Unfair trade practices
The law establishes rules and a system of measures to prevent the imposition of unfair trade practices and establishes unfair trade practices in the food supply chain, the imposition of which exploits the significant bargaining power of purchasers and/or processors or traders in relation to their suppliers.
The Act on the prohibition of unfair trading practices in the business-to-business food supply chain, Official Gazette 117/17, enters into force on 7 December 2017 and empowers the Croatian Competition Agency (CCA) for the enforcement of the provisions concerned.The Act on prohibition of unfair trading practices in the business-to-business food supply chain (hereinafter: UTPs Act) establishes the rules and effective redress mechanisms to eliminate UTPs being imposed by a trading partner in the food supply chain where a superior bargaining position is abused by the buyer and/or the processor or the re-seller with respect to the supplier.
The UTPs Act wants to establish, ensure and promote the fair trading practices that would protect the participants in the food supply chain.
The addressed actors of the UTPs Act are all the participants in the food supply chain – producers, buyers, processors, wholesalers and retailers.
Within the meaning of the UTPs Act it is prohibited to abuse the superior bargaining power, in other words, buyers and/or processors or re-sellers may not impose UTPs provisions on suppliers.
Under the UTPs Act the re-seller of strong bargaining power means a re-seller where its realized total annual turnover in Croatia exceeds the threshold of a 100 million Kuna.
In the case of a buyer or processor, strong bargaining power means a buyer or a processer where their respective aggregate turnover in Croatia exceeds 50 million Kuna.
In both cases mentioned above the total turnover includes the turnover of all connected companies realized in Croatia, excluding the turnover realized between the members of the group.
The UTPs Act provides for the transition period until 31 March 2018 for all the retailers, buyers and processors who have to adjust the provisions of the contracts entered into between the buyers and re-sellers and the re-sellers and/or processors and their suppliers that have been concluded before the UTPs Act enters into force, with the UTPs rules. Otherwise, these contracts will become null and void on 1 April 2018.
Unfair trading practices regulated by the UTPs Act
UTPs may be applied in the following relationships: the relationship between the supplier and the buyer and/or processor, and the relationship between the supplier and the re-seller.
The UTPs in the production, processing and/or sales of agri or food products that are imposed on the suppliers by the abuse of the superior bargaining power are as follows:
- the provisions under written agreements between the buyers and/or processors or re-sellers and their suppliers that do not comply with the provisions of the UTPs Act, or obligations imposed on the suppliers that are not provided under the written agreement between the buyers and/or processors or re-sellers and their suppliers;
- payments that are not clearly identified and specified on the receipt or the goods receipt note;
- general terms of business of the buyer and/or processor or re-seller that are not in compliance with the provisions of the UTPs Act;
- possible unilateral oral termination by the buyer and/or processor or re-seller of the contract with the supplier or without justifiable reasons for termination, or possible cancellation of the contract with the supplier without a reasonable notice period, or possible unilateral or retroactive changes to contract terms by the buyer and/or processor or re-seller;
- disproportionately high contractual sanctions relating to the value and significance of the subject of obligation, and
- other unfair trading practices laid down under this Act.
In the relationship between the supplier and the buyer and/or processor the UTPs Act lists nine more unfair trading practices, such as: any non-transparent reduction in the quantity and/or value of the standard quality products, issuing of a blank debenture for the raw materials and manufacturing components, conditioning of the conclusion of the contract and the business co-operation by barter arrangements for the goods and services, unwillingness to take delivery of the agreed quantities of agri or food products in line with the agreed purchase dynamics, imposing charges for the conclusion of the contract with the supplier that are not proportionate to the administrative fees that should be borne by the supplier etc.
In the relationship between the supplier and the re-seller the UTPs Act lists twenty four other unfair trading practices involving the payment of different fees, such as listing fees, slotting fees involving abuse of services linked to use of shelf space – unless they are linked to real services where the supplier explicitly requests from re-seller to place its product on a distinctive shelf in the outlet of the re-seller, fees for the return of delivered but unsold goods or fees for managing unsold merchandise and goods – unless these goods are delivered to the re-seller for the first time or where the supplier explicitly asked for the goods to be sold although the re-seller warned him in advance that due to the small turnover the expiry date of the goods concerned may elapse, fees for delivery of the products outside the agreed place of delivery, fees for refurbishing and conversion of the re-seller’s outlets or warehouse space etc.
Mandatory provisions of the contract
The contract between the parties shall be concluded in writing and shall contain all the provisions regulating the commercial terms between the parties to the contract.
The contract between the supplier and the buyer and/or processor shall contain the following:
– the price of the product and/or the method of calculation (setting) of the price;
– the quality and the type of the agricultural or food product that is being delivered;
– commercial terms and conditions and payment deadlines (not exceeding 60 days from the day of delivery, not exceeding 30 days from delivery for fresh, perishable products);
– delivery terms and deadlines;
– place of delivery, and
– duration of the contract.
Any contract that has not been concluded in writing and that does not contain the above listed provision shall be null and void.
By way of derogation, primary producers who accept an order based on publically known obligatory terms that should be attached to the goods receipt note, who have concluded a contract on joint production and who deliver their products to the cooperative to which they are members, escape the written contract obligation.
The contract between the supplier and the re-seller shall contain the same above listed provisions for the contract between the supplier and the buyer and/or the processor, whereas there is no derogation applicable on the re-sellers with respect to the obligation involving the conclusion of a written contract.
The contracts are null and void where they contain provisions enabling the buyer and/or processor and the re-seller to unilaterally terminate the contract orally or without stating the justifiable reasons for doing so, where the contract may be cancelled without an acceptable notice period or where it contains the provision on unilateral change of the contract.
Committments undertaken by the undertakings
The CCA carries out the administrative proceeding for the establishment of abuse of superior bargaining power by imposing unfair trading practices and the administrative proceeding for setting and imposing the fines. The CCA may initiate the proceeding ex officio or upon the request of the party.
The UTPs Act provides for the possibility for the party to voluntarily offer committments to eliminate the established UTPs. Such a proposal may be offered by the party within 40 days from the opening of the proceeding.
Within the investigation the CCA decides whether the proposed measures are sufficient for the elimination of the UTPs, taking into account the gravity, scope and the duration of the infringement. If the CCA finds the proposed committments acceptable and sufficient for the elimination of the UTPs, it issues an interim decision on the basis of which these committments become binding for the party that must provide evidence on the fulfilment of these measures within a prescribed deadline. Where the party submits this evidence, the CCA decides to terminate the proceeding without establishing the infringement of the rules concerned and without imposing any sanctions.
The CCA encourages the undertakings to offer committments as a settlement mechanism in the infringement proceedings due to the fact that this is the fastest way to eliminate the spotted irregularities and to restore fair trading practices in the food supply chain.
On the other hand, where the committments are not offered by the undertaking concerned, or where the CCA assesses the proposed measures as inadequate or where the party fails to submit evidence on the fulfilment of the measures, the CCA informs the party thereof and continues to carry out the investigation proceeding.
Where after the investigation the CCA establishes that the UTPs provisions have been violated, in other words, that the party in question has abused its superior bargaining power, the CCA takes an infringement decision and sets the fine, defining its level and payment deadlines.
When imposing the fines the CCA takes into account all mitigating and aggravating circumstances, such as the gravity, scope and duration of the infringement and the consequences this infringement had on the suppliers.
The CCA uses fines to eliminate, restore and promote fair trading practices that protect the participants in the food supply chain. Fines serve as punishment for infringers but at the same time they ensure a credible deterrence against the use of UTPs.
Depending on the gravity and the significance of the infringement the UTPs Act recognises fines for most serious infringements, serious infringements, for minor and other infringements.
The cap amount of the fine for a most serious infringement may amount to up to HRK 5 million for a legal person and HRK 2.5 million for a natural person, where a legal or a natural person is a buyer and/or processor or re-seller within the meaning of the UTPs Act and sells the product under the price which is lower than any other purchase price in the product purchase chain, as referred to in Article 12 item 14 of the UTPs Act.
For a serious infringement a legal person may pay the fine in the amount of up to HRK 3.5 million, a natural person up to HRK 1.5 million.
The fines for minor infringements depend on the fact whether the infringement was committed by a legal or a natural person. The cap amount of the fine for a minor infringement that may be imposed on the party to the proceeding is HRK 1 million for a legal person and HRK 500,000 for a natural person.
No appeal is allowed against the decision of the CCA but a party may file a law suit in the competent administrative court. The law suit does not postpone the enforcement of the decision besides the part thereof relating to the imposed fine. Similarly, the law suit concerning the procedural issues relating to the decision of the CCA does not suspend the proceeding. Administrative disputes filed pursuant to the UTPs provisions are emergency procedures.