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In several judgments handed down this year, the Supreme Court overturned a CNMC resolution after finding that the evidence on which it was based could not be considered “chance discovery” because it had been obtained unlawfully during an inspection conducted under an incorrectly defined inspection order.
Specifically, the Supreme Court Judgments of October 22, 2019 (Appeal 5588/2019) and October 25, 2019 (Appeal 5839/2018) enshrined the doctrine established in the Judgments of February 18, February 25 and February 26, 2019, among others.
The competition authorities have extensive powers of investigation. This requires court oversight of their work to prevent arbitrary and disproportionate actions that can infringe the inspected companies’ fundamental right of inviolability of the home. The powers of the inspection authorities are limited so they must accurately define the scope and extent of their inspections, and they can only investigate those conducts where they find evidence, so that the companies may defend themselves against the charges.
In this restrictive framework, courts have progressively developed the doctrine of “chance discoveries” to allow competition authorities to penalize unlawful conducts other than those that justified the inspection, based on evidence obtained “by chance” during an inspection.
With these new judgments, the Supreme Court has upheld its settled case law in this matter, but it has also established a series of limits on the competition authorities’ power to act in inspections and with regard to correctly defining the investigation orders prompting these inspections.
These judgments arose from an appeal against the Spanish Markets and Competition Commision (“CNMC”) Resolution of November 6, 2014 (Case S/0430/12, Paper collection). That resolution found the appellant companies guilty of an infringement in the paper and cardboard recovery and sale market.
These proceedings were opened based on documents that the CNMC obtained during an inspection of the headquarters of Isma 2000 S.L., during a separate investigation related to the healthcare waste management market. The CNMC ruled that, although they referred to a different market, the seized documents were a chance discovery, and this gave it the power to open another investigation and sanction the new conducts.
What is unique about the case is that the investigation order that was the basis for the investigation did not just limit the inspection to the healthcare waste management market, but it also left the door open to “other types of waste.”
This is why the basis of the appellant’s argument included allegations of lack of substantiation and poor definition of the investigation order, in addition to claiming incorrect application of the doctrine of chance discovery.
In its Judgment of June 21, 2018, the Court of Appeals found that the formula applied by the CNMC was extremely vague and unclear, which could lead to the conclusion that the inspection order did not support the use of the evidence that was later used to sanction the appellant. But since the Court of Appeals ultimately ruled that this circumstance was not relevant because the doctrine of chance discovery applied to the case, it only sustained part of the appeals, solely with regard to the amount of the fine imposed.
With these recent judgments, the Supreme Court overturned and annulled the lower court judgments, finding that the Court of Appeals had taken a wrong turn in its logic when it avoided the “objection that it itself had formulated” against the vagueness of the investigation order.
The Supreme Court thus ruled that the doctrine of chance discovery did not apply to this case, noting that, “strictly speaking, it cannot even be said to have been a chance discovery” because the documents on the new infringement “were found because they were looked for. And they were looked for under an investigation order that […] due to its generic nature and vagueness, was ruled inadmissible by the appealed judgment, meaning that it cannot be the basis for conducting any investigation or inspection.”
The Supreme Court thus overturned the CNMC resolution by finding that the evidence used as the basis for the investigation had been discovered in the course of a search conducted under an investigation order item that granted no power, and not due to an accidental (unexpected and chance) discovery on the occasion of an inspection with another purpose.
These judgments come in the context of a growing body of case law from Spanish and EU courts on the limits to the scope of competition investigations, which we have been following closely on this blog (e.g., here, here and here).
With these decisions, the Supreme Court has once again recalled the scope of the constitutional protection to inviolability of the home in cases of competition inspections, placing clear limits on “fishing expeditions” that generate very negative legal consequences for those concerned and create great legal uncertainty for all companies subject to competition investigations.
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