The Dawn Raid – A Powerful Tool to Be Handled with Care – Inspection Decisions Annulled due to Procedural Irregularities

Dawn raids are often considered to be a prerequisite to successful cartel enforcement. While the intrusive character of the dawn raid makes it so powerful, this also entails a risk that fundamental rights are not properly safeguarded. Taken by surprise and with the authority’s officials at your doorstep, you may not be in the best position to safeguard your rights. Add to that the fact that enforcers are adapting to the new ways of working, carrying out inspections in private homes. Officials may then wish to search through the electronic devices of both the employees and their family members. Ensuring adequate procedural safeguards is therefore more important than ever. Both the Court of Justice of the European Union (the Court of Justice) and the European Court of Human Rights (the Strasbourg Court) have recently given their view on this.

Failure to Record Meetings with Complainants may Come at a High Cost
In Les Mousquetaires and Casino, procedural irregularities during the investigation made the Court of Justice set aside the General Court’s ruling and annul the inspection decisions in their entirety. The reason for this? The Commission had not kept records of the meetings held with complainants prior to the dawn raids. This, the Court of Justice declared, was contrary to Article 19 of Regulation 1/2003 as the obligation to take notes set out therein applies also before the first investigative steps are taken. As a result, the Commission was prevented from relying on the information gathered during these meetings. This information had formed the basis for the inspection decisions, and the Court of Justice declared that the Commission had lacked reasonable grounds for adopting an inspection decision.

Judicial Review of Measures Taken during Dawn Raids
As for the Strasbourg court, it has recently struck down on the safeguards surrounding dawn raids in Lithuania. In Kesko, it found that the applicant’s right to respect for its ‘home’ and ‘correspondence’ laid down in Article 8 ECHR had been violated. The applicant, Kesko, had complained against the Lithuanian Competition Council’s (the LCC) copying of entire mailboxes during a dawn raid, arguing that these contained information that was irrelevant to the investigation.

The measures taken by the LCC were not considered challengeable as they had not given rise to any “legal consequences”, the Lithuanian courts concluded. This partly because Kesko had not identified the documents that lacked relevance. Finding i.a. that the measures could be assessed together with the challenge against the final decision in the cartel case, and that there was a possibility to lodge a claim for damages against the state, the Supreme Administrative Court was satisfied that Kesko had indeed had access to court. The LCC later discontinued the cartel investigation and closed the case.

The Strasbourg court found that, given the very large amount of information seized during the inspection, placing the task of examining each document and its relevance on Kesko was disproportionate. Finding that the need for a judicial review of the measures taken was rendered all the more important by the fact that the cartel investigation had been discontinued, it established an infringement of Article 8 ECHR.

Does the EU System Ensure Effective Legal Remedies?
For a long time, the Commission’s leniency programme – where cartel members inform the Commission of the cartel, provide it with evidence and in return are granted immunity from fines – worked well, often providing the Commission with solid evidence even before the dawn raids were carried out. Now, the situation has changed. As a result of the uptick in cartel damages claims, the leniency programme is rapidly losing attraction. The damages may be many times higher than any fines. Admitting guilt and providing the Commission with evidence of the cartel is thus not necessarily the best way forward. It can therefore be assumed that inspection decisions are adopted on weaker grounds than earlier and that we will witness an increase in the number of investigations that are discontinued. The EU system will then have to stand the test of the ECHR.

The possibilities for a judicial review of the measures taken during the Commission’s dawn raids are limited. Yet, in Les Mousquetaires and Casino, the Court of Justice defended the EU system. Declaring that an overall assessment should be made, it referred to the possibilities for targeted companies to (i) have any measures assessed when the final decision is challenged, (ii) bring a damage claim against the Commission and (iii) obstruct against the measures taken and challenge the decision to impose fines for obstruction. We now know that options (i) and (ii) are not adequate and while option (iii) may be a viable route, companies should not have to fear being hit with substantial fines when trying to safeguard their rights. Hopefully, the ongoing revision of Regulation 1/2003 will not leave this question unattended.

For a more detailed analysis of these cases, see the recent blog post written by Helene Andersson on the Kluwer Competition Law Blog.