Parliament recently adopted a new act that amends the Competition Act and brings numerous changes to Hungarian competition law.
Most of the new rules aim to ensure that the Competition Act fully complies with EU Directive 2019/1/EU (ECN+ Directive), which strives to:
- strengthen cooperation between national competition authorities (NCAs) through the existing European Competition Network (ECN); and
- ensure that NCAs have appropriate and harmonised enforcement tools that reflect the powers held by the European Commission when applying the same legal basis (ie, the EU antitrust rules (Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU)).
Although EU member states must implement the ECN+ Directive by 4 February 2021, Hungary has opted to adopt the necessary implementing provisions early – almost a year ahead of the deadline.
The Hungarian legislature has chosen to apply most of the ECN+ Directive rules to all antitrust proceedings (ie, regardless of whether they are conducted under Hungarian or EU law). However, in certain cases, the scope of the new provisions will be limited to proceedings on an EU legal basis.
Expanded scope for HCA to acquire evidence
The Hungarian Competition Authority (HCA) will no longer be limited in carrying out on-site inspections of private premises, real estate and movable property. Based on previous rules, on-site inspection can be carried out in these places only if they are connected to the undertaking subject to the proceedings through the company's activities or personnel (eg, if the real estate is used by the investigated company's CEO). Going forward, the HCA will be allowed to inspect any private premises, real estate and movable property (eg, motor vehicles and data carriers). However, the amendment does not change the requirement that on-site inspections must be carried out with prior court permission.
Further, the amendment explicitly allows for the use of secret (covert) recordings as evidence, provided that they are not the only proof of an infringement. This new rule, which is based on a recital rather than a specific article of the ECN+ Directive, is likely to be debated in legal literature, as it seems to permit the making of secret recordings, which are typically recorded in a way that breaches individual rights and EU General Data Protection Regulation rules.
New rules regarding commitments
If the HCA's antitrust proceeding is initiated on an EU law basis (Articles 101 or 102 of the TFEU), the HCA will have to consult with companies and other affected parties active on the relevant market before approving a commitment. However, since such mandatory consultation is likely to prolong proceedings, it will remain an option for the HCA only in proceedings initiated on a national law basis.
Further, the HCA will have the right to revoke a decision approving a commitment if the commitment has been approved based on incomplete, incorrect or misleading information provided by the investigated company. Such right has already been incorporated and practised in connection with clearance decisions in merger control proceedings, to the dismay of companies that have already experienced such revocation of previously granted clearance decisions.
Additional regulations concerning leniency applications
To comply with the ECN+ Directive, the preconditions for granting a leniency application will be stricter. More detailed rules will regulate the required cooperation with the HCA, such as prohibiting the destruction, concealment or falsification of evidence from as early as when a company is only considering applying for leniency. As a precise definition of 'considering an application' is not given, legal uncertainty may arise in cases where, for example, an employee starts destroying evidence while the management is conducting an internal audit to map the extent of an infringement. However, it is unclear whether the start of the internal audit should be viewed as a time when a company is considering a leniency application or when the board meeting discusses the result of such an internal audit. The wording of the Hungarian amendment is based on that of the ECN+ Directive, which does not provide guidance in this respect.
The good news for companies is that the amendment opens up the possibility of submitting incomplete leniency applications (so-called 'markers') not only for immunity from, but also for the reduction of fines. Further, as opposed to current rules, companies will be able to submit marker applications even after the HCA has conducted a dawn raid. This latter possibility has been reinstated after a few years' unwelcome break. The amendment clarifies that in case of markers, the company must undertake to gather the remaining evidence within a deadline set by the HCA. Widening the possibilities for marker applications will likely result in an increase of leniency applications to the HCA.
As a result, leniency applicants will be able to choose from the following possibilities to submit their application:
- application for immunity from or for reduction of fines supported by all required evidence;
- incomplete leniency application (marker) for immunity from or for reduction of fines, if additional time is needed to collect and submit all evidence; or
- in connection with a breach of EU competition law, a summary application which is submitted parallel to submitting a leniency application to the European Commission.
Another novelty is that under the new rules, companies will be entitled to submit all leniency applications not only in Hungarian, but also in any other EU language (typically in English), provided that this is mutually agreed by the HCA and the applicant. The previous rules allowed summary leniency applications to be submitted only in English.
The amendment also strives to better protect the information contained in leniency and settlement applications. Evidence obtained from leniency and settlement applications by granting access to case files may be used only for the purpose of exercising the rights of defence, and only in court proceedings relating to the competition supervision procedure in which access to the file was granted. A more thorough protection of data contained in leniency applications applies also to other competition authorities, which can access Hungarian leniency applications only with the consent of the applicant or if the applicant also submitted a leniency application to these authorities.
New rules regarding fines imposed on associations of undertakings
Currently, the maximum fine which may be imposed on an association of undertakings (eg, a professional chamber or an association) is 10% of the previous financial year's net sales revenue of all member companies. This is in line with the requirements of the ECN+ Directive and will not change after its implementation.
However, the extent of liability of each of the members of such association of undertakings was not sufficiently regulated prior to the amendment. In line with the ECN+ Directive, the financial liability of each member will be limited to 10% of the given member's net turnover in the previous financial year.
The new maximum fine for each member of the association, at least pursuant to the ministerial reasoning of the amendment, does not affect the HCA's choice to enforce even the full amount of the fine from the individual members under joint and several liability of such members in the newly introduced multi-stage enforcement system:
- First, the HCA must try to enforce the fine from the association. If the association cannot pay the fine and the enforcement proceeding is unsuccessful, the association must call for contributions from its members to cover the fine amount.
- If the contributions do not cover the fine, the HCA may require payment of the fine directly from any of the member companies whose representatives were members of the respective decision-making body of the association that issued the decision which the HCA identified as the infringement. Payment can be required only from those companies that were named in the HCA's decision; however, these companies will be jointly and severally liable to pay the fine.
- If the fine is still not fully paid, the HCA may require the payment of the outstanding amount of the fine from any of the members of the association that were active on the market on which the infringement occurred (which would in most cases be all members of the association). Again, payment can be required only from those companies that were named in the HCA's decision, and they will be jointly and severally liable to pay the fine.
- However, payment cannot be required from member companies which evidence that they did not implement the infringing decision of the association and either were not aware of its existence or have actively distanced themselves from it before the investigation started.
The previous system is similar to, but less detailed than the one introduced by the ECN+ Directive and will require further clarification in practice. At least it is made clear that the HCA will have to wait for the requested capital contributions from association members before going after individual companies. However, the new rules, which explicitly list innocent member companies' grounds of exemption from payment obligations, are welcomed.
On the above basis, the new limitation of financial liability of member companies of an association to 10% of their turnover seems irrelevant for the actual payment of fines in cases where the HCA cannot recover a fine from the association. In other words, in these cases the new system also allows the HCA to request a member of the association to pay the full fine, which may be over 10% of that member's turnover.
However, the 10% maximum may give impetus in civil proceedings to the company from whom the HCA requests the entire fine under joint and several liability when such company requests recovery from the other infringers.
Enhanced cooperation between NCAs
The HCA will have more opportunities to cooperate with other national authorities in the ECN. In future, NCAs will not be limited to seeking legal assistance from each other only for certain procedural acts, but will be able to request the service of documents in another member state or seek assistance regarding the enforcement of fines and procedural fines imposed in their decisions. The detailed rules will form a whole new chapter in the Competition Act.
Most of the amendments, including the main changes mentioned above, will enter into force on 1 January 2021. They will apply also to cases that were initiated before this date.
