Unfair trading practices in the agricultural and food supply chain in Hungary

Under the applicable Hungarian legislation, the agricultural and food supply chain is regulated by multiple laws. As a general rule, Act XCV of 2009 on the Prohibition of Unfair Distributor Conduct Against Suppliers of Agricultural and Food Industry Products (the “A&F Unfair Trading Practices Act”) includes the relevant provisions on the prohibition of unfair trading practices by retailers against the suppliers of such products. However, if a conduct constitutes an abuse of a dominant position falling within the scope of Section 21 of Act LVII of 1996 on the Prohibition of Unfair and Restrictive Market Practices (the “General Unfair Trading Practices Act”), the procedure under the A&F Unfair Trading Practices Act shall not be initiated or carried out by the competent authority. The applicable regulations were first introduced in the year indicated in the title of the Acts above. The A&F Unfair Trading Practices Act was last amended with effect as of 1 January 2021 but these amendments were of no serious significance. The General Unfair Trading Practices Act was also last amended with effect as of 1 January 2021 but these amendments did not affect the relevant provisions related to unfair trading practice in connection with the agricultural and food supply chain.

The A&F Unfair Trading Practices Act offers protection for “suppliers”, which category includes: (i) any individual person or legal entity with or without a legal personality, as well as producers and producer groups specified in the relevant legal act involved in the production and processing of agricultural and food industry products that sells the produced and processed products to retailers; and (ii) any individual person, legal entity or legal entity without a legal personality not belonging under the exclusive control and not being an affiliated company of the retailer, which sells agricultural and food products to the retailer. If the supplier, against which an unfair trading practice defined in Section 3 (2) of the A&F Unfair Trading Practices Act is pursued, falls within the afore-described definition, it will be subject to protection under the A&F Unfair Trading Practices Act, irrespective of any other characteristics of the supplier (e.g. annual turnover).

The A&F Unfair Trading Practices Act uses a combination of these solutions. First, in Section 3 (1), it declares a general prohibition on unfair trading practices in a general clause. Then, in Section 3 (2), the Act gives an exhaustive list of activities which are deemed unfair trading practices. There is no distinction of “black” and “grey” categories among these practices, all of them listed in Point a)-x) are prohibited and may give rise to the commencement of proceedings by the competent authority even if such practice was implemented under an agreement between the retailer and the supplier with the explicit consent of the parties.

Under Section 4 of the A&F Unfair Trading Practices Act, the agricultural administrative authority will be the competent authority regarding any infringements of the provisions of unfair trading practices related to the agricultural and food sector. The competent agricultural administrative authority in Hungary is the National Food Chain Safety Office (Nébih, the “Authority”). The Authority can initiate proceedings regarding unfair trading practices related to the agricultural and food sector on request and ex officio. Either way, the procedure is governed by the provisions of Act CL of 2016 on the General Administrative Procedure Code with the exception that the administrative time limit is 45 days. As part of the proceedings, the Authority establishes the facts of the case by performing an evidentiary procedure, on which it may make its decision. Before the Authority makes its final decision, however, it informs the retailer of the identified infringements, within ten days of which the retailer can undertake in writing to modify its conduct to be compliant with the provisions of the A&F Unfair Trading Practices Act. If the infringing retailer does not make such undertaking statement by the deadline, the Authority will impose a product supervisory fine in its final decision, the amount of which may range from HUF 100,000 to HUF 500m, but must not be higher than 10% of the net income of the infringing retailer in the financial year preceding the year in which the final decision was made. Additionally, if the recidivist retailer engages in a conduct constituting an unfair trading practice (not including the conduct specified in Section 3 (2) Point q) of the A&F Unfair Trading Practices Act) within two years of the final decision imposing a fine or the statement including the undertaking to comply with the relevant provisions, the amount of the fine may range from HUF 500,000 to HUF 2bn, but may not be lower than 1.5 times the amount of the previous fine (if a fine was imposed the last time) and may not be higher than 10% of the net income of the infringing retailer in the preceding business year.

In addition, the company data of the retailer on which a fine was imposed or the undertaking of which was approved by the Authority in a final decision, the nature of the infringement and the amount of the fine imposed or the description of the undertaking will be published on the website of the Authority and the Ministry of Agriculture for two years. One further sanction can be imposed by the Authority: given that the retailer must send its business policy to the Authority, the Authority may prohibit the retailer from the application of a clause of the business policy if its wording is ambiguous, the definition of the service and the consideration are not precise enough, or if the fees determined by the retailer are not proportionate.

Furthermore, it should be noted that if the unfair trading practice constitutes a violation of the applicable product conformity rules, such conduct may also be subject to inspection, procedure and sanctions by the competent authority under Act LXXXVIII of 2012 on the Market Surveillance of Products.

We would like to draw your attention to the fact that, as indicated in our response to Q1, if the conduct of the retailer constitutes an abuse of a dominant position falling within the scope of Section 21 of the General Unfair Trading Practices Act, then the procedural rules set out in that act will apply to the proceedings.

The Authority is not very active in making final decisions under the A&F Unfair Trading Practices Act: in 2020, it published infringements by 22 retailers, out of which it imposed a fine in 16 cases, in amounts ranging from HUF 1m to HUF 80m (link here).

• The definitions of the A&F Unfair Trading Practices Act will be amended to be in compliance with the definitions part of the Directive.
• Some amendments will be made to the A&F Unfair Trading Practices Act to be in accordance with the scope of unfair trading practices determined in the Directive, e.g. adding the following unfair trading practices to the list of prohibited practices: cancellation of orders of perishable agricultural and food products on such short notice that a supplier cannot reasonably be expected to find an alternative means of commercialising or using those products, with an irrebuttable assumption of a notice being too short if shorter than 30 days; the unlawful acquisition, use or disclosure of the trade secrets of the supplier within the meaning of Directive (EU) 2016/943 of the European Parliament and of the Council; and threatening with retaliating measures if the supplier wishes to assert its rights or claims under the agreement or law, especially if the supplier wishes to make a complaint against the practices of the retailer.
• The A&F Unfair Trading Practices Act will be amended to reflect the provision of Article 5 of the Directive that above the suppliers may assert their claim to the national authority of the Member State in which the infringing retailer is seated, in addition to the national authority of the Member State of the supplier.
• The A&F Unfair Trading Practices Act will be amended to reflect the provision of the Directive regarding the confidentiality of the supplier’s data when submitting a complaint to the authority of a Member State.
• The provisions of the Directive regarding the encouragement of alternative dispute resolution methods might also have to be implemented into the A&F Unfair Trading Practices Act.
• The implementation of the provision of the Directive regarding the cooperation of national authorities and the annual reporting obligation of national authorities on their activity.

Overall, the Hungarian regulations already provide most of the safeguards to be implemented by the Directive, thus in our view the Hungarian regulation is more restrictive regarding the scope of the protection of suppliers of agricultural and food products.

The scope of the Hungarian regulation on unfair trading practices regarding the agricultural and foods supply chain is not limited to certain retailers or suppliers on the grounds of annual turnover thresholds as it is in the Directive. The list of trading practices deemed to be unfair and subject to sanctions by the competent Hungarian authority is wider than that of the Directive, only a couple of unfair trading practices may need to be added to the A&F Unfair Trading Practices Act. Above that, the applicable Hungarian regulation is in accordance with the provisions of the Directive.