The start of something bigger? First administrative fines based on the UTP Directive now imposed in Sweden

On 1 May 2021 the Directive (EU) 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain (“UTP”) was implemented in the Member States. The directive is intended to target the imbalances in bargaining power between suppliers and buyers in the agricultural and food supply chain, as they could inter alia potentially lead to unfair trading practices. Setterwalls has reported on this issue here and here. The rules have been in full force in Sweden since 1 November 2021 under the UTP Act (2021:579). On the basis of this legislation, the first administrative fines based on the UTP Directive as implemented in Sweden have now been imposed.

As part of the implementation of the UTP rules, Member States are obliged to appoint a competent authority to oversee supervision and enforcement of the UTP rules. In Sweden, the Swedish Competition Authority (“SCA”) has been appointed as the competent authority. SCA has the power to initiate and conduct investigations on its own initiative, or based on a complaint. SCA may impose prohibitions, including interim measures, and may issue prohibitions under penalty of a fine. SCA may also impose an administrative fine of up to a maximum of one percent of the company’s revenue. The SCA has now issued its first administrative fines based on the UTP Directive as implemented in Sweden.

The UTP Act applies to agricultural and food products if the buyer or supplier is established in Sweden and the buyer has an annual turnover equivalent to no less than EUR 2 million. The law does not apply if the buyer is a consumer.

The provisions of the UTP Act include several prohibitions, among others a prohibition on the buyer paying the supplier later than 30 days after either when the supplier provides so, or delivery of the products, if the final payable amount is determined by the buyer. In short, the prohibited practices are:

• payment later than 30 days,
• cancellation of an order with less than 30 days’ notice,
• unilateral changes to the terms of a supply agreement,
• requiring payments from the supplier that are not related to the sale of the products,
• requiring the supplier to pay for the deterioration or loss, or both, of the products, where such deterioration or loss is not caused by the negligence or fault of the supplier,
• not complying with the supplier’s request for written confirmation of the terms of a contract,
• commercial retaliation against supplier who exercises their contractual or legal rights; and
• requiring compensation from the supplier for the cost of customer complaints relating to the sale of the products,

The law also provides for some prohibited practices which are only prohibited if they have not been previously agreed in clear and unambiguous terms in an agreement between the buyer and supplier.

Everfresh Case

In the case at issue, the authority had received information indicating that the company concerned used payment time periods that were not consistent with the new rules. SCA found that the company had, over a period of time exceeding three months, applied payment terms exceeding the thirty days that follow from the Swedish implementation of the UTP Directive. The lateness of payments arose both through contractual payment terms exceeding thirty days and late payments per se. The authority’s investigation showed that the company had paid its suppliers later than 30 days after invoice over this three-month period on a hundred occasions. Once suppliers had informed the company that the payment terms exceeded the periods stipulated in the UTP rules, the company had stated that the payment terms remained in force until renegotiated and that it did not have the time to change all agreements in time for implementation of the then new rules.

After the issue had been taken up at SCA, the company manually updated their payment terms. However, in its decision, SCA attached weight to the fact that the company did not update its payment terms upon notice from its suppliers and, of course, not in time for implementation of the then new directive.

In total, the total value of the transactions in breach of the rules was about SEK 2,837,000. With regard to the period of time during which the terms were applied, the amount of the transactions, the number of days of late payments and the fact that the company failed to rectify the breach upon notice from its suppliers, SCA considered the breach to be serious. Taking into account the fact that the company in question had annual revenue of SEK 4,768 million, SCA ordered a rather substantial administrative fine of SEK 5 million. However, it should be noted that this is less than one percent of the company’s revenue.

The case has been appealed, and Setterwalls will monitor the final outcome.

Magnihill Case

The Swedish Competition Authority issued a decision on the 22 November where they decided upon an administrative fine of 250 000 SEK for Magnihill, a company active in the production of frozen root vegetables and trade in frozen vegetables, fruit, berries and spices.

One of the issues addressed by the SCA was the dividing line between deliveries on a regular basis and those not on a regular basis. In short, the law and the Directive make a distinction between contracts where the products are to be delivered on a regular basis and when they are not, as regards to the date from which the payment term starts. For a contract providing for the delivery of products on a regular basis, the payment term of 30 days starts from the end of an agreed delivery period, or the date on which the amount payable is set, whichever occurs later. For a contract which does not provide for the delivery of products on a regular basis, the payment term of 30 days starts from the date of delivery or the date on which the amount payable is set, whichever occurs later.

The SCA concluded that the interpretation of the terms ”regular” and ”non-regular” is not clear from the UTP Act, its preparatory work or the UTP Directive. However, the question of the meaning of the term regular has been discussed to some extent within the framework of international co-operation on the UTP Directive. According to the SCA, the wording of the statutory text, i.e. that the deliveries must be regular, indicates that it must be recurring or continuous deliveries under, for example, a framework agreement, such as daily deliveries of perishable food or agricultural products to a store.

In the specific case, Magnihill was not considered to receive deliveries on a regular basis. In its assessment, the SCA attached particular importance to the fact that each harvest was delivered at one time, even though for logistical reasons delivery may be spread out over a shorter period of time. To the extent that delivery of harvests was divided, they were not considered delivered on a regular basis but rather on individual occasions, as the products could not be considered to be delivered at a regular interval.

Accordingly, payment had to be made within 30 days from the date of delivery, provided that it was Magnihill that determined the amount to be paid for the delivered products.

The payment scheme in the case was that the agreements provided for a fixed kilo price for delivered products, where Magnihill after delivery assessed the quality of the products delivered. Thus, it was Magnihill who approved the volume for which payment was to be made. Based on this, the SCA considered that it was Magnihill, by issuing the invoice and by assessing the quality and volume of the products, who determined the final amount to be paid. Therefore, the applicable payment term according to the UTP Act was to be calculated as of the date of delivery.

Magnihill had, notwithstanding what was stated in the contracts with its suppliers, issued invoices for deliveries at the end of the month in which a particular delivery had been received. The investigation showed that Magnihill had breached the UTP Act by paying 12 suppliers more than 30 days after the delivery date on a total of 23 occasions. Magnihill was therefore considered to have used an unfair trade practice that is prohibited under the UTP Act and a fine of 250 000 SEK was issued.

Setterwalls comments

In the Everfresh case, the company was a fairly large international company. We cannot conclude from this single case whether larger companies are more likely to be in the spotlight of SCA in this initial phase. However, we do note that the fine was on the high side, and this is also one point of emphasis that the company raised in its appeal. The case also demonstrates the importance of ensuring that the UTP rules are implemented in all aspects of a company’s business, where applicable.

As regards to the Magnihill case, it provides important clarity on a previously unclear distinction between deliveries on a regular and non-regular basis. As this is important for determining the date from which the 30 days’ payment term is to be calculated from, it is welcome that this has been clarified.

Considering that the SCA has become more active in their supervision of the law as of late, we may see an increase in decisions and supervision in the coming months. We are of course happy to assist in any matters concerning the Swedish UTP Act and ensuring compliance with the provisions therein.