Industrial Commerce, Hyundai’s local distributor, has been given a record fine of about €8.2 million by the Competition Protection Commission.
In total, fines of around €8.4 million were imposed on Industrial Commerce and several of its dealers for direct price-fixing and market sharing arrangements for the resale of new Hyundai motor vehicles and spare parts.
The fine imposed on Industrial Commerce is the biggest individual fine in CPC’s history. It has been set at the maximum level permitted by law (10% of the infringer’s aggregate annual turnover in the preceding financial year).
The record fine by CPC follows its 2010 inquiry into the automobile distribution sector, in which it asked for copies of standard form dealership agreements from new car and spare parts distributors and servicing/repair providers.
CPC then launched an investigation into Industrial Commerce’s practices and relations with its dealers of new automobiles and original spare parts because its standard form agreements were found to contain some ‘hard core’ restrictive clauses. This investigation included a dawn-raid and the use of its own forensic lab (IT specialists) to obtain incriminating evidence from those suspected of involvement.
There is no indication that any of the companies involved sought leniency protection or otherwise proactively cooperated with the CPC investigation in order to qualify for a fine reduction. They argued, as part of their submissions, that any vertical restraints in their contracts were covered by the block exemption applicable to the motor vehicle sector. This argument was rejected by the CPC as the vertical restraints in the agreements were considered to be ‘hard core’ and thus outside the exemption.
Based on the available evidence, CPC found a number of infringements:
- The agreements between Industrial Commerce and their dealers set out a detailed mechanism for fixing sale prices to end customers, effectively imposing fixed resale prices on its dealers.
- The agreements contained restrictions preventing the dealers from selling any cars and spare parts produced or imported by competing suppliers.
- The contracts also restricted the cross-supply of new motor vehicles and spare parts, thus preventing dealers from buying cars and spare parts from other distributors or dealers of Industrial Commerce.
- The contracts restricted the territory within which each dealer in Industrial Commerce’s selective distribution system could make sales.
The CPC ruled these infringements to be grave and lasting violation of the Bulgarian and EU competition laws which, in some cases, existed from 1 April 2008 until the date of the penalty decision. It did not find any mitigating circumstances. It also rejected the companies’ attempts to propose commitments as inappropriate, because it held the infringements to be of such a grave and serious nature.
The decision is subject to judicial appeal and has not yet become effective. Case law suggests that an appeal can lead to significant reductions in fines for some or all participants and that, at the very least, the court would look at the potential impact of such significant fines on the companies’ financial stability as well as mitigating circumstances which, if relevant, would lead to a 10% reduction per mitigating circumstance (according to the CPC’s own methodology for setting fines).
The decision is interesting as it provides a good illustration of how the CPC implements, in practice, its policy to detect and crack down on suspected anti-competitive arrangements and, in particular, price fixing cartels. It instigated the investigation following a sector inquiry which identified competition concerns and suspicious conduct.
An earlier example of this is where the CPC instigated a price-fixing investigation into some of the major petrol station chains following a sector inquiry into the retail fuel (petrol and diesel) market.
The fact that the CPC imposed the maximum fine for competition law infringements of 10% of Industrial Commerce’s’ aggregate turnover for the previous year is significant as, historically, the CPC has shown a marked reluctance to impose fines at or close to that level, even for serious infringements such as abuse of dominance (e.g. refusals by large electricity distribution operators to grant access to their networks).
The size of fine in this case will undoubtedly have a strong deterrent effect on other businesses, and could prompt them to improve their risk management policies by introducing preventative measures such as contract reviews, staff training and internal competition compliance audits to flush out inappropriate behaviour or incompliant sale practices.
CMS’s competition team in Sofia is experienced in assisting our clients to prepare for and deal with competition compliance issues. There are a number of ways in which we can help you review your agreements and business practices:
- a competition audit, to identify competition risks in contracts and market practices
- reviewing or putting in place compliance procedures, internal rules and monitoring systems
- coaching management and training personnel in competition law compliance
- holding tailored in-house competition compliance workshops.