by David Phelan March-29-2022 in Commercial & Business, Competition Law, Corporate

Overview

The European Union (Unfair Trading Practices in the agricultural and food supply chain) Regulations 2021 (“UTP Regulations”) came into effect on 1 July 2021.  There is an important deadline coming up at the end of April (2022) regarding compliance with the UTP Regulations.

By way of background, the UTP Regulations transpose into Irish law the EU Directive on Unfair Trading Practices in supplier and buyer relationships in the agricultural and food supply chain. The UTP Regulations introduced new requirements for supply agreements between food suppliers and buyers where the supplier has relatively weaker bargaining power than the buyer based on annual turnover.

The UTP Regulations were signed on 28 April 2021, to come into effect on 1 July 2021.  All Supply agreements entered into since 28 April 2021 are already subject to the rules in the UTP Regulations.  A one-year grace period was granted to agreements entered into before 28 April 2021 – meaning that Supply agreements made prior to 28 April 2021 must now be compliant with the new rules by 28 April 2022.

 

Do the UTP Regulations apply to your business?

The UTP Regulations apply to supply agreements where at least one of the parties to the transaction are established in the EU.  Accordingly, the UTP Regulations provide the same protections to non-EU suppliers as EU suppliers selling into the EU. The same applies for non-EU buyers who are purchasing from EU suppliers. It is important to bear the UK in mind in this context, who, as a consequence of Brexit, is a non-EU state for the purpose of the UTP Regulations.

In order for the UTP Regulations to apply to a supply agreement, the buyer must always be larger than the supplier. The application of the UTP Regulations will depend on the relative sizes of the supplier and the buyer, calculated by reference to annual turnover. The relevant thresholds which dictate the applicability of the UTP Regulations are set out in Regulation 4:

  1. suppliers which have an annual turnover not exceeding €2,000,000 to buyers which have an annual turnover of more than €2,000,000,
  2. suppliers which have an annual turnover of more than €2,000,000 and not exceeding €10,000,000 to buyers which have an annual turnover of more than €10,000,000,
  3. suppliers which have an annual turnover of more than €10,000,000 and not exceeding €50,000,000 to buyers which have an annual turnover of more than €50,000,000,
  4. suppliers which have an annual turnover of more than €50,000,000 and not exceeding €150,000,000 to buyers which have an annual turnover of more than €150,000,000, and
  5. suppliers which have an annual turnover of more than €150,000,000 and not exceeding €350,000,000 to buyers which have an annual turnover of more than €350,000,000, or
  6. suppliers which have an annual turnover not exceeding €350,000,000 to all buyers which are public authorities

It is important to note that the UTP Regulations do not apply to agreements between suppliers and consumers.

 

Scope of Obligations and Prohibitions

The UTP Regulations set out 10 strictly prohibited, or in some cases mandatory, practices that cannot be contracted out of by a buyer, and 6 further practices which are prohibited unless agreed in clear and unambiguous terms between the parties.

The most notable of the non-negotiable practices are:

  • Buyers are prohibited from unilaterally altering a supply agreement;
  • Buyers are not permitted to refuse to provide written confirmation of the terms of supply agreement when requested;
  • Buyers are prohibited from cancelling orders of perishable agricultural and food products at such short notice cannot reasonably be expected to find an alternative means of commercialising or using those products;
  • Buyers are prohibited from requiring a supplier to pay for the deterioration or loss of agricultural and food products which occurs on the buyer’s premises and for which the supplier is not at fault;
  • Buyers are prohibited from unlawfully using the trade secrets of a supplier;
  • Buyers are prohibited from threatening to conduct, or actually conducting acts of commercial retaliation against suppliers in circumstances where the suppliers exercise their contractual or legal rights;
  • Buyers are not permitted to require compensation from suppliers for the cost of examining customer complaints in connection with the sale of the supplier’s products, unless the supplier has been negligent or is at fault in some way;
  • Payment for perishable agri-food products must be within 30 days of delivery; and
  • Payment for other agri-food products must be within 60 days of delivery.

Examples of the additional practices that a buyer cannot undertake (unless specifically agreed) are:

  • Buyers cannot return unsold agricultural and food products to suppliers without paying for the products or for the disposal of the products, unless this has previously been agreed in clear and unambiguous terms in a supply agreement;
  • Buyers cannot require the supplier to pay for stocking, displaying, and listing the agri-food products; and
  • Buyers cannot require the supplier to bear the cost of promotional discounts or pay for advertising or marketing for the buyer.

 

Enforcement and Penalties

As it stands, the relevant enforcement authority identified in the UTP Regulations is the Minister for Agriculture, Food, and the Marine (“the Minister”). However, the Minister, Charlie Mc McConalogue T.D. has confirmed the government’s plans for the establishment of a new Office of a National Food Ombudsman or Regulator. The new office will have a role in analysing and reporting on price and market data in Ireland, as well as incorporating enforcement authority functions required by the UTP Regulations.

Last month the Minister also announced the launch of an online survey which is intended to explore whether buyers are treating the producers that supply to them fairly and lawfully, in compliance with the UTP Regulations. The survey seeks to establish baseline information on the following issues from suppliers of agricultural and food products:

  1. awareness of the UTP Regulations and of the enforcement authority and its functions
  2. understanding of the protections afforded to suppliers under the UTP Regulations
  3. the extent to which UTPs impact suppliers and the factors which influence them in deciding whether or not to make a complaint

Under the UTP Regulations, the enforcement authority may conduct investigations based on a complaint from a supplier, or on its own initiative. Offences under the UTP are punishable on indictment and include a fine of up to €500,000 and imprisonment of up to three years. Individuals may also be held liable, if an offence under the UTP Regulations is proved to have been committed with the consent, connivance or approval of a director, manager, secretary or officer of a company.

 

Existing Legislation and Continuing Obligations

There is significant overlap in respect of what is covered by the UTP Regulations and the existing Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016, S.I. No. 35 of 2016 (“Grocery Goods Regulations”). The enforcement authority for the Grocery Goods Regulations is the Competition and Consumer Protection Commission (“CCPC”). According to the CCPC, it is intended that the Grocery Goods Regulations will be revoked on 31 March 2022. However, it has confirmed that in the meantime, the Grocery Goods Regulations remain in force and will continue to apply for the 2021 trading year. Under the Grocery Goods Regulations, all Relevant Grocery Goods Undertakings (“RGGUs”) are required to submit an annual compliance report to the CCPC detailing their compliance with these Regulations.  The CCPC expects that all RGGUs will have submitted an Annual Compliance Report covering the period 1 January 2021 to the 31 December 2021 to the CCPC on or before the 31 March 2022.

 

Conclusion

Notwithstanding the complexity and confusion brought about by balancing two relevant pieces of legislation, it is envisioned that by the end of the year, buyers and suppliers will have only one set of regulations to comply with the UTP Regulations. It is crucial that buyers ensure they are operating in compliance with the UTP Regulations. It is strongly advisable that buyers would review their existing supply agreements, if they have not already done so, to ensure conformity with the UTP Regulations in advance of 28 April 2022.

 

 

For further information or guidance on the legislation, please contact David Phelan dphelan@hayes-solicitors.ie at Hayes solicitors LLP. 

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About the Author

David Phelan
David Phelan

David is Head of the Commercial & Business team at Hayes solicitors and advises a number of the firm’s major corporate clients. He advises on a wide range of corporate and commercial law issues. He has expertise in advising on general corporate and commercial matters, particularly in the manufacturing, retail, aviation, sports and motor sectors, and also frequently advises clients who operate in regulated areas.