UOKiK targets persons in management positions | In Principle

For the first time, the president of the Office of Competition and Consumer Protection (UOKiK) is conducting antimonopoly proceedings concerning competition-restricting agreements not only concerning businesses, but also persons managing them. This is a milestone in the history of enforcement of competition law in Poland. An outline of the rules regarding liability of persons managing a business and business enterprise in the context of prohibited agreements follows.

The case

In a press release of 29 June 2018 UOKiK announced that the president of UOKiK had initiated proceedings to investigate possible collusion to restrict competition between a chain of fitness clubs and a provider of sports and leisure packages. The president of UOKiK announced that in 2017 the offices of 16 firms had been raided, and evidence was collected confirming a possible agreement between these businesses to divide the market between fitness clubs and restrict market access for the competitor of the largest provider of sport and leisure packages in Poland. The fitness club chains are thought to have agreed between themselves the regions of Poland in which they would operate and to have agreed with Benefit Systems that the fitness club chains that were party to the arrangement would not do business with other systems.

It is also possible, but not mentioned in the press release, that the raids mentioned in the press release were prompted by information obtained in proceedings concerning a concentration in which Benefit Systems withdrew an application to take over the fitness club chain Calypso Fitness following objections from the president of UOKiK. Both parties to that transaction are subjects in the new case. The possibility that competition authorities might have learned of the violations was reported on our website (in Polish).

The most interesting section of the press release reads “the evidence we have collected may indicate six company managers have been involved in the collusion. That is why for the first time, we decided to initiate proceedings against natural persons”. The president of UOKiK stressed that this was the first case in which the Polish competition authority had investigated natural persons – managers of the businesses suspected of taking part in the collusion. This is interesting because the authority has had this instrument available to it for a long time.

Managers under the Competition Protection Act

Liability of persons managing a business was incorporated into Polish competition law in an amendment to the Competition Protection Act in 2014. As of 18 January 2015, persons in management roles can be prosecuted for intentionally allowing, through their actions or failure to act, a business to enter into competition-restricting agreements.

Under Art. 4(3a) of the Competition Protection Act a managing person is defined as a person managing a business enterprise, in particular a person in a managerial position or on the board of the managing body of a business. This is one of many vague definitions given in the act. It uses imprecise terms: a “person managing a business enterprise” (the term “business enterprise” also needs to be interpreted), a “person fulfilling a managerial role”, and also the phrase “in particular”, which means that the list of examples in that provision of “managing persons” is not finite.

The definitions in Art. 4(3a) seem to include a person fulfilling a managerial role in a business, a person on a managing body of a business, as well as other persons managing the business’s business enterprise. The main criterion should be the true influence over the conduct of the business, and not formal management of a business.

It is stated in “Clarifications given by the President of UOKiK Concerning the Leniency Scheme” that persons considered by UOKiK to be managing persons are for example:

i)              Persons who are on a managing body of a business (such as a management board member of a capital company, partnership, or cooperative) who manage a business enterprise in practice;

ii)             Persons in a managerial role, for example who have been given the task of managing a business enterprise but are not on a managing body, for example a director of a particular division;

iii)           Other persons managing a business enterprise, i.e. persons who in fact are able to determine areas of operation of the business while not formally occupying a managerial position in the organisational structure of the business or being on the managing bodies on the business.

According to the cited definition, managing persons might also be directors of branches and independent establishments. Also, the definition applies to not only natural persons managing a business’s business enterprise, but in special cases also to legal persons who are a member of a business’s management board.

In addition, liability for entering into a competition-restricting agreement does not apply to natural persons conducting business activity. While they certainly fall under the definition of a managing person, natural persons are directly responsible as people running businesses.

Scope of liability

Under Art. 6a of the Competition Protection Act, a managing person is only liable for intentionally allowing, in connection with their position, while a breach is taking place, through action or failure to act, a business to enter into competition-restricting agreements under Art. 6(1)(1)-(6) of the Competition Protection Act or Art.  101(1a)-( 1e) of the TFEU. Liability does not cover tender collusion.

A managing person is liable solely for intentionally allowing entry into competition-restricting agreements as a result of failure to perform or improper performance of duties connected with the person’s function, whether due to action or inaction on the part of that person, (including when, intentionally, no action is taken to cease the breach). The relevant action or failure to act must occur in connection with performance of the function, during the period in which the breach discovered took place.

Liability of managing persons applies solely to competition-restricting agreements. It does not follow from a business’s abuse of a dominant position or other kinds of breaches of the Competition Protection Act that are related to consumer rights.

According to the transitional provisions in the amendment, a managing person is liable solely for action or failure to act which occurs from the day on which the amendment comes into force onwards (from 18 January 2015).

Penalty

Under art. 106a of the Competition Protection Act the president of UOKiK can fine a managing person who intentionally allows a business to enter into a competition-restricting agreement up to PLN 2 million (approximately EUR 480 000).

Importantly, the president of UOKiK  can only impose a penalty on a managing person when a business is found to have entered into a competition-restricting agreement, and when the business is fined. The penalty must be imposed on the managing person in the same decision. Thus if the president of UOKiK finds a breach to have taken place but does not fine the business, the managing person will not face liability.

The amount given above is the maximum amount. The competition authority will primarily consider the following when imposing a penalty on a managing person:

• The extent of the impact of the managing person’s conduct on the breach committed by the business concerned,
• The revenue gained by a managing person at a particular business, taking into account the duration of the breach,
• The duration and market  consequences of the breach.

The president of UOKiK determines a specific amount of a fine according to similar rules to those applicable in the case of a prosecuted business which are laid down in Art. 111 of the Competition Protection Act. The following mitigating circumstances might affect the amount of the fine:

• Acting under coercion,
• A part played in voluntary remedy by the business of the effects of the breach,
• A part played in a business desisting, at its own initiative, from a prohibited practice before proceedings are initiated or promptly upon proceedings being initiated,

and also, in a similar way as in the case of a business itself,

• Taking action at its own initiative to cease the breach or remedy the effects of the breach,
• Cooperating with the president of UOKiK during proceedings and in particular playing a part in quick and efficient conduct of the proceedings.

Incriminating circumstances which lead to a fine being increased include however:

• A managing person being the organiser or initiator of a competition-restricting agreement or inducing other businesses or persons to be party to the agreement,
• The scale of the gains obtained by a managing person in connection with the breach (the gains have to be “substantial”)

and in a similar way to a business,

• coercing, putting pressure on or using retaliatory means with respect to other businesses or persons in order to realise or continue a breach,
• previously committing a similar breach.

Leniency

Since the 2014 amendment to the Competition Protection Act came into force, managing persons have been able to make use of a leniency scheme. The president of UOKiK emphasised this in the press release. Lawyers in the competition practice at Wardyński & Partners also know from experience that officials at UOKiK present this option to managing persons during inspections and raids conducted in businesses.

Firstly, a managing person can submit an abridged or full motion for leniency (Art. 113a and 113a of the Competition Protection Act) by themselves. In such a case, provisions will apply accordingly on requirements for a penalty to be waived (Art. 113b) or decreased (Art. 113c), as will leniency plus provisions (i.e. additional leniency relating to another, different agreement – art. 113d of the Competition Protection Act). At the same time, the requirements concerning information and documents submitted by a managing person in connection with a leniency motion are slightly less restrictive than in the case of a business. Under Art. 113(i) of the act, a managing person is required to submit the information specified in the motion that the person has at their disposal as far as their position with the business and part played in the agreement allows.

In addition, a correctly completed leniency motion containing all of the required information, submitted by a business, is considered to include managing persons as well. If a managing person cooperates with the competition authority from the moment they learn that the business has submitted a motion, the president of UOKiK will lower the fine imposed on that person according to the same rules for lowering a fine imposed on a business (which means above all taking into account the business’s place in the order in which motions are submitted).

If a managing person fulfils all the prerequisites for a penalty to be waived or decreased, the  president of UOKiK will waive or lower the fine as the case may be regardless of whether the fine has been waived or decreased for the business itself, i.e. even when the business does not benefit from the leniency scheme in any way.

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The president of UOKiK press release concerning initiation of proceedings in the Benefit Systems and fitness club chain case is an indication that Polish practice is finally beginning to be formulated under the Competition Protection Act with regard to liability of managing persons when businesses enter into competition-restricting agreements. This also probably means that these proceedings will be a “field test” for leniency provisions in the context of managing persons. Thus it is likely that in a few years (taking into account the time needed for courts to adjudicate on appeals against president of UOKiK decisions in the same case) provisions which have never been applied before despite being in force for 3 years will be strengthened by practice and case law. It will be interesting to follow this process.

Marcin Kulesza, Competition practice, Wardyński & Partners