September 2010 – Act No. 140/2010 Coll. on Unfair Terms in Business Contracts between Reseller and Supplier of Goods that are Foodstuffs (the “Unfair Terms in Foodstuff Act” or the “UTFA”) came into effect on 1 May 2010.
Slovakia has a history of legislation dealing with unfair terms in supplier-reseller contracts. The first such law that was passed was Act No. 358/2003 Coll. on Retail Chains (the “Retail Chains Act”), later replaced by Act No. 172/2008 Coll. on Unfair Terms in Commercial Contracts (the “General Unfair Terms Act” or the “GUTA”).
While both laws on unfair terms serve essentially the same goal, which is (as presented in their explanatory memoranda) to give a more fair balance to the supplier – reseller relationship, the raison d’être behind the new Unfair Terms in Foodstuff Act is the alleged unsatisfactory operation of GUTA.
The purpose of the General Unfair Terms Act was to strengthen the position of suppliers on the food market, where suppliers were invariably depending on large retail chains and had no other choice than to accept explicit reseller-friendly clauses in contracts (such as, for example, performance by the supplier for no consideration by the reseller or return of goods by the reseller to the supplier for no reason, etc.). The General Unfair Terms Act was not limited to the food market and covered all commercial relations in the entire economy. The new Unfair Terms in Foodstuff Act narrowed its scope and applies specifically to the food market. The legislator seems to have been inspired by the Czech and Irish laws, which are also limited to the food market.
Second, the Unfair Terms in Foodstuff Act seeks to remove the ‘economic dependency’ approach. The GUTA only applied in situations where ‘economic dependency’ existed between reseller and supplier, not giving any definition of this term. This allegedly paralyzed its enforcement. The Unfair Terms in Foodstuff Act does not deal with economic criteria of dependency or significant market power but simply targets unfair provisions (which are exhaustively listed in it – please see below) in the contract as such.
The Unfair Terms in Foodstuff Act falls within the context of combating unfair trade practices at the EU level, although no specific harmonized rules exist on this to date.
Unfair Terms in Foodstuff Act
The Unfair Terms in Foodstuff Act defines the addressees of the law and unfair terms.
It applies to all entrepreneurs as defined under Slovak Act No. 513/1991 Coll. Commercial Code, as amended (the “Slovak Commercial Code”).
The Unfair Terms in Foodstuff Act includes an exhaustive list of more than 30 unfair contract terms. Compared to the GUTA , the number of contract terms labelled as unfair roughly doubled. It includes such terms as unilateral set-off, pecuniary consideration by supplier to the reseller for services that have not been provided, immediate termination of contract without giving a notice period and grounds for such termination, and other terms. It also prohibits the sale of goods at a price below the purchase price (with the following four exemptions: 1. sale of goods when a store is closing down or when the entire scope of business is being changed, 2. sale of goods three quarters of whose ‘best before period’ have already expired , 3. seasonal sales, and 4. sale of damaged goods). All such unfair terms are prohibited and, under Slovak law, void. In addition, the Unfair Terms in Foodstuff Act requires that general terms of business (including terms and conditions for the purchase of goods, pricing, price reduction, terms of payment, volumes of sales and marketing rules) be available to a supplier on request.
The UTFA also encourages the adoption of ethical codes between the parties to lay down rules of a more ‘honest and transparent business’. This initiative is also within the context of enhancing the food supply chain at the EU level.
Enforcement of the UTFA is vested in the Ministry of Agriculture (the “Ministry”). If the investigation by the Ministry proves that unfair terms have been agreed by the parties, it will trigger a set of consequences. In the first place, the Ministry will order that the unfair terms be removed. Next, it will order the party benefiting from such unfair term to return any pecuniary consideration for goods or services provided based on such unfair term. Finally, the Ministry will impose on such benefiting party a fine of up to €300,000.
Parties to contracts covered by the UTFA are bound to make their contracts entered into before 1 May 2010 compliant with the UTFA by no later than 30 September 2010.
Controversy
The UTFA earned criticism from entrepreneurs who allege the UTFA will lead to effects opposite to those contemplated. Rather than protecting domestic food suppliers, the entrepreneurs expect that UTFA will motivate resellers to purchase goods from foreign suppliers. Others point out that the scope of this statute is insufficient, noting that it is not only the supplier-reseller relationship where unfair terms are common and calling that such regulation be equally extended to food producers and processors.
The UTFA also gave rise to some doubts over its interpretation and compliance with the Treaty on the Functioning of the European Union.
For further information please contact Zuzana Hodonova, Counsel, at .
Published in e-Competitions, N 31177, www.concurrences.com.