As Brits bemoan higher prices for French wines, it emerges that the higher prices may be due to more than the sterling exchange rate following the Brexit vote. The French Competition Authority decision published on 23 May 2018 reveals that the price increases may also been caused by a price-fixing cartel for Côtes du Rhône wine. The Competition Authority issued a 20k Euro fine to the Côtes du Rhône winegrowers syndicate, a professional body representing wine growers in the region, for establishing and disseminating pricing instructions among members between 2010 and 2017.
The Côtes du Rhône
As described in the decision, the Côtes du Rhône is a massive wine region, the second largest in France after the Bordeaux region, with revenues estimated between 1.47 and 1.54 billion Euro for the period 2014 to 2016. It exports nearly a third of what it produces and its principal export markets are the United Kingdom, Belgium, the USA, Germany and the Scandinavian countries.
The Competition Authority investigation revealed that from 2010 the winegrowers syndicate for the Côtes du Rhône region set annual price lists with the aim of pushing up the bulk wine price. The syndicate published lists of prices in its trade magazine, the Vigneron, it organised information meetings encouraging producers to adhere to the listed prices and it sent newsletters to winegrowers about the price lists.
This led to a steady price increase culminating in a price floor that was reached in 2014, after which the syndicate circulated instructions to stabilise the price. The success of its strategy and its clear intention is detailed in minutes of internal syndicate meetings where it congratulated itself on how the price floor was being respected and in its AGM minutes thanking all winegrowers and members that had followed the instructions and acted in solidarity with the established price list.
Because of the potential effect on trade between EU Member States, the French competition authority found that EU competition law as well as French competition law applied to the practices investigated. The Competition Authority found that between 2010 and 2017 the syndicate had acted in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU) which prohibits price-fixing agreement and the equivalent French national law ,L. 420-1 of the French commercial code.
It imposed a fine of 20k Euro on the syndicate and, in an ironic twist, required the syndicate to notify its members via the same magazine, the Vigneron, that it used to publish its the price instructions for which it was being fined.
Further investigations and damages claims
This decision and fine are likely to be only the first chapter in what may turn out to be a longer and more expensive saga for French wine producers from the Côtes du Rhône region.
The modest level of the fine for the syndicate – just 20k Euro in a market with an estimated revenue of up to 1.54 billion Euro for the period 2014-2016- reflects the fact that the syndicate was a professional representative body only rather than a direct beneficiary of the increased wine prices. Winegrowers that implemented the price increases and adhered to the price floor, on the other hand, are more likely to have reaped significant profits from the strategy.
‘By object’ infringement
In addition, this infringement was categorized by the Competition Authority as a ‘by object’ infringement meaning that it breached Article 101 TFEU regardless of how much effect it had on the market, since the only purpose and the express intention of the behaviour was to create a higher price floor and to eliminate price competition among producers.
This is consistent with recent case law on price signalling, where even if there is no evidence of price monitoring and no punishment mechanism, the price signalling behaviour can be an infringement without needing to show any effects. Participating winegrowers who benefited from the price-fixing could face high fines, although, to date, the Competition Authority has not indicated whether any individual wine producers are under investigation.
Follow-on damages claims
Apart from the possibility of fines against wine producers in the Côtes du Rhône region, the other spectre this raises for them is the potential of follow-on damages actions in national courts arising from the EU Damages Directive. Follow-on damages claims would be particularly important to UK claimants, since the UK is one of the biggest markets for Côtes du Rhône wine. The French courts are likely to be the forum for most of the relevant follow-on damages actions, although jurisdiction can depend on various factors so that some claims could be brought in the UK.
Claims in the UK
If a UK claimant establishes jurisdiction in the UK courts, the decision by the French competition authority would be treated as prima facie evidence that competition law infringement has occurred, although it is not binding on UK courts. In the UK, defendants in cartel cases face joint and several liability for damages, therefore bringing a case against one participant means that it could be held liable for all damages suffered by the claimant.
The Brexit result of higher sterling prices has already led to fears of UK wine merchants going to the wall because of higher prices. The UK is the second largest market for French wine and the higher prices have hit hard. Press coverage indicates that UK consumers of French wines have switched to slightly lower priced alternatives to Bordeaux, which means that the Côtes du Rhône wines are likely to have benefitted in recent years.
The press stories of financial difficulty for British wine merchants may now play out differently if there are a host of damages claims in the UK courts amid claims that price-fixing rather than Brexit was the real reason for the price hike. Expect tabloid tales about continental perfidy (again!).