by Elena Varese and Federico Maria Di Vizio
On November 30, 2021, the Legislative Decree no. 198/2021 (“Decree”) was published in the Italian Official Gazette, transposing, with some changes, the EU Directive 2019/633 (“Directive”) on unfair commercial practices in business-to-business relations in the agricultural and food supply chain.
On an important, practical note, the Decree has entered into force on December 15, 2021.
Opening the article, we premise that the one of the differences between the Directive and the Decree can be found in the fact that while the first provided that its provisions should only apply in case suppliers and buyers involved in the contracts achieve a minimum turnover levels, Article 1 of the latter expressly provides that the provisions of the Decree apply without taking into account the turnover of suppliers and buyers.
Below we have reported some relevant definitions to better understand the scope of the Decree and the content of this article:
“Buyer“: “any natural or legal person, regardless of that person’s place of establishment, who purchases agricultural and food products“.
“Supplier“: “any agricultural producer or natural or legal person who sells agricultural and food products“.
“Agricultural and food products”: “products listed in Annex I to the TFEU as well as products not listed in that Annex, but processed for use as food using products listed in that Annex“.
“Perishable agricultural and food products”: “agricultural and food products that by their nature or at their stage of processing are liable to become unfit for sale within 30 days after harvest, production or processing“.
Scope of application of the Decree and main requirements for supply contracts
As set out in Article 1 of the Decree, the provisions contained therein “apply to supplies of agricultural and food products, carried out by suppliers who are established in the national territory, regardless of the turnover of the suppliers and buyers.”
Furthermore, as for what concerns the content of the supply contracts from a general standpoint, the Decree provides that they must comply with the principles of transparency, fairness, professionalism, mutual consideration of the services and shall be concluded by a written deed drawn up before the delivery of the transferred products.
The Decree also provides some mandatory elements that must be contained in the contracts, such as the indication of duration, quantity and characteristics of the product sold, the price (determined or determinable by criteria contained in the contract) and also delivery and payment terms.
If it is true that contracts must be in writing, we highlight that, provided that the above-mentioned elements are agreed upon between the operators by means of a framework agreement, the requisite of the written form may also be fulfilled through transport or delivery documents, invoices, or purchase orders by which the buyer orders the delivery of the products.
Duration of Contracts
With reference to the duration of the contracts, the Decree specifies that it may not be inferior to 12 months, unless a derogation is justified, and that in the event that a duration of less than 12 months is envisaged outside of the permitted exceptions, the duration of the contract shall in any event be deemed to be 12 months.
Unfair commercial practices
The main points of the Decree contain the indication of numerous unfair commercial practices, among which we find useful to point out the potentially most relevant ones.
The legislator, in its reception of the European indications, has distinguished between practices on the “Black List”, which are always prohibited, and practices on the “Grey List”, which are presumed to be prohibited unless they have been agreed upon by supplier and buyer in clear and unambiguous terms.
Black List Practices and Grey List Practices
Below readers can find those practices that, inter alia, we consider most relevant for companies.
- In supply contracts with delivery agreed on a periodic basis: the buyer pays the consideration more than 30 days (60 days in the case of non-perishable agricultural products) after the end of the agreed delivery period in which deliveries were made for perishable agricultural products, or more than 30 days (60 days in the case of non-perishable products) after the date on which the amount to be paid for the delivery period in question is established, whichever is later;
- in supply contracts with delivery agreed upon on a non-periodic basis: the buyer pays the consideration more than 30 days (60 days in the case of non-perishable products) after the date of delivery of the perishable products or more than 30 days (60 days in the case of non-perishable products) after the date on which the amount to be paid is determined, whichever is later;
- the cancellation, by the buyer, of orders for perishable agricultural and food products with less than 30 days’ notice;
- the unilateral modification, by any party, of the terms of a contract relating to:
- frequency, method, place, time or volume of supply or delivery of products;
- quality standards;
- terms of payment;
- prices;
- the provision of services ancillary to the supply of the goods.
Among the practices which are presumed to be prohibited unless agreed in clear and unambiguous terms we have identified the prohibition of requiring payment from the supplier as a condition for the storage, display, listing or marketing of its products as one of the most important for companies in the sector.
The Decree also indicates further prohibited commercial practices, including:
- the purchase of agricultural and food products through the use of tenders and electronic auctions with double discounts;
- the imposition of contractual conditions that are excessively burdensome for the seller, such as selling products below production prices;
- the imposition of unjustifiably onerous contract terms;
- making the conclusion and performance of contracts and the continuity and regularity of commercial relations subject to the performance by the parties of services which have no connection with the subject matter of either contract.
Timing of entry into force of the provisions and suggested next steps for companies
As anticipated, the provisions of the Decree shall apply to contracts entered into by the parties as of the entry into force of the Decree (December 15, 2021).
In addition, it is provided that the contracts in progress at the date of entry into force of the Decree shall be brought into compliance with the provisions of the Decree within 6 months of its entry into force (June 15, 2021).
As a consequence, we believe that it is advisable for companies operating in the agricultural and food supply chain to review their existing T&Cs or orders or general conditions with the Italian suppliers of the products falling within the categories identified by Annex I of the TFEU, and to draft new template agreements which ensure the compliance of the provisions to the new applicable rules.
Sanctions in case of breach
In the event of a breach of the provisions of the Decree, Article 10 establishes financial penalties, the amount of which is to be calculated on the basis of a percentage of the turnover of the company in violation (3%/5% depending on nature of the violation).
In the event of a repeated breach or multiple breaches, the penalties may be doubled or tripled, but may never exceed 10% of the company’s turnover.
To conclude, we highlight that even though the D. Lgs 198/2021 is not supposed to find application with reference to supply contracts concluded with suppliers not established in the national territory, suppliers established in the European Union shall be subjected to other states rules on unfair commercial practices deriving from the same EU Directive 2019/633.
As a consequence, companies should be well aware of this circumstance when negotiating with such suppliers, in order to avoid possible violations and be subjected to fines or sanctions.
If you would like to know more about this topic, and food law in general, please contact elena.varese@dlapiper.com and federico.maria.di.vizio@dlapiper.com