Supreme Court Issues Rules For Inspections For Administrative Investigations By Philippine Competition Commission.
Legal News & Analysis - Asia Pacific - Philippines - Competition & Antitrust
30 November, 2019
The Supreme Court has recently issued A.M. No. 19-08-06-SC or the "Rule on Administrative Search and Inspection under the Philippine Competition Act" (Rules).
The Rules govern the procedure to apply for, the issuance, and enforcement of, inspection orders for administrative investigations of alleged violations of the Philippine Competition Act (PCA), its implementing rules and regulations, and other competition laws.
The Rules will take effect on 16 November 2019.
The Rules are expected to strengthen the powers of the Philippine Competition Commission (PCC) to enforce compliance with the PCA and to penalize violations of the same. Businesses must familiarize themselves with the Rules, as inspections and searches are not only unannounced, but also disruptive to a company's operations.
An inspection order is a written order signed by a judge, authorizing the PCC and any law enforcement agency that the PCC may deputize, to search and inspect business premises and offices, land, and vehicles, to examine, copy, photograph, record, or print, relevant information (Inspection Order).
The information sought to be examined, copied, photographed, recorded or printed under the Inspection Order must relate or be relevant to an administrative investigation of the PCC. It may include books, tax records, documents, papers, accounts, letters, photographs, objects or tangible things, databases, and means of accessing information contained in such databases, and electronically stored information.
The information collected pursuant to the Inspection Order may only be used in investigations in administrative proceedings. Such investigations may cover horizontal and vertical anti-competitive agreements and abuse of dominant position, where the PCC may impose an administrative penalty comprised of a fine ranging from PhP100, 000,000 to PhP 250,000,000. On the other hand, for violations of the PCA which may be subject of criminal penalties (e.g. anti-competitive horizontal agreements such as price-fixing, bid-rigging and market sharing), the PCC would have to secure a search warrant in accordance with the Constitution and the Rules on Criminal Procedure in order to obtain evidence for the criminal case, if it prefers to pursue this course of action after a preliminary inquiry is conducted.
A duly authorized officer of the PCC may apply for an Inspection Order with either (a) the Special Commercial Courts in the judicial regions where the place to be inspected is located; or (b) the Special Commercial Courts in Quezon City, Manila, Makati, Pasig, Cebu City, Iloilo City, Davao City, and Cagayan De Oro City. Unlike the Special Commercial Courts in the judicial regions, the Special Commercial Courts in these specific cities have the authority to issue Inspection Orders that are enforceable nationwide.
The application must particularly describe:
- The subject of the administrative investigation;
- The premises, offices, land or vehicles, to be searched or inspected; and
- The information to be examined, copied, photographed, recorded, or printed, and their relevance and necessity to the investigation.
The court must act upon the application within 24 hours from its filing. The judge must personally examine the applicant and the witnesses he or she may present. The hearing on the application will be conducted ex parte (i.e., without the presence of the entity to be searched and its representatives). Court personnel are required to maintain the confidentiality of the proceedings.
Issuance of Inspection Order
An Inspection Order may be issued if there is reasonable ground to suspect that:
- the information is kept, found, stored or accessible at the premises indicated in the application;
- the information relates to any matter relevant to the investigation; and
- the issuance of the order is necessary to prevent the removal, concealment, tampering with, or destruction of the books, records, or other documents to be inspected.
The Inspection Order will be effective for the period determined by the court, which will not exceed 14 days from its issuance. It may be extended for another 14-day period.
The phrase "reasonable ground to suspect" is not clearly defined in the Rules. This may give rise to future legal challenges, as the "reasonable ground to suspect" standard appears to be lesser than the "probable cause" search and seizure standard under the Philippine Constitution.
Enforcement of Inspection Order
The Inspection Order must be served and implemented in the presence of a duly designated officer of the court during business hours, or at any time on any day as may be determined by the court for compelling reasons.
The premises must be inspected by the officials enforcing the Inspection Order (Enforcing Officials), (i.e., PCC officials and law enforcement agents authorized by the PCC to assist in the enforcement) in the presence of the person designated by the entity subject of inspection, who is either a compliance officer or a legal counsel (Designated Representative). The Designated Representative will be given the opportunity to read the Inspection Order before its enforcement. The Designated Representative is required to disclose the location where the information subject of the Inspection Order is stored, and provide the Enforcing Officials with all reasonable assistance for the conduct of the inspection. The unreasonable delay, failure, or refusal to appoint a Designated Representative will not prevent the implementation of the Inspection Order.
The Enforcing Officials may (a) enter, search and inspect the premises and (b) examine, copy, photograph, record, or print information described in the Inspection Order. If the Enforcing Officials are refused admission to the premises after giving notice of their purpose and authority, they may use reasonable force to gain entry to the premises, to enforce the Inspection Order or to liberate themselves when unlawfully detained.
If the Enforcing Officials inadvertently discover other relevant information in plain view that may be evidence of a violation of competition laws, the Enforcing Officials may examine, copy, photograph, record, or print such information and use the same as evidence of the violation.
Electronic Information and Databases
Electronically stored information, databases, and means of accessing information contained in databases that are or may be accessed in the premises, may be examined and copied by forensic imaging or other means. Such copies will be treated as original documents, which are admissible under Philippine rules of evidence.
The Enforcing Officials may also ask individuals to explain facts or documents relating to the inspection and record their answers. An individual may be assisted by counsel. The individual must answer the questions, although the answer may tend to establish a claim against him/her. However, the individual has the right not to give an answer if this will tend to subject him/her to a criminal penalty.
The Enforcing Officials may secure or seal the area and equipment, gadgets or devices where the information is located or stored. They may attach to them a tag or label warning against tampering until the examination, copying, photographing, recording, or printing is completed. Tampering with, breaking or removing the seal affixed is punishable by contempt of court.
The Enforcing Officers must prepare a list of the information copied, photographed, recorded, or printed (Copied Information). A copy must be given to the Designated Representative, who will have the opportunity to check the Copied Information. The Designated Representative may acknowledge receipt by affixing his/her signature.
The Designated Representative may also certify that the Copied Information are faithful reproductions of their respective originals. Once certified, they will be admissible as evidence in the relevant administrative proceedings.
Within 3 days from the enforcement of the Inspection Order or after the expiration of the Inspection Order (whichever comes earlier), the PCC's authorized officer must submit a verified return to the issuing court. The return must be accompanied by the inventory of the Copied Information.
Remedies against Improper Inspection Order
Before a return is filed, the person or entity whose premises were inspected may file a written motion with the issuing court to quash the Inspection Order on the ground that it was improperly issued or implemented. The motion will be resolved summarily after due notice to the PCC.
Sanctions for Non-Compliance
Any person or entity who fails or refuses to comply with an Inspection Order or any provision of the Rules may be cited for contempt of court. The entity may be penalized with a fine not exceeding PhP 30,000, and the responsible officer or employee of the entity cited for contempt may be fined or imprisoned, for a period not exceeding 6 months or both. In addition, a contempt citation may adversely affect the entity's reputation and its relationship with the PCC.
Exercise of Other Remedies
Applying for an Inspection Order under this Rule will not prevent the PCC from exercising its powers under existing laws and rules, including applying for search warrants under relevant rules for criminal cases.
The Rules do not expressly provide that companies may withhold documents that are subject of legal privilege. Since the Rules are silent and until the Supreme Court clarifies the matter, privileged documents may still have to be surrendered to the Enforcing Officers. Given the penalties for non-compliance with the Inspection Order (i.e., contempt), it may be impractical and futile to argue with the Enforcing Officers during the inspection, especially as they may not be familiar with the concept of privilege. Nevertheless, this should not prevent the entity from raising the defense of privilege subsequently before the issuing court.
How it affects you
The Rules signal the PCC's intention to further strengthen and give effect to its mandate to enforce Philippine competition laws. As shown by the experience in other jurisdictions, dawn raids have proven to be effective and powerful tools in enforcing competition laws and gathering evidence necessary to prosecute violations.
Businesses must familiarize themselves with the Rules so that they can be apprised of their rights and obligations during an inspection or search done by the PCC. An inspection or search is not only unannounced and disruptive to a company's operations, but may also expose the company and its officers and employees to administrative liability for violation of Philippine competition laws as well as liability for contempt in case of non-compliance with the Inspection Order
Businesses may want to put in place dawn raid or inspection protocols and guidelines at the soonest possible time, in order to ensure that its personnel, and, in particular, its Designated Representative, are prepared in the event of a dawn raid or inspection. Businesses should also be mindful of its internal records and communications, as these may be subject of the inspection. For instance, internal documents should avoid references or statements which may suggest that the business may be engaged in anti-competitive conduct. In discussions, meetings, or exchanges which may be considered anti-competitive, the business should ensure that its objections to the discussions or exchanges are recorded. Quisumbing Torres may assist in the formulation and review of dawn raid / inspection and communication protocols and guidelines, and in the training of company personnel who will be tasked to interface with the authorities during a dawn raid / inspection.
For further information, please contact:
Divina Pastora V. Ilas-Panganiban, Partner, Quisumbing Torres