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Voluntary standard contracts?

AIMAIM®®

The EU Commission Objective: « to put contractual relations on a more

secure footing so that companies can reap the full benefits of the single market while retaining the freedom to contract »

Exchange of information with Member States on contractual practices, including a clarification of

* contractual rights* the legality and fairness of commonly used

contract clauses

work together with food supply chainstakeholders to prepare sets of standard contracts, whose use would be voluntary »

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TODAY’S AGENDA

Critical review of current contractual practices: « Standard international contract/agreement » Contractual rights

Legality / Fairness

Industry-Trade Committee input into AIM position for ongoing discussions at EU level Set of contractual principles, e.g. AIM Principles of Good

Business Practice?

Voluntary standard contracts? With which minimum provisions?

More prescriptive measures?

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International agreements: how do they compare to best practices in supply contracts?

Susan HinchliffeArnold & Porter, June 2010

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International agreements – key terms

International agreements provide for payments to be made by suppliers for services provided by retail alliances (“alliances”)

Length/detail varies but the following terms are common:– Payment is a percentage of turnover/revenues for all members of

the alliance (often to be paid directly to alliance members)– Payment is made for “services”– Services generally described as being strategic advice about

how best to position/promote the products of the suppliers basedon the international perspective of the alliance

AIMAIM®®

International agreements – key terms

– Claims/dispute resolution– Payment terms – e.g. to the alliance or directly to members/60

days from date of invoice/payment currency– Duration usually one year– Confidentiality– Intellectual property– Cancellation– Severability/governing law

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Key sample terms: 1. services provided

Promotion of strategic brands and optimization of brand presence

contact recommendation between the supplier and the members in all countries

Providing sales and market knowledge Coordination of international presence and support in

countries where the supplier is not yet present Evaluation of supplier’s plans and objectives

ALL VERY VAGUE AND NO MEASURE OF PERFORMANCE

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Key sample terms: 2. compensation

Y % of Turnover.

The Supplier shall prepare a monthly accounting statement of the sales turnover according to the model provided to X (15 days end month)

X will have the right to have the Supplier's documents checked at any time by a neutral auditor, at the expense of the Supplier

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Key sample terms: 3. complaints

Complaints:

As far as the remunerations that must be paid to X are concerned, the Supplier will not have the right to refuse to carry out his obligation to pay or to compensate the amounts due by the claims he might have against Networks or several members of the Networks, or against X except if the claim is not contested or if there is an enforceable judgement in this matter.”

Unfair?

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Key sample terms: 4. conflict resolution

“In the event of a dispute, the parties will make their best efforts to resolve the conflict by negotiation. During the negotiations, the parties will continue, without delays, to carry out their respective obligations foreseen in this contract which are not concerned by the conflict.

To initiate the conflict resolving procedure foreseen in this article, the party who invokes it must give the other party written warning of his decision to negotiate. This warning will include a detailed description of the subject of the conflict and a proposal for resolving it.

Unfair?

AIMAIM®®

Key sample terms: 4. conflict resolution

Within 5 working days following the reception of the written notice by the other party, the parties will each designate a representative to settle the conflict. The representatives designated will be the chief executive officers ("CEO") of each company or individuals having executive functions with the authority to settle the conflict without later ratification.

The designated representatives will consult and negotiate with each other in good faith and will attempt to obtain a just and fair solution for the two parties within 15 working days after the final date for designating the representatives. If these designated representatives do not resolve the conflict by negotiation within the time allowed, the conflict may be submitted to the procedure of article 2.

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Key sample terms: 5. limitation of liability

X will in no way be responsible with respect to the Supplier or with respect to any third party regarding the Market sales in question, regarding possible lapses or violations by one of the Networks or members of one of the Networks

X will not be responsible with respect to the Supplier for any loss or damage of any sort, incurred or suffered by the Supplier in connection with or resulting from an act or a lapse of X, of one of its directors, employees or agents in carrying out or not carrying out this contract or part of it, with the exception of losses or damage to the Supplier caused by the intentional fault or serious negligence of X

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Key sample terms: 5. limitation of liability

In no case may X be bound to compensate the Supplier for any loss of profits and/or indirect damages to him, of which in particular: loss of tenure, stop of operation, loss of real or foreseen profit (notably, without limitation, loss of profit on the contracts), loss of income, of the use of money, of the earnings foreseen, of opportunity, of capital, of clientele or reputation, shortfall in earnings, financial or commercial losses, increase in costs, disruption of planning.”

Overly burdensome on suppliers?

AIMAIM®®

Key sample terms: 6. IP

X will have no obligation to protect or defend the Supplier's intellectual property rights but X will promptly inform the Supplier if it becomes aware of a violation of the Supplier's intellectual property rights.

Standard or unfair?

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Key sample terms: 7. confidentiality

This contract as well as any information exchanged during the pre-contract negotiations or during the carrying out of the contract shall be confidential and may not be communicated to third parties, except if the parties are so constrained by a legal obligation or by a legal or administrative procedure.

Moreover, each of the parties will have to take all necessary measures to prevent the unauthorised distribution of the information exchanged.

This obligation of confidentiality is also valid after the end of the contract, for whatever reason.

Standard or unfair?

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“The Supplier shall also not be entitled to refuse payment of remuneration or to set-off such payments against its claims vis-à-vis X unless the claim is undisputed or an enforceable judgment exists with regard thereto.”

Key standard terms: claims

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How do terms compare with existing national rules?

Restrictions on retailers requiring payments that do not correspond to any particular services and/or which are disproportionate to the services being performed (Czech Republic)

Restrictions on payments for services not provided, are unrelated to sales to end consumers, are of no added value to suppliers, or required by the retailer to be taken even though not requested by the supplier (Hungary)

Retailers cannot request payments for marketing costs e.g. consumer or market research and the opening or refurbishment of stores (UK)

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How do terms compare with existing national rules?

Restrictions on receiving a benefit by threatening a full or partial business disruption/delisting (Czech Republic, UK)

Restrictions on providing excessive funding of discounts/promotions (Hungary, Czech Republic, UK)

Requirements for suppliers to pay for listing and display at retail or for commercial activities conducted by the retailer (if payments amount to more than 3% of revenues with the purchaser) (Slovakia). No stocking, listing or positioning fees except for promotions (UK)

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How do terms compare with existing national rules? Other terms not dealt with in the same way (focus on

supply of goods contracts not the supply of services) Invoice terms to be clearly specified (Czech, UK) Terms to be clearly set out in writing (all codes/laws) Clear dispute resolution mechanism (UK)

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For discussion and recommendation

Industry-Trade Committee input into AIM position for ongoing discussions at EU level

Set of contractual principles, e.g. AIM Principles of Good Business Practice?

Voluntary standard contracts? With whichminimum provisions?

More prescriptive measures?

AIMAIM®®

What principles can guide us?

MUTUALITY

MAXIMISATION OF VALUE

The principle of Mutuality means that manufacturers and retailers should contribute to the business relationship and both should have a real opportunity to benefit from it. Mutuality should be the basis for all negotiations between manufacturers and retailers.

The principle of Maximisation of Value requires manufacturers and retailers to work together to provide better value to the consumer. Together they should seek efficiency of the total supply chain and optimum use of resources.

AIM AIM PRINCIPLES OF GOOD BUSINESS PRACTICESPRINCIPLES OF GOOD BUSINESS PRACTICES

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Rethinking AIM Principles of Good Business Practice Performance and counter-performance Proportional and optional performance Differentiation of conditions Respect of agreed conditions Mutual respect of obligations in product

presentation Supply chain efficiency Information sharing

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Rethinking AIM Principles of Good Business Practice

• In the last 10 years, have they helpednegotiate fair terms, avoid unfaircommercial practices?

• Would amendments help?

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Voluntary Standard Contracts?

In what circumstances could standard contracts help?

Which minimum contractual provisions based on which principles?

Some provisions lend themselves to thismore than others e.g. payment terms, duration, conflict resolution

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Are more prescriptive measures needed?

AIM Legal Study on rules regarding Unfair Commercial Practices:

most of the surveyed countries have imposed a basic requirement that the contractual terms governing the relationships between buyers and suppliers must be set out in writing

Written terms reduce uncertainty (e.g. UK)

Source: AIM study

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Are more prescriptive measures needed?

Laws can be quite prescriptive: setting out the parameters of contractual bargaining between the parties and stipulating the supervisory actions or liability for breach. e.g. France

“A contract concluded between a supplier and a customer shall include the obligations under which the parties are committed with respect to establishing the price after conclusion of business negotiations. A contract shall be executed in writing and it may not be amended without consent of both contract parties”

“Must be specified in contract the General Business Terms and Conditions which shall include: conditions of purchase; price terms; discount on prices; payment terms.

“Unless otherwise stipulated in the provisions of general business terms and conditions or agreed upon by and between the parties in accordance with paragraph 6 of this Annex, the maturity period of the amounts invoiced shall be thirty days after the day of acceptance of goods and/or completion of a performance required.

Source: AIM study

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Types of UCPs covered by national rules

The principle of freedom of contract has limits in case of illegal or unfair behaviour under certain national regimes:

• French law foresees the nullity of particular unfair commercial practices

•Italian law provides for nullity in certain situations of economic dependency.

•Hungarian law stipulates that there is no consent by the supplier if the conduct by the retailer is unfair: the contractual obligation is null and void.

Source: AIM study

AIMAIM®®

For discussion and recommendation

Industry-Trade Committee input into AIM position for ongoing discussions at EU level

Set of contractual principles, e.g. AIM Principles of Good Business Practice?

Voluntary standard contracts? With whichminimum provisions?

More prescriptive measures?