On 19 October, the European Court of Justice (ECJ) issued a ruling (Case C-295/16) declaring that Spanish regulations on below-cost-sales contained in the Retail Trade Regulation Act (Law 7/1996), and therefore all related regulations applicable in autonomous regions, generally prohibiting below-cost-sales due to them being considered unfair in essence, except in cases where a company “is attempting to reach the prices of one or several competitors with a view to significantly affecting their sales, or in the case of perishable products
that are reaching their sell-by date”, are illegal and contrary to the Law of the European Union.
Specifically, the ECJ declares that Spanish regulations oppose and are contrary to Directive 2005/29/CE of the Parliament and the Council, regarding unfair commercial practices of companies in their relations with consumers, which, in a radically opposed manner, allows distribution companies to freely set sale prices, with the only condition that it does not entail unfair practice or behavior, a circumstance that must be analyzed on a case-by-case basis, assessing the aim pursued by the distributor, with the burden of proof falling on the alleging or declaring party.
The Ruling of the ECJ does not automatically overrule Spanish regulations, but in accordance with the primacy of European Union Law, the obligation of applying said ruling falls on the Spanish public administration, judges and courts.
Looking back, during the past 20 years, when the general prohibition of below-cost-sales was in force –and which has now been declared illegal–, Spanish companies have had to face and assume the payment of many high sanctions imposed, normally, by Autonomous Communities, which also entailed additional administrative costs associated to constant inspections and administrative proceedings arising from them; however, this has not been the worst effect of its application.
During all this time, Spanish distribution companies have been constrained when designing their commercial strategies, and limited in the exercise of their right to free price-setting, an expression of the principle of freedom of company; on their part, Customers and Consumers have sometimes seen themselves deprived, undoubtedly, of better conditions of access to products.
Now there is a possibility of filing the corresponding claim before the State under Law 40/2015 of the Legal Framework of the Public Sector, for damages suffered by the distribution companies for the five years prior to the date of the Ruling of the ECJ.
This Decision of the ECJ establishes a new scenario for the very competitive Spanish market which, undoubtedly, will allow Spanish distribution companies to be able to face the future in better conditions, facing European distribution multinationals that operate in Spain in an imaginative manner, positioning themselves competitively in the unstoppable online trade channel, and facing the arrival of new operators, also multinationals, that it has brought.
As a final thought, now is the time to apply a groundbreaking approach to dogmas and beliefs rooted in the past which, in the name of defending and protecting consumers, using regulations and market intervention for their maintenance and application, as well as a severe sanctioning regime to guarantee their execution, have been limiting and preventing Spanish distribution companies from designing their commercial policy in a free but fair manner. Putting customers and consumers at the strategic center of a company’s actions, in a real and full manner, offering them the best prices and services; dogmas and beliefs that essentially worsen conditions in which Spanish distribution companies have been competing in a global capital market and a market of goods and services.