Constitutional Tribunal divided over constitutionality of non-suspensive effect of judicial challenges to fining decisions of the Competition Authority

Introduction

Under the current Competition Act (Law No. 19/2012 of 18 May), judicial challenges to decisions of the Competition Authority do not, as a general rule¹, have suspensive effect (Article 84 § 4²). An addressee of a decision imposing a fine or another sanction (fining decision) must therefore in principle pay the fine even if he is challenging the decision before the Competition Tribunal³. The Competition Tribunal may only suspend the effects of a fining decision, if (i) the addressee so requests when lodging the judicial challenge, (ii) enforcement of the decision would cause the addressee «considerable loss», and (iii) the addressee provides security «in substitution» (e.g., a bank guarantee) within a time limit prescribed by that Tribunal (Article 84 § 5).

In this regard, the current Competition Act reverses the general rule applicable under the previous Competition Act (Law No. 18/2003 of 11 June), according to which judicial challenges to fining decisions had suspensive effect (Article 50 § 1 of the previous Competition Act), and also departs from the general regimes for administrative and criminal offences as well as from several sector specific regulatory regimes.

This amendment was intended to serve as a disincentive to the lodging of unfounded and purely dilatory judicial appeals. In the wider context of the recast of the Competition Act, which also led to the introduction of the possibility of judicial reformatio in peius, empowering the Competition Tribunal to increase the fines imposed by the Competition Authority (Article 88 § 1), the legislator also aimed at reinforcing effectiveness and swiftness of the application and enforcement of the competition rules by rendering them more autonomous from the general regimes for criminal and administrative offences and approximating the procedural mechanisms to those foreseen in EU law⁴, as agreed to by Portugal in its Economic and Financial Assistance Programme.

However, in particular given the often punitive magnitude of the fines imposed under the Competition Act, these amendments have been criticised for infringing fundamental rights of the addressees of fining decisions, in particular the presumption of innocence (Article 32 § 2 of the Constitution) and the right to access to courts and to effective judicial protection (Articles 20 § 1, 268 § 4 CPR).

In two recent judgments, the Constitutional Tribunal pronounced itself on this question for the first time. However, whereas the Tribunal’s Third Chamber, in judgment No. 376/2016 of 8 June 2016, considered Article 84 § 4, 5 to be in line with the fundamental rights invoked, the Tribunal’s First Chamber, in judgment No. 674/2016 of 13 December 2016, took the opposite view.

Background Of The Cases

Both judgments have their origin in decisions by which the Competition Authority had imposed fines on car manufacturers for the provision of incomplete information in response to a request for information⁵, which constitutes an administrative offence in terms of Articles 68 4 1 h/i. The addressees of the decisions lodged actions for annulment before the Competition Tribunal and requested the attribution of suspensive effect, submitting that Article 84 44 4, 5 infringed their fundamental rights. In the alternative, they offered the provision of security for payment of the fine as per Article 84 4 5.

In both cases, the Competition Tribunal concluded that Article 84 44 4, 5 violated fundamental rights, in particular the right to access to court and to effective judicial protection, because it did not allow for any discretionary judicial attribution of suspensive effect and because any attribution of suspensive effect was dependent on the provision of security, irrespective of a possible insufficiency of the financial resources of the addressee for that purpose. As a consequence, the Competition Tribunal allowed the claimants’ requests, refused to apply Article 84 44 4, 5 and suspended the effects of the contested decisions, pending judgment, based on the general regime for administrative offences, i.e., without requiring the claimants to provide security.

In both cases, the Public Prosecutor appealed to the Constitutional Tribunal.

Judgment No. 376/2016 of the Third Chamber of 8 June 2016

In its judgment of 8 June 2016, the Third Chamber of the Constitutional Tribunal concluded that Article 84 44 4, 5 did not infringe the fundamental rights invoked, in particular the right to access to courts and to effective judicial protection⁶, because:

• The right to effective judicial protection did not translate into a constitutional requirement that legal actions against decisions imposing administrative sanctions must have suspensive effect; the legislator had a wide margin of discretion in designing the procedure for access to courts, the exercise of which could only be reviewed for the creation of excessive difficulties and for material inequities;
• The utilisation of that margin of discretion in Article 84 4 4 in favour of the general rule that judicial challenges to fining decisions do not have suspensive effect was neither unjustified nor unreasonable, since it furthered the public interest in effective competition rules by discouraging from the lodging of unfounded and purely dilatory judicial appeals, which would compromise the defence of this interest; and
• The possibility, foreseen in Article 84 § 5, to suspend the effects of a fining decision which enforcement would cause the addressee «considerable loss», against provision of security in the form and amount considered by the judge to be adequate in the case at hand, served as a «relief valve» which withdrew rigidity and automaticity from the system, as it allowed for a balancing between individual and public interests and mitigated the risks of an effective infringement of the right to judicial protection (if the decision is annulled) without compromising the effectiveness of the fine (if the decision is upheld).

As a result, the Third Chamber allowed the Public Prosecutor’s appeal and ordered the Competition Tribunal to amend its order in accordance with the judgment.

Judgment No. 674/2016 of the First Chamber of 13 December 2016

In contrast, in its judgment of 13 December 2016, the First Chamber of the Constitutional Tribunal concluded that Article 84 §§ 4, 5 infringed fundamental rights, in particular the right to access to courts and to effective judicial protection⁷, because:

• Article 84 §§ 4, 5 required for any attribution of suspensive effect that the application of the fine would cause the addressee «considerable loss» and that the addressee provides security «in substitution» which, in essence, meant that, before challenging the fining decision, the addressee was obliged to pay (at least part of) the fine and to incur (at least part of) the considerable loss; it therefore encroached on the addressee’s right to access to courts and to effective judicial protection;
• This encroachment was disproportionate and therefore violated the fundamental rights at stake: while it was adequate to achieve the aim pursued (effective competition rules), as it discouraged from the lodging of unfounded and purely dilatory legal actions, it was not indispensable to achieve this aim, given, first, the deterring effect already resulting from the possibility of reformatio in peius and, second, the availability of other less restrictive and as effective means;
• In particular, while Article 84 §§ 4, 5 did not allow the judge to dispense with the addressee’s obligation to provide security, nor leave the judge any discretion regarding the amount of the security, as it had to correspond to the amount of the fine imposed, a system which did not feature this rigidity and automaticity but left the judge a margin of discretion would be less restrictive;
• Even if one could affirm the necessity of the encroachment, it would still be disproportionate in the strict sense (excessive), in particular as it did not leave the judge any room to take into account a possible insufficiency of the addressee’s financial resources for the provision of security, as a result of which legal actions by those addressees could never be attributed any suspensive effect.

As a result, the First Chamber dismissed the Public Prosecutor’s appeal and upheld the order of the Competition Tribunal.

Comment

The judgment of 13 December 2016, in which the First Chamber of the Constitutional Tribunal found Article 84 §§ 4, 5 to be unconstitutional, is to be welcomed and is an important contrast to the judgment of the Third Chamber of 8 June 2016.

A system which, as a rule, allows for the enforcement of potentially drastic fines prior to conclusion of a judicial review of the fining decision, and which allows for suspension of those effects only if enforcement of the fine would cause the addressee “considerable loss” and if the addressee provides security, irrespective of the sufficiency of his financial resources, excessively encroaches on the presumption of innocence and the right to effective judicial protection, in particular if considered together with the possibility of reformatio in peius.

What is more, the legislative motivation to discourage from the lodging of unfounded and purely dilatory appeals does not appear to be a valid justification in the first place, as it would arguably only do so, if empirical evidence indeed suggested that a significant share of appeals against fining decisions actually featured those characteristics. However, quite to the contrary, recent years have rather seen a considerable number of high-profile fining decisions annulled, or the fines reduced, by the courts. Moreover, experience from other Member States with a similar system of judicial review of fining decisions (e.g., Germany) seems to suggest that a suspensive effect of judicial challenges does not impair the effectiveness of the sanctions imposed.

The judgment of 13 December 2016 deserves applause not only for its conclusions but also for its in-depth proportionality assessment of Article 84 §§ 4, 5 which contrasts with the rather superficial analysis carried out in the judgment of 8 June 2016. For, although sanctions for the infringement of competition rules and their enforcement must undoubtedly be effective, and although the legislator disposes of a wide margin of discretion in designing procedural rules for access to judicial review, he must be subject to utmost scrutiny when, in doing so, encroaches on fundamental rights.

It is interesting to note in this regard that the opposing conclusions of the Third Chamber and First Chamber appear to be largely based on a very different interpretation of Article 84 § 5. While the Third Chamber understood that this provision left it to the judge to decide which form and amount of security would be most adequate in the concrete case and enabled him to balance individual and public interests (thus serving as a «relief valve»), the First Chamber considered that the provision was rigid and automatic, not leaving the judge any discretion (e.g., regarding the amount of security, which had to correspond to the fine imposed), except for the time limit for provision of the security. In any case, even based on the interpretation of the Third Chamber, Article 84 § 5 would still not seem to allow for the attribution of suspensive effect, if enforcement of the fine would not cause the addressee «considerable loss» or, irrespective of that question, if the addressee does not provide any security, even if a prima facie illegality of the fining decision can be established.

However, the judgment of 13 December 2016 is not yet final. Given that its conclusions regarding the constitutionality of Article 84 §§ 4, 5 contradict those of the judgment of 8 June 2016, it would in principle be subject to mandatory appeal by the Public Prosecutor to the Plenum of the Constitutional Tribunal (Article 79 D § 1 of Law No. 28/82), which is composed of all 13 judges. For the reasons set out above, the judgment of 13 December 2016 merits to be upheld. The fact that the judgment of 8 June 2016 was supported by all 5 deciding judges, whilst the judgment of 13 December 2016 was the result of a 3-to-2 majority decision, does not necessarily indicate an undesirable outcome, given that 3 of the 5 judges supporting the judgment of 8 June 2016 have been replaced in the meantime, following expiry of their respective terms.

The judgment of 13 December 2016, in which the First Chamber of the Constitutional Tribunal found Article 84 99 4, 5 to be unconstitutional, is to be welcomed and is an important contrast to the judgment of the Third Chamber of 8 June 2016.

_______________________