Exercising a Little (or a Lot!) of Self-Control: How Far Can a Professional Association Go?

March 5, 2013

The European Court of Justice (ECJ) recently issued its judgment (Case C – 1/12) in response to a request for a preliminary ruling submitted by the Lisbon Court of Appeals concerning compulsory continuing education for chartered accountants.  Admittedly, the facts are a bit dull, but what the ECJ has to say concerning how EU competition law applies to professionals’ associations is worth taking notice.

Under Portuguese law, the Order of Chartered Accountants (the OTOC) is tasked with inter alia organizing and providing compulsory training schemes for its members.  The statute is vague as to how the OTOC should go about this; it does not give the OTOC the exclusive right to provide training and it does not lay out the conditions that training bodies must fulfill in order to be able to also provide continuing education.  The OTOC adopted a regulation that stated that training bodies (other than the OTOC) had to get approval from the OTOC to provide courses for credit.  Furthermore, approved bodies had to submit applications for approval to offer specific training sessions at least three months in advance of the planned events.  Finally, the regulation stipulated that accountants had to obtain an annual average of 35 continuing education credits.  Of those 35 credits, at least 12 credits had to be earned by attending “institutional” training held by the OTOC. The remaining credits could be “professional” training credits offered by other, approved training bodies.

The Portuguese National Competition Authority (NCA), and subsequently the Lisbon Commercial Court, held that through the implementation of the above described regulation, the OTOC had infringed EU competition law.  The OTOC appealed to the Lisbon Court of Appeals, which then sought guidance from the ECJ.

In its judgment the ECJ covered a number of points: 

  1. It was immaterial that the OTOC was regulated by public law
  2. The regulatory power invested in the OTOC is not subject to any conditions or criteria that it must meet when adopting measures like the contested regulation
  3. The statute did not give the OTOC the exclusive right to provide training and does not lay down the conditions for access by training bodies to the market for compulsory training for chartered accountants
  4. The contested regulation was adopted without any input from the State

As a result of the above and existing case-law, it was clear that just because the OTOC is legally required to put in place a system of compulsory training for its members does not mean that the self-imposed regulation falls outside of the scope of the antitrust laws.  As a result, the referring court should examine the OTOC regulation under EU and national competition laws.

The ECJ did offer some hints as to how the Lisbon Court of Appeals should view the situation: (i) there seemed to be little difference between “institutional” training, which the OTOC reserved for itself and “professional” training; (ii) the OTOC did not have to get any type of approval for its own “professional” training; and (iii) the contested regulation did not ensure equality of opportunity among the various providers—that is, the OTOC and everyone else.

The OTOC’s vague rules meant it could rule unilaterally (without limitations or being subject to review) on applications for registration or approval to provide training.  This meant that the OTOC had the power to distort competition by favouring the training it organised itself.  Furthermore, because of the process, potential providers were deterred from giving training on current topics (because of the three month approval process) and they had to share detailed information with their competitor—the OTOC.  The ECJ understood that through the regulation the OTOC was trying to guarantee the quality of the services offered by chartered accountants.  But all of this was not necessary to achieve this objective.  The restrictions appeared to go beyond what was necessary to guarantee the quality of services offered.

Why is this judgment worth considering?  Governments are demanding more accountability, more oversight in almost all industries—from food to consumer goods to financial services.  But, this takes time and resources and it may not always be the best solution for State agencies to do it.  Sometimes self-regulation, with some governmental oversight, makes more sense.  For those industries that currently self-regulate or are moving in that direction, they must always ask themselves, “Are the measures we have in place necessary to achieve our goal?”  Governmental approval, like in the OTOC’s case, does not give an association carte blanche to set any regulations it sees fit.  The measures must be objective and truly seek to do what they have been drafted to do.

If an association fails in this regard, and is caught by Article 101(1) TFEU, not only does it face the usual financial penalties, but it can also lose the government’s and public’s confidence.  Loss of reputation can be much more damaging than any financial penalty—and it does not necessarily stop with the association.  Members may have to struggle to regain the positive image they previously enjoyed.  So, it is better just to get it right the first time.