Supreme Administrative Court judgment against Dee-Whei Enterprise Co., Ltd. in violation of the Fair Trade Law

Taiwan

Case:

Supreme Administrative Court judgment against Dee-Whei Enterprise Co., Ltd. in violation of the Fair Trade Law

Key words:

Dee-Whei Enterprise Co., Ltd., distribution agreement, to transfer operational risk to trading counterparts

Reference:

Supreme Administrative Court Judgment (90) Pan Tzu No. 1352

Industry:

Other Foods and Grocery Wholesale Industry (4429)

Relevant Law:

Article 24 of the Fair Trade Law

Summary: 1. This case originated with a complaint filed with the Fair Trade Commission alleging that Dee-Whei Enterprise Co., Ltd. (Dee-Whei) violated the Fair Trade Law when signing distribution agreements with distributors with respect to the "Kuo Nong Dairy Product" line. The Fair Trade Commission (the defendant) found in its investigation that the plaintiff unilaterally, by written or non-written instructions, substantively restricted the manner by which its trading counterparts provided pre-dated promissory notes or performance guarantees. In addition, Dee-Whei (the plaintiff) prohibited the annotation of such notes with the words "may not be endorsed." The plaintiff's conduct of transferring operational risks to its trading counterparts was obviously unfair and sufficient to affect trading order in violation of Article 24 of the Fair Trade Law. The Fair Trade Commission made a disposition (ref. (87) Kung Ch'u Tzu No. 202) pursuant to the fore part of Article 41 of the Fair Trade Law, ordering Dee-Whei immediately cease such obviously unfair conduct that is disruptive to trading order. The plaintiff's first and second appeals were both dismissed, and it then instigated an administrative appeal.

2. Article 24 of the Fair Trade Law provides that, "in addition to what is provided for in this Law, no enterprise shall otherwise engage in any deceptive or obviously unfair conduct capable of affecting trading order." If an enterprise takes advantage of the fact that its distributors are economically dependent on it to compel or coerce its distributors to provide pre-dated promissory notes and restricts endorsement of such notes with refusal to provide goods or inducements of discount on goods or bonuses, such conduct transfers the operational risk of the manufacturer to the distributors and seriously affects trading order, and constitutes obviously unfair conduct. Although the plaintiff, Kao Feng Co., Ltd. is not a party to the distribution contract at issue, it is an affiliate and controlling company of Dee-Whei. The board directors of both companies hold shares and positions in each other's companies. Dee-Whei's conduct of restricting the manner of its distributor's transactions with respect to promissory notes and disallowing endorsement on such notes was conceived by Kao Feng. It is Kao Feng who profits from the scheme and is the planner of said company's marketing strategy. Whether judged Kao Feng's activity based on the legal principles relating to joint infringement under the Civil Code, principal offenders under the Criminal Code, or unfair trading under Article 24 of the Fair Trade Law in force at the time of the conduct, Kao Feng has contravened ethical market competition by restricting the manners in which its trading partners provide pre-dated promissory notes or performance guarantees through written and non-written means and should be made the principal subject of penalty in this case. The plaintiffs, Dee-Whei and Kao Feng Co., Ltd., under the pretext of providing orders in advance, unilaterally restricted the manners in which their trading partners provide pre-dated promissory notes or performance guarantee in their distribution agreement or related bonus structures through written and non-written means and prohibit annotating such notes with "may not be endorsed." Where notes issued by the participants contains the words, "may not be endorsed", the plaintiffs would reject such notes and delay delivery of orders, and force the issuing distributors to replace the notes with another. Clearly, the plaintiffs, Kao Feng Co., Ltd. and Dee-Whei jointly took advantage of their distributors' reliance on them to compel or coerce their distributors to trade with pre-dated promissory notes with refusal to provide goods or inducements of discount on goods and bonuses. Further, they prohibited their distributors from annotating the notes with words such as "may not be endorsed" and caused the operational risk of the manufacturer to be transferred to the retailers. This seriously affected trading order and constituted obviously unfair conduct. The plaintiffs' appeal was thus deemed groundless and was dismissed.

Appendix: Dee-Whei Enterprise Co., Ltd.'s Uniform Invoice Number: 86044225

Summarized by Lai, Chia-Ching;

Supervised by Wang, Rong-Ging