05 August 2004
Q: Our company, based in Northern Ireland, imports glass from Mexico for resale in Ireland. We have been informed that our direct account will be closed, as will others in the food service sector in the UK, and all supplies will in future come through one distributor in England, which has promised the Mexicans greater returns. Is this anti-competitive? Where do we stand?A: Alan Ma, partner at Juvenil Alves Solicitors, writes:
Agreements between parties that restrict or distort competition and affect trade in the UK and between European Union member states could potentially infringe the anti-competition rules under UK legislation and EU rules.
Such agreements need not be in writing. It does not matter whether the parties involved are not situated within the EU, so long as there is noticeable effect on the pattern of imports and exports within the EU common market.
It is plain that there is an agreement in place between the future distributor in England and the Mexican manufacturer that gives the Mexicans greater returns when compared with other agreements. The agreement affects trade in the UK given that your account and those of the other UK distributors will be closed. It also affects trade in the EU as you sell the products in Ireland.
Under the legal regime, any anti-competitive characteristic of the agreement is to be judged according to its effects or intended effects on competition. It appears that the agreement would preclude the appointment of further competitors in the area. It follows that it would reduce consumer choice and might lead to a higher level of prices in view of the lack of competition. It would also be the case that the arrangement may directly or indirectly lead to fixing of purchase prices, selling prices, or both.
If any agreement falls foul of the EU rules, UK legislation, or both, it is automatically void and the parties to it can be subject to substantial fines. Third parties affected by breaches of these provisions will have a claim in damages. In other words, your company as well as other distributors will be entitled to seek compensation.
However, before one could jump to conclusions, both EU rules and the UK legislation provide a number of exemptions. Examples of these are (a) agreements of minor importance based on the size of the parties, (b) agreements that have a beneficial effect on international trade, and (c) types of agreements that are specifically exempted.
One type of exemption is vertical agreements, which are entered into between businesses at different levels in the production and distribution chain and which govern the circumstances under which those businesses buy and sell goods, services or both. As such, the agreement is "vertical". However, there are conditions that needed to be met for the exemption to apply, including the market share of the Mexican products.
In summary, the nature of the arrangement described is anti-competitive, but it may or may not fall foul the anti-competition legal regime. You should also consider a claim against the Mexican manufacturer if the new arrangement may constitute a breach of contract between your company and the foreign supplier.