The Senate of the Republic of Latvia, by its judgment of 28 December 2023, has upheld the judgment of the previous instance – the Administrative Regional Court –, which concluded that the 2017 decision of the Competition Council (CC) regarding the participation of SIA “Tirdzniecības nams ‘Kurši’” in a prohibited vertical agreement and a prohibited horizontal agreement or cartel of manufacturers and traders of construction materials is justified. Given that the decision has entered into force, SIA “Tirdzniecības nams ‘Kurši’” must pay the fine of EUR 1,145,077 to the State budget.
Prohibited agreement between manufacturers and traders of building materials
In its 2017 decision, the CC found that two manufacturers of construction materials and four traders, including SIA “Tirdzniecības nams ‘Kurši’” participated in a prohibited agreement on resale price maintenance.
During the investigation of the case, the CC assessed the agreement between the building material manufacturers SIA “Knauf” and SIA “Norgips” and four major building material retailers – SIA “DEPO DIY”, AS “Kesko Senukai Latvia”, SIA “Tirdzniecības nams ‘Kurši’” and SIA “Krūza” – to fix minimum resale price levels and fixed price levels for products distributed by SIA “Knauf” and SIA “Norgips” over a prolonged period. The CC found that the prohibited agreement took the form of both vertical restraints between SIA “Knauf” and SIA “Norgips” and the retailers, and horizontal cartel agreements, whereby the retailers, through the manufacturers, reached a common understanding and concerted action on common operating principles and mutual control in the implementation of the agreement regarding the price of the products of SIA “Knauf” and SIA “Norgips”.
Prior to the adoption of the decision of the CC, administrative agreements were concluded with SIA “Knauf”, SIA “Norgips” and SIA “Krūza”, which provided for the termination of the legal dispute and the payment of fines totalling EUR 1.6 million. The other three building material retailers – AS “Kesko Senukai Latvia”, SIA “Tirdzniecības nams ‘Kurši’” and SIA “DEPO DIY” – were fined EUR 5.8 million.
The decision of the CC was challenged in court
The three fined building material retailers appealed the 2017 decision of the CC to the Administrative Regional Court, and in 2020 the court rejected the companies’ applications, finding the decision of the CC to be justified. AS “Kesko Senukai Latvia” decided not to appeal the unfavourable court ruling and paid the fine of EUR 920,618.
SIA “Tirdzniecības nams ‘Kurši’” and SIA “DEPO DIY” filed a cassation appeal against the judgments of the Administrative Regional Court with the Supreme Court. In its judgment of 28 December 2023, the Senate of the Republic of Latvia, assessing the involvement of SIA “Tirdzniecības nams “Kurši” in a prohibited agreement, provided significant insights into the application of competition law.
Andris Eglons, acting head of the Legal Department of the CC: "The companies involved in the cartel defended their conduct by arguing before the Court that “Knauf” and “Norgips” had a dominant position and, thus, established and implemented a system of prices at which retailers could sell goods. And that “Knauf” had sufficient market power to ensure that other market participants complied with the system. However, the Senate concludes that, in order to establish a prohibited agreement, the distribution of power between the market participants does not have to be equal and that pressure exerted on a company does not exempt it from liability for participating in an infringement, since it is sufficient that the companies have expressed a common will to behave in a certain way in the market. Moreover, the Court found that the conditions offered by the manufacturers not only became acceptable to the retailers, they were convenient and advantageous for the pursuit of their commercial interests.”
The fined companies have also argued in their appeal against the decision of the CC that the prohibited agreement was implemented vertically – from the manufacturer to the retailer – and therefore cannot be qualified as a prohibited horizontal agreement between companies or a cartel. However, in its judgment, the Senate points out that the legal norms do not require the establishment of direct communication between the parties as a precondition for the detection of a prohibited agreement. In the present case, the common will of the participants to agree on the price was not exercised directly, but through a third party (the manufacturer), so that, at the same time, actions aimed at equalising the price level among competitors can be qualified as a cartel. The Senate observes that it is necessary to take into account the general context in which the sensitive information is passed on to the third party in the first place, and it is also essential to establish that the party to the agreement was aware that the information passed on to the third party would also be passed on to the competitor and would consequently influence the competitors’ pricing policy.
In assessing the involvement of SIA “Tirdzniecības nams ‘Kurši’” in the prohibited agreement, the Senate concluded that the fact that certain circumstances in the case are not supported by direct evidence and that SIA “Tirdzniecības nams ‘Kurši’” is directly involved only in certain correspondence is not decisive, since the activities of companies are not to be assessed only by their content (what is done) but also by the purpose of the activities (why they are done). The Senate held that in competition cases an infringement may be proved not only by direct evidence but also from a certain number of coincidences and indications which, taken together, may be regarded as evidence of an infringement of competition law in the absence of any other logical explanation.
As a result of the judgment of the Senate of 28 December 2023, the decision of the CC also became final in respect of SIA “Tirdzniecības nams ‘Kurši’” and it must pay the fine of EUR 1,145,077 to the State budget. However, the proceedings against SIA “DEPO DIY” regarding its involvement in the prohibited agreement are still pending before the Supreme Court. For distortion of competition, the CC imposed a fine of EUR 3,718,323 on SIA “DEPO DIY”.