Mihai-Cristian Huială
Lawyer, Bucharest Bar Association
I. Introduction
Recent years have turned a number of possible assumptions into genuine social realities that the national legislation has been forced to confront. The status quo has demonstrated that the 'exceptional' is not just a subject of casebooks, but a real situation that requires a proper regulatory framework.
Confronted with armed conflict at our borders and a pandemic struggle within them, we face circumstances suggesting that the notion of 'normality' has changed drastically. In this respect, social contract theory needs to be coupled with an additional layer of accountability: both in terms of the conduct of bodies with legislative prerogatives and in terms of the conduct of citizens. Thus, given current dynamics, the legitimacy offered to state authority by individuals is to be given a more extensive materialization through a direct protective measure. In order to prevent possible crisis situations, which have proved to be not far removed from our daily lives, the legislative authority believes that an interventionist policy is justified.
II. The free market concept in practice
Although the balance of the market economy is based on the recurrent concept used in the Member States of the European Union, i.e. the free market system, the legislative authority considers it justified to intervene in certain situations explicitly laid down by law to ensure the proper functioning of the market in the interests of its citizens.
A free market economy is a decentralized economic system in which the government does not attempt to impose regulations on market transactions. In a free market economy, the allocation of economic resources, the level of output and prices are determined by voluntary exchange, supply and demand.
At the same time, in view of the need to ensure an adequate level of consumer protection, the State considers it necessary to have a mechanism that makes it possible to combat speculative actions by economic operators in exceptional situations.
Thus, the legislative authority, in the G.E.O. no. 84/2022 on the fight against speculative actions and for the modification and completion of some normative acts, considered the following situations as potentially destabilizing the national market:
• state of partial or total mobilization of the armed forces;
• state of war;
• curfew;
• state of emergency;
• alert;
• other crisis situations explicitly laid down in legislation.
III. Purpose of the regulation in G.E.O. no. 84/2022
The events outlined in the previous section constituted extraordinary circumstances which required urgent intervention by the legislator. With G.E.O. no. 84/2022, the legislator wishes to prevent the risk of disturbing the proper functioning of the market and prolonging the state of legal uncertainty, which negatively affects competitiveness, the innovation capacity of companies, and even general economic development.
According to the Explanatory Memorandum to G.E.O. no. 84/2022, it "aims to create a general legislative framework to ensure a high level of consumer protection and the proper functioning of the internal market, regulating aspects relating to the direct or indirect protection of consumers against unjustified price increases and obvious market failures during periods of partial or total mobilization of armed forces and states of war, states of siege and emergency, states of alert or other crisis situations explicitly established by law" .
These concerns have been recurrently demonstrated in economic activity in certain sectors of interest (e.g. food, pharmaceuticals). Since the beginning of the pandemic context, a series of changes and oscillations occurred at a national level. This caused the need to urgently regulate the situations that were frequently accompanied by negotiation gaps and by practices whereby certain companies use their market position to the detriment of others.
A relevant example of this took place in March 2022 and concerned fuel prices. The National Authority for Consumer Protection fined fuel suppliers in Romania 950,000 RON. Together with the fine, the Order of the President of NACP to stop unfair commercial practices for this fuel supplier was proposed and signed.
In addition to the need for the legislative changes discussed in this paper, there is also a vast framework of related regulations, which will be discussed below.
IV. Related regulations G.E.O. no. 84/2022
Currently, at national level, the field of combating unfair competition is regulated by a number of relevant pieces of legislation under discussion:
• Law no. 158/2008 on misleading and comparative advertising, republished, transposing Directive 2006/114/EC;
• Law no. 363/2007 on combating unfair practices by traders in dealings with consumers and harmonizing regulations with European consumer protection legislation, transposing Directive 2005/29/EC;
• Law no. 84/1998 on trademarks and geographical indications, transposing the provisions of Directive 2008/95/EC; G.E.O. no. 25/2019 on the protection of know-how and undisclosed business information that constitute trade secrets against unlawful acquisition, use or disclosure, as well as for the amendment and completion of certain regulatory acts, transposing the provisions of Directive 2016/943/EC, etc.
• Law no. 11/1991 on combating unfair competition,
• Law no. 298/20011 and by G.E.O. no. 12/2014, subsequently approved by Law no. 117/2015.
V. Tools used by G.E.O. no. 84/2022 to sanction speculative behavior
Thus, one of the mechanisms through which G.E.O. no. 84/2022 aims to achieve the objectives outlined above is to sanction speculative behavior by incriminating the institution of speculation.
The Ordinance requires legislative changes depending on the category of agents directly affected by the speculation, as follows:
• Law no. 11/1991 on combating unfair competition, if the category of undertakings is affected;
• G.O. no. 21/1992 on consumer protection, if the consumer category is affected.
Further on, we will carry out a comparative analysis of the regulatory modality, revealing both common aspects and differences in the approach to the institution of speculation, presenting its defining features.
1. Subject
According to Article 2 para. (2) of Law no. 11/1991 and G.E.O. no. 21/1992, during periods of partial or total mobilization of the armed forces and state of war, state of siege and state of emergency, state of alert or other crisis situations explicitly established by normative acts, for products, categories of products or services established as being in a situation of speculative risk by Government Decision, there is a prohibition on practices committed by undertakings consisting of:
a) unduly high prices;
b) unduly limiting production or sales;
c) hoarding goods from the foreign or domestic market in order to create a deficit on the Romanian market and subsequently reselling them at an unjustifiably increased price.
In accordance with Article 1 para. (2) of the G.E.O. no. 84/2022, the Government decision will be issued for a period of 6 months, which may be extended, successively, by decision, for periods of up to 3 months, as long as the circumstances that led to the adoption of that decision persist. It details the procedure for analysis, implementation and cooperation between the National Authority for Consumer Protection, the Competition Council, the National Tax Administration Agency and other public authorities and institutions, as well as the procedure for consulting representative business or consumer associations. Also, in para. (3) of the same article, the concept of speculative risk covers those situations identified by the National Agency for Tax Administration on the basis of assessments made according to inspections carried out in accordance with its attributions under Law no. 207/2015 on the Code of Tax Procedure, as amended and supplemented, as well as by other public authorities or institutions depending on the area of competence, ex officio or at the request of representative business or consumer associations.
In addition, Law no. 11/1991 adds that practices specific to unfair competition are contrary to honest practices and the general principle of good faith, being committed mainly against undertakings, and those sanctioned under G.E.O. no. 21/1992 being committed against consumers. Clearly, the instruments used by the competition authority also indirectly protect consumers, and the means provided for by G.E.O. no. 21/1992 also have a tangential impact on the protection of undertakings. We therefore consider that the distinction has a purely formal role of separating and organizing regulation.
In other words, we fully accept that the effects of both pieces of legislation benefit consumers and businesses simultaneously. However, from the point of view of making a system more efficient, which at the time of the application of these provisions will be faced with a clear crisis situation, there is a sharing of competence in terms of the sanctioning role of the authorities involved.
2. Criteria
For the purpose of assessing speculative actions, Article 1 para. (4) of G.E.O. no. 84/2022, a number of relevant criteria are considered:
(a) profit margins or mark-ups for the product or service in question, in order to analyze a disproportionate increase in prices in relation to expenditure;
(b) the level of the selling price compared with the prices charged during the previous 12 months or, where applicable, for seasonal products/services, during similar periods of the previous three years, without any objective justification for the differences;
(c) artificially increasing production costs, including wages, in order to disguise an unjustified increase in the price of the final product/service;
(d) the distribution of products through a chain comprising more intermediaries than usual, without any transformation, with the aim of increasing the price;
(e) unjustified limitation of production or sales which had the effect of stopping/substantially reducing supplies to the domestic market in the absence of economic or other factors justifying such limitation/stoppage;
(f) an increase in stocks, in a given period, compared to the average level of stocks existing in the previous 12 months or, where applicable, for seasonal products/services, in similar periods of the previous 3 years, without objective justification for the differences.
We see how the criteria cover the entire product life cycle, referring to manufacturing, distribution and even sale to the final consumer. We believe that such a seemingly exhaustive set of rules is lax, leaving room for interpretation and putting the company at a disadvantage.
Thus, in a real crisis, companies' decisions to preserve their business could expose them to the risk of speculative action for simply trying to maintain their economic stability.
In the absence of regulatory precedent, we openly welcome a more detailed circumstance of the criteria, both in terms of the characteristics of the company concerned and in relation to the extraordinary situation that has arisen.
Thus, the Competition Council assesses the extent to which a possible unfair competition practice affects the public interest according to the following criteria present in Article 31 para. (3):
• high degree of social danger;
• the importance or size of the economic sector concerned, the number of businesses involved in the offence, the number of businesses affected;
• duration of the unfair competition practice.
3. Sanction
Amount. In accordance with the provisions of Article 4 para. (1) of Law 11/1991 and Article 50 para. (1) letter g), "the commission of speculative practices constitutes an offence and is punishable by a fine of RON 50,000 to RON 500,000". We note a significant difference compared to the previous version of the draft ordinance (before approval), which disproportionately provided for a maximum penalty of 1% of the company's turnover .
Legal subject matter. We conclude that the only legal subject eligible to be sanctioned is the undertaking, defined according to Art. 2 para. (2) lit. a) of the Competition Act no. 21/1996, republished, as amended .
Undertaking, according to Competition Law 21/1996, means "any entity engaged in an economic activity consisting in offering goods or services on a given market, regardless of its legal status and the way in which it is financed, as defined in the case law of the European Union" (Article 2 para. (2)).
Also relevant is the definition of an undertaking given by the Court of Justice of the European Union (CJEU) in Case C-35/96 Commission v Italy: 'any entity engaged in economic activities, regardless of the legal status of that entity and the way in which it is financed'. In this context, in relation to the concept of economic activity, the Court states that "any activity consisting in offering goods and services on a given market is an economic activity" (paragraph 38).
However, economic activities are not precisely identified at the level of European Union law and remain to be defined, in practice, by excluding from their content what are "non-economic activities" (i.e. activities which fulfil a strictly social function or involve the exercise of public authority) .
It would certainly be intriguing to identify a hypothesis where speculative practices are committed by a mere natural person in an ad hoc situation (not an authorized natural person or other entity specifically geared towards offering goods or services on a given market) which, by definition, would not fall within the notion of an undertaking and would thus be left outside the legal framework.
In addition, Article 4 para. (2) of Law no. 11/1991 adds the hypothesis that natural persons or legal entities expressly admit the perpetration of unfair competition practices affecting the public interest, within 30 days of the communication of the conclusions resulting from the in-depth investigation.
At the end of this 7-day period for expressing its views on the facts of the case, the competition authority may apply a reduction of the fine from 10% to 20% of the decided amount. Thus, the admitted infringement is forgiven between 10% to 20%, at the discretion of the judge.
At the same time, Law no. 11/1991 provides in Article 4 para. (3) that the exercise by legal persons of the action for annulment of the Competition Council’s decision, with regard to the aspects subject to recognition, entails the loss of the benefit relating to the reduction of the fined amount. At the Competition Council’s request, the court will rule on the action for annulment by removing the benefit of the reduction granted for recognition and will set the fine accordingly.
On the other hand, G.O. no. 21/1992 provides in Article 581 para. (1) an additional set of sanctions that the official may propose:
• returning to the sale price on the trader's website that was charged before the speculative action within a maximum of 24 hours or stop trading;
• returning to the sale price at the inspected point of sale, as it was before the speculative action, within 24 hours of the communication of the control document or stop marketing.
There is a difference in the strictness of the treatment of sanctioned companies in the way the regulations deal with speculative conduct. Therefore, there is a genuine admission agreement for perpetrating an offence in the competitive environment (B2B), which does not exist in the consumer environment (B2C). The legislator maintains, as we are used to, a higher level of protection for consumers, while also establishing possible additional penalties for the company concerned. However, as the limits of the fine are identical, the court's assessment will play a decisive role.
In this sense, an aspect of arbitrariness and perhaps even hazard will prevail. The sanctioning procedure in both filters for evaluation has a largely subjective connotation, before the authority (the Competition Council and NACP) as well as before the court. The method of regulation is a general one, vaguely and permissively incorporating a significant number of practices which could prove to be "speculative". Thus, the ease with which a basis for sanctioning would be identified is likely to be controversial in terms of assessing the conduct of undertakings.
Of further interest is the active role of the judge in the individualization of the sanction which, in the civil process, aims for the judicial protection of private interests and procedural balance. We note that Article 22 para. (2) sentence I of the Civil Procedure Code evokes the judicial syllogism which is the essence of the judge's role in finding the truth and dispensing justice: "establishing the factual situation on the basis of the evidence, applying the substantive rules of law applicable to the factual situation and inferring legal effects, i.e. pronouncing a legal and well-founded judgment".
VI. Applicability of the institution
Given the need of an "exceptional" situation for the rule to become applicable, some experts consider that its functionality would be extremely limited, prevailing only in specific cases. We see such a view as sometimes truncated, limited by previous societal routine.
Global precedents are paving the way for a new era of legal dimensions. States of emergency and alert had been part of both Romania's governance and EU Member States' approach in recent years. All the more so, being in the vicinity of a state of war and in anticipation of several imminent crisis situations (e.g. energy, epidemic, etc.), it would be unrealistic to write off the applicability of these assumptions to isolated cases.
Moreover, the open economy that Romania's free market ideally seeks to pursue is based on a reinforced self-regulatory mechanism. By portraying certain situations as "exceptional", the legislative authority identifies real needs that disturb the market equilibrium and go beyond the possibility of regulating the mechanism. On this basis, the legislative authority justifies its sanctioning intervention by establishing one of the "states" as a natural defensive reaction appropriate to remove the danger. Even if companies are restricted in their decision-making and, in spite of their crisis situation, take a more cautious approach to their own business, the safety of consumers and possibly disadvantaged businesses is paramount.
Ad absurdum, the alternative of criminalizing speculative actions as a general rule, and not as an exception, would eliminate the need for intervention by the legislator determined by objective criteria (establishment of the state) and would leave their management to the purely subjective aspect of expediency. This eventuality, strongly contested by economists, would result in and materialize harmful consequences for the national market.
VII. Recourse to common law institutions
Finally, beyond the imperative limited spectrum of applicability, according to the provisions of G.E.O. no. 84/2022, we consider the possibility of resorting to civil law institutions that can adapt the sanctioning of speculation even in the absence of expressly provided situations. We consider that these differ from case to case and that the answers are manifold.
At the same time, the exceptional situations which may influence the conclusion and execution of a contract or even the exercise of a right are not limited to those set out in G.E.O. no. 84/2022.
Thus, the following can be considered:
• changes in economic conditions (e.g. inflation);
• political or social changes leading to economic changes;
• legislative changes that may affect the way obligations are performed;
• natural changes in the factual situation which may alter the parameters for the conclusion/enforcement of a contract/right.
1. Injury
Injury is defined with an exclusive focus on the consequences caused, being a vitiation of consent consisting of "material damage suffered by one of the parties due to a significant disproportion in value between the countervailing benefits, which exists at the very moment of the conclusion of the act" , or, more recently, as "material damage suffered by one of the parties as a result of the conclusion of a contract" .
Therefore, the following conditions must be met in order for an injury to exist :
• the injury is a direct consequence of the act in question - if the injury is not a direct consequence of the act, then the issue refers to the risk of the contract and not the injury;
• the injury must exist in relation to the time of the conclusion of the act - if the injury occurs later, the question of unforeseeability arises;
• taking advantage of the other party's lack of need, experience or knowledge;
• the disproportion in value between the consideration must be significant - in the case of major damages, the damage must be enormous, in the sense that it must exceed half the value that the execution promised or performed by the aggrieved party had at the time the contract was concluded.
Let us consider a group trip to the highest mountain peak in Romania. There is a storm and the driver is the only one who has jackets. If she offers them for sale at an unjustifiably high price, thus taking advantage of the condition of the members in need, then the institution of injury could be applicable.
2. Unforeseeability
The regulation of unforeseeability is found in Article 1271 of the Civil Code, and also establishes a number of conditions that must be cumulatively fulfilled:
• posteriority: the change of circumstances occurred after the conclusion of the contract;
• unpredictability: the change in circumstances and its extent were not and could not reasonably have been considered by the debtor at the time the contract was concluded;
• non-assumption of risk: "the debtor has not assumed the risk of changed circumstances or cannot reasonably be considered to have assumed such a risk";
• attempted negotiation: 'the debtor must have attempted, within a reasonable time and in good faith, to negotiate a reasonable and fair adjustment of the contract.
Thus, following the occurrence of an exceptional circumstance of the kind described above, if the burden on the debtor increases unjustifiably, the incidence of unforeseeability may be discussed.
However, in order to restore contractual balance, the parties resort to preventive legal means, such as indexation clauses or hardship clauses .
3. Abuse of law
The exercise in bad faith of a subjective right with the aim of harming or injuring another or in an excessive and unreasonable manner are the conditions that must be met for the abuse of law to be constituted.
In both cases, the abuser of the law diverts their right from its economic and social purpose, i.e. from its normal limits, called internal limits .
Limiting production or sales in order to create a shortage on the market would open up the possibility of a higher price. This would amount to the exercise in bad faith of a prerogative included in the agent's powers with the aim of harming final consumers.
VII. Conclusions
The legal devices for dealing with an unregulated hypothesis can be among the most inventive, requiring both creativity and adaptability to the details of the case. However, we embrace the legislative authority’s intention to expressly address a significant legislation gap in order to ensure consumer and business safety.
In view of the above and taking into account the generated public benefit, the new legislative framework aims to provide legal certainty and increase consumer confidence in the state protection system in times of real need.
Finally, by settling unfair competition practices in recent years, we note how the Competition Council has identified a number of issues of general public interest that require further regulation, and we thus classify the changes made as long awaited.