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Hungary Increases Fine Cap to 13% of Yearly Turnover – A Conscious Competition Policy Move or a Fiscal Adjustment for Budgetary Purposes?

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Whereas competition law regimes around the globe struggle to find the right enforcement tools in a fast changing world, leading some jurisdictions to introduce revolutionary and highly sophisticated new intervention powers for competition authorities, Hungary is to experiment a simpler approach: an “increase of the hammer’s size”.

Increase of the cap from 10 to 13%

Modelled on EU law, the maximum fine that the Hungarian Competition Authority (Gazdasági Versenyhivatal – GVH) is entitled to levy for infringements under the Hungarian Competition Act (hereinafter: the HCA) (most notably for breaches of Articles 101 and 102 TFEU and their national equivalents, Section 11 and 21 HCA), has always been 10% of the net turnover achieved by the undertaking or the group of undertakings concerned.

This fundamental rule is about to change. On 6 July 2023, Act 53 of 2023 on the Laying the Foundations for Hungary's Budget for 2024 (the Act) was published in the Hungarian Official Gazette. The Act, in addition to raising the maximum fines for a number of illegal behaviors, such as road traffic and misdemeanor offences, also amends Article 78(1b) HCA. The amendment provides that "[the] amount of the fine shall not exceed thirteen percent of the net turnover of the undertaking or, as identified in the decision, group of undertakings in the business year preceding the decision […]. The amount of the fine imposed on an association of undertakings shall not exceed thirteen percent of the net turnover of the member undertakings in the preceding business year […].”

The Hungarian legislature thus decided to amend what has been one of the cornerstones of the HCA ever since its entry into force in 2007.

Reasons are unclear

Whilst the change is certainly not of minor importance, no public consultation has been conducted and no impact study has been done (or at the very least none has been made available to the public). Given that the amendment relates to the 2024 state budget which, as customary, brings about changes in a number of other legislative instruments, it seems questionable whether there is any conscious competition policy consideration at all behind the increase of the maximum fine under the HCA.

It is true that the explanatory memorandum of the amending law merely states that the amendment is justified by the need to increase the deterrent effect of the sanctions (affecting a number of offences, as said: from speed driving to cartels). However, the vagueness of this very general reference in a budget related legal instrument still gives rise to the suspicion that the units responsible for state revenues in the Ministry of Finance simply observed that certain fine levels have not been adjusted to inflation levels and proposed corresponding increases. Most other fine figures amended (not being expressed in percentage points, but in absolute numbers) were also mostly increased by 30%.

No incompatibility with EU law

Be that as it may, the 13% competition law fine cap seems to be rather unique in the EU. And while not anymore corresponding to the standard 10% fine cap, the new rule is not incompatible with EU law. Article 15 (as well as Recital 49) of the ECN+ Directive (Directive 1/2019/EU) states that “Member States shall ensure that the maximum amount of the fine that national competition authorities may impose on each undertaking or association of undertakings participating in an infringement of Article 101 or 102 TFEU is not less than 10 % of the total worldwide turnover of the undertaking or association of undertakings in the business year preceding the decision”. The 10% limit was therefore not an absolute maximum but an expected minimum of the maximum.

Observations

What impact the amendment will have in practice is to be seen. Some tentative comments can, however, be made already at this stage.

First, given the structure of the HCA and the competences of the GVH, the 13% cap will be applicable under the HCA for all kinds of infringements, ranging from antitrust matters, through merger control related issues (gun jumping) to B2B and B2C unfair commercial practices (price gauging, greenwashing, influencer marketing etc).

Second, while the amendment will enter into force on 1 September 2023, the Act remains completely silent on the specifics of this temporal scope rule. Whereas this is certainly not elegant, it remains to be true that, under one of the most fundamental constitutional law principles, an increased (thus: a new) sanction cannot apply to any infringements committed prior to its entry into force (nulla poena sine lege). Hence it would appear to be fair to assume that the increased cap can only be applicable to conduct committed after 1 September 2023.

Third, it has recently been made clear by the Hungarian legislature (with active support from the GVH) that the maximum amount of the fine under the HCA is truly just a cap and in no way a basis for the fine calculation. It is perhaps also a unique feature that the "cap function” has been explicitly codified with a view to avoid a different judicial interpretation (thus, the 0% and 13% of last year’s turnover are not two benchmarks which the GVH and courts should take into consideration when assessing the fine in light of the gravity of the infringement). Hungary clearly does not want to join jurisdictions which draw inspiration from the BGH’s Grauzement (BGH, 26.02.2013, NZKart 2013, KRB 20/12) jurisprudence.

In light of the above cemented cap function, it is questionable whether the increase from 10 to 13 % will have any suction-effect, moving the average fines generally higher. Indeed, there have been only very few cases, where the fine has reached the cap (then: 10%). Most of these cases affected mono-product SME (mostly: domestic) companies having been involved in long lasting cartels. For larger, multinational corporations with a differentiated product and services portfolio, reaching or even coming close to the cap (be it 10% or 13%) would still appear to be very unlikely.

Fourth, an interesting new issue may emerge in terms of sharing of competences and case referrals regarding matters capable of being investigated and sanctioned by both the EU Commission and the GVH. The cap of the fine would so far be the same regarding the given infringement (say an abuse of a dominant position under Article 102 TFEU) irrespective of the proceeding authority. This may change for conduct committed after 1 September 2023: if the GVH proceeds, the fine cap will be higher than if the EU Commission does. Which authority will then be considered best placed to address the potential infringement?

By Gabor Fejes, Partner, Co-Head of Competition and Antitrust, Balazs Csepai, Senior Associate, Competition and Antitrust, and Flora Kondrat, Junior Associate, DLA Piper Hungary

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