Competition Flash. Introduction. March Has the Supreme Administrative Court banished the thought of merging undertakings?

Transcription

1 prague BRNO OSTRAVA BRATISLAVA According to the results of the Law Firm of the Year awards for all seven years, Havel, Holásek & Partners is the most successful Czech law firm with regard to the number of nominations and titles Has the Supreme Administrative Court banished the thought of merging undertakings? Introduction Dear clients and business partners, On 26 February 2015 the Czech Supreme Administrative Court issued a long-awaited judgment in the Severní energetická (formerly Litvínovská uhelná) case. The Court expressed its final decision concerning the rights of third parties (competitors, customers or suppliers) when acting against a merger approval decision of the Office for the Protection of Competition. The Court held that third parties are not parties to the relevant administrative proceedings and are not entitled to appeal against the decisions. Ranked by clients as the best law firm in the Czech Republic (2010, 2013, 2015) Czech law firm of the year (2011, 2012, 2014) March 2015 In this edition of Competition Flash we discuss the judgment and reflect on the possible implications for future practice. We consider whether the decision ends the two years of third parties being able to purposefully prevent merging undertakings from completing an acquisition, or whether any risks remain in strategic delay tactics. If you require more information on this issue and its practical implications do not hesitate to contact us. Robert Neruda Partner No. 1 legal advisor according to the number of M&A deals in the Czech Republic ( ) mergermarket No. 1 among Czech law firms ( ) Competition Flash Law Firm of the Year in the category Mergers&Acquisitions in the Czech Republic (2013, 2014) Strategic thinking Individual approach Excellent legal team Long-term partnership

2 The Regional Court aknowledged the right of a third party to file an appeal against the merger approval decision. FACTS In July 2009 the Czech Office for the Protection of Competition ( Office ) commenced concentration approval proceedings, in which J&T group was to gain control of Opatovice power plant. The Office duly announced the initiation of proceedings in the Commercial Bulletin and on the Internet. Litvínovská uhelná (now Severní energetická), a competitor of the merging undertakings, filed objections against the concentration. In November 2009, Office approved the concentration of undertakings. 1 Litvínovská uhelná filed an appeal against the decision, arguing that it should have been treated as a party to the proceedings. The Chairman dismissed the appeal as inadmissible on the ground it had been filed by an unauthorised person. 2 Litvínovská uhelná filed an action against the Chairman s ruling at the Regional Court in Brno ( Regional Court ), claiming that it was entitled to bring an action and that it should have been treated as a party to the proceedings. The Regional Court overturned the Chairman s ruling. 3 Litvínovská uhelná had the right to submit objections then it also had the right to a proper hearing of those objections, including a review of decision at second instance following an appeal. In support of its conclusions the Regional Court referred to EU case law. 5 The Regional Court concluded that Litvínovská uhelná, although not a party to the administrative proceedings, was still authorised to file appeals against decisions of the Office regarding the settlement of its objections against the approval of the concentration applied under Art. 16 (1) Competition Act. CONSEQUENCES OF THE REGIONAL COURT S JUDGEMENT Although the Office filed a cassation complaint against the Judgement of the Regional Court it did accept its conclusions until the final decision by the Supreme Administrative Court. The Office did this despite it, as the administrative authority, not being bound by judicial decisions in other cases. The Regional Court acknowledged that Litvínovská uhelná was not a party to the concentration approval proceedings, as by law only the notifying party 4 can be party to the proceedings. However, at the same time Litvínovská uhelná filed objections against the concentration in an exercise of its right to be heard as a third party. The Regional Court held that if The Office subsequently began to reject requests from parties to the proceedings for a declaration of legal force (effectiveness) of a concentration approval decision, in a situation in which a third party filled any objection against the concentration in the course of proceedings. The Office extensively interpreted the Judgement of the Regional Court. It considered as eligible to establish the right to appeal not only objections 1 Decision of the Office No. S189/2009/KS-14222/2009/840 of 5 November 2009 in LIBUTE INVESTMENTS Ltd./International Power Opatovice, a.s. ( Office Decision ). 2 Decision of Chairman of the Office No. ÚOHS-R166/ /2011/320/KPo of 13 July 2011 ( Chairman s Decision ). 3 Judgement of the Regional Court No. 62 Af 55/ of 2 July 2013 ( Judgement of the Regional Court ). The Judgement of the Regional Court is available on the Office s website at: 4 A notifying party can be anyone who obtains exclusive or joint control of another undertaking in a particular transaction. 5 Judgement of the General Court No. T-177/04 of 4 July 2006 in easyjet. Competition Flash 2

3 It was not possible to predict the length of any concentration approval procedure in the Czech Republic. submitted in response to the announcement of the concentration published in the Commercial Bulletin (so statements not solicited by the Office), but also any negative statements (even if partially communicated) contained in the responses for requests for information made by the Office (thus opposition invoked). The Office then tried to deal with the difficult situation based on the judgment of the Regional Court, so that in a situation when it received any negative statements from a third party in the proceedings, it published a press release on the day of the decision on its website and set a 15-day period from this date, in which third parties had the right to file an appeal. As a consequence of the Judgement of the Regional Court and the following consideration by the Office, a substantial delay (up to several months) in the implementation of the concentrations could have occurred, and did occur, while the concentrations had already been approved. In relation to the possibility to implement the transaction, it is worth noting that after the Chairman of the Office in one case dismissed as inadmissible an appeal by a third party, contrary to the Judgement of the Regional Court, 6 a designation of the legal force clause occurred retroactively to the date of filing the appeal by party, or the date of its waiver of the right to appeal (not the date of the Chairman s Decision). The practice of the Office led to great uncertainty by undertakings over when the Office decision becomes final, or when the Office is willing declare the effectiveness. This led to the merging parties inability to effectively plan for closing of the transaction. Experience has also shown that the Judgement of the Regional Court and practice of the Office were purposefully exploited by some third parties. In biased submissions they delayed the implementation of approved transactions by several months. The undertakings concerned could not implement the transaction because this would violate the prohibition on establishing the concentration before the legal force of the decision. The Office said that it would be ready to use its powers to impose a sanction or even order de-merger against steps to implement the concentration, although approved by a decision, but at the same time it was attacked by the appeal of a third party. Paradoxically, this situation could not be resolved using the exemption from standstill obligation. The Office refused to grant a general exemption (while only a general exemption allows an effective closing of the transaction) even in a situation where its decision approved the concentration (after finding out that the concentration does not impede competition). Where a third party filed an appeal against a merger approval decision, the Office argued that the legal force (effectiveness) cannot be declared on the decision with a reference to the fact that only the Chairman of the Office is entitled to decide on the appeal, even if inadmissible. If it has marked the legal force, it would withdraw the Chairman s authority to decide on the appeal, the Office claimed. As a consequence of the Judgement of the Regional Court, a situation arose in which it was not possible to predict the length of any concentration approval procedure in the Czech Republic. All standards for a predictable and short merger proceedings timetable resulting, for example, from the recommended practices of the International Competition Network (ICN) could not be fulfilled. 6 Decision of the Chairman No. ÚOHS-R208/2014/HS-19853/2014/312/TPa of 19 September 2014 in SAZKA. Competition Flash 3

4 Supreme Administrative Court: The right of third parties to file objections against the concentration is an opportunity to convey essential information for decision, but does not constitute a right of third parties to appeal. THE JUDGEMENT OF THE SUPREME ADMINISTRATIVE COURT The Office and the notifying parties filed a cassation complaint with the Supreme Administrative Court. The Court upheld the complaint and overturned the Judgement of the Regional Court. 7 Both cassation complaints claimed in particular that the right to appeal against the decision for approval of concentration is only provided to a party to the proceedings, which under current law Litvínovská uhelná was not. The Supreme Administrative Court pointed out that Art. 21 (1) Czech Competition Act constructs a concept of a party to the proceedings for a concentration so that it is solely the notifying party. According to the Supreme Administrative Court, concentration approval proceedings exclusively decide on the rights and obligations of the undertakings concerned and these are the only parties to the proceedings. Litvínovská uhelná was therefore not a party to the administrative proceedings. Only parties to the proceedings have the right to submit an appeal. Because the Regional Court concluded in its judgment that if Litvínovská uhelná was active during the administrative procedure and submitted substantive objections, it should also have the right to review the settlement of these objections in the second instance, the Supreme Administrative Court considered in the next part the meaning and purpose of the objections to the concentration. According to the Supreme Administrative Court, the right of third parties to file objections cannot be understood as their subjective right, but as an opportunity to convey to the subject of management information that the third party considers essential for the decision. Objections against the concentration are an effective means by which the Office obtains the necessary information regarding the transaction at issue. Based on this information, the Office may make a qualified decision on whether to approve the concentration. The Supreme Administrative Court therefore concluded that third parties do not have a subjective right to settle their objections and that the Office should not decide on them in a separate statement. The Supreme Administrative Court thus ended a year and a half of uncertainty with a conclusion that the purpose of the objections lies in collecting and compiling documents necessary for evaluating the impact of the concentration, rather than sole defence of competitors or business partners before the effects of the concentration. The Court has also referred to the purpose of the Competition Act, which is to protect competition as an economic phenomenon, not individual market participants, and existing case law in this sense. The Supreme Administrative Court also addressed the arguments of the Regional Court using EU case law. It rejected the applicability of the case law in the domestic legal system and it did not used this case law as any source of inspiration either. Therefore, the Supreme Administrative Court has concluded that a person other than the party to the proceedings is not entitled to submit an appeal against the approval decision, even assuming that it filed objections against the concentration under Art. 16 (1) Competition Act. 7 Judgement of the Supreme Administrative Court No. 9 Afs 72/ of 26 February 2015 in Severní energetická, a.s. (formerly Litvínovská uhelná, a.s.) against Office. The decision is available at the website of Office at: _rozhodnuti/rozsudky _HS/9Afs72_ pdf Competition Flash 4

5 It Robert Neruda Partner is needed to change the practice concerning the marking the clause of legal force (effectivity). Otherwise, the risk of delaying transactions will continue. Lenka Gachová Associate THE SITUATION AFTER THE JUDGMENT OF THE SUPREME ADMINISTRATIVE COURT Although the Judgement of the Regional Court was overturned we see that the Office s, which has developed in the meantime, contains a great risk merging parties in the future. In our view, purposefully delaying the implementation of a cleared concentration may occur even now, in situations where so far legally ineffective decisions of the Office on approval of a concentration would be attacked by inadmissible appeals by third parties. It is a matter of exclusive decision by the Chairman of the Office to decide on such appeals and, according to Office s interpretation a legal force (effectiveness) clause cannot be marked onto his decision. Taking into account that even in the most optimistic scenario the appeal procedure requires several months when the undertakings concerned will not be clear if the transaction may be implemented, such a scenario is a undesirable option threatening the parties legal certainty. Following the overturning of the Judgement of the Regional Court we advise notifying parties to waive their rights to file the appeal immediately after receiving approval decision, and to request the designation of the clause of legal force and enforceability from the Office immediately. Otherwise they risk that a third party, even if unauthorised, will purposefully delay the implementation of a transaction by several months. CONCLUSION In the long term we recognise the need to introduce the possibility of effective judicial control over the activities of the Office in the merger control area, particularly in situations where it approves concentration that no party to the proceedings has a reason to attack. However, we consider the solution that the Regional Court introduced in its judgment both improper and inconsistent with the law. We add that the Judgement of the Regional Court along with the practice of the Office brings to the Czech control of concentrations system an unacceptable degree of legal uncertainty regarding the effective duration of the approval procedure and put into the hands of third parties a very effective and inexpensive tool to purposefully block the transaction of its competitors for several months. In our opinion the introduction of a control mechanism, which could eliminate confusion on the part of the Office in assessing the concentration of undertakings, cannot do without legislative changes. The inspiration for them could have been the EU model, under which a third party is endowed with the right to file an action against the Commission s final decision on the merger approval. Such a form of control would not lead to a purposeful delaying of the implementation of transactions, as occurred following the Judgement of the Regional Court. On the other hand it would make it possible to effectively review the merger approval decision through the courts. We also believe that it is urgently needed to change the practice of the Office concerning the marking of the clauses of legal force (effectivity) of the approval decisions, notwithstanding the submission of an inadmissible appeal. Otherwise, the risk of the practice of purposefully delaying transactions will continue even after the judgment of the Supreme Administrative Court to a greater extent than before. An inadmissible appeal can be submitted by anyone, not only by those who were active in administrative proceedings and who actively fought against the concentration in question. Competition Flash 5

6 Our team 180 lawyers 500 employees Our clients 1000 clients 70 of the Fortune 500 global companies 40 companies in the Czech Top 100 league 7 companies in the Czech Top 10 league International cooperation Havel, Holásek & Partners cooperates on cross-border transactions with leading European and international law firms, without having an exclusive arrangement. In transactions involving other Central and Eastern European countries, Havel, Holásek & Partners cooperates with top local law firms in particular in Poland, Hungary, Russia, Ukraine, Romania, and Bulgaria. Prague Florentinum, Reception A Na Florenci 2116/ Prague 1 Nové Město Tel.: Fax: office@havelholasek.cz OSTRAVA Poděbradova 2738/ Ostrava Tel.: Fax.: office@havelholasek.cz BRNO Titanium Business Complex Nové sady 996/ Brno Tel.: Fax: office@havelholasek.cz BRATISLAVA Apollo Business Center II, blok H Mlynské Nivy Bratislava 1 Tel.: Fax.: office@havelholasek.sk