Civil Action against Wu Chen-ming (Proprietor of Kuang Lung Liquid Gas Store) and Others for Engaging in Alleged Illegal Combinations
Chinese Taipei
Case:
Civil Action against Wu Chen-ming (Proprietor of Kuang Lung Liquid Gas Store) and Others for Engaging in Alleged Illegal Combinations
Key Words:
market share, combination, permit
Reference:
Taiwan High Court (Tainan Division) Judgment (84) Shang Tzu No. 679
Industry:
Gas Fuel Supplier (4200)
Relevant Laws:
Article 6(1)(vi); Article 11(1); Article 13(1); and Article 40 of the Fair Trade Law
Summary:
The appellee Wu Chen-ming (Proprietor of Kuang Lung Liquid Gas Store), together with Tsong Pin Gas Supply, Hsin Li Gas Supply and two other liquefied petroleum gas (LPG) suppliers, established the Pai He Distribution Center (hereafter the Distribution Center) in Pai He town, Tainan County on August 21, 1992. The charter of the Distribution Center stipulated that all the distribution members shall turnover their LPG sources, i.e., quota allocated by the LPG Supply Department of the Veterans Affairs Commission (hereafter LPG Supply Department), to the Distribution Center for centralized handling of transport, filling, and distribution.
The charter further stipulated that the accession and withdrawal of a member shall be made with the presence and approval of all members. An NT$2 million penalty for breach of contract shall be imposed on any non-approved withdrawal of membership, or a failure to supply LPG to the Distribution Center (a violation of Article 6 of the charter). The said penalty shall then be equally received by the other members.
After becoming a member of the Distribution Center in September 1992, the appellant withdrew his membership on October 1, 1994 without the consent from all other members and refused to pay the NT$2 million penalty for breach of contract. The above facts were admitted to by both parties and supported by the charter of the Distribution Center, an evidence submitted during the trial of the first instance.
The Law was promulgated on February 4, 1991 and took effect on February 5, 1992. In accordance with Article 11(1)(i) of the Fair Trade Law, where a combination of enterprises will result in a market share of more than one third (1/3), an application for approval shall be filed with the authority. For a violation of the said article, the authority (the Fair Trade Commission) may prohibit such combination; by an order specify a time limit by which the enterprise shall divide itself into separate enterprises, dispose of its shares in whole or in part, transfer a part of its business to others, or order resignation from positions held; or adopt other necessary dispositions. Article 13(1) and Article 40 of the Fair Trade Law provide for penalties between NT$100,000 and NT$1 million. These are compulsory regulations on combinations.
In accordance with Article 6(1)(vi) of the Fair Trade Law, the term “ combination” also covers the cases in which an enterprise frequently operates jointly with another enterprise or is entrusted by another enterprise to operate the latter’ s business. The appellant of this case, together with the appellee and the co-plaintiffs in the first instance, Tsong Pin Gas Supply and Hsin Li Gas Supply, had business operations in Pai He town, Tainan County. Upon signing a partnership agreement, the parties established the Distribution Center and formulated the “ Charter for the LPG Distribution and Service Center.” The parties agreed to turnover all their LPG sources, i.e. quota allocated by the LPG Supply Department for centralized handling of transport, filling, and distribution. Members may not sell LPG on their own. Members are also required to contribute capital to the Distribution Center and share profits. It was thus found that the Distribution Center was a combination of enterprises under the Fair Trade Law.
In August 1992, there were only six LPG distributors in Pai He town, Tainan County, including Liang Tsao, Tsong Pin, Hsin Li, etc. They represented 16.66% of the market. Another distributor, Chi Fa Gas Supply, moved into the area on December 8, 1993.
It was thus evident that when Liang Tsao, Tsong Pin, Hsin Li, and the other three LPG distributors signed a contract to establish the Distribution Center, their goal was to attain 100% market share in Pai He town, Tainan County. Such act of combination should be subject to regulation by the Fair Trade Law.
For the case in question, Liang Tsao, Tsong Pin, and Hsin Li established the Distribution Center, thus forming a combination of enterprises, without prior approval from the authority-in-charge. Thus the partnership agreement signed by Liang Tsao, Tsong Pin, and Hsin Li to combine their enterprises and establish the Distribution Center was considered a violation of Article 11 of the Fair Trade Law.
In addition, based on the Law’ s purposes of “ maintaining order in transactions, protecting the interest of consumers, ensuring fair competition, and promoting the stability and prosperity of the national economy” as stipulated in Article 1, the agreement establishing the Distribution Center is against the public order and is invalid in accordance with Articles 71 and 72 of the Civil Law.
Summarized by Shen, Li-yu
Supervised by Chen, Hui-ping