Expert Opinion (#07-08 July-August 2010)

AMCU Case Review Procedure: Issues of Concern Functioning Plainly

by Maksym O. Nazarenko

The Official Report of the Antimonopoly Committee of Ukraine (the AMCU) for 2009, as published on its website1, showed the highest number of cases on competition violations reviewed by the AMCU in 2009 in comparison with the previous five years.

It also reflected a marked year-on-year increase in the number of cases reviewed by the AMCU for the period of 2005-2009.

It is clear that this significant part of the AMCUs activities and functions the review of cases involving violations of competition laws requires thorough and detailed rules and procedures. The core and essence of the case review procedure actually contains many similarities to the procedure stipulated by the Administrative Procedural Code, since the case consideration process involves a government body, namely, the AMCU, and one or more undertakings, the interests of which may be affected as a result of such case consideration. However, it is particularly surprising that the rules of the AMCUs case review procedure, which can be referred to as the Antimonopoly Procedure, are somewhat vague and much less detailed than other Ukrainian procedural codes and regulations. Moreover, since the Ukrainian legal community knows far less about the AMCUs case consideration procedure than it knows about other rules regulating the activities of the AMCU, such as the Regulations on Concentrations2, it is necessary to discuss certain practical issues that arise from the Rules for the Processing of Applications and Cases on Violations of Laws on the Protection of Economic Competition, approved by AMCU Order No.5 of 19 April 1994, as amended, (the Rules) and relating to the specific aspects of the AMCUs case review procedure.

General features

Adopted in 1994, the Rules were amended and revised many times; the last amendments were introduced in 2009. Such a labor-intensive and undoubtedly worthy line of improvement indicates the importance of the Rules as a regulatory document in action and greatly compliments the legislators efforts. The statistics referred to by the AMCU in the abovementioned Official Report also shows the efficiency of the Rules, since the number of decisions made by the AMCU based on the Rules within the case review procedures and then successfully contested in Ukrainian courts is negligible compared to the total number of decisions made by the AMCU on the basis of the Rules.

The Rules represent a complex and solid document, which is subordinate to the On the Protection of Economic Competition Act of Ukraine of 11 January 2001 (the Competition Act ). However, certain sections of the Rules, like VII. Case Review and X. Hearings, contain general references to the provisions of the Competition Act and surprisingly small amounts of procedural regulations, while other sections such as VI. The Submission of the Application and Its Consideration, include very detailed procedural descriptions. On the one hand, such a conceptual structure of the Rules allows AMCU bodies to scrutinize every application to determine if there are grounds to start the case review procedure basing on such application which, in turn, the possibility of unsubstantiated case initiation. On the other hand, the conceptual structure of the Rules appears to have left blank spaces in the case review procedure, as a consequence giving officials of the AMCU and its territorial bodies an opportunity to apply their expertise, precedents, case study method, and the previous experience of decision-makers to the review of only certain cases. Moreover, the practical experience of undertakings being the parties to case review procedures has allowed the identification of a range of issues connected with the Rules and their implementation by the AMCU, as described below.

Uncertainty of the case review procedure

A detailed analysis of the Competition Act and the Rules shows that no maximum term for case review by the AMCU is established, except for the review of cases on concerted practices and economic concentrations, where the review term should not exceed 3 months from the submission of the information requested by the AMCU from the applicant, in full, or from the issuance of the respective expert opinion3. In other words, the AMCU may review other types of cases, such as cases on the abuse of a dominant (monopoly) position until the expiry of the limitation period for the violation of Ukrainian competition legislation which, according to Article 42 of the Competition Act, is five years from the date the violation was committed, or the date of lapse of the continuous violation.

Moreover, the effective wording of the Competition Law practically allows the AMCU to extend the review term even in cases on concerted practices and economic concentrations. This has become possible due to the AMCUs interpretation of the abovementioned provisions of Article 29, according to which the review term commences from the date of submission of all the requested information to the AMCU. At the same time, the AMCU is not limited by the amount of information requests to be issued during the case review to applicants and/or third parties. Therefore, if the AMCU starts to review a case and finds it necessary to request certain additional information, the review term will be suspended and then commence anew upon the receipt of all such requested information by the AMCU.

The lack of legal clarity described above may also sufficiently complicate the procedural status of the undertaking that takes part in the case.

The vagueness of the case review term leads to situations when undertakings are forced, at the AMCUs request, to provide vast volumes of various economic data for the entire period of review of a case which, in turn, are too time-consuming and costly to be gathered in full by the deadlines set according to the AMCUs requests.

Additionally the Rules, as they are in effect now, raise an issue connected with the uncertainty of the procedural rights of the parties during case review. According to Item 16 of the Rules, the undertakings participating in a case have the right to study the case files only upon receipt of the AMCUs Submission of Preliminary Conclusions on the Case, which is the result of evidence collection and analysis performed by the AMCU and actually comprises the interim result of the entire case review procedure. Meanwhile, Item 26 of the Rules states that the copies of the Submission of Preliminary Conclusions on the Case should be provided to undertakings participating in the case not later than 10 days before the AMCU makes its decision. Therefore, a partys right to study a case file and, as a result, present additional evidence in its defense, becomes ineffective due to the very short period stipulated for exercising such right.

Non-formalized hearings

One more issue that draws much attention to the AMCUs case review procedure is the regulation on case hearings. Designated in a very similar manner to court hearings, AMCU case hearings are indeed considerably different from the following. First, pursuant to Item 47 of the Rules, hearings from time to time may be held during case review and at the AMCUs sole discretion. In other words, at the AMCUs sole discretion, the undertakings participating in the case may be deprived of the right to provide evidence in a way other than a written response to the AMCUs requests. Moreover, the AMCU body that is responsible for hearings may decide at its sole discretion whether the hearing should be public or closed. In addition, according to Item 48 of the Rules, the hearings are put on record by keeping the minutes of the hearing; no audio recording of the hearing is provided. Due to the 3-day term stipulated for the parties to study the minutes and/or provide remarks regarding them, it seems unlikely for the undertaking participating in the hearing to correct any inaccuracies, which may further substantially affect the rights of such undertaking.

It is also worth mentioning that, according to Item 48 of the Rules, the chairman of the hearing is entitled to expel the person who violates the hearing procedure. Surprisingly, the hearing procedure itself is actually not provided in the Rules, except for the recording discussed above.

Determining the fine amount: unclear methodology

As a result of a case review, and provided that the violation of competition legislation has been proven, the AMCU is entitled to impose sanctions on the violator. In practice, the most common type of sanction imposed by the AMCU is a fine. Pursuant to the Competition Act, the amount of the fine is calculated based on the revenues of the violating undertaking (including revenues generated by all entities connected to such undertaking through control relations) for the last financial year4. For example, if the undertaking abuses its dominant position on the market, the amount of the fine may be up to 10% of its revenue, and if a concentration is implemented without the AMCUs approval, the fine can be up to 5% of its revenues. However, the Rules do not provide a methodology by which the AMCU should determine the fine. The AMCU may at its sole discretion actually impose huge fines (which may even cause the insolvency of an undertaking) for two or more violations of a similar type but with completely different competition consequences. Uncertainty regarding the procedure to determine the sum of this fine should be resolved. For example, by establishing the criteria for the violations consequences that threaten competition in Ukraine, especially taking into consideration the AMCUs well-established practice of fine imposition.

Court practice

The decisions adopted by the AMCU, as well as other acts of Ukrainian state bodies, may be challenged in court; however, the legal actions regarding the AMCUs decisions are subject to the jurisdiction of commercial courts pursuant to the Code of Commercial Proceedings of Ukraine5. Court practice concerning the AMCUs activities, including its case review procedure, is summarized in Information Letter No. 01-08/122 of the Highest Commercial Court of Ukraine of 23 February 2009. Among the general procedural recommendations provided by the said court, there is conspicuous guidance for commercial courts as regards revision of the AMCUs decisions.

In particular, when considering cases related to the determination of commodity and geographical market boundaries, or the dominant position of an undertaking on the market, the respective commercial court shall not consider them on its own, but only verify the degree to which the AMCUs decision corresponds to applicable laws and regulations. In practical terms, if the AMCU uses certain methods to determine the dominant position of an undertaking in its decision, then this undertaking has little chance of winning an action against the AMCUs decision by providing in court evidence of other methods to determine dominant position. Certainly, such guidance of the Highest Commercial Court allows the courts to decrease their workload; however, under certain circumstances, the right of an undertaking to plead its cause may also be affected.

The analysis of issues arising in connection with the case review procedure used by the AMCU distinctly shows that the effective regulations require certain improvements. Taking into account the annually increasing number of cases reviewed by the AMCU and the transparency practiced by the Ukrainian competition authority, such regulatory improvements may not be far off today. Given that a wide range of questions connected with the procedure of competition law violation cases currently remain unresolved; this brief overview will hopefully prove helpful for lawyers practicing in this field.

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