Trade and distribution

Scope of legal assistance

 

RGW provides comprehensive legal assistance to entities operating in trade and distribution sector.

We support our Clients in their day-to-day operations as well as in investment planning and shaping distribution politics in respect to different types of goods. Team work on specific case allows us to pay attention to interdisciplinary issues and requiring consideration of different areas of law and specificity of the given product and geographical market.

International transactions as well as legal aspects of international distribution and transport of goods are our specialisation.

We advise entrepreneurs being at different stages of the chain of supply of goods to the end recipient i.e. producers, distributors, agents, intermediaries, trade representatives, sales networks, representatives of retail trade.

Special role in our practice is also played by issues related to rapidly developing e-commerce.

Area of activity

Distribution agreements

The development of trade has contributed to increasing the cooperation of entrepreneurs at different stages of business trading and popularising distribution agreements.

Distribution agreements are unnamed agreements, i.e. contracts that have evolved based on the principle of freedom of contract and which have not been directly regulated in the Act.

Under the distribution agreements supplier (producer) undertakes to deliver to the recipient (distributor) specific goods according to specific rules, and the recipient undertakes, in his own name and on his own account, to buy the delivered goods and to sell them to third parties.

RGW accompanies the entrepreneurs already at the stage of negotiating, designing, giving opinions, concluding distribution agreements and agreements of a similar purpose.

We believe that the agreement should be concise, written in plain and clear language and contain well thought-out provisions corresponding to the market conditions. In particular, when drafting an agreement attention should be paid to the precise definition of the elements such as:

  • territory,
  • exclusivity,
  • mutual settlements,
  • licenses and their scope,
  • reporting about the sales volume,
  • business secrets,
  • consequences of contract termination.

The parties draft the provisions of distribution agreements depending on their needs and interests.

The contractual freedom is not, however, unlimited in the described scope and each distribution agreement carries the risk of violating anti-monopoly law which prohibits, inter alia, conclusion of agreements restricting competition by entrepreneurs.

  • When is the distribution agreement contrary to antitrust law?
  • What are the consequences of concluding a distribution agreement contrary to the law?
When is the distribution agreement contrary to antitrust law?

The antitrust law prohibits the conclusion of distribution agreements the purpose or effect of which is to eliminate, limit or otherwise distort competition in the relevant market. The Act on competition and consumers protection provides for the number of instruments that relativize existing restrictions, what aims at, inter alia, maintaining such agreements in circulation, which despite controversial provisions contribute to the development of competition in the market.

Factors that affect the assessment of the distribution agreements as compliant or contrary to the law are primarily contents of its provisions, the economic potential of the parties to the agreement and the specific circumstances of the relevant market.

Distribution agreements that exclude the freedom of recipients (distributors) in certain areas, e.g. by imposing rigid prices for further resale of goods, may restrict competition in the relevant market and therefore constitute an agreement of anticompetitive nature. Exclusive and selective distribution agreements bear a particular risk in this scope.

In the case of exclusive distribution the parties agree that the supplier will deliver the goods only to a given distributor, and the distributor will resale received goods on the strictly defined territory with the exclusion of other areas.

Selective distribution agreements, in contrary to the exclusive distribution agreement, does not limit the parties to the agreement to one distributor and one option of reselling the goods but to several distributors and several variants of resale.

Both types of distribution agreements may lead to unlawful market division and therefore violate competition law.

An unambiguous assessment of a given agreement requires a detailed analysis of both its provisions and the conditions of a relevant market.

What are the consequences of concluding a distribution agreement contrary to the law?

The President of the Office of Competition and Consumer Protection may impose on the entrepreneur who even inadvertently violated antitrust laws, a fine of up to 10% of the turnover achieved in the financial year preceding the year of imposing the fine.

A person managing the enterprise (e.g. a company), who in the course of performing his function at a time of the alleged violation of antitrust laws, deliberately caused by his acts or omissions that violation is also subject to legal liability that is regulated in antitrust law. In the described situation, the President of the Office of Competition and Consumer Protection may impose a fine of up to PLN 2,000,000.00.

What is more, a faulty construed  distribution agreement may also result in legal liability under the Act on combating unfair competition or the act on counteracting unfair use of contractual advantage in sale of agricultural and food products.

 

Organisation of sales and product liability

Both in the case of professional (B2B) and consumer (B2C) trade in goods, the principle is that the seller is liable to the buyer for defects in goods.

The basic institution in this respect is the warranty for defects in the sold goods, both physical and legal defects. Additionally, the entrepreneur’s risk also includes the liability for a dangerous product which is governed by yet another rules.

RGW offers legal aid to entrepreneurs which is focused on protecting interests of the entity dealing with professional trade of goods in such a way so as:

  • not to incur additional costs related to non-adaption of the organisation of sale of goods to consumers to binding laws,
  • not to lose potential claims under warranty against another entrepreneur (e.g. supplier, previous sellers, producer),
  • to conclude agreements in which provisions fully regulate issues of occurrence of possible defects in goods.

When providing legal services to entrepreneurs from the ‘Trade and Distribution’ sector, we take into account the differences between the various types of activity:

  • professional sales, i.e. to another entrepreneur (B2B),
  • consumer sales, i.e. to the consumer (B2C), including sales via the Internet,
  • sales of the so-called dangerous product.
  • Product defects
  • Consumer sales
  • Online sales
  • Professional B2B trading
  • Dangerous product
Product defects

The seller is liable to the buyer for physical and legal defects of the goods.

The sold item has a legal defect if it is owned by a third party or if it is encumbered with the right of a third party, and if the limitation in the use or disposal of an item results from a decision or judgment of a competent authority.

The physical defect means the incompatibility of the sold item with the contract. The sold item is inconsistent with the contract, in particular if:

  • it does not have characteristics that this item should have because of the purpose stated in the contract or resulting from the circumstances or its purpose,
  • it does not have characteristics of which the seller assured the buyer, including the sample or pattern,
  • it is unsuitable for the purpose of which the seller informed the buyer at the conclusion of the contract, and the seller did not raise any objections as to its purpose,
  • the item was delivered to the buyer incomplete.

It is assumed that the item sold has a physical defect also in the case of improper installation and activation, if these activities were performed by the seller or a third party for whom the seller is responsible, or by the buyer who followed the instructions received from the seller. 

The seller is liable for physical defects that existed at the time when the danger of destruction or loss of goods was transferred to the buyer (i.e. as a general rule until the goods were handed over to the buyer) but also for the defects that occurred late but originated from the cause that was originally  in the product sold.

Consumer sales

The Consumer Rights Act imposes a number of pre-contractual information obligations on an entrepreneur selling goods to consumers. According to the applicable standards, the entrepreneur is obliged to inform the consumer before concluding the contract of sale, inter alia,  about:

  • main features of the goods,
  • his identification data,
  • total price of goods including taxes,
  • the complaint handling procedure,
  • the entrepreneur’s liability for the quality,
  • content of after-sales services and guarantees.

In the case of traditional consumer sales, the entrepreneur is not obliged to accept goods returned by the consumer. Accepting returns of full-value products is only an expression of the internal commercial policy.

However, in a situation where the goods sold to the consumers have defects, the seller is obliged to consider the complaint. At the same time, the consumer may assert his claims under the warranty regardless of the rights granted to him under the guarantee. Therefore, the issue whether the consumer in a given situation will direct his claims to the seller or to the guarantor (e.g. producer) remains solely at his discretion. All activities of the entrepreneur (seller) aimed at limiting the above-mentioned rights of the consumer are against the law.

The entrepreneur is obliged to carry out the complaint procedure within 14 days of making the complaint. Failure to do so results in the assumption that the request made by the consumer is  justified.

In addition to the specific consequences in the form of, e.g. accepting a fiction of handling a complaint in accordance with the consumer’s request or determining that a given contract with the consumer was not effectively concluded, and the possible liability of the entrepreneur towards the consumer, the entity organising consumer sales in a way that does not comply with the applicable regulations exposes itself to a charge of:

  • violation of collective consumer interests,
  • use of unfair market practices,
  • committing an act of unfair competition.
Online sales

The legislator protects the consumer purchasing online in a special manner what means additional obligations for the entrepreneur.

Regardless of the basic information obligations described above, the entrepreneur who runs the online store is obliged to inform the consumer before concluding the sales contract, inter alia, about:

  • the manner and date of exercising the right to withdraw from the contract,
  • costs of returning goods in the event of withdrawal from the contract,
  • the entrepreneur’s obligation to deliver items without defects,
  • the text of the warranty and after-sales services and the manner of the execution.

The procedure of purchasing in the online store should be organised in such a way that the consumer clearly confirmed before placing the order that he knows that the order entails the obligation to pay. If placing an order requires  clicking a button on the website, it should be marked with words ‘order with obligation to pay’ or other, equivalent and unambiguous wording. Failure to meet the requirement by the entrepreneur results in the assumption that the contract with the consumer has not been effectively concluded.

The consumer retains the right to withdraw from the contract and return the goods without giving a reason within 14 days of  taking possession of the goods. This means that the entrepreneur has to unconditionally accept the returned products if the product has not been used or damaged.

Professional B2B trading

The warranty protects not only the consumer in relation to the entrepreneur, but also the entrepreneur in relation to another entrepreneur.

In professional trading the option of exercising the rights resulting from the warranty depends on the previous performance by the entrepreneur (recipient, buyer) of the following activities:

  • examining the item in time and in a manner customary for such items (e.g. immediately after unloading a given lot), and
  • immediately notifying the seller about the defect, and if the defect appeared later, notifying the seller immediately after noticing it.

Failure to meet the above conditions results in irretrievable loss of rights resulting from the warranty.

What is more, an entrepreneur who has already put a defective product on the market and therefore incurred costs as a result of consumer claims under the warranty, may demand that the damage suffered be remedied by the previous seller as a result of action or omission of which the item became defective.

Notwithstanding the foregoing, an entrepreneur harmed by the unreliable activity of his contractor (e.g. supplier) may also raise compensation claims on general terms.

Dangerous product

Entrepreneur (seller) who, not being a producer, sold a dangerous product as part of his business activity, may be liable for damages caused by this product to third parties

According to the Act, a product that does not provide the safety that can be expected considering its normal use is considered dangerous. Whether the product is safe is determined by the circumstances at the time of placing it on the market, in particular the manner of presenting the product on the market and information  provided to the consumer about its properties. The product cannot be considered as not being safe only because a similar improved product was marketed later.

If the product causes damage during its normal use by the injured party, it is assumed that the cause of the damage was the dangerous characteristic of the product.

The entrepreneur (seller) may be released from liability for damage caused by a dangerous product if within one month from the date of notification of damage he will inform the injured party of:

  • producer’s data or
  • data of the entity claiming to be the producer or
  • product importer’s data or
  • data of the previous seller of the product.

The provisions on liability for damage caused by a dangerous product do not exclude liability for damages on genera terms, for damages resulting for non-performance or improper performance of the obligation and liability under warranty for defects and quality guarantee.

 

Slotting fees

Along with the rapid development of large-scale trade, legal problems related to cases of violation of the contractual balance between the parties operating at various stages of the chain of the professional trade in goods occurred.

RGW offers legal advice to clients in the trade and distribution sector in the field of the so-called ‘slotting-fees’.

The offer is addressed to both the suppliers, from whom additional fees are charged, which may be of a slotting-fee nature, and to recipients, who want to be sure that their activity meets the current legal requirements.

  • What are slotting fees?
  • How to identify the slotting-fee?
What are slotting fees?

‘Slotting fees’ are commonly referred to as unfair fees claimed by large-format stores in exchange for the mere fact of accepting the goods from the supplier for sale (payment for placing the goods on the shelf).

According to art. 15(1)(5) of the Act on combating unfair competition, restricting market access, in particular by charging other than the commercial margin for accepting the goods for sale, is against the law.

The so-called ‘prohibition of charging slotting-fees’ was introduced into the Polish legal system in 2002. The Senate, by making the described amendment, expressed ‘his conviction about reprehensibility of charging additional fees for accepting goods for sale by large stores’.

How to identify the slotting-fee?

In their contracts with suppliers, the contractors use different methods to hide the unfair nature of the slotting fees, what make their explicit categorisation.

Identifying ‘slotting fee’ therefore requires a comprehensive analysis of the provisions of a given contract as well as the course of cooperation between the parties concerned.

 

Use of contractual advantage

From 12 July 2017, the Act on counterfeiting unfair use of contractual advantage in the trade of agricultural and food products.

The Act on the one hand gives the participants of the chain of professional trade in goods additional, public law protection from the President of the Office of Competition and Consumer Protection, and on the other hand also imposes additional obligations on these entities. The new regulations aim at restoring the contractual balance among the participants of the food supply market participants and are binding alongside the, inter alia, Act on combating unfair competition  and the Act on protection of competition and consumers.

RGW offers legal aid to entities harmed by the unfair use of contractual advantage according to the following scheme:

  1. preliminary analysis of the facts of the case.
  2. determining whether the conditions for the applications of the Act have been met
  3. analysis of the cooperation between the supplier and recipient
  4. detecting unfair behaviours
  5. preparation of the notification of suspected use of unfair practices using a contractual advantage
  6. referral to the President of the Office of Competition and Consumer Protection

In addition, the potential legal liability of the entrepreneur who unfairly uses a contractual advantage under the Act on combating unfair competition and the Act on competition and consumer protection, as well as the possibility of applying to such an entity with a compensation claim, in considered.

The services of RGW in this area also include:

  • analysis of the current economic activity of the entrepreneur and removal of possible threats to violation of the Act,
  • preparation of new contracts with suppliers or recipients of goods,
  • preparation of position in cases concerning entrepreneurs addressed to the President of the Office of Competition and Consumer Protection,
  • contacts with the President of the OCCP
  • drawing up appeals against the decision of the President of the OCCP
  • assistance in developing code of good practice

 

  • Who does the Act refer to?
  • What are agricultural and food products?
  • What is a contractual advantage?
  • When the use of contractual advantage is prohibited?
Who does the Act refer to?

The Act prohibits the unfair use of contractual advantage to entrepreneurs, including both the recipient of goods against the supplier and the supplier against the buyer.

The scope of the Act has been narrowed down to trade in agricultural and food products. Thus, the Act does not apply to transactions related to e.g. electronic devices, feed, medicinal products, cosmetics or tobacco products.

Importantly, the unfair use of contractual advantage was not dependent on the entrepreneur having a leading position in the relevant market. In other words, the Act on counteracting unfair use of contractual advantage may also apply to such activity of an entrepreneur, which cannot be considered an abuse of a dominant position within the meaning of antitrust law.

What are agricultural and food products?

These are any substances or products processed, partially processed or unprocessed, intended to be, or reasonably expected to be, ingested by humans.

The food product is considered to be soft drink, chewing gum and all substances, including water, consciously added to food during its production, preparation or processing.

What is a contractual advantage?

‘Contractual advantage’ within the meaning of the Act is the situation

  • of the buyer towards the supplier, where there is no sufficient and actual opportunity for supplier to sell agricultural or food products to other buyers and there is a significant disproportion in economic potential to the benefit of the buyer, or
  • the supplier towards the buyer, where there is no sufficient or actual opportunity for the buyer to buy agricultural or food product from other suppliers and there is a significant disproportion in economic potential to the benefit of the supplier. 
When the use of contractual advantage is prohibited?

The Act does not prohibit entrepreneurs every use of contractual advantage, only one which is unfair.  Determining the nature of a given practice, i.e. its assessment as fair or unfair, requires each time a careful analysis of the provisions of a specific contract and the course of cooperation between the parties.

The unfairness of using contractual advantage may be demonstrated by, inter alia, the following behaviours of the recipient of the goods against the supplier or supplier towards the recipient:

  • unjustified termination of the agreement or threat of termination of the agreement,
  • granting only one party the right to withdraw or terminate the agreement,
  • making the conclusion or continuation of the agreement dependent on the acceptance or fulfilment by one of the parties of another performance that does not have a material or customary connection with the subject of the contract,
  • unjustified extension of payment dates for delivered agricultural or food products.

 

Unfair market practices

In the era of globalization and computerization, entrepreneurs are forced to intensify efforts to encourage consumers to buy a specific product, and the term ‘aggressive marketing’ in professional circles gains positive connotations.

The spectrum of activities of present entrepreneurs ranges from classic marketing campaigns (e.g. posters, press advertisements, advertising spots) and promotional  campaigns (seasonal sales, periodic price cuts, contest, outlets) to the sale of electronic devices with built-in functions aimed at promoting selected products.

The described activities (market practices) may lead to far-reaching interference with the discretional decision of the average consumer, and thus also to undesirable distortion of his behaviour. In order to protect the consumer against the described effects, the law imposes on the entrepreneur certain limits, the exceeding of which may be considered as an unfair market practice.

RGW supports entrepreneurs seeking to adapt their activities, including marketing and promotional campaigns, to binding regulations.

The services of RGW include the following aspects:

  • analysis of the current activity of the entrepreneur and removal of possible threats of violating the law,
  • legal assessment of the planned marketing and promotional campaign,
  • preparation of the positions in cases concerning issues directed by the President of the Office of Competition and Consumer Protection to the entrepreneur,
  • representation before the administrative authorities, offices and organisations established to protect consumer rights,
  • preparation of appeals against the decision of the President of the OCCP,
  • drawing up compliance policy and a code of good practice.
  • When is a market practice unfair?
  • When is a market practice misleading?
  • When is a market practice aggressive?
  • What is the black list of unfair market practices?
  • Entrepreneur’s liability
When is a market practice unfair?

Market practice used by entrepreneurs is unfair if it is contrary to good practices and significantly distorts or may distort the market behaviour of the average consumer before concluding a product agreement, during its conclusion or after its conclusion.

The unfair market practice is in particular the misleading market practice and aggressive market practice, as well as the application of the unlawful code of good practice.

When is a market practice misleading?

Market practice is considered to be misleading if the action of the entrepreneur in any way causes or may cause the average consumer to take a contractual decision that he would not otherwise have taken.

Misleading activities may concern, in particular:

  • the existence of the product, its type and availability,
  • product characteristics, in particular its geographical or commercial origin, quantity, quality, manufacturing, ingredients, date of manufacture, suitability, capacity and expected results of the product, accessories, tests and results of tests or controls carried out on the product, permits, prizes or awards obtained by the product, risks and benefits associated with the product,
  • the entrepreneur’s obligations related to the product, including service and complaint procedures, deliveries, necessary services, parts, replacement or repair,
  • consumer rights, in particular the right to repair or replace the product with a new one or the right to reduce the price or to withdraw from the contract,
  • price, the method of calculating the price or the existence of a special price advantage,
  • type of sales, reasons for using the market practice, statements and symbols concerning direct or indirect sponsorship, information on the economic or legal situation of the entrepreneur or his representative, including his name and property, qualifications, status, authorisations held, membership or links and industrial and intellectual property rights or awards and distinctions.

Market practice can also be misleading by omission. This is the case when the entrepreneur overlooks the relevant information needed by the average consumer to make a contractual decision and thus causes or may cause the average consumer to take a contractual decisions that he would not otherwise have taken.

In assessing whether the market practice is misleading, all the elements and circumstances of placing the product on the market, including its presentation, are taken into account.

When is a market practice aggressive?

Market practice is considered aggressive if the entrepreneur, by unacceptable pressure, significantly limits or may limit the freedom of choice of the average consumer or his behaviour as to the product, and thus makes him or can make him to take a contractual decision that he would not otherwise have taken.

Unacceptable pressure is considered to be any kind of exploitation of the advantage against the consumer, in particular use or threat of using physical or mental force, in a manner significantly limiting the ability of the average consumer to make an informed contractual decision.

When assessing whether the market practice is aggressive, all features and circumstances on placing product on the market should be taken into account, including, inter alia, time, place, type or nuisance of the given practice.

What is the black list of unfair market practices?

The Act on counteracting dishonest market practices provides for a catalogue of over thirty practices, which due to their ailment are considered unfair in all conditions, and therefore regardless of the assessment of additional circumstances accompanying their use.

By way of example, the following market practices which are on the ‘black list’ and whose use is strictly prohibited, may be indicated:

  • bait advertising, which involves the proposal to purchase a product at a specified price, without disclosing that the entrepreneur may have reasonable grounds to believe that he will not be able to deliver or order from another entrepreneur the supply of these or equivalent products at such a price, and for such  period and in such amounts as are reasonable, taking into account the product, the scope of the product’s advertising and the price offered,
  • an assertion that the product will only be available for a very limited period of time or that it will be available under certain conditions for a very limited period of time, if this is not true, in order to persuade the consumer to take an immediate contractual decision  and deprive him of the option of deliberately choosing the product,
  • presenting the right vested in consumers by virtue of law, as a distinctive feature of entrepreneur’s offer,
  • advertising a product similar to a product of another entrepreneur in a way that intentionally suggests to the consumer that the product was made by the same entrepreneur if it is not true,
  • an assertion, as part of a market practice, that a competition or promotion with prizes is organised, and then not awarding the described prized or their equivalent,
  • presenting the product as ‘bonus’, ‘free’, ‘gratuitous’ or in a similar manner if the consumer has to pay any amount, with the exception of direct costs related to responding to market practice, receiving or delivering the product,
  • giving the consumer the impression that the service for a given product is available in a Member State where the product was sold, if this is not true,
  • giving the impression that the consumer has already  obtained, will obtain unconditionally or after a certain act, a reward or other comparable benefit when in reality the reward or other comparable advantage does not exist or the reward comparable advantage depends on the consumer paying a certain amount of money or incurring other costs.
Entrepreneur’s liability

First, an entrepreneur using unfair market practices exposes himself to civil and criminal liability under the Act on counteracting unfair market practices.

A consumer whose interest has been threatened or infringed by an unfair market practice may demand that the practice be ended and its consequences removed, make a declaration of appropriate content and form, repair the damage as a general rule, and award the appropriate amount of money for a specific social purpose.

Some of the above claims may also be raised against the entrepreneur by the Ombudsman, Financial Ombudsman, poviat (municipal) consumer ombudsman, as well as by other national or regional organisations whose statutory aim is to protect consumer interests.

Notwithstanding the foregoing, an entrepreneur using unfair market practice is additionally subject to a fine.

Secondly, breaking the ban on the use of unfair market practices may at the same time infringe collective consumer interests and result in administrative liability before the President of the Office of Competition and Consumer Protection under the Antimonopoly Act.

 

Violation of collective consumer interests

The Act on competition and consumer protection (antitrust act) regulates not only the conditions for the development and protection of competition, but also the principles of protection of collective consumer interests performed in the public interest by the President of the Office of Competition and Consumer Protection.

Due to the aforementioned regulations, an entrepreneur selling or promoting goods on a large scale is obliged to exercise extreme caution, inter alia, due to the risk of taking actions (practices) that violate not only individual but also collective consumer interests.

RGW supports entrepreneurs in adapting their business to the law and minimising the risk of violating collective consumer interests.

For the clients from the ‘Trade and Distribution’ sector we:

  • prepare legal analyses concerning ongoing and planned project,
  • prepare draft of agreements, regulations and general terms of contract with consumers,
  • advise on advertising and promotional campaigns,
  • appear in administrative proceedings before the President of the OCCP and before the court,
  • conduct correspondence at the pre-litigation stage.

 

  • What are the collective interests of consumers?
  • What actions may violate the collective interests of consumers?
  • What threatens an entrepreneur for violating collective consumer interests?
What are the collective interests of consumers?

These are the interests of a broadly understood group (collectivity) or just an unlimited number of consumers (including potential customers of a given entrepreneur). The sum of consumers’ individual interests is not a collective consumer interest.

In other words, the concept of collective consumer interest should be understood not so much as the interest of a given consumer, but a common interest for all consumers or their group.

What actions may violate the collective interests of consumers?

The antitrust law prohibits practices that violate collective consumer interests.

The practice violating collective consumer interests is understood as the behaviour of the entrepreneur that is in conflict with these interests, which is at the same time contrary to the law or good manners.

The following examples of practices violate collective consumer interests:

  • violation of the obligation to provide consumers with reliable, true and complete information,
  • unfair market practices,
  • acts of unfair competition,
  • offering consumers to purchase financial services that do not meet the needs of these consumers, based on the information available to the entrepreneur regarding the characteristics of these consumers or suggesting the purchase of these services in a way that is inadequate to their nature.
What threatens an entrepreneur for violating collective consumer interests?

The President of the Office of Competition and Consumer Protection may impose a fine on the entrepreneur in the amount of up to 10% of turnover achieved in the financial year preceding the year of imposing the fine, if the entrepreneur, even if inadvertently committed violation of collective consumer interests.

Protection of collective consumer interests as provided for in the Act does not exclude protection resulting from other acts, in particular from the provisions on counteracting unfair market practices and regulations on combating unfair competition.