The Agency for Protection of Competition of Montenegro (“Agency“) has just published its 2016 Report, providing us with a detailed account of its activities in the previous year. The report is especially interesting for its pronounced criticism of the current competition law enforcement system in Montenegro, as well as for its announcement of a new competition protection legislation.
Current enforcement system does not work
Even though the Agency has consistently complained of the difficulties in enforcement of its decisions, in its 2016 Report, it spells out for the first time that the established legislative and institutional framework does not work. This more candid language is certainly a result of intensified pressure exerted by the European Commission on Montenegro when it comes to harmonisation of competition law. The European Commission has made it clear that Chapter 8 on Competition will not be opened until Montenegro show results in this area.
The main problem is the lack of predictable and efficient system of sanctions. Pursuant to the current Competition Act, the Agency only has the power to establish infringements and order behavioural measures. The power to impose fines is vested with misdemeanour courts, which are not bound by the Agency’s finding of infringement. Misdemeanour courts instead conduct new procedure to establish a misdemeanour and assess a fine. This dysfunctional enforcement dualism has resulted in the formidable fact that only one fine has been imposed since the Competition Act entered into force in 2012. The lack of adequate judicial follow-up on the Agency’s decisions completely sabotages the efforts of an already understaffed and still insufficiently authoritative authority, and creates an atmosphere of impunity.
Majority of cases that reached misdemeanour courts have ended without a fine due to the expiry of the statute of limitations. Under the current solution, misdemeanour proceedings can be initiated no later than within two years from the date when the misdemeanour occurred and cannot be maintained after the expiry of four years since that date. This statute of limitations easily expires given the possibility for the parties to challenge every Agency’s decision, even a procedural one, before the Administrative Court.
Novelties to be introduced in the new Competition Act
Even though the draft of the new competition act has not yet been published pending the comments from the European Commission, the Report offers us a peek into some of the proposed changes.
Agency to assume competence for control of state aid
The biggest surprise is the unexpected announcement in the Report that the Agency is about to take over control of state aid from the Commission for State Aid Control. The Government has so far insisted that state aid control should remain within the competence of a separate State Aid Control Commission, which lacks functional independence from the Ministry of Economy. Bringing state aid control under the roof of the Agency, which is functionally, albeit not financially independent from the executive branch, will represent a step forward, provided this step is followed up with adequate strengthening of the authority’s human resources.
In order to strengthen the independence of the Agency’s decision-making, the new competition act will introduce the Council of the Agency, comprised of a president and two members, and the separation of powers between the Director and the Council. The Director will have two deputies, one for competition and one for state aid.
Extended statute of limitations
It follows from the 2016 Report that the power to issue fines will remain with the misdemeanour courts. This is surprising, given that general misdemeanour courts have proven not to be up to the task when it comes to assessment of competition law infringements. The statute of limitations for initiation of misdemeanour proceedings is supposed to be extended to three years, although it remains unclear from the 2016 Report when this three-year statute of limitations will commence.
2016 statistics
Concentrations
Having in mind the consolidation process in the Montenegrin economy which has continued over the last few years, the majority of the Agency’s efforts were dedicated to the control of concentrations. In 2016, the Agency approved unconditionally 27 concentrations in summary proceedings, and one conditional approval was issued following an investigation. Seven of those concentrations were implemented in Montenegro, while 21 were foreign-to-foreign mergers. The Agency confirms in its 2016 Report that the Competition Act is applicable to all forms of prevention, restriction or distortion of competition which occur either in Montenegro or outside of its territory, provided there is an effect on the Montenegrin market. Unfortunately, the Agency stops short of clarifying whether such effect is presumed whenever the filing threshold is exceeded, or an effect-based jurisdictional defence is possible in merger control cases.
Cartels
In the area of cartels, the 2016 Report focuses on the promotion of the Agency’s leniency programme. However, the efficiency of the programme comes into question in light of the fact that the Agency does not have the power to grant immunity or reduce the fines, as these powers are also within the competence of misdemeanour courts. Since the courts are not legally bound by the Agency’s decisions and so far have not been keen to follow them, legal certainty for leniency applicants is undermined. In any event, the whole logic of the leniency system collapses in the present system where the number of fines imposed by a misdemeanour court is close to zero.
The Agency clarified in the 2016 Report that it would regard exchange of commercially sensitive information between competitors, tacit collusion and oral or written agreement on prices and business policies between competitors as infringements of competition by object.
In 2016, the Agency issued three decisions finding prohibited agreements. In two of those cases, the competent misdemeanour courts terminated the proceedings due to the expiry of the statute of limitations. The third decision is being reviewed by the Administrative Court.
The Agency announced it expects to acquire all necessary forensic equipment in 2018, which should enable it to intensify direct inspections with the aim of uncovering cartel agreements.
Abuse of dominance
The Agency found abuse of dominance in two cases in 2016, one on the market for water supply and waste water treatment in the Municipality of Budva, and the other on the market for pilotage services in the Port of Kotor. In both cases, the competent misdemeanour courts terminated the proceedings (we suppose because the statute of limitations had expired). Upon the Agency’s appeals, the appellate court annulled the decisions of misdemeanour courts and returned the cases back to them for renewed proceedings.
