingly).
• Eurobank acquired New Proton Bank (HCC 578/VII/2013) and New Hellenic Postbank (HCC 584/VII/2013).

2. Aviation sector. One of last year’s highlights for M&A deals in Greece would certainly be the second attempt for the concentration between Aegean Airlines and Olympic Air (Aegean/Olympic II).  Following the 2011 prohibition by the European Commission, Aegean Airlines announced on October 2012 a new agreement with Marfin Investment Group SA for the purchase of 100% of the share capital of Olympic Air SA.  The significance of this deal was again the intended formation of one consolidated Greek air carrier, following the international tendency for consolidation in the aviation industry.  The deal had a different structure, i.e., it led to acquisition of sole control by Aegean Airlines over Olympic Air, while previously there was to have been joint control of three groups of shareholders over the merged entity. Therefore, there was no European dimension this time and, as far as the EU is concerned, the transaction was only to be notified in Greece and Cyprus. However, the European Commission requested upwards referral, and the case was examined in depth by the competent Directorate General (DG Comp).  In October 2013, the European Commission finally cleared the deal on a failing-firm basis and, therefore, without remedies. Interestingly, this seems to be the first case to be unconditionally cleared by the Commission following a previous blocking decision.

3. Energy sector. One of the few privatization deals which moved ahead this year relates to the acquisition of 66% of DESFA SA (a natural gas Transmission System Operator in Greece) by SOCAR. It is actually the first case within the EU where a third-country undertaking seeks to acquire control over an EU member state TSO. The merger control of the deal is under examination by the European Commission and still in progress.  

Other than that, the Hellenic Competition Commission recently cleared (HCC 587/VII/2014) a joint venture in the energy sector (PPC Solar Solutions), established between Public Power Company (incumbent in the Greek electricity market) and Copelouzos Group (a major private investor), which is expected to offer integrated solutions for household photovoltaic installations and energy saving products in Greece.     

By Cleomenis Yannikas, Partner, Dryllerakis & Associates

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Interview with Andras Mohacsi, Assistant Regional General Counsel at British American Tobacco. Based in Holland, Mohacsi is currently the Assistant Regional General Counsel responsible for Western Europe at British American Tobacco (BAT) and the Head of Competition for the region. He is soon to move to London to take on the same role for BAT globally. Mohacsi agreed to talk to CEE Legal Matters about the competition challenges faced by a company as large as BAT and best practices in building a compliance system and culture within such an organization.

   

Andras Mohacsi, Assistant Regional General Counsel at British American Tobacco

 CEELM: To start, please tell our readers a bit about you and your background. 

A.M.: I am a Hungarian lawyer. I first worked 6 years in banking following which I started working for British American Tobacco (BAT) in 1998. I first worked as a generalist senior lawyer and leader of legal teams. As part of the executive legal team within BAT, I worked and supervised teams in Hungary and later in the Netherlands, after which I focused on the area or cluster of legal teams in Central Europe and Northern Europe. More recently I specialized in Competition law, and obtained a post-gradual diploma in EU Competition Law at Kings College London. Currently I live in Amsterdam and expect to move to London soon with my family. My daughter is 14 and my son is 21 and studies in London, so I am looking forward to the family reunion and playing golf together. That, by the way, is my dearest hobby. I picked it up 2 years ago and now I ask myself how I could live before without golf?

 CEELM: At BAT, you are responsible for competition matters for a wide range of jurisdictions. Which aspects of your role are most challenging and why?

A.M.: In the last 3 years I have been coordinating competition legal matters, including putting in place a robust compliance program in our Western Europe Region, which includes the EU and EFTA. In the next few months I expect to start a new role in which I will essentially be doing the same but with a global responsibility. 

Arguably the most challenging topic is competitive information. Our industry is quite oligopolistic with a few global players competing with each other for a long time in most markets of the world. In order to be successful in the market, we cannot operate in isolation. We need information from the market on what our competitors are up to and how they are performing. At the same time, we do business with common trading partners, wholesalers, key accounts, distributors, etc. As a result, we need to counsel other business units very carefully as to how far we can go in collecting and relying on information related to our competitors and how we can communicate our own price decisions to the market while staying on the right side of the law. 

The law governing competitive information is not always clear and, in some jurisdictions, there are definitely a lot of nuances of grey in interpreting it. For example, it is far from clear whether the legal test in the so-called “hub and spoke” exchange of information situations that has been elaborated by UK courts in the “Replica T-shirt” cases and reinforced later in the Tesco case could serve as a guidance in the rest of the EU and beyond, or whether the Commission or other anti-trust authorities would use a different legal test to establish the existence of a 3-party agreement between retailers and their common supplier. 

At the same time, it is unclear whether this legal test would be applied if the triangle is up-side down, i.e. among two suppliers and their common distributor. Arguably, a supplier like us needs to be able to discuss a broad set of commercial issues with our distributors. In certain cases there is a strong commercial interest for the distributor to share some of the information with another supplier. It is very challenging to put in place and operate a compliance program that allows a business to maximize opportunities and stay on the right side of the law in this area.  

 CEELM: Competition-related fines have become an increasingly expensive burden. What are the best practices a company of BAT’s size can employ to avoid them? 

A.M.: Before I specialized in competition law, I was a generalist business lawyer counseling different business functions at various levels. My number one objective was, together with all other executive team members, to enable the company to win in the market place. 

As lawyers, we are risk managers and our role is to find solutions in our counseling and with the controls we put in place whereby we maximize our business opportunities while ensuring that the various kinds of risk we take are at an acceptable level. As you say, the consequences of breaching competition law are very severe. 

It is not just about the fines – the levels of which are increasing in many jurisdictions around the world – but also criminal liability in some jurisdictions, or being sued by victims of the antitrust infringement, reputation, time-management, legal cost, etc. The challenge is, on the one hand, that the law is not always terribly clear, as we discussed already, while on the other hand,  in a company employing more than 55,000 people worldwide, you have at least several thousand who could potentially be in the position to breach or contribute to the breach of Competition law at any given time. 

Our compliance program rests on the assumption that infringements occur either because of lack of knowledge or lack of control. Therefore, through our compliance machine, we need to mobilize knowledge and operate control processes where it matters. Some companies believe that printing a nice booklet containing some dos and don’ts or a generic description of the main prohibitions of competition law, and maybe a few presentations to staff once in a while, is enough. I have seen such booklets actually titled “Competition Law Compliance Program.” This is a very static approach and I cannot imagine that such an approach can work in a big and complex organization. 

An effective compliance program is dynamic, much more of a comprehensive approach consistently implemented in regular cycles. The program that we have already implemented in our Western Europe Region and that I am planning to roll out in our other regions has 7 building blocks: 

The first is “The Organization.” In a global consumer business like ours, business is conducted mainly via end market subsidiaries. For example, BAT Germany is managing our business in Germany and so on. Our lawyers sit in the end markets and counsel their respective businesses. These lawyers are generalists with varying level of Competition law knowledge. In the last 3 years I used to be the competition expert coordinator for Western Europe, and in the future I will be the global such coordinator. We have formed what we call the “Competition Law Community” and the members are all lawyers who are involved in competition law matters. 

The second is “Defining focus areas on an annual basis.” Under my supervision, the members of the Community do a risk assessment in their respective markets on an annual basis and do a compliance plan defining the most relevant and important focus areas. We also group markets with similar characteristic features together and where we find a group of markets with similar risk areas we seek and implement coordinated compliance solutions. One example of this has been the Self-Assessment Guidelines that we developed with our regional external antitrust law firm, which addressed several aspects of exchange of information in groups of European countries. 

The third pillar is “The How.” We have developed and rolled out within the legal function a set of Guidelines on how to counsel the other business functions on antitrust matters. This field of law requires a special counseling approach because of unique procedural issues (such as legal privilege, leniency, etc.), the high level of fines, and the critical role of documents. Neutralization of potential competition concerns requires special skills and we had to make sure we build them within our team. 

In the forth, we “Connect the Community.” Specifically, we provided access to our entire legal community involved in antitrust matters to a dynamic electronic library to share knowledge and best practices. Along the same lines, in the fifth, we “Connect the Business” with knowledge tools, appropriate controls, guidelines, trainings, awareness programs and deep-dive sessions for senior top teams. The sixth block is “Connecting the Counsel.” We have identified one global law firm with a very broad footprint as our regional strategic firm in competition law matters. This approach gives us better knowledge management, and a lot of other synergies. The seventh, and final block, we call “Connect the Word.” It contains our coordinated activities to keep up with developments in competition law globally, representing ourselves in various associations for competition lawyers, such as ICLA, and contributing through various bodies to the shaping of key regulations in this field of law. 

 CEELM: As the competition expert in your company, how do you disseminate best practices throughout the organization in other business functions? 

A.M.: Knowledge management is absolutely central in our compliance approach. In fact, our European Compliance program (the 7 building blocks described above) was born in the context of knowledge management, when our Global Legal Board mandated 4 pilot programs in 4 different areas of law with the aim of seeing how we, as a global function, can be better in knowledge management. 

We found that a mixture of a formal and informal, actual and virtual organization is needed. You need a dedicated expert with formal authority to lead the coordination. You need the Community, essentially all lawyers who are involved in antitrust matters. You need to encourage the creation of sub-groups with similar issues. You need to promote the use of technology, virtual meetings, webexes, tele-presence, and libraries. You need to have an annual training plan, which is linked to the strategic priorities of the various markets identified through the risk assessment exercise. 

Between the community, which consists of all the lawyers, and the regional or global coordinator, sits a smaller informal virtual team, that we call “the Competition Law Practice Group (CLPG).” We select 5-6 lawyers from each region to the CLPG and we change the CLPG every 1.5 – 2 years. They have a more intensive learning plan, they review and comment on regional compliance initiatives, and they drive the implementation of new compliance initiatives for better buy-in. In terms of disseminating knowledge to the business, we try to be very targeted, instead of overloading everyone with irrelevant information. We focus on key risk groups. The most important element is the deep-dive sessions that we have for top teams, where we talk about the business of a particular subsidiary in a market, what are the key objectives, risks, and we try to conclude with very practical suggestions and measures to help to achieve the business objectives with acceptable risk. 

 CEELM: When your company hires country heads of legal, do you look for individuals with specific competition matter experience or do you train them in-house in that direction?

A.M.: It depends on the market position of our subsidiary. For example, when I hired the future legal director for BAT Denmark, experience in competition law was key, since in Denmark BAT has around 80% market share. Otherwise, we do a lot of training in-house in the strategic context.  

 CEELM: From a regulatory standpoint, what do you perceive as the biggest challenges companies in CEE will have to face in the near/mid future?

A.M.: I think that the key challenge for CEE is economic growth. We still do not seem to be out from the negative consequences of the financial crisis. There is a lot of frustration in societies and governments around the EU with protectionism in certain places seeming to win votes. I am a big fan of the single market. Governments need to be careful with the re-creation of national monopolies and protecting existing ones. I am personally in favor of more Europe rather than less Europe, though, Brussels needs to listen to valid claims of member state governments and societies for serenity where the single market is not really an issue. Companies can grow and flourish in a stable legal environment. There is a lot to be done in that area in CEE.

 CEELM: How transparent do you find CEE competition regulators relative to those in Western Europe? Has there been development in this regard in recent years?

A.M.: Some are easier to predict than others. It is understandable to a certain extent that the enforcement priorities of NCAs are often politically driven. The European Competition Network is a very important forum and contributes to the transparency of NCAs and the dissemination of best practices. The Commission still has a lot to do to promote the concept of the single market though. 

Interview with Andras Mohacsi, Assistant Regional General Counsel at British American Tobacco. Based in Holland, Mohacsi is currently the Assistant Regional General Counsel responsible for Western Europe at British American Tobacco (BAT) and the Head of Competition for the region. He is soon to move to London to take on the same role for BAT globally. Mohacsi agreed to talk to CEE Legal Matters about the competition challenges faced by a company as large as BAT and best practices in building a compliance system and culture within such an organization.

   

Andras Mohacsi, Assistant Regional General Counsel at British American Tobacco

 CEELM: To start, please tell our readers a bit about you and your background. 

A.M.: I am a Hungarian lawyer. I first worked 6 years in banking following which I started working for British American Tobacco (BAT) in 1998. I first worked as a generalist senior lawyer and leader of legal teams. As part of the executive legal team within BAT, I worked and supervised teams in Hungary and later in the Netherlands, after which I focused on the area or cluster of legal teams in Central Europe and Northern Europe. More recently I specialized in Competition law, and obtained a post-gradual diploma in EU Competition Law at Kings College London. Currently I live in Amsterdam and expect to move to London soon with my family. My daughter is 14 and my son is 21 and studies in London, so I am looking forward to the family reunion and playing golf together. That, by the way, is my dearest hobby. I picked it up 2 years ago and now I ask myself how I could live before without golf?

 CEELM: At BAT, you are responsible for competition matters for a wide range of jurisdictions. Which aspects of your role are most challenging and why?

A.M.: In the last 3 years I have been coordinating competition legal matters, including putting in place a robust compliance program in our Western Europe Region, which includes the EU and EFTA. In the next few months I expect to start a new role in which I will essentially be doing the same but with a global responsibility. 

Arguably the most challenging topic is competitive information. Our industry is quite oligopolistic with a few global players competing with each other for a long time in most markets of the world. In order to be successful in the market, we cannot operate in isolation. We need information from the market on what our competitors are up to and how they are performing. At the same time, we do business with common trading partners, wholesalers, key accounts, distributors, etc. As a result, we need to counsel other business units very carefully as to how far we can go in collecting and relying on information related to our competitors and how we can communicate our own price decisions to the market while staying on the right side of the law. 

The law governing competitive information is not always clear and, in some jurisdictions, there are definitely a lot of nuances of grey in interpreting it. For example, it is far from clear whether the legal test in the so-called “hub and spoke” exchange of information situations that has been elaborated by UK courts in the “Replica T-shirt” cases and reinforced later in the Tesco case could serve as a guidance in the rest of the EU and beyond, or whether the Commission or other anti-trust authorities would use a different legal test to establish the existence of a 3-party agreement between retailers and their common supplier. 

At the same time, it is unclear whether this legal test would be applied if the triangle is up-side down, i.e. among two suppliers and their common distributor. Arguably, a supplier like us needs to be able to discuss a broad set of commercial issues with our distributors. In certain cases there is a strong commercial interest for the distributor to share some of the information with another supplier. It is very challenging to put in place and operate a compliance program that allows a business to maximize opportunities and stay on the right side of the law in this area.  

 CEELM: Competition-related fines have become an increasingly expensive burden. What are the best practices a company of BAT’s size can employ to avoid them? 

A.M.: Before I specialized in competition law, I was a generalist business lawyer counseling different business functions at various levels. My number one objective was, together with all other executive team members, to enable the company to win in the market place. 

As lawyers, we are risk managers and our role is to find solutions in our counseling and with the controls we put in place whereby we maximize our business opportunities while ensuring that the various kinds of risk we take are at an acceptable level. As you say, the consequences of breaching competition law are very severe. 

It is not just about the fines – the levels of which are increasing in many jurisdictions around the world – but also criminal liability in some jurisdictions, or being sued by victims of the antitrust infringement, reputation, time-management, legal cost, etc. The challenge is, on the one hand, that the law is not always terribly clear, as we discussed already, while on the other hand,  in a company employing more than 55,000 people worldwide, you have at least several thousand who could potentially be in the position to breach or contribute to the breach of Competition law at any given time. 

Our compliance program rests on the assumption that infringements occur either because of lack of knowledge or lack of control. Therefore, through our compliance machine, we need to mobilize knowledge and operate control processes where it matters. Some companies believe that printing a nice booklet containing some dos and don’ts or a generic description of the main prohibitions of competition law, and maybe a few presentations to staff once in a while, is enough. I have seen such booklets actually titled “Competition Law Compliance Program.” This is a very static approach and I cannot imagine that such an approach can work in a big and complex organization. 

An effective compliance program is dynamic, much more of a comprehensive approach consistently implemented in regular cycles. The program that we have already implemented in our Western Europe Region and that I am planning to roll out in our other regions has 7 building blocks: 

The first is “The Organization.” In a global consumer business like ours, business is conducted mainly via end market subsidiaries. For example, BAT Germany is managing our business in Germany and so on. Our lawyers sit in the end markets and counsel their respective businesses. These lawyers are generalists with varying level of Competition law knowledge. In the last 3 years I used to be the competition expert coordinator for Western Europe, and in the future I will be the global such coordinator. We have formed what we call the “Competition Law Community” and the members are all lawyers who are involved in competition law matters. 

The second is “Defining focus areas on an annual basis.” Under my supervision, the members of the Community do a risk assessment in their respective markets on an annual basis and do a compliance plan defining the most relevant and important focus areas. We also group markets with similar characteristic features together and where we find a group of markets with similar risk areas we seek and implement coordinated compliance solutions. One example of this has been the Self-Assessment Guidelines that we developed with our regional external antitrust law firm, which addressed several aspects of exchange of information in groups of European countries. 

The third pillar is “The How.” We have developed and rolled out within the legal function a set of Guidelines on how to counsel the other business functions on antitrust matters. This field of law requires a special counseling approach because of unique procedural issues (such as legal privilege, leniency, etc.), the high level of fines, and the critical role of documents. Neutralization of potential competition concerns requires special skills and we had to make sure we build them within our team. 

In the forth, we “Connect the Community.” Specifically, we provided access to our entire legal community involved in antitrust matters to a dynamic electronic library to share knowledge and best practices. Along the same lines, in the fifth, we “Connect the Business” with knowledge tools, appropriate controls, guidelines, trainings, awareness programs and deep-dive sessions for senior top teams. The sixth block is “Connecting the Counsel.” We have identified one global law firm with a very broad footprint as our regional strategic firm in competition law matters. This approach gives us better knowledge management, and a lot of other synergies. The seventh, and final block, we call “Connect the Word.” It contains our coordinated activities to keep up with developments in competition law globally, representing ourselves in various associations for competition lawyers, such as ICLA, and contributing through various bodies to the shaping of key regulations in this field of law. 

 CEELM: As the competition expert in your company, how do you disseminate best practices throughout the organization in other business functions? 

A.M.: Knowledge management is absolutely central in our compliance approach. In fact, our European Compliance program (the 7 building blocks described above) was born in the context of knowledge management, when our Global Legal Board mandated 4 pilot programs in 4 different areas of law with the aim of seeing how we, as a global function, can be better in knowledge management. 

We found that a mixture of a formal and informal, actual and virtual organization is needed. You need a dedicated expert with formal authority to lead the coordination. You need the Community, essentially all lawyers who are involved in antitrust matters. You need to encourage the creation of sub-groups with similar issues. You need to promote the use of technology, virtual meetings, webexes, tele-presence, and libraries. You need to have an annual training plan, which is linked to the strategic priorities of the various markets identified through the risk assessment exercise. 

Between the community, which consists of all the lawyers, and the regional or global coordinator, sits a smaller informal virtual team, that we call “the Competition Law Practice Group (CLPG).” We select 5-6 lawyers from each region to the CLPG and we change the CLPG every 1.5 – 2 years. They have a more intensive learning plan, they review and comment on regional compliance initiatives, and they drive the implementation of new compliance initiatives for better buy-in. In terms of disseminating knowledge to the business, we try to be very targeted, instead of overloading everyone with irrelevant information. We focus on key risk groups. The most important element is the deep-dive sessions that we have for top teams, where we talk about the business of a particular subsidiary in a market, what are the key objectives, risks, and we try to conclude with very practical suggestions and measures to help to achieve the business objectives with acceptable risk. 

 CEELM: When your company hires country heads of legal, do you look for individuals with specific competition matter experience or do you train them in-house in that direction?

A.M.: It depends on the market position of our subsidiary. For example, when I hired the future legal director for BAT Denmark, experience in competition law was key, since in Denmark BAT has around 80% market share. Otherwise, we do a lot of training in-house in the strategic context.  

 CEELM: From a regulatory standpoint, what do you perceive as the biggest challenges companies in CEE will have to face in the near/mid future?

A.M.: I think that the key challenge for CEE is economic growth. We still do not seem to be out from the negative consequences of the financial crisis. There is a lot of frustration in societies and governments around the EU with protectionism in certain places seeming to win votes. I am a big fan of the single market. Governments need to be careful with the re-creation of national monopolies and protecting existing ones. I am personally in favor of more Europe rather than less Europe, though, Brussels needs to listen to valid claims of member state governments and societies for serenity where the single market is not really an issue. Companies can grow and flourish in a stable legal environment. There is a lot to be done in that area in CEE.

 CEELM: How transparent do you find CEE competition regulators relative to those in Western Europe? Has there been development in this regard in recent years?

A.M.: Some are easier to predict than others. It is understandable to a certain extent that the enforcement priorities of NCAs are often politically driven. The European Competition Network is a very important forum and contributes to the transparency of NCAs and the dissemination of best practices. The Commission still has a lot to do to promote the concept of the single market though. 

Interview with Andras Mohacsi, Assistant Regional General Counsel at British American Tobacco. Based in Holland, Mohacsi is currently the Assistant Regional General Counsel responsible for Western Europe at British American Tobacco (BAT) and the Head of Competition for the region. He is soon to move to London to take on the same role for BAT globally. Mohacsi agreed to talk to CEE Legal Matters about the competition challenges faced by a company as large as BAT and best practices in building a compliance system and culture within such an organization.

   

Andras Mohacsi, Assistant Regional General Counsel at British American Tobacco

 CEELM: To start, please tell our readers a bit about you and your background. 

A.M.: I am a Hungarian lawyer. I first worked 6 years in banking following which I started working for British American Tobacco (BAT) in 1998. I first worked as a generalist senior lawyer and leader of legal teams. As part of the executive legal team within BAT, I worked and supervised teams in Hungary and later in the Netherlands, after which I focused on the area or cluster of legal teams in Central Europe and Northern Europe. More recently I specialized in Competition law, and obtained a post-gradual diploma in EU Competition Law at Kings College London. Currently I live in Amsterdam and expect to move to London soon with my family. My daughter is 14 and my son is 21 and studies in London, so I am looking forward to the family reunion and playing golf together. That, by the way, is my dearest hobby. I picked it up 2 years ago and now I ask myself how I could live before without golf?

 CEELM: At BAT, you are responsible for competition matters for a wide range of jurisdictions. Which aspects of your role are most challenging and why?

A.M.: In the last 3 years I have been coordinating competition legal matters, including putting in place a robust compliance program in our Western Europe Region, which includes the EU and EFTA. In the next few months I expect to start a new role in which I will essentially be doing the same but with a global responsibility. 

Arguably the most challenging topic is competitive information. Our industry is quite oligopolistic with a few global players competing with each other for a long time in most markets of the world. In order to be successful in the market, we cannot operate in isolation. We need information from the market on what our competitors are up to and how they are performing. At the same time, we do business with common trading partners, wholesalers, key accounts, distributors, etc. As a result, we need to counsel other business units very carefully as to how far we can go in collecting and relying on information related to our competitors and how we can communicate our own price decisions to the market while staying on the right side of the law. 

The law governing competitive information is not always clear and, in some jurisdictions, there are definitely a lot of nuances of grey in interpreting it. For example, it is far from clear whether the legal test in the so-called “hub and spoke” exchange of information situations that has been elaborated by UK courts in the “Replica T-shirt” cases and reinforced later in the Tesco case could serve as a guidance in the rest of the EU and beyond, or whether the Commission or other anti-trust authorities would use a different legal test to establish the existence of a 3-party agreement between retailers and their common supplier. 

At the same time, it is unclear whether this legal test would be applied if the triangle is up-side down, i.e. among two suppliers and their common distributor. Arguably, a supplier like us needs to be able to discuss a broad set of commercial issues with our distributors. In certain cases there is a strong commercial interest for the distributor to share some of the information with another supplier. It is very challenging to put in place and operate a compliance program that allows a business to maximize opportunities and stay on the right side of the law in this area.  

 CEELM: Competition-related fines have become an increasingly expensive burden. What are the best practices a company of BAT’s size can employ to avoid them? 

A.M.: Before I specialized in competition law, I was a generalist business lawyer counseling different business functions at various levels. My number one objective was, together with all other executive team members, to enable the company to win in the market place. 

As lawyers, we are risk managers and our role is to find solutions in our counseling and with the controls we put in place whereby we maximize our business opportunities while ensuring that the various kinds of risk we take are at an acceptable level. As you say, the consequences of breaching competition law are very severe. 

It is not just about the fines – the levels of which are increasing in many jurisdictions around the world – but also criminal liability in some jurisdictions, or being sued by victims of the antitrust infringement, reputation, time-management, legal cost, etc. The challenge is, on the one hand, that the law is not always terribly clear, as we discussed already, while on the other hand,  in a company employing more than 55,000 people worldwide, you have at least several thousand who could potentially be in the position to breach or contribute to the breach of Competition law at any given time. 

Our compliance program rests on the assumption that infringements occur either because of lack of knowledge or lack of control. Therefore, through our compliance machine, we need to mobilize knowledge and operate control processes where it matters. Some companies believe that printing a nice booklet containing some dos and don’ts or a generic description of the main prohibitions of competition law, and maybe a few presentations to staff once in a while, is enough. I have seen such booklets actually titled “Competition Law Compliance Program.” This is a very static approach and I cannot imagine that such an approach can work in a big and complex organization. 

An effective compliance program is dynamic, much more of a comprehensive approach consistently implemented in regular cycles. The program that we have already implemented in our Western Europe Region and that I am planning to roll out in our other regions has 7 building blocks: 

The first is “The Organization.” In a global consumer business like ours, business is conducted mainly via end market subsidiaries. For example, BAT Germany is managing our business in Germany and so on. Our lawyers sit in the end markets and counsel their respective businesses. These lawyers are generalists with varying level of Competition law knowledge. In the last 3 years I used to be the competition expert coordinator for Western Europe, and in the future I will be the global such coordinator. We have formed what we call the “Competition Law Community” and the members are all lawyers who are involved in competition law matters. 

The second is “Defining focus areas on an annual basis.” Under my supervision, the members of the Community do a risk assessment in their respective markets on an annual basis and do a compliance plan defining the most relevant and important focus areas. We also group markets with similar characteristic features together and where we find a group of markets with similar risk areas we seek and implement coordinated compliance solutions. One example of this has been the Self-Assessment Guidelines that we developed with our regional external antitrust law firm, which addressed several aspects of exchange of information in groups of European countries. 

The third pillar is “The How.” We have developed and rolled out within the legal function a set of Guidelines on how to counsel the other business functions on antitrust matters. This field of law requires a special counseling approach because of unique procedural issues (such as legal privilege, leniency, etc.), the high level of fines, and the critical role of documents. Neutralization of potential competition concerns requires special skills and we had to make sure we build them within our team. 

In the forth, we “Connect the Community.” Specifically, we provided access to our entire legal community involved in antitrust matters to a dynamic electronic library to share knowledge and best practices. Along the same lines, in the fifth, we “Connect the Business” with knowledge tools, appropriate controls, guidelines, trainings, awareness programs and deep-dive sessions for senior top teams. The sixth block is “Connecting the Counsel.” We have identified one global law firm with a very broad footprint as our regional strategic firm in competition law matters. This approach gives us better knowledge management, and a lot of other synergies. The seventh, and final block, we call “Connect the Word.” It contains our coordinated activities to keep up with developments in competition law globally, representing ourselves in various associations for competition lawyers, such as ICLA, and contributing through various bodies to the shaping of key regulations in this field of law. 

 CEELM: As the competition expert in your company, how do you disseminate best practices throughout the organization in other business functions? 

A.M.: Knowledge management is absolutely central in our compliance approach. In fact, our European Compliance program (the 7 building blocks described above) was born in the context of knowledge management, when our Global Legal Board mandated 4 pilot programs in 4 different areas of law with the aim of seeing how we, as a global function, can be better in knowledge management. 

We found that a mixture of a formal and informal, actual and virtual organization is needed. You need a dedicated expert with formal authority to lead the coordination. You need the Community, essentially all lawyers who are involved in antitrust matters. You need to encourage the creation of sub-groups with similar issues. You need to promote the use of technology, virtual meetings, webexes, tele-presence, and libraries. You need to have an annual training plan, which is linked to the strategic priorities of the various markets identified through the risk assessment exercise. 

Between the community, which consists of all the lawyers, and the regional or global coordinator, sits a smaller informal virtual team, that we call “the Competition Law Practice Group (CLPG).” We select 5-6 lawyers from each region to the CLPG and we change the CLPG every 1.5 – 2 years. They have a more intensive learning plan, they review and comment on regional compliance initiatives, and they drive the implementation of new compliance initiatives for better buy-in. In terms of disseminating knowledge to the business, we try to be very targeted, instead of overloading everyone with irrelevant information. We focus on key risk groups. The most important element is the deep-dive sessions that we have for top teams, where we talk about the business of a particular subsidiary in a market, what are the key objectives, risks, and we try to conclude with very practical suggestions and measures to help to achieve the business objectives with acceptable risk. 

 CEELM: When your company hires country heads of legal, do you look for individuals with specific competition matter experience or do you train them in-house in that direction?

A.M.: It depends on the market position of our subsidiary. For example, when I hired the future legal director for BAT Denmark, experience in competition law was key, since in Denmark BAT has around 80% market share. Otherwise, we do a lot of training in-house in the strategic context.  

 CEELM: From a regulatory standpoint, what do you perceive as the biggest challenges companies in CEE will have to face in the near/mid future?

A.M.: I think that the key challenge for CEE is economic growth. We still do not seem to be out from the negative consequences of the financial crisis. There is a lot of frustration in societies and governments around the EU with protectionism in certain places seeming to win votes. I am a big fan of the single market. Governments need to be careful with the re-creation of national monopolies and protecting existing ones. I am personally in favor of more Europe rather than less Europe, though, Brussels needs to listen to valid claims of member state governments and societies for serenity where the single market is not really an issue. Companies can grow and flourish in a stable legal environment. There is a lot to be done in that area in CEE.

 CEELM: How transparent do you find CEE competition regulators relative to those in Western Europe? Has there been development in this regard in recent years?

A.M.: Some are easier to predict than others. It is understandable to a certain extent that the enforcement priorities of NCAs are often politically driven. The European Competition Network is a very important forum and contributes to the transparency of NCAs and the dissemination of best practices. The Commission still has a lot to do to promote the concept of the single market though. 

The scope of Slovenian Competition Law has undergone several changes since the country’s independence, especially following Slovenia’s accession to the EU and the approximation of its Competition Law to EU legislation. The basis of Competition Law is found in the Slovenian Constitution, which provides for a free economic initiative while prohibiting unfair competition practices. 

Slovenian Competition Law takes two forms. The suppression of unfair competition, which is regulated by the Protection of Competition Act (ZVK), and the prevention of restrictions on competition, which is regulated by the Prevention of Restriction of Competition Act (ZPOmK-1).

Unfair competition consists of actions on the market which are contrary to good business practices and which cause or may cause damage to other market participants (e.g. false advertising, error concealment, unauthorized use of trade names or trademarks). The second form of Competition Law prohibits certain practices that prevent, hinder, or distort  competition on the market. Thus, ZPOmK-1 prohibits the restricting of competition through agreements, decisions by associations of undertakings and concerted practices, abuse of dominant position, and the concentration of undertakings. It should be mentioned that due to Slovenia`s EU membership, its Competition Law is also subject to EU Competition Law. Therefore, the regulations of ZPOmK-1 are with minimal differences the same as the EU counterparts.

The relevant decision-making bodies of Competition Law issues in Slovenia are the Slovenian Competition Protection Agency (the “Agency”) and judicial authorities. The Agency exercises control over the application of the provisions of ZPOmK-1, monitors and analyses market conditions, conducts procedures and issues decisions in accordance with the law, and gives opinions to the National Assembly and the Government on issues within its competence. The Agency also reviews alleged restrictive agreements and alleged abuses of dominant positions. Based on its conclusions it then approves or prohibits them in accordance with applicable competition rules. It also applies the leniency program. 

The Agency leads two procedures regarding the protection of competition in Slovenia. One is an administrative procedure, affecting the decision-making of the management of companies and the impacts of those decisions on competition, while the other is an offensive procedure in which the Agency decides on sanctions for infringements of Competition Law. In order to ensure greater transparency and publicity the amendment of ZPOmK-1 in 2009 called for the publication of the Agency’s final decisions. As a result, the Agency now publishes its final decisions regarding administrative and other minor offense procedures on its website, as well as final orders that result from the procedures, without confidential information. As a result, Slovenia has joined the other competition authorities around the world which publish their decisions. 

The Slovenian judicial authorities review the Agency’s decisions in civil claims of invalidity and claims for damages resulting from intentional or negligent violations of the provisions of ZPOmK-1 and Articles 101 and 102 of the Treaty on the Functioning of the EU.

Civil claims for damages due to violations of competition rules in Slovenia are very rare, primarily because of the length of the procedures, the costs of litigation, difficulties in collecting evidence, and the inexperience of  judges in the field. This last phenomenon derives from the fact that in the few cases that have been heard in court (especially in conjunction with Telekom d.d., which allegedly was a main offender of the provisions of Competition Law, particularly regarding the abuse of dominant position) the judges avoided trials. For example, in the  T-2 vs. Telekom case that was initiated in the year 2007 and ended in January 2013, three judges were replaced. The same happened in the  ABM vs. Telekom case. And – with regard to the long duration of civil proceedings – it should be noted that the ABM vs. Telekom case lasted for 10 and half years. ABM filed the lawsuit for damages in 2002 and the final decision was adopted in 2013 when the Higher Court in Ljubljana awarded damages to ABM in the amount of EUR 62,000 – a substantial decrease from the EUR 2.3 million award made by the District Court in Ljubljana. Therefore it is not surprising that in this area the jurisprudence is very sparse.

Restriction of competition is defined in Slovenian Law as a criminal offense. The Criminal Code (KZ-1) determines a penalty for imprisonment from six months to five years for whoever, in pursuing an economic activity contrary to regulations governing the protection of competition, violates the prohibition of restricting agreements between companies, abuses the dominant position of one or more companies, or creates a forbidden concentration of companies, and thus prevents or significantly impedes or distorts competition in Slovenia or the EU,or significantly influences trade between Member States, which results in a large property benefit for such a company or companies, or significant damage to another company. 

By Andrej Kirm, Managing Partner, Sana Koudila, Associate, KIRM PERPAR

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Private antitrust litigation in Austria has developed significantly over the past few years. The increase of enforcement decisions by the Austrian cartel courts with sometimes hefty fines against members of cartels also increased the number of damage claims brought before Austrian civil courts. After the Cartel Court “elevators and escalators cartel” decision of 2007 was confirmed by the Supreme Court in 2008, a significant number of public and private customers initiated private antitrust litigation before the Commercial Court in Vienna in 2010 and 2011. No damages have yet been awarded in these cases, as the judges have so far been dealing with a number of legal arguments invoked by the defendants (such as statute of limitations or liability of directors and/or mother companies of the members of a cartel) on which Supreme Court decisions were obtained in the meantime. However, there are also other relevant pending cartel damage claim cases, including one brought by a payment system operator following a Cartel Court infringement decision of 2006 (confirmed by the Supreme Court in 2007) regarding fees charged by the market leader for access to its POS terminals in shops.

The development of Austrian private antitrust litigation is expected to be further promoted by amendments to the Austrian Cartel Act in March 2013. The new Austrian law anticipates many elements of the EU directive on antitrust damages claims and EU recommendations on collective redress, which should be adopted by the European Parliament in April 2014. 

The Austrian Cartel Act now stipulates, inter alia, that a damage claim by a cartel victim shall not be dismissed merely because the cartel victim itself passed the cartel overcharge on to its customers (section 37a para 1, second sentence). It is still unclear how this will affect the use of the “passing-on defence” in the future. Hence, this is still to be clarified by the Austrian Supreme Court.

Austrian civil procedure law empowers the court to determine, at its discretion, the amount to be compensated if the plaintiff’s entitlement to damages is clear but the specific amount cannot be ascertained in the proceedings (or only with disproportionate difficulties). Now the Cartel Act clarifies that in determining the amount of damages any advantage gained by the tortfeasor as a result of the infringement can be taken into account (section 37a para 1, third sentence). 

Damage claim proceedings based on competition law infringements can be suspended by civil courts for the duration of competition proceedings regarding the alleged  infringement (section 37a para 2).

Civil courts shall be explicitly bound by the decisions of the Cartel Court, the European Commission, or other national EU competition authorities finding a competition law infringement (section 37a para 3). 

Furthermore, the three-year limitation period under sec 1489 of the Austrian General Civil Code for “follow-on claims” shall, in cases investigated by a competition authority, be suspended for six months after a competition authority’s decision establishing the violation has become final (section 37a para 4).

Moreover, the new law aims to promote private enforcement of competition law by establishing that final and binding decisions on, inter alia, the prohibition of competition law infringements or the establishment of past infringements and the imposition of fines shall be published. The names of parties and the essential contents of decisions as well as the sanctions imposed shall be included in this publication. The publication is intended to give potential cartel victims better access to information for damage claims.

There is no case law yet on the substantive rules summarised above (given their applicability only to competition law infringements as of March 2013). However, there have been some other important decisions in 2013. In a judgment of December 16, 2013 (Case no. 6Ob186/12i), the Austrian Supreme Court confirmed that a claim was not time-barred because the trigger date for the statute of limitations for such damage claims was only the date of publication of the final and binding decision in the cartel proceedings, rather than media reports on the cartel or the announcement of such claims by the plaintiff. 

In another case of significant importance for cartel damage claims, the ECJ ruled on  June 6, 2013 (case no. C-536/1), that an Austrian statutory provision in the Cartel Act which makes access by prospective damage claimants to the Cartel Court’s case file conditional upon consent by both the authority and the members of the cartels was contrary to Art.101 TFEU, as it violated the so-called “effectiveness principle” of EU competition law. Any refusal of access should therefore be considered document by document. Disclosure should be withheld only for overriding reasons, and in particular when it might undermine the effectiveness of leniency programs by deterring prospective applicants from coming forward. The Cartel Court will have to rule on the request for access to the file on the basis of the ECJ decision, disregarding the Austrian statutory provision.      

By Axel Reidlinger, Partner, Freshfields Bruckhaus Deringer

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The central government’s power in Bosnia and Herzegovina  (“BiH”) is limited, as the country is largely decentralized and consists of two autonomous entities, the Federation of Bosnia and Herzegovina (“FBiH”) and Republika Srpska, with the Brcko District as a third region. Bosnia and Herzegovina is thus a prime example of an administratively, politically, and legally complex country in transition. Legislation is adopted on the state, entity, and – in FbiH – cantonal level, depending on the allocation of competences. 

As BiH has an express obligation to harmonize its legislation with EU law, it is no wonder that the Competition Act is modeled after and is substantively equal to EU competition rules. Moreover, the Competition Act of BiH explicitly states that the CC may in its work use the practice of the Court of Justice of the EU and the decisions of the European Commission as guidance. This suggestion has been adopted by the CC in practice, especially in matters of merger control and abuse of dominant positions. In 2013 the CC adopted eight antitrust decisions and 16 merger decisions and issued 25 official opinions. Eight mergers were dismissed, while the other were authorized unconditionally. The CC imposed fines totaling about EUR 1.8 million on companies that infringed competition rules. 

Despite this progress, the field of telecommunications has in recent years mostly been ignored by the CC, although competition on the market was generally limited. In 2011 a procedure against one of the three dominant operators in BiH was rejected by the CC in a decision which left more open questions than it provided answers, mainly because it did not state what the alleged abuse had been. However, the BiH Communications Regulatory Agency (“Agency”) has in recent years focused on the implementation of regulation goals, set out by the Council of Ministers of BiH on the Telecommunications Sector Policy of BiH for the period 2008-2012. All the activities undertaken by the Agency are based on a common aim: to create prerequisites for further market liberalization and to improve the level of competition. It seems that this has now led the CC to start looking deeper into the Telecommunication sector.

Last year the CC found that the Iko Balkan S.R.L media company had abused its dominant position in the market by imposing conditions regarding the minimum number of subscribers in its sale of rights for the distribution of channels that included football contents of high quality, including the transmission of packets of Live English Premier League in BiH, and thereby restricted competition in the market. The CC assessed that football content of high quality is a very differentiated product, which does not have an adequate replacement and is not generally interchangeable, in that – for instance – a consumer who follows the German Bundesliga matches will not consider matches of the English Premier League an adequate substitute, and vice versa. IKO Balkan was fined BAM 125,000 (approximately EUR 64,000) for infringement of the Competition Act. 

In a more recent decision, the CC found that BH Telecom Sarajevo, one of the incumbent telecommunications operators in BiH, had abused its dominant position in the market by forcing parties who wanted to sign an interconnection agreement to its fixed network to accept additional obligations which, by their nature, have no reasonable connection with that kind of agreement. Operators with significant market power (of which BH Telecom is one) prepare reference interconnection offers (“RIO”) – documents describing conditions and modes of connection to their infrastructure – and the Agency gives consent to the contents and conditions contained therein. Operators with significant market power lay out their infrastructure through RIOs to alternative operators when providing certain telecommunications services. BH Telecom had a dominant position in its market and, as such, a special responsibility and obligation to provide interconnection to its network under the conditions set forth in the RIO documents. The CC fined BH Telecom BAM 150,000 (approximately EUR 76,000) for abuse of dominant position in the market for interconnection.

While the meaning and impact of these cases is subject to further discussion – for example to determine if the relevant market was appropriately identified – they clearly show that a liberalization of a market will also cause the CC to react accordingly. The  question is if market players in BiH are ready for upcoming competition issues.  

By Nedzida Salihovic-Whalen, Partner, Robert Kordic, Managing Associate, and Zlatan Balta, Associate, CMS Reich-Rohrwig Hainz

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In March 2014 MPs from the parliamentary majority in Bulgaria proposed a bill for amendments to the Bulgarian Law on Protection of Competition (“LPC”). The stated purpose of the bill is to introduce rules to combat unfair practices in the retail sector.

Background

The legislative proposal, which received an endorsement from the Government, is the most recent development in a long standoff between large (mostly international) retailers and smaller (mostly local) suppliers. In recent years suppliers have repeatedly complained that large retailers have used their superior bargaining position to impose unfair commercial terms in supply contracts. Based on these complaints, in 2009 the Commission on Protection of Competition (“CPC”) started a full-fledged investigation against six large retailers for alleged abuse of dominance and horizontal coordination through the application of similar and allegedly unfair commercial terms in vertical agreements with suppliers. However, since the concentration of retail in Bulgaria is low (as of 2013 the market share of “modern trade” was below 45% and the market share of the largest retailer was about 10%), the abuse of dominance investigation was terminated. The cartel investigation was concluded in 2012 with a settlement decision pursuant to which the retailers agreed not to use in supply agreements:  (i) clauses obliging suppliers to extend any reduction in the supply price that had been offered to another retailer, or (ii) clauses preventing suppliers from launching simultaneous promotions of one and the same product in different retailers. However, other practices and clauses that were commonly used by some retailers and viewed by suppliers as unfair were not addressed. Therefore, over the past couple of years there has been mounting pressure for adoption of legislation that would balance interests in the retail sector. Since 2010 the Government has submitted a couple of proposals for amendments to the LPC but legislation has not been passed, partly due to the absence of  sufficient consensus on the nature and scope of legislative intervention that is needed.   

The Proposed Amendments to the LPC

Against this backdrop, the new bill provides for three main legislative changes:

• First, it introduces the concept of Significant Market Power (“SMP”) in the LPC, which is defined as a position held by an undertaking which is not dominant, but due to its market share, financial resources, access to markets, technological development, and established relations with other undertakings, may nevertheless distort competition on the market because its suppliers or customers are dependent on it. 
• Second, and without clear relation or relevance to the concept of SMP, the bill introduces into  the LPC a requirement that retailers with annual turnover in excess of BGN 50 million (approximately USD 36.2 million) submit their general terms for supply contracts to the CPC yearly for review and approval. Once approved the terms would be published on the Internet and applied to all agreements with suppliers.
• Third, the bill introduces changes in the Law on Foods pursuant to which retailers with annual turnover in excess of BGN 50 million would be prohibited from applying certain blacklisted clauses and practices in agreements and dealings with suppliers. 

Issues of Concern

Competition law practitioners and interested parties have raised concerns with the proposed legislation, including, among others, concerns about the scope and nature of the blacklisted practices and clauses (some of those are not identified as unfair in the recent Green Paper of the European Commission on Unfair Trading Practices in the Business-to-Business Food and Non-food Supply Chain in Europe); and due process concerns regarding the procedure for approval of general terms of supply agreements by the CPC and the level of penalties for abuse of SMP, etc. However, the issue which appears to stand out is whether unequal bargaining position and alleged unfair trading practices in the retail sector would be addressed through the introduction of new provisions on unilateral conduct in competition legislation. The bill does not consider issues of abuse of SMP in the context of specific bilateral relationships between entities with unequal bargaining position where the weaker party may be forced to accept certain unfavorable conditions because it does not have any other viable economic alternative. Rather, it introduces SMP in the provisions of LPC dealing with unilateral conduct and as a result the new institute would have universal applicability to all business dealings of certain category of undertakings without regard to the nature of their respective bilateral relationships. 

Another effect of the legislative approach is that the established rules on dominance may be undermined by the new institute of SMP. The distinction between the two concepts may easily be blurred and dominance may lose its practical significance. Although Regulation 1/2003 permits member states to introduce stricter national rules on dominance, it is unclear how the introduction of this stricter test corresponds to the stated purpose of the bill. Surely, the introduction of SMP in the rules on unilateral conduct has much broader policy implications. Its effects spread far beyond the retail sector and those effects have not yet been fully assessed by the proponents of the bill.

By Nikolai Gouginski, Partner, Djingov, Gouginski, Kyutchukov & Velichkov

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

It has been a long and arduous road for Delta Pekarny, one of the largest companies on the Czech bakery market. For more than ten years the company has sought to have its right to privacy protected as guaranteed by Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“Convention”). Now, after all domestic instances have been unsatisfactorily exhausted, Delta Pekarny’s last hope lies in the hands of the European Court of Human Rights in Strasbourg (“European Court”), which admitted Delta’s application and began to deal with the case in 2013. In turning to the European Court, Delta Pekarny seeks a declaration that its right to privacy in its place of residence was violated by the Czech state, or more precisely by the Czech Antimonopoly Office (“Office”). 

The notice, however, was not in the form of a formal decision and was not preceded by any other decision that could have been reviewed any time before or after by independent judicial authorities. Consequently, the inspection was initiated and carried out exclusively on the basis of the Office’s notice, which only included a general reference to the statutory provision that Delta had allegedly violated. 

Nevertheless, the inspectors demanded access to all Delta Pekarny’s business records and e-mail correspondence, which they copied and most of which they took with them even though – as it later turned out – the documents were unrelated to the subject matter of the raid. As Delta Pekarny refused to grant the Office access to all of its employees’ correspondence, including private correspondence, the Office imposed a penalty on Delta in the maximum amount permitted by Czech legal regulations at that time. 

Following the inspection, Delta Pekarny actively sought redress against the Office’s conduct. Eventually, the case was dealt with by Czech courts, including the Czech Supreme Administrative Court and the Czech Constitutional Court. During the proceedings, Delta claimed its rights had been violated, in particular, by referring to a previous decision of the European Court from April 12, 2002, Société Colas Est and Others v. France, in which the European Court concluded that prior judicial consent for the dawn raid on that company was necessary. 

Delta Pekarny failed to gain the support of the Czech courts, which denied its claim for protection of privacy as guaranteed by Article 8 of the Convention and refused to apply the Societe Colas judgment to the case. Delta Pekarny is now seeking redress before the European Court, maintaining that the Office had no right to enter Delta Pekarny’s premises and to demand, with the threat of a penalty, to inspect all its documents and correspondence without any justification and without prior review by an independent court that would have acted as an effective guarantee of Delta Pekarny’s rights as prescribed by the Convention.  

It is now up to the European Court to decide whether the Office’s inspection, which did not have prior approval of an independent court but was formally carried out in compliance with Czech national laws, can be considered proper from the perspective of internationally protected human rights and thus necessary in a democratic society within the meaning of Article 8 (2) of the Convention.   

The European Court’s final decision in this matter might thus be of considerable importance to all business competitors from states that signed the Convention and whose national law does not require prior judicial consent for an inspection by the national competition authority, since victory for Delta Pekarny could be a significant precedent they can refer to if they happen to find themselves in a similar situation in the future.     

By Pavel Dejl, Partner, and Martin Krcmar, Associate, Kocian Solc Balastik

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Croatian Competition Law is based on the third version of the Croatian Competition Act (the “Act”). The current statute was adopted in 2009 and entered into force on October 1, 2010, superseding the long-standing (at least by Croatian standards) 2003 version of the Act. While the 2009 Act is certainly not perfect and contains a number of suspicious legislative solutions, it was praised almost universally for one important feature: It finally provided weapons to the Competition Agency (the “Agency”).

The first 14 years of antitrust enforcement in Croatia (1997-2011) were characterized, more often than not, by the Agency’s fruitless endeavors to steer market behavior of non-compliant undertakings in the right direction. One of the main reasons for the relative ineffectiveness of Croatian antitrust enforcement during that period was the Agency’s inability to levy fines for antitrust violations. While the 2003 Act provided that violations should be sanctioned with monetary fines of up to 10% of the undertaking’s annual turnover, and while the Agency successfully established violations of Croatian Competition Law in particular cases, determining the actual punishment remained in the hands of the misdemeanor courts, which were forced to analyze and consider complex antitrust issues in-between multiple hearings involving allegations of speeding or other common forms of public misbehavior. Obviously, the system was ill-equipped to support effective enforcement of the competition laws, and it was thus no surprise that only occasionally would cases end with actual monetary fines – and even fewer with fines of more than nominal significance (the highest reported fine being in the range of about EUR 240,000).

Unfortunately, although the 2009 Act and its provisions for fines for antitrust violations (generally modelled on EU solutions) have been welcomed by the interested public hoping for new vigour in the Agency’s enforcement activities, problems have arisen as well. The vigour indeed came, but to great surprise, it was inter alia directed towards undertakings found to be in breach of the Competition Law rules under the previous regime. Apparently, after several decisions of the misdemeanor courts concluding that the 2009 Act had revoked their authority to deal with Competition Law and remanding the cases under the 2003 Act back to the Agency, the Agency decided to exercise its newly-granted authority by imposing fines in these “old” cases.

Besides legal and factual concerns related to the simple passage of time (some of the reopened cases refer to the Agency’s decisions dating back to 2006 and relate to events as far back as 2003), reopening of these proceedings posed serious challenges to the core principles of the Croatian legal system. Even conceding that legislators may have done a less-than-perfect job in “forgetting” to address issues of the cases pending before the misdemeanor courts under the 2003 Act, and appreciating the Agency’s reluctance to let violators go unscathed, the Agency’s decision to independently fill in the statutory gap by reopening cases closed under the “old” law necessitated all sorts of daring (to say the least) legal constructions. And in addition to struggling with substantive and procedural technicalities (e.g. by “creating” procedural steps for initiation of these special proceedings or by claiming that the relevant legal provisions in the 2009 Act read the same as in the 2003 Act so that the new fines could be applied equally), the Agency also disregarded fundamental legal principles such as double jeopardy and the prohibition of retroactive application of punitive measures.

Fortunately, the Agency’s approach was not endorsed by the controlling court. In its recent judgment, the Croatian High Administrative Court expressly confirmed that the Agency had overstepped its boundaries and annulled its decisions imposing fines for violations that had happened during the validity of the 2003 Act. The High Administrative Court’s succinct and straightforward statement of reasons not only expressly confirmed that the Agency “overstretched” on several basic legal principles, but also  serves to highlight the blatant nature of the Agency’s error. Simply put, even an obvious legislative omission cannot be easily filled in by a competent public authority (such as the Competition Agency).

This judicial intervention comes too late to prevent major costs both on the public (the Agency had to commit significant resources and time to purse these old cases) and on the entities directly involved in the reopened cases (including unrecoverable procedural costs and related fees, management time, etc.). However, we may hope that the judgment of the High Administrative Court will finally retire the 2003 Act and allow the Agency and the Agency’s new management to pursue more effective enforcement under the new competition law regime.     

By Boris Andrejas, Partner, Babic & Partners

This Article was originally published in Issue 2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.