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Hungary Update: Upcoming Amendments to the Competition Act

Hungary Update: Upcoming Amendments to the Competition Act

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The focus today is on the COVID-19 world epidemic, and the special legal orders implemented by the affected countries. While Hungary has also adopted numerous extraordinary and temporary measures in this respect, attention must also be drawn to legislative developments which are not related to the coronavirus. The Parliament has recently adopted a new act which amends the Hungarian Competition Act ("Competition Act") and brings numerous changes to Hungarian competition law.

Relevant new rules

The majority of the new rules intend to ensure that the Competition Act is fully compliant with the ECN+ Directive which strives to strengthen cooperation of European national competition authorities (NCAs) through the existing ECN network. It intends to ensure that NCAs have the appropriate and harmonized enforcement tools reflecting the powers held by the European Commission when applying the same legal basis, i.e. the EU antitrust rules (Article 101 and 102 of TFEU). Member states of the EU must implement the ECN+ Directive by 4 February 2021. Hungary has opted for an early adoption of the necessary implementing provisions, almost a year ahead of the deadline.

The Hungarian legislator has chosen to incorporate most of the rules of the ECN+ Directive with respect to all antitrust proceedings, regardless of whether they are conducted on a Hungarian or an EU legal basis. However, in certain cases the scope of the newly enacted provisions is limited to proceedings on EU legal basis.

1. More possibilities for the 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 (e.g. 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 (e.g. motor vehicles, data carriers). However, the amendment does not change the requirement that on-site inspections must be carried out with a prior court permission.

Furthermore, the amendment explicitly allows for the use of secret (covert) recordings as evidence, provided that such recording is not the only proof of the infringement. This new rule – based on a recital, not a specific article of the Directive - is likely to be debated in legal literature, as it generally seems to allow, but at least not to discourage making secret recordings, which are typically recorded in a way of breaching individual rights and GDPR rules.

2. New rules regarding commitments

If the HCA's antitrust proceeding is initiated on an EU law basis (Art. 101 or 102 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 only an option for the HCA in proceedings initiated on national law basis.

Furthermore, 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 practiced in connection with clearance decisions in merger control proceedings, to the dismay of companies who have already experienced such revocation of previously granted clearance decisions.

3. Further regulations concerning leniency applications

In order 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, e.g. prohibition to destruct, conceal or falsify evidence from as early when the company is only considering applying for leniency. The exact definition of "considering an application" is not explained and this might lead to legal uncertainties in cases when e.g. an employee starts destroying evidence while the management is conducting an internal audit to map the extent of the infringement. In this case, is it the start of the internal audit that should be viewed as a time when the company is considering a leniency application, or is it only the board meeting discussing the result of such internal audit? The wording of the Hungarian amendment is based on that of the Directive, which does not provide for guidance in this respect.

Good news for companies: the amendment opens the possibility of submitting incomplete leniency applications (so-called "markers") not only for immunity from, but also for reduction of fines. Furthermore, as opposed to current rules, companies will be able to submit marker applications even after the HCA 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;
  • in connection with a breach of EU competition law, 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 language of the EU (typically in EN), provided it is bilaterally agreed between the HCA and the applicant. The previous rules only allowed for submitting summary leniency applications in English.

The amendment also strives for a better protection of the information contained in leniency and settlement applications. Evidence obtained from leniency and settlement applications by granting access to the case files may be used only for the purpose of exercising the rights of defense, and only in court proceedings relating to that competition supervision procedure in which access to the file was granted. A more thorough protection of data contained in leniency applications applies also towards other competition authorities, who can access Hungarian leniency applications only with the consent of the applicant, or if the applicant submitted a leniency application also to these authorities.

4. New rules regarding fines imposed on associations of undertakings

Currently the maximum fine which may be imposed on an association of undertakings (e.g. 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 Directive and will not change after its implementation.

However, the extent of liability of each of the members of such association of undertakings has not been 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, however, at least pursuant to the ministerial reasoning of the amendment, does not affect the possibility of the HCA 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 is obliged to call for contributions from its members to cover the amount of the fine;
  • If the contributions do not cover the fine, the HCA may require the payment of the fine directly from any of the member companies whose representatives were members of the respective decision-making body of the association who has issued the decision which the HCA has identified as the infringement. Payment can be required only from those companies who 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 which 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 who 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 old system is similar, albeit less detailed then the one introduced by the Directive, which will also require certain issues for clarification by the practice. At least it is declared that the HCA will need to be able to wait for the requested capital contributions from the members of the association before going after the individual companies. Welcomed novelty however that the new rules explicitly list the innocent member companies' grounds of exemptions from the payment obligation.

On the above basis the new limitation of financial liability of member companies of an association to 10% of their turnover do not seems to have relevance as regards to the actual payment of the fine in cases when the HCA cannot recover the fine from the association. I.e. in these cases the new system also allows the HCA to request – at its own choice – 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 munition in civil proceedings to the company from whom the HCA requests to pay the entire fine under joint and several liability when such company requests recovery from the other infringers.

5. Enhanced cooperation between the NCAs

In the framework of cooperation, the HCA will have more possibilities to cooperate with other national authorities in the ECN. The NCAs in future not be limited to seek legal assistance from each other only for certain procedural acts, but they will be able to request the service of documents in another Member State, or seek assistance in the enforcement of fines and procedural fines imposed in their decisions. The detailed rules will form a whole new chapter in the Competition Act.

Effective date / limitation

Most of the amendments, including the main changes mentioned above, will enter into force on 1 January 2021. They will apply also in those cases which were initiated before this date.

By Anna Turi, Counsel, and Márk Kovács, Associate, Schoenherr

Hungary Knowledge Partner

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