Financial Penalties Issued by the Disciplinary Board Under the New Kuwaiti Competition Law

Dr. Fahad Naama Al-Shaher Al-Shammari

Professor of Commercial Law, Kuwait University

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Article 34 of the new Kuwaiti Competition Law stipulates that the Disciplinary Board may impose financial penalties on violators not exceeding ten percent (10%) of the total revenues earned by the person concerned during the previous fiscal year in the event of a violation of the provisions of Articles 5, 6, 7, and 8 of this law. The same provision applies in the event of a violation of Article 12 of the same law, as well as in the event that an application for economic concentration contains misleading information.

In practical application of this article, we find that the Disciplinary Board of the Competition Protection Authority imposes a financial penalty on the offending party using the maximum penalty stipulated in Article 34 of the law. This practical application of the article has several shortcomings, in our view:

First, the Disciplinary Board must apply the principle of proportionality. This requires verifying the relationship between the regulations and their justifications. These regulations cannot exceed what is truly necessary to protect the desired economic and commercial interests. The most important stage of proportionality is verifying its narrow application. This stage necessitates questioning whether the maximum penalty is excessive compared to the objective it seeks to protect. In other words, if not applying the maximum penalty can achieve the desired objective without exceeding it, then the question of proportionality or balance must be examined between the negative effects of imposing the maximum penalty on the disciplinary board's discretionary power and the positive outcomes. This is considered in light of the objective being protected. The question then becomes: Are the negative effects of imposing the maximum penalty on the offender as significant as the positive effects it achieves in preserving the public economic and commercial interests of the State of Kuwait?

The principle of proportionality for administrative procedures taken by government agencies was first adopted in the Federal Republic of Germany in 1870. It stipulates that the measure taken should not be disproportionate. This principle is based on the logical idea that when government administrative bodies act, the means they choose must be effective in achieving their goals, namely, the public interest. See: (Jud Mathews, n.d., Proportionality Review in Administrative Law)

Secondly, we agree that the Disciplinary Board's use of this power stems from the legislative authority granted to it by law, and that no restrictions are imposed on its application of the maximum penalty when imposing financial sanctions on violators. However, the discretionary power granted to the Disciplinary Board does not imply arbitrary authority exercised outside the bounds of legality. Rather, it is a power whose natural limit lies in the legal rationale that dictated it: the public economic and commercial interest behind imposing financial penalties on individuals who violate competition law. Consequently, the Disciplinary Board's use of the maximum financial penalty, based on the authority granted to it, must be for the specific purposes for which this authority was granted: protecting the public interest within the Kuwaiti business environment, and not harming violators or negatively impacting their business activities due to the violation. From this perspective, while the term "public interest" is generally broad and flexible, the public interest behind the enactment of the new Competition Protection Law is legally defined. The legislator, in the explanatory memorandum, set specific and clear objectives for the new law, namely, achieving a balance between the principle of free trade and the principle of regulating the free market in a way that ensures the public good. This raises the following two questions: Will imposing a financial penalty of less than 10% on violators fail to achieve the law's intended goal? What technical and financial criteria did the disciplinary board use when deciding to apply the maximum financial penalty to achieve the law's objectives, as outlined in the explanatory memorandum?

Third: Imposing the maximum penalty on violators will not achieve the objective of fair competition law in all cases. This is because applying a financial penalty of no more than ten percent (10%) will be based on gross revenue, not net profit (i.e., before deducting any required expenses or costs). This will effectively cripple the company commercially, even destroying it and excluding it from the relevant market simply for violating competition law, since the penalty is levied on revenue, not net profit. Considering the size of the Kuwaiti market and the desire to diversify Kuwait's economic units away from dependence on oil, the question arises: Is the objective of competition law to exclude companies from the market for committing violations, or to regulate fair competition in the market while deterring violators with reasonable financial penalties proportionate to the violation, in accordance with the principle of proportionality?

Some may argue that imposing the maximum penalty on a violator will not affect them or their financial activity, as they can continue operating, especially if the company is large and generates excellent revenues. In reality, such a statement lacks accuracy and demonstrates a lack of understanding of business practices. This is because the offending party—the company—is always committed to maximizing shareholder profits and exploiting every available business opportunity to achieve the highest possible return for shareholders. Therefore, deducting 10% from the company's revenue due to a violation of competition law will inevitably cause harm to the company, even if it continues operating.