Over two years after the entry into force of the Act of 15 December 2016 on Counteracting Unfair Use of Contractual Advantage in Trade of Agricultural and Food Products (more commonly known as the act on contractual advantage, below also as “the Act”), the President of the Office of Competition and Consumer Protection (UOKiK) adopted his first ever decision finding an infringement of the Act and imposing a severe fine. Though not entirely flawless, the ruling offers valuable insight into the practice of the competition authority in this area.
The decision is addressed to T.B. Fruit Polska sp. z o.o. S.K.A. (referred to below as “T.B. Fruit” or “the company”), a producer of apple juice concentrate, as well as other juices and frozen fruits. The company purchases large quantities of apples from local farmers. According to the UOKiK’s findings, T.B. Fruit concluded contracts with certain suppliers but failed to pay for the delivered produce on time. The average default in payment reached 231 days in 2017 and 131 days in 2018. Moreover, the company did not pay the default interest to the aggrieved parties. The President of the UOKiK ruled that such conduct constituted an unfair use of contractual advantage in the form of unjustified extension of the payment date. The imposed fine was equal to 3% of the turnover generated by the company in the year prior to the year in which the decision was made, i.e. the maximum fine under the current legislation.
The precise meaning of the notion of contractual advantage continues to stir controversy. Thus, the decision, which sheds some light on its interpretation, is particularly relevant to businesses in the food sector. As the provision stands, a company has contractual advantage when there is a significant disproportion in the economic potential of the parties to a contract in its favour. Many practitioners argue that such a state of affairs is quite common. Others remark wryly that the legislator apparently assumes that big is bad, plain and simple. The approach adopted by the competition watchdog demonstrates, however, that the notion in question may be construed in a convincing, albeit simplified manner: having compared T.B. Fruit’s turnover to the turnover generated by each of the aggrieved parties, the authority concluded the disparity was so vast that it justified the claim that the company held contractual advantage. No other criteria were considered, even though several are proposed in the literature. It is worth mentioning that the authority also invoked directly the yet-to-be-implemented directive on unfair trading practices1 in order to corroborate its interpretation of contractual advantage. This might suggest an imminent amendment to the Act which would approximate its provisions to the EU laws.
Never before had the President of the UOKiK imposed a fine in a case involving unfair use of contractual advantage. Until recently, all the formally launched proceedings concluded with a commitment decision, where no fine is imposed. Hence the severity of the imposed fine must have come as something of a shock to both T.B. Fruit and other market players. The President of the UOKiK gave a thorough explanation as to why, in his opinion, the actions of the company represented a glaring example of misconduct, which deserved the maximum penalty provided for in law. Whether his account is convincing may be subject to controversy. Nevertheless, the authority seems to have achieved its likely objective – the preventive effect of the decision will have been enormous.
The decision adopted by the competition authority was the first where a company was explicitly found to have infringed the Act. There are at least two possible explanations for this switch in approach. Firstly, T.B. Fruit denied having contractual advantage over the suppliers instead of acknowledging its fault and committing itself to adjusting its practices, as was standard in all the previous cases. The company’s attitude and the overall circumstances of the case might have prompted the authority to adopt an infringement decision. Secondly, the authority might have been waiting for a case of particularly reprehensible misconduct to switch from its benevolent approach toward undertakings to a much sterner one. More cases are said to be in the pipeline, including one against a well-established FMCG retailer.
The decision of the President of the UOKiK ought to be seen as an important warning for undertakings in the food sector. The days of leniency have clearly come to an end. Powerful market players should therefore review their procedures and conduct for compliance with the Act so as to make sure that their relationships with suppliers stand up to scrutiny. This recommendation extends to all businesses as there is new legislation coming into force in Poland in less than three months which will enable the competition authority to impose fines for excessive default in payment regardless of the market.