Farmers, fishermen and primary food suppliers to benefit from protection against unfair trade practices

Thomas Bugeja, senior associate and Nikol Caruana, associate within the Commercial and Corporate Law Department at Fenech & Fenech Advocates

When referring to “unfair trading practices” (UTPs) one tends to associate the term with anti-competitive behaviour among business players on the same level in the supply chain, or else with safeguards in B2C contracts. However, the term has recently been broadened to tackle the rise of abusive practices among players at different stages of the supply chain (supplier to retailer) in view of power imbalances, which are being created within the agri-food chain.

On 18 June, the Maltese legislature transposed Directive 2019/633 on Unfair Trading Practices in business-to-business relationships in the agricultural and food supply chain locally through the enactment of the Subsidiary Legislation no. 117.42 (the Regulations). The aim behind these Regulations is to set market standards and eradicate strong-armed practices that grossly deviate from good commercial conduct, good faith and fair trade.

Does it apply to all market players?

The Regulations offer protection by prohibiting UTPs concerning the sale and “related services” (described below) of agricultural and food products (i) between a supplier – mainly farmers, primary producers and producer cooperatives and a buyer, when either party is based in Malta and (ii) which fall within the specific annual turnover thresholds, as defined therein, including:

• a supplier with less than €2m turnover supplying to a buyer having over €2m turnover;
• a supplier who has an annual turnover of more than €2m but not  exceeding  €10m,  supplying to  buyers  having over € 10m turnover;

and so on, up to a maximum supplier turnover of €150m, except in cases where the buyer is a public authority, in which case the threshold for the supplier shall be up to €350m.

The Regulations shall apply to supply agreements entered into following 18 June. However, agreements, which were already in force before the said date, shall have to be amended so as to become compliant within 18 July 2022, provided that operators may be ordered to comply with the regulations beforehand.

Which trade practices are deemed unfair?

The Regulations identify and prohibit 16 UTPs, informally classified as “black” and “grey” practices, which shall be considered as mandatory prohibitions overriding any other law which may be deemed applicable to a supply agreement.

“Black” are deemed strictly prohibited without exemption and comprise arrangements or behaviour which involve:

• Paying after 30 days for regular delivery of perishable agricultural and food products;
• Paying after 60 days for regular delivery of other agri-food products;
• Short-notice cancellations of perishable agri-food products (minimum 30 days’ notice);
• Unilateral contract changes by the buyer;
• Imposing payments not related to a sale transaction;
• Transferring risk of loss and deterioration to the supplier;
• Refusal of a written confirmation of a supply agreement by the buyer, despite request of the supplier;
• Misuse of trade secrets;
• threatening to carry out or carrying out acts of commercial retaliation; and
• Transferring the costs of examining customer complaints to the supplier;

“Grey” are prohibited unless the supplier and the buyer agree to them in clear and unambiguous manner and entail:

• Free return of unsold products without paying for the goods and/or the disposal thereof;
• Requesting payment from the supplier for stocking, display and listing of his products;
• Requesting supplier to bear costs related to promotion of products without specifying period and quantity of food to be discounted;

• Requesting payment for staff for fitting out premises used to sell products.

How is protection safeguarded?

The Regulations established the Unfair Trading  Practices (Agriculture and Fisheries) Board’, an autonomous administrative authority responsible for hearing and determining complaints, conducting investigations, making orders prohibiting practices, discussing and advising on practices within sectoral authorities and filing complaints for the initiation of criminal proceedings, among others. In fact, anyone breaching the Regulations shall be guilty of committing a criminal offence and may be liable to the payment of several fines if charged and found guilty. Such proceedings can only be initiated by the Board.

Complaints on alleged UTPs may be submitted to the Board in writing by suppliers or by sectoral authorities subject to the payment of a €50 administrative fee. The Board should provide confirmation of receipt within 20 days thereof and should update the complainant of the outcome of the investigation.

The Board is tasked with investigating complaints and publishing its findings by drawing up an interim report on the matter, which report shall include any quantified damages estimated to have been suffered by the complainant as a result of the unfair practice. In case the parties involved agree with the conclusions of the report, they may come to a written agreement which is approved, witnessed and signed by a duly authorised representative of the Board, which shall constitute an executive title in case of default of payment or the expiry of a prescribed term. In case where parties do not reach an agreement, the Board shall finalise its report and take further action as necessary, including by issuing an order to cease the unfair practice and by initiating criminal proceedings.  

The parties may contest the findings (or lack thereof) of any unfair practices by filing an application to the Administrative Review Tribunal. Moreover, redress can also be sought by suppliers through any other means available at law.