Over the past few years, European and national institutions have warned about the negative effects of unfair trading practices in the supply chain. In order to tackle these and regulate the risk of abuse, several countries have enacted distinct trade laws. Croatia recently followed suit by adopting a new Act on the Prohibition of Unfair Trading Practices in the Business-to-Business Food Supply Chain. The act entered into force in December 2017 and provided for a transition period until the end of December 2017. The act defines the concept of 'significant buyer power', as well as different types of illegal behaviour. The act applies only to the supply of agricultural and food products.
The main features of the act are set out below.
Thresholds Under the act, strong bargaining power is considered to exist if:
- a reseller has a turnover of more than HRK100 million (approximately €13 million); or
- a buyer or processor has a turnover exceeding HRK50 million (approximately €7 million).
In order to calculate this threshold, the net group turnover in Croatia is relevant.
Ultimately, this threshold is very low. Almost every sizeable market player in the food supply chain in Croatia will fall within the ambit of the act.
Notably, the act applies to all types of buyer, which is another feature that differs from other countries (but is similar to the situation in, for example, Romania and Bulgaria). Consequently, the system is such that a wholesaler can be considered to have strong bargaining power and simultaneously be exposed to strong bargaining power downstream. The commercial agreements at both levels of the supply chain must then meet the requirements set out under the act.
Definition of 'unfair trading practices' 'Unfair trading practices' are defined as contract terms and commercial conduct contrary to good faith and fair dealing, equality of trading partners, reciprocal supplies of service and good commercial conduct.
The act segments unfair trading practices into six categories:
- agreements outside the supply contract contrary to the act;
- demanding payment for goods or services which are not determined in the receipt;
- general terms of business contrary to the act;
- unjustified unilateral termination of an agreement without prior notice or unilateral changes to the agreement;
- disproportionately high penalties in relation to the value and significance of the obligation; and
- other unfair trading practices.
All agreements that involve a buyer with strong bargaining power must be concluded in writing and entail the following:
- the purchase price or the way in which the price is defined;
- the quality and type of agricultural or food product being delivered;
- the payment terms and deadlines, which cannot exceed the 60-day limit;
- the terms and deadlines of delivery;
- the place of delivery; and
- the duration of the agreement.
Without these specifications, the agreement may be pronounced null and void.
Pursuant to the act, the receipt for each delivery must be issued.
CCA The Croatian Competition Agency (CCA) is empowered to enforce the act. It may start a procedure on its own initiative or based on the party's request. The entire procedure is governed by the General Administrative Procedure Act.
When investigating alleged unfair trading practices, the CCA is entitled to obtain copies of all relevant documents and information. The authority must close proceedings within 60 days from the date on which it establishes all of the relevant facts for rendering the decision.
Violations Violations of the act can entail fines on the infringing undertaking.
For legal entities, the maximum fine is:
- HRK5 million (approximately €375,000) for selling below cost;
- HRK3.5 million (approximately €260,000) for serious infringements (ie, imposing unfair trading practices defined under the act);
- HRK1 million (approximately €75,000) for minor infringements (ie, cases where the party to the proceeding fails to deliver necessary information and documentation required by the agency or fails to perform its obligations with regard to certain measures and conditions imposed by the CCA); and
- HRK100,000 (approximately €7,500) for other infringements (ie, failure to comply with the CCA's request to deliver certain documentation).
At present, no further guidance regarding the method of setting fines is available, other than that the CCA will consider all aggravating and mitigating circumstances. The limitation period is five years (relative – that is, it can be interrupted) and 10 years (absolute) from the date on which the infringement ends.
The act provides for the possibility to offer commitments voluntarily, to eliminate the established unfair trading practices within 40 days from the opening of the proceedings. If such are accepted by the CCA, the respective party must evidence fulfilment of these measures and this will ultimately determine whether the CCA will terminate the proceedings.
Overall, questions regarding the act still remain. These relate to the concept of strong bargaining power, the interpretation of unfair trading practices and the setting of eventual fines, leaving aside the fact that the maximum fines are arguably an ineffective deterrent (when compared with the maximum fines for abuses of market dominance of up to 10% of total turnover of the respective undertaking).
Stakeholders had only until the end of December 2017 to ensure that their agreements were compliant with the act. Even in its publication, the CCA conceded that the transition period was likely too short to ensure full compliance and allow for the CCA to make the necessary organisational steps to be able to enforce the act. It therefore remains to be seen whether the CCA will really be able to make good use of the new enforcement tools so that the government's wish to protect weaker parties in the supply chain from abuses can materialise.
For further information on this topic please contact Christoph Haid at Schoenherr by telephone (+36 1 8700 700) or email (email@example.com). The Schoenherr website can be accessed at www.schoenherr.eu.
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