Austria: Can An Error In Law Protect Against Competition Fines?

Last Updated: 3 October 2013
Article by Dieter Hauck and Esther Sowka-Hold

Two recent Supreme Court decisions have triggered significant debate in the competition field, both in Austria and at a European level. The rulings were issued by the Supreme Court, acting as the Higher Cartel Court, on December 5 2011.

Displacing fault in merger notification

The first case1 involved a fine procedure against a German company for its failure to duly notify a past merger.

After the Germany company, in its role as purchaser, had sent notification of the merger in 2010, the Federal Competition Authority discovered that in 2007, it had failed to notify its earlier acquisition of the first 50% in the target (two Hungarian companies), even though such notification was clearly required under Austrian law.

While the 2010 merger was cleared without further investigation or problems, the authority brought a motion before the Cartel Court to fine the purchaser for its failure to notify the 50% acquisition in 2007. This was despite the fact that the target's turnover outside Hungary in 2006 had been minuscule: between just 0.03% and 2% of the company's worldwide turnover had been generated in Austria.

The purchaser did not challenge the legal question of whether the 2007 merger should have been notified, but argued that during that period, it had retained the services of a law firm to assess the planned transaction under competition law and claimed that this firm had notified the merger in Hungary only. It remained unclear why no notification had been made in Austria. The defendant further argued that a breach of Austrian law had not been intended, which was supported by the fact that all of the information on the 2007 merger had been openly declared in the 2010 notification.

The Cartel Court, acting as a trial court, imposed a fine of €4,500. It confirmed that the 2007 merger should have been notified and further clarified that the formal obligation to notify was not affected by the fact that the 2007 merger would most likely have raised no competition issues. A fine was imposed as a deterrent in order to prevent future situations in which mergers are notified some time after their implementation. However, the court accepted that the defendant's culpability had been marginal; therefore, the fine imposed was nominal. The authority appealed, as it considered the fine to be too low.

The Supreme Court confirmed that the 2007 merger should have been notified and also stated that fines can be imposed under the law only if the perpetrator can be proven to be at fault. In this regard, reference was made to Article 23 of EU Regulation 1/2003. The court explicitly pointed out that, with marginal culpability and negligible consequences, in exceptional cases the fine can be reduced to zero.

In the case at hand, it was clear that the law had not been infringed intentionally, but only by negligence. As the defendant had instructed a law firm to examine the relevant questions of law, it may have been the case that a justified error in law had occurred. The court further reasoned that such an error in law may exclude the imposition of a fine due to the change in the European competition law system under EU Regulation 1/2003. Individual undertakings are now responsible for the correct legal evaluation facts (the legal exemption regime).

Following a detailed discussion of these concepts, the Supreme Court referred the case back to the trial court in order to clarify certain facts, in particular:

  • Which law firm had been retained in 2007?
  • What type of assessment had it been tasked with conducting?
  • Was this assessment limited to Hungary or did it include checking notification duty on a pan-European basis?

The Supreme Court also ordered the trial court to analyse what information had been given to the law firm in order to carry out the competition law assessment. Thereafter, the trial court was requested to evaluate whether a justified error in law had occurred which excluded the imposition of a fine or warranted a review of the fine amount.

Supreme Court cartel case referred to ECJ

In the second case2 the Supreme Court stayed proceedings in the official parties' appeals against a Cartel Court decision dismissing the authority's application for the imposition of fines against several freight forwarding agents for suspected cartel activity, and referred the case to the European Court of Justice (ECJ). The Cartel Court had dismissed the requested fine for lack of fault. This decision was criticised by the European Commission, which filed ex officio amicus curiae (Article 15(3) of EU Regulation 1/2003) comments.

The freight forwarding agents had been members of an association. In 1994, as requested by the Cartel Law in place at the time, the association notified for registration and clearance before the Cartel Court. During the ongoing notification procedure, a regulatory body rendered an expert opinion stating that European law was not applicable as trade among member states was not affected by the association's activities. After Austria had joined the European Union, the Cartel Court decided in 1996 that the notified facts amounted to a de minimis cartel which had not been captured under the Austrian Cartel Act. Consultation with external lawyers specialising in competition law also confirmed that the association's agreements could stand. The association, its agreements and price lists were openly known and available through the media. Further checks with a law firm specialised in competition law in 2005 identified no legal problems, although explicit statements on compliance with European law were not made.

The European Commission conducted dawn raids in 2007 and the association was dissolved. In 2010 the authority requested the Cartel Court to impose fines for violations of Article 101 of the Treaty on the Functioning of the European Union and the Austrian Cartel Law. The duration of the infringement was specified as the period between 1994 and 2007.

On appeal, the Supreme Court considered whether an error in law may exclude the imposition of a fine and established that EU law does not provide a clear answer. The ECJ had not had an opportunity to decide on this issue since the amended EU Regulation 1/2003 – with the legal exception regime – entered into force. Finally, the Supreme Court was unclear as to whether national competition authorities have jurisdiction to establish infringement as a fact without simultaneously imposing a fine.

Following detailed analysis of European case law and doctrine, the Supreme Court put the following questions to the ECJ:

  • Is it possible to fine an undertaking for infringing Article 101 where that undertaking was in error regarding the legality of its actions and such error was justifiable?
  • If not, is an error on the legality of actions justifiable if an undertaking acts according to advice from an adviser specialised in competition law and the incorrectness of such advice was neither obvious nor identifiable by the undertaking by reasonable checks?
  • Is an error on the legality of actions justifiable if an undertaking relies on the correctness of a decision by a national competition authority, which has judged the actions solely on the basis of national competition law and has found such actions permissible?
  • Do national competition authorities have jurisdiction to establish that an undertaking was involved in a cartel infringing EU law if such undertaking cannot be fined because it has been granted immunity under a leniency programme?

Comment

The ECJ's opinion on these complex questions of law will potentially affect company behaviour and requests made to law firms that specialise in competition law. It is thought that the effect that compliance measures may eventually have on the imposition or amount of fines could be modified by these decisions.

The decision on the question of positive establishment decisions will also complement the recent ECJ case law in Tele 2 Polska,3 where the ECJ ruled that national competition authorities are not competent to render negative establishment decisions (eg, establishing that European law is not infringed by certain behaviour).

Footnotes

1 16 Ok 2/11.

2 16 Ok 4/11.

3 C-375/09.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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