The Hungarian Competition Authority eyes price increases in house building sector 

At the moment there is a lot of noise in the Hungarian press about the current increase of construction material prices, in particular for residential properties. The increase is partly generated by increased demands, since the Hungarian Government’s family subsidy programme grants significant subsidies to families with children for new house building and renovation. 

However, the noise is also generated by Government officials such as the president of the Hungarian Competition Authority or a key advisor to the Prime Minister, who state that manufacturers may be abusing this situation and generate excessive profits to the detriment of Hungarian families. Therefore, it is likely that sooner or later the HCA will investigate targets, looking out for signs of abuse of dominance (unfair prices) or cartels. 

Based on its recent press releases accessible here and here, over the past 12 months, the HCA has carried out preliminary investigations into the marketing of a number of other construction materials, such as bricks, roof tiles, insulation and paving materials and doors and windows, in order to explore the sales system for these products. The HCA is also expected to investigate the reasons for the price increase in the construction industry, for this reason, it may be worthwhile to prepare for the increased interest of the HCA. 

Good to know about dawn raids …

The HCA can conduct a dawn raid, carried out unexpectedly. The HCA officials may view or copy any document, IT device, remote data carrier, even if the evidence may be related to other competition law infringements, in which case the HCA will subsequently request permission. The HCA may also conduct dawn raids at the headquarters, branch offices, vehicles, private homes of its former and current managers, and at the private homes of its current employees. Companies under investigation have the right for a lawyer, and for protection of correspondence with their lawyer.  

The evidence obtained during the dawn raid may not only substantiate the company's competition liability, but in some cases it can be used in criminal proceedings against company directors and also capable to justify the exclusion of the company from public procurement. The dawn raid should be carried out in the presence of stakeholders, but if it cannot be ensured, the assistance of an official witness shall be sought. During the dawn raid the investigator may oblige the stakeholders to provide information and explanations orally or in writing, or to provide other information on site. The dawn raid may be carried out between 8 am and 8 pm on a working day, unless its successful completion requires a different time.

“Fishing expeditions”

Companies under investigation have the right for a lawyer, and for protection of correspondence with their lawyer.  It is important to note in this regard that the powers of the HCA are not unlimited. According to the case law of the ECJ, dawn raids which seeks to find evidence which are not predetermined and which are not specific to an infringement are contrary to the principle of necessity, therefore considered illegal.

The importance of cooperation with the HCA

In the absence of cooperation (e.g. due to the delay in entering the building), a procedural fine may be imposed up to 1% of the company's net sales in the previous year, or up to HUF 500,000 [approx. EUR 1500] against a natural person, or the HCA may request the assistance of the police. Obstructing the investigation or destroying the evidence may result in severe procedural fines, so cooperation with the HCA is advised.  

The HCA increasingly appreciates cooperation by investigated companies, and there are a number of options (some of which can be combined) to avoid or significantly reduce a fine in the case of an infringement. The HCA has a leniency program, and it is also possible to reach a settlement with the HCA, or offer a commitment, or even to set up an ex-post compliance program, all of which can reduce a potential fine. 

The HCA and the SME sector

Dawn raids are no longer the risk of the big companies only. The HCA can also conduct a dawn raid at the headquarters of small and medium-sized companies: dawn raids have been launched against SME's on the road salt, contact lenses, on-line cash registers, and driver education markets.