On November 30, 2021, Legislative Decree no. 198/2021 (âDecreeâ) was published in the Italian Official Journal, transposing, with some modifications, EU Directive 2019/633 (âDirectiveâ) on unfair commercial practices in business-to-business relations in the agricultural sector and food chain.
On an important practical note, the Decree entered into force on December 15, 2021.
In opening the article, we start from the principle that one of the differences between the directive and the decree is that, while the first provided that its provisions should only apply in the case where suppliers and buyers involved in the contracts reach a minimum level of turnover. Article 1 of the latter expressly provides that the provisions of the decree apply without taking into account the turnover of suppliers and buyers.
Below, we have reported some relevant definitions to better understand the scope of the decree and the content of this article:
“Buyer“:”any natural or legal person, regardless of their place of establishment, who buys agricultural and food products“.
“Provider“:”any agricultural producer or natural or legal person who sells agricultural and food products“.
“Agricultural and food products”: “products listed in Annex I to the TFEU as well as products not listed in this annex, but processed for use as food using products listed in this annex“.
“Perishable agricultural and food products”: “agricultural and food products which, by their nature or at the stage of processing, are liable to become unfit for sale within 30 days of harvest, production or processing“.
Scope of the decree and main requirements for supply contracts
As specified in article 1 of the decree, the provisions which appear therein “apply to deliveries of agricultural and food products, made by suppliers established in the national territory, whatever the turnover of suppliers and buyers” .
Furthermore, with regard to the content of supply contracts from a general point of view, the decree provides that they must respect the principles of transparency, fairness, professionalism, mutual consideration of services and must be concluded by a written document drawn up before the delivery of the transferred products.
The decree also provides for certain mandatory elements that must appear in contracts, such as an indication of the duration, quantity and characteristics of the product sold, the price (determined or determinable by criteria contained in the contract) as well as the terms of delivery and payment.
While it is true that contracts must be in writing, we point out that, provided that the aforementioned elements are agreed between the operators by means of a framework agreement, the condition of the written form can also be fulfilled by means of transport or delivery documents. , invoices or purchase orders by which the buyer orders the delivery of the products.
Duration of contracts
With regard to the duration of contracts, the decree specifies that it cannot be less than 12 months, unless there is a justified exemption, and that in the event that a duration of less than 12 months is envisaged apart from the permitted exceptions, the duration of the contract is in any case considered to be 12 months.
Unfair commercial practices
The main points of the Decree contain the indication of many unfair commercial practices, among which we find it useful to point out the most potentially relevant.
The legislator, in its reception of European indications, distinguished between practices on the “black list”, which are always prohibited, and practices on the “gray list”, which are presumed prohibited unless they have been agreed by the supplier. and the buyer in clear and unambiguous terms.
Blacklisting and Graylisting Practices
Below, readers can find the practices that, among others, we consider the most relevant for business.
- In supply contracts with agreed delivery on a periodic basis: the buyer pays the consideration more than 30 days (60 days in the case of non-perishable agricultural products) after the end of the agreed delivery period during which the deliveries have been made for perishable agricultural products, or more than 30 days (60 days in the case of non-perishable products) after the date on which the amount payable for the delivery period in question is established, whichever is later ;
- in supply contracts with non-periodic delivery: the buyer pays the consideration more than 30 days (60 days for non-perishable products) after the date of delivery of the perishable products or more than 30 days (60 days in the case of non-perishable products). non-perishable goods) after the date on which the amount payable is determined, whichever is later;
- the cancellation by the buyer of orders for perishable agricultural and food products with less than 30 days’ notice;
- unilateral modification, by any party, of the terms of a contract relating to:
- frequency, method, place, time or volume of procurement or delivery of the products;
- quality standards;
- payment terms;
- the provision of ancillary services to the supply of goods.
Among the practices presumed prohibited unless they are agreed in clear and unambiguous terms, we have identified the prohibition to require payment from the supplier as a condition of storage, display, listing or marketing of its products. as one of the most important for companies in the sector.
The decree also indicates other prohibited business practices, including:
- the purchase of agricultural and food products through electronic tenders and auctions with double discounts;
- the imposition of excessively burdensome contractual conditions for the seller, such as the sale of products below production prices;
- the imposition of excessively onerous contractual clauses;
- subordinating the conclusion and execution of contracts as well as the continuity and regularity of commercial relations to the execution by the parties of services which have no relation to the subject of one or the other of the contracts.
Timetable for entry into force of provisions and suggested next steps for businesses
As planned, the provisions of the Decree will apply to contracts concluded by the parties from the entry into force of the Decree (December 15, 2021).
In addition, it is expected that the contracts in progress on the date of entry into force of the decree will be brought into conformity with the provisions of the decree within 6 months of its entry into force (June 15, 2021).
Accordingly, we believe that companies operating in the agricultural and food supply chain are advised to review their existing T & Cs or orders or general conditions with Italian suppliers of products falling under the categories identified by Annex I of the TFEU, and to draft new model agreements ensuring that the provisions comply with the new applicable rules.
Penalties for breach
In the event of a breach of the provisions of the decree, article 10 establishes financial penalties, the amount of which is calculated on the basis of a percentage of the turnover of the company in breach (3% / 5% depending on the nature of the offense).
In the event of repeated breaches or multiple breaches, the penalties may be doubled or tripled, but may never exceed 10% of the company’s turnover.
To conclude, we would like to point out that even if D. Lgs 198/2021 is not supposed to be applicable with regard to supply contracts concluded with suppliers not established on national territory, suppliers established in the Union European Union will be subject to the rules of other states on unfair commercial practices arising from the same European Directive 2019/633.
Therefore, companies should be well aware of this circumstance when negotiating with such suppliers, in order to avoid possible violations and expose themselves to fines or penalties.