Barry Doherty BL: The proposed new sanctions procedure for breaches of competition law
Barry Doherty BL considers one aspect of the government’s proposed changes to Irish competition law.
The Competition (Amendment) Bill 2022, published on 31 January 2022, proposes detailed procedural changes to competition law.
If enacted in its present form, the legislation would require practitioners to become familiar with new concepts such as the “statement of objections” and “full investigation report” and advise whether clients are entitled to full or partial immunity from “administrative financial sanctions”.
Other practitioners might act as “adjudication officers” ruling on alleged breaches of competition law.
Given the complexity of the proposed Bill, this note will only focus on one aspect: a proposed procedure by which fines can be imposed for breaches of competition law.
In EU law, Article 101 of the Treaty on the Functioning of the European Union prohibits agreements to restrict competition, while Article 102 prohibits unilateral “abuse” of a dominant position. The European Commission can impose fines on undertakings breaching the above provisions.
Ireland and other Member States have aligned their substantive competition law on the EU rules, simplifying life for businesses. Sections 4 and 5 of the Competition Act 2002 mirror Articles 101 and 102 above.
However, Irish competition procedures are very different to EU ones. Both the Competition and Consumer Protection Commission (CCPC) and the Commission for Communications Regulation (ComReg) have powers to investigate breaches of competition law. Neither may impose fines, due to constitutional concerns about granting such powers to administrative bodies. Instead, these bodies (or the Director of Public Prosecutions) would have to bring a criminal prosecution, and prove a breach of competition law to the criminal standard. Such prosecutions have been brought successfully, but they are not easy. The two bodies can also bring civil actions, but this would not lead to a fine. There have long been calls for the CCPC and ComReg to be allowed impose fines directly.
Two factors may have prompted change. First, Ireland must implement Directive 2019/1. This specifies the powers of national competition authorities, including fines. Second, the Supreme Court judgment in Zalewski v Adjudication Officer  IESC 24 casts new light on the concept of “administering justice” in Irish constitutional law.
Overview of the new procedure
The Bill creates a complex procedure by which the “competent authority” (CA), which could be the CCPC or ComReg, can investigate a suspected breach of competition law, and bring the matter before an “adjudication officer” (AO). The AO is to act independently of the CA. The AO hears both sides, using procedures similar to those of a court. The AO can decide that the undertaking should pay a fine, or other sanctions. However, such sanctions must be confirmed by the High Court.
Under the proposed procedure, the CA carries out an investigation, which leads to a “statement of objections” setting out the “preliminary” view of the CA – section 15L. This is served on the undertaking in question, which would have access to the CA’s file, subject to redactions. At various points, the parties can settle the case, and in particular agree “commitments” by which the undertaking would undertake not to act in a certain way: section 15AE. However, for clarity we will consider a contested accusation where the undertaking refuses to admit liability. The undertaking can make submissions on the statement of objections. If the CA is not convinced, it can refer the matter to an AO: section 15L(5)(e).
The adjudication officer
The role of “adjudication officer” is one of the principal innovations of the Bill. An AO is to be independent of the CA: section 15P. There might be a panel of AOs (section 15O(2)) and the relevant Minister is to define the qualifications for appointment: section 15O(3). As well as lawyers or experts in competition economics, the pool of qualified persons may include members of the CA or employees of the CA: section 15Q(2)(a). Thus, it is envisaged that the AO may also be an employee or even a board Member of the CA. Section 15P attempts to create “Chinese walls” between the function of AO and any other duties carried out by the same person within the CA. Detailed rules on independence are to be defined in regulations – section 15Q(2)(c).
Procedure before the adjudication officer
If the CA decides to refer the matter to an AO, the CA draws up a “full investigation report.” Under section 15L(9) this is to include an analysis of the facts, and any material relied on by the CA. However, the CA may not comment on the level of fine: section 15L(10).
Sections 15U and following define the procedure before the AO. The AO is to serve the “full investigation report” on the undertaking concerned. The AO can arrange an oral hearing, or can ask the parties for written observations – in the latter case, the Bill prescribes tight deadlines for responses. The AO may summon witnesses and take evidence on oath. There is a presumption that hearings are to be held in public: section 15V(10). The same rules of evidence apply as in a court: section 15V(12). Under section 15W, the AO can require persons to answer questions or produce evidence. It is an offence to destroy evidence or knowingly provide false information. Under section 15AAA(1) the AO may consult the High Court by way of case stated on a question of law.
Thus, the procedure before the AO mirrors the procedure before a court. If the AO considers that (on the balance of probabilities) there has been a breach of competition law, she can impose sanctions. Here our focus is on fines, but the Bill provides for two other possible sanctions:
- “Structural remedies” can include a requirement to cease certain behaviour, divest intellectual property, or to grant access to assets etc. See section 15Z.
- A “periodic penalty payment” is imposed to ensure compliance with an existing obligation – for example, the undertaking could be fined a set amount every day until it provides information. See section 15AD.
Decision of the adjudication officer
If the AO determines that there has been a breach, the undertaking must be heard as to any penalty. Fines (called “administrative financial sanctions”) must be set according to criteria in section 15AB. These include the gravity and duration of the infringement, and any leniency reduction for cooperation with cartel investigations. Section 15AC caps the fine at €10 million or 10% of total worldwide turnover, whichever is higher. Under section 15AA(1) fines must be effective, proportionate and dissuasive (reflecting Article 14 of the Directive).
Finally, the AO adopts a decision under section 15X. This may find that there has been a breach of competition law, and may set a fine. Crucially, under section 15AA(4), the fine does not take effect until it is confirmed by the High Court.
Procedure before the High Court
The High Court can consider the proposed fine in two ways:
- Under section 15AY, the undertaking can appeal to the High Court against the AO’s decision. The High Court can confirm, quash or vary the decision of the AO. However, section 15AY(10)(b) provides that the court may only interfere with the decision where it is vitiated by “a serious and significant error of law or fact, or a series of minor errors of law and fact which taken together amount to serious error” or else a breach of fair procedures.
- If the undertaking does not appeal, the CA must still go before the High Court under section 15AZ to have the fine confirmed. Section 15AZ(3) provides that the Court must confirm the decision unless it finds errors of law (which must be “manifest from the record” and “fundamental so as to deprive the decision of its basis”), or if it finds that the sanction imposed was manifestly excessive.
These sections also provide details about court procedure, which are to be supplemented by rules of court. An appeal to the Court of Appeal is possible, where the High Court certifies a question of exceptional public importance.
The new procedures can, ultimately, lead to an undertaking being fined for breaches of competition law, without the need for a criminal conviction. This is a significant innovation in Irish law. However, the CA does not itself determine that there has been a breach or impose a fine. Instead, the decision on whether there has been a breach is taken by the AO. If a fine is imposed, this must be confirmed by the High Court. (Similarly, if the AO decides to impose a periodic penalty payment or behavioural remedies, this must also be confirmed by the High Court: section 15Z(5) and section 15AD(8).)
It remains to be seen if the new system would improve enforcement. Although the system is very complex, in principle it should improve enforcement since it is only necessary to demonstrate a breach of competition law on the balance of probabilities.
However, the legislation must survive any constitutional challenge and also be compatible with the Directive.
Possible constitutional issues
The above structure seems designed to take advantage of Zalewski by appointing “adjudication officers” with limited functions, while leaving the High Court decide on fines. However, the Supreme Court in Zalewski was divided, and the full implications of the judgment may take time to become clear. Thus, the division of functions between the AO and the High Court may come under scrutiny. Interestingly, the High Court is required to defer to the AO and/or CA in two respects. First, under section 15AJ(3) the High Court may not “impugn” a finding by the CA that an undertaking is entitled to leniency (and thus a reduction in its fine). Second, under section 15AZ(3), where the CA asks the High Court to confirm a decision that has not been appealed, the AO’s findings of fact “are to be accepted as final by the Court”. It is not clear why these two aspects (in particular) are immune from scrutiny.
More generally, the system relies on AOs being separate from the CA. At the same time it is envisaged that the individual AOs can be employees or members of the CCPC or ComReg, and that support staff (“assistants”) to AOs can be drawn from the staff of the CA. There are elaborate provisions, particularly in section 15P, to preserve the independence of AOs, but again the division of functions between the AO and the CA may come under scrutiny.
Compatibility with the Directive
As well as complying with the Constitution, the procedures must also comply with the Directive. Article 16 of the Directive requires Member States to ensure that “national administrative competition authorities may by decision impose effective, proportionate and dissuasive periodic penalty payments on undertakings” (emphasis added). Unlike Article 13 of the Directive, Article 16 does not envisage that such sanctions might instead be imposed by a court. However, under section 15AD the periodic penalty payment is not adopted by decision of the Irish CA –it is proposed by an AO and must be confirmed by the High Court. At first sight, it is not obvious how this is compatible with the Directive.
The complexity of the new procedures
Finally, the procedures created are highly complex, and some contradictions or lacunae may emerge. For example:
- section 15AW lays down elaborate rules on the admissibility of evidence. However, section 13 of the 2002 Act already has rules on this topic, and it is not clear how the two provisions would interact. (The Bill does not amend section 13, but it does amend section 12 of the 2002 Act as regards presumptions in proceedings under the Act.)
- Under section 15AA(1) any fine must be “effective, proportionate and dissuasive”. Section 15AB(1)(a) lays down a similar rule, but uses the word “appropriate” instead of “effective”. It is not clear why the Bill uses two different phrases, particularly since Article 13 of the Directive uses the word “effective”.
- The Bill would insert a new section 47H into the 2002 Act, permitting a CA to indemnify its staff and AOs. Again, this would overlap with similar provisions in section 41 of the Communications Regulation Act 2002 (for ComReg) and section 13 of the Competition and Consumer Protection Act 2014 (for the CCPC).
- Some deadlines are expressed in “working days” (e.g. section 15U(5)) while others simply use “days” (e.g. section 15Y(2)) which is likely to cause confusion.
If enacted, these provisions will bring about a major change to Irish competition law. Ireland is already a year late in implementing the Directive, so the Government will want to enact the legislation rapidly. Competition practitioners will be watching to see what the final legislation looks like, and how it will work in practice.
- This article was first published on the Law Library website.