After a four-year long search for the appropriate legislative tool to improve relations between retail chains and suppliers (and to “curb” the foreign-owned retail chains operating in Bulgaria), the Bulgarian parliament finally decided to amend the Protection of Competition Act (PCA) in July 2015.
Stronger bargaining position
One of the key amendments is the new concept of abuse of ‘stronger bargaining position’ (in PCA Art. 37a) which will apply generally to traders in all sectors, not only retail chains.
Any act or omission of a company enjoying the stronger bargaining position, which is contrary to good faith commercial practice and harms or may harm the interests of the counter-party and generally the interests of consumers, is now prohibited by the PCA. Under the law, acts or omissions which are contrary to good faith commercial practices are those that do not have objective economic justification. For example, the following acts would likely be contrary to good faith commercial practices: the unjustified refusal to supply or purchase goods or services; the imposition of unjustifiably burdensome or discriminatory conditions; and the unjustified cancellation of commercial relations.
An entity will be deemed to have a stronger bargaining position on the basis of multiple criteria, such as: the characteristics and structure of the relevant market; the particular relationship between the relevant undertakings taking into account their mutual dependence; the nature and size of their businesses; and the possibility of finding alternative commercial partners and alternative sources of supply, distribution channels and/or clients.
The PCA provides a new sanction for the violation of stronger bargaining position and requires infringing undertakings to pay up to 10% of the annual turnover from the sales of the product in question, but not less than BGN 10,000 (ca. EUR 5,000). If the annual turnover criterion does not apply to the facts of the case, the Bulgarian Protection of Competition Commission might impose a sanction up to BGN 50,000 (ca. EUR 25,000), likely depending on the gravity of the infringement.
Foods Act changes
The amendments also introduce (in Art. 19 of the Foods Act) a number of restrictions on contracts for the purchase of food intended for subsequent sale, including:
- counter-parties must not be restricted from offering or purchasing the goods or services to/from third parties;
- counter-parties must not be restricted from offering the same or better commercial terms to third parties;
- contracts cannot be amended unilaterally, unless explicitly agreed;
- provisions on payment for services which have not been actually rendered are prohibited;
- transfers of unjustified or disproportionate commercial risks to one of the parties are prohibited;
- clauses providing for payment terms exceeding 30 days from receipt of the invoice or payment demand or from the delivery of the food products, if delivery followed the invoice, are prohibited;
- counter-parties must not be restricted from transferring their receivables under the contract to third parties.
Food producers and traders (retail chains) will have 6 months to amend their contracts to comply with the above restrictions, afterwards clauses in violation of the above restrictions will be null and void.
Further, the amendments provide for two new bodies within the Ministry of Agriculture and Food: a national consulting council on the better functioning of the food distribution chain; and a conciliation committee, which will facilitate the out-of-court settlement of disputes between food producers and traders.
Law: Protection of Competition Act, published in State Gazette, issue No. 102, dated 28 November 2008, as last amended, issue No. 56 of 24 July 2015; Foods Act, published in State Gazette, issue No. 90, dated 15 October 1999, as amended