Back in September 2021, the revised Act on the prohibition of unfair trading practices in the business-to-business food supply chain (the "UTPs Act") entered into force. As in all other EU Member States, the Croatian UTPs Act was revised to bring Croatia's legal framework in the area of unfair trading practices in business-to-business relations in the agricultural and food supply chain into compliance with the UTPs Directive.
The UTPs Directive was enacted to provide a minimum standard of protection for small and medium-sized agricultural suppliers from grossly unfair practices imposed by their more powerful buyers. Member States followed that path by transposing the minimum requirements set forth by the UTPs Directive into their local laws. Some, including Croatia, even created a stricter framework for protection.
Have you aligned your agreements with the revised UTPs Act?
The revised UTPs Act left a six-month transition period for all the addressees of the act to align their businesses with the new requirements. The UTPs Act will become fully applicable as of 1 March 2022. This means that all buyers and suppliers already encompassed by the provisions of the former UTPs Act must align their agreements with the revised act. Buyers with strong bargaining power under the revised UTPs Act must conclude written agreements with their suppliers as prescribed by the act.
Activities so far
As of December 2017, when enforcement activities under the UTPs Act fell under the competence of the Croatian Competition Agency (the "CCA"), the CCA largely shifted its focus to this area of the law. According to the CCA's annual reports for 2018, 2019 and 2020, the CCA resolved 235 cases dealing with alleged unfair trading practices in the food supply chain. The maximum individual sanction imposed amounted to HRK 1.3m (approx. EUR 173,000). The most common unfair trading practices detected were mainly the failure to include mandatory elements of contracts prescribed by the UTP Act (e.g. deadline for payments, terms and place of delivery, product quality, etc.).
UTPs Act novelties
In general, the revised UTPs Act mainly kept the provisions of its predecessor and improved upon them with more detailed explanations and a number of terminological adjustments. For instance, the revised UTPs Act introduced a definition of the term "buyer", and instead of the term "fresh" product the new term "perishable" product was introduced, while certain terms such as supplier, affiliated companies and chain of supply were redefined.
Also, the term "strong bargaining power" was redefined. Namely, any buyer with total annual turnover exceeding HRK 15m (approx. EUR 2m) will be deemed to have strong bargaining power. The turnover generated by the supplier is irrelevant for determining the existence of the buyer's strong bargaining power. Also, unlike under the previous version of the act, net turnover is to be calculated at a group worldwide level, instead of as turnover generated solely in Croatia. Consequently, by lowering the threshold, the scope of addressees of the UTPs Act has been extended as has the range of agricultural and food products encompassed by the UTP Act.
The mandatory content of the written agreement remained the same, although some clarifications were added, such as the means for determining the price of the agricultural or food products. The act kept the maximum allowed payment terms (30 days for perishable products and 60 days for other agricultural products) but changed the starting point for the calculation of the term and differentiated between regular and irregular deliveries.
The revised UTPs Act further expanded the list of unfair trading practices by adding new ones, such as cancelling orders of perishable products at short notice, the illegal obtaining, use or disclosure of suppliers' business secrets, threatening or carrying out commercial retaliation against supplier, requesting compensation for reviewing the claims of end consumers, charging the supplier for fitting out premises used for the sale of contract products, for additional inspection of products, etc.
Finally, the CCA's new power to carry out dawn raids (unannounced on-site inspections) has been introduced.
There were no changes in terms of the fines for breaches of the UTPs Act. These remained at (i) up to HRK 5m (approx. EUR 375,000) for sales below costs, (ii) up to HRK 3.5m (approx. EUR 260,000) for severe infringements, i.e. imposing unfair trading practices as determined by the act, (iii) up to HRK 1m (approx. EUR 75,000) for minor infringements (cases where the party to the proceeding fails to deliver necessary information and documentation required by the CCA or fails to perform its obligations with regard to certain measures and conditions imposed by the CCA), and (iv) up to HRK 20,000 (EUR 2,660) for failure to issue an invoice with explicitly determined amount of rebates or discounts, the latter being the novelty of the revised act in terms of the amount of fines (not issuing an invoice at all will continue to be regarded as a severe infringement).
By Ana Marjancic, Attorney at Law in Cooperation with Schoenherr