sanciones _a_directivos

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Two Supreme Court judgments were published last October on penalties for directors in competition law  (Appeals 5280/2018 and 5244/2018).

These decisions overturned the fines imposed on two employees of the Spanish Federation of Healthcare Technology Companies (FENIN) in the Spanish National Commission on Markets and Competition’s Decision of May 26, 2016 (Case S/DC/0504/14 – AIO), which fined eight manufacturers, their association (FENIN) and four individuals for €128.8 for setting up a cartel that fixed the prices of adult diapers sold in pharmacies.

As we explained here, section 63.2 of the Spanish Competition Act [Ley 15/2007, de Defensa de la Competencia] empowers the CNMC to impose up to €60,000 in fines on the legal representatives or the members of the governing bodies of companies that have breached competition law by talking part in resolutions and decisions ruled to be anticompetitive.

Case law has been specifying the conditions that must be met to impose these types of fines, which, in addition to reaching considerable amounts (currently up to €50,200 per infringement and €59,800 for two cumulative fines in the same case) have a major impact on the infringers’ reputations.

In these new judgments, the Supreme Court recalled that two cumulative requirements must be met to be able to sanction an individual under art.63.2 of the Competition Act, namely: (i) the sanctioned party must indeed be a legal representative or a member of the governing body of the infringing company, i.e., anyone who can adopt decisions that “determine, condition and direct” the company’s actions; and (ii) it must have participated in the infringing resolutions and decisions.

The Supreme Court stressed the importance of meeting the first requirement, because if the action “were performed by different subjects, regardless of the importance of their participation, it would fall outside the law’s scope of application.”

In this regard, in Appeal 5244/2019, the Supreme Court ruled that the CNMC had not proven “with the required rigor, the requirement that the appellant must be a governing body,” since the resolution did not contain “documents or other evidence proving the classification of the position of Technical Director of the FENIN as a director position, with the characteristics of exercising directive functions and autonomy.”

The CNMC’s task goes beyond identifying a specific position, where the official title is completely irrelevant. Instead, the Supreme Court ruled that the CNMC must also prove that the specific activities of a director position are actually performed by the person in that position. In the appeal, the sanctioned employee was a “Technical Director” and, in view of the CNMC’s failure to substantiate that the position involved performing the specific activities of a director, the Supreme Court ruled that the term “technical” was more relevant than  “director” and ended up determining that it was not actually a director position.

However,  although the Supreme Court has made the concept of director somewhat more restrictive with these rulings, it seems to have done the opposite with regard to the second requirement under article 63.2. In relation to that requirement, the Supreme Court moves away from the National Court of Appeals case law and the terminology used by the CNMC thus far to conclude that there is no need to prove “determining or relevant participation” in the anticompetitive conduct but rather “mere participation” by the individual, which includes “passive forms of participation” such as attending meetings where the infringing resolutions were adopted without expressly opposing them.

However, in Appeal 5280/2018, the Supreme Court found that, although the appellant “sent out emails and took on the task of centralizing the information and distributing it among the manufacturers (…) and also was responsible for calling and organizing the meetings,” she did so when the sanctioned company did not have the capacity of a governing body and could not be held liable for the infringement of section 63.2 of the Competition Act. Conversely, when the appellant became Secretary General and thus held a director position, her previous functions were taken over by the person who became the new Technical Director. Therefore, the Supreme Court concluded that during the period when the first requirement had been met, the objective element of the director participating in the infringing resolution or decision was not present, and no sanction could be applied either.

Based on all of this, the Supreme Court overturned the two fines imposed on the appellants. In the case of the Technical Director of the FENIN, because it found that the CNMC had not been able to sufficiently justify that the technical director was on FENIN’s governing body, since there was no proof in the resolution to back up that claim. Also relevant was the fact that FENIN’s bylaws do not include a technical director position among the members of its governing body. The Supreme Court reached the same conclusion in the other judgment with regard to the period when the sanctioned party had held the position of technical director of the FENIN. During the period when she was Secretary General of the FENIN, the Supreme Court did not dispute whether hers was a director position (FENIN’s bylaws reflect this), but it did address, as noted above, whether there was evidence of her participation in the anticompetitive conducts during that period, which also led it to overturn the fine.

These judgments shed some light on how art. 63.2 of the Competition Act should be interpreted, indicating that it is not a simple matter and indeed not free from uncertainties and problems in its application. In short, it will be necessary to look at the specific case and wait for the questions that arise to be solved in practice by the courts in future judgments.

Either way, fines on directors have clearly become a highly relevant deterrent that the CNMC regularly uses, in addition to the sanctions imposed on companies themselves.  In this regard, it is advisable for companies operating in Spain to take these types of sanctions into account and to address them properly in any competition law compliance programs they may have.

This post is also available in: Español



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