October 23, 2014
With the entry into force of the Lisbon Treaty on 1 December 2009, the EU Charter of Fundamental Rights dating back to the year 2000 attained the same legal status as Treaties, and became legally binding. Despite the Lisbon Treaty and despite the development of "human rights" in the earlier jurisprudence, defence counsel’s hopes that some meaningful restrictions would be placed on the powers of search and seizure usually enjoyed by European competition law authorities have not entirely materialised. A Ruling of the European Court of Human Rights (the "ECtHR") of 2 October 2014 suggests, however, that the tide of change might be building some momentum, in advance of the European Union eventually acceding to the terms of the European Convention on Human Rights ("ECHR").
In Case Delta Pekárny v. Czech Republic, the ECtHR held that a "dawn raid" carried out by the Czech Competition Authority at a bakery company’s premises in 2003 constituted a breach of the bakery’s right to privacy. In the view of the ECtHR, the dawn raid was not strictly necessary to attain the otherwise legitimate aim being pursued by the Authority. As such, the dawn raid was deemed to infringe Article 8 of the ECHR.
The Delta Pekárny Judgment focuses on the application of the principle of proportionality in the context of on-site inspections and emphasises that such inspections need to be subject to a sufficient degree of judicial oversight.
Administrative Proceedings & Inspection
The appeal can be traced back to an inspection carried out by the Czech Office for the Protection of Competition (the "Competition Office") at the premises of Delta Pekárny ("Delta"), a bakery located in the Czech Republic. On 19 November 2003, the Competition Office opened cartel proceedings against Delta and served Delta with a Notice issued under its own internal "authorisation" procedures. This Notice included a general reference to the statutory provision which had been allegedly violated (namely, Section 3 (1) of the Czech Competition Act) and a description of the relevant conduct which had implemented that alleged offence (namely, concerted pricing for bakery goods).
While the Competition Office’s inspectors intended to copy a range of e-mails of Delta’s employees, those employees warned the inspectors that some e-mails were not related to the subject-matter of the investigation, and others were confidential (whether on the basis of commercial secrets, or for grounds of personal privacy). Accordingly, they refused to permit full access to all of their emails. In turn, the Competition Office imposed a fine of CZK 300,000 (around USD 14,500 or EUR 11,500) on Delta for its obstruction of the inspection. An additional and separate fine of CZK 2,129,000 was later imposed on Delta for its substantive infringement of Czech competition rules.
Appeal against the Fining Decision for Obstructing the Inspection
Delta appealed the Competition Office’s Decision to impose the fine, which the Regional Court of Brno annulled on 11 April 2006 on grounds of insufficient specification of the facts. The Competition Office adopted a new fining Decision in which it elaborated on the relevant facts, stating that there exists a presumption that the documents found at commercial premises should be of a commercial nature.
Delta appealed this Regional Court Judgment, invoking the case-law of the ECtHR, particularly Société Colas Est et autres v France. It argued that the legal basis of the inspection, namely Article 21(4) of the Czech Competition Act, did not comply with the requirements set forth in the ECHR. It was argued by Delta that, further to the Société Colas Est Judgment, a judicial authorization should have been obtained in advance of the inspection, and effective judicial review should have been available. The Regional Court of Brno rejected the appeal on 27 September 2007 and held that the procedure established under the Czech Competition Act was similar to that carried out by the European Commission, which has been upheld by the Court of Justice of the European Union ("CJEU") in Hoechst v Commission. As such, in the Court’s view, the existence of a means of challenging a decision ordering the inspection, and the actual inspection itself, in the appeal against the final Decision, constituted a sufficient guarantee in the eyes of the CJEU against any arbitrary actions being taken by the authority in question.
Delta filed a subsequent appeal before the Czech Supreme Administrative Court, again invoking the Société Colas Est Case. It contested the application of the Hoechst Ruling to its own situation, which involved Czech national law that pre-dated the accession of the Czech Republic to the European Union in 2004. That appeal was rejected on 29 May 2009, with the Supreme Administrative Court holding that Article 82 of the Czech Code of Judicial Administrative Proceedings offered a means of immediate protection against an unlawful act of interference by the State.
Delta then filed an application before the Czech Constitutional Court, arguing that an inspection should not be carried out without a prior judicial authorisation having been issued, and that the Competition Office should not be the only State body capable of assessing whether or not the inspection was necessary, and whether its duration and scope were reasonable. This further application was rejected by the Czech Constitutional Court on 26 August 2010.
Appeal against the Final Decision on the Substantive Breach of the Czech Competition Act
In parallel, Delta also contested the legality of the on-site inspection in the proceedings brought against the final Decision of the Competition Office regarding the substantive breach of the Czech Competition Act. While the imposition of the fine for the substantive infringement was annulled by the Supreme Administrative Court (on the grounds of a breach of the criteria established for the purposes of imposing fines), the Regional Court confirmed the legality of the inspection.
3. FINDINGS OF THE ECtHR
In December 2010, Delta commenced proceedings in the ECtHR.
The ECtHR’s Ruling focuses on Article 8 ECHR, which protects the right of persons to privacy in their home and the privacy of their correspondence, particularly against any interference by a public authority. After determining that the restriction of this right had been carried out in accordance with the Law (Article 21 of the Czech Competition Act) and in pursuance of a legitimate aim (the "economic wellbeing of the country"), the ECtHR analysed in detail whether or not the restriction of the right to privacy was "necessary in a democratic society".
The ECtHR indicated that, while in the past it had scrutinised inspections authorised by a judge, as contained in warrants of a reasonable scope, and based on reasonable grounds, the ECtHR needs to be particularly vigilant if an inspection is authorised without the prior authorisation of a judge. In these cases, "the absence of an inspection warrant may only be [offset] by an effective judicial review carried out ex post facto".
In analysing the case in Delta Pekárny, the ECtHR identified a number of elements on the basis of which it could conclude that the powers of search conferred on the Competition Office by the Czech Competition Act were not sufficiently counter-balanced by the ability to obtain effective judicial redress.
First, the ECtHR noted that the inspection had not been authorized by a judge, but merely by the Director of the Competition Office. The ECtHR noted that the Czech Competition Act had left open to the Competition Office considerable discretion to determine the need for, and the scope or breadth of, any inspections. In Delta Pekárny, the inspection of Delta’s premises took place on the first day of the opening of proceedings, based on suspicions of anti-competitive conduct. The notice of initiation of proceedings, which had been communicated to Delta before the inspection, had only outlined the allegations that formed the basis of the on-site inspection. It included an authorisation to carry out the inspection, which mentioned the names of the authorised inspectors.
Second, the Decision authorising the inspection was not subject to judicial review. According to the ECtHR, the condition of ex post judicial control was particularly relevant in cases such as the one under appeal, where the authorisation had not made any reference to the types of documents relevant to the proceedings that it expected to find on Delta’s premises.
Contrary to the findings of the Supreme Administrative Court of the Czech Republic, the proceedings before the ECtHR were characterised by the fact that both parties agreed that the legality of the dawn raid had not been subject to the effective scrutiny of the national courts, whether as regards the legal basis of the search, its objectives, the scope and duration of the inspection, or whether the inspection was necessary and proportionate.
The ECtHR noted that Delta had only had the opportunity to raise questions regarding the legality of the on-site inspection in proceedings that addressed other questions relating to the competition investigation at issue, namely, in its appeal of the substantive findings in the Competition Office’s Decision. The ECtHR therefore found that, while their findings on the substantive aspects of the investigation appeared to be sound and robust, the national courts had not analysed the facts underpinning the Competition Office’s on-site inspection in those proceedings. Accordingly, the assessment of the need, duration and scope of the on-site inspection had not been subject to an "effective" form of judicial review.
Seen in this light, the ECtHR concluded that, in the absence of: (i) a previous authorisation of the on-site inspection by the courts; (ii) the existence of an effective means of judicial control a posteriori regarding the necessity of the contested measure; and (iii) a legal obligation regarding the possible destruction of copies, the inspection carried out by the Czech Competition Authority constituted a breach of Article 8 of the ECHR.
Antitrust defence counsel will be able to take heart from the Ruling of the ECtHR in the Delta Pekárny Case, given its very clear endorsement of the principles of necessity and proportionality when determining the legitimate scope and conduct of dawn raids by competition regulators.
Moreover, the Ruling also seems to imply that the effective application of those overarching principles of public policy needs to be determined by independent courts of review. In the words of the ECtHR, "in the absence of a previous authorisation by the courts, an effective judicial control a posteriori regarding the necessity of the contested measure and a regulation regarding the possible destruction of copies, the procedural guarantees were not sufficient to prevent the risk of abuse of power by the Competition authority." In other words, the ECtHR’s focus seems to be on whether some form of effective judicial control will be available at one end of the on-site inspection exercise. The clear implication of this is that on-site inspections that have not been vetted in advance with the local judicial authorities are more risky, particularly in jurisdictions where there are limited opportunities to challenge the legality of an inspection after the fact.
In the absence of a prior judicial authorisation of the on-site inspection, effective ex post control by the courts will be required at the very least in order to remedy any possible violation of Article 8 of the ECHR. In turn, the process of judicial review will be deemed to be effective when it can assess the grounds, the scope and the duration of the inspection, along with its necessity and proportionality in the circumstances. In the Delta Pekárny Case, the ECtHR held that Czech law did not provide the necessary procedures required to ensure such effective judicial oversight because: (i) Delta could not resort to the Code of Judicial Administrative Proceedings to file a self-standing appeal against the on-site inspection; and (ii) because, in this particular case, the Czech courts had not carried out an analysis of the underlying facts upon which the reasonableness and proportionality of the on-site inspection could have been based.
Antitrust counsel might also be heartened by the fact that, when assessing the legality of the on-site inspection, the ECtHR did not draw any negative inferences from the fact that Delta representatives were present at the inspection and the fact that its employees had refused to provide the Competition Office’s inspectors with all the documents requested. Given that the Charter of Fundamental Rights of the EU reaffirms the rights which result from, inter alia, the ECHR and the ECtHR, the Delta Pekárny Ruling might signal the beginning of a chain of precedents which further refine what is to be expected of Competition Authorities in balancing fundamental rights against the public policy priority of unearthing infringements of competition rules. While it is not an overstatement to conclude that the ex post judicial review that currently exists at European Union level (as reflected in the Hoechst and Nexans Cases) has to date not raised any serious obstacles to the European Commission’s investigative powers, the Delta Pekárny Ruling suggests that those days might be numbered, at least to the extent that some European regulators continue to authorize their own inspections without the prior approval of national courts.
 See Article 6(1) of the Treaty of Lisbon, OJ C 306/13 2007. See, further, Charter of Fundamental Rights of the European Union (the "CFREU"), OJ C 83/02 2010. Note that the CFREU had been formally proclaimed in December 2000 in Nice by the European Parliament, Council and Commission.
 The legal basis for the accession of the EU is provided for by Article 59, paragraph 2 ECHR ("the European Union may accede to this Convention"), as amended by Protocol No. 14 to the ECHR which entered into force on 1 June 2010. For the state of the negotiations see http://www.coe.int/t/dghl/standardsetting/hrpolicy/Accession/default_en.asp.
 In this case, the ECtHR found the prior judicial authorization necessary given the lack of immediate judicial protection mechanism. Case Société Colas Est et autres v France, App. No 37971/97, ECHR 131, 16 July 2012.
 See Delta Pekárny Case , at para. 90. These were: (i) the appeal against the Decision imposing a fine on Delta for opposing to the inspection of certain personal documents; and (ii) the appeal against the final Decision finding the existence of anti-competitive conduct in breach of the Czech Competition Act.
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