Unfair trading practices in Croatia - past practice and new rules

Croatia

In March 2021, the Croatian Parliament adopted the final proposal for the new Law on unfair trading practices in the food supply chain (UTPs). This revision of the local regime for UTPs reflects the changes at the European Union level. Namely, to comply with Directive (EU) 2019/633, all Member States are obliged to adopt the new rules on UTPs by 1 May 2021. Considering this timeline, the adoption of the final Law on UTPs could be expected soon. What changes do the new rules bring and how will this revision affect the current practice regarding UTPs?

Practice so far

Since the beginning of the application of the initial Law on UTPs in April 2018, the Croatian Competition Agency (AZTN) has been continuously active in supervising companies in the food industry. To substantiate this with figures – based on available data, by the end of 2019 AZTN initiated 223 proceedings related to UTPs, 36 of which led to proceedings against companies for the breach of rules on UTPs (while official data for 2020 are still pending release). Out of the proceedings instituted before AZTN, it is disclosed that (to date) eleven of them resulted in fines. These fines ranged between HRK 65,000 (approx. EUR 8,570) to HRK 1,100,000 (approx. EUR 145,000), with most matching or exceeding HRK 350,000 (approx. EUR 46,170).

Concerning the types of breaches established by AZTN, a “common error” that was established in most cases was conducting business with the supplier based on the contract not containing all the prescribed elements. In other words, AZTN often found that the supply contracts were not compliant with the law, as they lacked some of the mandatory elements or such elements were not properly contracted. Depending on the case, these elements included product quality, conditions and deadlines for payments, conditions and place of delivery, price and method of calculation of price, contract term, and so forth. Other breaches to be noted – which are repeated in several cases – are charging the supplier for a service that is not provided (e.g., fee for the delivery of a product outside the agreed place of delivery or fee for the implementation of quality assurance measures) and prescribing payment deadlines and/or making payments in periods longer than 60 days or 30 days (as applicable).

These examples suggest that companies often do not consider rules on UTPs to a sufficient extent when drawing up contracts. They could also serve as an indicator of what AZTN focuses on when applying these rules. As such, the following question arises – to what extent will the new rules affect businesses and current practice of AZTN?

New rules

  • The proposal of the new Law on UTPs largely retained the existing rules, with some adjustments. For example, the maximum allowed payment deadline remains 30 days for fresh products (now defined as perishable products) and 60 days for other products. However, the amendment loosens the previous rule on calculation of deadlines – instead of being calculated from delivery, they can now be calculated from different starting points, depending on which occurs later (such as the end of the agreed delivery period or the date of invoice). Similarly, the rule on the mandatory content of the written contract largely remains the same, but with minor clarifications (such as the obligation that the delivery address is or can be specified).

  • In general, much of the proposal of the new law is assumed from the preceding law, but often with more detail and modified / new terminology. An example of such “updated” rules includes exemptions for certain practices constituting UTPs, but which are clearly and unambiguously agreed in advance (such as payment by the supplier for marketing and promotion of products or for placing of products on shelves).

  • A noteworthy novelty is that the proposal expands the list of actions that constitute UTPs. For instance, the initial law prescribed a ban on charging the supplier for a service that is not provided, and it listed certain variations of such behaviour as separate breaches (such as charging the supplier for market research, for the delivery of a product outside the agreed place of delivery, etc.). The proposal extends the list, by prescribing new variations of this breach. Examples are charging the supplier for equipping the premises used to sell the products, for additional quality controls of the products, for reviewing consumer complaints, and so forth. Although some of these violations were already interpreted as prohibited, the new rules expressly specify that such behaviours will from now on be considered as violations.

  • The proposal also introduces several completely new UTPs, such as cancelling orders of perishable products at short notice, unlawfully acquiring, using or disclosing trade secrets, carrying out commercial retaliation, and other practices.

  • In addition to prescribing new violations, the proposal also otherwise tightens the regime for UTPs. One example is lowering the minimum turnover that brings the buyers withing the scope of UTPs rules (to HRK 15,000,000 (approx. EUR 2,000,000)), which is bound to expand the circle of concerned buyers. Another example concerns granting AZTN with the authority to conduct dawn raids for the purpose of discovering UTPs.

In line with Directive (EU) 2019/633 and the current proposal, it is to be expected that the new rules will be subject to a grace period. According to the proposal, the starting date is set at 1 November 2021, meaning that companies in the food sector would still have feasible time to align their practices with the new rules. Although the impact of the change in legislation remains to be seen, it is likely that the higher number of addressees, additionally prescribed violations as well as the wider powers afforded to AZTN will lead to an increased frequency of cases before AZTN compared to current practice.