Unfair trading practices in the agricultural and food supply chain in the Czech Republic

1. How are unfair trading practices in the agricultural and food chain regulated in this jurisdiction? When the applicable regulations were introduced and when they were last amended?

Unfair trading practices in the agricultural and food chain are regulated by Act No. 395/2009 Coll., on Significant Market Power in the Sale of Agricultural and Food Products and Its Misuse, as amended (the Act). Minor amendments to the Act will take effect on 1 February 2022.

2. Which entities are protected and under what conditions (e.g. suppliers, buyers, both suppliers and buyers, subject to turnover thresholds etc.)? 

According to the Act, suppliers are protected against buyers with significant market power. Any buyer (if applicable, together with its controlling entity) or alliance of buyers with an annual turnover of at least CZK 5bn (EUR 205 million) in the Czech Republic food products sector is deemed to have significant market power.

3. How are unfair trading practices in the agricultural and food chain defined in this jurisdiction? For instance, is there a general clause prohibiting unfair trading practices or is there a list of black and/or grey practices?

The Act contains a general clause prohibiting any abuse of significant market power. Significant market power is defined as a position allowing the buyer to force an unjust advantage on suppliers regarding the purchase of food products or the receipt or provision of related services.

The Act also lists specific practices which always constitute the abuse of significant market power. These prohibited practices include, e.g. the negotiation/application of contractual terms that create a significant imbalance in the rights and obligations of the parties, negotiating/obtaining any payment for which a service or other consideration has not been provided, or which is disproportionate to the value of the consideration actually provided, and negotiation/exercise of the right to return purchased food products on grounds other than a material breach of contract

The authority overseeing compliance with the Act is the Office for the Protection of Competition (the OPC). Specifically, the OPC is authorised to conduct inspections, impose remedial measures and impose fines in amounts set out in the Act. The upper limit of the fines is CZK 10m (EUR 410,000) or up to 10% of the net turnover achieved in the previous accounting period, whichever is higher.

The OPC can also conduct sector inquiries. Such an investigation was last conducted in 2019 and aimed at describing the development and level of fairness of relations between suppliers and customers with significant market power during 2016-2018.

5. Is the local regulator active in enforcement? If yes, please provide information on a couple of interesting/significant cases.

According to its Annual Report for 2020, the OPC initiated three administrative proceedings regarding the abuse of significant market power, issued two decisions and in one case imposed a fine of CZK 32m (EUR 1.3m). The fine was imposed on a supermarket chain for passing on the business risks and losses associated with the sale of products with an expiring warranty period to its suppliers. The decision was however quashed on appeal and the OPC has to reconsider certain aspects of the case.

In 2021, the OPC imposed a fine of CZK 83m (EUR 3.4m) on another supermarket chain for applying unfair contractual terms with suppliers. The decision was also successfully appealed and the proceedings are still pending.

6. Please indicate the necessary amendments that will have to be implemented to the regulations applicable in your jurisdiction in order to comply with provisions of the Directive.

On 23 July 2021, the European Commission launched infringement proceedings against 12 member States that failed to notify complete transposition of the Directive, including the Czech Republic. However, few adjustments should be necessary to make the Act compliant with the Directive as it is already stricter in many aspects.

An important change likely to be introduced could be the extension of the range of buyers caught by the rules. The Directive recognises several groups of buyers as it introduces a “dynamic approach” which is based on the relative size of the supplier and the buyer in terms of their turnover. Therefore, the suppliers are only protected against buyers who are stronger than themselves according to the Directive. The Czech Act currently only recognises one category of buyers based on a single CZK 5bn turnover threshold (see above), and does not take into account the supplier’s turnover.

Work on the draft amendment to the Act has commenced but is still at an early stage.

7. Do currently applicable regulations in your jurisdiction impose more restrictive obligations on buyers or suppliers than those envisaged in the Directive? Please indicate those restrictions.

In some respects, the Act imposes more restrictive obligations than the Directive. For example:

Directive: Maturity of the purchase price cannot exceed 30 days in the case of perishable food products and 60 days in the case of other food products.

Act: Maturity of the purchase price of any food product cannot exceed 30 days from the date of delivery of the invoice.

Directive: The buyer cannot require payments from the supplier that are not related to the sale of the food products of the supplier.

Act: The buyer cannot require any payments for which no service or other consideration is provided, as well as those which are disproportionate to the value of the consideration actually provided.

Directive: The buyer must confirm the terms of a supply agreement in writing at the request of the supplier.

Act: The agreement between a buyer with significant market power and a supplier must be in writing and has to contain essential provisions set out by the Act.