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10 March 2014

European Convention on Human Rights and Enforcement of Ukrainian Competition Law

Author: Sergiy Glushchenko
Source: The Ukrainian Journal of Business Law. – 2014. – March. – p.32-34

The impact of fundamental rights on competition law has been debated in the European Union (EU) for years. The context of the debate around engagement of these areas of law can be summarized as follows. The European Commission (Commission) accumulates the roles of investigator, prosecutor and judge without effective internal safeguards among those roles.

This raises legitimate doubt as to Commission's impartiality as its decision-making powers are not detached from prosecutorial. Prosecutorial bias, which may lead to false positive convictions condemning beneficial practices, is alleged to be one of the main drawbacks behind the foregoing architecture of competition policy in the EU. Some assert that such a system fails to fully guarantee the protection of the right to a fair trial, as prescribed by Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR). Others, who oppose this argument, suggest that, even so, a judicial review should be a balanced response to these concerns.

However, the Commission is vested with a certain margin of discretion in the assessment of complex economic issues (e.g. relevant market or market dominance), which are in principle subject to only a limited review by the General Court (GC). So it comes as no surprise that its review is argued to be not interventionist enough and contrary to Article 6(1) ECHR. The approaching accession of the EU to the ECHR gives a great opportunity to the European Court of Human Rights (ECtHR) to settle the aforesaid debate. Meanwhile, it is particularly instructive to review the case law of the ECtHR in relation to some EU member states, whose courts were also attacked for an inadequate level of judicial scrutiny when reviewing decisions of the respective national competition authorities. This case law is a source of law in Ukraine, which, like all the EU member states, is subject to the ECHR, while its acts can be reviewed in Strasbourg. Moreover, those who are familiar with Ukrainian competition law are well aware of the fact that the Supreme Commercial Court has also interpreted it in a way that the courts can only conduct a weak judicial review in competition cases and cannot define the relevant market or declare market dominance independently of the Antimonopoly Committee of Ukraine (AMCU). In view of these common issues and jurisprudence already developed by the ECtHR, a reasonable question arises as to whether the review of the decisions of the AMCU exercised by Ukrainian commercial courts satisfies Article 6(1) ECHR.

Article 6(1) of the ECHR provides that in the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. This provision can be invoked on behalf of legal entities that first have to establish whether sanctions under Ukrainian competition law involve criminal charge. In dealing with this issue one would have to recall judgments in Engel & Others v. Netherlands1 and Bendonoun v. France2 adopting the framework for determining the character of the proceedings. It consists of three alternative criteria, including (i) the classifications of proceedings in domestic law, (ii) the nature of the offence and (iii) the severity of the penalty that can be imposed. As regards the first criterion, it is common ground that the Ukrainian law does not classify sanctions imposed by the AMCU as criminal. But this is not decisive and the ECtHR may nevertheless classify the matter as criminal if it considers that either in Ukraine (a) the nature of the offence is of general concern and application, (b) the sanctions that can be imposed are applied as a punishment and/or deterrence or (c) that such sanctions can be substantial. Some of these requirements have already been met in a number of cases where the ECtHR ruled that fines imposed for breach of competition law may be of a criminal nature. In Jussila v. Finland3, the ECtHR made recourse to the earlier decision of the European Commission of Human Rights in Societe Stenuit v. France4, which had held that French competition law protected the general interests of society, a characteristic of criminal law, and that a fine of up to 5% of turnover was substantial. More recently, in Menarini v. Italy5, the ECHR confirmed that Italian competition law, because of the severity of the fine in the amount of EUR 6 million, was criminal in nature too.

By the same token, the aforesaid case law can be extrapolated on Ukrainian competition law. Namely, the latter also serves general public interest as it is aimed at protecting free competition. This can be backed up by the fact that entrepreneurial activity and protection of free competition are fundamental rights prescribed by the Constitution of Ukraine6. Neither is it doubtful that fines are imposed by the AMCU to punish and deter. Possessing administrative features, such fines are not aimed at compensating the damage caused to consumers, but transferred to the state budget of Ukraine. Moreover, their penal and deterrent functions were acknowledged by the Ukrainian commercial courts in recent judgements in competition cases. On the other hand, under Ukrainian competition law, some practices are not inherently wrong and can be justified if their positive benefits outweigh any anti-competitive effect. So one may argue that criminal law is genuinely not subject to such utilitarian justification. Furthermore, it is doubtful that some decisions of the AMCU (or commercial courts upon the AMCU's request) of penal nature are capable of fulfilling deterrence function. These may include, for example, (i) the order of the AMCU requesting to remove the consequence of the negative effect on competition; (ii) decision of the commercial court to invalidate the transaction upon the claim of the AMCU or a competitor; (iii) behavioral or structural remedies; or (iv) the decision to break-up the undertaking abusing its dominance. All these sanctions are designed to restore the initial situation which existed before the infringement of Ukrainian competition law rather than to use the punishment as a threat to deter perpetrators from offending.

Notwithstanding the above, the severity of the fines, which may reach up to 10% of turnover, cannot be neglected when assessing the aforesaid criteria. The fines imposed by the AMCU have increased exponentially in recent years, often amounting to millions of euros.

Another indicator is stigmatization of Ukrainian competition law, which is evident from the intention to criminalize certain types of infringements. In addition, the AMCU does not refrain from applying a leniency policy, which is a typical criminal law concept. In view of the above, we believe that the argument that some sanctions in Ukrainian competition law involve criminal charge stands a reasonable chance of being accepted by the ECtHR. Such sanctions may include a heavy fine imposed by the AMCU for dominance abuse or hardcore cartels. That said, such a fine deserves to be reviewed in a fair and public hearing by an independent and impartial tribunal established by law as required by Article 6(1) ECHR. But does the AMCU constitute an independent and impartial tribunal?

Given that the AMCU carries out both investigating and decision-making powers, it is not an independent and impartial tribunal. However, this mere fact does not mean that AMCU proceedings escape from Article 6(1) ECHR. What matters is rather the nature of proceedings. Moreover, the very fact that the AMCU is not a tribunal raises the question that strikes directly into the midst of the architecture of Ukrainian competition law enforcement. Namely, should criminal charges of the AMCU be heard at first instance by an independent and impartial tribunal? Space precludes a detailed discussion of this issue. Suffice to say that following Jussila v. Finland7 a distinction should be made between hard core criminal law and other quasi-criminal cases. As of today, competition law proceedings are allocated to the latter group and thus the criminal-headed guarantees are not applied to them with their full stringency. Therefore, it is not incompatible with Article 6(1) ECHR for the sanction to be imposed initially by an administrative authority like the AMCU, as long as such a decision is subject to control by a court having full jurisdiction, including the power to quash in all respects, on questions of fact and of law, the challenged decision8. In line with the case law of the ECtHR, for the purpose of full jurisdiction the courts should be able to examine all aspects of the matters before them, including the assessment of evidence, and quash the decision whenever they disagree with it9. Therefore, the commercial courts must not decline to independently and impartially review the AMCU's interpretation of technical data enshrined in such concepts as relevant market or market dominance and rule it out if this interpretation is inaccurate, unreliable or inconsistent.

However, in Ukraine, the role of commercial courts is limited to a mere control of legality. That is, to hold a review that the AMCU reaches its conclusions in line with appropriate procedures. As already mentioned the economic courts cannot go beyond the discretion of the AMCU in the issues of the relevant market or the market dominance and thus determine the facts that lie at the heart of competition law proceedings. For example, among such facts may be the prejudice of the AMCU towards shares as a proxy for assessment of the market power and reluctance to give proper account to other relevant market conditions, like, dynamics of the market. Consequently, the AMCU may find insufficient the arguments of an undertaking that the product market is immature, has a wellknown, fast-changing technology or unstable demand to rebut the >35% presumption of dominancy under the Ukrainian competition law. Appraisal of the prevalence of such market conditions over such a presumption falls under the discretion of the AMCU. Thus, there is no possibility that the central issue is properly determined by a tribunal that is independent of one of the parties to the dispute. Subject to a procedural error made by the AMCU, courts can invalidate such a decision in whole or in part. However, they are not vested with the power to conduct a new trial and replace the decision of the AMCU curing the defects of the administrative proceedings. The latter is not required by the case law of the ECtHR for the purpose of full jurisdiction due to the fact that competition law infringements are on the periphery of criminality. On the other hand, the case law is quite clear that the ECtHR will consider the review as complying with Article 6(1) ECHR as long as national law provides for unlimited jurisdiction of the courts in relation to sanctions imposed by the authority. This was confirmed in Menarini v. Italy10 where the ECtHR stated that the courts were able to review the appropriateness of the fine and, if necessary, could change it. To circumvent the stricter procedural safeguards of the ECHR, a similar argument is usually used by defenders of the current model of the competition law enforcement in the EU. Namely, the EU law vests the GC with unlimited jurisdiction with regard to the fines imposed by the Commission.

In contrast, Ukrainian commercial courts cannot reduce the amount of fines imposed by the AMCU. Although recently the tide has turned and the courts started seriously considering proportionality arguments in relation to fines, they are still unable to rule what fine would be proportionate in particular case. Currently, there are no fining guidelines for the respective transparent balancing exercise. Thus, even if the commercial court partially invalidates the decision of the AMCU on the ground of the overall disproportional of the fine to the infringement found, the AMCU is nevertheless left with substantial discretion in relation to recalculation of the fine.

In the light of the ECHR case law analysed above, it is clear that the judicial review conducted by the Ukrainian commercial courts in competition law cases should go beyond the control of legality. The courts should not refrain from careful assessment of the rationale behind the AMCU's interpretation of such economic concepts as relevant market or market dominance in each particular case. In addition, amendments to current legislation, which would give the courts unlimited jurisdiction in relation to fines imposed by the AMCU, including the right to alter their amounts proportionally to the infringement found, are more than welcomed.

1 Engel & Others v. Netherlands, judgment of 8 June 1976, [80]-[85]

2 Bendonoun v. France, judgment of 24 February 1994, [46]

3 Jussila v. Finland judgment of 23 November 2006, [43]

4 The Report of the European Commission on Human Rights of 30 May 1991, [62]-564]

5 Menarini v. Italy judgment of 27 September 2011, [59]

6 Constitution of Ukraine, Article 42

7 Jussila v. Finland, [43]

8 Menarini v. Italy, [59]

9 Janosevich v. Sweden, [82]

10 Menarini v. Italy, [65]

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