The Ukrainian Bar Association provided comments on the compliance of the Draft Law No. 5431 with the law of the European Union
The Ukrainian Bar Association addressed the Committees of the Verkhovna Rada of Ukraine on Economic Development and on Ukraine's Integration into the European Union regarding the draft Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine on Improving the Activities of the Antimonopoly Committee of Ukraine" No. 5431.
On July 13, 2021, the Verkhovna Rada of Ukraine adopted in the first reading the draft Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine on Improving the Activities of the Antimonopoly Committee of Ukraine" No. 5431 (hereinafter referred to as the Draft Law).
The UBA supports those provisions of the Draft Law, which are supposed to regulate at the legal level the procedure for conducting inspections by the bodies of the Antimonopoly Committee of Ukraine (hereinafter – the AMCU or the Committee), enshrine the right of persons participating in cases on granting permission for concentrations and concerted actions, to familiarize themselves with the materials of such cases, establish the obligation of the AMCU to publicize information about initiated cases regarding declared concentrations and concerted actions. Such provisions of the Draft Law confirm the desire of the People's Deputies of Ukraine to improve legislative regulation in the field of economic competition protection based on the principle of the rule of law and ensuring the legality of the AMCU activities.
The Committee on the Integration of Ukraine into the EU considered the specified Draft Law during its meeting on May 19, 2021.
From July 27, 2022, the website of the Verkhovna Rada of Ukraine posted an updated edition of the comparative table of the Draft Law for the second reading. At the same time, there is no information on the website of the Verkhovna Rada that the Committee of the Verkhovna Rada of Ukraine on Ukraine's Integration into the European Union considered the updated version of the Draft Law.
In this regard, the UBA asks to pay attention to the fact that the Draft Law contains certain provisions that contradict the principle of the rule of law, create prerequisites for violating the rights of business entities and cause serious concern for the legal community regarding the coherence of the specified legislative initiatives of the course the European integration of Ukraine and the development of a constitutional state.
In this context, we would also like to draw attention to the fact that the conclusions on the compliance of some of these provisions of the Draft Law with the European Union law (EU acquis), which are set out in the respective Conclusion of the Vice-Prime Minister on European and Euro-Atlantic Integration of Ukraine dated 19.08.2022, cannot be considered accurate and require critical evaluation.
This applies to the following provisions of the Draft Law:
- Granting the AMCU the authority to regulate its activities on the consideration of applications and cases of violations of the legislation on the protection of economic competition.
Subparagraph 8) of paragraph 1 of section I of the Draft Law (amendments to article 23 of the Law "On the Antimonopoly Committee of Ukraine", page 116 of the comparative table before the second reading) provides for granting the AMCU the authority to determine the procedure for consideration by it and its territorial departments of applications and cases of violations of the legislation on protection of economic competition. At the same time, at the level of laws, the basic issues related to such procedural activities of the AMCU, which would create an effective legal basis for ensuring the impartiality of the Committee's activities and bringing the procedure of its consideration of cases closer to the standards of a fair trial, remain unsettled. This includes, in particular, securing the procedural rights of the cases’ parties and guarantees of compliance with such rights, including the inadmissibility of evidence which the parties in the case were not provided with the opportunity to familiarize themselves with and give their objections; regarding the creation of internal administrative mechanisms of restraints and balances in the AMCU itself, aimed at increasing the impartiality of the actions and decisions of the AMCU bodies, including limiting the influence of the AMCU officials who investigated the case, on decision-making on it, establishing the procedure for decision-making by the AMCU bodies and requirements for their content, etc.
In general, the very approach of providing the AMCU with the right to independently regulate its essentially law-enforcement activities nullifies the idea of bringing the procedural activities of the AMCU closer to the standards of a fair process and the principle of the rule of law.
In this regard, the UBA asks to take into account that the principle of separation of state power is one of the main principles of constitutionalism, which is designed to prevent the concentration of power, thereby preventing the possibility of abusing it. The Committee alone already combines the functions of investigation of violations in the field of protection of economic competition and decision-making based on the results of such investigations, which automatically determines its bias when assessing the provenance or lack of provenance of such violations. However, if the combination of such functions in one person can still be justified to some extent by the specifics of material legal relations and efficiency from the point of view of public needs, but only under the condition of control over the legality, impartiality, and reasonableness of the decisions of the AMCU by a court that has full jurisdiction as regards the assessment of legal issues, as well as questions of fact, then granting the AMCU the authority to independently regulate the order of its activities regarding the implementation of investigations and decision-making has no justification and contradicts the mentioned constitutional principles of the separation of state power. In particular, this directly contradicts the provisions of Articles 19 and 75 of the Constitution of Ukraine, which provide that the activities of state authorities should be carried out exclusively on the basis, within the frames, and in the manner established by the Constitution and laws of Ukraine, and the only body of legislative power in Ukraine is the Parliament - Verkhovna Rada of Ukraine. This means that not only the powers of the AMCU but also the grounds and procedure for their implementation should be clearly enough regulated by the Law, including the powers to consider cases of violation of legislation on the protection of economic competition. At present, only a small part of the issues related to the consideration of cases by the AMCU to one degree or another, often insufficiently, are regulated by legislative acts: the grounds for opening and closing proceedings, their unification, allocation, the circle of persons participating in the cases, the obligation of the AMCU to collect evidence, the procedure for extracting evidence and conducting an examination, decisions that are made based on the results of the consideration of cases, some issues of verification and review by the AMCU of the decisions of other bodies of the AMCU.
Currently, the following remains unregulated by law at all or to a greater extent:
1. terms of consideration of cases;
2. the limits and method of implementation by the AMCU of the authority to demand information (reasonableness of terms, the proportionality of requirements regarding the volume and content of information, resolution of disputes regarding the legality of the AMCU requests;
3. grounds, boundaries, and method (order) of inspections;
4. procedural rights of persons participating in the case, in particular:
- the right of a person to know, the signs of which violation envisaged by law and in which of his/her actions are grounds for requesting information, conducting an inspection, and starting a case;
- the right of a person to familiarize himself/herself with the results of the investigation;
- the right of a person to have a sufficient period to prepare objections to the charges brought against him/her for violating the legislation on the protection of economic competition;
- the right of a person to get acquainted with the evidence in the case, and in case of confidential information - with their non-confidential version, which ensures the realization of the right to defense to the necessary extent;
5. legal principles for determining the amount of fines (in particular, effectiveness, proportionality, deterrent effect).
This does not exclude the possibility of the AMCU to detail the legal norms established by law regarding their implementation during its activities, but it excludes the possibility of the AMCU to create new legal norms to regulate its activities.
On the practical level, the draft law's provision of the authority of the AMCU to determine the order of consideration of cases creates prerequisites for the legislative consolidation of the model of the AMCU's activity, which was only temporarily envisaged in 1995, but which, unfortunately, has existed for many years, is subject to severe criticism, as it does not ensure compliance with the rights of participants in antimonopoly proceedings, contributes to the bias and unbiasedness biases and non-objectivity of the decisions of the AMCU bodies and, as a result, does not ensure the necessary effectiveness of the AMCU in fulfilling the tasks assigned to it by law.
In this regard, the experts of the Ukrainian Bar Association suggest not taking into account the amendments regarding granting the AMCU the authority to determine the Procedure for consideration by it and its territorial branches of applications and cases on violations of the legislation on the protection of economic competition.
2. Limitation of the right of the participants in the case to review the evidence in the case.
Subclause 19) of Clause 2 of Section I of the Draft Law (page 289 of the comparative table before the second reading) provides for changes to Art. 40 of the Law "On the Protection of Economic Competition", which establishes restrictions on a person's right to review the evidence in the case, namely, deprive him/her of the right to access the case materials in connection with their recognition by the state commissioner or another AMCU body as such, the familiarization of which may prevent further consideration of the case.
However, such a legislative proposal does not take into account that the restriction of access to the mother of the case because it may hinder the further consideration of the case can only be justified until the investigation is completed. The possibility of restricting the right to review the evidence in the case after the completion of the investigation, when the case is referred to the AMCU body for decision-making, threatens to turn a person's right to defense into an illusory right and contradicts the standards of a fair process.
The proposed legislative initiative contradicts even the already existing regulatory approaches, according to which the right to get acquainted with the case materials can be exercised after the completion of the investigation in the case when based on its results a petition with preliminary conclusions is drawn up, which is provided to the persons involved in the case. to allow them to express their position regarding such preliminary conclusions, and to the AMCU body, which, on its basis and taking into account the position of the persons participating in the case, decides in the case. Therefore, limiting a person's right to access to case materials on this basis after the completion of the investigation violates the person's right to defense and is therefore illegal. In addition, such a restriction finally destroys even those minor elements of delimitation of investigation and decision-making functions, which are currently implemented and are aimed at at least a slight increase in the impartiality and objectivity of the decisions of the AMCU bodies.
3. Provision and use of evidence by the AMCU outside the limits of the legally established procedural order of their receipt and without assessment of their admissibility/legality.
The draft law provides (subparagraph 20) of paragraph 2 of section I, p. 299 of the comparative table to the second reading) addition of Art. 41 of the Law "On Protection of Economic Competition" with new parts. In particular, the new part 3 establishes the possibility for the AMCU to receive evidence from authorities outside the boundaries of the procedural forms and methods of obtaining evidence established by the legislation on the protection of economic competition. At the same time, the law does not establish any legal requirements regarding the AMCU's receipt of such evidence, or verification of the legality of their receipt by other authorities. This may lead to the use by the AMCU of information from law enforcement agencies, obtained by them by conducting investigative or operational and investigative actions in violation of the law, as evidence. Opposite to the criminal procedural law, which ensures that the decision in criminal proceedings is not based on evidence obtained by such bodies illegally, the competition law does not provide for such safeguards against the inadmissibility of using illegally obtained evidence. Therefore, the legislative establishment of the possibility of transfer by other authorities, primarily law enforcement agencies, of evidence for the use of the AMCU in cases of violation of competition legislation without proper regulation of the issues of checking the legality of such evidence and their admissibility, guarantees of compliance with the rights and freedoms of individuals and legal entities upon receipt of such evidence by the relevant authorities, opens wide opportunities for abuse and violation of the rights and freedoms of the individual, goes against the duty of the state to ensure their protection. Therefore, in the proposed part 3 of Art. 41 the phrase "and also receive evidence from other authorities" should be excluded.
The proposed provision of part 7 of Article 41 of the Law "On the Protection of Economic Competition", may also have similar negative legal consequences. According to this provision, "During the implementation of actions related to the consideration of the case" the AMCU has the right to take photos, make audio or video recordings, recording with the help of other technical or software-technical means (in case of availability of technical opportunities). The legal uncertainty generated by the wording "during actions related to the consideration of the case", in the absence of a reference to the established grounds, limits and procedure for the implementation of such actions, may become the cause of illegal actions regarding interference in the private life of individuals, including the illegal implementation by the AMCU of quasi "covert investigative actions".
In this regard, it is necessary to specify the provisions of Part 7 of the Draft Law, clearly determining that photo, audio, or video recording can be carried out only for the purpose of additional recording of the AMCU's exercise of the powers granted to it by law, and technical or software-technical means can be used for searching and copying information that can be evidence in the case only during the verification or seizure of evidence carried out in accordance with the law. In both cases, persons who are participants in the relevant procedural actions of the AMCU must be warned about the use of such means, and the technical or software-technical means for preserving electronic information must meet at least the minimum requirements for preserving the authentic characteristics of electronic documents, established by Article 13 of the Law "On electronic documents and electronic document flow". In this regard, the specified provision of the Draft Law needs to be revised. In particular, we offer one of the possible versions of the wording:
"7. The body of the Antimonopoly Committee of Ukraine, the head of the territorial branch of the Antimonopoly Committee of Ukraine, the employees of the Antimonopoly Committee of Ukraine, and its territorial branches authorized by them during the exercise of their powers provided by law, have the right to additionally record their exercise of such powers using a photo, audio or video recording. To search and copy information that can be evidence in the case, during the inspection or seizure of evidence in accordance with the law, technical or software-technical means that meet the requirements for the preservation of electronic documents, established by the Law "On electronic documents and electronic document circulation" may be used ".
4. Definition of economic concentration, which requires obtaining the permission of the AMCU, acquisition of assets of another economic entity, which do not generate a turnover of goods on the market.
The draft law provides (paragraph 6 sub-paragraph 3) of clause 2 of section I, p. 185 of the comparative table before the second reading) expansion of the range of transactions recognized by the law as economic concentration and the implementation of which will require the prior approval of AMCU. The current provisions of Article 22 of the Law "On the Protection of Economic Competition" fully ensure the control of the AMCU over economic concentrations, which consist not only in the acquisition of control over the business entity as a whole but also in the acquisition of control only over a part of the economic activity (business) of a business entity, which is carried out using part of the assets of such an entity, for example, a single property complex or even a mark for goods and services.
Despite this, the Draft Law envisages the expansion of the sphere of the AMCU control and the recognition of economic concentration as well as the acquisition of control over other assets, i.e. those that do not generate turnover on the market. These can be separate machines and equipment, vehicles, long-term payables, etc. Such assets by themselves are clearly incapable of ensuring the conduct of business activities with the turnover on the market. Their acquisition or other forms of gaining control over them do not correspond to the very essence of economic concentration, which consists in changing the structure of the market as a result of the transfer of control over a certain business from one business entity to another, nor to the goals of state control over economic concentrations, i.e. changes in the structure of the markets as a result of the relevant transactions. The extension of control functions of the AMCU to transactions with such assets that are not capable of ensuring economic activity and are not "parts of a business entity" in the sense of the law, i.e. do not generate a turnover of goods on the market, will actually lead to the need to obtain the prior permission of the AMCU for acquisition or obtaining the use of any separately defined property or property rights of the business entity, which are accounted for as assets, even if they do not generate business and, accordingly, their acquisition does not affect the market structure.
5. Establishing the presumption of acquisition of control in case of acquisition of shares, and parts, which ensures reaching or exceeding 25% in the higher management body of the company.
The Draft Law provides (paragraph 9 sub-paragraph 3) of paragraph 2 of section I, p. 190-191 of the comparative table before the second reading) establishing the presumption of acquisition (and therefore the existence) of control in the case of acquisition of shares, parts that ensure reaching or exceeding only 25% in the highest management body of the company. However, there are no legal or factual grounds for such a presumption. As a result of the implementation, the proposed presumption will unreasonably expand the composition of a group of companies that will be recognized as a single economic entity due to a control relationship, even though in reality such control relationships do not exist. This creates legal and economic risks for minority members of companies, which can negatively affect investment activity in the markets, as well as lead to a biased assessment of the structure of the markets, the nature of competition on them, and a decrease in the effectiveness of law enforcement.
6. Cancellation of a person's right for double compensation.
The draft law provides for the cancellation of the right of a person who has been harmed by relevant violations of competition legislation, to be compensated in a double amount (subparagraph 18) of paragraph 2 of section I, p. 505 of the comparative table before the second reading).
The Institute of damage compensation ensures the restoration of the damaged property status of the victims as a result of another person's violation of competition legislation. To receive compensation, the victim must prove the amount of damage and the existence of a cause-and-effect relationship between the actions of the violator and such damage with the help of proper, admissible, and reliable evidence. Obtaining them from the beginning is much more difficult due to the unequal position of the offender and the victim in access to materials that can be evidence in the case. In this way, the probability of proving the damage caused in full is practically excluded.
These difficulties, combined with the length and cost of litigation, are key deterrents to individuals seeking redress for such damage. An opportunity established by law to demand compensation for damages proven in court in a double amount partially removes these obstacles. An alternative may be a proper and complex settlement of a wide range of relations, in particular, related to the filing of collective lawsuits, plaintiffs' access to evidence, including those available in cases of the AMCU, with the resolving of issues of protection of confidential information, establishing requirements for the decisions of the AMCU in terms of proper establishment of the circumstances of the committed violation, including its time frame, involved markets, etc., proper methodical provision of damage calculation, including to indirect buyers and many others. However, the draft law, canceling the right to compensation for (proven in court) damage in double amount, does not provide any alternative in assisting the victims in realizing their right to compensation.
The UBA believes that the Draft Law needs substantial revision and cannot be adopted in such wording. For its part, the UBA confirms its readiness to participate in the finalization of the Draft Law within the framework of the relevant working group or another format.
Additional comments and suggestions regarding the final and transitional provisions of the Draft Law.
Please take into account that the improvements proposed by the Draft Law in terms of control over economic concentrations in Ukraine may turn out to be ineffective because the indicators of the annual turnover and the value of assets of business entities, which are the criteria by which economic concentrations require prior approval of the AMCU, are denominated in euros and will be ineffective for such control, as they will not correspond to the state of Ukraine's economy that currently exists as a result of the large-scale military aggression of the Russian Federation against Ukraine.
Thus, according to the data of the National Bank and the Ministry of Economy, the reduction of the real GDP of Ukraine in 2022 is expected to be more than by 30 percent. This means a significant drop in the volumes of production and consumption, hence the turnover of companies. At the same time, inflation will also be within 30 percent, which will significantly reduce the turnover rate of Ukrainian enterprises and the actual value of their assets.
Difficult economic conditions will definitely stimulate numerous mergers and acquisitions of Ukrainian companies. At the same time, as a result of the decrease in the indicators of the turnover of enterprises and the value of assets measured in euros, many enterprises, economic concentrations between which were previously under the control of the AMCU, will simply fall out of such control in the future. This also applies to economic concentrations in the process of privatization and leasing of property of state-owned enterprises. The issue of preventing the loss of effective control over economic concentrations is particularly relevant given the fact that on October 4, 2022, the Government decided to transfer to the management of the State Property Fund of Ukraine more than 800 state-owned objects with a total value of about 45 billion hryvnias, part of which should be privatized, and part leased.
The lack of effective control over economic concentrations as a result of the above circumstances can negatively affect the structure of commodity markets and lead to an increase in the level of market concentration, including to the monopolization of commodity markets, especially regional ones. The restoration of effective competition in such markets will take many years, during which prices will exceed the price level of the competitive market and other abuses of market power will increase.
In this regard, to ensure the effectiveness of the system of control over economic concentrations in the final and transitional provisions of the Draft Law, it is necessary to take into account the extraordinary economic shocks that Ukraine experienced as a result of the war waged by the Russian Federation against Ukraine, in particular, to adjust the turnover and assets value indicators accordingly, for example, foreseeing the need to take them into account not for the year preceding the economic concentration, but for any of the last two or even three years, which will allow taking into account the indicators of the pre-war period in 2021, since there is a risk of the war continuing in 2023.
For example, it is proposed to include the following provision in the final or transitional provisions of the Draft Law: "To establish that starting from January 1, 2023, and until the end of the second fiscal year after the end of martial law in Ukraine as an indicator of the total value of assets and the total volume of sales of goods in Ukraine, which provided for in Article 24 of this Law, the higher of the specified indicators for the last two financial years are accepted, by the official exchange rate established by the National Bank of Ukraine, which was in effect on the last day of the relevant financial year."
Other options are also possible, but in any case, the specified problem should be given due attention.
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