Chartered Accountants’ Mandatory Training Regulation in breach of Competition Law (1)

Introduction

In a recent preliminary ruling (C-1/12, Ordem dos Técnicos Oficiais de Contas v Autoridade da Concorrência, of 28 February 2013, not yet reported), the European Court of Justice (ECJ) clarified that a regulation adopted by a professional association establishing a system of compulsory training for its members must be regarded as a decision of an association of undertakings under Article 101(1) TFEU and constitutes a prohibited restriction of competition to the extent it eliminates competition in a substantial part of the relevant market and imposes discriminatory conditions that are detrimental to competitors.

The case

In 2007 the Portuguese Order of Chartered Accountants (OTOC), a professional association under a public law statute and with wide ethical, training and disciplinary powers over all chartered accountants, adopted a regulation which put in place a system of compulsory training for accountants, whereby accountants must obtain annually 35 credits for training provided by the OTOC or approved by it. Training bodies wishing to provide ‘professional training’, also offered by the association, had to apply for registration with the OTOC, pay a fee for the application and each course provided, and comply with criteria set by the association, which also had the power to decide on the approval of training. At least 12 credits must be earned from “institutional training”, which could only be provided by the OTOC.

Further to complaints, the Portuguese Competition Authority decided on 7 May 2010 that by adopting the contested regulation, the OTOC had infringed Articles 101 and 102 TFEU and the equivalent provisions of the Portuguese Competition Act (see Newsletter of June 2010). The Authority found the regulation constituted both a decision of an association of undertakings and an abuse of dominant position in the market for the compulsory training for chartered accountants in Portugal, and imposed a fine of €229,300 on the association. The decision was upheld on appeal by the Lisbon Commerce Court with regard to the infringement of Article 101, although the court dismissed the claim that the regulation also breached Article 102. The OTOC appealed again, this time to the Lisbon Court of Appeal (Tribunal da Relação de Lisboa), which stayed the proceedings and submitted four questions to the Court of Justice for a preliminary ruling.

Public law regulations as decisions of association of undertakings

It was not disputed that chartered accountants, which carry on an economic activity, are ‘undertakings’ for the purposes of Article 101 TFEU. Nevertheless, the Lisbon Court of Appeals doubted whether a regulation adopted by a professional association such as the OTOC, which is required by law to adopt binding rules of general application, and in particular to put into place a system of compulsory training for its members with a view to providing citizens and corporation with quality, reliable accounting services, must be regarded as a decision of an association of undertakings within the meaning of Article 101(1) TFEU, or should be considered, on the contrary, a decision of a public authority outside the scope of that provision.

Recalling Wouters², the Court stated that EU competition rules do not apply to a given activity only when such activity, by its nature, its aim and the rules to which it is subject, does not belong to the sphere of economic activity. The OTOC claimed that the regulation did not have any direct effect on the economic activity of the chartered accountants themselves. However, the Court noted that the association provided training for chartered accountants, and the regulation set out the standards which should be met by other providers wishing to offer such training. Consequently, such regulation had a direct impact on the market of compulsory training for chartered accountants, where the OTC itself carried on an economic activity.

The fact that the OTOC was legally required to put into place a system of compulsory training for its members was not found to be relevant. Rules adopted by a professional association remain State measures, outside the scope of EU rules applicable to undertakings, only when the Member State defines the public interest criteria and the essential principles with which the association’s rules must comply, and retains its power to adopt decisions in the last resort. This was not the case of the OTOC, as the law allowed the association a wide discretion as to the principles, conditions and methods to be followed by the compulsory training scheme, and did not lay down any conditions for access by training bodies to the market for compulsory training for accountants. The rules drawn up by the association where accordingly, according to the Court, “a matter for it alone”.

The Court therefore concluded that the regulation at issue must be regarded as a decision of an association of undertakings in the meaning of Article 101(1) TFEU.

Restrictive effects: elimination of competition and discriminatory conditions

Replying to the question of whether the contested regulation infringed Article 101 TFEU, the Court observed at the outset that the regulation was capable of affecting trade between Member States. Not only it applied to the whole territory of the Member State in question, but, more importantly, the provisions on access to the market of compulsory training for chartered accountants appeared to be of significant importance to undertakings in other Member States choosing on whether or not to enter the Portuguese market.

The Court recognized that the contested regulation did not have the object of restricting competition, as it sought to guarantee the quality of the services offered by chartered accountants by putting into place a system of compulsory training. By contrast, the regulation was found by the Court to have anticompetitive effects on two accounts.

First, by decreeing that 12 of the 35 mandatory annual credits had to be obtained from institutional training’, which could only be provided by the OTOC, the Court found the regulation reserved for the association a significant part of the relevant market. In addition, each programme of ‘professional training’ (the category which was open to the competition of private training bodies) had to last longer than 16 hours, which could have the result of preventing alternative training bodies which wished to offer short training programmes from doing so. Such rules therefore appeared to the Court as likely to distort competition on the relevant market ‘by affecting the normal play of supply and demand’.

Second, the conditions of access to the relevant market (for bodies other than the OTOC) were found by the Court to be discriminatory. The Court noted that, although private bodies had to ask for specific approval of each training session, at least 3 months in advance, and pay a fee for each session, the OTOC, which also provided professional training in competition with those training bodies, was not subject to any approval procedure.

Moreover, the rules set by regulation which must be met by training bodies were found to be drafted in vague terms, which could lead the OTOC (holding the power to rule unilaterally on applications) to distort competition by favouring the training which it organised itself. The requirement of three months’ notice before the start of the session was also found to prevent alternative training bodies from offering, in the near future, training on current issues giving entitlement to those credits, while requiring them systematically to ‘reveal detailed information about all training proposed’.

Again evoking Wouters, the Court recognised that not every decision of association which restricts the freedom of action of the parties necessarily falls within the prohibition of Article 101(1) TFEU. It accordingly analysed whether the restrictive effects of the regulation – which recognisably pursued the public interest objective of ensuring continued professional education of accountants – could reasonably be regarded as necessary to guarantee the quality of services offered by chartered accountants, and whether those effects did not go beyond what was necessary to ensure the pursuit of that objective.

In this respect, the Court stated clearly that elimination of competition for training sessions lasting less than 16 hours could not ‘in any event’ be regarded as necessary to guarantee the quality of accountants’ services. Similarly, the objectives underlying the conditions for access could be achieved by putting into place a monitoring system organised on the basis of clearly defined, transparent, non-discriminatory and reviewable criteria likely to ensure training bodies equal access to the relevant market. For these reasons, the contested regulation was found to be against Article 101(1) TFEU.

The Court finally dismissed the argument that the contested regulation of the exempted under Articles 101(3) and 106(2) TFEU. The restrictions of competition imposed by the regulation appeared to go beyond what was necessary to ensure either the improvements in accountants’ services, under Article 101(3), or the performance of the particular tasks assigned to the OTOC, under Article 106(2), even if the compulsory training could be viewed as a general economic interest activity, which the Court doubted. The regulation also made it possible for the OTC to eliminate competition on a substantial part of the training services for chartered accountants, which further precluded the application of Article 101(3).

Comment

The reference in OTOC gave the Court of Justice an opportunity to recall and articulate long-established principles of competition law, such as that public law entities that carry out economic activities are subject to competition law rules, and that professional associations, when putting in place rules of general application, must take care in ensuring that those rules do not distort competition ‘by affecting the normal play of supply and demand’, and allow for ‘equality of opportunity between the various economic operators’.

The Court also confirmed that the public interest objective exception provided in Wouters is subject to a strict proportionality test, similarly to the examinations carried out under Articles 101(3) and 106(2) TFEU, both of which has been rendered more exacting by the case law in recent years.

The judgment offers food for thought for professional associations organising compulsory training programmes which could be provided by private training bodies, which is a widespread practice in many jurisdictions for so-called ‘liberal’ professionals such as lawyers, doctors, pharmacists, accountants, architects, engineers, etc. In particular, when the associations themselves provide training services, i.e. operate on the market, rules on access to the market (including regarding approval procedures) should be clear, objective, transparent and non-discriminatory, and allow further review – including from a court of law. The Court also appears to be concerned with ‘equality of opportunity’ of third parties in accessing the market, and with the professional association systematically acquiring ‘detailed information’ (i.e., commercially sensitive information) about all training proposed by competing providers.

The OTOC judgment appears to suggest that in such cases the ‘commercial’ and ‘regulatory’ functions of the professional association should be kept separate, in order to prevent the association from having the ability to distort competition by favouring the training which it organises itself, a line of thought reminiscent of the principle of ‘unbundling’ of activities which has been thoroughly developed and detailed by EU law in certain network industries, such as the energy sector³.

Associations of undertakings which are subject to public law duties and simultaneously carry out economic activities, in (actual or potential) competition with other economic operators, should therefore adopt caution when regulating and exercising activities which are, or have no reason not to be, open to competition.

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