Italy – New rules on unfair trading practices and contractual requirements in the agricultural and food supply chain

Summary

By means of Legislative Decree No. 198 of November 8^th, 2021, Italy implemented Directive (EU) 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain. The Italian legislator introduced stricter rules than those provided for in the directive. Moreover, it has provided for some mandatory contractual requirements, within the framework of Article 168 of Regulation (EC) 1308/2013, but more restrictive than those of the Regulation. The new provisions shall apply irrespective of the law applicable to the contract and the country of the buyer, hence they concern cross-border relationships as well. They significantly impact contractual relationships related to the chain of fresh and processed food products, including wine, and certain non-food agricultural products, and require companies in the concerned sectors to review their contracts and business practices with respect to their relationships with customers and suppliers.

The provisions introduced by the decree also apply to existing contracts, which shall be made compliant by 15 June 2022.

Introduction

With Directive (EU) 2019/633, the EU legislator introduced a detailed set of unfair trading practices in business-to-business relationships in the agricultural and food supply chain, in order to tackle unbalanced trading practices imposed by strong contractual parties. The directive has been transposed in Italy by Legislative Decree No. 198 of November 8^th, 2021 (it came into force on December 15^th, 2021), which introduced a long list of provisions qualified as unfair trading practices in the context of business-to-business relationships in the agricultural and food supply chain. The list of unfair practices is broader than the one provided for in the EU directive.

The transposition of the directive was also the opportunity to introduce some mandatory requirements to contracts for the supply of goods falling within the scope of the decree. These requirements, adopted in the framework of Article 168 of Regulation (EC) 1308/2013, replaced and extended those provided for in Article 62 of Decree-Law 1/2012 and Article 10-quater of Decree-Law 27/2019.

Scope of application

The legislation applies to commercial relationships between buyers (including the public administration) and suppliers of agricultural and food products and in particular to B2B contracts having as object the transfer of such products.

It does not apply to agreements in which a consumer is party, to transfers with simultaneous payment and delivery of the goods and transfers of products to cooperatives or producer organisations within the meaning of Legislative Decree 102/2005.

It applies, inter alia, to sale, supply and distribution agreements.

Agricultural and food products means the goods listed in Annex I of the Treaty on the Functioning of the European Union, as well as those not listed in that Annex but processed for use as food using listed products. This includes all products of the agri-food chain, fresh and processed, including wine, as well as certain agricultural products outside the food chain, including animal feed not intended for human consumption and floricultural products.

The rules apply to sales made by suppliers based in Italy, whilst the country where the buyer is based is not relevant. It applies irrespective of the law applicable to the relationship between the parties. Therefore, the new rules also apply in case of international contractual relationships subject to the law of another country.

In transposing the directive, the Italian legislator decided not to take into consideration the “size of the parties”: while the directive provides for turnover thresholds and applies to contractual relations in which the buyer has a turnover equal to or greater than the supplier, the Italian rules apply irrespective of the turnover of the parties.

Contractual requirements

Article 3 of the decree introduced some mandatory requirements for contracts for the supply or transfer of agricultural and food products. These requirements, adopted in the framework of Article 168 of Regulation (EC) 1308/2013, replaced and extended those established by Article 62 of Decree-Law 1/2012 and Article 10-quater of Decree-Law 27/2019 (which had been repealed).

Contracts must comply with the principles of transparency, fairness, proportionality and mutual consideration of performance.

Contracts must be in writing. Equivalent forms (transport documents, invoices and purchase orders) are only allowed if a framework agreement containing the essential terms of future supply agreements has been entered into between supplier and buyer.

Of great impact is the requirement for contracts to have a duration of at least 12 months (contracts with a shorter duration are automatically extended to the minimum duration). The legislator requires companies in the supply chain (with some exceptions) to operate not with individual purchases but with continuous supply agreements, which shall indicate the quantity and characteristics of the products, the price, the delivery and payment method.

A considerable operational change is required due to the need to plan and contract quantities and prices of supplies. As far as the price is concerned, it no longer seems possible to agree on it from time to time during the relationship on the basis of orders or new price lists from the supplier. The price may be fixed or determinable according to the criteria laid down in the contract. Therefore, companies not intending to operate at a fixed price will have to draft contractual clauses containing the criteria for determining the price (e.g. linking it to stock exchange quotations, fluctuations in raw material or energy prices).

The minimum duration of at least 12 months may be waived. However, the derogation shall be justified, either by the seasonality of the products or other reasons (that are not specified in the decree). Other reasons could include the need for the buyer to meet an unforeseen increase in demand, or the need to replace a lost supply.

The provisions described above may also be derogated from by framework agreements concluded by the most representative business organisations.

Prohibited unfair trading practices and specific derogations

The decree provides for several cases qualified as unfair trading practices, some of which are additional to those provided for in the directive.

Article 4 contains two categories of prohibited practices, which transpose those of the directive.

The first concerns practices which are always prohibited, including, first of all, payment of the price after 30 days for perishable products and after 60 days for non-perishable products. This category also includes the cancellation of orders for perishable goods at short notice; unilateral amendments to certain contractual terms; requests for payments not related to the sale; contractual clauses obliging the supplier to bear the cost of deterioration or loss of the goods after delivery; refusal by the buyer to confirm the contractual terms in writing; the acquisition, use and disclosure of the supplier’s trade secrets; the threat of commercial retaliation by the buyer against the supplier who intends to exercise contractual rights; and the claim by the buyer for the costs incurred in examining customer complaints relating to the sale of the supplier’s products.

The second category relates to practices which are prohibited unless provided for in a written agreement between the parties: these include the return of unsold products without payment for them or for their disposal; requests to the supplier for payments for stoking, displaying or listing the products or making them available on the market; requests to the supplier to bear the costs of discounts, advertising, marketing and personnel of the buyer to fitting-out premises used for the sale of the products.

Article 5 provides for further practices always prohibited, in addition to those of the directive, such as the use of double-drop tenders and auctions (“gare ed aste a doppio ribasso”); the imposition of contractual conditions that are excessively burdensome for the supplier; the omission from the contract of the terms and conditions set out in Article 168(4) of Regulation (EU) 1308/2013 (among which price, quantity, quality, duration of the agreement); the direct or indirect imposition of contractual conditions that are unjustifiably burdensome for one of the parties; the application of different conditions for equivalent services; the imposition of ancillary services or services not related to the sale of the products; the exclusion of default interest to the detriment of the creditor or of the costs of debt collection; clauses imposing on the supplier a minimum time limit after delivery in order to be able to issue the invoice; the imposition of the unjustified transfer of economic risk on one of the parties; the imposition of an excessively short expiry date by the supplier of products, the maintenance of a certain assortment of products, the inclusion of new products in the assortment and privileged positions of certain products on the buyer’s premises.

A specific discipline is provided for sales below cost: Article 7 establishes that, as regards fresh and perishable products, this practice is allowed only in case of unsold products at risk of perishing or in case of commercial operations planned and agreed with the supplier in writing, while in the event of violation of this provision the price established by the parties is replaced by law.

Sanctioning system and supervisory authorities

The provisions introduced by the decree, as regards both contractual requirements and unfair trading practices, are backed up by a comprehensive system of sanctions.

Contractual clauses or agreements contrary to mandatory contractual requirements, those that constitute unfair trading practices and those contrary to the regulation of sales below cost are null and void.

The decree provides for specific financial penalties (one for each case) calculated between a fixed minimum (which, depending on the case, may be from 1,000 to 30,000 euros) and a variable maximum (between 3 and 5%) linked to the turnover of the offender; there are also certain cases in which the penalty is further increased.

In any event, without prejudice to claims for damages.

Supervision of compliance with the provisions of the decree is entrusted to the Central Inspectorate for the Protection of Quality and Fraud Repression of Agri-Food Products (ICQRF), which may conduct investigations, carry out unannounced on-site inspections, ascertain violations, require the offender to put an end to the prohibited practices and initiate proceedings for the imposition of administrative fines, without prejudice to the powers of the Competition and Market Authority (AGCM).

Recommended activities

The provisions introduced by the decree also apply to existing contracts, which shall be made compliant by 15 June 2022. Therefore:

• the companies involved, both Italian and foreign, should carry out a review of their business practices, current contracts and general terms and conditions of supply and purchase, and then identify any gaps with respect to the new provisions and adopt the relevant corrective measures.
• As the new legislation applies irrespective of the applicable law and is EU-derived, it will be important for companies doing business abroad to understand how the EU directive has been implemented in the countries where they operate and verify the compliance of contracts with these rules as well.