Regulating Commercial Food Activites: Be Fair, or the (Polish) Government Will Chase You!
Polish law continues its drive toward regulating commercial activities in BI. This time, it is with the new Act on Counteracting Abuse of Contractual Advantage in Trading Agricultural and Grocery Products, signed into law by President Andrzej Duda, will enter into force in six months’ time, on 12 July 2017.
The Act aims to restore the even playing field in commercial relations between small suppliers of food product and big distributors that treat such suppliers unfairly by making them accept time-extended payment deadlines and requiring additional remuneration for exposing their produce in premium shelf space, and terminate contracts with them without good reason. Why big retail chains resort to such practices, the government has concluded, is that they have a surplus of bargaining power – which stems from their strong economic position – over independent grocery suppliers.
Good Intentions of the Polish Government?
With the new legislation, the government moves the onus to provide protection of fair trade from common courts to an administrative authority (UOKiK). Here, we need to note that the new piece of legislation is to protect “public interest” rather than individual players – these are still referred to the Act on Counteracting the Unfair Competition giving the right to seek redress in courts. Therefore, the argument of strengthening the legal protection of the small domestic suppliers seems a little bit far-fetched.
The Act aims to eliminate the abuse of power on the Polish retail market, but is limited to the food products in the meaning of Regulation of the Parliament and the Council 178/2002. The government further argues that small food and grocery suppliers are victims of “predatory practices” by “large distributors, who abuse their market position by imposing onerous contractual provisions”. It is the view of the government that such practices harm suppliers, as well as the goodwill of the consumers, which in turn, forces suppliers out of the market and/or encourages them to use cheap, sub-par products thus, endangering the security of the Polish food industry.
One needs to note here that the problem of distributors imposing “onerous conditions” on suppliers, in most cases by requesting payments for the introduction of goods into the retail system or payments for unsolicited marketing services, is covered by the Act on Counteracting Unfair Competition (1993). Many courts (including the Supreme Court) have ruled that such practices very often amount to unfair competition. Despite existence of the well-settled case law, the government has found the existing protection inadequate, arguing that court proceedings take a lot of time, are cost-consuming for plaintiffs, and that instead of what is available now, the supplier should have a legal opportunity to confront the unfair distributor directly by notifying appropriate authorities, while the court proceedings require face-to-face confrontation and the plaintiff may face reprisals from the defendant.
It is true to say that there were many cases of abuse of economic power on this market. The question remains whether the government’s action will help remedy this.
The new Act is very clearly based on the provisions of the Act on Competition and Consumers Protection (2007) and the administrative law model of proceedings. It gives the president of the Office for Competition and Consumers Protection (UOKiK) wide discretionary powers to intervene when “abuse of contractual advantage” occurs. The contractual advantage is defined as a situation in which the supplier has no sufficient and real possibility to sell its wares to other distributors and there is a significant disparity in the economic potential of the parties. If this advantage is used in a way contradictory to good customs and also violates material interests of the other party, the UOKiK has the right to intervene. The administrative proceedings of the UOKiK may involve a variety of actions. For instance, the office may request information from the parties, conduct searches, request entry into premises and request documents on the same terms and conditions as those provided for in antitrust cases.
If the UOKiK arrives at the conclusion that the abuse of contractual advantage has occurred, then it will issue a decision ordering the cessation of such practice. However, it is not yet clear what this would mean in practice. Would the UOKiK point out which specific parts of the contract violate the Act and how? Or would the office simply declare that the contracts contain provisions breaching the Act? The first action seems more appropriate, but it is not excluded that the UOKiK could issue its decision without pointing out how the contract in question breaches the provisions of the Act but rather by describing given practice without referring to given contract. In such a case, it will be up to the parties to redraw the contract in such a way so it meets all the provisions of the law.
The other thing that UOKiK may do is to impose a fine of up to 3% of the on the annual turnover of the party found guilty of breaching the Act. It is worth noting that additional fines may also be imposed on the party, as well as its employees, for obstructing the UOKiK proceedings or providing misleading information during to the office. The income from the fines is revenue of the state budget so that the victim of the abuse of market power will have to seek compensation in courts. Now it looks that the arguments on additional protection of smaller players miss their points.
The purpose of this new piece of legislation is to give additional power to the UOKiK to protect food suppliers against the “predatory practices” of distributors. With this, the government moves the onus to provide such protection from common courts to the administrative authority. And the Act introduces preferential treatment for a specified category of suppliers – food suppliers – while the suppliers of other goods are excluded and forced to seek protection in common courts.
The Act will have its consequences to the market and one may be big retail chains will start looking for grocery and food suppliers outside of Poland to avoid the hassle of dealing with the new legislation. As a result, the regulation that was designed to protect small farmers and suppliers of groceries may have negative consequences for the domestic food production sector.
The final (but really important) question is whether the Act would really help protect small fish against the sharks or would it create additional stream of revenue for the state budget, not much helping the small supplier it is designed to protect? Such supplier will still need to fight in courts to seek compensation in the court (although, a UOKiK decision finding the other party guilty of the breach will help, to the limited extent, in the court proceedings). One may doubt if new piece of legislation would help much unless it is a part of more efficient legal system.