1. Blacklist: prohibited practices
The so-called “blacklist” covers practices that are considered unfair and are thus prohibited:
1.1 Not justifying or giving written notification in advance about the removal of products from shelves
This is an abuse of “delisting” as a retaliatory measure. But removing products from shelves to satisfy consumer preferences or because of changes to the distributor’s product assortment remains permitted if such act is communicated in writing. Threatening to remove products from shelves during commercial negotiations about the product offering and the price continues to be prohibited. The buyer may certainly not threaten to remove products to prevent the supplier from exercising its contractual or legal rights, such as implementing a price increase that was objectively and contractually agreed upon.
1.2 Automatic charging of an indemnity and interest
Buyers may not charge any indemnity and interest automatically without informing the supplier in writing beforehand about the reasons for charging them. Buyers may have damage clauses stipulated in their contracts, but they may not charge any indemnity automatically without giving the supplier the chance to respond. This provision ensures transparency in the communication between parties and puts suppliers in a position to defend their rights effectively.
1.3 Unilateral debt setoff against an indemnity and interest
Buyers may not apply any unilateral debt setoff without justifying it to the supplier in advance. The provision concerns only debt setoff against an indemnity and interest. Other setoff methods, for example, adapting the price according to certain criteria such as the quality of the purchased product, which are allowed by law, fall outside the scope of this provision.
1.4 Unilateral debt setoff against penalties owed
This prohibition is aligned with what is generally accepted. Article 5.88 of the Civil Code provides a strict framework for damage clauses and forbids pure “penalty clauses.” This is the consequence of a landmark ruling of 17 April 1970 rendered by the Court of Cassation (Cass. 17 April 1970, Arr. Cass., 1970, 954) in which the Court held that “a clause that does not intend to compensate harm or loss that was reasonably foreseen in the event of a breach of performance contravenes public policy and is therefore null.”
Given that such practices continue to take place in the agricultural and food sector, the Royal Decree explicitly prohibits buyers from applying unilateral debt setoffs against “penalties that are not compensatory in nature.”
2. Gray list: conditions for conducting certain practices
The so-called “grey list” covers practices that are considered unfair unless parties have agreed to them clearly, unambiguously, and in advance. This offers a framework for parties to evaluate situations that could require some flexibility:
2.1 Buyer is prohibited from purchasing products from the supplier at a price that is lower that the supplier’s production costs
Article VI.116 of the Code of Economic Law prohibits any sale “at a price that is not at least equal to the price at which the company has purchased the product or that the company would have to pay to replenish the goods,” taking into account any discounts that the counterparty party had received or had been granted. This provision does not apply to food producers, given that they often have no delivery or supply price that they can refer to in order to determine whether a sale was made at a loss.
Nevertheless, no entrepreneur can be forced to exercise an economic activity for which it cannot recuperate its costs. This principle is important because the food sector often faces volatility in production prices, which is caused by external factors such as weather conditions and fluctuations in prices of raw materials.
In the food sector, loss incurred in one year can sometimes be compensated by the profit made in the following year. Therefore, in some cases, it might make economic sense for the supplier to sell its production at a loss rather than destroy it.
The question whether the price lies below the production costs must be evaluated at the time of conclusion of the contract. Production costs must be estimated at that particular point in time.
By adding this practice/provision to the grey list, the supplier retains its right to choose whether to sell its products at a loss, which strengthens its negotiation position in respect of the buyer. Suppliers nevertheless retain the right to demonstrate that their sale below cost is unfair practice, which helps them protect themselves from financially detrimental arrangements.
2.2 Prohibition of refusal to renegotiate in the event of unforeseeable circumstances
If unforeseeable circumstances make it excessively difficult to perform a contract (as set out in Article 5.74 of the Civil Code), the supplier can demand renegotiation. This provision is important because it ensures that, if these conditions are met, the buyer may not refuse to renegotiate the contract. This encourages fair performance of the contract and prevents suppliers from being forced to accept unreasonable losses.
Entry into force
The new provisions apply to supply agreements that have been concluded, renewed, or amended after 1 October 2024. For existing agreements, there is a transition period until 1 April 2025, so parties have time to adapt their contracts to the new legislation.
Conclusion
These recent changes in the law are a significant development for the food supply chain. By offering clear guidelines on fair trading practices, suppliers are better protected against buyers’ unfair conduct. We advise all parties concerned to be informed properly about the new rules and to adapt their contractual arrangements accordingly.
