Last June 18, 2021, the new Regulation on Unfair Commercial Practices in the Food Supply Chain, better known as the “Malta Regulations”, finally entered into force.
This transposes Directive (EU) 2019/633 (“UTP Directive”), which aims to ensure the viability of operators at all stages of the agri-food supply chain. The measures envisaged are aimed at protecting farms and agri-food companies, especially with turnover thresholds of up to 350 million euros, from unfair commercial practices such as last minute cancellation of orders, delays in supplier payments, unilateral and retroactive changes to contracts, failure to pay suppliers for unsold goods.
The Directive introduces mandatory written contracts between suppliers and purchasers, the possibility for those who suffer injustice to denounce them personally or through associations while maintaining confidentiality, the prohibition of commercial retaliation by the purchaser, certain times for the action of the legal authority of contrast. Effective and incisive enforcement measures are envisaged, which should be the responsibility of specific institutions in the member states. The latter will have to transpose the legislation within 24 months of its approval and enforce it within 30 months.
As reported in an analysis by law firm Ganado, the Regulation will be applied:
- if the supplier or buyer is based or operates in Malta
- if the alleged unfair practice is carried out, in whole or in part, in Malta
- if the supplier and the purchaser, in their specific commercial relationship, meet the annual turnover thresholds established by the law with a dynamic approach depending on the different categories of turnover for both the supplier and the purchaser.
The Regulation do not apply, in any case, when the “buyer” is a public authority and when purchasing through tender procedures.
The same Regulation applies to contracts signed after June 18, 2021, but will also be applied retroactively to contracts signed before June 18, 2021 only as of June 19, 2022.
Certain unfair practices are then identified through a “black list” and “a grey list”. In the former, practices are prohibited under all circumstances, while in the latter, they are prohibited unless explicitly agreed to by both trading partners in the terms of a “clear and unambiguous” supply agreement.
Here are what those practices are.
- Payments beyond 30 days for perishable agricultural and food products
- Payments beyond 60 days for other agribusiness products
- Short-term cancellations of perishable agribusiness products
- Unilateral changes to the contract by the buyer
- Payments not tied to a specific transaction
- Risk of loss and spoilage transferred to the supplier
- Refusal of written confirmation of a supply agreement by the buyer, despite the supplier’s request
- Abuse of supplier’s trade secrets by the buyer
- Commercial retaliation by the purchaser
- Transfer of customer complaint review costs to the supplier
- Some supplier-buyer relationships may be exempt from some of the blacklisted business practices.
- Returning unsold products to the supplier without payment for the goods or their disposal
- Charging the supplier for the storage, display, or listing of products in the marketplace
- 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 the products
- Require the supplier to pay for marketing the products
- Requiring the supplier to pay for the buyer’s staff, room set-up
- Also under the Regulations, investigations may be initiated by the UTP Board on its own initiative or upon receipt of a complaint from a supplier.
When requested, the UTP Board must ensure that the identity of the complainant is protected. This confidentiality provision is in place to reduce the risk of potential business retaliation against the complaining provider. Providers may also submit complaints anonymously.
After the conclusion of the investigation, the UTP Board must issue a report explaining how the buyer engaged in a prohibited unfair trade practice. These findings may also be accompanied by an estimate of the damages suffered by the buyer as a result of the unfair trade practice. The UTP Board may, then, invite the affected supplier and buyer to a mediation process to agree on the amount of damages to be paid.