On June 18, 2021, the Unfair Trading Practices in the Food Supply Chain Regulations (the “Malta Settlement”) Finally came into force. Malta’s regulations aim to transpose the Directive (EU) 2019/633 (the “UTP Directive“) just a few weeks after the transposition deadline of 1 May 2021. Maltese regulations prohibit the use of unfair commercial practices in B2B relationships in the agricultural and food supply chain by providing for a” blacklist “and a” gray listing “list” of these practices and creating an enforcement mechanism as a remedy for injured parties.

The UTP Directive and Malta’s regulations are meant to be a toolbox to address the significant bargaining power imbalances that currently exist between suppliers – the party producing and selling its agricultural and food products – and buyers – the purchasing party. agricultural and food products. These imbalances exist because powerful buyers are able to impose certain trade practices or unfair contractual arrangements on suppliers to their advantage due to their overall strength in the market.

The aim of the UTP Directive is to level the playing field and to place the supplier, as the weaker commercial party, on an equal footing.

Do Maltese regulations apply to my business?

There are 2 key tests that will help you understand whether your business operations are subject to Maltese regulation: a territorial test and a financial test.

First, Maltese regulations apply if: (i) the supplier or purchaser is based or operates in Malta; or (ii) the alleged unfair practice is carried out, in whole or in part, in Malta.

Secondly, Maltese regulations apply if the supplier and the buyer meet the annual turnover thresholds set by law. These turnover thresholds are set by a dynamic approach that applies different categories of turnover for the supplier and the buyer starting with the first category at just under 2 million euros for the supplier and more of 2 million euros for the buyer, and with the last category less than 350 million euros for the supplier and more than 350 million euros for the buyer. For example, Maltese regulations apply to a relationship between a supplier with annual turnover of € 1 million and a buyer with annual turnover of € 3 million.

There are specific rules for calculating the turnover of group companies or supplier / buyer associations.

Maltese regulations do not apply when the supplier’s annual turnover exceeds 350 million euros.

Maltese regulations apply when the ‘buyer’ is a public authority, including when buying under competitive tendering procedures.

Do they apply to contracts signed before June 18, 2021?

Maltese regulations apply to contracts signed after June 18, 2021, but will apply retroactively to contracts signed before June 18, 2021 only after June 19, 2022.

What is fair and what is unfair?

The UTP Directive makes this quite simple: it provides two lists of prohibited unfair commercial practices: a “black list” and a “gray list”. These lists are a matter of minimum harmonization and should therefore be banned in accordance with the national laws of all EU Member States.

The blacklist

There are 10 “blacklist” business practices that are prohibited under all circumstances and cannot be outsourced when a supplier-buyer relationship is subject to Maltese regulations:

• Payments over 30 days for perishable agricultural and food products
• Payment over 60 days for other agri-food products
• Short-term cancellations of perishable agri-food products
• Unilateral modifications of the contract by the buyer
• Payments unrelated to a specific transaction
• Risk of loss and deterioration transferred to the supplier
• Refusal of a written confirmation of a supply contract by the buyer, despite the supplier’s request
• Misuse of the supplier’s trade secrets by the buyer
• Commercial retaliation by the buyer
• Transfer of customer complaint review fees to the supplier

Certain supplier-buyer relationships may be exempt from certain blacklisted business practices.

The gray list

There are 6 business practices in the “gray list” which are prohibited, unless such practices are explicitly agreed upon by both trading partners in the terms of a “clear and unambiguous” supply agreement:

• The return of unsold products to the supplier without payment for the goods or their disposal;
• Invoice payment to the supplier for the storage, display or sale of the products on the market;
• Require the supplier to bear the cost of any discounts on products sold by the buyer as part of a promotional offer;
• Require the supplier to pay for the advertising of the products;
• Force the supplier to pay for the marketing of the products
• Oblige the supplier to pay the buyer’s staff, fit out the premises

What about execution?

Maltese regulations establish a new public enforcement authority, rightly called the Unfair Commercial Practices Council (Agriculture and Fisheries) (the “”UTP Consulting”), With both investigative and law enforcement capabilities. The UTP Council is to be composed of 7 members and a registrar, but has not yet been officially appointed.

Investigations can be opened by the UTP Council on its own initiative or following receipt of a complaint by a supplier.

Upon request, the PTU Council must ensure the protection of the identity of the complainant. This confidentiality provision was introduced to reduce the risk of potential commercial retaliation against the supplier who filed the complaint. Suppliers can also submit complaints anonymously.

A nominal fee of 50 € applies to any complaint formally filed with the UTP Office.

Once the investigation is completed, the UTP board must publish its findings on whether the buyer has engaged in a prohibited unfair trade practice. These findings may also be accompanied by an estimate of the damage suffered by the buyer as a result of the unfair commercial practice. The UTP College may, following the publication of its conclusions, invite the supplier and the buyer concerned to a mediation procedure before it to agree on the amount of damages to be paid.

If the parties cannot reach an agreement, the UTP Council may proceed to publish a final version of its conclusions. Both the buyer and the supplier have the right to challenge the findings of the UTP committee to the administrative review tribunal.

When the UTP Council’s findings regarding an unfair trade practice are final and final, but the buyer ignores the order to end the unfair trade practice, the UTP Council may initiate criminal proceedings before the Court of first instance until the imposition of a fine not exceeding 5 times the profit that the supplier would have made on the transaction subject to the findings.

Aggrieved suppliers can also seek private enforcement of Maltese regulations against the buyer through legal proceedings or arbitration proceedings, as the case may be.

What to do next?

Contracting parties should identify which of their key business relationships are subject to Maltese regulation based on the dynamic turnover test and they should also ensure that their supply agreements are fully compliant with the law.

If business parties apply business practices prohibited by the ‘blacklist’ or ‘gray list’, Maltese regulations provide a new toolbox to address the imbalance in bargaining power between them.