A new act on unfair trading practices in agricultural and food supply agreements has been adopted and comes into force on 1 July 2021. Horten has assisted the trade organisation MLDK with the legal aspects of its work towards a sustainable market with framework and trading terms in the pre-legislative process. Get an overview of the new rules below.
Purpose of the new act on unfair trading practices
The act is the first in Denmark to govern unfair trading practices in agreements, and it contains a number of prohibitions which commercial buyers must comply with when purchasing agricultural and food products. The purpose of the act is to ensure fair trading thereby increasing efficiency within the industry. The act lays down which trading practices are unfair and thereby prohibited. In addition, the act lays down the sanctions and the complaint procedure for suppliers affected by unfair trading practices.
The act implements an EU Directive on unfair trading practices (2019/633/EU of 17 April 2019). The reason for the Directive is to improve conditions for agricultural producers and small and medium-sized businesses within the food industry.
Unfair trading practices - to whom do the rules apply?
The new act on unfair trading practices applies to trading with agricultural and food products. The act's provisions on prohibition apply irrespective of the size of the buyer’s and the supplier’s turnover. This means that the prohibitions against unfair trading practices generally apply to all suppliers and buyers of agricultural and food products in Denmark.
However, the provision on payment periods applies only to contractual relationships when the buyer has an annual turnover exceeding EUR 2 million, and different payment periods apply depending on whether the supplier has an annual turnover of more or less than EUR 350 million.
Too long payment periods are considered unfair trading practices
The act contains rules on the buyer’s maximum payment periods. This means that an agreement concerning longer payment periods will be considered unfair trading practices contrary to the act.
Maximum payment period
The maximum payment period depends on the parties’ turnover and whether the agreement concerns perishable agricultural and food products.
When are trading practives considered unfair?
The act also contains a prohibition against different forms of specific trading practices which are considered unfair and thereby prohibited. Some forms of unfair trading practices are prohibited, while others are only lawful if a clear and unambiguous agreement has been concluded between the parties (e.g. a trading agreement).
Trading practives which are always considered unfair and prohibited
The following conduct on the part of a buyer will always be considered unfair trading practices:
- Cancellation of orders of perishable agricultural and food products at short notice.
- Unilateral changes of the terms of the supply agreement.
- Charging of payments from the supplier that are not related to the sale of the agricultural and food products of the supplier.
- Charging of payments for the deterioration or loss of agricultural and food products that occurs on the buyer's premises, where such deterioration or loss is not caused by the negligence or fault of the supplier.
- Refusal to confirm in writing the terms of a supply agreement.
- Misuse of the supplier’s trade secrets.
- Threats of acts of commercial retaliation against the supplier if the supplier exercises its contractual or legal rights. For instance, if the supplier complains about the buyer’s unfair trading practices.
Claim for compensation from the supplier for the cost of examining customer complaints relating to the sale of the supplier's products despite the absence of negligence or fault on the part of the supplier.
Trading practives which may be unfair and prohibited
The following conduct on the part of a buyer is only lawful if it has been clearly and unambiguously agreed between the parties:
- Return of unsold agricultural and food products.
- Charging of payment for stocking, displaying or listing of agricultural and food products.
- Requirement for the supplier to bear all or part of the cost of any discounts on agricultural and food products that are sold by the buyer as part of a promotion.
- Charging of payment for the buyer’s advertising and marketing of agricultural and food products.
- Charging of payment for staff for fitting-out premises used for the sale of the supplier's products.
Complaints about unfair trading practices
In Denmark, the Danish Competition and Consumer Authority enforces the rules of the act on unfair trading practices. Companies may complain to the Competition and Consumer Authority if a cooperation partner violates the rules. It is often difficult to file a complaint about a buyer, and it is therefore also possible for a trade organisation to file a complaint on behalf of a member. The Danish trade organisation MLDK is among the organisations entitled to complain.
If the Competition and Consumer Authority finds that a buyer has violated a prohibition against unfair trading practices, the Authority may order the buyer to cease the unlawful trading practice and impose a penalty.
Are your supply agreements compliant with the rules on unfair trading practices?
The new act will come into force on 1 July 2021. All supply agreements concerning agricultural and food products entered into from this date must comply with the rules of the act. This means that all supply agreements entered into in the autumn of 2021 or in 2022 are covered by the rules.
Supply agreements entered into prior to the coming into force of the act must be compliant with the act no later than on 30 April 2022.
It is therefore a good idea already now to review your supply agreements to find out whether you need to change any agricultural and food supply agreements.
For more information on the adopted bill