Competition and Consumer Protection – liability of persons managing businesses

New legislation to form a part of a broader revision

The ever-changing EU legislation and the new market needs have not been without influence on the Competition and Consumer Protection Act whose original text of 16 February 2007 has been amended several times in subsequent revisions.

The latest amendments to the Competition and Consumer Protection Act form a part of a broader legislative initiative aimed at comprehensive adjustment of legal framework supporting financial market in Poland and increasing supervision over this market to safeguard the consumers’ interests. The act amending certain other acts in connection with the increased supervision over financial market and protection of investors on that market of 9 November 2018, introduces changes to a number of acts, including without limitation, the Corporate Income Tax Act, the Banking Law or the Act on National Bank of Poland.     

The majority of the enacted amendments came into force on 1 January 2019, but certain amendments to the Competition and Consumer Protection Act started to apply already on 15 December 2018.

Increased liability of persons managing businesses

The introduced amendments aim at increasing the liability of persons managing businesses. Under the new law, they will be liable also for unlawful actions and omissions related to the application of abusive contract terms in standard agreements used in transactions with consumers or for unlawful actions of a business or actions which contradict good practices that infringe the collective consumer interests.

On 15 December 2019, Article 106b of the Competition and Consumer Protection Act came into force, pursuant to which the President of the Office of Competition and Consumer Protection (“Office”) may impose on a person managing a business entity, a financial penalty of up to PLN 2,000,000 should such a person, in the exercise of his functions at the time of the ascertained infringement intentionally committed an infringement.

On persons who manage entities exercising the banking supervision, financial market supervision or supervision over payment and rating agencies, referred to in the Act on Financial Market Supervision, even more severe penalty of up to PLN 5,000,000 may be imposed.

The nature of liability of a managing person

But what are the practical implications of the enacted legislation? The liability of a managing person under the Competition and Consumer Protection Act arises if a person managing a business has allowed the infringement of the provisions of the Competition and Consumer Protection Act, where such infringement may involve both an action or omission to act by a managing person. Therefore, a managing person will be held liable not only when he plays an active role in commitment of infringement by an entity, but also when a managing person merely allows to commit an infringement by an entity which he manages or, in other words, he consents to an infringement without being in any way engaged in an unlawful action such as for instance an action of the sales or marketing department.

Mitigating and aggravating circumstances for penalties

In accordance with the amended provisions of the Competition and Consumer Protection Act, the President of the Office, in fixing an amount of the financial penalty to be imposed will take an account of the following factors: “the degree of the impact of the behaviour of the managing person on the infringement committed by an entity, the revenues obtained by the managing person at a given entity, taking account of the duration of the infringement and the duration and market effects of the infringement or impact of the infringement on consumers”.

Further, the amendment introduces new factors which may mitigate the imposed penalty. In the case of infringement of prohibition of practices infringing collective consumer interests or application of prohibited terms in standard agreements, the following circumstances will be taken into account: acting under duress, voluntary removal of the consequences of the infringement, discontinuance of the employment of a prohibited practice prior to the initiation of the proceedings or immediately after initiation of same, taking action on one’s own initiative in order to cease the infringement or to remove its effects.

The aggravating circumstances include, among other things, “significant benefits obtained by the managing person in connection with the infringement committed”  or “committing a similar infringement previously”.

Objectives

The objective of these changes is to increase the efficiency of the state authorities in supervising the persons managing business entities in the key areas for consumers.

The main goal of the introduced regulations is to encourage a greater sense of responsibility of the managing persons for market practices employed by a business entity they manage as the practices infringing the competition and consumer protection law will be sanctioned by severe financial penalties.

Effective solutions – compliance audit of contracts and practices

In the light of new regulations, an active role of a person managing a business entity manifested by own initiative in preventing the infringement of law will be encouraged by the President of the Office and may help to avoid heavy financial penalties.

In order to prepare the businesses for changes in legislation it may prove necessary to carry out a compliance audit of the entire corporate documentation in terms of its compliance with competition and consumer protection regulations. As it often turns out, some documents such as distribution contracts or daily agreements concluded with business partners contain clauses which, so far, were neutral under the applicable legislation, but now do not comply with the amendments to the Competition and Consumer Protection Act introduced by the legislator and, in consequence, what was previously allowed, now may give rise to personal liability of persons managing a business.

Author:

Piotr Jakubowski
Senior Associate, Advocate
TGC Corporate Lawyers

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