Hungary: Compliance and compensation in consumer protection cases: the Vodafone example

The HCA aims to foster the efficiency of its activities and the consumer benefits that arise from such activities. In light of this, undertakings may save a significant amount of money by cooperating with the HCA, as emphasised in a recent press release.

The following actions (possibly combined) are considered cooperative:

• compliance efforts, which ensure that companies act on the basis of professional opinions and in line with the law;
• consumer compensation, which – in addition to directly benefiting consumers – also ensures that the HCA's activities directly affect consumer welfare; and
• the clarification of facts or admittance of infringement, which results in clear efficiency benefits for the HCA.

The recent Vodafone case serves as a prime example of the potential benefits of cooperating, as the HCA reduced the fine imposed on Vodafone by more than 50% based solely on its cooperative measures. Although the case is unique, it signals that compliance and cooperation efforts which exceed the necessary legal requirements do not go unnoticed.

Facts

In October 2013 Vodafone participated in an ad campaign which featured phone devices at extremely low prices. However, certain advertisements omitted the fact that such low prices came with a fixed-term contract and additional monthly fees. The HCA held that such monthly fees were in fact instalment payments, which were attributable solely to the specific device. Thus, Vodafone had misled consumers, as the devices were not actually sold at an (often symbolically) low price, but were paid for in instalments. As Vodafone had, to a certain extent, omitted this fact from its ads, it incurred a fine.

The HCA generally imposes fines based on its fining notice, which includes guidance and a clear calculation method, but also allows for deviation from the notice in special circumstances. The HCA refrained from applying the calculation method described in the notice in this case, as – due to Vodafone's high basis turnover and repeated infringements – the result would have been unrealistically high. The HCA also stressed that such a fine would not promote the authority's objectives of ensuring cooperation and swift and effective consumer compensation in all cases, where possible.

The HCA also highlighted Vodafone's various cooperative efforts: in addition to making significant changes to its commercial practices, Vodafone had engaged in substantial consumer compensation. During the proceedings, Vodafone had notified all affected consumers and offered to make their contracts indefinite in term (effectively enabling them to escape the loyalty period). This effectively meant that consumers who chose to end their contracts could avoid the high fees attributable to their device (which the HCA classified as instalment payments). The HCA noted, among other things, that this step to cooperate and compensate consumers had involved significant risk and financial burden on Vodafone's part.

Ultimately, the HCA imposed a Ft200 million (approximately €650,000) fine on Vodafone. According to its decision, this was less than half of what the HCA would have imposed on Vodafone had it not taken the above steps to cooperate and compensate consumers.

Cooperation and reduction of fine in HCA proceedings

The HCA has separate notices for imposing fines in:

• cartel, dominance and significant market power cases; and
• consumer protection cases (ie, cases involving unfair commercial practices against consumers).

These notices include similar discussions on cooperation and the respective fine reductions and clarify that efforts which exceed an undertaking's general legal cooperation obligations will be considered cooperative. An overview of such efforts is provided below.

Active compensation

Active compensation is the partial or full reparation of damage caused by an allegedly infringing activity. Where the damage may be fully ascertained and the undertaking provides full compensation, the HCA will reduce the fine by the value of the full compensation or actual damage. In case of partial reparation or where the damage or concerned consumers cannot be fully ascertained, the HCA may consider actions which aim to mitigate the effects of the infringement or serve the welfare of the affected groups. However, the level of fine reduction resulting from such an action is uncertain.

Compliance effortsThe HCA generally appreciates all efforts which aim to ensure compliance in general. Compliance programmes which were already in place before proceedings commence will have more significance than those which are implemented afterwards. A professional opinion – as a specific compliance measure – will likely be considered if:

• it was obtained before the commercial practice was implemented;
• it aligns with the law and the practice of the courts and the HCA; and
• the undertaking acted in line with such opinion.

Further, the opinion must be well supported and detailed. The notice does not determine the actual amount of the reduction attributable to such compliance actions; rather, the HCA will assess each scenario on a case-by-case basis.

The HCA takes a stricter stance on compliance efforts undertaken after the initiation of proceedings. The maximum fine reduction which an undertaking may achieve with such future-oriented efforts is 20% in cases where parallel compensation actions are also implemented or the undertaking admits the infringement. Where such parallel circumstances do not exist, a future-oriented compliance effort may result in a maximum fine reduction of 5%. Compliance efforts which occur during proceedings – although they affect only future conduct – have a more significant bearing on a fine. Future-oriented compliance efforts should also implement a control mechanism, under which commercial campaigns are assessed for compliance with all legal requirements before their launch.

Cooperation during proceedingsFinally, the HCA considers all other forms of cooperation as possible grounds for a fine reduction – especially those which allow the facts of the case to be uncovered. The admission of infringement may result in a maximum fine reduction of 30%, while the clarification of facts and provision of evidence may result in a maximum reduction of 20%. These reductions may be applied cumulatively, but only where the latter constitutes additional value compared to a simple admission of the infringement.

Decision

The HCA took a seemingly lenient approach in the Vodafone case due to the company's cooperative measures. Its press release suggests that such an approach will prevail in future and that cooperation will be rewarded. Even so, this may be a bittersweet ending for Vodafone – which originally applied for commitments – as the HCA accepted its implemented commitment proposals as significant cooperation measures and a valid ground to reduce its fine significantly.

Comment

The HCA does not shy away from imposing significant fines on undertakings which mistreat consumers. However, it is usually open to cooperation in order to promote its own goals and achieve direct benefits for consumers. The Vodafone case highlights the opportunities for undertakings to cooperate with the HCA for a significant fine reduction. However, the most efficient approach is to ensure compliance in advance, as such measures may fully prevent HCA proceedings.

This article was first published on www.internationallawoffice.com