Serbia: Enforcement in the West Balkans

Author: | Published: 1 Oct 2010
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Four high-profile cases since the autumn of 2009 have significantly raised public awareness of the option of private enforcement in both Serbia and Bosnia-Herzegovina. These cases have been relatively straightforward and in recent years the national competition authorities in EU candidate countries have specialised in staging reruns of more notable EU antitrust classics and these cases were no exception.

The first case in Bosnia-Herzegovina was a classic Deutsche Telekom déjà-vu, However, this time there was a happy ending in that the defendant was found not to be guilty. What surprised many, though, was the willingness of the complainant to bring a dominance case to the private enforcement domain, bearing in mind that in these jurisdictions, private enforcement is a domain bereft of any detailed regulation or practice. Interestingly, in addition to the lack of a domestic legislative framework in Bosnia, the complainants, in this instance had failed in their initial case which had been submitted to the national competition authority.

Background

Private enforcement has traditionally been reserved for the jurisdictions of and the US and to a slightly lesser extent the UK. Continental European countries have always been sufficiently enthusiastic about private enforcement and it has been discussed and considered very thoroughly. There has always been a wide consensus about the need for private enforcement in the European Union. However, when it comes to the fundamental concepts of civil law, even the smallest gaps in legislation or practice can prove to be insurmountable obstacles in the practical pursuit of private enforcement cases.

For reasons unknown to many, the European Commission's experts that provide advice to the governments and institutions in transitional countries with regard to their legislative agendas, gave the thumbs up to the very vague and narrowly drafted private enforcement provisions that have been provided for in domestic legislation. Such an approach is deeply flawed and limited domestic provisions consisting of a handful of clauses should not be interpreted as an adequate infrastructure for uninhibited private enforcement actions. The concept of private enforcement is such that it can either be heavily regulated or left unregulated. Jurisdictions such as the US and the UK have centuries of case law related principles which, in tandem with legislation have helped to develop a variety of well established legal principles, (in addition, such jurisdictions have almost a century of antitrust experience under their belts). Within these principles newer concepts can then develop, and such jurisdictions have an army of well trained judges to enforce and to interpret these legal principles. Naturally concepts such as private enforcement can be derived from more general rules related to compensatory and punitive damages, these concepts can then develop accordingly. However, jurisdictions lacking such a flexible legal framework will no doubt need detailed rules and guidelines in order to ensure that just and equitable judgments are arrived at in the area of private enforcement.

Developing a framework

In order for a court in the West Balkans to award damages to a party seeking compensation, it will need to examine the following factors:

  • Whether or not the plaintiff has suffered damages;
  • whether or not there is any responsibility on the side of the defendant (ie whether the defendant can be exculpated on some basis); and
  • if there is a cause of action arising between the two parties.

Having checked for each of these three items, the court will also need to calculate the amount of the damages.

Practical difficulties in the application of such factors

The above rules or factors are pretty straightforward where a schoolgirl happens to break a school window. A stone thrown from her hand through the glass window of a gym door provides sufficient answers to each of the first three factors considered above. And the glazier's bill works wonders when it comes to the question of quantifying the extent of the damages. However, if one examines a second scenario where a restaurateur makes a claim against a contractor for poor plumbing and a resulting sewage leak, this is a variation of the same principle; however in this instance the quantification of the damages proves more problematic. The variable between this scenario and the former is the extent of discovery and evidence. Such scenarios are already well provided for in jurisdictions like the UK which facilitate the use of joint experts and which also have extensive disclosure obligations, including pre action disclosure. Although such a system is not perfect, it provides a potential plaintiff (and indeed a defendant) with more clarification and comfort from the outset than the court systems and structures available in the West Balkans do.

Private enforcement is generally seen to be more effective when it comes to areas that have clear standards for liability and which have a clear consensus on what conduct is deemed to be unlawful. For many commentators, this means hardcore cartel cases. When it comes to single-firm cases, (ie the abuse of a dominant position), private enforcement is generally seen as being more problematic.

Generally speaking, most courts in the West Balkans would find even a relatively straightforward dominance case (from the competition authority's point of view) extremely difficult to adjudicate. For example, if we take the example of a margin squeeze case in the telecom sector, this would be a relatively straightforward matter from the perspective of a national competition authority. The raft of case law emanating from both the EU level as well as from the domestic member states national courts to use as guidance when arriving at a decision is immense. Slightly ambiguous or undercooked provisions in the domestic competition legislation can be interpreted (albeit in a non-binding manner) in light of the extensive collection of decisions, interpretations and guidelines. However, if we look at the same case from the perspective of a civil law judge, we realize that that the fundamental civil law principles are simply insufficient to enable the court to hand down a judgment that could be deemed meaningful from a competition law point of view.

A practical example of the difficulties encountered

Returning to the example of a telecom margin squeeze case, imagine that there are two plaintiffs. The first is a potential entrant and the other an existing competitor. Although it is clear that they both will have suffered damages, it would be very difficult for the existing competitor to quantify the damages whilst the potential entrant will find it hard to prove that there was any damage suffered at all. In addition to this, a defendant should be able to argue that the blame for any loss can be attributed to the regulator as well as to the defendant and as a result of this, the party against whom a plaintiff has a cause of action becomes somewhat less clear. The same set of dilemmas remains if a case involves either a horizontal cartel or vertical price fixing.

Now let us add judges without any specific training in competition law into the equation. Couple this with the fact that the national competition laws only date back as far as five years. Somewhat predictably, the end result of the above mentioned factors is an unpredictable environment for both the unfortunate plaintiff and the defendant. One can argue that each side knows their role, the plaintiff will argue that it has suffered damages and the defendant will cry foul that in the absence of any detailed private enforcement rules, no such process should be allowed. However, material consequences aside, in such a zero-sum environment the moral burden of making an informed decision will lie with the judge. In such circumstances, a more cynical author might suggest that asking a magic eight ball for an answer might be the judge's best chance at arriving at a fair and balanced verdict.

Civil enforcement

To say that private enforcement regulation in Bosnia-Herzegovina was rudimentary and underdeveloped would be a huge understatement. The entire concept of private enforcement is based on a clause which is officially translated as follows:

"A decision issued by the Council of Competition has no influence on the possible criminal and/or civil liability about which the competent courts decide"

We can only assume that the intention behind the text (which was prepared in coordination with European Commission's delegation in Bosnia – Herzegovina) was to institute a rule from the European Commission's Green Paper which provide that a competition authority's decision will constitute a rebuttable assumption of responsibility for damages: rebuttable, meaning the defendant will be allowed to challenge the reasoning behind it in a civil law procedure.

However, in the first private enforcement case in Bosnia-Herzegovina the complainant had lost the case in the procedure at the competition authority level but had then decided to pursue the case in a civil court on the basis that the decision favouring the defendant "has no influence on the possible (...) civil liability". Even if we turn a blind eye to this additional ambiguity, all of the other obstacles related to unregulated private enforcement also remain.

It would be unfair not to mention that the competition authority in Bosnia and Herzegovina has an almost impeccable track record in terms of the number of its decisions that have been upheld by the national high court. Assuming that future private enforcement cases will be based on a prohibition decision, the private enforcement movement in this jurisdiction will only gain continued momentum once the country's lawmakers decide to adopt a well regulated yet practically applicable mechanism for the overcoming of the obstacles mentioned above.

Serbia

Alas, the situation in Serbia is far worse. The competition authority is notorious for having had none of its decisions confirmed by the high court. Therefore, although the first private enforcement case in Serbia is based on a prohibition decision, this should not be given much weight as, when this case goes forward the decision is likely to be annulled or overturned. Without clear rules on how such a situation is to be handled, the court may well be unable to handle the process in a methodical and equitable manner.

Common Problems

Some EU countries have recently enacted more detailed private enforcement rules. Some of these rules improve the system by increasing the level of legal certainty. The easiest way to achieve this is by introducing a deus ex machina assumption that the competition authority's decision, upheld by the high court, is evidence in itself. Returning to the school window analogy, such a decision will pinpoint the schoolgirl and hold her responsible for damages. However, the quantification of damages is a whole different story. Some of the proposed solutions would certainly contribute to much needed legal certainty (for example, setting a rebuttable presumption that damages amount to 10% of the defendant's turnover), while others are based on more traditional guidelines for such calculations. In truth, the former option (10% presumption) is just as unfair as having no rules, because when damages are impalpable, proving that they exist can be just as equally difficult as proving that they do not.

There is no easy solution to private enforcement rules anywhere. There is an obvious need for greater legal certainty. In turn, legal certainty calls for thresholds that can only be set on a discretionary basis, which in turn makes them unfair as they will always benefit one party. Even with the fundamental issues resolved, with large sums at stake the devil will always lie in the detail – will the regulations allow the 'passing on' defense, and if so to what extend will it be allowed? On what basis will the courts determine a lost potential profit? (A distinction must be made between the lost profits and those that are actually a legitimate parameter for quantification). How will the courts approach the issue of international cartels? With a greater number of private actions being taken, the need to ensure the consistent application of competition law in this area is likely to become more acute. However, before any of this happens, perhaps a discussion involving the key stakeholders should probably come first.

About the author

Rastko Petakovic is a partner and head of competition department at Karanovic & Nikolic, specialising in competition law and regulatory matters. Petakovic is a leader of telecom/media/technology practice group at Karanovic & Nikolic. In December 2009 Petakovic was promoted to partner. Petakovic advises clients on competition, antitrust and telecom/media/technology matters in Serbia, Montenegro, Bosnia & Herzegovina, and Macedonia (assisted by local counsel). Mr. Petakovic is ranked by independent directories as the best competition lawyer in the country.
 
Mr. Petakovic is one of the authors and editors of KN annual publication: Focus on Competition, 2007, 2008 and 2009 editions.

Contact information

Rastko Petakoviç
Karanovic & Nikolic

Lepenicka 7
11000 Belgrade
Serbia

Tel: +382 20 238994
Fax: +382 20 238984
Email:rastko.petakovic@karanovic-nikolic.com
Web:www.karanovic-nikolic.com