Almost exactly one year after entry into force of the Act of 15 December 2016 on Counteracting the Unfair Use of Contractual Advantage in the Trade in Agricultural and Food Products (more commonly known as the Act on contractual advantage, below also as “the Act”), the Polish government announced its readiness to amend the Act and presented a draft bill. The legislative action is meant to empower the most vulnerable operators in the food supply chain and reduce imbalances of bargaining power by conferring powers to eradicate unfair trading practices on the competition authority.
The Act on contractual advantage was first introduced in 2017 with a view to achieving these same goals. It was adopted as a response to recurring unfavourable media coverage of alleged misuse of bargaining power by large grocery stores and processors in relation to small suppliers and farmers. Similar legislation had already been in place in other EU Member States, so the initiative was not unprecedented. The contentious issue of imbalanced commercial relations along the food supply chain was also brought to the attention of the European institutions. In April 2018, the EC announced its proposal for a directive on unfair trading practices in the food supply chain (also known as the UTP directive). Its adoption might, however, only come as a swansong of the incumbent Commission. Until then, small businesses and farmers have to rely on the national provisions. Unfortunately for the Polish industry, the wording of the Act prompted fierce criticism from academics and practitioners alike over its vagueness and incoherence with the legal environment.
In its current form, the Act authorizes the Polish Office of Competition and Consumer Protection (UOKiK) to take legal action only in those cases of purchase of agricultural produce and food products where the total value of the turnover between the supplier and the buyer exceeds PLN 50 000 (approx. EUR 12 000) in the year in which the proceedings are initiated or in any of the two preceding years, and the total turnover of the undertaking with superior bargaining power exceeds PLN 100 million (approx. EUR 24 million) in the year preceding the launch of the proceedings. The Act contains a general clause prohibiting unfair use of contractual advantage and a non-exhaustive list of four practices that are deemed unfair. The main subject of complaint from stakeholders has been the ambiguous definition of contractual advantage. According to Art. 7(1) of the Act, contractual advantage occurs where there is no sufficient and real possibility for the supplier to sell his produce or foodstuffs to other buyers and there is a significant disparity between the economic potential of the supplier and the buyer (or respectively vice-versa). Furthermore, the unfairness of a practice is assumed where it is contrary to good trading practice and threatening to or actually infringing the interest of the other party. If an undertaking is found to use its contractual advantage unfairly, even through negligence, the President of the UOKiK may by decision impose a fine not exceeding 3% of the offending party’s total turnover in the preceding business year.
Due to the uncertainty ensuing from its wording, the critics of the Act predicted that it would become a dead letter of the law. In fact, since its entry into force only one commitment decision has been adopted by the President of the UOKiK, although numerous cases had been brought before the authority. The paltry results might have been one of the drivers of the amendment. It is, however, doubtful, whether the proposed changes would actually bring about the desired balance.
The recently announced proposal aims at broadening the scope of application of the Act and providing for more legal certainty by simplifying the wording of some of its most important provisions. Firstly, as the Act is currently seen as preventing the weakest undertakings from seeking protection, it is proposed that any conditions pertinent to the turnover should be removed altogether. However, it is not clear if the competition watchdog, with its limited resources and capacities, would be able to handle the potential influx of complaints originating in trivial disputes. What is more, the draft bill provides for a right to raise a claim for anyone, including apparently even consumers, associations, and entities which have not been subject to unfair trading practices themselves. Considering the complexity of the legal provisions, it cannot be ruled out that claims would be made by suppliers dissatisfied with the terms offered by a buyer, even if they did not constitute unfair use of contractual advantage. The proposal also introduces a guarantee of anonymity for applicants, which might encourage lodging claims devoid of any genuine substance in retaliation. On the other hand, this change might reduce the “fear factor” which seems to account for the reluctance of aggrieved suppliers to come forward as long as their commercial relationship with the buyer remains in force.
Another issue to be amended is the definition of contractual advantage. The government wants to leave out the first part of the definition, retaining the chunk concerning a significant disparity between the economic potential of the supplier and that of the buyer. Although the idea of simplifying the definition is commendable, the likely effect of the proposed modification is bound to be negligible as the definition continues to rely on an imprecise notion. An internal document accompanying the draft bill lauded the change as minimizing the need to review whether there is a sufficient and real possibility for the supplier to sell his agricultural produce or foodstuffs to other buyers. Admittedly, the wording of this phrase leaves a lot to be desired. However, the sole disparity in potential between two undertakings does not necessarily mean that the stronger player is in a position to exert unfair pressure on the other, especially if the weaker enterprise can easily find an alternative distribution channel. Thus, the proposed formulation falsely implies a direct link between significant economic potential and unfair trading practices. In the end, the correct interpretation of the premise of unfairness will become crucial for the sound application of the amended Act.
The proposal for the amendment of the Act accommodates calls for more state intervention in the food sector, which have become particularly pronounced in the current times of oversupply of certain produce. There is, however, a growing concern that, instead of the desired balance, interference in contractual relationships might bring about inflated prices for consumers. From the antitrust perspective, granting special protection to a select group of undertakings, irrespective of their market efficiency, seems rather questionable. On the other hand, a comparable initiative, namely the UTP directive, is currently being developed on the European level, which suggests that the actions of the Polish government reflect a more general trend. Two major differences in the approach of the Polish government and the EC are easily discernible though. Firstly, the proposal for the EU directive prohibits clearly defined unfair trading practices, whereas the amended Polish Act applies a general clause, which means that its scope remains open-ended. Secondly, the Polish legislator is struggling to arrive at a correct definition of contractual advantage – unlike the EC, which has resolved to rely on the commonly known notions of SME and non-SME. It remains to be seen how both proposals are processed and what impact they ultimately have on the economic results of the food industry.