The Slovenian Constitutional Court has declared the competition authority’s regime of inspections to be not in line with the Slovenian Constitution. The Court set the Parliament a one year deadline to change the Slovenian Prevention of Restriction of Competition Act ("PRCA") in this respect.

Until the lapse of this period, the provisions of the PRCA remain in force and the Slovenian Competition Protection Agency ("the Agency") is still entitled to carry out inspections of undertakings based on an order issued by the Agency itself, just as the current regime anticipates.

PRCA on Dawn Raids

Under the current regime put into force by the PRCA, the Agency is entitled to carry out inspections of undertakings that are subject to Agency’s proceedings based on an order for inspection issued by the Agency.

Inspections are the Agency’s main tool for acquiring evidence and may be conducted against the will of the undertaking concerned. The Agency has full investigative powers and may access all premises related to business and inspect all data carriers.

There is no hierarchy between different investigative prerogatives of the Agency and it does not have to specify which exact business premises it plans to search or which documents shall be of relevance. No judicial protection is allowed against the Agency’s order on inspection and the parties may only test its lawfulness together with the final decision on the infringement before the Supreme Court.

On the other hand, the Agency may conduct inspections of private premises only on the basis of a court order.

Challenge by the Supreme Court

In its challenge, the Supreme Court argued that the system as it is goes against at least three basic human rights guaranteed by the Slovenian Constitution, namely (i) the inviolability of dwellings, (ii) protection of the privacy of correspondence and other means of communication, as well as (iii) the right to legal remedies.

While the Constitutional Court has not assessed the last claim due to lack of reasoning, it has decided to test the first two in order to adopt a stance on how far the right to privacy extends with regard to legal persons, an issue that has so far not been clarified by Slovenian jurisprudence.

Argumentation of the Constitutional Court

The Constitutional Court began its reasoning on the premises that the constitutional order is built on the values that in essence pertain to an individual – an independent human being. However, the right to free economic initiative, which gives individuals a right to establish legal persons, is one of the basic human rights and this is one reason, among others, why the protection of legal persons represents an important factor in protecting individuals and is not an end or goal in itself.

The Slovenian Constitution guarantees equivalent constitutional protection to legal persons only with respect to some human rights, while with respect to other rights the level of legal protection is either lower or cannot be guaranteed due to the nature of such rights. However, the existence of a legal person and its normal functioning depend on the protection of an inner circle in which the legal person is awarded (in a reasonable way) with protection against intrusions of external nature, including arbitrary interventions by the state, which is why legal persons should also be entitled (to a certain extent) to the right to privacy.

Privacy of dwellings of legal persons

According to the Slovenian Constitution, dwellings are inviolable and this privilege may be lifted only under certain conditions.

When it comes to legal persons, the Constitutional court decided to differentiate between two main sub-divisions of dwellings, namely (i) business premises intended for the public, and (ii) business premises not generally accessible to the public. While the first category self-evidently does not fall under the application of the privacy privilege, the second was further divided into (a) external and (b) internal circles of privacy and assessed separately.

As the operations of legal persons are subject to certain constitutional limitations (including competition rules), it must be ensured that the state is able to monitor the compliance of their behaviour and will be entitled to have insight into the external circle of privacy without infringing the privacy privilege. This includes, for example, an inspector entering the business premises even though they are not open to the public.

At the same time, the Constitutional Court acknowledges that the state’s ability to make an inspection of hidden parts of business premises with a view to seizing information on business operations regardless of its form goes beyond such an external circle. This is where the legal person’s internal circle of privacy begins and as such must be protected as a constitutional category in line with Article 36 of the Slovenian Constitution (as well as Article 8 of the European Convention on Human Rights).

Communications’ privacy of legal persons

The Constitution establishes that the privacy of correspondence and other means of communication shall be guaranteed. Here, the Constitutional Court made no distinction with respect to individuals and legal persons and concluded that this right pertains to both, as the legal persons should also be entitled to expect that the privacy of their communications is ensured when they do not want to disclose their contents. This is also in line with paragraph 2 of Article 8 of the European Convention on Human Rights.

Conclusions of the Constitutional Court

Inspections carried out by the Agency are of extremely broad nature and as such represent an invasive intervention into undertakings’ privacy of dwellings, as well as the privacy of communications, both of which are guaranteed by the Constitution also with regard to legal persons.

This is why the constitutional request for an advanced court order should apply to the Agency’s inspections under the PRCA and the Agency itself should not be entitled to issue decisions on inspection, as the PRCA currently anticipates.

The way forward?

The Parliament has one year to remedy the situation and to enact a regime that will be in line with the constitutional requirements outlined by the Constitutional Court in the decision at hand. These privileges must be carefully weighed against other constitutional requirements, especially Article 74, which anticipates that commercial activities may not be pursued in a manner contrary to the public interest and prohibits practices that restrict competition.

The new regime must be drawn within the recommendations laid down by the Constitutional Court – while the standards for the protection of the right to privacy for legal persons may be set lower in comparison with the standards for natural persons, the legislator must not omit the requirement for an ex ante court order when the privacy of dwellings and/or communications is being impaired against the will of a legal person.

What does the decision mean for the investigations already carried out and the respective procedures?

The Constitutional Court has explicitly declared that until a new regime is adopted, the Agency still has valid legal grounds to exercise its investigative powers under the regime currently in force, since it has not derogated the regime, but merely declared its non-compliance with constitutional requirements.

All investigations already carried out, as well as those that will be carried out until the new regime is enacted will therefore be valid and the parties may not recourse to this decision seeking the investigation being proclaimed unconstitutional based on the fact that the decision on commencement has been issued by the Agency.

However, the Constitutional Court has left some space for the contrary argumentation, as the wording of the decision anticipates that the Agency still has valid grounds for a "suitable investigation", whereby it is difficult to imagine that an investigation is suitable if it goes against constitutional rights of the legal person concerned. This inaccuracy will most probably flame further debates on the issue and the competent court will have to come to a conclusion in this respect in of the event of a potential dispute over the lawfulness of the Agency’s past, present or future investigations.