On 18 June 2021, the Unfair Trading Practices in the Food Supply Chain Regulations (the "Malta Regulations") finally came into force. The Malta Regulations are meant to transpose the Directive (EU) 2019/633 (the "UTP Directive") just a few weeks after the transposition deadline of 1 May 2021. The Malta Regulations prohibit the use of unfair trading practices in B2B relationships in the agricultural and food supply chain by providing for a so-called "black list" and a "grey list" of such practices and by creating an enforcement mechanism as a remedy for aggrieved parties.
The UTP Directive and the Malta Regulations are meant to be a toolbox to address the significant imbalances in bargaining power which currently exist between suppliers-the party producing and selling its agricultural and food products-and buyers-the party buying agricultural and food products. These imbalances exist as powerful buyers are able to impose certain unfair trading practices or contractual arrangements on suppliers to their advantage owing to their overall strength in the market.
The aim of the UTP Directive is to even the playing field and place the supplier, as the weaker trading party, on a more equal footing.
Do the Malta Regulations apply to my company?
There are 2 key tests which will help you understand whether your company's operations are subject to the Malta Regulations: a territorial one and a financial one.
First, the Malta Regulations apply if: (i) either the supplier or the buyer is based or operates in Malta; or (ii) the alleged unfair practice is performed, in whole or in part, in Malta.
Second, the Malta Regulations apply if the supplier and the buyer satisfy set annual turnover thresholds in the law. These turnover thresholds are set by a dynamic approach which applies different turnover categories for both supplier and buyer starting with the first category at just less than ?2 million for the supplier and more than ?2 million for the buyer, and with the last category at less than ?350 million for the supplier and more than ?350 million for the buyer. For example, the Malta Regulations apply to a relationship between a supplier whose annual turnover is ?1 million and a buyer whose annual turnover is ?3 million.
There are specific rules to calculate turnover for group companies or associations of suppliers/buyers.
The Malta Regulations do not apply where the supplier's annual turnover exceeds ?350 million.
The Malta Regulations do apply where the "buyer" is a public authority, including, when purchasing through competitive tender procedures.
Do they apply to contracts signed before 18 June 2021?
The Malta Regulations applies to contracts signed after 18 June 2021, but will apply retroactively to contracts signed before 18 June 2021 only after 19 June 2022.
What's fair and what's unfair?
The UTP Directive makes this fairly straightforward: it provides two lists of prohibited unfair trading practices-a "black list" and a "grey list". These lists are a matter of minimum harmonistation, and therefore, should be prohibited according to the national laws of all EU Member States.
The Black List
There are 10 trading practices in the "black list" which are prohibited in all circumstances and cannot be contracted out of where a supplier-buyer relationship is subject to the Malta Regulations:
- Payments later than 30 days for perishable agricultural and food products
- Payment later than 60 days for other agri-food products
- Short-notice cancellations of perishable agri-food products
- Unilateral contract changes by the buyer
- Payments not related to a specific transaction
- Risk of loss and deterioration transferred to the supplier
- Refusal of a written confirmation of a supply agreement by the buyer, despite request of the supplier
- Misuse of trade secrets of the supplier by the buyer
- Commercial retaliation by the buyer
- Transferring the costs of examining customer complaints to the supplier
Some supplier-buyer relationships may be exempt from some of the blacklisted trading practices.
The Grey List
There are 6 trading practices in the "grey list" which are prohibited, unless such practices are agreed upon explicitly by both trading partners in the terms of a "clear and unambiguous" supply agreement:
- The return of unsold products to the supplier without payment for the goods or their disposal;
- Charging payment to the supplier for the stocking, displaying, or listing of products on the market;
- Requiring the supplier to bear the cost of any discounts on products sold by the buyer in a promotional offer;
- Requiring the supplier to pay for advertising of the products;
- Requiring the supplier to pay for marketing of the products
- Requiring the supplier to pay for staff of the buyer, fitting out premises
What about enforcement?
The Malta Regulations establishes a new public enforcement authority, aptly named the Unfair Trading Practices (Agriculture and Fisheries) Board (the "UTP Board"), empowered with both investigative and enforcement capabilities. The UTP Board is to be composed of 7 members and a registrar, but has not been formally appointed yet.
Investigations may be commenced by the UTP Board on its own motion or following the receipt of a complaint by a supplier.
When requested, the UTP Board must ensure the protection of the identity of the complainant. This provision on confidentiality was introduced to reduce the risk of potential commercial retaliation against the supplier lodging the complaint. Suppliers can submit complaints anonymously too.
A nominal fee of ?50 applies to any complaint formally submitted with the UTP Board.
Following the conclusion of the investigation, the UTP Board must publish its findings on whether the buyer has engaged in a prohibited unfair trading practice. These findings may also be accompanied with an estimate of the damages suffered by the buyer as a result of the unfair trading practice. The UTP Board may, following the publications of its findings, invite the supplier and buyer concerned to a mediation procedure before it to agree on the quantum of damages to be paid.
If the parties do not reach an agreement, the UTP Board may proceed to issue a final version of its findings. Both the buyer and the supplier are entitled to challenge the UTP Board's findings before the Administrative Review Tribunal.
Where the UTP Board's findings of an unfair trading practice are final and definitive, but the buyer ignores the order to stop the unfair trading practice, the UTP Board can initiate criminal proceedings before the Court of Magistrates to the imposition of a fine not exceeding 5 times of the profit the supplier would have made on the transaction subject-matter of the findings.
Aggrieved suppliers can also seek private enforcement of the Malta Regulations against the buyer through judicial proceedings or arbitration proceedings, as the case may be.
What to do next?
Contracting parties should identify which of their key business relationships are subject to the Malta Regulations based on the dynamic turnover test and they should also make sure that their supply agreements are fully compliant with the law.
If trading parties are applying trading practices prohibited by the "black list" or the "grey list", the Malta Regulations provides a new toolbox to address the imbalance in bargaining power between them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.