Cyprus: Cartels In Cyprus: The Competition Legislation Governing Agreements, Decisions And Concerted Practices That Have The Object Or Effect To Eliminate, Restrict Or Distort Competition In Cyprus

Last Updated: 26 March 2012
Article by Anastasios Antoniou

Cartels In Cyprus: The Competition Legislation Governing Agreements, Decisions And Concerted Practices That Have The Object Or Effect To Eliminate, Restrict Or Distort Competition In Cyprus

The Legislative Framework

The Protection of Competition Law 13(I)/2008 (the Law) is the applicable legislation in Cyprus. The Law has incorporated the provisions of Council Regulation 1/2003 into the national legal order and has re-established the Commission for the Protection of Competition (the CPC), which is the competent body for the enforcement of the legislation.

The Law provides, inter alia, for the determination of the CPC as the national competition authority of the Republic responsible for the application of the Law, of Regulation 1/2003 and of articles 101 and 102 TFEU (ex 81 and 82 EC), where necessary. Specifically, it should be noted that the Law provides for the CPC's competences and powers in line with article 5 of Regulation 1/2003.

Section 3 of the Law (which reflects article 101 TFEU) provides that all agreements between undertakings or associations of undertakings, all decisions of associations of undertakings and any concerted practices, having as their object or effect the elimination, restriction or distortion of competition within the Republic shall be prohibited and shall be void ab initio. Section 3(1) of the Law specifies such prohibited agreements, decisions or concerted practices as including:

  • direct or indirect fixing of purchase or sale prices or other trading conditions;
  • limiting or controlling production, distribution, technical development or investment;
  • sharing markets or supply sources, geographically or otherwise;
  • applying dissimilar conditions to equivalent transactions; and
  • making the conclusion of contracts subject to acceptance by other parties of supplementary obligations that by their nature or according to commercial practices have no connection with the subject matter of such contracts.

Agreements, decisions and concerted practices prohibited under section 3(1) fall under the notion of 'collusion' defined pursuant to section 2 of the Law. Under the said definition, collusion can constitute any agreement, formal or informal, written or unwritten, executed by the law or not, the concerted practice of two or more undertakings or associations of undertakings or the decision of an association of undertakings.

An 'agreement' is further defined pursuant to section 2 of the Law as being any arrangement between at least two undertakings or associations of undertakings, by virtue of which one of the parties has willingly undertaken the obligation to restrict its freedom to act in respect of one of the other parties.

Pursuant to section 2, 'concerted practice' is defined as a form of collusion between undertakings that, without having been taken to the stage where an agreement per se has been concluded, knowingly substitutes for the risks of competition. It should not be considered a straightforward task for the CPC to prove on the evidence of parallel behaviour on the market that a concerted practice exists, as this can simply be the natural commercial behaviour of undertakings that are trying to match the behaviour of their competitors so that their business does not suffer.

Pursuant to section 4 of the Law, conjunctive requirements can lead an agreement, decision or concerted practice prohibited by virtue of section 3(1) to evade such prohibition and be valid without necessitating the CPC to issue a decision in that regard. These requirements, which must be conjunctively met, are that the agreement, decision or concerted practice:

  • contributes, while allowing consumers a fair share of the resulting benefit, to the improvement of production or distribution of goods or to the promotion of technical or economic progress;
  • does not impose, on the undertakings concerned, unnecessary restrictions towards achievement of the above-mentioned purposes; and
  • does not afford the undertakings, to which the agreement relates, the possibility to eliminate competition from a substantial part of the market of the product concerned.

The Law applies to 'undertakings', defined under section 2 thereof as including every natural or legal person that exercises economic or commercial activities, irrespective of whether these activities are profitable or not. It also includes every undertaking regulated by private or public law over which the state can have a decisive impact either directly or indirectly by virtue of ownership, economic contribution or the provisions regulating it.

Collaboration between undertakings forming a uniform economic entity, such as between a parent and a subsidiary company that does not enjoy real freedom of determination over its own activities or concerning the allocation of activities between the parent and the subsidiary company, or between two or more subsidiary companies, does not fall under the concept of collaboration prohibited by virtue section 3 of the Law.

Extraterritoriality

The Law applies to conduct outside the jurisdiction of Cyprus that have as their object or effect the prevention, restriction or distortion of competition within the Republic. It is therefore evident that the CPC can exert jurisdiction if conduct arising out of Cyprus prevents, restricts or distorts competition within Cyprus.

Moreover, pursuant to the provisions of Regulation 1/2003 and in relation to instances where agreements, decisions by associations of undertakings or concerted practices may affect trade between member states within the meaning of the provisions of article 101 TFEU, the CPC has competence and shall also apply article 101 TFEU to such agreements, decisions or concerted practices. Upon establishing an infringement of article 101 TFEU, the CPC can impose the sanctions provided under section 24 of the Law upon the involved undertakings, which are the same sanctions it is able to impose for infringement of the Law's provisions under section 3, as discussed above.

Cartel Investigation Powers of the CPC in Cyprus

The CPC, either acting on its own initiative or following a complaint, will instruct its Service to conduct an investigation on behalf of the CPC if it is of the view that there is a prima facie case. The CPC has the necessary powers to obtain the information or data that will enable the Service to carry out the investigation.

The CPC can collect information necessary for the carrying out of its powers under the Law by addressing a written request to this effect to any person. If information is not provided within the specified timeframe or the information is inaccurate or misleading, the CPC may impose monetary fines.

The CPC has the power to make all the necessary inquiries of undertakings or association of undertakings and for this purpose to inspect books and other professional documents, receive copies or extracts of books or professional documents, require on-the-spot oral clarifications and enter all of the offices, premises and means of transportation of the undertakings. The CPC's request must be in writing and accurately define the subject matter and purpose of the inquiry, fix the date of commencement of the inquiry, state the provision on which the investigative power of the CPC is based and mention the possible sanctions in the event that the undertaking refuses to comply with the request.

The CPC may conduct unannounced visits (dawn raids) to the premises of undertakings in order to obtain information it needs or to follow up a written request for information. Officers of the Service of the CPC conduct such visits following written authorisation by the CPC. The term 'premises' is prescribed by the Law to include, inter alia, business premises and vehicles of undertakings. Searches at residential premises can only be carried out upon obtaining a court order.

On arrival at the premises, the investigating officers must show evidence of their identity and authorisation and hand over a notice explaining the subject matter and purpose of the unannounced visit. Undertakings subjected to such visits may consult their lawyers during the visits, but omitting to do so does not invalidate the visit, nor does it constitute a defence for not conforming to the visiting officers' requirements.

The investigating officers have statutory power to enter the premises and can require the undertaking to halt its business or part thereof until completion of the unannounced visit. Once they have gained access, they can require anyone present to produce any documents (and in any form, electronic or otherwise) that they consider is relevant to the subject matter of the investigation. This may include letters, diaries, travel records and other documents, which the officers conducting the visit can copy irrespective of the medium in which these are stored.

The investigating officers can also ask for oral explanations on the spot. A person who receives a request from the CPC to provide information must provide the information within the time limits stipulated in the request and make a full and frank disclosure, unless any rules on privilege apply. In the case of an omission to provide the requested information within the specified time or intentionally or negligently providing inaccurate or misleading information, the CPC has the authority to impose a maximum fine of €85,000 on the concerned undertaking. In addition, the CPC may impose a fine of €17,000 for every day that the said undertaking omits to comply with the CPC's investigative request.

An undertaking that intentionally or negligently produces incomplete books or professional documents, refuses to comply with a request for information by the CPC or destroys, falsifies or withholds books or records shall be liable on conviction to a term of imprisonment not exceeding one year or a fine of up to €85,000, or both.

Sanctions for Cartel Activity and Collusive Behaviour

Any person who omits to comply with or acts contrary to an issued decision of the CPC regarding an infringement of section 3 of the Law, including interim measures, shall commit a criminal offence punishable with imprisonment of up to one year or with a pecuniary penalty not exceeding €430,000, or both.

An undertaking that intentionally or negligently produces incomplete books or professional documents, refuses to comply with a request for information by the CPC or destroys, falsifies or withholds books or records shall be liable on conviction to a term of imprisonment not exceeding one year or a fine of up to €85,000, or both.

Criminal sanctions provided under the Law can be directed not just against the undertaking concerned but also against all members of its board of directors, including its managing director.

Upon finding an infringement of section 3 of the Law or article 101 TFEU, or both, the CPC has the power to impose the following sanctions:

  1. impose an administrative fine, according to the gravity and duration of the infringement, not exceeding 10 per cent of the combined annual revenue of the undertaking concerned or not exceeding 10 per cent of the revenue of every undertaking member of the association of undertakings, in the year within which the infringement took place or in the year that immediately preceded the infringement;
  2. require that the undertakings or association of undertakings bring the infringement to an end within the set time period and avoid repetition in the future. Where the infringement has been brought to an end before the decision of the CPC, the CPC may condemn the undertakings with a reconnoitring decision;
  3. impose terms and behaviour or structural remedies, or both, according to the infringement necessary to bring the infringement to an end;
  4. where the infringement continues by the participating undertakings or association of undertakings, the CPC may impose and administer a fine of up to €85,000 for every day the infringement continues;
  5. where the Commission intends to adopt a decision requiring that the infringement is brought to an end and the undertakings concerned provide commitments to meet the concerns expressed to them by the CPC in its preliminary assessment, the CPC may decide to make those commitments binding on the undertakings. Such a decision may be adopted for a specific period and shall conclude that there is no longer action by the CPC; and
  6. in the event of refusal or by negligence of the undertakings or association of undertakings concerned to comply with the measures set by the CPC pursuant to points (b) or (e) above, the CPC may impose an administrative fine up to €85,000 for every day the infringement continues.

Sanctions for cartel activity can be civil and criminal and can be pursued for the same activity under the procedures, conditions and circumstances described above. The CPC is competent to decide which sanctions to pursue.

A person suffering loss as a result of the conduct of a cartel has a right of action for damages for the losses suffered as a result of the cartel conduct. Such claims can be raised within the context of a civil action before the competent district court in Cyprus. The Law provides that the decision of the CPC finding an infringement of section 3 and therefore the existence of the cartel in relation to which any such claimant intends to claim damages constitutes rebuttable evidence in that regard.

A claimant pursuing damages for loss suffered as a result of a cartel the CPC has adjudicated on may apply to the competent court for an injunction to stop the continuance of such cartel. Class actions are not expressly provided under the Civil Procedure Rules, but any such actions could be joined under leave of the court upon a relevant application.

The CPC has recently been more willing to impose deterrent fines. Section 24(a) of the Law provides that the fines the CPC is empowered to impose shall be imposed according to the gravity and duration of the infringement and shall not exceed 10 per cent of the combined annual revenue of the undertaking, or not exceed 10 per cent of the revenue of every undertaking member of the association of undertakings in the year within which the infringement took place or in the year which immediately preceded the infringement.

In late 2009, the CPC imposed the largest fine in its history in the 'oil companies case', totalling €€42,904,000. The said amount (annulled due to irregularity in the CPC's composition on appeal) was the aggregate of the separate fines imposed on each of the four undertakings that the CPC found to have violated section 3(1)(a) of the Law over both the engagement in a concerted practice between them having as its object the fixing of fuel prices and the conclusion of agreements with their resellers (gas stations) on that basis and with the same object. This violation constituted a serious infringement of competition rules and as such carries monetary fines of the highest levels, within the context of the CPC's competence as such derives by the Law.

Cyprus' Cartel Leniency and Immunity Programme

An immunity and leniency programme exists, providing for the procedures entailed in applying to the CPC for immunity from fines or reduction of fines in cartel cases ('the Leniency Programme'). The Leniency Programme, which takes the form of subisidiary legislation Issued prusuant to the provisions of the Law by a relevant Decision of the Council of Ministers, was published as such in the Official Gazette on November 11, 2011. The leniency programme is based on the assumption that some undertakings that participate in cartels wish to end their participation and provide evidence for its existence and operation, but are concerned over the sanctions they will suffer. As per the CPC's 2009 Annual Report, the CPC holds the view, which is enshrined in the provisions of the Leniency Programme, that 'rewarding' undertakings involved in a cartel and willing to end their participation and provide evidence over the concerned cartel is necessary towards serving the public interest and that it will urge such undertakings to cooperate with the CPC and contribute to the investigation and establishment of an anti-competitive practice. The Programme is currently in full force.

The Leniency Programme is largely based on the European Competition Network Model Leniency Programme. The CPC is be able to grant immunity and may exercise its power in that direction if the applicant is the first to come forward and submit evidence that, in the CPC's view, may enable it to either commence an investigation in connection to a potential infringement of s. 3 of the Law or enable the CPC to establish an infringement of s. 3 of the Law in connection with an alleged cartel within the legislative provisions.

The CPC's power to grant immunity to an applicant or reduce the fine that would normally be imposed upon the applicant should a cartel be found to exist will be decided (or vary in the case of a potential reduction of the fine), according to and depending on the time each applicant has approached and has provided evidence to the CPC.. However, no provision of the Programme should be expected to affect or prejudice the discretion of the CPC in the exercise of its competence and powers under the Law.

An undertaking approaching the CPC first becomes eligible for immunity from fines potentially imposed over the relevant cartel upon participating undertakings or becomes eligible for a fine reduction in the range of 30%-50% provided that all conditions are met in either case. The second undertaking to apply to the CPC under the programme may be eligible for a fine reduction in the range of 20% to 30%, at the discretion of the CPC and provided that all conditions under the programme have been met for such treatment to be considered.

Leniency or immunity will be only be afforded if the applicant approaches the CPC prior to the latter having enough evidence to either commence an investigation for infirngement of s. 3 of the Law and/or Article 101 TFEU, in the case where the information provided by the applicant relates to such investigation being commenced, or prior to the CPC having enough evidence to establish an infringement of s. 3 of the Law and/or Article 101 TFEU, if the information provided by the applicant relates to the establishment of such infringement. In considering the decrease over the applicable fines to undertakings applying under the Programme, the CPC will take into consideration the time at which these undertakings approached the CPC.

All records maintained by the CPC in relation to the leniency programme, including the registry of applicants for leniency or immunity, are confidential and not available to the public. There are no express settlement or plea bargaining procedures provided for in the Law. However, it lies with the CPC's discretionary powers to examine mitigating arguments prior to the imposition of any penalty. Moreover, pursuant to the legislative provisions and in relation to associations of undertakings, the CPC will not require payment from a participating undertaking that is able to evidence that it did not implement the decision of the association that was found in breach of the Law and that it was not aware of the existence of such infringement or that they distanced themselves actively from the association prior to the commencement of the CPC investigation.

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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