Unfair trading practices: CCA acts in accordance with the ruling of the Administrative Court and takes new decision in Lidl case

In its decision of 26 July 2019, the Croatian Competition Agency (CCA) found that the re-seller Lidl Hrvatska d.o.o. k.d. with its seat in Zagreb used its strong bargaining power and imposed unfair trading practices on three suppliers within the meaning of the Croatian Act on the prohibition of unfair trading practices in the business-to-business food supply chain (UTPs Act). Lidl was fined HRK 807,500.

Lidl challenged the above-mentioned CCA decision at the Administrative Court in Zagreb that in its first instance ruling annulled the CCA decision and ordered the CCA to take a new decision within 60 days from the receipt of its ruling.

Basically, the Administrative Court in Zagreb did not uphold the CCA finding that the standard purchase agreements (SPAs) with three suppliers did not contain a provision that would clearly and unambiguously set the duration of the contracts, which contravened with the UTPs Act that stipulates that duration of the contract is a mandatory constituent part of any contract.

However, the Administrative Court accepted the finding of the CCA that the SPAs contained a provision that, in essence, constituted 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, which constitutes an unfair trading practice within the meaning of the UTPs Act.

The CCA acted fully in compliance with the order of the Administrative Court and adopted a new decision in Lidl case on 25 November 2021, specifying that Lidl used its strong bargaining power and imposed unfair trading practices on three suppliers. Despite the fact that the regular quality controls were clearly agreed under the annexes to the SPAs entitled “Quality Control” and ensured by the suppliers at their own cost, the SPAs contained additional provision on quality control entitled “Charges for quality control services”. Under this provision Lidl basically introduced extra charges for quality assurance, a lump-sum payable by the supplier in proportion to the value of the goods. These additional quality control measures were initiated by Lidl in an authorised lab of its choice. 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 provision and practice constitute an unfair trading practice within the meaning of the UTPs Act and a serious infringement of the UTPs Act that lasted for more than one year.

Taking into account the gravity, the scope and the duration of the infringement, and its consequences for the suppliers as well as the extenuating circumstances, Lidl was imposed a fine in the amount of HRK 400,000. The fine will have a deterrent effect on Lidl but also on other re-sellers, buyers and processors in the food supply chain.

The integral version of the decision of the CCA of 25 November 2021 in the Croatian language and without the parts covered by confidentiality obligation is available here:  https://www.aztn.hr/ea/ea/ea/ea/ea/wp-content/uploads/2022/02/UPI-034-032018-04015.pdf