Unfair trading practices – CCA imposes HRK 807,500 fine on Lidl

The Croatian Competition Agency (CCA) closed the administrative proceeding in a joint case against the undertaking Lidl Hrvatska d.o.o.k.d. from Velika Gorica in which it investigated the content and the implementation of the contracts this re-seller had concluded with three suppliers.

In the course of the infringement proceeding the CCA found that Lidl used its strong bargaining power and imposed unfair trading practices on three suppliers. Concretely, the probe of the CCA revealed that from the day of entry into force on 1 January 2018 to the day of adoption of the infringement decision of the CCA on 26 July 2019 the standard purchase contracts with three suppliers:

• did not contain a provision that would clearly and unambiguously set the duration of the contracts, which contravenes with Article 6 paragraph 1 item 6 of the Croatian Act on the prohibition of unfair trading practices in the business-to-business food supply chain (UTPs Act) that stipulates that duration of the contract is a mandatory constituent part of any contract, and thereby constitutes an unfair trading practice within the meaning of Article 4 paragraph 2 item 1 of the UTPs Act, and

• they contained a provision that, in essence, constitutes a trading partner’s excessive charges for fictitious services. Concretely, despite the fact that the provision on quality assurance at the expense of the supplier was properly defined, Lidl introduced extra charges for quality assurance into the contracts concerned, a lump-sum payable by the supplier in proportion to the value of the goods. Thus, the extra charges for quality assurance have been transferred on the supplier for the quality control agreed between Lidl and the authorised lab of its choice regardless of the results of the quality control. In this case, the supplier was charged for a service that has not been provided, was not real or measurable for the supplier. This practice contravenes with the very purpose of the UTPs Act that is to prevent and prohibit any transfer of costs from the re-seller, in this particular case Lidl, on its suppliers in a non-transparent manner based on its superior bargaining position. In this case, the CCA found that Lidl did not actually provide the service to the suppliers but merely transferred its own cost on the supplier and therefore constitutes an unfair trading practice within the meaning of Article 4 paragraph 2 items 1 and 6 of the UTPs Act in connection to Article 12 items 11 and 16 of the UTPs Act. In the view of the CCA, Lidl can ask for as many quality controls of agri and food products as it wishes but the cost of these controls must be borne by Lidl itself. Only where these quality controls prove that the product that has been subject to additional control does not match the quality standard agreed under the contract, the cost of the analysis may be in whole or in part transferred on the supplier, depending on the actual additional quality checks results. In such a case this should be defined under the contract and the Civil Obligations Act would apply.

In the explanation thereof, the CCA found that the contract provisions under the title “Quality assurance” that contain as many as 15 entries, sufficiently assure the quality of products delivered by the suppliers and sold by Lidl to final consumers, taking into account the frequent food quality controls carried out at the supplier’s cost. The products mainly include short expiry products with the expiry period from six to nine months. In addition, if the obligations of the producers – suppliers under the Food Act, OG 81/2013, 14/2014 and 30/2015 relating to the mandatory checks of their products at their own cost are taken into account, it is absolutely unnecessary to additionally put these provisions in the contracts under the title “Quality assurance charges” on the basis of which Lidl asks its suppliers to pay the lump-sum in proportion to the value of the goods regardless of the results of the analysis.

The above described infringements constitute serious infringements of the UTPs Act that provides for sanctions ranging up to the amount of HRK 3.5 million.

Taking into account the gravity, the scope and the duration of the infringement of nearly 19 months as well as the extenuating circumstances, Lidl was imposed a fine in the amount of HRK 807,500.

In the opinion of the CCA the fine will have a deterrent effect on Lidl but also on other re-sellers, buyers and processors in the food supply chain.

Within the meaning of the UTPs Act, with the view to eliminating the infringements in question the CCA prohibited Lidl to carry on with any of the practices described above. Concretely, the CCA ordered the re-seller to submit annexes to the contracts concerned that would clearly and unambiguously define the duration of the contacts within the meaning of Article 6 paragraph 1 item 6 of the UTPs Act whereas the provision on extra charges for quality assurance tests must be deleted or modified in line with the UTPs Act.

The integral version of the decision of the CCA without the parts covered by confidentiality obligation will be published on the CCA website.