On March 28, 2019 the Slovak parliament adopted Act No. 91/2019 Coll. on Unfair Conditions in Food Trade, which completely replaces previous legislation on the subject.
Act No. 91/2019 formally applies to all food business operators, including both suppliers (e.g. manufacturers and distributors) and retailers of food products, irrespective of their actual market power. Nevertheless, the wording of some of the act’s provisions on “unfair conditions” indicates that it is in reality aimed at protecting suppliers and imposing severe restrictions and fines on retailers.
The act lists over 30 conditions which may not be agreed upon, requested, or enforced in food trade. These unfair conditions are in many cases formulated very broadly, which may lead to a similarly broad interpretation by the Ministry of Agriculture and Rural Development, which is empowered with supervising compliance with the act. The act thus brings an uncertainty into the relationship between suppliers and retailers of food products which is likely to impede innovations by the suppliers, leading to a limited selection for and thus ultimately harm the end-consumers. For example, the act limits the amount of payments which retailers may request from suppliers for certain services, such as those related to advertisements for the suppliers and their food products, logistics services, and placing supplier food products at certain spots in the supermarket.
Another unfair condition under the act is the purchase of food products by retailers for a price lower than the economically-justified costs of their suppliers. This prohibition seems to lack inner logic and may in reality be a concealed price regulation, as in general, retailers cannot sell food products to end consumers for prices lower than their procurement prices.
The act also declares that retailers must pay for food products delivered to them by their suppliers within 20 days from delivery of the supplier invoice or 30 days from the supply of the food product. In case of food products intended for immediate consumption, this time period is reduced to 10 days from delivery of the supplier invoice or 15 days from the supply of the easily-spoiled food product.
As indicated above, compliance with the act will be supervised by the Ministry of Agriculture and Rural Development. For this purpose, the ministry may also raid the premises of food business operators and request that they produce any documents potentially relevant to the supervision. The ministry may impose fines of up to EUR 500,000 for violations of the act. This is a significant increase from the fines available under the previous legislation.
Depending on the circumstances, in addition to imposing a fine, the ministry may also order the food business operator to remedy the underlying unfair condition before a specific deadline. The ministry may fine operators who fail to remedy unfair conditions before that deadline, in some instances more than once.
Appeals against fines levied by the ministry do not have a suspensive effect. This means that the fine must be paid within 30 days from delivery of the first instance decision on the fine, irrespective whether this decision may later be annulled by the appellate body or court. This regulation seems unconstitutional and in due time it may be annulled by the constitutional court.
In conclusion, the new act overall appears to be an unsystematic legal regulation which substantially formalizes the normally informal contractual relationships between suppliers and retailers of foodstuffs. The act will thus surely increase the costs which suppliers and retailers will have to incur in connection with their business, but in the end does not bring any benefits to either of them. The legislation seems to be politically motivated and therefore we assume it will probably be annulled should the government change.
By Peter Oravec, Partner, and Jan Augustin, Attorney, PRK Partners
This Article was originally published in Issue 6.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.