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New Grocery Regulations add to Legal Complexity for Irish Food & Drink Sector

AUTHORs: Kate McKenna co-author(s): Mollie Barlow Services: EU, Competition & Regulatory DATE: 13/07/2021

There are now two Irish legal regimes which are intended to ensure “fair dealing” with food suppliers, after the European Union (Unfair Trading Practices in the Agricultural and Food Supply Chain) Regulations 2021 (the “Regulations”) came into force on 1 July 2021. 

The Regulations have come about due to Ireland being obliged to implement EU Directive 2019/633 into Irish law.  Ireland has elected to do so without re-opening the pre-existing law, the Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016 (the “2016 Regulations”). 

The Regulations overlap significantly with the 2016 Regulations in terms of what they regulate, and also extend the scope of regulation.  Fines are higher under the Regulations than under the 2016 Regulations, and such fines and investigations are now pursued by a newly constituted regulator. 

Overlapping regimes which generate confusion will continue to be a feature of consumer markets regulation, unfortunately, as local pressure to tackle ‘hot topic’ issues increasingly results in the Irish legislature ‘going it alone’ before the EU is ready to legislate on the same issue.

Enforcement To Date & In Future

The Competition and Consumer Protection Commission (the “CCPC”) is responsible for monitoring compliance with the 2016 Regulations.  The CCPC’s 2019 Annual Report states that no complaint relating to the 2016 Regulations was submitted to it in that year, such that all CCPC activity was proactive.  In this respect, the CCPC pro-actively ensures that Annual Compliance Reports are submitted to it and also carries out several on-site inspections a year.   

The Regulations will, on the other hand, be enforced by a newly constituted regulator within the Department for Agriculture, Food and the Marine.

What Grocery Products are Regulated?

The Regulations and the 2016 Regulations cover broadly the same range of ‘grocery goods’. Specifically, the 2016 Regulations may govern supplies of any food (including drink) products for off-premises consumption and the new Regulations may govern supplies of any agricultural or food products.  However, it is worth recalling that Irish primary legislation provides for the following non-food product categories to be subject to rules similar to the 2016 Regulation, although this had not been done to date: (i) household cleaning products; (ii) toiletries; and (iii) garden plants and garden plant bulbs (section 63A of the Consumer Protection Act 2007).

What Are The Main Rules?

We summarise the Regulations below by grouping together (i) entirely new rules under the Regulations; and (ii) rules which are similar but less onerous than a rule under the 2016 Regulations.

New supply agreements (oral and written) must be in compliance with the Regulations by 1 July 2021.  Pre-existing supply agreements contracts must be brought into compliance by 1 July 2022.

New Rules Under the Regulations

  • Buyers are prohibited from unlawfully using the trade secrets of a supplier. 
  • There is an explicit prohibition on buyers threatening to conduct, or actually conducting, “acts of commercial retaliation” against suppliers when the suppliers rely on their rights under the contract or under law. 
  • Buyers are prohibited from requiring compensation from suppliers for the cost of examining customer complaints in connection with the sale of the supplier’s products, unless the supplier has been negligent. 
  • Buyers are prohibited from cancelling orders of perishable agricultural and food products at such short notice that the supplier could not be expected to find another means of using the products. 
  • Buyers may furthermore not require a supplier to pay for the deterioration or loss of agricultural and food products which is not the supplier’s fault.   
  • Buyers must not return unsold agricultural and food products to suppliers without paying for the products or for the disposal of the products, unless this has previously been agreed in clear and unambiguous terms in an agreement. 

Rules Which Are Similar But Less Onerous Than A Rule Under The 2016 Regulations

Requirement that Terms of the Agreement be in Writing

  • Under both sets of Regulations, there is an obligation to ensure that the terms of the supply agreement are in writing.  However, under the new Regulations, this obligation only applies where the supplier has asked for written confirmation. 

    Restrictions on Changing the Terms of the Agreement

    • Under the 2016 Regulations grocery businesses may not vary, terminate or renew a “grocery goods” contract unilaterally unless this is expressly provided for with a reasonable prior notice period.  The new Regulations do not provide for such a blanket prohibition on varying, terminating or renewing contracts.  Rather, there is a more specific rule preventing buyers from unilaterally changing certain specified terms of the agreement, e.g. those relating to the frequency, method, place, timing or volume of the supply, the quality standard, or the terms of payment.  

      Obligations to Pay Suppliers

  • The 2016 Regulations oblige groceries businesses to pay suppliers 30 days after receiving the invoice for the goods, or after the goods have been delivered, unless the contract provides for a different timeframe.  Under the new Regulations, buyers cannot pay suppliers for perishable agricultural and food products later than 30 days after the delivery date / end of the delivery period, or after the date when the payable amount is set.  The new Regulations are, however, less onerous as this period is extended to 60 days for other (non-perishable) agricultural and food products.

    Charges on Suppliers which are Unlawful

  • Under the new Regulations buyers must not seek payments from suppliers that are unrelated to the sale of the products.  The Regulations only permit buyers to charge suppliers for advertising, marketing, promotions, stocking, displaying or listing products, or for staff for fitting-out premises, if this has previously been agreed in clear and unambiguous terms in an agreement.  This is less onerous than the 2016 Regulations, under which groceries businesses are prohibited from seeking payments for advertising at all (unless it is in respect of a promotion) and may only seek payments for marketing or promotions, or as a condition of stocking, displaying or listing the supplier’s goods, if certain conditions are met.  Such conditions include requirements that the payment be based on a reasonable estimate of the cost, that the contract provides for the costs, and that the payment be sought in accordance with the contract.  The new Regulations furthermore do not contain certain prohibitions set out in the 2016 Regulations, e.g. regarding seeking payments from suppliers for retention of shelf space, shrinkage and wastage.

Do the Regulations Apply to You?

The 2016 Regulations impose obligations on grocery sellers with an annual worldwide turnover of over €50 million, regardless of the size / bargaining power of the supplier and notwithstanding that many suppliers are large multinational entities. The new Regulations are subject to more complex ‘turnover thresholds’, with the intention being to only regulate relationships between “weaker” suppliers and “stronger" buyers and to define the aforementioned concepts differently depending on the context.  

What Are the Penalties for Non-Compliance?

As noted above, the potential penalties under the new Regulations are greater than those under the 2016 Regulations.  Under the 2016 Regulations, a business found to be in breach of the Regulations may face prosecution with potential penalties ranging from:

  • on a first summary conviction, a fine of up to €3,000 or six months imprisonment or both; to
  • on a second or subsequent conviction on indictment, a fine of up to €100,000 or two years imprisonment or both. 

    On the other hand, under the new Regulations, penalties range from:

  • on summary conviction, a fine not exceeding €5,000 or six months imprisonment or both; or
  • on conviction on indictment, a fine of up to €500,000 or three years imprisonment or both.

Conclusion

The immediate effect is likely to be additional complexity and regulatory cost for all stakeholders while getting to grips with the new Regulations, and how they interact with the 2016 Regulations.  Grocery suppliers and purchasers must now pay attention to two separate sets of rules and be aware that they may be affected by regulation by both the CCPC and by a new regulator to be created by the Minister for Agriculture, Food and the Marine.

Time will tell whether the intended policy objectives will be achieved, and how overlapping regulation will help or hinder that journey.