In 2022, the CC carried out a market inquiry assessing the sanctions stipulated in retailers’ contracts and imposed on their suppliers
- differently for agricultural and food products that are delivered for promotional activities (higher sanctions) as opposed for the products that are delivered on the every-day basis;
- repeatedly for the same ordered but not delivered agricultural and food products
in the situations when agricultural and food products are ordered by retailers, but are not delivered by suppliers:
- at all (non-performance of the obligation at all),
- in full quantity ordered (unacceptable performance of the obligation),
- in due time (failing to perform it within due time (time period).
The time spread for which information was requested was from 1 January 2019 to 31 May 2021. As provisions regarding the unfair and unjustified sanctions for the violation of contractual provisions are the same in the national UTP law which was in force prior to the Prohibition of Unfair Trading Practices Law[1] that transposed the Directive 2019/633[2], the findings of the sector enquiry are equally relevant.
The requests for information were sent and the answers were received from eight retailers. The requests for information were sent to the producer organisations and associations of producer organisations and replies were received from 13 suppliers.
The CC found the following:
- despite the fact that the contractual provisions differ for products that are delivered for promotional activities (higher sanctions/penalties) as opposed for the products that are delivered on the every-day basis, in practice sanctions/penalties are applied equally for both;
- the contractual provisions do not contain the definition of the repeatedly applied sanctions/penalties which allow retailers to consider each order separately and apply sanctions/penalties repeatedly for the same non-performance;
- the contractual provisions determine the highest possible sanction/penalty level, but do not contain information how the retailer would evaluate circumstances of non-performance of the obligation at all, unacceptable performance of the obligation and failing to perform it within due time (time period) as grounds to reduce sanction/penalty;
- some of the contractual provisions that could be considered as unacceptable performance of the obligation and failing to perform it within due time (time period) and so lower sanction/penalty level could be applied for them are counted as non-performance of the obligation at all and so retailers apply higher sanction/penalty level;
- some of the contractual provisions do not provide for the procedure how suppliers could approach the retailer in the event the supplier cannot ensure the delivery of goods. In addition, some of the contractual provisions stipulate 1-3 weeks terms for the suppliers to inform retailers in the event the suppliers cannot ensure the delivery of goods;
- in three-sided contractual agreements the provisions should comply with the national UTP law as buyers are responsible for the UTPs applied by buyers’ agents;
- the trend of applying sanctions/penalties by retailers does not demonstrate that retailers apply them to fulfill prevention function. The sanctions/penalties are rather regular and expected payments, since the amount of contractual sanctions/penalties does not change much from year to year;
- the amount of contractual sanctions/penalties applied by the retailers is considered to be economically significant as it comprise thousands or even millions of EUR for a single supplier depending on the size of it. Therefore, unfair and unjustified sanctions for the violation of contractual provisions would create situations where retailers unjustly enrich themselves at the expense of suppliers.
In December 2022 the CC sent the results of the market enquiry for the consultations of social partners (to the producer organisations and associations of producer organisations, as well as to the associations of retailers/retail chains). After the consultations the results of the market enquiry were published in February 2023.
To address the shortcomings, the CC developed six successive prevention activities to be implemented in 2023, inviting retailers to improve their internal sanctioning processes so that future cooperation with their suppliers would eliminate potential risks of non-compliance with the Prohibition of Unfair Trading Practices Law.
[1] https://likumi.lv/ta/en/en/id/322554-prohibition-of-unfair-trading-practices-law
[2] https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32019L0633&qid=1557327473868