The individual trade practices rules become applicable to all worldwide purchases, sales and services provided by companies established in Portugal.
On the 8th of October 2015, with the Decree-Law no. 220/2015 approved, the first amendment to the Individual Trade Practices regime was enacted, which, in turn, had been fully reformulated by the Decree-Law no.166/2013. The changes brought by this amendment relate mainly to (i) the scope of the Decree-Law and, once again, to (ii) the concept of effective purchase price for resale at loss.
I. Changes in the objective scope of the Individual Trade Practices regime
The Decree-Law no. 220/2015 extended the scope of these rules to purchases and sales of goods and provision of services with origin or destination in a country outside the EU or the EEA. Moreover, it now considers null and void all contracts that infringe Articles 4 and 7 of the Decree-Law, regardless of whether they are subject to Portuguese law. The Individual Trade Practices rules thus become applicable to all worldwide purchases, sales and services provided by companies established in Portugal.
These changes apparently aim to eliminate discrimination (which was already hard to understand) created by the previous Decree-Law regarding the location of purchases or provision of services, i.e. it intends to apply the same rules to the supply of goods and services which origin or destination is in the EEA or outside of it. However, this early (within less than two years from the Decree-Law no. 166/2013’s approval) and unexpected (preceding the impact assessment that should be made, as provided by this Decree-Law) change obviously creates major disruptions in Portuguese companies involved in international trade, given the insecurity that it produces in trade between economic operators.
It should be noted that, based on the rules now revoked, companies have taken strategic options to shift their external sources or delivery channels and have adapted their transaction procedures (administrative, accounting and commercial). These rules affect, in most cases, complex procurement systems involving non-resident operators with no availability, interest or economic justification to adapt their own procurement or sales systems to the specific features of the Portuguese law.
II. The concept of the effective purchase price in resale at loss
However, these disturbances are clearly relegated to a second plan by the main amendment made in Article 5(2) of the Decree-Law, which forbids resale at loss. As it is known, this is the central issue of this Law, as it is showed by its practical application. In what concerns the Individual Trade Practices regime, the prohibition of resale at loss is the object of the vast majority of inspections made by the competent supervising authority (ASAE) and the exclusive area of litigation before such authority and the courts.
It should be recalled that, after the Individual Trade Practices regime came into force, the Portuguese Supreme Court delivered a major decision on resale at loss, more specifically on the determination of the effective purchase price (Judgment of the Supreme Court No. 9/2014), bringing a remarkable increase of legal certainty to the issue of which discounts are relevant for this purpose.
However, the legislator considered now appropriate to improve the aforementioned Article 5(2) by adding new “clarifications”.
These “clarifications” are deeply unfortunate in their formulation and in their harmonization with the other paragraphs of Article 5. In fact, the amendments make the application of the said Article virtually impossible, since they completely subvert its inner logic, apparently (or involuntarily?) replacing a set of indisputably cumulative criteria for an enumeration that is now literally alternative.
We foresee thus a new wave of litigation between the ASAE and the “usual suspects”, i.e. the big retail businesses, considering the fines provided by the law and the obvious difficulties in applying to criminal-like law interpretation methods usually available in other areas of law to address the shortcomings derived from a clumsy piece of legislation.
If the Individual Trade Practices regime was already characterized by gathering several serious technical deficiencies, this change certainly intensified its faults: Article 5(2) will certainly raise the same kind of questions and uncertainties that led Article 5(5) (which relates to the determination of resale price in case of certain deferred rebates) to be completely deprived of its effects.
Moreover it is strange that this latter paragraph has also been modified only in a minor very specific detail, instead of trying to solve its initial deficiency: it is still impossible to understand how to calculate the resale price to the consumer in the frequent case of discounts rebatable on subsequent transactions.
III. Final comment
The variation of the legislator’s intentions - in such a short period of time and without any prior discussion of the consequences and impact of these changes - creates, in this case, huge transaction costs that could be avoided, since it requires that procurement systems need to be adapted again in order to apply the new changes (at least those that can be reasonably understood), keeping thus a relevant degree of uncertainty for companies in negotiations with their trading partners.
Furthermore, due to the poor wording of the Law (or due to our inability to interpret it in a meaningful manner) it is impossible to assess the substantive merit of the changes made since, unfortunately, it is not possible to understand its scope, basis or its purpose.
As in a traditional Portuguese folk song...
“for better, it’s fine, it’s fine, for worse, enough is enough”
If the individual trade practices regime was already characterized by gathering several serious technical deficiencies, this change certainly intensified its faults.
