Cartel case received significant deal of attention – the highest fine ever imposed by the Hungarian Competition Authority

21 July 2022

The Hungarian Competition Authority (“GVH”) has ordered the enforcement of the fine imposed on Nitrogénművek Zrt. in April 2022 reaching an enormous HUF 11 billion after the highest court of Hungary (“Curia”) finally and definitely had dismissed the request for deferral by the undertaking.

In October 2021 the GVH penalised the Nitrogénművek group with a record amount fine achieving a total of HUF 11.05 billion for restriction competition on the Hungarian artificial fertilizer market along with other market players for several years.

The investigation of the GVH revealed that Nitrogénművek Zrt. and its affiliates infringed the law by not just determining the resale prices of their products but even that to which customers the resellers were permitted to sell them. Furthermore, in order to restrict imports from abroad, the group demanded significant annual minimum quantities and exclusivity for its resellers.

Nitrogénművek Zrt. holds the sole artificial fertiliser factory in Hungary, therefore only imports are able to compete with it on the Hungarian market. In the investigation process the GVH found that the group of undertakings had weaved a web of agreements with its strategic partners by which they were able to stifle the competition for customers. These agreements were primarily aimed at restricting the pricing of the products manufactured by Nitrogénművek Zrt. In addition, the undertaking and its distributors were attempting to share customers among each other.

According to the GVH, these agreements aiming to price fixing and/or dividing the market are the most serious infringement of competition law as they cause significant harm to each layer of the society. In this case, due to the restriction of price competition on the distribution side, the infringement resulted that the input prices of the Hungarian farmers drove up during the infringement.

Furthermore, as it was emphasized in the GVH decision, since artificial fertiliser is one of the most essential accessories in agricultural land, the infringement could also make an impact to the food industry as well through increasing the costs of producers, and therefore indirectly causing extra expenses to the Hungarian consumers.

Eleven Hungarian undertakings were subject to the investigation, two of which were proved to be innocent; therefore, the GVH terminated the proceedings against them. Of the nine undertakings participating in the cartel, two admitted the infringement and co-operated with the GVH. The fine payable by one of the cooperating undertakings was granted full immunity, while another received a fine reduction, thus eight undertakings were fined for the infringement.

When determining the amount of the fine, the GVH took into account the revenue obtained through the sale of the products subject to the cartel, and, in view of the duration and extensity of the infringement, imposed a fine in total of HUF 14.1 billion on six undertakings of the Nitrogénművek group, as well as two undertakings outside of the group (Hőgyészi Agrokémiai Kft. and Cargill Magyarország Zrt.).

The cartel participants other than Nitrogénművek group had already paid the imposed fine. Nitrogénművek group turned to the court to request the suspension of the payment of the fine until a final, legally binding decision is taken on the group’s challenge of the merits of the GVH decision.

According to the arguments of the group, the company’s economic performance must be examined in a complex way, and in a highly seasonal industry, in the current uncertain energy market environment, it is not possible to assess the disadvantages of paying a fine based on simple financial reports. The group argued that the recent outbreak of the war in Ukraine will result in higher energy prices and even risk the supply chain, that’s why it would not be beneficial for neither of the parties to pay the whole fine.

After examining the arguments of Nitrogénművek group, the courts made the decisions: first, the Budapest-Capital Regional Court, and then – finally and definitely – the Curia as second instance court dismissed the request for a deferral of Nitrogénművek, because it was not proven that the operation of the undertakings would indeed become impossible as the result of the payment of the fine. Curia said that Nitrogénművek’s appeal could “last for years” and dismissed the company’s argument that paying the fine would “make its operation impossible”. GVH instructed the tax authority to collect the fine, including a late payment penalty, “in the interest of protecting taxpayer money”. It means that Nitrogénművek must pay the fine to the competition authority, as well as the default interest accumulated from original deadline (last autumn) which takes up to HUF 300 million.

July 2022

Máté Borbás

SBGK Attorneys at Law