Unfair trading practices – CCA imposes its first sanction on PLODINE

The Croatian Competition Agency (CCA) closed the administrative (investigation) proceeding against the undertaking Plodine that was initiated ex officio on 29 June 2018 after having carried out a market investigation on its own initiative that included 31 re-sellers. In this case a number of contracts between the re-sellers and their suppliers, domestic and foreign, have been randomly analysed and screened as to whether they contain provisions that possibly violate the Croatian Act on the prohibition of unfair trading practices in the business-to-business food supply chain (UTPs Act), identifying sufficient indications for the opening of an infringement proceeding against any particular re-seller. The screening process included also the undertaking Plodine and its contracts with the Dutch supplier of fresh meat EKRO BV but also some other contracts concluded between the re-seller concerned and its domestic suppliers that will be decided upon by the CCA in separate administrative proceedings.

Based on the relevant facts of the case the CCA found that the Croatian re-seller PLODINE d.d. used its strong bargaining power and imposed unfair trading practices on the supplier of fresh meat EKRO BV from the Netherlands and imposed on the former a fine for the infringement concerned in the amount of HRK 1.008 million.

First, in the time period from 4 January 2018 until 12 March 2018 Plodine did business with the supplier concerned without any written contract whatsoever. The business was carried out based on the offer and the acceptance of the offer that contained no elements of a written purchase agreement defined by the UTPs Act.

Namely, the UTPs Act lists the following mandatory provisions of any written purchase agreement: the price of the product and/or the method of price calculation, the quality and the category of the agri product or food product that is delivered to the re-seller, the terms of payment where payment cannot exceed 30 days from the receipt of the fresh product or 60 days in the case of other products, the terms of delivery, the place of delivery and the duration of the agreement.

The UTPs Act entered into force on 7 December 2017, which actually means that after that date the agreements between the re-sellers and the supplies should have been in a written form and should have contained all the above-mentioned elements of a contract. In this particular case, the order and the acceptance of the order were not drafted in a written form and did not contain all the mandatory elements of such a contract in the period from 4 January 2018 until 12 March 2018.

Additionally, all the purchase agreements entered into between Plodine and the supplier of fresh meat EKRO BV in effect between 12 March 2018 and 10 July 2018 specified the payment period of 60 days despite the fact that fresh meat was the subject of the agreements, for which the UTPs Act explicitly prescribes the payment period not exceeding 30 days from the receipt of the fresh product. Not only did the purchase agreements contain the payment periods exceeding 30 days but it was also found that Plodine actually made the payments to its supplier EKRO BV in the period concerned later than 30 days, which is also an infringement of the UTPs Act.

For serious infringements the UTPs Act provides for a maximum fine in the amount of HRK 3.5 million.

When setting the fine in this case the CCA took into account the extenuating circumstances involving the cooperation of Plodine with the CCA throughout the proceeding, the short duration of the infringement (six months) and the fact that on 10 July 2018 Plodine provided the evidence demonstrating a new agreement that has been concluded with EKRO BV in line with the provisions of the UTPs Act and specifying the terms of payment of 30 days.

Consequently, taking into consideration the gravity, scope, duration and the implications of the infringement for the suppliers, bearing in mind the extenuating circumstances, the CCA imposed the fine on Plodine in the amount of HRK 1.008 million.

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

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

This is the first time the CCA has imposed a fine on an undertaking for the infringement of the UTPs Act as a completely new piece of legislation that has been applied only for a year. Also, given the special features of the case concerned the CCA finds it useful to explain the bigger picture in the sense of the application of UTPs Act in practice.

In that sense, it must be noted that the objective and the purpose of the UTPs Act is to establish, ensure and protect fair business practices. At the same time, the UTPs Act ensures equal legal treatment of all suppliers – domestic and foreign.

Besides, the UTPs Act equally protects all suppliers regardless of their size and turnover. In other words, the UTPs Act treats big and small suppliers equally.

In this concrete case, Plodine is a re-seller buying from its supplier – EKRO BV fresh meat that is marketed in the territory of the Republic of Croatia. In spite of the fact that EKRO BV realizes higher turnover at the European level, Plodine still has a strong bargaining power.

In no way does the UTPs Act makes a link between the turnover of the re-seller and the turnover of the supplier, neither does it specify any kind of turnover or market power categories of the supplier related to that of the re-seller. In the same manner, there are no other criteria stipulated under the UTPs Act that would due to any reason or characteristics of the supplier rule out the application of the UTPs Act.

In addition, regardless of the market power of EKRA BV globally, the fact that Plodine concludes contracts with a large number of suppliers of fresh meat, both domestic and foreign, leads to the conclusion that EKRO BV is under no circumstances an unavoidable trading partner for Plodine, in other words, Plodine’s business does not significantly depend on its business deal with EKRO BV, given the irrelevant share of this supplier in the meat business of Plodine.

In the course of the proceeding Plodine argued that within the meaning of the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) its business matters with EKRO BV should have been subject to the Dutch law, which should have ruled out the application of the UTPs Act.

The UTPs Act is a mandatory rule of law. As a result, the participants in legal matters cannot regulate their civil obligations in contravention with the mandatory rule of law. The proceeding concerned was carried out in line with the administrative proceeding rules. It was initiated and carried out by the CCA with the view to protecting the public interest. The analysis of Article 1 paragraph 1 of the above-mentioned Rome I Regulation made it clear that Rome I Regulation applies to contractual obligations in civil and commercial matters where there is a conflict of laws. However, the Rome I Regulation explicitly rules out the application in tax, customs or administrative matters. Therefore, the application of the UTPs Act in this particular case as the mandatory rule of law in concrete business relations between Plodine and EKRO BV cannot be ruled out in no event.