Canada’s National Contact Point final statement - Klöckner Pentaplast Group and Haycore Canada Inc.

5 July 2023

Summary

1. On July 29, 2022, the Canadian NCP received a Request for Review from Haycore Canada Inc. (the Notifier). The Request for Review concerns observance of the OECD Guidelines by the Klöckner Pentaplast Group (the Respondent), a multinational enterprise with operations in 18 countries, including Canada.
2. The issues raised relate to the Notifier’s experience as a supplier of post-consumer plastics (PCPs) to Canada-based Klöckner Pentaplast of Canada Inc. (KPC), a company that recycles PCPs into new packaging products. KPC is a wholly-owned subsidiary of Klöckner Pentaplast of America Inc., and both are part of the global KP Group. KP of America engaged with the Canadian NCP on behalf of the KP Group during this specific instance.
3. The Notifier was the sole supplier of PCPs to KPC for nearly a decade However, the business relationship reportedly grew more challenging from late 2019, around the same time KPC engaged a second PCP supplier. According to the Notifier, the Respondent allowed both suppliers to solicit the same sources of PCPs, without imposing a price limitation, allegedly inflating prices for the Respondent and leading to what the Notifier characterizes as detrimental “market price distortions” in the regional PCP market.
4. The Notifier suggests that this procurement approach, alongside other alleged difficulties it experienced in working with KPC, raise the possibility that the Respondent’s employees were involved in a “corrupt arrangement”, apparently designed to advantage the second supplier. The Notifier claims that the Respondent was dismissive of these concerns, and that payments owed to the Notifier were subsequently delayed in a possible attempt to ensure the Notifier’s silence.
5. The Respondent has not ordered PCPs from the Notifier since June 2022.
6. The Notifier claims that the issues raised implicate guidelines in Chapters II (General Policies), III (Disclosure), VII (Combatting Bribery, Bribe Solicitation and Extortion), VIII (Consumer Interests), and X (Competition). The Notifier seeks a dialogue with the Respondent to help end what the Notifier sees as possible corruption or at least mismanagement within KPC.
7. The Respondent says that it took seriously the Notifier’s allegations and that KP of America Inc. engaged external counsel to investigate the claims in August 2022. The Respondent says that it has found no evidence of wrongdoing, and rejects all of the Notifier’s allegations. The Respondent asked that the case be closed.
8. As part of its assessment, the Canadian NCP Secretariat held separate conversations and had several email exchanges with both parties. The Notifier and Respondent were given the opportunity to provide supporting documentation and to complete a fact-check of the information included in this Final Statement. Written submissions and documents provided to the NCP by one party were shared with the other party.
9. The NCP Secretariat’s handling of this specific instance was guided by the NCP procedures operative as of August 2022.
10. An ad hoc working group of the NCP comprising officials from Global Affairs Canada and Innovation, Science, and Economic Development Canada examined the request for review and provided a recommendation to the NCP.
11. Based on the working group’s recommendation, the NCP concludes that the issues raised do not merit further examination.
12. The NCP emphasizes that this Final Statement does not make any determination as to whether or not the Respondent has observed the Guidelines. This Final Statement should not be seen as validating to any degree – one way or the other – claims made by either the Notifier or Respondent.

Substance of the submission

13. The Notifier (Haycore Canada Inc.) is a business based in Ontario. It purchases PCPs from municipal materials recovery facilities (MRFs) in North America and supplies these to manufacturers who recycle the PCPs into new products.
14. The Respondent (the KP Group) is a manufacturer of plastic products headquartered in London (UK), and operates 31 facilities in 18 countries. One of Respondent’s operations is KP Canada (KPC), located in Montreal. KPC is a wholly-owned subsidiary of KP of America, and both are part of the KP Group. The KP Group is owned by a group of investors led by Strategic Value Partners (SVP) Global, headquartered in Connecticut, USA.

Notifier’s position

15. The Notifier was the only supplier of PCPs to the Respondent’s Canadian subsidiary, KPC, from 2010 to 2018. Typically, KPC would issue purchase orders for PCPs to the Notifier on a monthly basis. KPC did not have an extended contractual commitment to purchase PCPs from the Notifier. In recent years, the Notifier would deliver the PCPs it had sourced from MRFs to a processor designated by KPC. This processor would convert the PCPs into a form of plastic ready for KPC’s manufacturing process.
16. The Notifier indicates that its business relationship with the Respondent began to deteriorate around late 2019. This came at a time when the Respondent decided to 1) engage a second supplier to provide PCPs, and 2) to enter a contract with a new processor. The Notifier says that it supported the decision to engage a second supplier.
17. The Notifier claims that the Respondent failed to delineate and enforce separate buying territories for the two suppliers or, in the absence of that, to impose a price limitation on the suppliers. According to the Notifier, this meant that the Notifier and new supplier would sometimes bid against one another for PCPs from the same MRFs with no price ceiling, ultimately inflating the price paid by the Respondent. The Notifier alleges that the Respondent paid up to 2-3 times the market price for PCPs on some occasions, and that the Respondent’s approach to managing its suppliers led to “market distortions, price increases and quality issues”. The Notifier claims that the Respondent’s approach caused the price of PCPs in the local market to increase, leading other buyers to leave the market and seek cheaper sources of PCPs elsewhere.
18. The Notifier also claims that other difficulties arose in its business relationship with the Respondent during this period, including:
    • Coordination and delivery difficulties with the Respondent’s new processor. The Notifier claims that the Respondent did not provide relevant information about its contract with the processor, hampering the Notifier’s ability to meet purchase order and delivery requirements.
    • Perceived preferential treatment of the second supplier.
    • General difficulties in communication, coordination, and managing orders.
    • Suspected leaking by the Respondent’s employees of the Notifier’s monthly pricing information to the second supplier
    • Late payments by the Respondent (the Notifier suggests some payments may have been delayed in order to deter the Notifier from raising concerns about allegedly suspicious behaviour).
19. The Notifier reports that it informed the Respondent about what it saw as “potential corruption” as early as August 2021, but that these concerns were dismissed. The Notifier continued flagging what it considered suspicious behaviour with successive levels of the Respondent’s management. In July 2022, the Notifier sent a “whistleblower report” to the Respondent’s compliance department in London, U.K., and to SVP Global. This report was substantially the same as the request for review submitted to Canada’s NCP on July 29, 2022.
20. The Notifier claims that the Respondent’s conduct raise questions about its observance of the OECD Guidelines, specifically guidelines in Chapters II (General Policies), III (Disclosure), VII (Bribery), VIII (Consumer interest) and X (Competition):
    • General Policies: The Notifier suggests that the Respondent has potentially failed to observe guidelines on: encouraging local capacity building (by demonstrating allegedly inadequate communication, coordination, and consistency as a customer); stakeholder engagement (chiefly, by not adequately consulting or informing the Notifier about new load requirements arising from the engagement of a new processor); the maintenance of sound management systems (by not enforcing buying territories and/or price limitations for its PCP suppliers; by potentially allowing payments to be delayed in order to deter the Notifier from continuing to raise concerns); and risk-based due diligence (by not being sufficiently responsive to concerns raised by the Notifier).
    • Disclosure: The Notifier believes that the Respondent ought to have disclosed certain details of its contract with the new processor, to enable the Notifier to better meet delivery and load requirements.
    • Bribery: The Notifier believes there are indicators that the Respondent’s employees may have been engaged in a “corrupt arrangement”, apparently aimed at giving some advantage to the second supplier.
    • Consumer Interest: The Notifier says it did not provide – and was not asked to provide – the Respondent with a standard post-consumer certification form from its MRF suppliers from 2020 onwards. The Notifier says this raises doubt about at least one of the Respondent’s public claims regarding the PCP content of one of its products.
    • Competition: The Notifier alleges that the Respondent’s failure to delineate and enforce buying territories for its suppliers reflected a failure to educate its management about competition issues.

Respondent’s position

21. According to the Respondent, the Notifier was informed in 2018 that KPC would be looking for a second supplier of PCPs to diversify its supply base, and that the Notifier’s monthly purchase orders might be reduced.
22. The Respondent claims that KPC encouraged both the Notifier and the new supplier to seek out PCPs from different MRFs to avoid competing against one another. However, the Respondent also insists that enforcing buying territories for its suppliers was “out of [its] control”. The Respondent also says that it did not experience a significant price increase as it ordered more loads from the new supplier.
23. Over time, the Respondent says that KPC shifted more of its PCP purchasing to the second supplier. The Respondent states that it stopped issuing purchase orders to the Notifier as of June 2022, citing difficulties working with the Notifier.
24. The Respondent acknowledged receiving a version of the Notifier’s “whistle blower report” on July 21, 2022. The Respondent says that it took the allegations seriously and that it retained external counsel to conduct an investigation in August 2022. The Respondent’s external counsel told the NCP that this investigation found no evidence to support any of the Notifier’s allegations. The Respondent believes that the issues raised do not merit further examination. With respect to specific issues raised by the Notifier, the Respondent takes the following positions:
    • General Policies: The Respondent does not see its “business decision” to source from another supplier as relevant to the guidelines cited. The Respondent claims that the issues raised by the Notifier are not relevant to local capacity-building or community issues.
    • Disclosure: The Respondent asserts the Guidelines do not call on it to share the kind of information requested by the Notifier.
    • Alleged potential “corrupt arrangement”: The Respondent does not consider the Notifier’s claims substantiated. The Respondent claims that COVID, among other factors, required its processor to impose more precise delivery schedules, and that the new supplier was simply better able to comply with these requirements than the Notifier. The Respondent says that this did not reflect a “corrupt arrangement” involving the company or its employees.
    • Payment delays: While the Respondent acknowledges that there were delays in issuing some payments to the Notifier, it claims that in January 2022 a new procurement manager prioritized dealing with outstanding invoices, and that the Notifier’s bills were paid in full by July 2022. The Respondent says that the investigation by external counsel found no evidence of intentional wrongdoing in connection with the delayed payments.
    • Consumer Interest: According to the Respondent, the validity of the claim cited by the Notifier does not depend on it having received post-consumer certification forms from the Notifier’s MRFs between 2020-22.
25. In the Respondent’s view, the issues raised by the Notifier reflect a commercial dispute and do not merit further consideration by the NCP.

Initial Assessment

26. The Initial Assessment was based on the information submitted by the Notifier and the Respondent.
27. The Notifier has noted that its Request for Review did not provide an exhaustive list of the guidelines potentially implicated by the Respondent’s alleged conduct. However, the NCP is not able to assess the issues raised by the Notifier in relation to every one of the guidelines. The assessment below therefore addresses only those guidelines cited in the Notifier’s Request for Review.
28. The Initial Assessment considers whether the issues raised are bona fide and relevant to the implementation of the Guidelines, taking into account the criteria listed in the NCP Procedures Guide and the OECD Procedural Guidance:
    • the identity of the party concerned and its interest in the matter
    • whether the issue(s) are material and substantiated
    • whether there seems to be a link between the enterprise’s activities and the issue(s) raised in the specific instance
    • the relevance of applicable law and procedures, including court rulings
    • how similar issues have been, or are being, treated in other domestic or international proceedings.
    • whether the consideration of the specific issue(s) would contribute to the purposes and effectiveness of the Guidelines

Identity of the party concerned and its interest in the matter;

29. The Notifier is a supplier of PCPs to recyclers in North America. The Notifier would appear to have an interest in the observance of the OECD Guidelines by the Respondent, who is a recycler in this market.

Whether the issues are material and substantiated

30. In assessing whether the issues raised are “material”, the question is whether the issues raised have clear and meaningful relevance to the Guidelines.
31. In assessing substantiation, the question is whether the issues raised are based on a plausible and coherent interpretation of events, supported by a reasonably compelling and credible evidence base. The available information does not have to prove conclusively, or even on a balance of probabilities, that certain events occurred or that the enterprise acted in a particular way. This reflects the preliminary nature of the initial assessment, and its objective of determining only whether the issues raised merit further examination under the good offices of the NCP.
32. The NCP’s initial assessment no way asserts that events occurred in the way alleged by the Notifier, nor is it a determination as to whether or not the Respondent observed the Guidelines.

Chapter II (General Policies)

33. The Notifier claims that the Respondent’s alleged inconsistency, lack of communication (especially about details of the contract with the new processor and related load and delivery requirements), and deferred decision-making as a customer limited the opportunity for the Notifier’s MRF suppliers to sell their PCPs into a “local market”, and that this “deteriorated local capacity building” (Chapter II, A.3). The NCP does not consider these issues material to the Guidelines.
34. The Notifier claims that the Respondent’s decision to engage a new PCP processor impacted what it describes as the “recycling community”, and that the Notifier was a relevant stakeholder who should have been consulted about the decision and its implications (Chapter II, A.14). The NCP does not consider the Respondent’s alleged lack of consultation with the Notifier about this decision material to the Guidelines.
35. The NCP did not see how the Respondent’s alleged failure to delineate and enforce separate buying territories for its two PCP suppliers, or the alleged failure to impose a price limitation, was material to the Guidelines. While competition between the Notifier and the Respondent’s new supplier may have led some MRFs to realize and/or ask for higher prices for their PCPs, it was unclear how this related to observance of the guidelines cited by the Notifier (Chapter II, A.7).
36. Whatever delays the Notifier may have experienced in receiving a response to the concerns it raised with the Respondent, the NCP notes that the Respondent apparently did retain external counsel to investigate the Notifier’s claims. In the view of the NCP, the alleged initial lack of responsiveness does not adequately substantiate the Notifier’s claim concerning insufficient risk-based due diligence practices by the Respondent (Chapter II, A.10).
37. While the information provided by the Respondent and Notifier indicated that there were payment delays during the period in question, it is the NCP’s understanding from the parties that all outstanding invoices for deliveries accepted by the Respondent were eventually settled (though the Notifier claims that there are still amounts owing in relation to deliveries it alleges were rejected without sufficient cause). No compelling evidence was provided linking these payment delays to demands or threats by the Respondent or its employees. The NCP finds that this issue lacked the substantiation needed to merit further examination.

Chapter III (Disclosure)

38. The Notifier claims that the Respondent ought to have provided it with certain commercial and/or technical information to better facilitate the operation of their business arrangement, namely details of the Respondent’s commercial contract with the processor. The NCP does not consider this issue material to the guidelines on disclosure, which aim to improve public understanding of multinational enterprises and their activities.

Chapter VII (Combatting Bribery)

39. The NCP did not find the issues raised substantiated. Individually and in their totality, the indicators cited by the Notifier did not support a sufficiently plausible or coherent theory regarding the potential “corrupt arrangement” alleged.

Chapter VIII (Consumer Interest)

40. The Notifier’s claim that the Respondent did not seek additional MRF certification documents from the Notifier between 2020-22 does not, in the view of the NCP, provide sufficient substantiation to merit further examination of the issue raised concerning a potentially misleading representation by the Respondent (Chapter VIII, 4).

Chapter X (Competition)

41. The NCP did not find the issues raised material to the Guidelines. The guidelines in Chapter X cited by the Notifier address instances where ostensible competitors collude to reduce competition. This did not appear to describe the issue raised by the Notifier. The Notifier did not point to any competition laws or regulations implicated by the Respondent’s conduct, nor did the Notifier contend that the Respondent’s conduct constituted an abuse of market power or dominance, or an attempt to acquire market power or dominance by means other than efficient performance.

whether there seems to be a link between the enterprise’s activities and the issue raised in the specific instance;

42. There seems to be a link between the enterprise’s activities and the issues raised in this specific instance, though as noted above, the NCP does not consider these issues material to the Guidelines or sufficiently substantiated.

the relevance of applicable law and procedures, including court rulings;

43. Neither of the parties referenced laws, procedures, or court rulings that would be relevant to this specific instance.

how similar issues have been, or are being, treated in other domestic or international proceedings

44. Neither of the parties indicated the existence of parallel proceedings that would be relevant to this specific instance.

whether the consideration of the specific issue would contribute to the purposes and effectiveness of the Guidelines

45. Further consideration of the specific issues raised is unlikely to contribute to the purposes and effectiveness of the Guidelines. As noted above, the issues raised do not appear material to the Guidelines and/or lack sufficient substantiation to warrant further examination through a dialogue/mediation facilitated by the NCP.
46. The NCP notes that many of the issues raised appear to be rooted in the challenges of managing a commercial relationship between two businesses. The NCP is neither mandated nor suited to address what are essentially commercial disputes or breakdowns in business partnerships. In particular, the NCP cannot provide a forum to help resolve differences of opinion between commercial partners over business strategy or coordination. Facilitating a dialogue or mediation to address these issues would not contribute to the purposes and effectiveness of the Guidelines.

Conclusion

47. The NCP concludes that the issues raised by the Notifier do not merit further consideration.

Timeline

July 29, 2022 – The NCP Secretariat receives the Notifier’s request for review

August 3, 2022 – Call between the NCP Secretariat and the Notifier

August 5, 2022 – Notifier sends additional information to the NCP Secretariat

August 8, 2022 – Call between the NCP Secretariat and the Notifier to clarify issues

September 14, 2022 – First call between the NCP Secretariat and the Respondent’s representative

September 23, 2022 – Notifier’s Request for Review is shared with Respondent

October 4, 2022 – Second call between the NCP Secretariat and the Respondent’s representative

October 13, 2022 -- NCP Secretariat receives a written response from the Respondent (subsequently shared with the Notifier)

October 21, 2022 – NCP Secretariat receives an additional written submission from the Notifier (subsequently shared with the Respondent)

November 17, 2022 – Draft initial assessment circulated to the ad hoc working group

January 12, 2023 – Meeting of the NCP ad hoc working group

April 4, 2023 – Draft Final Statement submitted to the NCP

April 13, 2023 – NCP approves draft Final Statement

April 18, 2023 – Draft Final Statement shared with the parties

June 13, 2023 – Final comments from parties received

July 5, 2023 – NCP approves Final Statement