The Constitutional Court’s Latest Ruling: A Turning Point for Competition Sanctions

The Kuwait Constitutional Court on 5 February 2025, ruled that Paragraph 1 of Article 34 of the Competition Protection Agency Law No. 72 of 2020 (the “Law“) is unconstitutional. This judgment has far-reaching implications for competition enforcement in Kuwait, particularly regarding financial penalties imposed by the Competition Protection Agency (“CPA“).

Background of Paragraph 1 of Article 34 and the CPA’s Enforcement Mechanism

Under Paragraph 1 of Article 34, the CPA’s Disciplinary Board has the authority to impose financial penalties of up to 10% of the total revenues of the relevant person for violations of Articles 5, 6, 7, and 8 of the Law. These articles prohibit anti-competitive practices such as price-fixing, market allocation, bid-rigging, and abuse of dominant position.

The court found that this broad penalty structure lacked constitutional justification, specifically regarding its proportionality in relation to the severity of the violations.

Key Legal Ground: Lack of Proportionality

The court’s ruling centered on the principle that penalties must be proportionate to the seriousness of the offense and the benefit gained. Specifically, it emphasized that:

– The 10% penalty was imposed without consideration of the actual harm caused by the violation or the profit gained from the anti-competitive conduct.

– It failed to differentiate between minor and severe violations, treating all violations equally in financial terms.

– The calculation of the penalty included total revenues from all activities of the violating person, even those unrelated to the breach, making it a disproportionate financial burden.

– This mechanism effectively amounted to an unjust confiscation of property, violating constitutional protections on private ownership and due process.

The court of the view that while the legislator has discretion in designing regulatory penalties, such penalties must be logically connected to the objectives of the law and must not constitute arbitrary financial burdens.

Other Legal Grounds

In addition to the proportionality’s notion, the court also found that Paragraph 1 of Article 34 violated other constitutional principles:

– It did not establish a rational method to assess the actual economic harm caused by the violation.

– It failed to protect private property rights and risked unjustified financial confiscation, violating constitutional protections on private ownership.

– The law enforced penalties without considering differences in the nature, scale, or intent of the violation.

Potential Impact on Other Provisions: Economic Concentration Transactions

This judgment raises serious concerns about the constitutionality of other penalty provisions in the Law, particularly Paragraph 2 of Article 34, which imposes a penalty of up to 10% of the total revenues of all the participants in an economic concentration transaction for failing to notify the CPA pursuant to Article 12 of the Law.

The reasoning applied by the court to strike down Paragraph 1 could equally apply to Paragraph 2 for the following reasons:

– The penalty is imposed on total revenues, rather than being proportionate to any actual competitive harm caused by the failure to notify.

– Failure to notify the CPA of an economic concentration transaction that has no impact on the relevant market is a procedural issue, and it does not inherently indicate an anti-competitive effect. Imposing a 10% penalty on total revenues for a mere failure to notify could be viewed as excessive.

– Similar to Paragraph 1, Paragraph 2 of Article 34 applies a flat percentage rate without distinguishing between entities of different sizes, market influence, or transaction nature.

– Given the court’s reasoning, businesses may challenge the legality of Paragraph 2, leading to further instability in the enforcement of the Law.

Implications on Businesses and Future Legal Challenges

The CPA may need to re-evaluate its penalty framework, as additional legal challenges to other provisions of the law could emerge. To address this, lawmakers should revise the law to ensure that any amendments align with the dicta set forth in the Constitutional Court judgment.

This ruling marks a fundamental shift in Kuwait’s competition practice, potentially reshaping how financial penalties are structured and applied under the Law. Companies operating in Kuwait should closely follow further legal developments and consider reviewing their compliance strategies in light of this precedent.