NTL sanctioned for imposing unfair trading practices

The Croatian Competition Agency (CCA) closed two administrative proceedings that it had initiated on 1 April 2018 against the undertaking NTL d.o.o. from Sesvete (NTL) in which it investigated the content and the implementation of the contracts this re-seller had concluded with its suppliers – Zdenka mliječni proizvodi d.o.o. (Zdenka dairy products) and Gavrilović d.o.o. (Gavrilović). The CCA found that the re-seller concerned imposed unfair trading practices on its suppliers and fined it HRK 800,000.

The contracts investigated by the CCA did not contain the place or places of delivery as a mandatory provision of the contracts as specified under the Act on the prohibition of unfair trading practices in the business-to-business food supply chain (UTPs Act). Instead, NTL defined that the place/s of delivery of food products would be specified in the order. By doing so NTL committed a serious infringement of UTPs Act.

The infringement lasted from 1 April until 16 August 2018 when NTL concluded annexes to the purchase agreements with Zdenka dairy products and Gavrilović that specified all the places of delivery. Only then these provisions became a constituent part of the agreements concerned within the meaning of the UTPs Act.

Within the meaning of the UTPs Act the purpose of specifying the place/s of delivery as a mandatory component of the purchase agreement between the re-seller and its supplier is to make the supplier aware of all the places of delivery at the moment of the conclusion of the agreement defining upfront their obligations under the contract so as to ensure its compliance with the obligations undertaken and the smooth running of the business. This is particularly important in the sense of the delivery deadlines that must be respected by a supplier. Otherwise it might be subject to penalty charges.

Apart from the above described infringements connected with the place of delivery NTL also included into its General purchase contract with Zdenka dairy products the so called “transportation rebate” calculated as a percentage rate specified on the receipt of the supplier where a minimum volume (one palett) of the products concerned is delivered in one place of delivery.

This means that NTL concluded a purchase agreement that is in contravention with Articles 4 and 12 of the UTPs Act. Namely, NTL did not have the right to impose on the supplier the costs of logistics that would be, in this particular case, imposed on the supplier in the form of “transportation rebate”.

This is on the account of the fact that the place/s of delivery did not constitute a constituent part of the agreement concerned, which is mandatory based on the fact that at the moment of delivery all the risks and the responsibility for the agri or food products are transferred from the supplier to the re-seller. Besides, it is prohibited to charge any fees for delivery of an agri or food product outside the agreed place of delivery, it is prohibited to charge any storage and handling fees after the agricultural or food product has been delivered to the re-seller, in other words, it is prohibited to charge any fee for services that have not been provided.

Taking the above into account, the CCA found that the “transportation rebate” constituted a hidden fee for the delivery of the agri or food product outside the agreed place of delivery, for the storage and handling after the delivery of the agri or food product to the re-seller that constitute a fee charged by the re-seller for the services that have not been provided.

The CCA found no evidence that the “transportation rebate” had been actually applied. However, the mere existence of the prohibited hidden fee described above constituted the infringement of the UTPs Act.

The CCA did not accept the explanation of NTL that the “transportation rebate” had actually been a volume rebate or a combination of rebates linked to one place of delivery and the minimum order volume (one palett), which, in NTL words, should have resulted in savings for the supplier. However, in its nature the volume rebate was not linked with the place of delivery, and if it had been, the supplier would not have been aware of any savings, given the fact that the places of delivery were not known at all to the supplier at the time of the conclusion of the agreement, and consequently, these provisions did not constitute the mandatory part of the agreement.

The infringement concerned lasted from 1 April until 6 November 2018 when NTL concluded an annex to the purchase agreements with Zdenka dairy products that instead of the “transportation rebate” agreed exclusively the volume rebate not linked with the place of delivery.

All the described infringements constitute serious infringements of the UTPs Act for which a fine amounting up to HRK 3.5 million can be imposed.

For the described infringement of the UTPs Act with respect to the purchase agreement with Gavrilović NTL was fined HRK 350,000.

For the described infringement of the UTPs Act with respect to the purchase agreement with Zdenka dairy products NTL was fined HRK 450,000.

In setting the fine in both cases, the CCA took into account the extenuating circumstances – the relatively short duration of the infringement, the elimination of the infringement in a short period of time, the cooperation with the CCA, the elimination of the unclarities regarding the expressions used in the particular provisions of the agreement and the absence of the evidence of the actual application of the “transportation rebate”.

Taking into account the gravity, the scope and the duration and the consequences of the infringement concerned for the suppliers, as well as the extenuating circumstances, NTL was imposed a fine in the total amount of HRK 800,000 for the infringement of the UTPs Act regarding the agreements it had concluded with its suppliers Gavrilović and Zdenka dairy products.

In the opinion of the CCA the fine will have a deterrent effect on NTL but also on other re-sellers, buyers and processors in the food supply chain regarding any possible future infringements of the UTPs Act.