UTPs: High Administrative Court dismisses the appeal of PLODINE

In March 2018 the Croatian Competition Agency (CCA) found that the Croatian re-seller PLODINE d.d. used its strong bargaining power and imposed unfair trading practices on one of its suppliers of fresh meat – the undertaking EKRO BV from the Netherlands within the meaning of the Croatian Act on the prohibition of unfair trading practices in the business-to-business food supply chain (UTPs Act). The fine imposed in the decision of the CCA amounted to HRK 1.008 million.

The CCA opened the administrative (investigation) proceeding against the undertaking Plodine ex officio on 29 June 2018 and found that 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.

Second, The UTPs Act entered into force on 7 December 2017, which actually meant 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 the contract between Plodine and its supplier EKRO BV 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.

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 this concrete case, Plodine was 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 realized higher turnover at the European level, Plodine still had a strong bargaining power. That is, in no way does the UTPs Act make 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 concluded contracts with a large number of suppliers of fresh meat, both domestic and foreign, lead to the conclusion that EKRO BV was under no circumstances an unavoidable trading partner for Plodine, in other words, Plodine’s business did 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 could not be ruled out in no event.

Against the decision of the CCA of 21 March 2019 the undertaking Plodine filed a complaint with the Administrative Court in Rijeka in April 2019. On 10 February 2020 the Administrative Court in Rijeka upheld the CCA infringement decision. In its ruling the Administrative Court in Rijeka rejected the claim of Plodine in the administrative dispute challenging the decision of the CCA.

Plodine appealed against this ruling at the High Administrative Court of the Republic of Croatia with respect to the alleged breach of court procedure rules, erroneous and incomplete establishment of facts which lead to an erroneous application of law.

In the explanation of its decision the High Administrative Court of the Republic of Croatia dismissed the appeal as unfounded and upheld the ruling of the Administrative Court in Rijeka and the effective infringement decision of the CCA of 21 March 2019.

Thus, as the decision is now legally valid, Plodine must pay to the state budget account the imposed sanction in the amount of HRK 1.008 million, plus penalty interest from the day of the receipt of the CCA decision to the day of payment.

This has been the first legally valid decision recorded by an administrative court in Croatia in the area of unfair trading practices in the business-to-business food supply chain marking the start of the court practice in a completely new law discipline.