Romania: EU harmonisation and beyond

Author: | Published: 1 Oct 2010
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Adopting the EU self-assessment rule and the new merger substantive test, which until now still constituted the main divergences between the Romanian and the EU competition law regime, are undoubtedly the most important elements of the competition law reform (Government Emergency Ordinance 75/2010, in force as of August 5 2010, amending the Competition Law no. 21/1996).

As to the application of block exemption, the competition law provides that the categories of agreements benefiting from a block exemption and the conditions and criteria for block exemption are those established by the block exemption regulations issued by the European Council or the European Commission – thus creating the maximum harmonisation possible.

The harmonisation in terms of merger notification is also noteworthy. The parties no longer need to comply with a 30-day notification term from the date they sign the deed on the basis of which concentration is achieved. Now they may notify at any time prior to the implementation of the concentration and after the execution of the agreement, the announcement of the public offer or the takeover of a controlling stake. There is also an increased flexibility should the parties be interested in speeding up the process when they have agreed on the transaction but signing has not yet occurred, since notification can also be submitted on the basis of a good-faith intention to conclude an agreement, provided that the agreement results in an economic concentration that fulfills the requirement for notification thresholds.

The possibility to close investigations as a result of commitments offered by the parties (commitments that the Competition Council can make binding in the event that they are deemed sufficient to protect competition and provided that their accomplishment may eliminate the factors which led to the initiation of the investigation) or the reduction of fines for acknowledgment of the breach (freeing the competition authority's resources to deal with other cases and increasing the overall efficiency of the enforcement actions performed by the competition authority) also represent other developments worth mentioning which are meant to bring Romanian legislation in line with EU rules.

In terms of other aspects on which the Romanian Competition Law still differs from EU rules, the authorisation fee for economic concentrations is still required, but for a different amount – 0.04% of the total turnover reported by the undertakings on Romanian territory, without exceeding 100,000 Euros. This alleviates the burden of precisely defining the relevant markets and identifying each market and turnover, however, it does impose payment requirements upon buyers not active on the target's market (which was not the case hitherto).

Not only was the Competition Law amended with the aim of bringing it in line with EU rules and adequately incorporating EU case law guidance, but the Competition Council is also revising its regulations and guidelines, with a view to properly reflect all these changes. With new legislation in place, the competition authority seems more and more determined to face new challenges in enforcing the competition law. In this context and given the extensive sanctioning powers of the Competition Council, companies should be equally (if not even more) informed and impeccably advised, taking into consideration both: the need to comply with competition rules with a view to avoid sanctions being imposed on them; as well as the benefit of using the mechanisms at their disposal with a view to protect their rights or react to any wrongdoing of competitors which would ultimately place them at a disadvantage.

Against this background, the developments in competition law going beyond EU harmonisation could prove to have a significant impact.

Criminal liability

Romania provided for criminal liability for competition law infringements with the entry into force of the Competition Law, in 1997. At that date, the law stipulated that participating with fraudulent intent and in a determining manner in conceiving, organising or putting into practice actions prohibited by Article 5 (anticompetitive agreements and concerted practices) or by Article 6 (abuse of dominance) constituted a criminal offence and was sanctioned with imprisonment from six months to four years or with a criminal fine.

Since 1997, the Competition Council has imposed fines for various breaches of Article 5 and of Article 6, in the process of enforcing the Competition Law; however, it was only in December 2009 that the Competition Council first made proper application of the article governing criminal liability and referred a case to the criminal investigation bodies. The case concerned a price fixing decision taken by an association of undertakings on the wheat storage services market and the referral to the criminal investigation bodies related to the former president of the association.

Several questions arise given the scarcity of application of this provision in the first 13 years of competition law in Romania: were there no opportunities for triggering criminal liability due to the factual aspects of the cases? Was this far from being a priority for the Competition Council, given that its focus was the administrative liability of the undertakings rather than the criminal liability of the managers? Or was it ultimately the seriousness of the allegation that put pressure on the investigation team, which was very careful in making such recommendations (because it is the case handler who proposes in the statement of objections that the case is referred to the criminal investigation bodies)?

In truth, it is likely that all these factors played a part.

What changed in the meantime so as to indicate a more active role from the part of the Competition Council in terms of application of the criminal liability provisions? In an article dealing with competition law reform, one might expect such changes to relate to specific Articles in the new legislation. However, it is rather the bigger picture that provides clues as to the answer.

In terms of opportunities, detection of cartels might be expected to increase (taking into account the modernisation of the leniency policy at the end of 2009, by issuance of new guidelines), while in terms of factual aspects of the case, it is likely that managers will be deemed to play more and more determining roles. In terms of priorities, the overall context also indicates a likelihood of increasing the application of criminal liability provisions, since developments in the past years show a more and more active competition authority (numerous investigations initiated, signals that ongoing investigations in various sectors are expected to be finalised soon, focus on certain sectors deemed strategic for the economy).

With regards the pressure put on the investigation team, the legislative reform seems to encourage action on their part. This is not necessarily however related to the changes brought to Article 60 of the Competition Law – first, criminal liability for breach of article 6 was eliminated; second, a new sanction was added: the prohibition of the right to hold a position or to perform an activity of the nature of that held or performed when committing the criminal offence. In passing we should note that adding a new sanction is likely to increase the deterrent effect, since in the long run the prohibition to perform a certain activity could be deemed by some persons even more harmful than the main sanction resulting in a short term loss of freedom or in a criminal fine.

A reason for greater application of criminal liability may in fact relate to a change to an Article concerning the Competition Council's budget. Under the newly enacted provisions, the Competition Council will cover, within the limit of the budgetary funds approved for this purpose, the amounts necessary with a view to provide legal assistance for the members of the Plenum, the competition inspectors and other employees in connection with the acts performed in the exercise of their professional duties, when charged with a criminal offence. The respective members of the Plenum or competition inspectors would of course need to refund these amounts in the event that they were found guilty, or in case they acted outside the exercise of their professional duties provided by the law.

Why would a budget-related rule be relevant in terms of application by the Competition Council of the provisions on criminal liability for competition law breaches? When ascertaining a breach and imposing a fine, it can reasonably be expected that any competition authority should give careful consideration to a potential challenge in court of the decision and consequently provide strong reasoning for its conclusions. This is the more relevant if one thinks of the possibility that a person referred to the criminal investigation bodies (later on cleared as having committed no criminal offence) accuses the investigation team of abuse in performing their tasks. In practical terms, any competition inspector would reasonably consider the above risk, especially in case of doubts as to the conditions for the existence of the criminal offence being met, especially if the costs of related legal assistance were not covered by the competition authority.

All the above should count as factors encouraging the application by the Competition Council of criminal liability provisions.

However, difficulties may still arise in exercising the criminal liability provisions: for example, establishing the threshold above which a person has a determining role – which is the most exposed level of a firm's management and what actions (or failures to act) would be deemed determining enough? Another setback is that the competition law reform correlates private enforcement only with leniency (by providing that the undertaking benefiting from immunity from fines is not liable for the damages caused by participating in an anticompetitive practice), without correlating it with criminal liability also.

In the context of a rising trend in enforcement of criminal liability for competition law breaches and uncertainty surrounding the degree of exposure, criminal liability might be expected to act as a more effective deterrent than fines in prompting managers to pay more attention to competition rules.

Legal professional privilege

On the subject of legal professional privilege, prior to the recent amendments to the Competition Law, one could only rely on general provisions in the legislation regarding the lawyers' profession (which unfortunately were not of much help) and on the principles resulting from the Akzo jurisprudence. In the absence of clear rules in the legislation and of any precedents, there was always the risk that during a dawn raid, divergences arose between an undertaking's representatives and the competition inspectors and since there was no procedure for solving the dispute, there was a fine line between protecting the undertaking's legitimate rights of defence and refusing to cooperate with the competition officials in the exercise of their duties established by the law.

The Competition Law now provides that the Council cannot take or use as evidence the communications between an undertaking and its lawyer admitted to the Bar (avocat), within the frame and for the exclusive purpose of exercising the right of defence, prior or after the initiation of the administrative proceedings under the law, provided that they are related to the subject matter of the proceedings. The same regime applies to the preparatory documents drafted by the undertaking for the exclusive purpose of exercising the rights of defence, even if they have not been sent to a lawyer admitted to the Bar or they were not created with the purpose of being physically sent to a lawyer admitted to the Bar.

To the extent the undertaking does not prove the protected nature of the communication, the competition inspectors will seal the document in two copies and take it with them, together with the rest of the documents gathered during the dawn raid. The president of the Competition Council will then urgently decide, on the basis of the evidence and arguments put forth by the company, whether the document will be deemed privileged or not. Should the president of the Competition Council decide to reject the privileged nature of the communication, the undertaking can challenge this decision before the Court of Appeal, within 15 days of it being communicated to it; the Court of Appeal's decision can further be challenged before the High Court of Cassation and Justice, within 5 days of communication. De-sealing can only take place with due consideration of this timeline (after the expiry of the time period in which the decision of the president of the Competition Council can be challenged, or, if challenged, after the court decision becomes final and irrevocable).

Clarification of the legal professional privilege at legislative level is clearly welcome, because the undertakings now have rules to rely on for the purpose of safeguarding their rights of defence. However, with reference to the Akzo jurisprudence, on which the Competition Council relied when including this procedure, the Romanian model has two specificities worth mentioning, which are likely to cause debate once they start being applied.

The first one refers to the status of in-house counsel. Following the ECJ Decision issued in September 2010, legal professional privilege only covers communications between a client and an independent, external lawyer in the exercise of the client's right of defence, in-house counsels not being deemed independent. The ECJ followed the opinion issued in April 2010, by Advocate General Kokott, who not only advised that in-house counsels should continue to be excluded from the benefit of this privilege, but also rejected the argument that legal professional privilege should be a matter pertaining to the national laws of each member state, indicating that the privilege should apply in a harmonised manner in the EU.

The opinion triggered numerous debates as to the degree of independence of in-house lawyers and to the trends of some external lawyers also having the tendency lately to have a stronger personal identification with the client considering their need to fully understand the business (independency being assessed from the perspective of both economic dependency and personal links with the client). This argument however was not strong enough given the need for uniform application of competition rules throughout the EU (especially taking into account that both the Commission and the national competition authorities perform dawn raids).

In the light of these considerations, the first question arising from the Romanian competition law provisions is whether there was an intention to include in-house lawyers, since the newly enacted provisions make no distinction between the two categories. The likely answer is not that Romania intended to extend the scope of the legal professional privilege to in-house counsel also, but rather that it did not wish to discard this possibility but at the same time it did not wish to expressly regulate this either. It can be expected that when confronted with a dispute on this matter, the courts would go back to the spirit of the law, to the rationale behind the granting of legal professional privilege, and would rule on a case by case basis, depending on the degree on independency and on how justice would be served in this way. On the other hand, the European Court of Justice decision in Akzo is likely to have a very strong impact on any ruling of the national courts, which would most likely follow the reasoning behind the decision.

The second specificity relates to the president of the Competition Council deciding upon the privileged nature of a document and upon the de-sealing in view of it being used in the investigation. A ruling by the Court of Appeal directly (with subsequent recourse to the High Court of Cassation and Justice) would have given a greater comfort to the parties – on the other hand, the solution chosen by the law seems to expedite the procedures, because the president of the Competition Council will surely rule upon the privileged nature of the document much faster than the Court of Appeal.

Apart from the self-assessment and merger substantive test, which needed to be harmonised with EU rules, criminal liability and legal professional privilege could prove to be among the most important developments in the application of the competition law in the years to come. Since various sectors are covered by ongoing competition investigations, it might be expected that the opportunity to test the practical implications of these new developments will not be far off.

About the author

Georgeta Harapcea holds a master of arts degree in EC competition law (King’s College London) and a masters degree in international and European business law (Université Paris I Panthéon Sorbonne). She heads NNDKP’s competition practice, a team praised by Chambers Europe (2009) for their ‘high-quality output, strong communication skills and efficient and timely work’.

Georgeta has significant expertise in providing competition assistance to clients in various sectors (such as telecommunications, construction, banking and other financial services, consumer goods, pharma, media, IT, energy), being constantly involved in a wide array of competition projects. She assists clients during competition investigations (dawn-raids, assessments, submissions to the Competition Council, hearings and subsequent challenge in court), obtains merger clearance of transactions, provides general advice on competition matters and transaction structuring, performs competition audits and related risk assessments, provides competition trainings for the purpose of compliance with competition rules and offers assistance in connection with state aid matters.

She acts for various clients such as Vodafone Romania, Lafarge Ciment Romania, Unilever South Central Europe (Romania), Société Générale Asset Management, GDF Suez Energy Romania, Wrigley Romania, Ford Romania, Microsoft Romania.

Georgeta publishes articles for various specialised publications (Institute of Competition Law, e-Competitions Bulletin; Getting the Deal Through, Chambers Magazine) and organises client seminars, addressing in an interactive manner the most recent competition law developments.

Contact information

Georgeta Harapcea
Nestor Nestor Diculescu Kingston Petersen

Bucharest Business Park, Entrance A, 4th Floor
1A, Bucuresti-Ploiesti National Road,  1st District
013681, Bucharest
Romania

Tel: +40 21 20 11 200
Fax: +40 21 20 11 210
Email:georgeta.harapcea@nndkp.ro Web:www.nndkp.ro