The European Parliament has approved the wording of the Directive related to unfair trading practices in business-to-business relationships in the agricultural and food chain (the "Directive"). The aim of the Directive is to set within the European Union (the "EU") a minimum standard of protection against unfair trading practices that could emerge among operators in the food chain as a result of imbalances in bargaining power between suppliers and buyers. This is therefore a minimum standards Directive, which contains a list of prohibited trading practices which may be further developed and broadened by the different Member States.
22 MARCH 2019
Madrid
Contents
1. Scope of application of the Directive
2. Practices prohibited by the Directive
3. Enforcement autothorities 4. Conclusions Contact
Related links
Herbert Smith Freehills Herbert Smith Freehills in Spain
2
3 4 5 5
Although regulations already exist in Spain to regulate relationships among the different operators in the food chain (Law 12/20132), the Directive could have a significant impact in this country3.
Included below is an analysis of the Directive and its potential impact in Spain4.
1 European Parliament legislative resolution of 12 March 2019 on the proposal for a directive of the European Parliament and of the Council on unfair trading practices in business-to-business relationships in the food supply chain (COM(2018)0173 C8-0139/2018 2018/0082(COD)). Available at the European Parliament website, here.
2 Law 12/2013, of 2 August, on the measures to improve the food chain. 3 In any event, it should be taken into account that these regulations do not displace the general provisions on unfair trading. 4 Subject to how the Directive is ultimately transposed into Spanish legislation, as the Member States are able to include in the national
regulations practices that are more restrictive than those expressly included in the Directive.
// 1
?
Madrid e-briefing: Consumer products
1. Scope of application of the Directive
The Directive takes a dynamic approach, based on the relative size of the supplier and the buyer in terms of annual turnover. Specifically, the second paragraph of article 1 of the Directive points out that it will apply to unfair trading practices which occur in relation to sales of agricultural and food products by: suppliers which have an annual turnover not exceeding 2 million to buyers which have an annual
turnover of more than 2 million; suppliers which have an annual turnover of more than 2 million and not exceeding 10 million to buyers
which have an annual turnover of more than 10 million; suppliers which have an annual turnover of more than 10 million and not exceeding 50 million to
buyers which have an annual turnover of more than 50 million; suppliers which have an annual turnover of more than 50 million and not exceeding 150 million to
buyers which have an annual turnover of more than 150 million; suppliers which have an annual turnover of more than 150 million and not exceeding 350 million to
buyers which have an annual turnover of more than 350 million. Irrespective of the above parameters, the Directive will apply to trading relationships between suppliers of food products which have an annual turnover of more than 350 million and buyers that are public authorities, irrespective of turnover. It should also be taken into account that the Directive also provides that it will apply both to buyers established in the EU as well as those outside the EU that have trading relationships with suppliers in the EU. The Directive also applies to suppliers outside the EU that sell products to buyers located in the EU. In contrast to the Directive, Spanish legislation does not establish an applicability threshold (except for a reference to the obligation to formalise food contracts in writing5). As a result, the prohibition of abusive trading practices under Chapter II of Law 12/2013 applies to all trading relationships between operators trading in the food chain, irrespective of their size or turnover.
5 Law 12/2013 limits the obligation to formalise contracts in writing to trading relationships with a price exceeding 2,500, and where any of the following circumstances are present: (a) one of the parties is an SME and the other party is not; (b) where unprocessed, perishable agricultural products and food inputs are being commercialised, one of the parties is a primary agricultural, livestock, fishery or forestry producer or a grouping thereof and the other is not; or (c) where one party is financially dependent on the other, financial dependence being understood to exist where billing between the two parties for the latter's product amounts to at least 30% of the former party's billing for that product in the preceding year. A contract in writing must also be in place in the event of deferred price or forward-looking sales transactions, except where it can be estimated beforehand that the price of the contract shall be lower than 2,500.
// 2
?
2. Practices prohibited by the Directive
Article 3 of the Directive contains a list of prohibited unfair trading practices, which differentiates between two types of conduct:
Unfair practices not permitted under any circumstances
These practices are unfair per se, and the performance thereof is not subject to the free will of the parties. These practices are as follows:
payments to suppliers for perishable goods after more than 30 days have elapsed, and in the case of non-perishable goods, after more than 60 days have elapsed.
In this case, the Directive establishes that the term starts to run (i) from the date of delivery of the product, (ii) after the end of an agreed delivery period, or (iii) after the date on which the amount payable for that delivery period is set. The Directive therefore takes into account agricultural and food agreements that are used in the horticultural and fruit sector, such as those arrangements where agricultural and food products are sold through third parties for a fee. In these cases, prices are not set at the date of delivery as the supplier could otherwise suffer financial detriment if it were necessary to set the price upon delivery of the product without knowing the price that will ultimately be charged to the end consumer6.
the cancellation by the buyer of orders of perishable agricultural and food products at such short notice that a supplier cannot reasonably be expected to find an alternative means of commercialising or using those products. Notice of less than 30 days is considered as short notice.
the unilateral modification by the buyer of the terms of a supply agreement for agricultural and food products that concern the frequency, method, place, timing or volume of the supply or delivery of the agricultural and food products, the quality standards, the terms of payment or the prices, or as regards the provision of services.
the buyer requiring payments from the supplier that are not related to the sale of the agricultural and food products of the supplier.
the buyer requiring the supplier to pay for the deterioration or loss, or both, of agricultural and food products that occurs on the buyer's premises or after ownership has been transferred to the buyer, where such deterioration or loss is not caused by the negligence or fault of the supplier.
the buyer refusing to confirm in writing the terms of a supply agreement between the buyer and the supplier for which the supplier has asked for written confirmation.
the buyer unlawfully acquiring, uses or discloses the trade secrets of the supplier.
the buyer threatening to carry out, or carries out, acts of commercial retaliation against the supplier if the supplier exercises its contractual or legal rights, including by filing a complaint with enforcement authorities or by cooperating with enforcement authorities during an investigation.
6 Judgment of the Central Contentious Administrative Court number 10, dated 11 April 2017.
// 3
?
Madrid e-briefing: Consumer products
the buyer requiring compensation from the supplier for the cost of examining customer complaints relating to the sale of the supplier's products despite the absence of negligence or fault on the part of the supplier.
Practices that are prohibited unless they have been previously agreed in clear and unambiguous terms in the supply agreement or in a subsequent agreement between the supplier and the buyer
These practices are subject to the free will of the parties, and can therefore be performed provided that they have been adopted by common agreement and are established in the supply agreement or in a subsequent agreement. Those practices are:
the buyer returning unsold agricultural and food products to the supplier without paying for those unsold products or without paying for the disposal of those products, or both;
the supplier being charged payment as a condition for stocking, displaying or listing its agricultural and food products, or of making such products available on the market;
the buyer requiring the supplier to bear all or part of the cost of any discounts on agricultural and food products that are sold by the buyer as part of a promotion;
the buyer requiring the supplier to pay for the advertising by the buyer of agricultural and food products;
the buyer requiring the supplier to pay for the marketing by the buyer of agricultural and food products;
the buyer charging the supplier for staff for fitting-out premises used for the sale of the supplier's products.
The Directive, therefore, understands that agreements between suppliers and buyers related to the payment of services rendered by the buyer to the supplier such as listing, marketing and promotion are lawful provided that those service fees have been agreed in clear and unambiguous terms and are based on objective and reasonable estimates. The Directive therefore clarifies the terms of article 12 of Law 12/2013 that prohibits in Spain any payment in addition to the agreed price, unless they referred to the reasonable risk of listing a new product or the partial financing of the promotion of a product reflected in the unit retail price and were agreed and expressly included in the relevant agreement.
The Directive also makes it possible to include the covenants between suppliers and buyers in a supply agreement or subsequent agreements.
3. Enforcement autothorities
As is the case with Spanish legislation, the Directive establishes that each Member State must designate one or several authorities responsible for its enforcement. In Spain, those duties are performed by the Spanish Food Information and Control Agency (Agencia Espaola de Informacin y Control Alimentarios or "AICA"), which is currently responsible for the enforcement of Law 12/2013.
The Directive confers on enforcement authorities a series of powers, including the power: to initiate and conduct investigations on its own initiative or on the basis of a complaint; to require buyers and suppliers to provide all necessary information in order to conduct investigations of prohibited trading practices; to conduct inspections; to take decisions finding an infringement and to impose fines or other penalties on the offenders. In its capacity as an investigation body, AICA already has those powers under Spanish legislation (except for the power to impose penalties, which falls to the State Administration or regional authorities, as appropriate). As well as those powers, the Directive confers on enforcement authorities a power that AICA does not yet have: the power to publish its decisions taken as a result of investigative proceedings. Up to now, the decisions taken by AICA have not been made public given the confidentiality obligation to which those taking part in AICA investigations are subject.
// 4
?
Madrid e-briefing: Consumer products
Contrary to Spanish provisions, article 7 of the Directive establishes the possibility of buyers and suppliers using alternative dispute resolution mechanisms. Article 5 of the Directive also includes a provision to protect the anonymity of complainants.
Finally, it is also worth mentioning that article 9 of the Directive expressly mentions the possibility of Member States introducing stricter rules aimed at combating unfair trading practices in the food chain.
4. Conclusions
The Directive's provisions may be new from an EU standpoint, but not so much so when it comes to Spain. Since 2014 Spain has had regulations governing the relationships among operators in the food chain and, even before then the Spanish Competition Commission (Comisin Nacional de la Competencia) published a detailed report titled "Report on relationships between producers and distributors in the food sector", which covered these and other practices.
The Directive contains the minimum standards that should govern relationships among operators in the food chain, which the different Member States are able to supplement or elaborate upon.
In contrast to the prohibition against abusive trading practices under Law 12/2103, which applies to all operators in the food chain, the new Directive will only apply to commercial relationships between parties that meet the turnover requirements established in the Directive.
Finally, it is necessary to point out that power given by the Directive to the authorities of the different Member States to publish the decisions they take may open the door to Spanish regulations being changed to include a provision on that same basis.
The transposition and application of the Directive will require a concerted effort among operators in the food chain when establishing the start date from which payment terms start to run.
Contact
Henar Gonzlez, Partner T +34 91 423 4016 M +34 626 354 917 [email protected]
Jorge Viera, Consultant
T +34 91 423 4081 M +34 636 679 895 [email protected]
Pilar Carrasco, Junior associate
T +34 91 423 4138 M +34 639 908 661 [email protected]
If you are interested in this update or in any other practice areas, please do contact us via this email.
Herbert Smith Freehills LLP 2019
The contents of this document, current at the date of publication set out in this document, are for reference purposes only. Some of the information comes from public sources and this may not be comprehensive, accurate or up to date; where we have relied on third party information and sources, this has not been verified by us. This document does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication, and any facts in this document should be checked for your specific circumstances at the time you wish to use or refer to them.
// 5
?
